Harmonic Announces Fourth Quarter and 2009 Year End Results

Thursday, February 4, 2010

Sequential Growth in Sales and Bookings; Continued Global Diversification and Technology Leadership

Harmonic Inc. (NASDAQ: HLIT), 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, 2009.

For the fourth quarter of 2009, the Company reported net sales of $86.7 million, compared to $83.9 million in the previous quarter and $96.9 million in the fourth quarter of 2008. Total bookings in the fourth quarter of 2009 were $107.6 million, up from $79.9 million in the third quarter. For the full year 2009, net sales were $319.6 million, compared to $365.0 million in 2008.

International sales represented 50% of net sales for the fourth quarter and 49% for the full year of 2009, up from 47% and 44%, respectively, for the same periods in 2008. In 2009, the Company’s 10 largest customers contributed 47% of net sales, compared to 58% in 2008.

The Company reported GAAP net income for the fourth quarter of 2009 of $47 thousand, or $0.00 per diluted share, compared to net income of $13.2 million, or $0.14 per diluted share, for the same period of 2008. For the full year 2009, GAAP net loss was $24.1 million, or $0.25 per share, compared to GAAP net income of $64.0 million, or $0.67 per diluted share in 2008. The 2008 results included a tax benefit of $18.0 million resulting principally from the reversal of a valuation allowance against certain deferred tax assets. The results for the fourth quarter and full year of 2009 included charges of approximately $0.1 million and $13.1 million, respectively, related to restructuring charges and transaction costs in connection with the Scopus acquisition that closed in March 2009.

Excluding restructuring charges, purchase accounting adjustments to inventory and transaction costs related to the recent Scopus acquisition as well as non-cash accounting charges for stock-based compensation expense, the amortization of intangibles and certain tax adjustments, the non-GAAP net income for the fourth quarter of 2009 was $6.3 million, or $0.07 per diluted share, compared to non-GAAP net income of $19.0 million, or $0.20 per diluted share, for the same period of 2008. For the full year 2009, non-GAAP net income, excluding the items discussed above, was $18.0 million, or $0.19 per diluted share, compared to non-GAAP net income of $66.4 million, or $0.70 per share, for 2008. See “Use of Non-GAAP Financial Measures” and “GAAP to non-GAAP Reconciliation” below.

As of December 31, 2009, the Company had cash, cash equivalents and short-term investments of $271.1 million, up from $253.0 million as of October 2, 2009.

“We’re pleased with our sequential growth in sales and bookings in the fourth quarter, driven by improving demand across our expanding global customer base and by the success of our newest products,” said Patrick Harshman, President and Chief Executive Officer. “While 2009 presented considerable economic challenges, we completed a significant acquisition, continued to invest in compelling next-generation technology, maintained our strong operating efficiencies and ended the year with a much improved backlog and deferred revenue position.”

“Moving into 2010, we plan to continue to extend our global reach, strengthen our technology leadership and introduce powerful new solutions for a growing array of new video applications. Although our customers face continued global economic uncertainty and we anticipate the usual seasonal slowdown in first quarter bookings, we expect to continue to grow our revenue and earnings throughout the year.”

Business Outlook
Harmonic anticipates that net sales for the first half of 2010 will be in a range of $170.0 to $180.0 million. GAAP gross margins and operating expenses for the first half of 2010 are expected to be in a range of 45% to 46% and $72.5 to $74.5 million, respectively. Non-GAAP gross margins and operating expenses for the first half of 2010, which exclude charges for stock-based compensation and the amortization of intangibles, are anticipated to be in a range of 48% to 49% and $66.5 to $68.5 million, respectively.

CFO Dickson Announces Plans to Retire
Robin Dickson, the Company’s Chief Financial Officer, has announced plans to retire. The Company has launched a search for a new CFO, and Mr. Dickson will continue to serve until the Company’s search is complete and the smooth transition to a new CFO is accomplished. “Robin has guided Harmonic through its evolution from a private company to the global public enterprise it is today,” said Patrick Harshman. “I thank him for demonstrating the highest levels of integrity, and speak for the entire organization as I wish him the best for the future.”

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 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 50186233). 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 50186233).

About Harmonic Inc.
Harmonic Inc. is redefining video delivery with the industry’s most powerful solutions for delivering live and on-demand video to TVs, PCs and mobile devices. Harmonic’s technical innovation and market leadership enable the company to offer a unique and comprehensive solution portfolio—including encoding, transcoding, content preparation, stream processing, asset management, edge processing, and delivery. Broadcast, cable, Internet, mobile, satellite and telecom service providers around the world choose Harmonic’s IP-based digital video, software, and broadband edge and access solutions. Using these award-winning and industry-leading solutions, operators can reduce costs and differentiate their services by offering consumers a higher quality, personalized multi-screen 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, 2009; our belief that our customers will face continued economic uncertainty and that we will experience a seasonal slowdown in our bookings during the first quarter of 2010; our expectation that we will grow our revenue and earnings in 2010, as well as continue to extend our global reach, strengthen our technology leadership and introduce powerful new solutions for a growing array of new video applications; our expectations regarding net sales, GAAP gross margins, GAAP operating expenses, non-GAAP gross margins and non-GAAP operating expenses for the first half of 2010; and our expectations regarding Mr. Dickson’s continuing to serve the Company until the Company’s search is complete and the smooth transition to a new CFO is accomplished, and expectations regarding the Company’s search for a new CFO. 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; 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, 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; the 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; and the uncertainty associated with the time and cost of the process to hire a new CFO and the risk that Mr. Dickson may choose to retire in advance of the Company’s hiring a new CFO or in advance of completing the desired transition. 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, 2008, our quarterly report on Form 10-Q for the quarter ended October 2, 2009 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.

Editor’s Note: Product and company names used herein are trademarks or registered trademarks of their respective owners.