Harmonic Announces Third Quarter Results
Strong Year-over-Year Sales and Earnings Growth; Maintaining Gross
Margins
SUNNYVALE, Calif.--(BUSINESS WIRE)--Oct. 27, 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 ended September 26, 2008.
For the third quarter of 2008, the Company reported net sales of $91.5 million, up 11% from $82.3 million in the third quarter of 2007. For the first nine months of 2008, net sales were $268.1 million, up 20% from $223.8 million in the same period of 2007. International sales represented 39% of revenue for the third quarter of 2008, compared to 46% in the same period of 2007. In the third quarter of 2008, Harmonic had strong bookings across the Company's global customer base of cable, satellite, telco and other operators.
The Company maintained its gross margins in the third quarter of 2008, reflecting the continued success of its new products and solutions, as well as its sourcing strategy and product design innovations.
GAAP net income for the third quarter of 2008 was $12.0 million, or $0.12 per diluted share, up from $9.4 million, or $0.12 per diluted share, for the same period of 2007. The results for the third quarter of 2008 included a charge of approximately $0.8 million for the impairment of an investment in the unsecured debt of Lehman Brothers. Excluding this charge and non-cash accounting charges for stock-based compensation, the amortization of intangibles, excess facilities and a credit arising from the reversal of a valuation allowance against certain deferred tax assets, the non-GAAP net income for the third quarter of 2008 was $15.9 million, or $0.17 per diluted share, up from $11.9 million, or $0.15 per diluted share, for the same period of 2007. See "Use of Non-GAAP Financial Measures" and "GAAP to non-GAAP Reconciliation" below.
As of September 26, 2008, the Company had cash, cash equivalents and short-term investments of $293.4 million, up from $288.2 million as of June 27, 2008.
"We are pleased with our third quarter operating performance, bookings and momentum moving into the fourth quarter," said Patrick Harshman, President and Chief Executive Officer. "Across different markets and geographies, video service providers continue to select our award-winning systems and solutions to expand their on-demand, high-definition and next-generation IP-based service offerings."
"While the global economic environment creates uncertainty, we remain confident about our strong market position and long-term growth opportunities. Our technology leadership, diverse customer base and operating performance have placed us in an excellent position to further strengthen our competitive position and extend our global customer base."
Business Outlook
The Company anticipates that net sales for the fourth quarter of 2008 will be in a range of $92 to $95 million and gross margins will be 47% to 49% on a GAAP basis. Non-GAAP gross margins for the same period, excluding charges for stock-based compensation and the amortization of intangibles, are anticipated to be in a range of 49% to 51%.
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 30815836). The replay will be available after 6:00 p.m. Pacific at the same website address or by calling +1.706.645.9291 (conference identification code 30815836).
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 belief that, across different markets and geographies, video service providers continue to select our award-winning systems and solutions to expand their on-demand, high-definition and next-generation IP-based service offerings; our beliefs regarding our strong market position and long-term growth opportunities; our belief that our technology leadership, diverse customer base and operating performance have placed us in an excellent position to further strengthen our competitive position and extend our global customer base; and our expectations regarding net sales, GAAP gross margins and non-GAAP gross margins for the fourth quarter 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: 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, including the impact of recent turmoil in the global financial markets; 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 the risk that our product development is not timely or does not result in expected benefits or market acceptance; risks associated with a cyclical and unpredictable sales cycle; and risks that our international sales and support center will not provide the operational or tax benefits that we anticipate or that expenses exceed our plans. 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, 2007, our subsequent quarterly reports on Form 10-Q, 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)
September 26, December 31,
2008 2007
-------------- ------------
Assets
Current assets:
Cash and cash equivalents $ 169,593 $ 129,005
Short-term investments 123,816 140,255
Accounts receivable, net 75,949 69,302
Inventories 32,530 34,251
Deferred income taxes 26,964 3,506
Prepaid expenses and other current assets 11,692 17,489
-------------- ------------
Total current assets 440,544 393,808
Property and equipment, net 14,894 14,082
Goodwill, intangibles and other assets 84,182 67,889
-------------- ------------
$ 539,620 $ 475,779
============== ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable 12,688 20,500
Income taxes payable 46 481
Deferred revenue 29,378 37,865
Accrued liabilities 40,589 51,686
-------------- ------------
Total current liabilities 82,701 110,532
Accrued excess facilities costs, long-term 6,584 9,907
Income taxes payable, long-term 40,773 8,908
Other non-current liabilities 8,511 12,019
-------------- ------------
Total liabilities 138,569 141,366
-------------- ------------
Stockholders' equity:
Common stock 2,263,774 2,246,969
Accumulated deficit (1,861,603) (1,912,386)
Accumulated other comprehensive loss (1,120) (170)
-------------- ------------
Total stockholders' equity 401,051 334,413
-------------- ------------
$ 539,620 $ 475,779
============== ============
Harmonic Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
--------------------- ---------------------
Sept. 26, Sept. 28, Sept. 26, Sept. 28,
2008 2007 2008 2007
---------- ---------- ---------- ----------
Net sales $ 91,455 $ 82,295 $ 268,071 $ 223,814
Cost of sales 47,259 46,652 138,744 130,454
---------- ---------- ---------- ----------
Gross profit 44,196 35,643 129,327 93,360
---------- ---------- ---------- ----------
Operating expenses:
Research and development 13,724 11,018 40,264 31,615
Selling, general and
administrative 19,254 14,911 56,725 46,357
Write-off of acquired
in-process technology -- 700 -- 700
Amortization of
intangibles 160 143 479 365
---------- ---------- ---------- ----------
Total operating
expenses 33,138 26,772 97,468 79,037
---------- ---------- ---------- ----------
Income from operations 11,058 8,871 31,859 14,323
Interest and other income,
net 836 1,296 5,526 3,266
---------- ---------- ---------- ----------
Income before income taxes 11,894 10,167 37,385 17,589
Provision for (benefit
from) income taxes (71) 750 (13,398) 807
---------- ---------- ---------- ----------
Net income $ 11,965 $ 9,417 $ 50,783 $ 16,782
========== ========== ========== ==========
Net income per share
Basic $ 0.13 $ 0.12 $ 0.54 $ 0.21
========== ========== ========== ==========
Diluted $ 0.12 $ 0.12 $ 0.53 $ 0.21
========== ========== ========== ==========
Shares used to compute net
income per share:
Basic 94,805 80,371 94,365 79,570
========== ========== ========== ==========
Diluted 95,863 81,642 95,491 80,743
========== ========== ========== ==========
Harmonic Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
----------------------------
September 26, September 28,
2008 2007
------------- --------------
Cash flows from operating activities:
Net income $ 50,783 $ 16,782
Adjustments to reconcile net income to
cash provided by operating activities:
Amortization of intangibles 4,746 3,661
Write-off of acquired in-process
technology -- 700
Depreciation 5,215 5,089
Stock-based compensation 5,470 4,475
Excess tax benefits from stock-based
compensation (2,864) --
Loss (gain) on disposal and
impairment of fixed assets 22 (31)
Loss on impairment of investment 845 --
Deferred income taxes (46,249) --
Other non-cash adjustments, net (2,090) (386)
Changes in assets and liabilities:
Accounts receivable (6,612) (4,234)
Inventories 1,741 5,777
Prepaid expenses and other assets 5,755 1,108
Accounts payable (7,812) (18,217)
Deferred revenue (6,967) 3,714
Income taxes payable 31,430 (271)
Accrued excess facilities costs (4,808) (5,661)
Accrued and other liabilities (9,939) (3,242)
------------- --------------
Net cash provided by operating
activities 18,666 9,264
------------- --------------
Cash flows from investing activities:
Purchases of investments (91,868) (70,507)
Proceeds from sale of investments 109,363 71,578
Acquisition of property and equipment,
net (6,049) (4,193)
Acquisition of intellectual property (500) --
Acquisition of Rhozet Corp., net of
cash received (2,828) (1,370)
Redemption (purchase) of Entone, Inc.
convertible note 2,500 (2,500)
Acquisition costs related to the
merger of Entone Technologies, Inc. -- (2,466)
------------- --------------
Net cash provided by (used in)
investing activities 10,618 (9,458)
------------- --------------
Cash flows from financing activities:
Repayments under bank line and term
loan -- (460)
Repayments of capital lease
obligations -- (65)
Proceeds from issuance of common
stock, net 8,367 8,292
Excess tax benefits from stock-based
compensation 2,864 --
------------- --------------
Net cash provided by financing
activities 11,231 7,767
------------- --------------
Effect of exchange rate changes on cash
and cash equivalents 73 (34)
------------- --------------
Net increase in cash and cash equivalents 40,588 7,539
Cash and cash equivalents at beginning
of period 129,005 33,454
------------- --------------
Cash and cash equivalents at end of
period $ 169,593 $ 40,993
============= ==============
Harmonic Inc.
Revenue Information
(In thousands)
(Unaudited)
Three Months Ended Nine Months Ended
------------------------- ---------------------------
Sept. 26, Sept. 28, Sept. 26, Sept.28,
2008 2007 2008 2007
------------ ------------ ------------- -------------
Product
Video Processing $32,284 35% $38,623 47% $101,152 38% $ 92,790 41%
Edge & Access 43,029 47% 29,156 35% 124,191 46% 95,891 43%
Software,
Services and
Other 16,142 18% 14,516 18% 42,728 16% 35,133 16%
------- ---- ------- ---- -------- ---- -------- ----
Total $91,455 100% $82,295 100% $268,071 100% $223,814 100%
======= ======= ======== ========
Geography
United States $55,669 61% $44,638 54% $153,565 57% $125,447 56%
International 35,786 39% 37,657 46% 114,506 43% 98,367 44%
------- ---- ------- ---- -------- ---- -------- ----
Total $91,455 100% $82,295 100% $268,071 100% $223,814 100%
======= ======= ======== ========
Market
Cable $57,953 63% $41,608 51% $166,473 62% $139,310 62%
Satellite 19,824 22% 26,462 32% 53,378 20% 43,706 20%
Telco & Other 13,678 15% 14,225 17% 48,220 18% 40,798 18%
------- ---- ------- ---- -------- ---- -------- ----
Total $91,455 100% $82,295 100% $268,071 100% $223,814 100%
======= ======= ======== ========
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, 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 financial measures presented here are gross margin, 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 the non-GAAP financial measures discussed in this press release to the most directly comparable 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 financial 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. 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
portions of its Sunnyvale campus, estimating income from
subleases of buildings, and to the closing of its
manufacturing and research and development facilities in the
UK. The Company excludes one-time charges and credits of this
nature in evaluating its ongoing operational performance. We
believe that these charges and credits 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 companies.
-- Amortization of Intangibles
The Company has incurred amortization of intangibles related
to acquisitions made by the Company. 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 companies because these
expenses will vary if and when the Company makes additional
acquisitions.
-- Impairment of a Marketable Security
The fair value of the Company's investment in the unsecured
debt of Lehman Brothers Holdings, Inc. has been substantially
reduced because of the bankruptcy of the issuer. As a result,
we recorded an "other-than-temporary" impairment charge to
reduce the carrying value of this investment. This impairment
charge has been excluded from our non-GAAP net income because
we expect the impairment charge to be a non-recurring item.
As such, we believe that its inclusion in our calculation of
non-GAAP net income would not provide a meaningful comparison
of current versus prior net income.
-- Reversal of Valuation Allowance for Certain Deferred Tax
Assets
The Company has reversed a valuation allowance against certain
deferred tax assets, resulting in a credit to its provision
for income taxes. Management has excluded the discrete
benefit from this reversal from its calculation of the
Company's non-GAAP net income because it believes that it is
of a one-time nature and does not reflect future expected tax
provisions nor does it provide a meaningful comparison of
current versus prior net income.
Harmonic Inc.
GAAP to non-GAAP Income Reconciliation
(Unaudited)
Three Months Ended Three Months Ended
September 26, 2008 September 28, 2007
-------------------------- ------------------------
Gross Operating Net Gross Operating Net
(In thousands) Margin Expense Income Margin Expense Income
-------------------------- ------------------------
GAAP $ 44,196 $33,138 $ 11,965 $35,643 $26,772 $ 9,417
Cost of sales
related to stock
based compensation
expense 325 325 255 255
Research and
development
expense related to
stock based
compensation
expense (785) 785 (563) 563
Selling, general
and administrative
expense related to
stock based
compensation
expense (1,110) 1,110 (870) 870
Selling, general
and administrative
expense related to
excess facilities
expense (283) 283 1,384 (1,384)
Amortization of
intangibles from
acquisitions 1,356 (160) 1,516 1,337 (843) 2,180
Impairment on
Lehman Brothers
investment 845
Income tax
valuation
allowance
adjustment (970)
-------------------------- ------------------------
Non-GAAP $ 45,877 $30,800 $ 15,859 $37,235 $25,880 $11,901
========================== ========================
GAAP per share -
basic $ 0.13 $ 0.12
========= ========
GAAP per share -
diluted $ 0.12 $ 0.12
========= ========
Non-GAAP income per
share - basic $ 0.17 $ 0.15
========= ========
Non-GAAP income per
share- diluted $ 0.17 $ 0.15
========= ========
Shares used in per-
share calculation
- basic 94,805 80,371
========= ========
Shares used in per-
share calculation
- diluted 95,863 81,642
========= ========
Nine Months Ended Nine Months Ended
September 26, 2008 September 28, 2007
-------------------------- ------------------------
Gross Operating Net Gross Operating Net
Margin Expense Income Margin Expense Income
-------------------------- ------------------------
GAAP $129,327 $97,468 $ 50,783 $93,360 $79,037 $16,782
Cost of sales
related to
severance costs 188 188
Cost of sales
related to stock
based compensation
expense 819 819 719 719
Cost of sales
related to product
discontinuance 772 772
Research and
development
expense related to
severance costs (334) 334
Research and
development
expense related to
stock based
compensation
expense (2,021) 2,021 (1,439) 1,439
Selling, general
and administrative
expense related to
severance costs (131) 131
Selling, general
and administrative
expense related to
stock based
compensation
expense (2,630) 2,630 (2,317) 2,317
Selling, general
and administrative
expense related to
excess facilities
expense (1,738) 1,738 813 (813)
Amortization of
intangibles from
acquisitions 4,151 (479) 4,630 3,266 (1,065) 4,331
Impairment on
Lehman Brothers
investment 845
Income tax
valuation
allowance
adjustment (16,068)
-------------------------- ------------------------
Non-GAAP $134,297 $90,600 $ 47,398 $98,305 $74,564 $26,200
========================== ========================
GAAP per share -
basic $ 0.54 $ 0.21
========= ========
GAAP per share -
basic $ 0.53 $ 0.21
========= ========
Non-GAAP income per
share - basic $ 0.50 $ 0.33
========= ========
Non-GAAP income per
share - diluted $ 0.50 $ 0.32
========= ========
Shares used in per-
share calculation
- basic 94,365 79,570
========= ========
Shares used in per-
share calculation
- diluted 95,491 80,743
========= ========
CONTACT: Harmonic Inc.
Robin N. Dickson, Chief Financial Officer
408-542-2500
or
StreetConnect
Michael Newman, Investor Relations
408-542-2760
SOURCE: Harmonic Inc.