Harmonic Q2 Revenues Falls Short of Estimates

Posted by Joe Zaller
Jul 28 2011

Harmonic announced that its net revenue for the second quarter of 2011 was $134m, up from $95.5m in the second quarter of 2010. Including the contribution from Omenon, which was acquired in September 2011, the company’s revenue was up 5% versus the same period a year ago.

GAAP net income for the quarter was $400,000, compared to net income of $4.4m for the second quarter of 2010. Non-GAAP net income for the quarter was $10.5m, compared to non-GAAP income of $9.1m for the same period of 2010

The results were below both the consensus of equity analysts, who were expecting revenue of $139.4m, and Harmonic’s own previously issued earnings guidance of $137m-$141m.  The company attributed the revenue shortfall to lower than expected sales into the US cable TV segment, the timing of revenue on large encoding projects in the US market, revenue recognition, and an unfavorable margin mix.

On the company’s earnings conference call with equity analysts, Harmonic CEO Patrick Harshman directly addressed the revenue shortfall, saying: “I want to be clear that we’re not satisfied with the financial results of this quarter. Having said that though the delta between our previous guidance and the final result is modest, and while our near-term outlook has been affected by the marketplace issues, our strategic direction remains very much on track and our medium-to-longer-term growth outlook remains positive. I also want to be clear that once we confirmed we did not reach our revenue goals, we accelerated the process of determining and communicating to our revenue, earnings, and importantly updated outlook for the remainder of the year.”

On a GAAP basis, gross margins in the quarter were 46%, and GAAP operating margins were 1%, compared to 48% and 4%, respectively, for the same period of 2010. Non-GAAP gross margins were 51% and non-GAAP operating margins were 11% for the second quarter of 2011, compared to 51% and 13%, respectively, for the same period of 2010.

Revenue from Omneon product sales in the quarter were $25.5m, an increase of 15.6% versus the previous quarter, but down 4.3% when compared to the same period a year ago. Harmonic does not break out service revenue from the Omneon business, but CFO Carolyn Aver, in response to questions from analysts on the earnings conference call, indicated that Omneon’s service revenues were approximately 15% of product sales.

Harshman said that the Omneon integration has gone well overall, but he acknowledged progress has been slower expected with respect to both cross-training and cross-selling. Harshman said that the company has already realized some important sales synergies and that as a result the combined company’s revenue in the broadcast segment has increased significantly,  and that he expect to continue to additional progress in this area through the second half of the year.

International sales represented 59% of revenue during the quarter, up 26% year-over-year on a pro forma basis. However, sales in the domestic market business declined 15% versus the same period a year ago.

 

1H 2011 Performance:

For the first six months of 2011, net revenue was $266.8, up from $180.4 million in the same period of 2010. GAAP net income for the first half of 2011 was $0.9m, compared to $9.8m, for the same period of 2010. Non-GAAP netcome for the first half of 2011 was $20.7m, compared to $15mfor the same period of 2010.

 

Updated Guidance:

Aver provided update revenue guidance, saying that while Harmonic “is very positive on mid-to-long-term opportunities, the short-term domestic market issues cause us to be more cautious for the remainder of the year. At this time, we expect revenue for the full year to be in the $540m to $550m range. We expect gross margin to be in the 50% to 52% range with the product and geographic mix continuing again to influence whether we’re on the high or low end of the range for gross margins. We expect expense management as well as seasonality to deliver a sequentially lower operating expenses in Q4 by as much as a couple of million dollars. We do continue to target a 14% to 16% annual operating margin goal. Although, given the Q2 results, we won’t achieve that goal for 2011.”

 

Related Content:

Press Release: Harmonic Announces Second Quarter 2011 Results

Harmonic Q2 2011 Earnings Call Transcript

Harmonic Q2 2011 Earnings Call Transcript

Press Release: Harmonic Announces First Quarter 2011 Results

 

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