Press Release

Harmonic Announces Third Quarter 2016 Results

November 9, 2016

SAN JOSE, CA -- (Marketwired) -- 11/09/16 -- Harmonic Inc. (NASDAQ: HLIT), the worldwide leader in video delivery infrastructure, announced today its unaudited results for the third quarter of 2016.

GAAP net revenue for the third quarter of 2016 was $101.4 million, compared with $109.6 million for the second quarter of 2016 and $83.3 million for the third quarter of 2015.

Non-GAAP net revenue for the third quarter of 2016 was $101.7 million, compared with $110.4 million for the second quarter of 2016 and $83.3 million for the third quarter of 2015.

Bookings for the third quarter of 2016 were $97.3 million, compared with $117.3 million for the second quarter of 2016 and $74.6 million for the third quarter of 2015.

GAAP net loss for the third quarter of 2016 was $(16.0) million, or $(0.21) per diluted share, compared with a GAAP net loss for the second quarter of 2016 of $(20.7) million, or $(0.27) per diluted share, and a GAAP net loss of $(4.8) million, or $(0.05) per diluted share, for the third quarter of 2015.

Non-GAAP net loss for the third quarter of 2016 was $(1.1) million, or $(0.01) per diluted share, compared with non-GAAP net loss for the second quarter of 2016 of $(0.2) million, or $0.00 per diluted share, and non-GAAP net loss of $(0.2) million, or $0.00 per diluted share, for the third quarter of 2015. See "Use of Non-GAAP Financial Measures" and "GAAP to Non-GAAP Reconciliations" below.

Total cash, cash equivalents and short-term investments were $52.7 million at the end of the third quarter of 2016, down $12.6 million from $65.3 million at the end of the prior quarter, primarily due to timing of receipts from our customers and payments of restructuring and integration charges. In the third quarter of 2016, the Company used approximately 4.6 million of cash from operations.

"Our third quarter results reflect our ongoing business transformations, as Cable Edge segment revenue declined in advance of the pending release of our new CableOS products," said Patrick Harshman, President and CEO of Harmonic. "Although our outlook for fourth quarter Cable Edge spending is therefore cautious, our recently executed warrant agreement with Comcast and our first CableOS revenue shipments bolster our confidence in our CableOS growth strategy. Turning to our Video segment, our transformational VOS™ offering drove a stronger-than-forecasted mix of software- and services-related orders, impacting third quarter revenue recognition while maintaining near-record backlog and deferred revenue. We are encouraged by the competitive momentum of our transformational initiatives, and remain focused on revenue growth, improving profitability and enhancing shareholder value."

Third Quarter 2016 Highlights

  • Soft legacy cable edge demand and a stronger mix of video software and services orders impacted revenue.
  • Near record backlog and deferred revenue of $181.1 million.
  • Launched CableOS, the industry's first software-based CMTS core.
  • Executed Comcast warrant agreement validating our investment strategy in CableOS.
  • Exceeding annualized cost savings targets from the combination of Harmonic and TVN. We now expect to realize annualized cost savings in a range of $24-25 million by the end of calendar year 2016, up from our initial target of $20-$22 million.
  • Several key trials underway on our recently announced VOS Cloud and VOS 360 software-as-a-service offerings with new cloud partners and tier 1 media and pay TV companies.

Business Outlook

Fourth Quarter 2016 GAAP Financial Guidance

For the fourth quarter of 2016, Harmonic anticipates:

  • Net revenue to be $105.8 million to $110.8 million, which includes Video revenue of $96.8 million to $99.8 million and Cable Edge revenue of $9.0 million to $11.0 million
  • Gross margin to be 48.0% to 49.0%
  • Operating expense to be $64.5 million to $66.5 million
  • Operating loss to be $(13.5) million to $(11.5) million
  • EPS to be $(0.20) to $(0.18)
  • Share count for EPS calculation to be approximately 79.0 million shares of Harmonic common stock
  • Cash and short-term investments at quarter-end to be $60.0 million to $65.0 million

Fourth Quarter 2016 Non-GAAP Financial Guidance

For the fourth quarter of 2016, Harmonic anticipates:

  • Net revenue to be $106.0 million to $111.0 million, which includes Video revenue of $97.0 million to $100.0 million and Cable Edge revenue of $9.0 million to $11.0 million
  • Gross margin to be 53.0% to 54.0%
  • Operating expense to be $50.0 million to $52.0 million
  • Operating income to be $6.0 million to $8.0 million
  • EPS to be $0.05 to $0.07
  • Tax rate to be approximately 15%
  • Share count for EPS calculation to be approximately 79.0 million shares of Harmonic common stock
  • Cash and short-term investments at quarter-end to be $60.0 million to $65.0 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 Wednesday, November 9, 2016. 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 8557770). The replay will be available after 4:30 p.m. Pacific at the same website address or by calling +1.404.537.3406 or +1.855.859.2056 (passcode 8557770).

About Harmonic Inc.

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

Legal Notice Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements related to our expectations regarding: GAAP net revenue, GAAP gross margins, GAAP operating expenses, GAAP operating income (loss), GAAP EPS, non-GAAP revenue, non-GAAP gross margins, non-GAAP operating expenses, non-GAAP operating income (loss), non-GAAP EPS, and tax rate for the fourth quarter of 2016, as well as cash and short-term investments at the end of the fourth quarter of 2016. 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: unexpected delays, difficulties and/or costs relating to integrating TVN with Harmonic; anticipated business opportunities and operational efficiencies for the combined company do not fully materialize; 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 CableOS 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 fluctuations 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 risks associated with our outstanding convertible notes. 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, 2015, our recent Quarterly Reports 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

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: revenue, gross profit, operating expenses, income (loss) from operations, total non-operating income (expense), net and net income (loss), 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 types of non-GAAP adjustments described below have historically been excluded from our GAAP financial measures: acquisition accounting impacts to TVN deferred revenue and TVN inventory valuation; TVN acquisition-and integration-related costs; Cable Edge inventory charge in connection with certain product lines; restructuring and related charges; and non-cash items, such as impairment of long-term investment, stock-based compensation expense, amortization of intangibles and non-cash interest expenses related to convertible debt and adjustments that normalize the tax rate.

 
 
Harmonic Inc.
Condensed Consolidated Balance Sheets
(Unaudited, in thousands, except per share data)
             
    September 30, 2016     December 31, 2015  
ASSETS                
Current assets:                
  Cash and cash equivalents   $ 44,741     $ 126,190  
  Short-term investments     7,931       26,604  
  Accounts receivable, net     99,078       69,515  
  Inventories     35,828       38,819  
  Prepaid expenses and other current assets     38,519       25,003  
Total current assets     226,097       286,131  
Property and equipment, net     35,145       27,012  
Goodwill     239,880       197,781  
Intangibles, net     33,121       4,097  
Other long-term assets     31,218       9,936  
Total assets   $ 565,461     $ 524,957  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current liabilities:                
  Other debts and capital lease obligations, current   $ 6,825     $ -  
  Accounts payable     31,407       19,364  
  Income taxes payable     545       307  
  Deferred revenue     54,319       33,856  
  Accrued liabilities     50,369       31,354  
Total current liabilities     143,465       84,881  
Convertible debt, long-term     101,964       98,295  
Other debts and capital lease obligations, long-term     15,949       -  
Income taxes payable, long-term     2,863       3,886  
Deferred tax liabilities, long-term     2,163       -  
Other non-current liabilities     17,604       9,727  
Total liabilities     284,008       196,789  
                 
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; 78,311 and 76,015 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively     78       76  
  Additional paid-in capital     2,249,857       2,236,418  
  Accumulated deficit     (1,965,779 )     (1,903,908 )
  Accumulated other comprehensive loss     (2,703 )     (4,418 )
Total stockholders' equity     281,453       328,168  
Total liabilities and stockholders' equity   $ 565,461     $ 524,957  
                 
 
Harmonic Inc.
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except per share amounts)
             
    Three months ended     Nine months ended  
    September 30,
2016
    October 2,
2015
    September 30,
2016
(1)
    October 2,
2015
 
         
Net revenue   $ 101,406     $ 83,305     $ 292,809     $ 290,424  
Cost of revenue     50,043       37,074       149,752       134,780  
  Gross profit     51,363       46,231       143,057       155,644  
Operating expenses:                                
  Research and development     24,202       21,679       74,272       65,824  
  Selling, general and administrative     36,112       28,966       105,498       91,443  
  Amortization of intangibles     3,009       1,446       9,606       4,338  
  Restructuring and asset impairment charges     (27 )     397       4,488       626  
    Total operating expenses     63,296       52,488       193,864       162,231  
Loss from operations     (11,933 )     (6,257 )     (50,807 )     (6,587 )
Interest (expense) income, net     (2,734 )     30       (7,806 )     102  
Other (expense) income, net     (328 )     148       (5 )     (299 )
Loss on impairment of long-term investment     (1,259 )     -       (2,735 )     (2,505 )
Loss before income taxes     (16,254 )     (6,079 )     (61,353 )     (9,289 )
(Benefit from) provision for income taxes     (242 )     (1,268 )     518       (827 )
Net loss   $ (16,012 )   $ (4,811 )   $ (61,871 )   $ (8,462 )
Net loss per share:                                
  Basic and diluted   $ (0.21 )   $ (0.05 )   $ (0.80 )   $ (0.10 )
Shares used in per share calculation:                                
  Basic and diluted     78,092       87,991       77,475       88,359  
                                   

(1) On February 29, 2016, Harmonic closed the acquisition of TVN and as a result, our 2016 results for the nine months ended September 30, 2016 include TVN results beginning on February 29, 2016.

 
 
Harmonic Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
       
    Nine months ended  
    September 30,
2016
    October 2,
2015
 
Cash flows from operating activities:                
Net loss   $ (61,871 )   $ (8,462 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:                
  Amortization of intangibles     12,711       4,971  
  Depreciation     13,198       10,143  
  Stock-based compensation     8,542       11,845  
  Amortization of discount on convertible debt     3,669       -  
  Restructuring, asset impairment and loss on retirement of fixed assets     1,476       354  
  Loss on impairment of long-term investment     2,735       2,505  
  Provision for excess and obsolete inventories     6,246       1,234  
  Allowance for doubtful accounts, returns and discounts     1,222       576  
  Other non-cash adjustments, net     251       -  
  Changes in assets and liabilities, net of effects of acquisition:                
    Accounts receivable     (12,869 )     9,440  
    Inventories     2,225       (7,936 )
    Prepaid expenses and other assets     (5,938 )     (13,817 )
    Accounts payable     2,505       1,772  
    Deferred revenue     20,038       5,237  
    Income taxes payable     (827 )     (1,372 )
    Accrued and other liabilities     (6,230 )     (7,926 )
Net cash (used in) provided by operating activities     (12,917 )     8,564  
Cash flows from investing activities:                
  Acquisition of business, net of cash acquired     (75,669 )     -  
  Purchases of investments     -       (20,714 )
  Proceeds from sales and maturities of investments     18,692       26,534  
  Purchases of property and equipment     (11,423 )     (10,393 )
  Purchases of long-term investments     -       (85 )
  Restricted cash     -       (1,091 )
Net cash used in investing activities     (68,400 )     (5,749 )
Cash flows from financing activities:                
  Payment of convertible debt issuance costs     (582 )     -  
  Proceeds from other debts and capital leases     5,968       -  
  Repayment of other debts and capital leases     (8,038 )     -  
  Payments for repurchase of common stock     -       (20,007 )
  Proceeds from common stock issued to employees     3,736       9,255  
  Payment of tax withholding obligations related to net share settlements of restricted stock units     (1,313 )     (3,288 )
Net cash used in financing activities     (229 )     (14,040 )
Effect of exchange rate changes on cash and cash equivalents     97       (236 )
Net decrease in cash and cash equivalents     (81,449 )     (11,461 )
Cash and cash equivalents at beginning of period     126,190       73,032  
Cash and cash equivalents at end of period   $ 44,741     $ 61,571  
                 
 
Harmonic Inc.
Revenue Information
(Unaudited, in thousands, except percentages)
     
    Three months ended
    September 30, 2016   July 1, 2016   October 2, 2015
    GAAP   Adjustment
(1)
  Non-GAAP   GAAP   Adjustment
(1)
  Non-GAAP   GAAP and Non-GAAP (2)
Product                                                      
Video Products   $ 63,288   $ -   $ 63,288   62%   $ 61,660   $ 205   $ 61,865   56%   $ 48,629   59%
Cable Edge     6,997     -     6,997   7%     15,751     -     15,751   14%     8,616   10%
Services and Support     31,121     325     31,446   31%     32,160     575     32,735   30%     26,060   31%
Total   $ 101,406   $ 325   $ 101,731   100%   $ 109,571   $ 780   $ 110,351   100%   $ 83,305   100%
                                                       
Geography                                                      
Americas   $ 47,856   $ 166   $ 48,022   47%   $ 57,680   $ 143   $ 57,823   52%   $ 44,926   54%
EMEA     32,405     106     32,511   32%     33,456     467     33,923   31%     19,269   23%
APAC     21,145     53     21,198   21%     18,435     170     18,605   17%     19,110   23%
Total   $ 101,406   $ 325   $ 101,731   100%   $ 109,571   $ 780   $ 110,351   100%   $ 83,305   100%
                                                       
Market                                                      
Service Provider   $ 53,459   $ 97   $ 53,556   53%   $ 65,733   $ 329   $ 66,062   60%   $ 46,451   56%
Broadcast and Media     47,947     228     48,175   47%     43,838     451     44,289   40%     36,854   44%
Total   $ 101,406   $ 325   $ 101,731   100%   $ 109,571   $ 780   $ 110,351   100%   $ 83,305   100%
                                                       
     
    Nine months ended
    September 30, 2016   October 2, 2015
    GAAP   Adjustment (1)   Non-GAAP   GAAP and Non-GAAP (2)
Product                                
Video Products   $ 169,162   $ 560   $ 169,722   58%   $ 153,439   53%
Cable Edge     36,180     -     36,180   12%     61,726   21%
Services and Support     87,467     1,168     88,635   30%     75,259   26%
Total   $ 292,809   $ 1,728   $ 294,537   100%   $ 290,424   100%
                                 
Geography                                
Americas   $ 154,513   $ 390   $ 154,903   53%   $ 165,786   57%
EMEA     85,716     974     86,690   29%     71,302   25%
APAC     52,580     364     52,944   18%     53,336   18%
Total   $ 292,809   $ 1,728   $ 294,537   100%   $ 290,424   100%
                                 
Market                                
Service Provider   $ 170,462   $ 575   $ 171,037   58%   $ 178,466   61%
Broadcast and Media     122,347     1,153     123,500   42%     111,958   39%
Total   $ 292,809   $ 1,728   $ 294,537   100%   $ 290,424   100%
                                 

(1) Non-GAAP revenue for the three months ended September 30, 2016 and July 1, 2016 and for the nine months ended September 30, 2016 include $0.3 million, $0.8 million and $1.7 million adjustments relating to TVN deferred revenue as a result of acquisition accounting, respectively.

(2) There is no revenue adjustment for the three months and nine months ended October 2, 2015.

 
 
Harmonic Inc.
Segment Revenue and Operating Income (Loss)
(Unaudited, in thousands)
       
    Three months ended  
    September 30, 2016     July 1, 2016     October 2, 2015  
    GAAP     Adjustments
(1)
  Non-
GAAP
    GAAP     Adjustments
(1)
  Non-
GAAP
    GAAP     Adjustments
(1)
  Non-
GAAP
 
Net revenue:                                                                  
  Video   $ 91,353     $ 325   $ 91,678     $ 90,588     $ 780   $ 91,368     $ 71,889     $ -   $ 71,889  
  Cable Edge     10,053       -     10,053       18,983       -     18,983       11,416       -     11,416  
Total consolidated net revenue   $ 101,406     $ 325   $ 101,731     $ 109,571     $ 780   $ 110,351     $ 83,305     $ -   $ 83,305  
                                                                   
Operating income (loss):                                                                  
  Video   $ 4,886     $ 325   $ 5,211     $ 518     $ 780   $ 1,298     $ 3,575     $ -   $ 3,575  
  Cable Edge     (4,767 )     -     (4,767 )     (498 )     -     (498 )     (3,963 )     -     (3,963 )
Total segment operating income (loss)     119       325     444       20       780     800       (388 )     -     (388 )
  Unallocated corporate expenses     (4,983 )     4,983     -       (9,831 )     9,831     -       (510 )     510     -  
  Stock-based compensation     (2,680 )     2,680     -       (2,768 )     2,768     -       (3,827 )     3,827     -  
  Amortization of intangibles     (4,389 )     4,389     -       (5,539 )     5,539     -       (1,532 )     1,532     -  
Income (loss) from operations     (11,933 )     12,377     444       (18,118 )     18,918     800       (6,257 )     5,869     (388 )
Non-operating (expense) income, net     (4,321 )     2,609     (1,712 )     (2,319 )     1,233     (1,086 )     178       -     178  
Income (loss) before income taxes   $ (16,254 )   $ 14,986   $ (1,268 )   $ (20,437 )   $ 20,151   $ (286 )   $ (6,079 )   $ 5,869   $ (210 )
                                                                   
       
    Nine months ended  
    September 30, 2016     October 2, 2015  
    GAAP     Adjustments
(1)
  Non-GAAP     GAAP     Adjustments
(1)
  Non-GAAP  
Net revenue:                                            
  Video   $ 246,949     $ 1,728   $ 248,677     $ 219,378     $ -   $ 219,378  
  Cable Edge     45,860       -     45,860       71,046       -     71,046  
Total consolidated net revenue   $ 292,809     $ 1,728   $ 294,537     $ 290,424     $ -   $ 290,424  
                                             
Operating income (loss):                                            
  Video   $ (1,943 )   $ 1,917   $ (26 )   $ 8,386     $ -   $ 8,386  
  Cable Edge     (7,118 )     -     (7,118 )     2,582       -     2,582  
Total segment operating income (loss)     (9,061 )     1,917     (7,144 )     10,968       -     10,968  
  Unallocated corporate expenses     (20,493 )     20,493     -       (739 )     739     -  
  Stock-based compensation     (8,542 )     8,542     -       (11,845 )     11,845     -  
  Amortization of intangibles     (12,711 )     12,711     -       (4,971 )     4,971     -  
Income (loss) from operations     (50,807 )     43,663     (7,144 )     (6,587 )     17,555     10,968  
Non-operating (expense) income, net     (10,546 )     6,505     (4,041 )     (2,702 )     2,505     (197 )
Income (loss) before income taxes   $ (61,353 )   $ 50,168   $ (11,185 )   $ (9,289 )   $ 20,060   $ 10,771  
                                             

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

 
Harmonic Inc.
GAAP to Non-GAAP Reconciliations (Unaudited)
(In thousands, except percentages and per share data)
       
    Three months ended  
    September 30, 2016  
    Revenue   Gross
Profit
    Total Operating Expense     Income
(loss) from Operations
    Total Non-operating Income (expense), net     Net loss  
GAAP   $ 101,406   $ 51,363     $ 63,296     $ (11,933 )   $ (4,321 )   $ (16,012 )
Cable Edge inventory charge     -     (159 )     -       (159 )     -       (159 )
  Acquisition accounting impact 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 )
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  
                                               
    Three months ended  
    July 1, 2016  
    Revenue   Gross
Profit
    Total Operating Expense     Income
(loss) from Operations
    Total Non-operating Income (expense), net     Net Loss  
GAAP   $ 109,571   $ 51,040     $ 69,158     $ (18,118 )   $ (2,319 )   $ (20,679 )
Cable Edge inventory charge     -     4,519       -       4,519               4,519  
  Acquisition accounting impacts related to TVN deferred revenue     780     780       -       780       -       780  
  Stock-based compensation in cost of revenue     -     424       -       424       -       424  
  Stock-based compensation in research and development     -     -       (841 )     841       -       841  
  Stock-based compensation in selling, general and administrative     -     -       (1,503 )     1,503       -       1,503  
  Amortization of intangibles     -     1,307       (4,232 )     5,539       -       5,539  
  Restructuring and related charges     -     6       (1,903 )     1,909       -       1,909  
  TVN acquisition-and integration-related costs     -     433       (2,970 )     3,403       -       3,403  
  Non-cash interest expenses related to convertible notes     -     -       -       -       1,233       1,233  
  Discrete tax items and tax effect of non-GAAP adjustments     -     -       -       -       -       285  
Non-GAAP   $ 110,351   $ 58,509     $ 57,709     $ 800     $ (1,086 )   $ (243 )
As a % of revenue (GAAP)           46.6 %     63.1 %     (16.5 ) %     (2.1 ) %     (18.9 ) %
As a % of revenue (Non-GAAP)           53.0 %     52.3 %     0.7 %     (1.0 ) %     (0.2 ) %
Diluted net loss per share:                                              
  Diluted net loss per share-GAAP                                         $ (0.27 )
  Diluted net loss per share-Non-GAAP                                         $ 0.00  
Shares used to compute diluted net loss per share:                                              
  GAAP and Non-GAAP                                           77,342  
                                               
    Three months ended  
    October 2, 2015  
    Revenue   Gross
Profit
    Total Operating Expense     Loss from Operations     Total Non-operating Income (expense), net     Net Loss  
GAAP   $ 83,305   $ 46,231     $ 52,488     $ (6,257 )   $ 178     $ (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   $ 83,305   $ 46,863     $ 47,251     $ (388 )   $ 178     $ (166 )
As a % of revenue (GAAP)           55.5 %     63.0 %     (7.5 ) %     0.2 %     (5.8 ) %
As a % of revenue (Non-GAAP)           56.3 %     56.7 %     (0.5 ) %     0.2 %     (0.2 ) %
Diluted net income (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 and Non-GAAP                                           87,991  
                                               
        Nine months ended  
        September 30, 2016  
    Revenue   Gross
Profit
    Total Operating Expense     Income
(loss) from Operations
    Total Non-operating Income (expense), net     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  
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  
                                               
                                               
                                               
                                               
        Nine months ended  
        October 2, 2015  
    Revenue   Gross
Profit
    Total Operating Expense     Income
(loss) from Operations
    Total Non-operating Income (expense), net     Net
Income (Loss)
 
GAAP   $ 290,424   $ 155,644     $ 162,231     $ (6,587 )   $ (2,702 )   $ (8,462 )
  Stock-based compensation in cost of revenue     -     1,383       -       1,383       -       1,383  
  Stock-based compensation in research and development     -     -       (3,249 )     3,249       -       3,249  
  Stock-based compensation in selling, general and administrative     -     -       (7,213 )     7,213       -       7,213  
  Amortization of intangibles     -     633       (4,338 )     4,971       -       4,971  
  Restructuring and related charges     -     113       (626 )     739       -       739  
  Loss on impairment of long-term investment     -     -       -       -       2,505       2,505  
  Discrete tax items and tax effect of non-GAAP adjustments     -     -       -       -       -       (3,089 )
Non-GAAP   $ 290,424   $ 157,773     $ 146,805     $ 10,968     $ (197 )   $ 8,509  
As a % of revenue (GAAP)           53.6 %     55.9 %     (2.3 ) %     (0.9 ) %     (2.9 ) %
As a % of revenue (Non-GAAP)           54.3 %     50.5 %     3.8 %     (0.1 ) %     2.9 %
                                               
Diluted net loss per share:                                              
  Diluted net loss per share-GAAP                                         $ (0.10 )
  Diluted net income per share-Non-GAAP                                         $ 0.10  
Shares used to compute diluted net income (loss) per share:                                              
  GAAP                                           88,359  
  Non-GAAP                                           89,410  
                                                 
 
Harmonic Inc.
GAAP to Non-GAAP Reconciliations on Business Outlook
(In millions, except percentages and per share data)
     
    Q4 2016 Financial Guidance
    Revenue   Gross
Profit
  Total
Operating Expense
  Income (loss)
from
Operations
  Total Non-operating Income (expense),
net
  Net
Income (loss)
GAAP   $105.8 to $110.8   $51.0 to $55.0   $64.5 to $66.5   $(13.5) to $(11.5)   $(2.6)   ($16.0) to ($14.0)
  Acquisition accounting impact related to TVN deferred revenue   0.2   0.2   -   0.2   -   0.2
  Stock-based compensation expense   -   0.6   (3.8)   4.4   -   4.4
  Amortization of intangibles   -   1.4   (1.0)   2.4   -   2.4
  Restructuring and related charges and TVN acquisition/integration costs   -   2.8   (9.8)   12.6   -   12.6
  Non-cash interest expense related to convertible notes   -   -   -   -   1.3   1.3
  Discrete tax items and tax effect of non-GAAP adjustments   -   -   -   -   -   (0.8)
    0.2   5.0   (14.6)   19.6   (1.3)   20.1
                         
Non-GAAP   $106.0 to $111.0   $56.0 to $60.0   $50.0 to $52.0   $6.0 to $8.0   $(1.3)   $4.0 to $6.0
As a % of revenue (GAAP)       48% to 49%   60% to 61%   (13)% to (11)%   (2%)   (15)% to (13)%
As a % of revenue (Non-GAAP)       53% to 54%   46% to 47%   6% to 7%   (1%)   4% to 5%
Diluted income (loss) per share:                        
  Diluted net loss per share-GAAP                       $(0.20) to $(0.18)
  Diluted net income per share-Non-GAAP                       $0.05 to $0.07
Shares used to compute diluted income (loss) per share:                        
  GAAP and Non-GAAP                       79.0
                         

CONTACTS:

Harold Covert
Chief Financial Officer
Harmonic Inc.
+1.408.542.2500

Blair King
Director, Investor Relations
Harmonic Inc.
+1.408.490.6172

Source: Harmonic Inc.