SOURCE: Harmonic Inc.
May 06, 2010 16:05 ET
Harmonic Announces First Quarter Results
Strong Year-Over-Year Growth in Sales and Bookings; Extending Video Market Leadership With New Product Introductions and Agreement to Acquire Omneon, Inc.
SUNNYVALE, CA--(Marketwire - May 6, 2010) - Harmonic Inc. (NASDAQ: HLIT), a leading
provider of broadcast and on-demand video delivery solutions, today
announced its preliminary and unaudited results for the quarter ended April
2, 2010. In a separate press release issued earlier today, the Company also
announced that it has entered into a definitive agreement to acquire
Omneon, Inc., a leading privately-held supplier of products and solutions
for the production, transformation and distribution of digital media.
For the first quarter of 2010, the Company reported net sales of $84.8
million, up 25% from $67.8 million in the first quarter of 2009. Total
bookings in the first quarter of 2010 were $91 million, up 60% from
approximately $57 million for the same period in 2009.
The strong year-over-year growth in sales and bookings reflected stronger
demand across many different markets worldwide, particularly from domestic
cable customers. International sales represented 50% of net sales for the
first quarter of 2010.
Harmonic also achieved a strong sequential increase in its gross margins,
reflecting the continued success of its new products and solutions, and its
product design and sourcing strategy.
The Company reported GAAP net income for the first quarter of 2010 of $5.3
million, or $0.05 per diluted share, compared to a GAAP net loss for the
first quarter of 2009 of $18.8 million, or $0.20 per share, which included
charges incurred as a result of the acquisition of Scopus in March 2009.
Excluding non-cash accounting charges for stock-based compensation expense,
the amortization of intangibles and certain tax adjustments, the non-GAAP
net income for the first quarter of 2010 was $5.8 million, or $0.06 per
diluted share, compared to non-GAAP net income of $4.1 million, or $0.04
per diluted share, for the same period of 2009. See "Use of Non-GAAP
Financial Measures" and "GAAP to non-GAAP Reconciliation" below.
As of April 2, 2010, the Company had cash, cash equivalents and short-term
investments of $267.8 million, compared to $271.1 million as of December
31, 2009.
"We're very pleased with our year-over-year growth in sales and bookings in
the first quarter," said Patrick Harshman, President and Chief Executive
Officer. "While the first quarter is usually the slowest period of the
year, we believe both the customer spending environment and our competitive
position are stronger than a year ago, and we ended the quarter with
considerable business momentum and a strong backlog and deferred revenue
position.
"As we move further into 2010, we expect to continue to extend our market
reach, maintain strong operating efficiencies and introduce powerful new
video delivery solutions. We expect to further strengthen our leadership
position within our industry through our proposed acquisition of Omneon. We
believe the addition of Omneon will enable us to significantly expand our
relationships with video content owners and further strengthen our position
as a leading provider of innovative solutions for the world's leading media
companies."
Business Outlook
Harmonic anticipates that combined net sales for the second and third
quarters of 2010 will be in a range of $180 to $190 million. GAAP gross
margins and operating expenses for the second and third quarters of 2010
are expected to be in a range of 46% to 48% and $76.5 to $78.5 million,
respectively. Non-GAAP gross margins and operating expenses for the second
and third quarters of 2010, which exclude charges for stock-based
compensation and the amortization of intangibles, are anticipated to be in
a range of 49% to 51% and $70 to $72 million, respectively. These
anticipated results exclude any financial impact of, or related to, the
proposed acquisition of Omneon, which is expected to close during the third
quarter of 2010.
Conference Call Information
Harmonic will host a conference call today to discuss its financial results
and the proposed acquisition of Omneon 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 50189705). 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 50189705).
About Harmonic Inc.
Harmonic Inc. is redefining video delivery with the industry's most
powerful solutions for delivering live and on-demand video to TVs, PCs and
mobile devices. Harmonic's technical innovation and market leadership
enable the company to offer a unique and comprehensive solution portfolio
-- including encoding, transcoding, content preparation, stream processing,
asset management, edge processing, and delivery. Broadcast, cable,
Internet, mobile, satellite and telecom service providers around the world
choose Harmonic's IP-based digital video, software, and broadband edge and
access solutions. Using these award-winning and industry-leading solutions,
operators can reduce costs and differentiate their services by offering
consumers a higher quality, personalized multi-screen experience.
Harmonic (NASDAQ: HLIT) is headquartered in Sunnyvale, California with R&D,
sales and system integration centers worldwide. The company's customers,
including many of the world's largest communications providers, deliver
services 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 first quarter ended April
2, 2010; our expectation that we will continue to extend our market reach,
maintain strong operating efficiencies and introduce powerful new video
delivery solutions; our expectation that we will further strengthen our
leadership position within our industry through our proposed acquisition of
Omneon; our belief that the acquisition of Omneon will enable us to
significantly expand our relationships with video content owners and
further strengthen our position as a leading provider of innovative
solutions for the world's leading media companies; our expectation that we
will complete our acquisition of Omneon, Inc. in the third quarter of 2010,
if at all; and our expectations regarding net sales, GAAP gross margins,
GAAP operating expenses, non-GAAP gross margins and non-GAAP operating
expenses for the second and third quarters 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: the acquisition of Omneon does not close when
expected, or at all; if we do complete the acquisition of Omneon, 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 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
(In thousands)
(Unaudited)
April 2, December 31,
2010 2009
----------- -----------
Assets
Current assets:
Cash and cash equivalents $ 155,960 $ 152,477
Short-term investments 111,838 118,593
Accounts receivable, net 70,041 64,838
Inventories 39,609 35,066
Deferred income taxes 26,503 26,503
Prepaid expenses and other current assets 24,043 20,821
----------- -----------
Total current assets 427,994 418,298
Property and equipment, net 28,750 25,941
Goodwill, intangibles and other assets 111,334 112,065
----------- -----------
$ 568,078 $ 556,304
=========== ===========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable 21,217 22,065
Income taxes payable 1,675 609
Deferred revenue 41,391 32,855
Accrued liabilities 31,092 37,584
----------- -----------
Total current liabilities 95,375 93,113
Income taxes payable, long-term 41,391 43,948
Financing liability, long-term 11,127 6,908
Other non-current liabilities 2,736 4,862
----------- -----------
Total liabilities 150,629 148,831
----------- -----------
Stockholders' equity:
Common stock 2,285,051 2,280,041
Accumulated deficit (1,867,214) (1,872,533)
Accumulated other comprehensive loss (388) (35)
----------- -----------
Total stockholders' equity 417,449 407,473
----------- -----------
$ 568,078 $ 556,304
=========== ===========
Harmonic Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended
--------------------
April 2, April 3,
2010 2009
--------- ---------
Net sales $ 84,822 $ 67,756
Cost of sales 44,016 42,371
--------- ---------
Gross profit 40,806 25,385
--------- ---------
Operating expenses:
Research and development 16,966 14,496
Selling, general and administrative 20,845 21,290
Amortization of intangibles 534 389
--------- ---------
Total operating expenses 38,345 36,175
--------- ---------
Income (loss) from operations 2,461 (10,790)
Interest and other income, net 13 864
--------- ---------
Income (loss) before income taxes 2,474 (9,926)
Provision for (benefit from) income taxes (2,845) 8,917
--------- ---------
Net income (loss) $ 5,319 $ (18,843)
========= =========
Net income (loss) per share
Basic $ 0.06 $ (0.20)
========= =========
Diluted $ 0.05 $ (0.20)
========= =========
Shares used to compute net income (loss) per share:
Basic 96,684 95,306
========= =========
Diluted 97,344 95,306
========= =========
Harmonic Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
--------------------
April 2, April 3,
2010 2009
--------- ---------
(In thousands)
Cash flows from operating activities:
Net income (loss) $ 5,319 $ (18,843)
Adjustments to reconcile net income (loss) to
cash used in operating activities:
Amortization of intangibles 2,616 1,886
Depreciation 2,333 1,855
Stock-based compensation 3,243 2,374
Net loss on disposal of fixed assets 19 37
Deferred income taxes (1,422) -
Other non-cash adjustments, net 567 626
Changes in assets and liabilities, net of effect
of acquisition:
Accounts receivable (5,204) 17,329
Inventories (4,512) 4,583
Prepaid expenses and other assets (1,101) 9,524
Accounts payable (3,356) (3,203)
Deferred revenue 6,445 (3,068)
Income taxes payable (1,616) 153
Accrued excess facilities costs (1,697) (1,556)
Accrued and other liabilities (4,613) (16,423)
--------- ---------
Net cash used in operating activities (2,979) (4,726)
--------- ---------
Cash flows provided by (used in) investing activities:
Purchases of investments (35,367) (60,657)
Proceeds from sale and maturities of investments 41,292 58,728
Acquisition of property and equipment, net (1,153) (1,455)
Acquisition of Rhozet - (453)
Acquisition of Scopus - (62,397)
--------- ---------
Net cash provided by (used in) investing
activities 4,772 (66,234)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 1,736 2,025
--------- ---------
Net cash provided by financing activities 1,736 2,025
--------- ---------
Effect of exchange rate changes on cash and cash
equivalents (46) (65)
--------- ---------
Net increase (decrease) in cash and cash equivalents 3,483 (69,000)
Cash and cash equivalents at beginning of period 152,477 179,891
--------- ---------
Cash and cash equivalents at end of period $ 155,960 $ 110,891
========= =========
Harmonic Inc.
Revenue Information
(In thousands)
(Unaudited)
Three Months Ended
---------------------------
April 2, 2010 April 3, 2009
------------- -------------
Product
Video Processing $ 38,890 46% $ 35,664 53%
Edge & Access 35,544 42% 24,243 36%
Services and Support 10,388 12% 7,849 11%
-------- --- -------- ---
Total $ 84,822 100% $ 67,756 100%
======== ========
Geography
United States $ 42,592 50% $ 32,118 47%
International 42,230 50% 35,638 53%
-------- --- -------- ---
Total $ 84,822 100% $ 67,756 100%
======== ========
Market
Cable $ 56,017 66% $ 38,214 57%
Satellite 14,970 18% 15,798 23%
Telco & Other 13,835 16% 13,744 20%
-------- --- -------- ---
Total $ 84,822 100% $ 67,756 100%
======== ========
NOTE: We have revised our product categories to move software products into
the Video Processing category. The data for Q1 2009 has been revised to
conform with this presentation.
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, 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 financial measures presented here are gross
margin, operating expense, 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 press release. The non-GAAP adjustments described below have
historically been excluded from our non-GAAP financial measures. These
adjustments, and the basis for excluding them, are:
-- Restructuring Activities
- Severance Costs
The Company has incurred severance costs in cost of sales and in
operating expenses in connection with the integration of its
acquisition of Scopus in March 2009, as well as other severance
costs related to headcount reduction actions in response to the
global economic slowdown. The Company excludes one-time costs of
this nature in evaluating its ongoing operational performance. We
believe that these costs do not reflect expected future expenses
nor do they provide a meaningful comparison of current versus prior
operating results.
- Excess Facilities
The Company has incurred excess facilities charges and credits in
operating expenses due to adjustments related to vacating portions
of its Sunnyvale campus and estimating income from subleases of
buildings. Similar facilities charges have been incurred in
connection with vacating certain buildings leased by Scopus which
are no longer required. The Company excludes one-time charges and
credits of this nature in evaluating its ongoing operational
performance. We believe that these charges and credits do not
reflect expected future expenses nor does their inclusion in
calculating our results of operations provide a meaningful
comparison of current versus prior operating results.
- Product Discontinuance
In connection with the rationalization of product lines following
the acquisition of Scopus, the Company recorded charges for excess
inventory in connection with products which have been discontinued
or which are excess to requirements as they are expected to be sold
on a very limited basis. The Company excludes one-time costs of
this nature in evaluating its ongoing operational performance. We
believe that these costs do not reflect expected future expenses
nor does their inclusion in calculating our results of operations
provide a meaningful comparison of current versus prior operating
results.
-- Acquisition Fees and Expenses
In accordance with the requirements of new business combination
accounting standards, which the Company adopted on January 1, 2009,
fees and expenses paid to professional advisers in connection with
the acquisition of Scopus in March 2009 have been expensed. These
acquisition-related costs are of a one-time nature and the Company
excludes costs of this nature in evaluating its ongoing operational
performance. We believe that these costs do not reflect expected
future expenses nor does their inclusion in calculating our results
of operations provide a meaningful comparison of current versus
prior operating results.
-- Non-Cash Items
- Stock-Based Compensation Expense
The Company has incurred stock-based compensation expense in cost
of sales and operating expenses. The Company excludes stock-based
compensation expense because it believes that this measure is not
relevant in evaluating its core operating performance, either for
internal measurement purposes or for period-to-period comparisons
and benchmarking against other companies.
- Amortization of Intangibles
The Company has incurred charges for amortization of intangibles
related to acquisitions made by the Company. The Company excludes
these items when it evaluates its core operating performance. We
believe that eliminating these expenses is useful to investors when
comparing historical and prospective results and comparing such
results to other companies because these expenses will vary if and
when the Company makes additional acquisitions.
- Purchase Accounting Fair Value Adjustments Related to Inventory
The Company has incurred a charge related to the fair value write-up
of acquired inventory sold. GAAP purchase accounting rules require
that inventory we acquired in connection with the acquisition of
Scopus be written-up to estimated fair market value. Management
believes that the charge arising from the fair value write-up of
acquired inventory sold does not reflect the actual inventory costs
incurred by Scopus prior to the acquisition and does not reflect
expected future inventory costs nor does the inclusion of this
information in calculating our results of operations provide a
meaningful comparison of current versus prior operating results.
- Provision/Benefit for Income Taxes
The Company has assumed an effective tax rate of 35%
in 2009 and 30% in 2010 because management believes that these rates
are indicative of the normalized tax rate for Harmonic and its
consolidated subsidiaries on a global basis. Management believes
that these rates i) more appropriately reflect a provision for
income taxes based on computed and expected amounts of non-GAAP
pre-tax income, and ii) exclude the impact of certain discrete
events which can cause quarterly tax provisions to be volatile.
Certain discrete items are required by GAAP to be recorded in the
current period but do not reflect future expected tax provisions or
effective rates nor does the inclusion of this information in
calculating our net income provide a meaningful comparison of
current versus prior net income.
Harmonic Inc.
GAAP to Non-GAAP Income (Loss) Reconciliation
(Unaudited)
Three Months Ended Three Months Ended
April 2, 2010 April 3, 2009
----------------------- -------------------------
Net Net
Gross Operating Income Gross Operating Income
(In thousands) Margin Expense (loss) Margin Expense (loss)
------- ------- ------ ------- ------- --------
GAAP $40,806 $38,345 $5,319 $25,385 $36,175 $(18,843)
Cost of sales related
to severance costs 676 676
Cost of sales related
to Scopus product
discontinuance 5,965 5,965
Cost of sales related
to stock based
compensation expense 478 478 337 337
Research and development
expense related to
restructuring costs (581) 581
Research and development
expense related to stock
based compensation expense (1,109) 1,109 (870) 870
Selling, general and
administrative expense
related to
restructuring costs (1,298) 1,298
Selling, general and
administrative expense
related to stock based
compensation expense (1,656) 1,656 (1,166) 1,166
Selling, general and
administrative expense
related to excess
facilities expense (33) 33
Acquisition costs
related to Scopus (3,367) 3,367
Amortization of
intangibles 2,082 (534) 2,616 1,479 (389) 1,868
Discrete tax items and
adjustments (5,345) 6,735
------- ------- ------ ------- ------- --------
Non-GAAP $43,366 $35,046 $5,833 $33,842 $28,471 $ 4,053
======= ======= ====== ======= ======= ========
GAAP income (loss) per
share - basic $ 0.06 $ (0.20)
====== ========
GAAP income (loss) per
share -diluted $ 0.05 $ (0.20)
====== ========
Non-GAAP income per
share - basic $ 0.06 $ 0.04
====== ========
Non-GAAP income per
share -diluted $ 0.06 $ 0.04
====== ========
Shares used in
per-share calculation
- basic 96,684 95,306
====== ========
Shares used in
per-share calculation
- diluted, GAAP 97,344 95,306
====== ========
Shares used in
per-share calculation
- diluted, non-GAAP 97,344 95,691
====== ========