Delayed Purchasing Decisions Drive Harmonic Revenue Down 13 Percent in 2015

Posted by Josh Stinehour
Feb 23 2016

Harmonic announced revenue for Q4 2015 of $86.6, a decrease of 19.7% versus Q4 2014 and an increase of 3.9% versus the Q3 2015.Harmonic_Logo

Guidance for Q4 2015 had been for revenue in the range of $78M – $88M, so Harmonic’s Q4 performance was in line with the upper-end of the revenue guidance.

Full year 2015 revenue was $377.0 million, a decrease of 13% versus the full year revenue of $433.6 in 2014.

During the Company’s earnings call, Harmonic’s CFO Harold Covert attributed the year-over-year declines to “delays in customer-purchase decisions related to product transitions and M&A activity.”  Patrick Harshman, Harmonic’s CEO, added “…for most of 2015, we saw hesitance to spend in the face of evolving television business dynamics, significant service provider M&A and significant technology transitions.”

Non-GAAP gross margins were 55.0% for the fourth quarter, a slight increase versus the 54.1% recorded in Q4 2014 and a slight decline when compared to the 56.3% non-GAAP gross margins in Q3 2015.

On a non-GAAP basis for the quarter, Harmonic recorded net income of $0.6 million or $0.01 per diluted share.  Comparable figures for Q4 2014 and Q3 2015 for non-GAAP net income per diluted share were $0.06 and $0.02 respectively.

On a GAAP basis for Q4 2015 Harmonic recorded a net loss of $7.2 million or $0.08 per diluted share.  GAAP net loss for the fourth quarter of 2014 was $0.06 per diluted share and during the third quarter of 2015 GAAP net loss was $0.00 per diluted share.

For the full year 2015 non-GAAP net income was $9.1 million or $0.10 per diluted share, a decline of 39.7% versus the full year 2014 result of $15.1 million or $0.16 per diluted share.  On a GAAP basis, net loss was $15.7 million or $0.18 per share for the full year 2015.  Full year 2014 GAAP net loss was $46.2 million or $0.50 per diluted share.  2014 GAAP net loss reflects a $32.2 million non-cash decrease in deferred income taxes.

Bookings for the fourth quarter of 2015 were $101.0 million, a decline of 16.6% when compared to the fourth quarter of 2014, though a favorable increase of 35% versus the third quarter of 2015.  In his initial remarks on the Company’s earnings announcement, Patrick Harshman highlighted the strength of the fourth quarter booking result, noting “the rebound in bookings occurred across all geographies and product categories but was strongest overseas and for our video business.”

At the end of 2015, the Company’s total backlog in deferred revenue was $120.1 million.  This represents a decrease of 6.6% against the backlog at the end of the 2014 and an increase of 8.4% over the backlog at the end of the third quarter of 2015.

Results by Geography:

  • Americas accounted for 54% of the revenue for the fourth quarter and 56% of full year 2015 revenue

 

  • The EMEA region was responsible for 24% of the revenue in the quarter and 25% for the year.

 

  • APAC represented 22% of the revenue for the quarter and 19% for the full year

 

On a product line basis:

  • Video products represented 58% of revenue in Q4 2015 and 54% for the full year 2015. This compares to 61% in Q4 2014 and 57% for the full year 2014.

 

  • Cable Edge represented 13% of revenue for Q4 2015 and 19% for the full year 2015. This compares to 17% in Q4 2014 and 21% in 2014.  During the quarter, Harmonic announced the receipt of its first multimillion-dollar financial commitment to its CableOS solution and is on track to make its first shipments of CableOS in second half of 2016.

 

  • Service and support revenue was 29% of revenue for Q4 2015 and 27% for full year 2015. This compares to 22% and 21% for Q4 2014 and full year 2014 respectively.

 

On a segment basis:

  • Broadcast and media represented 40% of revenue for the fourth quarter of 2015, a decline of 1.3% versus the same period in 2014. For the full year Broadcast and media was 39% of revenue, flat versus 2014.

 

  • Service provider represented 60% of revenue in the quarter, down 28.5% when compared against Q4 2014. For all of 2015, the Service provider segment represented 61% of revenue, a 19.6% decrease in year-over-year performance versus 2014.

 

The Company’s cash position at the end of 2015 was $152.8 million, up $65.2 million from the end of the third quarter 2015.  The increase is primarily attributable to the net proceeds from Harmonic’s issuance of $128.3 million in convertible notes, which was announced at the same time as its intended acquisition of Thomson Video Networks.  Approximately $50 million of the proceeds from the issuance were used to repurchase Harmonic common stock.  An additional 0.5 million of the common stock was also repurchased during the fourth quarter.  The combined purchases reduced the outstanding common stock share count by 11.6 million.

 

Update on Thomson Video Networks Acquisition

Management reiterated its expectation for the announced acquisition of Thomson Video Networks to close April 1, 2016. During the earning’s call, management offered additional detail on the anticipated benefits of scale stemming from the combination.

Harmonic is planning to achieve approximately $20 million of cost synergies through the combination with Thomson Video Networks.  $5 million of the cost synergies are anticipated in the first half of 2016 and $10 million in the second half of 2016.  This timeline of cost synergies would equate to a $20 million annual benefit beginning in 2017, the first year of full consolidation.

 

Business outlook:

Harshman said, “Looking ahead to the balance of 2016, while customer M&A, a transforming Pay-TV business environment and associated technology transformations will continue, we forecast improving demand and result in growth of our organic video business.”

This cautious optimism is reflected in the Company’s guidance for 2016.

For Q1 2016 management is anticipating total revenue in the range of $82M – $86M and non-GAAP gross margins of 54% – 55%.  More specific, the Video segment is anticipated to contribute revenue of $70 million to $72 million and the Cable Edge segment is anticipated to contribute revenue of $12 million to $14 million.  First quarter 2016 guidance does not include projections for the contribution of Thomson Video Networks since the transaction is not expected to close during the first quarter.

Full year 2016 guidance of revenue is in the range of $400 million to $415 million with non-GAAP gross margins of 55%.  The business segment breakdown of the guidance is the Video segment at $290 million to $295 million, the Cable Edge segment at $55 million to $60 million, and Thomson Video Networks is expect to contribute revenue of $55 million to $60 million during 2016.

The guidance equates to an expectation for organic revenue of $345 million to $355 million in 2016, a decline of approximately 7% (using mid-point of range) versus 2015 revenues.  This is substantially all attributable to an expected decline in the Cable Edge segment of approximately 32% owing to a depressed level of demand for Harmonic’s legacy Edge QAM and the timing of release of CableOS.

 

Related Content:  

Press Release: Harmonic Announces Fourth Quarter and Year End 2015 Results

Harmonic: Q4 and FY 2015 Earnings Presentation

 

 

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