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HARMONIC INC (HLIT)

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Harmonic Inc. : Harmonic Announces Third Quarter Results

10/23/2012 | 04:25pm US/Eastern

SAN JOSE, Calif. - October 23, 2012 -- Harmonic Inc. (NASDAQ: HLIT), a global leader in video infrastructure solutions, announced today its preliminary and unaudited results for the quarter ended September 28, 2012.

Net revenue for the third quarter of 2012 was $136.7 million, compared with $132.6 million for the second quarter of 2012 and $138.9 million for the third quarter of 2011.

Total bookings in the third quarter of 2012 were approximately $128.7, compared with $141.4 million for the third quarter of 2011.  Total backlog and deferred revenue was $137.7 million as of September 28, 2012, compared with $125.4 million as of September 30, 2011.

The company reported a GAAP net loss for the third quarter of 2012 of $(8.2) million, or $(0.07) per share, compared with a GAAP net income for the third quarter of 2011 of $3.5 million or $0.03 per share.  Non-GAAP net income for the third quarter of 2012 was $8.1 million, or $0.07 per share, compared with $12.7 million, or $0.11 per share for the third quarter of 2011.  See "Use of Non-GAAP Financial Measures" and "GAAP to Non-GAAP Net Income (Loss) Reconciliation" below.

Harmonic reported GAAP gross margins of 44% and GAAP operating margins of (1)% for the third quarter of 2012, compared to 46% and 3%, respectively, for the same period of 2011. Non-GAAP gross margins were 48% and non-GAAP operating margins were 8% for the third quarter of 2012, compared to 51% and 12%, respectively, for the same period of 2011.

As of September 28, 2012, the Company had cash, cash equivalents and short-term investments of $192.0 million, an increase from $177.8 million as of June 29, 2012.  The company generated approximately $22.0 million of cash from operations in the third quarter of 2012, and repurchased 1.65 million shares of common stock for approximately $7.4 million under its previously announced stock repurchase program.

"Harmonic delivered sequential revenue and earnings growth, and more than $20 million of cash from operations, in what continues to be a challenging economic environment," said Patrick Harshman, President and Chief Executive Officer. "Our competitive position remains strong, and we believe we gained market share in both domestic and international markets.  We also made significant progress on new product developments that position Harmonic to capitalize on the next wave of investment by our customers, including cable access (CCAP), high efficiency video coding (HEVC) for next-generation Internet-delivered and Ultra HD video, and a further strengthened solution portfolio enabling multiscreen video services."

Business Outlook

Harmonic anticipates net revenue in the range of $132 million to $142 million for the fourth quarter of 2012.  GAAP gross margins and operating expenses for the fourth quarter of 2012 are expected to be in the range of 44% to 46% and $60 million to $61.5 million, respectively.  Non-GAAP gross margins and operating expenses for the fourth quarter of 2012, which will exclude stock-based compensation and the amortization of intangibles, are anticipated to be in the range of 48% to 50% and $55 million to $56.5 million, respectively.  

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 Tuesday, October 23, 2012. A listen-only 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 (conference confirmation number 33516255). The replay will be available after 6:00 p.m. Pacific at the same website address or by calling +1.630.652.3042 or +1.888.843.7419 (pass code 33516255#).

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 28, 2012; , regarding the challenging economic environment; regarding our strong competitive position; regarding gains in market share in domestic and international markets; regarding significant progress on new product developments that position Harmonic to capitalize on the next wave of investment by its customers; and regarding net revenue, GAAP gross margins, GAAP operating expenses, non-GAAP gross margins and non-GAAP operating expenses for the fourth quarter of 2012. 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, 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 new and enhanced products in a timely manner and market acceptance of new or existing Harmonic products; losses of one or more key customers; risks associated with Harmonic's international operations; dependence on market acceptance of several broadband services, on the adoption of new broadband technologies and on broadband industry trends; and  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 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; 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, 2011 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.

HARMONIC INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 28, 2012 December 31, 2011
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents  $           103,235  $            90,983
Short-term investments                 88,747                70,854
Accounts receivable, net                 94,638              109,886
Inventories                 68,269                70,649
Deferred income taxes                 29,897                28,032
Prepaid expenses and other current assets                 19,178                21,474
Total current assets               403,964              391,878
Property and equipment, net                 39,121                40,469
Goodwill, intangibles and other assets               280,415              301,819
Total assets  $           723,500  $          734,166

Harmonic Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
Three months ended Nine months ended
September 28, 2012 September 30, 2011 September 28, 2012 September 30, 2011
(In thousands, except per share amounts)
Net revenue  $          136,682  $          138,871  $          397,037  $          405,702
Cost of revenue               76,778               74,910              225,893              218,058
Gross profit               59,904               63,961              171,144              187,644
Operating expenses:
Research and development               26,524               25,638               79,994               77,449
Selling, general and administrative               32,150               32,254               96,603               98,361
Amortization of intangibles                 2,179                 2,229                 6,548                 6,688
Total operating expenses               60,853               60,121              183,145              182,498
Income (loss) from operations                   (949)                 3,840              (12,001)                 5,146
Interest and other income (expense), net                     (36)                    471                    482                    231
Income (loss) before income taxes                   (985)                 4,311              (11,519)                 5,377
Provision for income taxes                 7,245                    765                 4,222                    925
Net income (loss)  $            (8,230)  $             3,546  $           (15,741)  $             4,452
Net income (loss) per share:
Basic  $              (0.07)  $               0.03  $              (0.13)  $               0.04
Diluted  $              (0.07)  $               0.03  $              (0.13)  $               0.04
Weighted average shares:
Basic              116,517              115,791              116,946              114,855
Diluted              116,517              116,208              116,946              116,005

HARMONIC INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended
September 28, 2012 September 30, 2011
(In thousands)
Cash flows from operating activities:
Net income (loss)  $            (15,741)  $               4,452
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization of intangibles                 22,004                 22,767
Depreciation                 11,337                 10,306
Stock-based compensation                 14,123                 16,099
Net loss (gain) on disposal of fixed assets                      (57)                     450
Deferred income taxes                  1,627                 (2,218)
Provision for excess and obsolete inventory                  2,466                  2,424
Allowance for doubtful accounts, returns and discounts                     216                  2,646
Other non-cash adjustments, net                     617                     564
Changes in assets and liabilities:
Accounts receivable                 15,036                (17,429)
Inventories                      (85)                 (9,581)
Prepaid expenses and other assets                  1,847                  7,176
Accounts payable                     364                  5,117
Deferred revenue                  3,307                 (9,610)
Income taxes payable                 (1,482)                 (5,927)
Accrued and other liabilities                 (5,353)                 (6,847)
Net cash provided by operating activities                 50,226                 20,389
Cash flows from investing activities:
Purchases of investments                (94,123)                (76,164)
Proceeds from sales and maturities of investments                 75,362                 33,770
Acquisition of property and equipment                 (9,850)                (12,373)
Other acquisitions                       -                      (250)
Net cash used in investing activities                (28,611)                (55,017)
Cash flows from financing activities:
Payments for repurchase of common stock                (14,388)                       -  
Proceeds from issuance of common stock, net                  4,922                 13,301
Net cash provided by (used in) financing activities                 (9,466)                 13,301
Effect of exchange rate changes on cash and cash equivalents                     103                       29
Net increase (decrease) in cash and cash equivalents                 12,252                (21,298)
Cash and cash equivalents at beginning of period                 90,983                 96,533
Cash and cash equivalents at end of period  $           103,235  $             75,235

Harmonic Inc.
Revenue Information
(Unaudited)
Three months ended Nine months ended
September 28, 2012 September 30, 2011 September 28, 2012 September 30, 2011
(In thousands, except percentages)
Product
Video Processing  $     49,899 37%  $      57,027 41%  $   161,880 41%  $   172,310 42%
Production and Playout         23,786 17%         26,619 19%         65,327 16%        73,005 18%
Edge and Access         40,084 29%         38,308 28%       110,484 28%       109,662 27%
Services and Support         22,913 17%         16,917 12%         59,346 15%        50,725 13%
Total  $   136,682 100%  $    138,871 100%  $   397,037 100%  $   405,702 100%
Geography
United States  $     57,357 42%  $      68,718 49%  $   179,558 45%  $   183,250 45%
International         79,325 58%         70,153 51%       217,479 55%       222,452 55%
Total  $   136,682 100%  $    138,871 100%  $   397,037 100%  $   405,702 100%
Market
Cable  $     67,593 50%  $      62,722 45%  $   193,580 48%  $   182,784 45%
Satellite and Telco         27,997 20%         33,974 25%         81,726 21%        97,319 24%
Broadcast and Media         41,092 30%         42,175 30%       121,731 31%       125,599 31%
Total  $   136,682 100%  $    138,871 100%  $   397,037 100%  $   405,702 100%

Use of Non-GAAP Financial Measures

In establishing operating budgets, managing its business performance, and setting internal measurement targets, the Company excludes 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, net income and net income per 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 contained in this presentation. The non-GAAP adjustments described below have historically been excluded from our GAAP financial measures. These adjustments are excess facilities and severance charges and non-cash items, such as stock-based compensation expense, amortization of intangibles, and discrete tax items and adjustments.

Harmonic Inc.
GAAP to Non-GAAP Net Income (Loss) Reconciliation
(Unaudited)
Three months ended
September 28, 2012 September 30, 2011
Gross Profit Operating Expense Net Income Gross Profit Operating Expense Net Income
(In thousands, except per share amounts)
GAAP  $      59,904  $      60,853  $      (8,230)  $       63,961  $        60,121  $        3,546
Cost of revenue related to stock-based compensation expense                 702                     -                   702                 843                     -                   843
Research and development expense related to stock-based compensation expense                     -               (1,512)               1,512                     -              (1,658)              1,658
Selling, general and administrative expense related to stock-based compensation expense                     -             (2,406)             2,406                     -             (2,504)             2,504
Amortization of intangibles             5,048            (2,179)             7,227             5,446           (2,229)             7,675
Discrete tax items and adjustments                     -                       -               4,529                     -                       -             (3,483)
Non-GAAP  $      65,654  $      54,756  $         8,146  $      70,250  $      53,730  $       12,743
GAAP net income (loss) per share - basic  $         (0.07)  $           0.03
GAAP net income (loss) per share - diluted  $         (0.07)  $           0.03
Non-GAAP net income per share - basic  $           0.07  $             0.11
Non-GAAP net income per share - diluted  $           0.07  $             0.11
Shares used in per share calculation - basic           116,517           115,791
Shares used in per share calculation - diluted, GAAP           116,517          116,208
Shares used in per share calculation - diluted, non-GAAP           116,918          116,208
Nine months ended
September 28, 2012 September 30, 2011
Gross Profit Operating Expense Net Income (Loss) Gross Profit Operating Expense Net Income
(In thousands, except per share amounts)
GAAP  $      171,144  $     183,145  $      (15,741)  $    187,644  $    182,498  $        4,452
Cost of revenue related to stock-based compensation expense              2,301                     -                2,301             2,352                     -               2,352
Research and development expense related to stock-based compensation expense                     -             (4,947)             4,947                     -             (5,265)             5,265
Selling, general and administrative expense related to stock-based compensation expense                     -             (6,874)             6,874                     -             (8,482)             8,482
Selling, general and administrative expense related to excess facility costs, severance
     costs and other non-recurring expenses                     -                       -                       -                       -                 (409)                 409
Amortization of intangibles            15,456           (6,548)           22,004            16,079           (6,688)           22,767
Discrete tax items and adjustments                     -                       -              (1,932)                     -                       -            (10,238)
Non-GAAP  $     188,901  $    164,776  $       18,453  $   206,075  $     161,654  $      33,489
GAAP net income (loss) per share - basic  $          (0.13)  $           0.04
GAAP net income (loss) per share - diluted  $          (0.13)  $           0.04
Non-GAAP net income per share - basic  $            0.16  $           0.29
Non-GAAP net income per share - diluted  $            0.16  $           0.29
Shares used in per share calculation - basic          116,946          114,855
Shares used in per share calculation - diluted, GAAP          116,946          116,005
Shares used in per share calculation - diluted, non-GAAP           117,512          116,005


CONTACTS:

Carolyn V. Aver Michael Bishop
Chief Financial Officer Investor Relations contact for
Harmonic Inc. Harmonic Inc.
+1.408.542.2500 +1.408.542.2760

# # #


HUG#1651737


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