Harmonic Announces Third Quarter 2013 Results

Monday, October 28, 2013

Harmonic Inc. (NASDAQ: HLIT), the worldwide leader in video delivery infrastructure, announced today its preliminary and unaudited results for the third quarter of 2013.

On March 5, 2013, Harmonic completed the sale of its Cable Access HFC business and, accordingly, the following pertains only to its continuing operations.

Net revenue for the third quarter of 2013 was $122.9 million, compared with $117.1 million for the second quarter of 2013 and

$120.4 million for the third quarter of 2012.

Bookings for the third quarter of 2013 were $115.9 million, compared with $126.3 million for the second quarter of 2013 and

$111.1 million for the third quarter of 2012.

Total backlog and deferred revenue was $123.6 million as of September 27, 2013, compared to $132.5 million as of June 28,

2013.

GAAP net income for the third quarter of 2013 was $36.7 million, or $0.36 per diluted share, compared with a GAAP net loss for the second quarter of 2013 of $3.4 million, or $(0.03) per diluted share, and a GAAP net loss of $4.5 million, or $(0.04) per diluted share, for the third quarter of 2012. In the third quarter of 2013, Harmonic recorded a net tax benefit of $39.0 million, primarily related to the release of tax reserves for uncertain tax positions due to the expiration of statutes of limitations related to the 2008 and 2009 tax years.

Non-GAAP net income for the third quarter of 2013 was $7.1 million, or $0.07 per diluted share, compared with non-GAAP net income of $5.6 million, or $0.05 per diluted share, for the second quarter of 2013, and non-GAAP net income of $5.8 million, or $0.05 per diluted share, for the third quarter of 2012. See “Use of Non-GAAP Financial Measures” and “GAAP to Non-GAAP Reconciliations” below.

GAAP gross margin was 46% and GAAP operating margin was (2)% for the third quarter of 2013, compared with 49% and

(4)%, respectively, for the second quarter of 2013, and 46% and (3)%, respectively, for the same period of 2012.

Non-GAAP gross margin was 51% and non-GAAP operating margin was 7% for the third quarter of 2013, compared with 54% and 6%, respectively, for the second quarter of 2013, and 50% and 6%, respectively, for the same period of 2012. See “Use of Non-GAAP Financial Measures” and “GAAP to Non-GAAP Reconciliations” below.

Total cash, cash equivalents and short-term investments were $169.3 million at the end of the third quarter of 2013, up $7.6 million from $161.7 million as of the end of the prior quarter. In the third quarter of 2013, the Company generated approximately $16.1 million of cash from operations, and used approximately $7.7 million to repurchase approximately 1.1 million shares of common stock under its share repurchase program.

“Harmonic’s results reflect another solid quarter of execution with sequential and year-on-year growth,” said Patrick Harshman, President and Chief Executive Officer. “Sales into the broadcast and media market hit an all time high and we saw some recovery in our cable business. On top of sound business fundamentals, we made progress in our strategic technology growth areas, including the converged cable access platform, or CCAP, next-generation video compression, Ultra-High Definition and over-the-top multiscreen. We made several key customer and partnership announcements in the quarter, and last week learned that in over-the-top multiscreen we were named as the #1 market share leader in the Multiscreen Transcoding market by Frost & Sullivan.”

Business Outlook

For the fourth quarter of 2013, Harmonic anticipates:

·        Net revenue in the range of $115 million to $125 million

·        GAAP gross margins in the range of 46% to 47%

·        GAAP operating expenses in the range of $59 million to $60 million

·        Non-GAAP gross margins in the range of 51% to 52%

·        Non-GAAP operating expenses in the range of $53 million to $54 million

See “Use of Non-GAAP Financial Measures” and “GAAP to Non-GAAP Reconciliations” below.

Conference Call Information

Harmonic will host a conference call to discuss its financial results at 2:00 p.m. Pacific (5:00 p.m. Eastern) on Monday, October 28, 2013. A broadcast of the conference call can be accessed either from the Company’s website at www.harmonicinc.com or by calling +1.847.944.7317 or +1.866.297.6395 (passcode# 35845225). A replay of the conference call will be available after 4:30p.m. Pacific at the same website address or by calling +1.630.652.3042 or +1.888.843.7419 (passcode# 35845225).

About Harmonic Inc.

Harmonic (NASDAQ: HLIT) is the worldwide leader in video delivery infrastructure for emerging television and video services. The Company’s production-ready innovation enables content and service providers to efficiently create, prepare, and deliver differentiated services for television and new media video 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 27, 2013; our expectations concerning quarter-on-quarter and year-on-year growth; and net revenue, GAAP gross margins, GAAP operating expenses, non-GAAP gross margins and non-GAAP operating expenses for the fourth quarter of 2013. Our expectations regarding these matters may not materialize, and actual results in future periods are subject to risks and uncertainties thatcould cause actual results to differ materially from those projected.

These risks include the possibility, in no particular order, that: the trends toward more high-definition, on-demand and anytime, anywhere video will not continue to develop at its current pace or will expire; 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 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 economicconditions, including as a result of recent turmoil in the global financial

markets, particularly in Europe, on our sales and operations; our ability to develop new and enhanced products in a timely manner and market acceptance of our new or existing products; losses of one or more key customers; risks associated with our international operations; dependence on market acceptance of several broadband services, on the adoption of new broadband technologies and on broadband industry trends; 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, on both revenue and gross margins; difficultiesassociated with rapid technological changes in our markets; risks associated with unpredictable sales cycles; our dependence on contract manufacturers and sole or limited source suppliers; the effect on our business of natural disasters; 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; and the risk that our share repurchase program will not continue to result in material purchases of our common stock. 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 most recent Annual Report on Form 10-K for the year ended December 31, 2012,

our recent 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.

Use of Non-GAAP Financial Measures

In establishing operating budgets, managing its business performance, and setting internal measurement targets, we exclude 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 margin, operating expenses, operating margin, income (loss) from operations, net income (loss) and net income (loss) per diluted 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 historical non-GAAP financial measures discussed in this press release to the most directly comparable historical GAAP financial measures is included with the financial statements provided with this press release. The non-GAAP adjustments described below have historically been excluded from our GAAP financial measures. These adjustments are costs related to consulting fees associated with a potential proxy contest, restructuring and related charges and non-cash items, such as stock-based compensation expense, amortization of intangibles, and adjustments that normalize the tax rate. With respect to our expectations under “Business Outlook” above, reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available without unreasonable efforts on a forward-looking basis due to the high variability and low visibility with respect to the charges which are excluded from these non-GAAP measures. The effects of stock-based compensation expense specific to common stock options are directly impacted by unpredictable fluctuations in our stock price. We expect the variability of the above charges to have a significant impact on our GAAP financial results.

CONTACTS:

Carolyn V. Aver                     Michael Bishop 

Chief Financial Officer          Investor Relations Harmonic Inc.                       +1.408.542.2760                 +1.408.542.2500

Harmonic Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
September 27, 2013 December 31, 2012
(In thousands, except par value amounts)
ASSETS
Current assets:
Cash and cash equivalents $                        93,330  $                            96,670
Short-term investments                        75,966                          104,506
Accounts receivable, net                        85,069                            85,920
Inventories                        40,369                            64,270
Deferred income taxes                        20,144                            21,870
Prepaid expenses and other current assets                        14,757                            23,636
Total current assets                      329,635                          396,872
Property and equipment, net                        35,551                            38,122
Goodwill, intangibles and other assets                      251,967                          282,537
Total assets $                      617,153  $                          717,531
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $                        19,987  $                            25,447
Income taxes payable                             577                              1,797
Deferred revenue                        34,115                            33,235
Accrued liabilities                        33,118                            42,415
Total current liabilities                        87,797                          102,894
Income taxes payable, long-term                        12,155                            49,309
Other non-current liabilities                        11,694                            11,915
Total liabilities                      111,646                          164,118
Stockholders’ equity:
Preferred stock, $0.001 par value, 5,000 shares authorized; no shares issued or outstanding                                  –                                      –
Common stock, $0.001 par value, 150,000 shares authorized; 100,901 and 114,193 shares issued and outstanding at September 27, 2013 and December 31, 2012, respectively                             101                                 114
Additional paid-in capital                   2,345,512                       2,432,790
Accumulated deficit                  (1,839,639)                      (1,879,026)
Accumulated other comprehensive loss                            (467)                                (465)
Total stockholders’ equity                      505,507                          553,413
Total liabilities and stockholders’ equity $                      617,153  $                          717,531

Harmonic Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

Three months ended Nine months ended
September 27, 2013 September 28, 2012 September 27, 2013 September 28, 2012
(In thousands, except per share amounts)
Net revenue            122,918                    120,391                 341,718                 358,890
Cost of revenue              66,126                      65,513                 180,869                 198,469
Gross profit              56,792                      54,878                 160,849                 160,421
Operating expenses:
Research and development              24,560                      25,586                   75,631                   77,205
Selling, general and administrative              32,527                      31,132                 100,220                   93,862
Amortization of intangibles                2,001                        2,179                     6,099                    6,548
Restructuring and related charges                  259                            –                         925                         –  
Total operating expenses              59,347                      58,897                 182,875                 177,615
Loss from operations              (2,555)                      (4,019)                  (22,026)                 (17,194)
Interest and other income (expense), net                  277                          (36)                         71                       482
Loss from continuing operations before income taxes              (2,278)                      (4,055)                  (21,955)                 (16,712)
(Benefit from) provision for income taxes             (38,953)                          414                  (45,723)                       367
Income (loss) from continuing operations              36,675                      (4,469)                   23,768                 (17,079)
Income (loss) from discontinued operations, net of taxes (including gain on disposal of $14,813, net of taxes, for the nine months ended September 27, 2013)                    91                      (3,761)                   15,619                    1,338
Net income (loss) $              36,766  $                      (8,230)  $                   39,387  $                 (15,741)
Basic net income (loss) per share from:
Continuing operations  $                 0.36  $                        (0.04)  $                      0.22  $                    (0.15)
Discontinued operations  $                    –    $                        (0.03)  $                      0.14  $                      0.01
Net income (loss)  $                 0.36  $                        (0.07)  $                      0.36  $                    (0.13)
Diluted net income (loss) per share from:
Continuing operations  $                 0.36  $                        (0.04)  $                      0.22  $                    (0.15)
Discontinued operations  $                    –    $                        (0.03)  $                      0.14  $                      0.01
Net income (loss)  $                 0.36  $                        (0.07)  $                      0.36  $                    (0.13)
Shares used in per share calculation:
Basic            101,144                    116,517                 108,695                 116,946
Diluted            102,723                    116,517                 109,879                 116,946
Harmonic Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended
September 27,

 2013
September 28, 2012
(In thousands)
Cash flows from operating activities:
Net income (loss)  $                           39,387  $                       (15,741)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization of intangibles                           20,569                        22,004
Depreciation                           12,365                        11,337
Stock-based compensation                           11,953                        14,122
Gain on sale of discontinued operations, net of tax                         (14,813)                                –  
Loss on impairment of fixed assets                                149                                –  
Deferred income taxes                         (10,647)                          1,627
Provision for inventories                             2,813                          2,466
Allowance for doubtful accounts, returns and discounts                             1,161                          2,012
Excess tax benefits from stock-based compensation                                  –                                (80)
Other non-cash adjustments, net                             1,220                             560
Changes in assets and liabilities:
Accounts receivable                              (310)                        13,240
Inventories                           10,509                              (85)
Prepaid expenses and other assets                             8,522                          1,847
Accounts payable                           (5,418)                             364
Deferred revenue                             5,127                          3,307
Income taxes payable                         (39,209)                         (1,482)
Accrued and other liabilities                           (8,244)                         (5,352)
Net cash provided by operating activities                           35,134                        50,146
Cash flows from investing activities:
Purchases of investments                         (54,773)                       (94,123)
Proceeds from sales and maturities of investments                           82,187                        75,362
Purchases of property and equipment                         (11,249)                         (9,850)
Proceeds from sale of discontinued operations, net of selling costs                           43,527                                –  
Net cash provided by (used in) investing activities                           59,692                       (28,611)
Cash flows from financing activities:
Payments for repurchase of common stock                       (103,496)                       (14,388)
Proceeds from issuance of common stock, net                             5,355                          4,922
Excess tax benefits from stock-based compensation                                  –                                 80
Net cash used in financing activities                         (98,141)                         (9,386)
Effect of exchange rate changes on cash and cash equivalents                                (25)                             103
Net (decrease) increase in cash and cash equivalents                           (3,340)                        12,252
Cash and cash equivalents at beginning of period                           96,670                        90,983
Cash and cash equivalents at end of period $                           93,330  $                      103,235
Harmonic Inc.
Revenue Information
(Unaudited)
         
Three months ended Nine months ended
September 27, 2013 September 28, 2012 September 27, 2013 September 28, 2012
(In thousands, except percentages)
Product          
Video Processing $                 58,047 47% $                 49,899 41%   $          163,362 48% $            161,880 45%
Production and Playout                 19,976 16%                 23,786 20%              63,543 19%              65,327 18%
Cable Edge                 20,690 17%                 24,196 20%              51,060 15%              73,524 21%
Services and Support                 24,205 20%                 22,510 19%              63,753 18%              58,159 16%
Total $               122,918 100% $               120,391 100%   $          341,718 100% $            358,890 100%
         
Geography          
United States $                 53,878 44% $                 50,675 42%   $          151,848 44% $            163,476 46%
International                 69,040 56%                 69,716 58%            189,870 56%            195,414 54%
Total $               122,918 100% $               120,391 100%   $          341,718 100% $            358,890 100%
         
Market          
Cable $                 47,632 39% $                 51,302 43%   $          129,114 38% $            155,433 43%
Satellite and Telco                 24,900 20%                 27,997 23%              76,463 22%              81,726 23%
Broadcast and Media                 50,386 41%                 41,092 34%            136,141 40%            121,731 34%
Total $               122,918 100% $               120,391 100%   $          341,718 100% $            358,890 100%
Harmonic Inc.
GAAP to Non-GAAP  Reconciliations (Unaudited)
(In thousands, except percentages and per share data)
Three months ended
September 27, 2013
Gross Profit Total Operating Expense Income (loss) from Operations Net Income (Loss)
GAAP from continuing operations $             56,792  $             59,347  $             (2,555)  $             36,675
  Stock-based compensation in cost of revenue                  605                    –                    605                  605
  Stock-based compensation in research and development                    –               (1,076)               1,076               1,076
  Stock-based compensation in selling, general and administrative                    –               (2,264)               2,264               2,264
  Amortization of intangibles               4,763             (2,001)               6,764               6,764
  Restructuring and related charges                  324                (259)                  583                  583
  Discrete tax items and tax effect of non-GAAP adjustments                    –                      –                      –             (40,846)
Non-GAAP from continuing operations $             62,484  $             53,747  $               8,737  $               7,121
As a % of revenue (GAAP)   46.2%   48.3%   -2.1%   29.8%
As a % of revenue (Non-GAAP)   50.8%   43.7%   7.1%   5.8%
Diluted income (loss) per share from continuing operations:
  Diluted net income per share from continuing operations-GAAP  $                 0.36
  Diluted net income per share from continuing operations-Non-GAAP  $                 0.07
Shares used to compute diluted income (loss) per share from continuing operations:
  GAAP           102,723
  Non-GAAP           102,723
Three months ended
June 28, 2013
Gross Profit Total Operating Expense Income (loss) from Operations Net Income (Loss)
GAAP from continuing operations $             57,892  $             62,496  $             (4,604)  $             (3,404)
  Stock-based compensation in cost of revenue                  622                    –                    622                  622
  Stock-based compensation in research and development                    –               (1,121)               1,121               1,121
  Stock-based compensation in selling, general and administrative                    –               (2,279)               2,279               2,279
  Proxy contest consultant expenses in selling, general and administrative                    –                  (750)                  750                  750
  Amortization of intangibles               4,762             (2,010)               6,772               6,772
  Restructuring and related charges                    65                (242)                  307                  307
  Discrete tax items and tax effect of non-GAAP adjustments                    –                      –                      –               (2,803)
Non-GAAP from continuing operations $             63,341  $             56,094  $               7,247  $               5,644
As a % of revenue (GAAP)   49.4%   53.4%   -3.9%   -2.9%
As a % of revenue (Non-GAAP)   54.1%   47.9%   6.2%   4.8%
Diluted income (loss) per share from continuing operations:
  Diluted net loss per share from continuing operations-GAAP  $               (0.03)
  Diluted net income per share from continuing operations-Non-GAAP  $                 0.05
Shares used to compute diluted income (loss) per share from continuing operations:
  GAAP           109,938
  Non-GAAP           110,909
Three months ended
September 28, 2012
Gross Profit Total Operating Expense Income (loss) from Operations Net Income (Loss)
GAAP from continuing operations $             54,878  $             58,897  $             (4,019)  $             (4,469)
  Stock-based compensation in cost of revenue                  659                    –                    659                  659
  Stock-based compensation in research and development                    –               (1,450)               1,450               1,450
  Stock-based compensation in selling, general and administrative                    –               (2,388)               2,388               2,388
  Amortization of intangibles               5,048             (2,179)               7,227               7,227
  Discrete tax items and tax effect of non-GAAP adjustments                    –                      –                      –               (1,427)
Non-GAAP from continuing operations $             60,585  $             52,880  $               7,705  $               5,828
As a % of revenue (GAAP)   45.6%   48.9%   -3.3%   -3.7%
As a % of revenue (Non-GAAP)   50.3%   43.9%   6.4%   4.8%
Diluted income (loss) per share from continuing operations:
  Diluted net loss per share from continuing operations-GAAP  $               (0.04)
  Diluted net income per share from continuing operations-Non-GAAP  $                 0.05
Shares used to compute diluted income (loss) per share from continuing operations:
  GAAP           116,517
  Non-GAAP           116,918
HUG#1738689

– See more at: http://www.harmonicinc.com/news/harmonic-announces-third-quarter-2013-results#sthash.q6cNL7FL.dpuf

– See more at: http://phx.corporate-ir.net/phoenix.zhtml?c=90244&p=irol-newsArticle&ID=…