News Column

Harmonic Announces Second Quarter 2014 Results

July 28, 2014

SAN JOSE, Calif., July 28, 2014 (GLOBE NEWSWIRE) -- Harmonic Inc. (Nasdaq:HLIT), the worldwide leader in video delivery infrastructure, announced today unaudited results for the second quarter of 2014 which are in line with the preliminary results disclosed in the Company's press release dated July 14, 2014.

Net revenue for the second quarter of 2014 was $109.6 million, compared with $108.0 million for the first quarter of 2014 and $117.1 million for the second quarter of 2013. As previously announced, revenue for the second quarter of 2014 was adversely impacted by a global slowdown in the Company's video products business, particularly in EMEA and among North American Broadcast and Media customers, partially offset by demand for the Company's cable edge products.

Bookings for the second quarter of 2014 were $113.4 million, compared with $126.3 million for both the first quarter of 2014 and the second quarter of 2013.

Total backlog and deferred revenue was $132.1 million as of June 27, 2014, compared to $126.4 million as of March 28, 2014.

GAAP net loss from continuing operations for the second quarter of 2014 was $37.1 million, or $(0.39) per diluted share, compared with a GAAP net loss from continuing operations for the first quarter of 2014 of $5.4 million, or $(0.06) per diluted share, and a GAAP net loss of $3.4 million from continuing operations, or $(0.03) per diluted share, for the second quarter of 2013. In the second quarter of 2014, Harmonic recorded a $24.5 million tax charge associated with a higher valuation allowance. The valuation allowance was a result of a history of operating losses in recent years that has led to uncertainty with respect to the Company's ability to realize certain of its net deferred tax assets.

Non-GAAP net income from continuing operations for the second quarter of 2014 was $1.8 million, or $0.02 per diluted share, compared with non-GAAP net income of $2.8 million from continuing operations, or $0.03 per diluted share, for the first quarter of 2014, and a non-GAAP net income of $5.6 million from continuing operations, or $0.05 per diluted share, for the second quarter of 2013. See "Use of Non-GAAP Financial Measures" and "GAAP to Non-GAAP Reconciliations" below.

GAAP gross margin was 45.5% and GAAP operating margin was (7.9)% for the second quarter of 2014, compared with 48.4% and (6.7)%, respectively, for the first quarter of 2014, and 49.4% and (3.9)%, respectively, for the same period in 2013.

Non-GAAP gross margin was 50.1% and non-GAAP operating margin was 2.2% for the second quarter of 2014, compared with 53.3% and 3.2%, respectively, for the first quarter of 2014, and 54.1% and 6.2%, respectively, for the same period in 2013. See "Use of Non-GAAP Financial Measures" and "GAAP to Non-GAAP Reconciliations" below.

Total cash, cash equivalents and short-term investments were $134.4 million at the end of the second quarter of 2014, down $13.3 million from $147.7 million at the end of the prior quarter. In the second quarter of 2014, the Company generated approximately $15.5 million of cash from operations, and used approximately $25.7 million to repurchase approximately 3.6 million shares of common stock under its share repurchase program.

Conference Call Information

Harmonic does not intend to hold a conference call to discuss its second quarter results. Harmonic held its conference call on July 14, 2014 to discuss its preliminary results and a webcast of the conference call is available at the Company's website at www.harmonicinc.com until July 14, 2015.

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 second quarter ended June 27, 2014 and our expectations concerning quarter-on-quarter growth. 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 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 economic conditions 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, including in Ukraine; risks associated with our CCAP product initiative, 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; difficulties associated 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; 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, 2013, our Quarterly Report on Form 10-Q for the quarter ended March 28, 2014, 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, income (loss) from operations, net income (loss); including those amounts as a percentage of revenue, 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 restructuring and related charges and non-cash items, such as stock-based compensation expense, amortization of intangibles, and adjustments that normalize the tax rate. 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.

Harmonic Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
     
 June 27, 2014December 31, 2013
  (In thousands, except par value amounts)
ASSETS    
Current assets:    
Cash and cash equivalents  $ 59,173  $ 90,329
Short-term investments 75,238 80,252
Accounts receivable, net 79,937 75,052
Inventories 30,170 36,926
Deferred income taxes 6,746 24,650
Prepaid expenses and other current assets 23,766 21,521
Total current assets 275,030 328,730
     
Property and equipment, net 32,781 34,945
Goodwill, intangibles and other assets 224,632 242,409
Total assets  $ 532,443  $ 606,084
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
Current liabilities:    
Accounts payable  $ 24,630  $ 22,380
Income taxes payable 664 331
Deferred revenue 38,017 27,020
Accrued liabilities 33,676 35,349
Total current liabilities 96,987 85,080
     
Income taxes payable, long-term 12,734 15,165
Other non-current liabilities 17,913 11,673
Total liabilities 127,634 111,918
     
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; 92,475 and 99,413 shares issued and outstanding at June 27, 2014 and December 31, 2013, respectively 92 99
Additional paid-in capital 2,289,187 2,336,275
Accumulated deficit (1,884,471) (1,841,999)
Accumulated other comprehensive loss 1 (209)
Total stockholders' equity 404,809 494,166
Total liabilities and stockholders' equity  $ 532,443  $ 606,084
 
Harmonic Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
         
 Three months endedSix months ended
 June 27, 2014June 28, 2013June 27, 2014June 28, 2013
  (in thousands, except per share amounts)
Net revenue  $ 109,589  $ 117,128  $ 217,621  $ 218,800
Cost of revenue 59,772 59,236 115,492 114,743
Gross profit 49,817 57,892 102,129 104,057
Operating expenses:        
Research and development 23,485 25,820 47,373 51,071
Selling, general and administrative 32,979 34,424 66,526 67,693
Amortization of intangibles 1,718 2,010 3,668 4,098
Restructuring and related charges 284 242 433 666
Total operating expenses 58,466 62,496 118,000 123,528
Loss from operations (8,649) (4,604) (15,871) (19,471)
Interest and other income (expense), net (60) (103) 29 (206)
Loss from continuing operations before income taxes (8,709) (4,707) (15,842) (19,677)
Provision for (benefit from) income taxes 28,353 (1,303) 26,630 (6,770)
Loss from continuing operations (37,062) (3,404) (42,472) (12,907)
Income (loss) from discontinued operations, net of taxes (including gain on disposal of $14,819, net of taxes, for the six months ended June 28, 2013) (396) 15,528
Net income (loss)  $ (37,062)$ (3,800)$ (42,472)$ 2,621
Basic and diluted net income (loss) per share from:        
Continuing operations$ (0.39)$ (0.03)$ (0.44)$ (0.11)
Discontinued operations$ 0.00$ 0.00$ 0.00$ 0.14
Net income (loss)$ (0.39)$ (0.03)$ (0.44)$ 0.02
Shares used in per share calculation:        
Basic and diluted 93,966 109,938 95,899 112,534
 
Harmonic Inc.
Revenue Information
(Unaudited)
                 
 Three months endedSix months ended
 June 27,June 28,June 27,June 28,
 2014201320142013
  (In thousands, except percentages)
Product                
Video Products(1)  $ 57,196 52%  $ 83,746 72%  $ 121,214 55%  $ 148,882 68%
Cable Edge 29,332 27% 13,031 11% 53,574 25% 30,370 14%
Services and Support 23,061 21% 20,351 17% 42,833 20% 39,548 18%
Total  $ 109,589 100%  $ 117,128 100%  $ 217,621 100%  $ 218,800 100%
Geography                
Americas(2)  $ 60,066 55%  $ 66,811 57%  $ 124,952 57%  $ 117,371 54%
EMEA 31,519 29% 34,618 30% 55,706 26% 67,333 31%
APAC 18,004 16% 15,699 13% 36,963 17% 34,096 15%
Total  $ 109,589 100%  $ 117,128 100%  $ 217,621 100%  $ 218,800 100%
Market                
Service Provider(3)  $ 75,048 68%  $ 70,532 60%  $ 146,558 67%  $ 133,045 61%
Broadcast and Media 34,541 32% 46,596 40% 71,063 33% 85,755 39%
Total  $ 109,589 100%  $ 117,128 100%  $ 217,621 100%  $ 218,800 100%
                 
(1) Video Products now include Video Processing and Production and Playout.
(2) Americas now include U.S., Canada and Latin America.
(3) Service Provider now include Cable and Satellite and Telco.
* NOTE : The prior period information has been reclassified to conform to the current period presentation.
                 
The prior six period revenue information can be found by accessing the below link.
                 
http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MjQ0MzQ5fENoaWxkSUQ9LTF8VHlwZT0z&t=1
     
Harmonic Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
     
 Six months ended
 June 27, 2014June 28, 2013
  (In thousands)
Cash flows from operating activities:    
Net income (loss)  $ (42,472)  $ 2,621
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Amortization of intangibles 12,866 13,805
Depreciation 8,486 8,140
Stock-based compensation 8,368 8,008
Gain on sale of discontinued operations, net of tax (14,819)
Loss on impairment of fixed assets 149
Deferred income taxes 27,407 (9,307)
Provision for excess and obsolete inventories 1,377 2,143
Allowance for doubtful accounts, returns and discounts 600 1,062
Excess tax benefits from stock-based compensation (304)
Other non-cash adjustments, net 847 777
Changes in assets and liabilities:    
Accounts receivable (5,485) (1,390)
Inventories 5,379 7,167
Prepaid expenses and other assets (2,424) 3,541
Accounts payable 2,324 (2,929)
Deferred revenue 10,873 3,937
Income taxes payable 562 (877)
Accrued and other liabilities (1,625) (2,946)
Net cash provided by operating activities 26,779 19,082
Cash flows from investing activities:    
Purchases of investments (26,599) (39,117)
Proceeds from sales and maturities of investments 30,846 64,344
Purchases of property and equipment (6,479) (8,755)
Proceeds from sale of discontinued operations, net of selling costs 43,638
Net cash (used in) provided by investing activities (2,232) 60,110
Cash flows from financing activities:    
Payments for repurchase of common stock (54,751) (95,372)
Proceeds from (repurchases of) common stock issued to employees (1,272) 2,818
Excess tax benefits from stock-based compensation 304
Net cash used in financing activities (55,719) (92,554)
Effect of exchange rate changes on cash and cash equivalents 16 (105)
Net decrease in cash and cash equivalents (31,156) (13,467)
Cash and cash equivalents at beginning of period 90,329 96,670
Cash and cash equivalents at end of period  $ 59,173  $ 83,203
         
Harmonic Inc.
GAAP to Non-GAAP Reconciliations (Unaudited)
(in thousands, except percentages and per share data)
         
 Three months ended
 June 27, 2014
 Gross ProfitTotal Operating ExpenseIncome (Loss) from OperationsNet Income (Loss)
GAAP from continuing operations  $ 49,817  $ 58,466  $ (8,649)  $ (37,062)
Stock-based compensation in cost of revenue 623 623 623
Stock-based compensation in research and development (1,269) 1,269 1,269
Stock-based compensation in selling, general and administrative (2,669) 2,669 2,669
Amortization of intangibles 4,482 (1,718) 6,200 6,200
Restructuring and related charges (284) 284 284
Discrete tax items and tax effect of non-GAAP adjustments 27,863
Non-GAAP from continuing operations  $ 54,922  $ 52,526  $ 2,396  $ 1,846
As a % of revenue (GAAP)45.5%53.4%(7.9)%(33.8)%
As a % of revenue (Non-GAAP)50.1%47.9%2.2%1.7%
         
Diluted net income (loss) per share from continuing operations:        
Diluted net loss per share from continuing operations-GAAP        $ (0.39)
Diluted net income per share from continuing operations-Non-GAAP        $ 0.02
Shares used to compute diluted net income (loss) per share from continuing operations:        
GAAP       93,966
Non-GAAP       95,294
         
 Three months ended
 March 28, 2014
 Gross ProfitTotal Operating ExpenseIncome (Loss) from OperationsNet Income (Loss)
GAAP from continuing operations  $ 52,312  $ 59,534  $ (7,222)  $ (5,410)
Stock-based compensation in cost of revenue 516 516 516
Stock-based compensation in research and development (1,101) 1,101 1,101
Stock-based compensation in selling, general and administrative (2,190) 2,190 2,190
Amortization of intangibles 4,716 (1,950) 6,666 6,666
Restructuring and related charges 79 (149) 228 228
Discrete tax items and tax effect of non-GAAP adjustments (2,471)
Non-GAAP from continuing operations  $ 57,623  $ 54,144  $ 3,479  $ 2,820
As a % of revenue (GAAP)48.4%55.1%(6.7)%(5.0)%
As a % of revenue (Non-GAAP)53.3%50.1%3.2%2.6%
Diluted net income (loss) per share from continuing operations:        
Diluted net loss per share from continuing operations-GAAP        $ (0.06)
Diluted net income per share from continuing operations-Non-GAAP        $ 0.03
Shares used to compute diluted net income (loss) per share from continuing operations:        
GAAP       97,921
Non-GAAP       99,256
         
 Three months ended
 June 28, 2013
 Gross ProfitTotal Operating ExpenseIncome (Loss) from OperationsNet 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 net 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 net income (loss) per share from continuing operations:        
GAAP       109,938
Non-GAAP       110,909

CONTACT: Carolyn V. Aver Chief Financial Officer Harmonic Inc. +1.408.542.2500 Blair King Investor Relations Harmonic Inc. +1.408.490.6172



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Source: Harmonic Inc.


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