Harmonic Announces Third Quarter 2011 Results

Thursday, October 27, 2011

Quarterly Revenue Up 7% Year-Over-Year on Pro Forma Basis; Driven by Video Processing Wins with Leading Media Companies and Service Providers Worldwide

Harmonic Inc. (NASDAQ: HLIT), a global leader in video infrastructure solutions, today announced its preliminary and unaudited results for the quarter ended September 30, 2011. Results for 2011 include full quarterly contributions from Omneon Inc., and results for the third quarter of 2010 include two weeks of contributions from Omneon, which was acquired on September 15, 2010.

Net revenue for the third quarter of 2011 was $138.9 million, up from $104.8 million in the third quarter of 2010. International sales represented 51% of total revenue for the third quarter of 2011. For the first nine months of 2011, net revenue was $405.7 million, up from $285.1 million in the same period of 2010. Total bookings in the third quarter of 2011 were approximately $141.4 million, up from approximately $107.5 million for the third quarter of 2010.

The Company reported GAAP net income for the third quarter of 2011 of $3.5 million, or $0.03 per diluted share, compared to a net loss of $0.4 million, or ($0.00) per diluted share, for the third quarter of 2010. For the first nine months of 2011, GAAP net income was $4.5 million, or $0.04 per diluted share, compared to $9.4 million, or $0.10 per diluted share, for the same period of 2010.

Non-GAAP net income for the third quarter of 2011 was $12.7 million, or $0.11 per diluted share, compared to $9.0 million, or $0.09 per diluted share, for the same period of 2010. For the first nine months of 2011, non-GAAP net income was $33.5 million, or $0.29 per diluted share, compared to $23.9 million, or $0.24 per diluted share, for the same period of 2010. See “Use of Non-GAAP Financial Measures” and “GAAP to Non-GAAP Net Income Reconciliation” below.

For the third quarter of 2011, Harmonic had GAAP gross margins of 46% and GAAP operating margins of 3%, compared to 45% and 2%, respectively, for the same period of 2010. Non-GAAP gross margins and non-GAAP operating margins were 51% and 12%, respectively, for the third quarter of 2011, compared to 49% and 12%, respectively, for the same period of 2010.

As of September 30, 2011, the Company had cash, cash equivalents and short-term investments of $140.9 million, up from $134.3 million as of July 1, 2011.

“During the third quarter, we were pleased to see our domestic business rebound, up 24% from the previous quarter,” said Patrick Harshman, President and Chief Executive Officer. “For the first nine months of 2011, our video processing revenue grew 23% from the same period last year. During the third quarter, we built on this momentum by introducing powerful new video products that will enable our global customers to move forward on a range of new Internet, multiscreen and traditional video services. We remain focused on further capitalizing on our broad technological and market leadership and profitably growing our business.”

Business Outlook
Harmonic anticipates net revenue to be in the range of $135 million to $145 million for the fourth quarter of 2011. GAAP gross margins and operating expenses for the third quarter of 2011 are expected to be in the range of 44.5% to 46.5% and $57 million to $59 million, respectively. Non-GAAP gross margins and operating expenses for the third quarter of 2011, which will exclude charges for stock-based compensation and the amortization of intangibles, are anticipated to be in the range of 49.5% to 51.5% and $51 million to $53 million, respectively.

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 51970042). 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 51970042).

About Harmonic Inc.
Harmonic Inc. (NASDAQ: HLIT) provides infrastructure that powers the video economy. The company enables content and service providers to efficiently create, prepare, and deliver differentiated video services for television and new media platforms. More information is available at www.harmonicinc.com.

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 September 30, 2011; our introduction of powerful new video products that will enable our global customers to move forward on a range of new Internet, multiscreen and traditional video services; our focus on capitalizing on our broad technological and market leadership and profitably growing our business; and net revenue, GAAP gross margins, GAAP operating expenses, non-GAAP gross margins and non-GAAP operating expenses for the fourth quarter of 2011. Our expectations 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 and uncertainties include the possibility, in no particular order, that: we will not be able to fully integrate Omneon into our business as effectively or efficiently as expected and Omneon does not provide Harmonic with the benefits that we expected 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 or that our cost of revenue or operating expenses may exceed our expectations; the mix of products and services sold in various geographies and various markets and the effect it has on gross margins; delays or decreases in capital spending in the cable, satellite and telco and broadcast and media industries; customer concentration and consolidation; the impact of general economic conditions, including as a result of recent turmoil in the global financial markets, particularly on our European and other international sales and operations; our ability to develop and introduce new and enhanced products and 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 lack of timely availability of parts or raw materials necessary to produce our products; the impact of increases in the prices of raw materials and oil; the effect of competition; difficulties associated with rapid technological changes in Harmonic’s markets; risks associated with unpredictable sales cycles; our dependence on contract manufacturers and sole or limited source suppliers; the effect on Harmonic’s business of natural disasters, such as the adverse impact of the recent floods in Thailand on the supply and price of disk drives and optical components used in the Company’s products; and the risks that our international sales and support center will not provide the operational or tax benefits that we anticipate or that its 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 on Form 10-K for the year ended December 31, 2010, our Quarterly Reports on Form 10-Q 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.