Press Release

Harmonic Announces First Quarter 2015 Results

April 28, 2015

SAN JOSE, CA -- (Marketwired) -- 04/28/15 -- Harmonic Inc. (NASDAQ: HLIT), the worldwide leader in video delivery infrastructure, announced today its preliminary and unaudited results for the first quarter of 2015.

Net revenue for the first quarter of 2015 was $104.0 million, compared with $107.9 million for the fourth quarter of 2014 and $108.0 million for the first quarter of 2014.

Bookings for the first quarter of 2015 were $97.3 million, compared with $121.1 million for the fourth quarter of 2014 and $126.3 million for the first quarter of 2014.

Total backlog and deferred revenue was $122.2 million as of April 3, 2015, compared to $128.7 million as of December 31, 2014.

GAAP net loss for the first quarter of 2015 was $(2.7) million, or $(0.03) per diluted share, compared with a GAAP net loss for the fourth quarter of 2014 of $(4.9) million, or $(0.06) per diluted share, and a GAAP net loss of $(5.4) million, or $(0.06) per diluted share, for the first quarter of 2014.

Non-GAAP net income for the first quarter of 2015 was $4.5 million, or $0.05 per diluted share, compared with a non-GAAP net income for the fourth quarter of 2014 of $5.3 million, or $0.06 per diluted share, and a non-GAAP net income of $2.8 million, or $0.03 per diluted share, for the first quarter of 2014. See "Use of Non-GAAP Financial Measures" and "GAAP to Non-GAAP Reconciliations" below.

GAAP gross margin was 52.9% and GAAP operating margin was 0.01% for the first quarter of 2015, compared with 52.6% and (2.0)%, respectively, for the fourth quarter of 2014, and 48.4% and (6.7)%, respectively, for the same period in 2014.

Non-GAAP gross margin was 53.9% and non-GAAP operating margin was 5.9% for the first quarter of 2015, compared with 54.1% and 6.2%, respectively, for the fourth quarter of 2014, and 53.3% and 3.2%, respectively, for the same period in 2014. See "Use of Non-GAAP Financial Measures" and "GAAP to Non-GAAP Reconciliations" below.

Total cash, cash equivalents and short-term investments were $101.9 million at the end of the first quarter of 2015, down $3.0 million from $104.9 million at the end of the prior quarter. In the first quarter of 2015, the Company generated approximately $2.0 million of cash from operations, and used approximately $5.2 million to repurchase approximately 0.7 million shares of common stock under its share repurchase program.

"Highlights of the quarter included record Cable Edge business revenue, 54% gross margin and $0.05 non-GAAP earnings per share, up 67% from a year ago," said Patrick Harshman, President and CEO of Harmonic. "Video business revenue was soft, as video service provider customers continued to pause spending in advance of major technology and business model transitions. The good news is that Harmonic is out in front on these transitions, and secured several tier one service provider wins with our latest virtualized video technology. Looking ahead, we see good opportunities to capture more Video market share during this period of industry change while also continuing to drive growth in our Cable Edge business, and we remain focused on both earnings growth and enhanced shareholder value."

Business Outlook

For the second quarter of 2015, Harmonic anticipates:

  • Net revenue in the range of $97 million to $107 million
  • GAAP gross margins in the range of 51.0% to 52.0%
  • GAAP operating expenses in the range of $55 million to $56 million
  • Non-GAAP gross margins in the range of 52.0% to 53.0%
  • Non-GAAP operating expenses in the range of $49.5 million to $50.5 million

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

Conference Call Information

Harmonic will host a conference call to discuss its financial results at 2:00 p.m. Pacific (5:00 p.m. Eastern) on Tuesday, April 28, 2015. A listen-only broadcast of the conference call can be accessed either from the Company's website at www.harmonicinc.com or by calling +1.847.619.6547 or +1.888.895.5271 (passcode 39443414). A replay of the conference call will be available after 4:30 p.m. Pacific at the same website address or by calling +1.630.652.3042 or +1.888.843.7419 (passcode 39443414#).

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

Legal Notice Regarding Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements related to our expectations regarding: our final results for the first quarter ended April 3, 2015 and our expectations concerning quarter-on-quarter growth; and net revenue, GAAP gross margins, GAAP operating expenses, non-GAAP gross margins and non-GAAP operating expenses for the second quarter of 2015. Our expectations regarding these matters may not materialize, and actual results in future periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include, in no particular order, the following: the trends toward more high-definition, on-demand and anytime, anywhere video will not continue to develop at its current pace or will expire; a strong U.S. dollar may have a negative impact on our business in certain international markets; the possibility that our products will not generate sales that are commensurate with our expectations or that our cost of revenue or operating expenses may exceed our expectations; the mix of products and services sold in various geographies and the effect it has on gross margins; delays or decreases in capital spending in the cable, satellite and telco and broadcast and media industries; customer concentration and consolidation; the impact of general economic conditions on our sales and operations; our ability to develop new and enhanced products in a timely manner and market acceptance of our new or existing products; losses of one or more key customers; risks associated with our international operations, including in Ukraine; risks associated with our CCAP and VOS™ product initiatives, dependence on market acceptance of various types of broadband services, on the adoption of new broadband technologies and on broadband industry trends; inventory management; the lack of timely availability of parts or raw materials necessary to produce our products; the impact of increases in the prices of raw materials and oil; the effect of competition, on both revenue and gross margins; difficulties associated with rapid technological changes in our markets; risks associated with unpredictable sales cycles; our dependence on contract manufacturers and sole or limited source suppliers; the effect on our business of natural disasters; and the risk that our share repurchase program will not continue to result in material purchases of our common stock. The forward-looking statements contained in this press release are also subject to other risks and uncertainties, including those more fully described in Harmonic's filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K for the year ended December 31, 2014 and our Current Reports on Form 8-K. The forward-looking statements in this press release are based on information available to the Company as of the date hereof, and Harmonic disclaims any obligation to update any forward-looking statements.

Use of Non-GAAP Financial Measures
In establishing operating budgets, managing its business performance, and setting internal measurement targets, we exclude a number of items required by GAAP. Management believes that these accounting charges and credits, most of which are non-cash or non-recurring in nature, are not useful in managing its operations and business. Historically, the Company has also publicly presented these supplemental non-GAAP measures in order to assist the investment community to see the Company "through the eyes of management," and thereby enhance understanding of its operating performance. The non-GAAP measures presented here are: gross profit, operating expenses, income (loss) from operations and net income (loss) (including those amounts as a percentage of revenue), and net income (loss) per diluted share. The presentation of non-GAAP information is not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP, and is not necessarily comparable to non-GAAP results published by other companies. A reconciliation of the historical non-GAAP financial measures discussed in this press release to the most directly comparable historical GAAP financial measures is included with the financial statements provided with this press release. The non-GAAP adjustments described below have historically been excluded from our GAAP financial measures. These adjustments are restructuring and related charges, impairment of long-term investment and non-cash items, such as stock-based compensation expense, amortization of intangibles, and adjustments that normalize the tax rate. With respect to our expectations under "Business Outlook" above, reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available without unreasonable efforts on a forward-looking basis due to the high variability and low visibility with respect to the charges which are excluded from these non-GAAP measures. The effects of stock-based compensation expense specific to common stock options are directly impacted by unpredictable fluctuations in our stock price. We expect the variability of the above charges to have a significant impact on our GAAP financial results.

   
Harmonic Inc.  
Condensed Consolidated Balance Sheets  
(Unaudited)  
   
    April 3, 2015     December 31, 2014  
    (In thousands, except par value amounts)  
ASSETS                
Current assets:                
Cash and cash equivalents   $ 79,656     $ 73,032  
Short-term investments     22,203       31,847  
Accounts receivable, net     75,864       74,144  
Inventories     31,518       32,747  
Deferred income taxes     3,375       3,375  
Prepaid expenses and other current assets     30,526       17,539  
Total current assets     243,142       232,684  
                 
Property and equipment, net     27,140       27,221  
Goodwill, intangibles and other assets     216,565       220,613  
Total assets   $ 486,847     $ 480,518  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current liabilities:                
Accounts payable   $ 18,497     $ 15,318  
Income taxes payable     320       893  
Deferred revenue     48,124       38,601  
Accrued liabilities     29,248       35,118  
Total current liabilities     96,189       89,930  
                 
Income taxes payable, long-term     5,032       4,969  
Deferred tax liabilities, long-term     3,095       3,095  
Other non-current liabilities     11,007       10,711  
Total liabilities     115,323       108,705  
                 
Stockholders' equity:                
Preferred stock, $0.001 par value, 5,000 shares authorized; no shares issued or outstanding     -       -  
Common stock, $0.001 par value, 150,000 shares authorized; 88,750 and 87,700 shares issued and outstanding at April 3, 2015 and December 31, 2014, respectively     89       88  
Additional paid-in capital     2,265,055       2,261,952  
Accumulated deficit     (1,890,904 )     (1,888,247 )
Accumulated other comprehensive loss     (2,716 )     (1,980 )
Total stockholders' equity     371,524       371,813  
Total liabilities and stockholders' equity   $ 486,847     $ 480,518  
                 
   
Harmonic Inc.  
Condensed Consolidated Statements of Operations  
(Unaudited)  
   
    Three months ended  
    April 3, 2015     March 28, 2014  
    (in thousands, except per share amounts)  
Net revenue   $ 104,016     $ 108,032  
Cost of revenue     48,988       55,720  
Gross profit     55,028       52,312  
Operating expenses:                
Research and development     22,329       23,888  
Selling, general and administrative     31,196       33,547  
Amortization of intangibles     1,446       1,950  
Restructuring and related charges     44       149  
Total operating expenses     55,015       59,534  
Income (loss) from operations     13       (7,222 )
Interest and other income (expense), net     (451 )     89  
Loss on impairment of long-term investment     (2,505 )     -  
Loss before income taxes     (2,943 )     (7,133 )
Benefit from income taxes     (286 )     (1,723 )
Net loss   $ (2,657 )   $ (5,410 )
Net loss per share:                
Basic   $ (0.03 )   $ (0.06 )
Diluted   $ (0.03 )   $ (0.06 )
Shares used in per share calculation:                
Basic     88,655       97,921  
Diluted     88,655       97,921  
                 
   
Harmonic Inc.  
Condensed Consolidated Statements of Cash Flows  
(Unaudited)  
   
    Three months ended  
    April 3, 2015     March 28, 2014  
    (In thousands)  
Cash flows from operating activities:                
Net loss   $ (2,657 )   $ (5,410 )
Adjustments to reconcile net loss to net cash provided by operating activities:                
Amortization of intangibles     1,907       6,666  
Depreciation     3,493       4,227  
Stock-based compensation     4,134       3,807  
Loss on impairment of long-term investment     2,505       -  
Deferred income taxes     -       3,510  
Provision for excess and obsolete inventories     454       722  
Allowance for doubtful accounts and returns     (367 )     (536 )
Excess tax benefits from stock-based compensation     (120 )     (185 )
Other non-cash adjustments, net     154       462  
Changes in assets and liabilities:                
Accounts receivable     (1,353 )     (1,927 )
Inventories     775       5,900  
Prepaid expenses and other assets     (13,062 )     (6,671 )
Accounts payable     3,380       (2,533 )
Deferred revenue     10,105       6,382  
Income taxes payable     (501 )     278  
Accrued and other liabilities     (6,819 )     (3,447 )
Net cash provided by operating activities     2,028       11,245  
Cash flows from investing activities:                
Purchases of investments     -       (14,084 )
Proceeds from sales and maturities of investments     9,497       15,382  
Purchases of property and equipment     (3,651 )     (3,431 )
Purchases of long-term investments     (85 )     -  
Net cash provided by (used in) investing activities     5,761       (2,133 )
Cash flows from financing activities:                
Payments for repurchase of common stock     (5,182 )     (29,075 )
Net proceeds from (repurchases of) common stock issued to employees     4,032       (1,377 )
Excess tax benefits from stock-based compensation     120       185  
Net cash used in financing activities     (1,030 )     (30,267 )
Effect of exchange rate changes on cash and cash equivalents     (135 )     18  
Net increase (decrease) in cash and cash equivalents     6,624       (21,137 )
Cash and cash equivalents at beginning of period     73,032       90,329  
Cash and cash equivalents at end of period   $ 79,656     $ 69,192  
                 
   
Harmonic Inc.  
Revenue Information  
(Unaudited)  
   
    Three months ended  
    April 3, 2015     March 28, 2014*  
    (In thousands, except percentages)  
Product                        
Video Products(1)   $ 48,714   47 %   $ 64,018   59 %
Cable Edge     31,759   30 %     24,242   23 %
Services and Support     23,543   23 %     19,772   18 %
Total   $ 104,016   100 %   $ 108,032   100 %
                         
Geography                        
Americas(2)   $ 60,518   58 %   $ 64,886   60 %
EMEA     24,673   24 %     24,187   22 %
APAC     18,825   18 %     18,959   18 %
Total   $ 104,016   100 %   $ 108,032   100 %
                         
Market                        
Service Provider(3)   $ 67,974   65 %   $ 71,510   66 %
Broadcast and Media     36,042   35 %     36,522   34 %
Total   $ 104,016   100 %   $ 108,032   100 %
(1) Video Products now include Video Processing and Production and Playout.
(2) Americas now include U.S., Canada and Latin America.
(3) Service Provider now includes Cable and Satellite and Telco.
* NOTE : The prior period information has been reclassified to conform to the current period presentation.
 
   
Harmonic Inc.  
Segment Revenue and Operating Income (Loss)  
(Unaudited)  
   
    Three months ended  
    April 3, 2015     March 28, 2014  
    (In thousands)  
Net revenue:                
  Video   $ 69,282     $ 81,152  
  Cable Edge     34,734       26,880  
Total consolidated net revenue   $ 104,016     $ 108,032  
                 
Operating income (loss):                
  Video   $ (90 )   $ 2,435  
  Cable Edge     6,188       1,044  
Total segment operating income     6,098       3,479  
Unallocated corporate expenses*     (44 )     (228 )
Stock-based compensation     (4,134 )     (3,807 )
Amortization of intangibles     (1,907 )     (6,666 )
Income (loss) from operations     13       (7,222 )
Non-operating income (expense)     (2,956 )     89  
Loss before income taxes   $ (2,943 )   $ (7,133 )
*Unallocated corporate expenses include certain corporate-level operating expenses and charges such as restructuring and asset impairment charges and proxy contest related expenses.
 
   
Harmonic Inc.  
GAAP to Non-GAAP Reconciliations (Unaudited)  
(In thousands, except percentages and per share data)  
   
    Three months ended  
    April 3, 2015  
    Gross Profit     Total Operating Expense     Income from Operations     Net Income (Loss)  
GAAP   $ 55,028     $ 55,015     $ 13     $ (2,657 )
  Stock-based compensation in cost of revenue     528       -       528       528  
  Stock-based compensation in research and development     -       (1,148 )     1,148       1,148  
  Stock-based compensation in selling, general and administrative     -       (2,458 )     2,458       2,458  
  Amortization of intangibles     461       (1,446 )     1,907       1,907  
  Restructuring and related charges     -       (44 )     44       44  
  Loss on impairment of long-term investment     -       -       -       2,505  
  Discrete tax items and tax effect of non-GAAP adjustments     -       -       -       (1,472 )
Non-GAAP   $ 56,017     $ 49,919     $ 6,098     $ 4,461  
As a % of revenue (GAAP)     52.9 %     52.9 %     0.01 %     (2.6 ) %
As a % of revenue (Non-GAAP)     53.9 %     48.0 %     5.9 %     4.3 %
                                 
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                             88,655  
  Non-GAAP                             90,100  
                                 
    Three months ended  
    December 31, 2014  
    Gross Profit     Total Operating Expense     Income (Loss) from Operations     Net Income (Loss)  
GAAP   $ 56,791     $ 58,953     $ (2,162 )   $ (4,854 )
  Stock-based compensation in cost of revenue     608       -       608       608  
  Stock-based compensation in research and development     -       (1,255 )     1,255       1,255  
  Stock-based compensation in selling, general and administrative     -       (2,704 )     2,704       2,704  
  Amortization of intangibles     696       (1,446 )     2,142       2,142  
  Restructuring and asset impairment charges     220       (1,941 )     2,161       2,161  
  Discrete tax items and tax effect of non-GAAP adjustments     -       -       -       1,251  
Non-GAAP   $ 58,315     $ 51,607     $ 6,708     $ 5,267  
As a % of revenue (GAAP)     52.6 %     54.6 %     (2.0 ) %     (4.5 ) %
As a % of revenue (Non-GAAP)     54.1 %     47.8 %     6.2 %     4.9 %
Diluted net income (loss) per share:                                
  Diluted net loss per share-GAAP                           $ (0.06 )
  Diluted net income per share-Non-GAAP                           $ 0.06  
Shares used to compute diluted net income (loss) per share:                                
  GAAP                             88,012  
  Non-GAAP                             89,342  
                                 
    Three months ended  
    March 28, 2014  
    Gross Profit     Total Operating Expense     Income (Loss) from Operations     Net Income (Loss)  
GAAP   $ 52,312     $ 59,534     $ (7,222 )   $ (5,410 )
  Stock-based compensation in cost of revenue     516       -       516       516  
  Stock-based compensation in research and development     -       (1,101 )     1,101       1,101  
  Stock-based compensation in selling, general and administrative     -       (2,190 )     2,190       2,190  
  Amortization of intangibles     4,716       (1,950 )     6,666       6,666  
  Restructuring and related charges     79       (149 )     228       228  
  Discrete tax items and tax effect of non-GAAP adjustments     -       -       -       (2,471 )
Non-GAAP   $ 57,623     $ 54,144     $ 3,479     $ 2,820  
As a % of revenue (GAAP)     48.4 %     55.1 %     (6.7 ) %     (5.0 ) %
As a % of revenue (Non-GAAP)     53.3 %     50.1 %     3.2 %     2.6 %
Diluted net income (loss) per share:                                
  Diluted net loss per share-GAAP                           $ (0.06 )
  Diluted net income per share-Non-GAAP                           $ 0.03  
Shares used to compute diluted net income (loss) per share:                                
  GAAP                             97,921  
  Non-GAAP                             99,256  

CONTACTS:

Carolyn V. Aver   
Chief Financial Officer 
Harmonic Inc.  
+1.408.542.2500  

Blair King
Investor Relations 
Harmonic Inc. 
+1.408.490.6172 

Source: Harmonic Inc.