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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 October 2, 2009.
For the third quarter of 2009, the Company reported net sales of $83.9 million, compared to $91.5 million in the third quarter of 2008 and $81.3 million for the second quarter of 2009. For the first nine months of 2009, net sales were $232.9 million, compared to $268.1 million in the same period of 2008.
During the third quarter of 2009, the Company saw a sequential increase in quarterly sales to international customers, particularly in Europe. International sales represented 52% of revenue for the third quarter of 2009, up from 43% in the previous quarter and 39% in the third quarter of 2008. Total bookings for the third quarter were approximately $79.9 million, compared to $81.3 million in the previous quarter.
The Company reported GAAP net income for the third quarter of 2009 of $2.6 million, or $0.03 per diluted share, compared to net income of $12.0 million, or $0.12 per diluted share, for the same period of 2008. Excluding restructuring charges related to the recent Scopus acquisition and non-cash accounting charges for purchase accounting adjustments to inventory, stock-based compensation expense, the amortization of intangibles and certain tax adjustments, the non-GAAP net income for the third quarter of 2009 was $4.5 million, or $0.05 per diluted share, compared to $15.9 million, or $0.17 per diluted share, for the same period of 2008. See "Use of Non-GAAP Financial Measures" and "GAAP to non-GAAP Reconciliation" below.
As of October 2, 2009, the Company had cash, cash equivalents and short-term investments of $253.0 million, compared to $252.6 million as of July 3, 2009.
"We're pleased with the sequential sales growth from our expanding base of international customers," said Patrick Harshman, President and Chief Executive Officer. "However, we continue to see cautious customer spending compared to last year. In this market environment, we have continued to carefully manage our operating expenses while also continuing to extend our global reach and technology leadership across a range of compelling new video applications extending from HDTV to mobile video. We remain confident in our strong competitive position and long-term growth prospects."
Business Outlook
Harmonic anticipates that net sales for the fourth quarter of 2009 will be in a range of $80.0 to $86.0 million. GAAP gross margins and operating expenses are expected to be in a range of 44% to 46% and $37.0 to $38.0 million, respectively. Non-GAAP gross margins and operating expenses for the fourth quarter of 2009, which exclude charges for stock-based compensation and the amortization of intangibles, are anticipated to be in a range of 47% to 49% and $33.0 to $34.0 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 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 32354964). 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 32354964).
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 20 years of 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 third quarter ended October 2, 2009; our belief that we are continuing to extend our global reach and technology leadership across a range of compelling new video applications; our confidence in our competitive position and long-term growth prospects, and our expectations regarding net sales, GAAP gross margins, GAAP operating expenses, non-GAAP gross margins and non-GAAP operating expenses for the fourth quarter of 2009. 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 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 the continuing integration of Scopus does not proceed as we expect; 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 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, 2008, our quarterly report on Form 10-Q for the quarter ended July 3, 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)
October 2, 2009 December 31, 2008
Assets
Current assets:
Cash and cash equivalents $ 149,975 $ 179,891
Short-term investments 102,989 147,272
Accounts receivable, net 70,347 63,923
Inventories 30,720 26,875
Deferred income taxes 36,384 36,384
Prepaid expenses and other current assets 15,561 15,985
Total current assets 405,976 470,330
Property and equipment, net 19,323 15,428
Goodwill, intangibles and other assets 110,856 78,605
$ 536,155 $ 564,363
Liabilities and stockholders' equity
Current liabilities:
Accounts payable 15,051 13,366
Income taxes payable 2,357 1,434
Deferred revenue 29,905 29,909
Accrued liabilities 36,116 50,490
Total current liabilities 83,429 95,199
Accrued excess facilities costs, long-term 257 4,953
Income taxes payable, long-term 43,018 41,555
Other non-current liabilities 4,783 8,339
Total liabilities 131,487 150,046
Stockholders' equity:
Common stock 2,277,088 2,263,331
Accumulated deficit (1,872,580 ) (1,848,394 )
Accumulated other comprehensive income (loss) 160 (620 )
Total stockholders' equity 404,668 414,317
$ 536,155 $ 564,363
Harmonic Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
October 2, 2009 September 26, 2008 October 2, 2009 September 26, 2008
Net sales $ 83,861 $ 91,455 $ 232,909 $ 268,071
Cost of sales 47,781 47,259 137,898 138,744
Gross profit 36,080 44,196 95,011 129,327
Operating expenses:
Research and development 15,879 13,724 45,825 40,264
Selling, general and administrative 19,405 19,254 61,431 56,725
Amortization of intangibles 1,367 160 3,289 479
Total operating expenses 36,651 33,138 110,545 97,468
Income (loss) from operations (571 ) 11,058 (15,534 ) 31,859
Interest and other income, net 371 836 1,871 5,526
Income (loss) before income taxes (200 ) 11,894 (13,663 ) 37,385
Provision for (benefit from) income taxes (2,777 ) (71 ) 10,523 (13,398 )
Net income (loss) $ 2,577 $ 11,965 $ (24,186 ) $ 50,783
Net income (loss) per share
Basic $ 0.03 $ 0.13 $ (0.25 ) $ 0.54
Diluted $ 0.03 $ 0.12 $ (0.25 ) $ 0.53
Shares used to compute net income (loss) per share:
Basic 96,104 94,805 95,742 94,365
Diluted 96,732 95,863 95,742 95,491
Harmonic Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
October 2, 2009 September 26, 2008
Cash flows from operating activities:
Net income (loss) $ (24,186 ) $ 50,783
Adjustments to reconcile net income (loss) to cash provided by (used
in) operating activities:
Amortization of intangibles 9,222 4,746
Depreciation 6,299 5,215
Stock-based compensation 7,638 5,470
Excess tax benefits from stock-based compensation - (2,864 )
Loss on impairment of investment - 845
Loss on disposal of fixed assets 191 22
Deferred income taxes - (46,249 )
Other non-cash adjustments, net 1,995 (2,090 )
Changes in assets and liabilities:
Accounts receivable, net (303 ) (6,612 )
Inventories 12,097 1,741
Prepaid expenses and other assets 9,064 5,755
Accounts payable (1,279 ) (7,812 )
Deferred revenue (887 ) (6,967 )
Income taxes payable 2,156 31,430
Accrued excess facilities costs (4,446 ) (4,808 )
Accrued and other liabilities (27,332 ) (9,939 )
Net cash provided by (used in) operating activities (9,771 ) 18,666
Cash flows from investing activities:
Purchases of investments (101,221 ) (91,868 )
Proceeds from sale of investments 146,241 109,363
Acquisition of property and equipment, net (6,105 ) (6,049 )
Acquisition of intellectual property - (500 )
Acquisition of Scopus (63,053 ) -
Acquisition of Rhozet (453 ) (2,828 )
Redemption of Entone, Inc. convertible note - 2,500
Net cash provided by (used in) investing activities (24,591 ) 10,618
Cash flows from financing activities:
Proceeds from issuance of common stock, net 4,239 8,367
Excess tax benefits from stock-based compensation - 2,864
Net cash provided by financing activities 4,239 11,231
Effect of exchange rate changes on cash and cash equivalents 207 73
Net increase (decrease) in cash and cash equivalents (29,916 ) 40,588
Cash and cash equivalents at beginning of period 179,891 129,005
Cash and cash equivalents at end of period $ 149,975 $ 169,593
Harmonic Inc.
Revenue Information
(In thousands)
(Unaudited)
Three Months Ended Nine Months Ended
October 2, September 26, October 2, September 26,
2009 2008 2009 2008
Product
Video Processing $ 33,014 39 % $ 32,284 35 % $ 95,246 41 % $ 101,152 38 %
Edge & Access 32,678 39 % 43,029 47 % 88,447 38 % 124,191 46 %
Software, Services and Other 18,169 22 % 16,142 18 % 49,216 21 % 42,728 16 %
Total $ 83,861 100 % $ 91,455 100 % $ 232,909 100 % $ 268,071 100 %
Geography
United States $ 40,282 48 % $ 55,669 61 % $ 118,932 51 % $ 153,565 57 %
International 43,579 52 % 35,786 39 % 113,977 49 % 114,506 43 %
Total $ 83,861 100 % $ 91,455 100 % $ 232,909 100 % $ 268,071 100 %
Market
Cable $ 47,246 56 % $ 57,953 63 % $ 139,105 60 % $ 166,473 62 %
Satellite 17,488 21 % 19,824 22 % 44,292 19 % 53,378 20 %
Telco & Other 19,127 23 % 13,678 15 % 49,512 21 % 48,220 18 %
Total $ 83,861 100 % $ 91,455 100 % $ 232,909 100 % $ 268,071 100 %
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, 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 a charge 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 In 2008, the Company reversed a valuation allowance against certain deferred tax assets, resulting in a credit to its provision for income taxes. The Company has excluded the discrete benefit from this reversal from its calculation of the Company's non-GAAP net income because it believes that it is of a one-time nature and does not reflect future expected tax provisions nor does the inclusion of this information in calculating our net income provide a meaningful comparison of current versus prior net income. Additionally, in 2009, the Company has assumed an effective tax rate of 35% for non-GAAP purposes because management believes that the 35% effective tax rate is reflective of a current normalized tax rate for Harmonic and its consolidated subsidiaries on a global basis. Management believes that this rate i) more appropriately reflects a provision for income taxes based on computed and expected amounts of non-GAAP pre-tax income, and ii) excludes 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 October 2, 2009 Three Months Ended September 26, 2008
(In thousands) Gross Margin Operating Expense Net Income (loss) Gross Margin Operating Expense Net Income (loss)
GAAP $ 36,080 $ 36,651 $ 2,577 $ 44,196 $ 33,138 $ 11,965
Purchase accounting fair value adjustments related to inventory 518 518
Cost sales related to stock based compensation expense 376 376 325 325
Research and development expense related to stock based compensation (972 ) 972 (785 ) 785
expense
Selling, general and administrative expense related to stock based (1,346 ) 1,346 (1,110 ) 1,110
compensation expense
Selling, general and administrative expense related to excess (32 ) 32 (283 ) 283
facilities expense
Selling, general and administrative expense related to restructuring (237 ) 237
costs
Amortization of intangibles 2,207 (1,367 ) 3,574 1,356 (160 ) 1,516
Impairment on Lehman Brothers investment 845
Discrete tax items and adjustments (5,175 ) (970 )
Non-GAAP $ 39,181 $ 32,697 $ 4,457 $ 45,877 $ 30,800 $ 15,859
GAAP income per share - basic $ 0.03 $ 0.13
GAAP income per share - diluted $ 0.03 $ 0.12
Non-GAAP income per share - basic $ 0.05 $ 0.17
Non-GAAP income per share - diluted $ 0.05 $ 0.17
Shares used in per-share calculation - basic 96,104 94,805
Shares used in per-share calculation - diluted 96,732 95,863
Nine Months Ended October 2, 2009 Nine Months Ended September 26, 2008
(In thousands) Gross Margin Operating Expense Net Income (loss) Gross Margin Operating Expense Net Income (loss)
GAAP $ 95,011 $ 110,545 $ (24,186 ) $ 129,327 $ 97,468 $ 50,783
Cost of sales related to severance costs 822 822
Cost of sales related to Scopus product discontinuance 5,965 5,965
Purchase accounting fair value adjustments related to inventory 1,142 1,142
Cost sales related to stock based compensation expense 1,086 1,086 819 819
Research and development expense related to restructuring costs (712 ) 712
Research and development expense related to stock based compensation (2,771 ) 2,771 (2,021 ) 2,021
expense
Selling, general and administrative expense related to restructuring (2,291 ) 2,291
costs
Selling, general and administrative expense related to stock based (3,780 ) 3,780 (2,630 ) 2,630
compensation expense
Selling, general and administrative expense related to excess (423 ) 423 (1,738 ) 1,738
facilities expense
Acquisition costs related to Scopus (3,367 ) 3,367
Amortization of intangibles 5,893 (3,289 ) 9,182 4,151 (479 ) 4,630
Impairment on Lehman Brothers investment 845
Discrete tax items and adjustments 4,265 (16,068 )
Non-GAAP $ 109,919 $ 93,912 $ 11,620 $ 134,297 $ 90,600 $ 47,398
GAAP income (loss) per share - basic $ (0.25 ) $ 0.54
GAAP income (loss) per share - diluted $ (0.25 ) $ 0.53
Non-GAAP income per share - basic $ 0.12 $ 0.50
Non-GAAP income per share - diluted $ 0.12 $ 0.50
Shares used in per-share calculation - basic 95,742 94,365
Shares used in per-share calculation - diluted, GAAP 95,742 95,491
Shares used in per-share calculation - diluted, non-GAAP 96,250 95,491
SOURCE: Harmonic Inc.
Harmonic Inc. Robin N. Dickson, Chief Financial Officer, 408-542-2500 or StreetConnect Michael Newman, Investor Relations, 408-542-2760
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