Harmonic Announces Third Quarter Results
Strong Growth in Sales and Earnings; Increased Revenue from Satellite Customers Worldwide; New Products Driving New Video Delivery
Solutions
SUNNYVALE, Calif.--(BUSINESS WIRE)--Oct. 23, 2007--Harmonic Inc. (NASDAQ: HLIT), a leading provider of broadcast and on-demand video delivery solutions, today announced its preliminary results for the quarter and nine months ended September 28, 2007.
For the third quarter of 2007, the Company reported net sales of $82.3 million, up 31% from $62.9 million in the third quarter of 2006. For the first nine months of 2007, net sales were $223.8 million, up 30% from $172.3 million in the same period of 2006. Results for the third quarter of 2007 included significant revenue from a growing number of satellite customers deploying an increasingly broad range of new products and solutions. The Company also saw sequential revenue growth in both domestic and international markets, with international sales representing 46% of revenue in the third quarter.
Gross margins also increased sequentially from the second quarter of 2007 as a result of a larger proportion of revenue from higher margin video processing solutions and software and services, partially offset by a charge of approximately $1.8 million to write down excess inventory of older products which are being replaced by the Company's new products.
GAAP net income for the third quarter of 2007 was $9.4 million or $0.12 per diluted share, up from $4.0 million, or $0.05 per diluted share, for the same period of 2006. GAAP net income for the third quarter of 2007 included a net benefit from a reduction in excess facilities reserves of approximately $1.4 million, resulting primarily from an extension of a sub-lease. Excluding the lease benefit and non-cash accounting charges for stock-based compensation expense, the amortization of intangibles, and a one-time charge for acquired in-process technology from the recent acquisition of Rhozet Corporation, the non-GAAP net income for the third quarter of 2007 was $11.9 million, or $0.15 per diluted share, up from $7.5 million, or $0.10 per diluted 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 September 28, 2007, the Company had cash, cash equivalents and short-term investments of $99.0 million, up from $82.2 million as of June 29, 2007. During the third quarter of 2007, the Company reduced its inventories by $6.2 million compared to the previous quarter.
"We are very pleased with our strong sales and earnings growth, as well as our improved gross margins and operating efficiencies, for the third quarter and for the year-to-date," said Patrick Harshman, President and Chief Executive Officer. "We believe that we have increased our market share among domestic and international satellite operators, which has been driven by our powerful MPEG-4 AVC high-definition and standard-definition video encoders, as well as our new video processing, video-on-demand and network management solutions."
"Our cable customers continue to deploy our industry-leading encoding, video-on-demand edge and optical access products, and we see growing interest in our innovative new solutions for switched digital video, time-shifted television, video-on-demand content preparation and streaming, video-rich navigation, and higher-speed Internet data delivery. In the emerging IPTV market, our IP-based video solutions have been winning new business with telco companies worldwide and, increasingly, drive network expansions for existing global telco customers."
"We remain very encouraged by our strengthening position in key service provider markets. We expect to continue to extend the breadth and depth of our products, and we believe that our global customer base will continue to further leverage the power of our new solutions to expand their video service offerings in exciting new directions."
Business Outlook
The Company anticipates that the combined net sales for the fourth quarter of 2007 and the first quarter of 2008 will be in a range of $155 to $165 million and gross margins will be 41% to 43% 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 45% to 47%.
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 ID number 19970165). 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 19970165).
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 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 expectation that we will experience growing cable demand for our new solutions for switched digital video, time-shifted television, video-on-demand content preparation and streaming, video-rich navigation, and higher-speed Internet data delivery; our expectation that we will continue to extend the breadth and depth of our products; our belief that our global customer base will continue to leverage the power of our new solutions to expand their video service offerings; our expectation that our combined net sales for the fourth quarter of 2007 and the first quarter of 2008 will be in the range of $155 to $165 million, our gross margins will be 41% to 43% on a GAAP basis, and our non-GAAP gross margins for the same period, excluding stock-based compensation expense and the amortization of intangibles, will be in a range of 45% to 47%. 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; 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 June 29, 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)
September 28, December 31,
2007 2006
-------------- ------------
Assets
Current assets:
Cash and cash equivalents $ 40,993 $ 33,454
Short-term investments 58,038 58,917
Accounts receivable, net 69,339 64,674
Inventories 36,341 42,116
Prepaid expenses and other current assets 11,911 12,807
-------------- ------------
Total current assets 216,622 211,968
Property and equipment, net 14,084 14,816
Intangibles and other assets 69,647 55,178
-------------- ------------
$ 300,353 $ 281,962
============== ============
Liabilities and stockholders' equity
Current liabilities:
Current portion of long-term debt $ -- $ 460
Accounts payable 15,583 33,863
Income taxes payable 726 7,098
Deferred revenue 30,794 29,052
Accrued liabilities 43,904 44,097
-------------- ------------
Total current liabilities 91,007 114,570
Accrued excess facilities costs 11,126 16,434
Other non-current liabilities 17,211 5,824
-------------- ------------
Total liabilities 119,344 136,828
-------------- ------------
Stockholders' equity:
Common stock 2,100,140 2,078,941
Accumulated deficit (1,919,025) (1,933,708)
Accumulated other comprehensive loss (106) (99)
-------------- ------------
Total stockholders' equity 181,009 145,134
-------------- ------------
$ 300,353 $ 281,962
============== ============
Harmonic Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
--------------------- --------------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2007 2006 2007 2006
---------- ---------- ---------- ---------
Net sales $ 82,295 $ 62,856 $ 223,814 $172,346
Cost of sales 46,652 33,059 130,454 101,064
---------- ---------- ---------- ---------
Gross profit 35,643 29,797 93,360 71,282
---------- ---------- ---------- ---------
Operating expenses:
Research and development 11,018 10,021 31,615 29,554
Selling, general and
administrative
14,911 16,931 46,357 48,623
Write-off of acquired in-
process technology 700 -- 700 --
Amortization of
intangibles 143 45 365 179
---------- ---------- ---------- ---------
Total operating expenses 26,772 26,997 79,037 78,356
---------- ---------- ---------- ---------
Income (loss) from
operations 8,871 2,800 14,323 (7,074)
Interest and other income,
net 1,296 1,319 3,266 3,522
---------- ---------- ---------- ---------
Income (loss) before income
taxes 10,167 4,119 17,589 (3,552)
Provision for income taxes 750 103 807 482
---------- ---------- ---------- ---------
Net income (loss) $ 9,417 $ 4,016 $ 16,782 $ (4,034)
========== ========== ========== =========
Net income (loss) per share
Basic $ 0.12 $ 0.05 $ 0.21 $ (0.05)
========== ========== ========== =========
Diluted $ 0.12 $ 0.05 $ 0.21 $ (0.05)
========== ========== ========== =========
Shares used to compute net
income (loss) per share:
Basic 80,371 74,588 79,570 74,286
========== ========== ========== =========
Diluted 81,642 75,050 80,743 74,286
========== ========== ========== =========
Harmonic Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
-----------------------------
September 28, September 29,
2007 2006
-------------- --------------
Cash flows from operating activities:
Net income (loss) $ 16,782 $ (4,034)
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Amortization of intangibles 3,661 672
Write-off of acquired in-process
technology 700 --
Depreciation 5,089 5,719
Stock-based compensation 4,475 4,376
Gain (loss) on disposal and
impairment of fixed assets (31) 55
Changes in assets and liabilities:
Accounts receivable (4,234) (9,314)
Inventories 5,777 2,877
Prepaid expenses and other assets 799 (8,133)
Accounts payable (18,217) 3,486
Deferred revenue 3,714 2,474
Income taxes payable (271) 366
Accrued excess facilities costs (5,661) 683
Accrued and other liabilities (3,242) 764
-------------- --------------
Net cash provided by (used in)
operating activities 9,341 (9)
-------------- --------------
Cash flows from investing activities:
Purchases of investments (70,584) (58,061)
Proceeds from sale of investments 71,578 71,030
Purchase of Entone, Inc. convertible
note (2,500) --
Acquisition of property and equipment,
net (4,193) (3,677)
Acquisition of Rhozet Corporation, net
of cash received (1,370) --
Acquisition costs related to the merger
of Entone Technologies, Inc. (2,466) --
-------------- --------------
Net cash provided by (used in)
investing activities (9,535) 9,292
-------------- --------------
Cash flows from financing activities:
Repayments under bank line and term
loan (460) (615)
Repayments of capital lease obligations (65) (61)
Proceeds from issuance of common stock,
net 8,292 4,017
-------------- --------------
Net cash provided by financing
activities 7,767 3,341
-------------- --------------
Effect of exchange rate changes on cash
and cash equivalents (34) (38)
-------------- --------------
Net increase in cash and cash equivalents 7,539 12,586
Cash and cash equivalents at beginning of
period 33,454 37,818
-------------- --------------
Cash and cash equivalents at end of
period $ 40,993 $ 50,404
============== ==============
Harmonic Inc.
Revenue Information
(In thousands)
(Unaudited)
Three Months Ended Nine Months Ended
--------------------------- ----------------------------
September 28, September 29, September 28, September 29,
2007 2006 2007 2006
------------- ------------- ------------- --------------
Product
Video
Processing $ 38,623 47% $ 26,116 42% $ 92,790 41% $ 66,363 38%
Edge & Access 29,156 35% 25,143 40% 95,891 43% 77,029 45%
Software,
Services and
Other 14,516 18% 11,597 18% 35,133 16% 28,954 17%
------------- ------------- ------------- --------------
Total $ 82,295 100% $ 62,856 100% $223,814 100% $172,346 100%
======== ======== ======== ========
Geography
United States $ 44,638 54% $ 29,265 47% $125,665 56% $ 81,968 48%
International 37,657 46% 33,591 53% 98,149 44% 90,378 52%
------------- ------------- ------------- --------------
Total $ 82,295 100% $ 62,856 100% $223,814 100% $172,346 100%
======== ======== ======== ========
Market
Cable $ 41,608 51% $ 39,060 62% $139,310 62% $102,500 60%
Satellite 26,462 32% 5,421 9% 43,706 20% 17,784 10%
Telco & Other 14,225 17% 18,375 29% 40,798 18% 52,062 30%
------------- ------------- ------------- --------------
Total $ 82,295 100% $ 62,856 100% $223,814 100% $172,346 100%
======== ======== ======== ========
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 (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 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 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
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 and Charge for Acquired In-Process
Technology
The Company has incurred amortization of intangibles and has taken a charge for acquired in-process technology related to acquisitions the Company has made. 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 (Loss) Reconciliation
(Unaudited)
Three Months Ended Three Months Ended
September 28, 2007 September 29, 2006
------------------------ ------------------------
Gross Operating Net Gross Operating Net
(In thousands) Margin Expense Income Margin Expense Income
------------------------ ------------------------
GAAP $35,643 $26,772 $ 9,417 $29,797 $26,997 $ 4,016
Cost of sales related
to stock based
compensation expense 255 255 184 184
Research and
development expense
related to stock
based compensation
expense (563) 563 (331) 331
Selling, general and
administrative
expense related to
excess facilities
expense 1,384 (1,384) (2,058) 2,058
Selling, general and
administrative
expense related to
stock based
compensation expense (870) 870 (729) 729
Amortization and
write-off of
intangibles from
acquisitions 1,337 (843) 2,180 169 (45) 214
------------------------ ------------------------
Non-GAAP $37,235 $25,880 $11,901 $30,150 $23,834 $ 7,532
======================== ========================
Non-GAAP income per
share
Basic $ 0.15 $ 0.10
======== ========
Diluted $ 0.15 $ 0.10
======== ========
GAAP per share
Basic $ 0.12 $ 0.05
======== ========
Diluted $ 0.12 $ 0.05
======== ========
Shares used in per-
share calculation -
basic 80,371 74,588
======== ========
Shares used in per-
share calculation -
diluted 81,642 75,050
======== ========
Nine Months Ended Nine Months Ended
September 28, 2007 September 29, 2006
------------------------ ------------------------
Net
Gross Operating Net Gross Operating Income
Margin Expense Income Margin Expense (Loss)
------------------------ ------------------------
GAAP $93,360 $79,037 $16,782 $71,282 $78,356 $(4,034)
Cost of sales related
to severance costs 188 188 300 300
Cost of sales related
to stock based
compensation expense 719 719 727 727
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 (1,439) 1,439 (1,304) 1,304
Selling, general and
administrative
expense related to
severance costs (131) 131 (650) 650
Selling, general and
administrative
expense related to
excess facilities
expense 813 (813) (2,058) 2,058
Selling, general and
administrative
expense related to
stock based
compensation expense (2,317) 2,317 (2,342) 2,342
Amortization and
write-off of
intangibles from
acquisitions 3,266 (1,065) 4,331 $ 493 $ (179)$ 672
------------------------ ------------------------
Non-GAAP $98,305 $74,564 $26,200 $72,802 $71,811 $ 4,031
======================== ========================
Non-GAAP income per
share
Basic $ 0.33 $ 0.05
======== ========
Diluted $ 0.32 $ 0.05
======== ========
GAAP (loss) per share
Basic $ 0.21 $ (0.05)
======== ========
Diluted $ 0.21 $ (0.05)
======== ========
Shares used in per-
share calculation -
basic 79,570 74,286
======== ========
Shares used in per-
share calculation -
diluted 80,743 74,726
======== ========
CONTACT: Harmonic Inc.
Robin N. Dickson, Chief Financial Officer
408-542-2500
or
StreetConnect
Michael Newman, Investor Relations
408-542-2760
SOURCE: Harmonic Inc.