Harmonic Announces Third Quarter 2010 Results

Thursday, October 28, 2010

Year-over-Year Growth in Revenue and Earnings; Completed Acquisition of Omneon and Integration on Track

Harmonic Inc. (NASDAQ: HLIT), a global leader in video infrastructure solutions, today announced its preliminary and unaudited results for the quarter ended October 1, 2010. These results for the third quarter of 2010 include a contribution from Omneon Inc. from September 15, 2010 to the end of the quarter.

Net revenue for the third quarter of 2010 totaled $104.8 million, which included $5.6 million in Omneon revenue and excluded $1.3 million of certain deferred revenue that would otherwise have been recognized by Omneon had the acquisition not occurred.

Excluding Omneon’s contribution, Harmonic’s net revenue was $99.2 million, up 18% from $83.9 million in the third quarter of 2009 and up 4% from $95.5 million in the second quarter of 2010. Excluding Omneon’s contribution, Harmonic’s net revenue for the first nine months of 2010 was $279.6 million, up 20% from $232.9 million in the same period of 2009. Excluding Omneon, total bookings for Harmonic in the third quarter of 2010 were approximately $97.5 million, up 22% from approximately $79.9 million for the third quarter of 2009.

The year-over-year growth in revenues and bookings reflected continued demand across many geographies and markets. Excluding Omneon’s contribution, international sales represented 48% of Harmonic’s net revenues for the third quarter of 2010.

The Company reported a GAAP net loss for the third quarter of 2010 of $0.4 million, or $0.00 per diluted share, as compared to net income of $2.6 million, or $0.03 per diluted share, for the third quarter of 2009. Non-GAAP net income for the third quarter of 2010 was $9.0 million, or $0.09 per diluted share, up from $4.5 million, or $0.05 per diluted share, for the same period of 2009. Significant GAAP items that have been excluded in computing non-GAAP results include acquisition-related expenses, non-cash accounting charges for stock-based compensation expense, the fair value write up of acquired inventories sold, and the amortization of intangibles, retirement costs and certain tax adjustments. See “Use of Non-GAAP Financial Measures” and “GAAP to Non-GAAP Income (Loss) Reconciliation” below.

For the third quarter of 2010, Harmonic had GAAP gross margins of 45% and GAAP operating margins of 2%, up from 43% and (1%), respectively, for the same period of 2009. Excluding the GAAP items discussed above, non-GAAP gross margins were 49% and non-GAAP operating margins were 12% for the third quarter of 2010, up from 47% and 8%, respectively, for the same period of 2009.

As of October 1, 2010, the Company had cash, cash equivalents and short-term investments of $110.1 million, compared to $277.9 million as of July 2, 2010. During the third quarter of 2010, Harmonic used approximately $153.3 in cash to acquire Omneon and used $4.3 million in cash for operations.

“We’re pleased with the continued growth of our business and with the progress we’ve made to integrate Omneon into our operations,” said Patrick Harshman, President and Chief Executive Officer. “Our combined business continues to be driven by growing worldwide investment in new high definition services, expansion of our global customer base, and growing on-demand and new media services. Our sustained investment in innovative video technologies is paying off, as new and existing customers increasingly choose Harmonic to extend their video infrastructure.

“We expect the addition of Omneon to accelerate our growth, strengthen our gross margins and further expand our customer base into the leading media companies around the world. The combination of two strong market leaders positions Harmonic as the leading provider of video infrastructure solutions and the response from customers and partners to our joining forces has been very positive.”

Business Outlook
Harmonic anticipates net revenue in a range of $127 million to $132 million for the fourth quarter of 2010 and $412 million to $417 million for the full year 2010. These forecasts exclude $2 million to $3 million of certain deferred revenue in the fourth quarter and $3.3 million to $4.3 million for the full year that would otherwise have been recognized by Omneon had the acquisition not occurred. GAAP gross margins and operating expenses for the fourth quarter of 2010 are expected to be in the range of 43% to 45% and $63 to $65 million, respectively. Non-GAAP gross margins and operating expenses for the fourth quarter of 2010, which exclude charges for stock-based compensation, the fair value write up of acquired inventories sold, the amortization of intangibles, excess facilities and severance, are anticipated to be in the range of 50% to 52% and $51 to $52 million, respectively. These anticipated results include the full contribution of Omneon’s financial results for the entire fourth quarter of 2010.

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 50191657). 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 50191657).

About Harmonic Inc.
Harmonic Inc. offers a comprehensive, innovative and market-leading portfolio of video infrastructure solutions, spanning content production to multi-screen video delivery. Harmonic customers can efficiently create, prepare and deliver differentiated video services over broadcast, cable, Internet, mobile, satellite and telecom networks, while simplifying end-to-end asset management, reducing costs and streamlining workflows.

Harmonic (NASDAQ: HLIT) is headquartered in San Jose, California with R&D, sales and system integration centers worldwide. The company’s customers—including each of the top 20 Fortune 2000 media companies—choose Harmonic to enable their high quality video services delivered to consumers 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 third quarter ended October 1, 2010; our expectation that, with the addition of Omneon, we will accelerate our growth, strengthen our gross margins and further expand our customer base into the leading media companies around the world; and our expectations regarding net revenue, GAAP gross margins, GAAP operating expenses, non-GAAP gross margins and non-GAAP operating expenses for the fourth quarter and full year of 2010. 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: we will not be able to integrate Omneon into our business as effectively or efficiently as expected; Omneon does not provide Harmonic with the benefits that we currently expect from the acquisition; 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; and 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. 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, 2009, our Form 10-Q for the quarter ended July 2, 2010 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.

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