Harmonic Announces Preliminary Fourth Quarter and Year End Results
Strong Sales and Earnings Growth in 2007; Expanding Range of
Customers Worldwide;
Strong Technology Leadership and Business Momentum Moving into
2008
SUNNYVALE, Calif.--(BUSINESS WIRE)--Jan. 29, 2008--Harmonic Inc. (NASDAQ: HLIT), a leading provider of broadcast and on-demand video delivery solutions, today announced its preliminary and unaudited results for the quarter and year ended December 31, 2007.
For the fourth quarter of 2007, the Company reported net sales of $88.4 million, up 17% from $75.3 million in the fourth quarter of 2006. For the full year 2007, net sales were $312.2 million, up 26% from $247.7 million in 2006. The Company saw revenue growth in both domestic and international markets, with international sales representing 43% and 44% of revenue for the fourth quarter and for the full year of 2007, respectively. The strong revenue growth reflects sales to an expanding range of cable, satellite, telco and other customers that are deploying a growing array of new video products and solutions.
Gross margins increased sequentially from the third quarter of 2007, principally as a result of a larger than expected proportion of revenue from higher margin video processing solutions and software and services.
GAAP net income for the fourth quarter of 2007 was $13.3 million, or $0.15 per diluted share, up from $5.0 million, or $0.07 per diluted share, for the same period of 2006. For the full year 2007, GAAP net income was $30.1 million, or $0.36 per diluted share, up from $1.0 million, or $0.01 per diluted share in 2006.
Excluding non-cash accounting charges for stock-based compensation expense, the amortization of intangibles, and excess facilities costs, the non-GAAP net income for the fourth quarter of 2007 was $17.1 million, or $0.19 per diluted share, up from $9.9 million, or $0.13 per diluted share, for the same period of 2006. For the full year 2007, non-GAAP net income was $43.3 million, or $0.52 per diluted share, compared to $13.9 million, or $0.18 per share, for 2006. See "GAAP to non-GAAP Income Reconciliation" below for further information on the Company's use of non-GAAP financial measures. The results provided in this press release are subject to final audit and any adjustments required prior to filing of our annual report on Form 10-K for the year ended December 31, 2007.
As of December 31, 2007, the Company had cash, cash equivalents and short-term investments of $269.3 million, up from $99.0 million as of September 28, 2007. During the fourth quarter of 2007, Harmonic completed a public offering of 12.5 million shares of its common stock, which generated net proceeds to the Company of approximately $142 million.
"2007 was an outstanding year for Harmonic," said Patrick Harshman, President and Chief Executive Officer. "We are very pleased with our success in extending our product portfolio and expanding our global customer base. Our powerful new video encoding, video processing, video-on-demand and edge and access solutions have strengthened our technology leadership and driven our strong sales growth, improved gross margins and increased profitability. We have also improved the efficiency of our operations and our inventory management and strengthened our balance sheet. Our successful public offering during the fourth quarter provides us with a strong financial foundation to further grow the business, as well as to continue to pursue selective acquisitions to enhance our technology and market reach."
"We enter 2008 with a very strong competitive position in cable, satellite and telco markets worldwide, and a growing position in new broadcast and Internet video delivery markets. The powerful trends toward more high-definition, on-demand and anytime, anywhere video continue to intensify and reshape the video delivery marketplace. Going forward, we expect to continue to extend the breadth and depth of our product solutions to address these major trends, and intend to continue working with our expanding global customer base to take their video services in exciting new directions. We are very encouraged about our opportunities for growth in 2008 and beyond."
Business Outlook
The Company anticipates that the combined net sales for the first half of 2008 will be in a range of $165 to $175 million and gross margins will be 43% to 44% on a GAAP basis. Non-GAAP gross margins for the same period, excluding stock-based compensation expense and the amortization of intangibles, are anticipated to be in a range of 47% to 48%.
Conference Call Information
Harmonic will host a conference call today to discuss its financial results at 2:00 p.m. Pacific (5:00 p.m. Eastern). A listen-only broadcast of the conference call can be accessed on the Company's website at www.harmonicinc.com or by calling +1.706.634.9047 (conference identification code 30363329). The replay will be available after 5:00 p.m. Pacific at the same website address or by calling +1.706.645.9291 (conference identification code 30363329).
About Harmonic Inc.
Harmonic Inc. is a leading provider of versatile and high performance video solutions that enable service providers to efficiently deliver the next generation of broadcast and on-demand video services, including high definition, video-on-demand, network personal video recording and time-shifted TV. Cable, satellite, broadcast and telecom service providers can utilize Harmonic's digital video, broadband optical access and software solutions to offer consumers a compelling and personalized viewing experience.
Harmonic (NASDAQ: HLIT) is headquartered in Sunnyvale, California with R&D, sales and system integration centers worldwide. The Company's customers, including many of the world's largest communications providers, deliver services in virtually every country. Visit www.harmonicinc.com for more information.
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 fourth quarter and year ended December 31, 2007; our belief that our financial position will allow us to further grow our business, as well as to continue to pursue selective acquisitions to enhance our technology and market reach; our belief that we enter 2008 with a very strong competitive position in cable, satellite and telco markets worldwide, and a growing position in new broadcast and Internet video delivery markets; our belief that powerful trends toward more high-definition, on-demand and anytime, anywhere video will continue to intensify and reshape the video delivery marketplace; our expectation that we will continue to extend the breadth and depth of our product solutions to address these major trends, and that we will continue working with our expanding global customer base to take their video services in exciting new directions; and our expectations regarding net sales, GAAP gross margins and non-GAAP gross margins for the first half of 2008. Our expectations and beliefs 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 the possibility that: our final results for the fourth quarter and year ended December 31, 2007 will change based on final audit and any adjustments required prior to our filing of our annual report on Form 10-K for the year ended December 31, 2007; we will not identify or complete selective acquisitions; the trends toward more high-definition, on-demand and anytime, anywhere video will not continue to develop at its current pace, or at all; our products will not generate sales that are commensurate with our expectations; the mix of products sold and the effect it has on gross margins; delays or decreases in capital spending in the cable, satellite and telco industries; customer concentration and consolidation; general economic conditions; market acceptance of new or existing Harmonic products; losses of one or more key customers; risks associated with Harmonic's international operations; inventory management; the effect of competition; difficulties associated with rapid technological changes in Harmonic's markets; the need to introduce new and enhanced products; and risks associated with a cyclical and unpredictable sales cycle. 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 annual report filed on Form 10-K for the year ended December 31, 2006, our quarterly report on Form 10-Q for the quarterly period ended September 28, 2007, and our current reports on Form 8-K. Harmonic does not undertake to update any forward-looking statements.
EDITOR'S NOTE - Product and company names used herein are trademarks or registered trademarks of their respective owners.
Harmonic Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
December 31, 2007 December 31, 2006
----------------- -----------------
Assets
Current assets:
Cash and cash equivalents $ 129,005 $ 33,454
Short-term investments 140,255 58,917
Accounts receivable, net 69,627 64,674
Inventories 34,064 42,116
Deferred income taxes 2,885 --
Prepaid expenses and other
current assets 17,205 12,807
----------------- -----------------
Total current assets 393,041 211,968
Property and equipment, net 14,082 14,816
Intangibles and other assets 67,889 55,178
----------------- -----------------
$ 475,012 $ 281,962
================= =================
Liabilities and stockholders'
equity
Current liabilities:
Current portion of long-term --
debt $ $ 460
Accounts payable 20,500 33,863
Income taxes payable 481 7,098
Deferred revenue 37,375 29,052
Accrued liabilities 45,378 44,097
----------------- -----------------
Total current liabilities 103,734 114,570
Accrued excess facilities costs,
non-current 9,907 16,434
Other non-current liabilities 20,305 5,824
----------------- -----------------
Total liabilities 133,946 136,828
----------------- -----------------
Stockholders' equity:
Common stock 2,246,969 2,078,941
Accumulated deficit (1,905,733) (1,933,708)
Accumulated other comprehensive
loss (170) (99)
----------------- -----------------
Total stockholders' equity 341,066 145,134
----------------- -----------------
$ 475,012 $ 281,962
================= =================
Harmonic Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Year Ended
--------------------------- -------------------------
December 31, December 31, December 31, December 31,
2007 2006 2007 2006
--------------------------- ------------ ------------
Net sales $ 88,374 $ 75,338 $ 312,188 $ 247,684
Cost of sales 47,350 45,174 177,804 146,238
-------------- ------------ ------------ ------------
Gross profit 41,024 30,164 134,384 101,446
-------------- ------------ ------------ ------------
Operating
expenses:
Research and
development 11,315 9,901 42,930 39,455
Selling,
general and
administrative 17,961 16,621 64,318 65,243
Write-off of
acquired in-
process
technology -- -- 700 --
Amortization of
intangibles 160 291 525 470
-------------- ------------ ------------ ------------
Total
operating
expenses 29,436 26,813 108,473 105,168
-------------- ------------ ------------ ------------
Income (loss)
from operations 11,588 3,351 25,911 (3,722)
Interest and
other income,
net 2,997 1,816 6,263 5,338
-------------- ------------ ------------ ------------
Income before
income taxes 14,585 5,167 32,174 1,616
Provision for
income taxes 1,293 126 2,100 609
-------------- ------------ ------------ ------------
Net income $ 13,292 $ 5,041 $ 30,074 $ 1,007
============== ============ ============ ============
Net income per
share
Basic $ 0.15 $ 0.07 $ 0.37 $ 0.01
============== ============ ============ ============
Diluted $ 0.15 $ 0.07 $ 0.36 $ 0.01
============== ============ ============ ============
Shares used to
compute net
income per
share:
Basic 88,469 75,670 81,882 74,639
============== ============ ============ ============
Diluted 90,377 76,547 83,249 75,183
============== ============ ============ ============
Harmonic Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Year Ended
-----------------------------------
December 31, 2007 December 31, 2006
----------------- -----------------
Cash flows from operating
activities:
Net income $ 30,074 $ 1,007
Adjustments to reconcile net
income to cash provided by
operating activities:
Amortization of intangibles 5,338 2,200
Write-off of acquired in-
process technology 700 --
Depreciation 6,661 7,383
Stock-based compensation 6,196 5,722
Loss on disposal and impairment
of fixed assets 74 297
Changes in assets and liabilities:
Accounts receivable (4,516) (20,550)
Inventories 8,052 (3,224)
Prepaid expenses and other
assets (5,717) (4,316)
Accounts payable (13,129) 13,396
Deferred revenue 9,715 7,774
Income taxes payable 207 493
Accrued excess facilities costs (6,684) (877)
Accrued and other liabilities (1,258) (671)
----------------- -----------------
Net cash provided by operating
activities 35,713 8,634
----------------- -----------------
Cash flows from investing
activities:
Purchases of investments (178,476) (70,398)
Proceeds from sale of investments 98,300 84,820
Acquisition of property and
equipment, net (5,868) (5,143)
Acquisition of Rhozet, net of
cash received (1,950) --
Purchase of Entone, Inc. note
receivable (2,500) --
Acquisition of Entone
Technologies, Inc., net of cash
received (2,465) (26,232)
----------------- -----------------
Net cash used in investing
activities (92,959) (16,953)
----------------- -----------------
Cash flows from financing
activities:
Proceeds from issuance of common
stock, net 153,337 4,778
Excess tax benefits from stock-
based compensation 70 --
Repayments under bank line and
term loan (460) (812)
Repayments of capital lease
obligations (72) (82)
----------------- -----------------
Net cash provided by financing
activities 152,875 3,884
----------------- -----------------
Effect of exchange rate changes on
cash and cash equivalents (78) 71
----------------- -----------------
Net increase (decrease) in cash and
cash equivalents 95,551 (4,364)
Cash and cash equivalents at
beginning of period 33,454 37,818
----------------- -----------------
Cash and cash equivalents at end of
period $ 129,005 $ 33,454
================= =================
Harmonic Inc.
Revenue Information
(In thousands)
(Unaudited)
Three Months Ended Year Ended
---------------------------- ---------------------------
December 31, December 31, December 31, December 31,
2007 2006 2007 2006
-------------- ------------- ------------- -------------
Product
Video
Processing $ 42,283 48% $30,492 41% $135,085 43% $ 96,855 39%
Edge & Access 30,083 34% 32,500 43% 125,957 40% 109,529 44%
Software,
Services and
Other 16,008 18% 12,346 16% 51,146 17% 41,300 17%
-------------- ------------- ------------- -------------
Total $ 88,374 100% $75,338 100% $312,188 100% $247,684 100%
========= ======= ======== ========
Geography
United States $ 50,264 57% $44,449 59% $175,711 56% $126,420 51%
International 38,110 43% 30,889 41% 136,477 44% 121,264 49%
-------------- ------------- ------------- -------------
Total $ 88,374 100% $75,338 100% $312,188 100% $247,684 100%
========= ======= ======== ========
Market
Cable $ 47,479 54% $53,236 71% $186,789 60% $155,736 63%
Satellite 21,637 24% 8,405 11% 65,343 21% 26,189 11%
Telco & Other 19,258 22% 13,697 18% 60,056 19% 65,759 26%
-------------- ------------- ------------- -------------
Total $ 88,374 100% $75,338 100% $312,188 100% $247,684 100%
========= ======= ======== ========
Use of Non-GAAP Financial Measures
In establishing operating budgets, managing its business performance, and setting internal measurement targets, the Company excludes 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 margins, operating expense, net income and net income per 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 non-GAAP financial measures to GAAP financial measures is included with the financial statements contained in this press release. The non-GAAP adjustments described below have historically been excluded from our non-GAAP measures. These adjustments, and the basis for excluding them, are:
-- Restructuring Activities
-- Severance Costs
The Company has incurred severance costs in cost of sales
and in operating expenses in connection with the closing of
its manufacturing and research and development facilities
in the UK. In addition, severance costs were incurred due
to a reorganization of its senior management following the
appointment of a new Chief Executive Officer. The Company
excludes one-time costs of this nature in evaluating its
ongoing operational performance. We believe that these
costs do not reflect expected future expenses nor do they
provide a meaningful comparison of current versus prior
operating results.
-- Excess Facilities
The Company has incurred excess facilities charges and
credits in operating expenses due to adjustments related to
vacating and subleasing portions of its Sunnyvale campus
and to the closing of its manufacturing and research and
development facilities in the UK. The Company excludes one-
time costs of this nature in evaluating its ongoing
operational performance. We believe that these costs do not
reflect expected future expenses nor do they provide a
meaningful comparison of current versus prior operating
results.
-- Product Discontinuance
In connection with the restructuring of its operations in
the UK, the Company recorded charges for excess inventory
in connection with discontinued products. The Company
excludes one-time costs of this nature in evaluating its
ongoing operational performance. We believe that these
costs do not reflect expected future expenses nor do they
provide a meaningful comparison of current versus prior
operating results.
-- Non-Cash Items
-- Stock-Based Compensation Expense
The Company has incurred stock-based compensation expense in
cost of sales and operating expenses as required under FAS
123R. The Company excludes stock-based compensation expense
because it believes that this measure is not relevant in
evaluating its core operating performance, either for
internal measurement purposes or for period-to-period
comparisons and benchmarking against other public
companies.
-- Impairment and Amortization of Intangibles
The Company has incurred amortization of intangibles and has
taken a charge for acquired in-process technology related
to acquisitions the Company has made. In addition, the
Company recorded an impairment of its fixed assets and
intangibles due to its decision to discontinue a product
line. Management excludes these items when it evaluates its
core operating performance. We believe that eliminating
these expenses is useful to investors when comparing
historical and prospective results and comparing such
results to other public companies because these expenses
will vary if and when the Company makes additional
acquisitions.
Harmonic Inc.
GAAP to Non-GAAP Income Reconciliation
(Unaudited)
Three Months Ended Three Months Ended
December 31, 2007 December 31, 2006
-------------------------- -------------------------
Gross Operating Net Gross Operating Net
(In thousands) Margin Expense Income Margin Expense Income
----------------------------------------------------
GAAP $ 41,024 $ 29,436 $13,292 $ 30,164 $ 26,813 $ 5,041
Cost of sales
related to
severance costs 287 287
Cost of sales
related to
product
discontinuance 1,134 1,134
Cost sales related
to stock based
compensation
expense 280 280 202 202
Research and
development
expense related
to stock based
compensation
expense (573) 573 (334) 334
Selling, general
and
administrative
expense related
to severance
costs (198) 198
Selling, general
and
administrative
expense related
to excess
facilities costs (482) 482 (116) 116
Selling, general
and
administrative
expense related
to stock based
compensation
expense (868) 868 (810) 810
Impairment and
amortization of
fixed assets and
intangibles 1,474 (160) 1,634 1,237 (491) 1,728
-------------------------- -------------------------
Non-GAAP $ 42,778 $ 27,353 $17,129 $ 33,024 $ 24,864 $ 9,850
========================== =========================
GAAP income per
share - basic $ 0.15 $ 0.07
======== =======
GAAP income per
share -diluted $ 0.15 $ 0.07
======== =======
Non-GAAP income
per share - basic $ 0.19 $ 0.13
======== =======
Non-GAAP income
per share
-diluted $ 0.19 $ 0.13
======== =======
Shares used in
per-share
calculation -
basic 88,469 75,670
======== =======
Shares used in
per-share
calculation -
diluted 90,377 76,547
======== =======
Year Ended December 31, Year Ended December 31,
2007 2006
-------------------------- -------------------------
Gross Operating Net Gross Operating Net
Margin Expense Income Margin Expense Income
----------------------------------------------------
GAAP $134,384 $108,473 $30,074 $101,446 $105,168 $ 1,007
Cost of sales
related to
severance costs 188 188 587 587
Cost of sales
related to
product
discontinuance 772 772 1,134 1,134
Cost of sales
related to stock
based
compensation
expense 998 998 957 957
Research and
development
expense related
to severance
costs (334) 334 (12) 12
Research and
development
expense related
to stock based
compensation
expense (2,012) 2,012 (1,638) 1,638
Selling, general
and
administrative
expense related
to severance
costs (131) 131 (848) 848
Selling, general
and
administrative
expense related
to stock based
compensation
expense (3,186) 3,186 (3,124) 3,124
Selling, general
and
administrative
expense related
to excess
facilities
expense
(recovery) 331 (331) (2,174) 2,174
Impairment and
amortization of
fixed assets and
intangibles 4,740 (1,225) 5,965 1,730 (670) 2,400
-------------------------- -------------------------
Non-GAAP $141,082 $101,916 $43,329 $105,854 $ 96,702 $13,881
========================== =========================
GAAP income per
share - basic $ 0.37 $ 0.01
======== =======
GAAP income per
share -diluted $ 0.36 $ 0.01
======== =======
Non-GAAP income
per share - basic $ 0.53 $ 0.19
======== =======
Non-GAAP income
per share
-diluted $ 0.52 $ 0.18
======== =======
Shares used in
per-share
calculation -
basic 81,882 74,639
======== =======
Shares used in
per-share
calculation -
diluted 83,249 75,183
======== =======
CONTACT: Harmonic Inc.
Robin N. Dickson, Chief Financial Officer
408-542-2500
or
StreetConnect
Michael Newman, Investor Relations
408-542-2760
SOURCE: Harmonic Inc.