Harmonic Announces Second Quarter Results
For the second quarter of 2007, the Company reported net sales of $71.3 million, up 34% from $53.3 million in the second quarter of 2006. For the first six months of 2007, net sales were $141.5 million, up 29% from $109.5 million in the same period of 2006. In the second quarter of 2007, the Company's sales included significant contributions from cable, telco and broadcast customers deploying a broad range of new products and solutions. The Company also had strong bookings during the quarter, especially from its domestic and international satellite customers.
Gross margins in the second quarter of 2007 were significantly higher than in the same period of 2006 due to increased sales of new products and higher manufacturing volumes. As expected, gross margins also increased sequentially from the first quarter of 2007 as a result of a greater proportion of revenue from higher margin video processing solutions and software and services.
GAAP net income for the second quarter of 2007 was $6.2 million, or $0.08 per diluted share, compared to a GAAP net loss of $2.9 million, or $0.04 per share for the same period of 2006. Excluding non-cash accounting charges for stock-based compensation expense and the amortization of intangibles, the non-GAAP net income for the second quarter of 2007 was $9.0 million, or $0.11 per diluted share compared to a non-GAAP net loss of $0.2 million, or $0.00 per share for the same period of 2006. See "GAAP to non-GAAP Income/(Loss) Reconciliation" below for further information on the Company's non-GAAP measures.
As of June 29, 2007, the Company had cash, cash equivalents and short-term investments of $82.2 million, compared to $82.9 million as of March 30, 2007. During the second quarter of 2007, the Company reduced its inventories by $4.2 million compared to the previous quarter.
"We are pleased with our sales and earnings growth in the first six months of 2007, as well as our improved gross margins and inventory management, and our strong bookings in the second quarter of 2007," said Patrick Harshman, President and Chief Executive Officer. "Our growing global customer base is steadily gaining a deeper understanding that the breadth and power of our new products and solutions provides them with exciting opportunities to extend their video service offerings cost effectively and reliably."
"Our long-standing relationships with cable customers continue to grow stronger. In addition to industry-leading encoding, video-on-demand edge, and optical access solutions, we are now providing cable operators with compelling new solutions for switched digital video, time-shifted television, video-on-demand content streaming and management, video-rich navigation, and higher-speed Internet data delivery."
"While we continue to capture market share among satellite operators with our powerful MPEG-4 AVC high-definition video encoding solutions, we are also seeing success with our strategy to extend our satellite solution footprint to include video-on-demand and innovative video processing. While it remains difficult to predict the timing of new telco customer deployments and subsequent service expansions, our new solutions continue to drive new business in the emerging IPTV market. As we move into the second half of 2007, we are very encouraged by the continued diversification of our business across a wider range of products and solutions."
Business Outlook
The Company anticipates net sales for the second half of 2007 to be in a range of $150 to $160 million and gross margins to be 44% to 45% on a non-GAAP basis, excluding stock-based compensation expense and the amortization of intangibles. GAAP gross margins for the same period are anticipated to be in a range of 42% to 43%.
Conference Call Information
Harmonic will host a conference call today to discuss its financial results at 3:00 p.m. Pacific (6:00 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 ID number 6357154). The replay will be available after 6:00 p.m. (Pacific) at the same website address or by calling +1.706.645.9291 (conference ID number 6357154).
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 services including high definition, video-on-demand, network personal video recording and time-shifted TV. Cable, satellite, broadcast and telecom service providers can increase revenues and lower operational expenditures by using Harmonic's digital video, broadband optical access and software solutions to offer consumers the compelling and personalized viewing experience that is driving the business models of the future.
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 expectation that our gross margins will improve in the coming periods; our beliefs regarding our long-standing relationships with cable customers continuing to grow stronger; our beliefs regarding the capturing of market share and the success of our strategies with satellite operators; our beliefs about continued diversification of our business across a wider range of products and solutions in the second half of 2007; our expectation that our combined net sales for the second half of 2007 will be in the range of $150 to $160 million, our gross margins will be 44% to 45% on a non-GAAP basis, excluding stock-based compensation expense and the amortization of intangibles, and our GAAP gross margins for the same period will be in a range of 42% to 43%. 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 products will not generate sales that are commensurate with our expectations; 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 March 30, 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)
June 29, 2007 December 31, 2006
------------- -----------------
(Unaudited) (Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 21,421 $ 33,454
Short-term investments 60,798 58,917
Accounts receivable, net 62,476 64,674
Inventories 42,508 42,116
Prepaid expenses and other current
assets 16,387 12,807
------------- -----------------
Total current assets 203,590 211,968
Property and equipment, net 14,011 14,816
Intangibles and other assets 53,102 55,178
------------- -----------------
$ 270,703 $ 281,962
============= =================
Liabilities and stockholders' equity
Current liabilities:
Current portion of long-term debt $ -- $ 460
Accounts payable 16,716 33,863
Income taxes payable 248 7,098
Deferred revenue 28,844 29,052
Accrued liabilities 37,756 44,097
------------- -----------------
Total current liabilities 83,564 114,570
Accrued excess facilities costs 13,403 16,434
Other non-current liabilities 15,317 5,824
------------- -----------------
Total liabilities 112,284 136,828
------------- -----------------
Stockholders' equity:
Common stock 2,087,071 2,078,941
Accumulated deficit (1,928, 442) (1,933,708)
Accumulated other comprehensive loss (210) (99)
------------- -----------------
Total stockholders' equity 158,419 145,134
------------- -----------------
$ 270,703 $ 281,962
============= =================
Harmonic Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
------------------ ------------------
June 29, June 30, June 29, June 30,
2007 2006 2007 2006
--------- -------- -------- ---------
Net sales $71,282 $53,270 $141,519 $109,491
Cost of sales 40,717 31,664 83,802 68,005
--------- -------- -------- ---------
Gross profit 30,565 21,606 57,717 41,486
--------- -------- -------- ---------
Operating expenses:
Research and development 9,605 9,585 20,597 19,533
Selling, general and
administrative 15,771 15,979 31,446 31,692
Amortization of intangibles 111 43 222 135
--------- -------- -------- ---------
Total operating expenses 25,487 25,607 52,265 51,360
--------- -------- -------- ---------
Income (loss) from operations 5,078 (4,001) 5,452 (9,874)
Interest and other income, net 997 1,303 1,970 2,203
--------- -------- -------- ---------
Income (loss) before income taxes 6,075 (2,698) 7,422 (7,671)
Provision for (benefit from)
income taxes (174) 205 57 380
--------- -------- -------- ---------
Net income (loss) $ 6,249 $(2,903) $ 7,365 $ (8,051)
========= ======== ======== =========
Net income (loss) per share
Basic $ 0.08 $ (0.04) $ 0.09 $ (0.11)
========= ======== ======== =========
Diluted $ 0.08 $ (0.04) $ 0.09 $ (0.11)
========= ======== ======== =========
Shares used to compute net income
(loss) per share:
Basic 79,361 74,167 79,164 74,134
========= ======== ======== =========
Diluted 80,480 74,167 80,304 74,134
========= ======== ======== =========
Harmonic Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
---------------------------
June 29, 2007 June 30, 2006
------------- -------------
Cash flows from operating activities:
Net income (loss) $ 7,365 $ (8,051)
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Amortization of intangibles 2,151 458
Depreciation 3,347 3,993
Stock-based compensation 2,786 3,130
Loss (gain) on disposal and impairment
of fixed assets (60) 20
Changes in assets and liabilities:
Accounts receivable 2,172 7,630
Inventories (383) 7,564
Prepaid expenses and other assets (3,706) (3,731)
Accounts payable (16,913) (3,129)
Deferred revenue 1,622 (3,248)
Income taxes payable (664) 319
Accrued excess facilities costs (2,646) (2,335)
Accrued and other liabilities (5,054) 698
------------- -------------
Net cash provided by (used in)
operating activities (9,983) 3,318
------------- -------------
Cash flows from investing activities:
Purchases of investments (53,843) (39,431)
Proceeds from sale of investments 51,928 49,024
Acquisition of property and equipment,
net (2,482) (2,404)
Acquisition costs related to the merger
of Entone Technologies, Inc. (2,466) --
------------- -------------
Net cash provided by (used in)
investing activities (6,863) 7,189
------------- -------------
Cash flows from financing activities:
Repayments under bank line and term loan (460) (418)
Repayments of capital lease obligations (43) (41)
Proceeds from issuance of common stock,
net 5,329 2,145
------------- -------------
Net cash provided by financing
activities 4,826 1,686
------------- -------------
Effect of exchange rate changes on cash and
cash equivalents (13) (41)
------------- -------------
Net increase (decrease) in cash and cash
equivalents (12,033) 12,152
Cash and cash equivalents at beginning of
period 33,454 37,818
------------- -------------
Cash and cash equivalents at end of period $ 21,421 $ 49,970
============= =============
Harmonic Inc.
Revenue Information
(In thousands)
(Unaudited)
Three Months Ended
------------------------------------------
June 29, March 30, June 30,
2007 2007 2006
----------- --------- --------
Product
Video Processing $ 28,216 40% $ 25,948 37% $20,563 39%
Edge & Access 31,117 44% 35,625 51% 23,434 44%
Software and Services 11,949 16% 8,663 12% 9,273 17%
----------- --------- --------
Total $ 71,282 $ 70,236 $53,270
=========== ========= ========
Geography
United States $ 38,705 54% $ 42,323 60% $26,949 51%
International 32,577 46% 27,913 40% 26,321 49%
----------- --------- --------
Total $ 71,282 $ 70,236 $53,270
=========== ========= ========
Market
Cable $ 47,174 66% $ 50,526 72% $32,949 62%
Satellite 7,783 11% 9,464 13% 6,345 12%
Telco & Other 16,325 23% 10,246 15% 13,976 26%
----------- --------- --------
Total $ 71,282 $ 70,236 $53,270
=========== ========= ========
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 (loss) and net income (loss) 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 net income/(loss) to GAAP net income/(loss) 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 costs in operating
expenses due 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
Harmonic 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.
-- Amortization of Intangibles
The Company has incurred amortization of intangibles related to
various acquisitions the Company has made. Management excludes
these items when it evaluates its core operating performance. We
believe that eliminating this expense is useful to investors when
comparing historical and prospective results and comparing such
results to other public companies since the amortization of
intangibles will vary if and when the Company makes additional
acquisitions.
Harmonic Inc.
GAAP to Non-GAAP Income (Loss) Reconciliation
(Unaudited)
Three Months Ended Three Months Ended
June 29, 2007 June 30, 2006
----------------------- ------------------------
Gross Operating Net Gross Operating
(In thousands) Margin Expense Income Margin Expense Net Loss
------------------------------------------------
GAAP $30,565 $25,487 $ 6,249 $21,606 $25,607 $(2,903)
Cost of sales related
to severance costs 300 300
Cost sales related to
stock based
compensation expense 256 256 268 268
Research and
development expense
related to severance
costs (12) 12
Research and
development expense
related to stock
based compensation
expense (485) 485 (451) 451
Selling, general and
administrative
expense related to
severance costs (650) 650
Selling, general and
administrative
expense related to
stock based
compensation expense (837) 837 (783) 783
Selling, general and
administrative
expense related to
excess facilities
costs (132) 132
Amortization of
intangibles from
acquisitions 964 (111) 1,075 165 (43) 208
----------------------- ------------------------
Non-GAAP $31,785 $23,922 $ 9,034 $22,339 $23,668 $ (231)
======================= ========================
Non-GAAP income (loss)
per share $ 0.11 $ (0.00)
======= ========
GAAP income (loss) per
share $ 0.08 $ (0.04)
======= ========
Shares used in per-
share calculation -
basic 79,361 74,167
======= ========
Shares used in per-
share calculation -
diluted 80,480 74,167
======= ========
Six Months Ended Six Months Ended
June 29, 2007 June 30, 2006
----------------------- ------------------------
Gross Operating Net Gross Operating
Margin Expense Income Margin Expense Net Loss
------------------------------------------------
GAAP $57,717 $52,265 $ 7,365 $41,486 $51,360 $(8,051)
Cost of sales related
to severance costs 188 188 300 300
Cost of sales related
to stock based
compensation expense 464 464 542 542
Cost of sales related
to product
discontinuance 772 772
Research and
development expense
related to severance
costs (334) 334 (12) 12
Research and
development expense
related to stock
based compensation
expense (875) 875 (973) 973
Selling, general and
administrative
expense related to
severance costs (131) 131 (650) 650
Selling, general and
administrative
expense related to
stock based
compensation expense (1,447) 1,447 (1,613) 1,613
Selling, general and
administrative
expense related to
excess facilities
costs (571) 571
Amortization of
intangibles from
acquisitions 1,929 (222) 2,151 $ 323 $ (135)$ 458
----------------------- ------------------------
Non-GAAP $61,070 $48,685 $14,298 $42,651 $47,977 $(3,503)
======================= ========================
Non-GAAP income (loss)
per share $ 0.18 $ (0.05)
======= ========
GAAP income (loss) per
share $ 0.09 $ (0.11)
======= ========
Shares used in per-
share calculation -
basic 79,164 74,134
======= ========
Shares used in per-
share calculation -
diluted 80,304 74,134
======= ========
SOURCE: Harmonic Inc.
Harmonic Inc. Robin N. Dickson, Chief Financial Officer, 408-542-2500 or StreetConnect Investor Relations Michael Newman, 408-542-2760