Archive for the ‘Broadcast technology vendor financials’ Category

Belden/Grass Valley Acquires Snell Advanced Media

Analysis, broadcast technology market research, Broadcast technology vendor financials, Broadcast Vendor M&A, Broadcaster Financial Results, Conference Sessions | Posted by Joe Zaller
Feb 08 2018

Belden announced it has closed the acquisition of Snell Advanced Media (S-A-M).

Terms of the deal were not disclosed.

The deal makes Grass Valley one of the largest media technology suppliers.

Clearly the company believes there is growth to be had in broadcast.  At the company’s December 2017 investor day, Belden CEO John Stroup said “I think that we have a lot more conviction around what’s happening in the broadcast industry than we did two years ago. And as you recall – or you may recall, our concentration within production, in particular around live, gives us a lot more confidence that we’re going to see growth in that end market than we did, say, in the last two to three years.”

Although at first glance there is substantial product overlap between Grass Valley and S-A-M, there are less similarities between each company’s geographic sales footprint, which will help Grass Valley expand into new customers. A Grass Valley spokesperson said that the deal would help the company extend its reach and provide in-region support to its global customer base.

Additionally, a number of each company’s respective product lines are complementary (in news for example), making the overall Grass Valley proposition more robust.

According to Belden management, S-A-M will be integrated into Grass Valley, and moving forward the S-A-M brand name will be retired, and “Grass Valley, a Belden Brand” will be used as the company name.

Tim Shoulders will be the president of the combined company, which will be headquartered in Montreal.

Belden executives cited multiple strategic reasons for the deal, including gaining market share, and an expanded geographic footprint.

“With this investment Belden again demonstrates our commitment to the broadcast industry. Adding SAM’s employees and products to the Grass Valley family extends Grass Valley’s global reach, makes us more agile and provides even more domain expertise to enhance Grass Valley’s industry-leading solutions in networking, news and live production and content delivery for broadcasters,” said Shoulders. Our customers face competition and uncertainty like never before. This transaction will help them navigate the technology options available to them with fewer concerns around interoperability and deployment complexity while providing them greater access to the innovators developing the solutions of tomorrow.”

Prior to doing this deal, Belden did substantial work to refinance its debt, which provided additional financial leverage for M&A.  Indeed, the company’s CFO often refers to the amount of “dry powder” that the company has available for M&A. At the company’s investor day, Stroup said “We [are] extremely pleased with the execution of our debt refinancing and repayment during the quarter. By issuing €450 million of senior subordinated notes at 3.375% and €300 million at 2.875%, the lowest long-term borrowing rates in the history of the company, we have further lowered our cost of capital and extended our maturities. In total, we expect these actions to be accretive to EPS by $0.47 on a full-year basis.

 

Reminiscent of Previous Industry Roll-ups

The S-A-M deal is Belden’s fifth acquisition in the media and broadcast technology sector.

 

In addition to these transactions, Belden acquired KVM switch vendor Thinklogical in May 2017 for $171.3 million in cash, and added it to the company’s Broadcast Solutions segment for reporting purposes.

Including Thinklogical, Belden has invested $779.4 million in the broadcast industry since 2009.  When the company discloses the price paid for S-A-M, the thoal amouint will be known.

This level of investment is reminiscent of previous industry “roll-ups.”

Between 2000 and 2009, Harris Corporation spent approximately $1 billion on the acquisitions of vendors including Louth, Encoda, and Leitch. In 2012, Harris Corporation divested its broadcast division in a deal valued at up to $225 million.

A decade earlier, Technicolor (then Thomson) spent even more to acquire a slew of media technology supplier including 5 businesses of the Philips Professional Broadcast group (Cameras, Film Imaging, Signal Processing, Media Networking and Control & Systems), Canopus, PRN, ParkerVision, Nexstream, Thales Broadcast & Multimedia, and (coincidentally) Grass Valley.

Starting in 2010, Technicolor divested these businesses in separate transactions:

 

So why does Belden think it will be different for them?

Speaking at the 2017 Devoncroft Media Technology Business Summit, Belden CEO John Stroup said “Of all the industries we’re in, [media and broadcast] is the industry where the economic capabilities of the vendors are the least developed, and that creates a lot of stress for us.

Belden CEO John Stroup at 2017 Devoncroft Media Technology Executive Summit

Belden CEO John Stroup at 2017 Devoncroft Media Technology Executive Summit

“We would obviously prefer that all vendors were making good economic investments, because [today] we’re all investing in everything, and that doesn’t lead to particularly good economic returns. I think we’re all searching for a level of scale, because I think this is a business that requires a lot of scale from a commercial point-of-view. To operate globally, you need to generate the amount of revenue that gives you the scale from an R&D point of view. So, what we’ve been trying to do with our team is teach them different ways to evaluate how much to be spending, where to be spending, and trying to put some rigor and framework around it so we’re not doing anything that’s reckless. Some vendors have gotten themselves into problems…. We’re trying to really careful of where we place our bets.”

With the S-A-M deal, Belden achieves greater scale.

Additionally, the company has previously telegraphed its plan to build a factory in India, in order to lower its cost of production (it is unknown at this time whether the production of Grass Valley or S-A-M products will move to this factory once it opens).

 

Greater Control of the IP Transition?

Belden executives often speak about how industry-wide transition to IP-based infrastructure provides potential growth opportunities for Grass Valley. During Belden’s Q4 2017 earnings call, Stroup said Q4 2017 was Grass Valley’s strongest-ever quarter for sales of IP-based systems, and predicted that IP shipments would accelerate in the future, thanks to the adoption of new standards and increasing custom confidence in IP-based solutions. “We think [the finalization of the SMPTE 2110 standard is] an important development and certainly going to be helpful moving into 2018. We had our strongest quarter ever in IT-based product revenues in the fourth quarter. It was over $5 million. And it was to 36 different customers. So, it’s clear that our customers are getting more confident, more comfortable with the technology. I think they view us as really one of the only solutions that meets the open standard. As we’ve talked about, we have some competitors that have done very well, but their systems and their solutions are far more closed than what we’re offering and what the standard dictates. So, I think that the Grass Valley business, from a product point of view, is very well positioned moving into 2018.”

Indeed, as one of the three founders of AIMS, Grass Valley is a key player in the industry-wide transition to IP-based operations. The acquisition of S-A-M puts Grass Valley in control of more potential IP-related infrastructure refresh projects.

Because the broadcast industry is dwarfed by the broader IT market, the IT “titans” (such as Arista, Cisco, Huawei, and Juniper) tend to use established broadcast suppliers as a route to market.  By acquiring S-A-M, Belden now owns two of the top “traditional broadcast vendors,” making it more likely that they will successfully capture market share as the industry transitions to IP-based operations.

 

 

The Belden M&A Strategy

It shouldn’t be a surprise that Belden made this acquisition, over the past decade, the company has grown substantially through strategic M&A.

As recently as December 2017, Indeed, Belden routinely touts it well-established approach of acquiring underperforming assets, and generating synergies and cost savings through what it calls “The Belden Business System.”

During its December 2017 analyst day, Stroup told analysts “we continue to actively pursue a number of attractive inorganic opportunities. We currently have $475 million available for inorganic opportunities. We estimate that approximately $1.7 billion will be available through 2020. This will come from organic activities and it would be at or below net leverage of 3 times.

 

“Over the last three years, approximately 75% of capital deployment has been allocated towards M&A. Going forward, we expect to allocate approximately 55% towards M&A.

“Our acquisition approach always begins with our strategic plan. Nothing enters our funnel of opportunities, nothing begins cultivation until we identify an opportunity as either allowing us to take advantage of an opportunity or to address a threat.

 

“The companies that we pursue are typically company leaders within their specific area, often niches. They have products that are complementary to ours and typically there are opportunities for significant costs or commercial synergies.

“Typical bolt-on for Belden would be a company with revenue growth that is similar to Belden’s end markets. Gross profit margins are typically greater than Belden. However, EBITDA margins are typically lower than the Belden average.

 

And by applying our Lean enterprise system, we have the opportunity to achieve EBITDA margins at or above Belden average, achieve ROIC of 13% to 15% by year three and purchase the company for a post-synergy multiple of approximately seven times EBITDA.”

 

Related Content:

Grass Valley Q4 2017 Revenue Impacted by Revenue Recognition, Predicts Growth for 2018

Broadcast Vendor M&A: Belden Completes Acquisition of Grass Valley, Will Invest $25 Million in Integration of Combined Business

More Broadcast Vendor M&A: Belden Buys Miranda for $350 Million in All-Cash Deal

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© Devoncroft Partners 2009-2018.  All Rights Reserved.

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Grass Valley Q4 2017 Revenue Impacted by Revenue Recognition, Predicts Growth for 2018

Annual Results, Broadcast technology vendor financials | Posted by Joe Zaller
Feb 06 2018

Belden announced that revenues in its Broadcast Solutions segment were $174.7m, down 16.3% versus the previous year, and down 9.8% compared to the previous quarter.

 

As per the table above from Belden’s investor presentation, the company’s Belden’s Broadcast Solutions segment includes broadcast stalwart Grass Valley, along with PPC, a provider of components used by cable MSO, and KVM switch provider ThinkLogical.

 

Q4 2017 Broadcast Revenues Impacted by Revenue Recognition Issues

The company attributed much of the year-over-year revenue shortfall to the negative impact of revenue recognition issues.

“Most of our businesses performed in line with our expectations during the fourth quarter, with the exception of an isolated situation in our Broadcast Solutions segment,” said Belden CEO John Stroup, shown below speaking at the 2017 Devoncroft Media Technology Business Summit.

Belden CEO John Stroup at 2017 Devoncroft Executive Summit

“We had expected to recognize revenue on $36 million of product that was shipped in 2017, but we were unable to do so as a result of technical U.S. GAAP revenue recognition requirements that our team identified during the year-end closing process. We now expect these 2017 shipments to be recognized as $36 million in revenue and $22 million in EBITDA in 2018.”

On the company’s earnings call, Belden Chief Financial Officer Henk Derksen provided additional detail on the accounting issues that prevented the company from recognizing $36 million of broadcast revenue in the quarter: “We expected to recognize revenue on $36 million of orders in our Broadcast segment that shipped prior to the end of 2017. However, we are unable to do so, as a result of technical U.S. GAAP revenue recognition requirements, said Derksen.

These revenue recognition issues appear to be related to the shipment of IP-based systems, which either include or are sold through third-parties. As the industry transitions to IP-based operations for production, playout, and delivery, more and more products (from all suppliers) are likely to involve some sort of third-party, many vendors may begin to face accounting challenges similar to those encountered by Grass Valley in Q4 2017.

Derksen provided additional detail on the revenue recognition shortfall, saying: “[IIP n] certain transactions, our broadcast IT business shipped products through third-party logistics providers, or 3PLs. On all of these shipments, legal title and the risk of loss transferred to the customers at the time of the shipment, and we were entitled to receive payment. However, we did not meet all of the technical delivery criteria for revenue recognition under U.S. GAAP. Clearly, we’re disappointed with this outcome. That said, we are pleased that we identified this matter as part of our year-end closing process. Ultimately, we view this issue as a delay and have increased our 2018 guidance accordingly to reflect an incremental $36 million in revenue and $22 million in EBITDA.”

According to Derksen, these revenues will be recognized over the first three quarter of 2018. “The $36 million that we couldn’t recognize in the fourth quarter and will recognize in 2018 will layer in $15 million in Q1, $15 million in Q2, and $6 million in the third quarter,” said Derksen. “We have to modify some of our terms and conditions with our customers. That will take a little bit of time. So I don’t want you to expect that all the $36 million to reverse completely in Q1.”

 

Shipments of IP-based Products Accelerate

Despite the accounting issues, the company appears increasingly confident about the transition to IP-based operations.

Stroup said Q4 2017 was Grass Valley’s strongest-ever quarter for sales of IP-based systems, and predicted that IP shipments would accelerate in the future, thanks to the adoption of new standards and increasing custom confidence in IP-based solutions. “We think [the finalization of the SMPTE 2110 standard is] an important development and certainly going to be helpful moving into 2018. We had our strongest quarter ever in IT-based product revenues in the fourth quarter. It was over $5 million. And it was to 36 different customers. So, it’s clear that our customers are getting more confident, more comfortable with the technology. I think they view us as really one of the only solutions that meets the open standard. As we’ve talked about, we have some competitors that have done very well, but their systems and their solutions are far more closed than what we’re offering and what the standard dictates. So, I think that the Grass Valley business, from a product point of view, is very well positioned moving into 2018.”

 

 

Positive Outlook for 2018

Belden provided an upbeat outlook for its broadcast business in 2018. Stroup told analysts “I would expect our Broadcast segment to be in that range [3% – 5% organic growth], maybe towards the higher end, because when we report our organic growth in 2018, we’re going to give it based on what our actual revenues were in 2017 versus our actual revenues in 2018. So obviously our Broadcast segment is going to have a lot of tailwind coming into 2018. So I would expect that all of our platforms are going to be somewhere around 3% to 5%. The Broadcast segment may be on the higher end, maybe 5%, maybe a little bit higher given the fact that they have that $36 million of revenue coming into the year.

 

Full Year 2017 Broadcast Results

For the full year 2017, revenues in the Broadcast Solutions segment was $725.1 million, down 5.8% from $769.6 million in 2016.

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Related Content:

Press Release: Belden Reports Results for Fourth Quarter and Full Year 2017

Press Release: Belden Reports Solid Results for Third Quarter 2017

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© Devoncroft Partners 2009-2018.  All Rights Reserved.

Vitec Group Updates Segment Reporting for Broadcast Division

Annual Results, broadcast technology market research, Broadcast technology vendor financials | Posted by Josh Stinehour
Feb 05 2018

The Vitec Group, which owns more than a dozen brands in the broadcast industry, released an update of its financial performance through the first half 2017 based on its new segment reporting. 

The change followed the Company’s divestiture of its services business Bexel to NEP.  The new structure offers visibility into the two product groups Vitec sells in the broadcast industry.

As of November 2017, The Vitec Group reports across the following three Divisions:

  • Imaging Solutions contains the assets formerly reported in the Photographic division, which is focused on the professional and consumer photographers.
  • Production Solutions groups Vitec’s more traditional broadcast products, including camera supports, robotic camera systems, prompters, mobile power, lighting, along with the remaining service activities of Camera Corps and The Camera Store.
  • Creative Solutions comprises The Vitec Group’s video transmission systems (Paralinx, Teradek), monitors (smallHD), and camera accessories (Wooden Camera, Offhollywood).

One of the stated goals of the reporting modification is to give greater focus to the fast-growing independent content creator market where the Creative Solutions division has a larger presence.

It is interesting to note nearly all of the assets in Creative Solutions were acquired over the past five years.

Broadcast Operating Segment Results

The restated 2016 and 1H 2017 results illustrate the relative revenue contribution and profitability profiles of the Production Solutions and Creative Solutions divisions.

For full year 2016, Production Solutions represented 72.5% of Broadcast sales or £121.6 million.  Creative Solutions had sales of £45.9 million or 27.5% of Broadcast revenue.

When including an allocation for corporative overhead the operating margin profile for Production Solutions was 10.9% during 2016 and 16.8% for Creative Solutions.

During the first half of 2017 (ending June 30) Production Solutions had sales of £55.7 million (64.3% of Broadcast) and Creative Solutions contributed £30.8 million of revenue (35.7% of Broadcast).

Operating margins (with corporate allocation) for 1H 2017 were 9.5% for Production Solutions and 17.2% for Creative Solutions.

Vitec Group did not provide comparable year-over-year period presentations of the Divisions.  However, even using a straight line estimate, it is reasonable to view the Production Solutions as an approximately flat business (year-over-year) in the first half of 2017, as the second half is usually the stronger portion of the year.  Creative Solutions, in contrast, is experiencing strong growth.  The magnitude of growth is difficult to estimate given the inorganic additions to the division with the closing of the acquisitions of Offhollywood and Wooden Camera.  As a reference point, the 2016 restatement lists £20.4 million of investing activities attributable to the Creative Solutions division.

While growing faster, the Creative Solutions division is also meaningfully more profitable with operating margins in the high teens.  Thus, consistent with The Vitec Group’s stated intentions, this reporting approach provides greater visibility into the higher growth, higher margin Creative Solutions division.

In addition, the restatement of 2016 financial results further highlights the merits of the divestiture of Bexel.  This is not a commentary on the quality of Bexel, but rather an observation about the fundamentally different characteristics of Bexel’s asset and capital intensive business, which contrasts with the remaining product businesses.  Consider that during 2016 – the fourth year in the four year industry cycle – Bexel had revenue of £47.7 million, an adjusted (before impairments and restructuring costs) operating loss of £1.4 million, and capital expenditures of £7.1 million.  (It is appropriate to point out Bexel generated operating cash when adjusting for non-cash items and including rental asset disposals).

Full year 2017 results are scheduled for release on February 22, 2018.

Impact of US Tax Change

In the same release, Vitec offered guidance on the impact of the new Tax Cuts and Jobs Act legislation passed in the United States.  The immediate impact to Vitec is a revaluation lower of its US deferred tax balance by £7.0 million.  This is because the lower US tax rate of 21% (versus 34%) means tax losses have less value in the future.

 

 

Related Content:

Vitec Announces Segment Reporting, US Tax and Adjusted Performance Measures

 

 

© Devoncroft Partners 2009-2018.  All Rights Reserved.

 

 

ATEME Grows 29% in 2017; Hints at Acquisitions

Annual Results, broadcast technology market research, Broadcast technology vendor financials, OTT Video | Posted by Josh Stinehour
Feb 02 2018

Video compression specialist ATEME announced 2017 revenue of €49.6 million (~$61.8M USD), an increase of 29.3% versus full year 2016.  At a constant exchange rate, year-over-year growth was even greater at 32.5%.  

On a quarterly basis, Q4 2017 had revenue of €16.4 million, a 38.3% increase over Q4 2016.

Management called attention to 2017 representing the sixth straight year of revenue growth.  Annual revenue increases averaged 23% per year during 2011-2015, and have accelerated since.  In a related observation (and given the growth stats, perhaps justified), ATEME has adopted the tag line, “the emerging leader of video delivery.”

In its press release, ATEME also highlighted a strong Q4 in the EMEA region and a multi-million software contract with a major US service provider.

Revenue by Geography:

ATEME benefited from growth in all regions during 2017.

  • Revenues for the EMEA region during the year were €18.6 million, a 14.1% increase 2016. As a percentage of total sales, EMEA was 38.4% of revenue during 2017, which compares to 43.5% during 2016.
  • The USA / Canada region contributed revenue of €15.7 million, a 31.4% rise over the year-earlier period. USA / Canada was 32.4% percent of total sales in the period versus 31.9% during 2016.
  • Latin America was responsible for €7.9 million of revenue during 2017, a substantial increase of 90.4% versus 2016. For 2017, Latin America accounted for 16.5% of total sales, compared to 11.2% during 2016.
  • Asia Pacific accounted for €6.1 million of revenue, an increase of 22.3% versus the full year 2016. The Asia Pacific region contributed 12.7% of total sales during 2017, versus 13.4% during 2016. This adds to growth of 80% in 2016.

The growth in the Latin America region was attributed to strong demand for digital terrestrial distribution solutions.

 

Business Outlook:

Commenting on the 2018 outlook, ATEME President Michel Artieres stated, “The outlook for 2018 remains positive and we aim to deliver further healthy growth in all regions. We will continue to focus on developing or acquiring new solutions aimed at expanding our addressable market beyond the video headend segment, downstream to the distribution network.”  The reference to ‘acquiring new solutions’ may suggest some upcoming corporate initiatives on the part of ATEME.

 

Related Content:

ATEME Full Year 2017 Results Press Release

 

 

© Devoncroft Partners 2009 – 2018. All Rights Reserved.

 

 

Ericsson Sells Majority Stake in Media Solutions Business

Analysis, Broadcast technology vendor financials, Broadcast Vendor M&A | Posted by Josh Stinehour
Jan 31 2018

Ericsson announced two major developments with its media operations: (1) the sale of a majority interest of 51% in its Media Solutions Business to private equity firm One Equity Partners; (2) and its decision to maintain ownership of Ericsson’s former Broadcast and Media Services, which was renamed Red Bee Media in November 2017. 

The Media Solution Business comprises Ericsson’s compression and PayTV product portfolio built in part through the acquisitions of Tandberg Television (2007), Microsoft Mediaroom (2013), Fabrix (2014), Azuki Systems (2014), and Envivio (2015).  Full year revenue for the Media Solution Business is around 3 billion SEK or approximately $380 million USD.

Red Bee Media encompasses Ericsson’s managed services portfolio in the broadcast sector, which was built in part through the acquisitions of Technicolor’s Broadcast Services (2012), Red Bee Media (2013), and FYI Television (2016). Annual revenue for Red Bee Media is approximately 3.5 billion SEK or around $444 million USD.

These announcements came after a nearly nine month evaluation of strategic alternatives for the businesses.  The initial announcement was made shortly before the 2017 NAB Show in March of last year.

Challenging operating performance for these businesses was also initially disclosed in early 2017.  It continued.  Ericsson’s Q3 2017 financial results showed a segment operating margin of -77% for the year-to-date nine month period in the Other segment where the Media Solution and Red Bee Media businesses were reported.  Further financial information indicated Media Solution and Red Bee Media represented around 75% of the sales reported in the Other segment during the third quarter of 2017.  In the most recent announcement, Management stated substantially improvements had been made during 2017, especially in regards to margins.

During its conference call with analysts, Ericsson indicated adjusted operating income for Red Bee Media was approximately -38M USD for 2017, though “steering towards breakeven.”

While improved, the Media Solutions business operating losses remained “substantially higher” than Red Bee Media in 2017.

The majority sale to One Equity Partners is anticipated to close in the third quarter of 2018.  As outlined in the public statements, at the time of closing employees, contractors, and specified assets and liabilities will transfer to the new company.  Since Ericsson is retaining a 49% ownership position, the Company will continue to report its portion of profit and loss in its financial statements.  No financial terms of the transaction were provided.

The decision to retain Red Bee Media was reached after considering a variety of alternatives.  While Ericsson disclosed it receive bids for Red Bee Media, Management concluded these bids did not reflect the value of the business.  In fact, Management stated in its public remarks that “upside from continued development was deemed to be significant.”

Several factors associated with the transaction are worthy of emphasis.  These combined businesses represent around 3% of Ericsson’s annual revenue.  While not significant assets in the context of Ericsson, these are considerable product and service portfolios in the global media technology sector.

The press releases announcing the strategic initiatives admonish several statistics highlighting the significant footprint of these businesses, among these almost 4,000 combined employees and a tier1 list of media customers. The consideration of their customers was apparent in Ericsson’s decision making. In fact, Ericsson’s President and CEO Börje Ekholm made explicit reference to this in the press release, stating “We are confident that the direction we announce today will enable us to create the best long-term value, for both our customers and our shareholders.”

 

 

Related Content:

Ericsson Press Release on Media Solutions Divestiture

Ericsson Press Release on Red Bee Media

 

 

© Devoncroft Partners 2009-2018.  All Rights Reserved.

 

 

Harmonic Q2 2017 Revenue Declines 25% as Industry-Wide Structural Shift to Cloud, Software, and SaaS Accelerates

Analysis, broadcast industry technology trends, broadcast technology market research, Broadcast technology vendor financials, OTT Video, Quarterly Results | Posted by Joe Zaller
Aug 02 2017

Harmonic announced that its revenue for the second quarter of 2017 was $82.9 million, down 24.9% compared to the previous year, and down 0.8% versus the previous quarter.

Bookings for the second quarter of 2017 were $91.1 million, down 22.3% compared to last year, and up 11.0% compared to the previous quarter.

The company attributed its revenue decline to a slowdown in spending, resulting from a strategic shift in spending at broadcasters and media companies, who the company says are increasingly prioritizing OTT and direct-to-consumer offerings over traditional linear platform deployments.

“Over-the-top software, cloud solutions and related subscription business models are becoming more significant drivers of our Video business,” Harmonic CEO Patrick Harshman told investors during the company’s Q2 2017 earnings call. “While subscription video-on-demand over-the-top platform growth is not news, the drive of traditional media companies and service providers to new unified live over-the-top services targeted at both mobile devices and the big screen in the living room is accelerating faster than we anticipated.”

On a GAAP basis, the Harmonic’s net loss for Q2 2017 was $31.5 million, or $(0.39) per diluted share in Q2 2017. This compares to a GAAP net loss of $20.7 million, or $(0.27) per diluted share last year, and a GAAP net loss of $24 million, or $(0.30) per diluted share last quarter.

In light of Harmonic’s declining revenues and ongoing losses, the company indicated it planned to reign-in costs during the second half of 2017.  Newly-appointed CFO Sanjay Kalra told analysts: “recognizing these accelerating marketplace changes, we have initiated a realignment of our investments, spending and infrastructure to optimally align with customer demand and opportunity… Our combined second half [2017] operating expenses will be $11 million to $15 million below first half operating expenses.”

GAAP gross margins were 41.1% for the quarter, compared to 43.1% last year, and 48.8% last quarter. The company attributed the decline to lower than expected revenue in the quarter.

Non-GAAP gross margins were 47.9%, compared to 53% last year, and 52.1% last quarter. Non-GAAP video product gross margin was 51.4%, compared to 56.1% last year, and 54.9% last quarter. Non-GAAP cable edge gross margin was 19% during Q2 2017, compared to 38.3% last year, and 29.1% last quarter.

Research and development expense was $27 million for the quarter, compared to $26.5 million last year, and $26.5 million last quarter. Expressed as a percentage of total revenue, R&D expense represented 32.9% of sales in the quarter, compared to 24.3% last year.

SG&A expense was $32.6 million for the quarter, compared to $36.5 million last year, and $36.5 million last quarter. Expressed as a percentage of total revenue, SG&A expense represented 39.6% of sales in the quarter, compared to 33.5% last year.

 

Geographic Revenues

Revenue in the Americas region was $40.6 million during Q2 2017, a decrease of 29.6% versus the prior year, and an increase of 7.1% versus the previous quarter. The Americas accounted for 49.3% of total Q2 2017 revenue, down from 53.1% last year, and up from 45.7% last quarter.

Discussing the company’s sharp revenue decline in the Americas, Harshman indicated the industry has reached an inflection point in ongoing structural shift from linear platforms to OTT and direct-to-consumer offerings: “Particularly in the U.S. the strategic emphasis on high-quality over-the-top services is impacting the pace of investment in more traditional broadcast and pay -TV systems… What we’re seeing now is a pullback on investments in those traditional platforms and a real strategic mandate to an all-hands-on-deck on the over-the-top, the streaming strategy. It’s not just down to a delayed decision around specific technology, but it’s more, I think, a derivative of a broader strategic shift that we’re seeing playing out…. There’s a lot happening in the media and pay -TV landscape in the U.S., so there’s a lot of thinking going on, there’s a lot of planning, not the least of which is related to the underlying technology platforms. But there’s a lot that our customers are grappling with and trying to figure out.”

EMEA revenue in Q2 2017 was $24.95 million, down 25.3% versus the prior year, and down 1.9% versus the previous quarter. The EMEA region accounted for 30.3% of total Q2 2017 revenue, compared to 30.7% last year and 30.7% last quarter.

APAC revenue in Q2 2017 was $16.75 million, down 14.5% versus the prior year, and down 4.8% versus the previous quarter. The APAC region accounted for 20.3% of total Q2 2017 revenue, compared to 16.2% last year and 23.6% last quarter.

 

Product Revenues

Video products revenue for the quarter was $44.8 million, down 27.9% versus the previous year, and down 1.5% versus the previous quarter. As a percent of total sales, video products represented 54.5% of revenue in Q2 2017, compared to 56.8% in year-earlier period, and 54.9% in the previous quarter.

Similar to other firms that have embarked on the shift from hardware/CapEx revenues to software/SaaS revenues, company CFO Karla explained: “when a traditional CapEx booking comes in, we typically recognize the vast majority of that booking as revenue immediately or within a quarter or two. But if that booking comes in as a SaaS order, revenue is instead recognized ratably over time, resulting in much less current period revenue, but an expanded backlog. So to be clear, as our Video segment mix shift to SaaS, we expect a near-term revenue and operating profit headwind, offset by a growing backlog that over time will provide greater revenue visibility.”

Harshman took an optimistic tone when asked about the company’s shift to software and SaaS.  “While software-as-a-service is still a relatively small component of this overall over-the-top business, the adoption of our SaaS solutions in the second quarter was greater than expected,” he said. “Cloud and SaaS total contract value grew 90% sequentially to a little over $7.5 million, while our annual recurring revenue grew 87% to nearly $6 million. Had these subscription bookings been traditional CapEx orders recognizes revenue immediately, second quarter Video revenue would have grown year-over-year. I will be surprised if [SaaS isn’t 20% of our video revenue] within a year…. I mean I hesitate a little bit, but only because just a quarter ago, we were sitting here relatively pleased candidly that we were at 5% and to see it surge to 8% in the second quarter was certainly a surprise to us.”

Cable Edge revenue was $5.36 million during the quarter, a decline of 66% versus the previous year, and an increase of 9.8% versus the previous quarter. Cable Edge represented 6.5% of revenue in Q2 2017, a decrease versus the 14.4% contribution in the previous year, and an increase versus the 5.9% in the previous quarter.

Harmonic’s Cable Edge business has been in decline for more than a year due to the transition by cable TV operators from legacy EdgeQAM products, to a new generation of products based on C-CAP (Converged Cable Access Platform) technology.

Once again, Harshman was optimistic when describing the outlook for Cable Edge products.  “The real news here is that we continue to make material progress advancing our CableOS technology leadership and new business pipeline,” he said. “Our confidence is further bolstered by recent advanced purchase orders. Since our May conference call and through July, we received over $15 million of new CableOS orders, bringing our CableOS backlog to approximately $20 million. Relative to our initial expectations, we are seeing a higher percentage of this demand being associated with new distributed access architectures, which make sense given the growing industry focus.”

Services and support revenue were $32.1 million in Q2 2017, an increase of 4.0% versus the previous year, and a decline of 9.8% versus the previous quarter.  As a percentage of overall revenue, service and support accounted for 39.0% in Q2 2017, versus 28.8% last year, and 39.2% last quarter.

 

Segment Revenues

Broadcast and Media sales were $35.85 million, down 18.1% versus last year, and up 2.8% versus the previous quarter. In aggregate, Broadcast and Media accounted for 43.6% of total revenue, compared to 40.3% last year, and 42.1% last quarter.

Service Provider revenues were $46.42 million, down 29.4% versus last year, and down 3.3% versus the previous quarter. In aggregate, Service Providers accounted for 56.4% of total revenue, compared to 60.5% last year, and 57.9% last quarter.

 

Business Outlook

The company provided the following guidance for Q3 and Q4 2017.

For the third-quarter of 2017, the company expects revenue to be within the range of $80 – $90 million, comprised of Video revenue in the range of $72 ­- $81 million; and Cable Edge revenue in the range of $8 – $9 million. Q3 non-GAAP gross margins are expected to be in the range of 51% to 52%, with Video gross margin of 55% to 56% and Cable Edge gross margins of 20% to 21%. Q3 2017 non-GAAP operating expenses are expected to be in a range of $48 million to $50 million. Q3 2017 non-GAAP operating losses are expected to be in the range of $9 million to $1 million, and non-GAAP EPS is expected to be in the range of $0.11 to $0.03 The company expects cash and short-term investments at the end of Q3 to be between $40 million and $50 million.

For the fourth-quarter of 2017, the company expects non-GAAP revenue to be within the range of $90 – $100 million, which includes Video revenue of $80 – $86 million and Cable Edge revenue of $10 – $14 million.  Q4 2017 non-GAAP gross margins are expected to be 52% to 53.5% with Video gross margins of 55% to 57% and Cable Edge gross margins of 27% to 29%. Q4 2017 non-GAAP operating expenses are expected to be in a from $48 million to $50 million. Q4 2017 non-GAAP operating profit is expected to be in the range of a loss of $3.3 million to profit of $5.5 million. Q4 non-GAAP EPS is expected to be in the range of $0.05 loss to $0.04 profit. The company expects cash and short-term investments at the end of Q4 to be between $40 million and $50 million.

Harmonic exited the quarter with total backlog and deferred revenue of $194.4 million, a record for the company.  The company ended the quarter with $52.9 million in cash, down from $56 million last quarter. Employee count at the end of Q2 2017 was 1,338 compared to 1,403 last year, and 1,358 at the end of Q1 2017.

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Related Content:

Press Release: Harmonic Announces Second Quarter 2017 Results

Previous Year: Harmonic Exceeds Revenue Guidance for Q2 2017, Anticipates Double-Digit Operating Margins by Q4

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© Devoncroft Partners 2009 – 2017. All Rights Reserved.

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Devoncroft 180-Page Media Technology Industry Analysis Now Available

Analysis, broadcast industry technology trends, broadcast industry trends, broadcast technology market research, Broadcast technology vendor financials, Online Video, OTT Video, technology trends | Posted by Josh Stinehour
May 26 2017

Last month, more than 1,000 NAB Show attendees packed the largest room at the Las Vegas Convention Center for the Devoncroft Partners Media Technology Business Summit, to hear industry thought leaders discuss market trends and technology deployment strategies.

We have now published our analysis of the market in a 180-page report.  The report is available for purchase from our online store.  Alternatively, if you are a buyer, user, or supplier of media technology products or services, then we will send you a complimentary copy of report in exchange for taking our annual Big Broadcast Survey on industry trends.

The report is the culmination of several months of research in the media technology sector.  It incorporates data gathered in over 100 pre-show interviews of executives in the media technology sector, over 100 executive meetings at the NAB Show, year-over-year trend and project analysis from the last eight years of Big Broadcast Survey studies, and a detailed tracking of major announcements by media companies and media technology suppliers.

 

Report Purchase Option:

 

Take a Survey Option (Available to Technology Buyers, Users, and Suppliers):

  • Click here to register to take the 2017 Big Broadcast Survey.
  • You will receive a survey invitation automatically after sign up
  • The interactive survey will ask custom questions based on your specific interests. It will take 10-30 minutes to complete, and you can pause the survey at any time and restart where you left off by simply clicking the link again. All individual answers are kept strictly confidential.
  • Shortly after completing the survey, we will send you a link to download a complimentary copy of the 180-page report.
  • Recognizing the value of your time, in addition to the 180-page report, you will also receive:
    • A 50+ page summary of this year’s market study as soon as it’s available
    • One or more entries into the sweepstakes drawing to win 1 of 10 prizes: one of ten $500 (USD) Amazon gift cards. Please click here for full terms and conditions

 

 

© Devoncroft Partners 2009 – 2017. All Rights Reserved.

 

 

 

Reminder: 2017 NAB Show Media Technology Business Summit is Sunday April 23rd

Analysis, broadcast industry technology trends, broadcast industry trends, Broadcast technology channel strategy, broadcast technology market research, Broadcast technology vendor financials, Broadcast Vendor M&A, Broadcaster Financial Results, Conference Sessions, market research, Media Services M&A, Online Video, OTT Video | Posted by Joe Zaller
Apr 21 2017

If you are attending the 2017 NAB Show, and you want to understand the commercial and technical issues that are driving the industry forward, you don’t want to miss the sixth annual Media Technology Summit.

11:00am – 3:00pm, Sunday, April 23, 2017

Las Vegas Convention Center, Room N249

We’ve worked hard to bring together an outstanding line-up of technology and business thought leaders from all parts of the media technology ecosystem, and we are very grateful that this incredible group has agreed to take part in this year’s event and share their experiences with our audience.

The full conference agenda is at the bottom of this post.

This summit is the one place at the NAB Show where C-Level executives from each part of the media ecosystem discuss the commercial issues facing their organizations, and how this has and will impact their technology investment and deployment strategies. Whether you are a media company, technology supplier, finance professional, or industry strategist, if you want to understand the executive perspective on business developments in the media technology sector, we’re sure you will find the conference to be a thought-provoking kickoff to the NAB Show. It’s also a great networking opportunity.

In addition to executive panel discussions, we will also provide an overview of the most up-to-date industry market research and analysis.  This includes preliminary findings from the 2017 Devoncroft Partners Big Broadcast Survey, the industry’s definitive demand-side market study, and the 2017 Global Market Valuation Report (GMVR), which is published by IABM DC, a 50-50 joint-venture between Devoncroft Partners and industry trade association IABM.

If you have not yet participated in the 2017 Big Broadcast Survey, you can register here and join thousands of your colleagues worldwide in the definitive study of media industry trends.

If you’d like to attend the Summit, all you need is an NAB Show badge.  So please bring any colleagues interested in the changing landscape of media technology.

You can also register using code ATT2.

This event has been standing-room-only for the past several years, and we are expecting a large turn-out, so please come early.

 

2017 NAB Show Media Technology Business Summit

Conference Agenda

11:05am – Strategic Industry Analysis: Valuations, M&A, and Equity Finance

Joshua Stinehour, Principal Analyst, Devoncroft

 

11:25am – The Broadcast & Media Technology Industry in 2017

Joe Zaller, President, Devoncroft

 

11:50am – The Vendor C-Suite: Strategies for an Evolving Market

David Ross, CEO, Ross Video

Johan Apel, President & CEO, ChyronHego

John Stroup, President, CEO, Belden, Inc.

Ramki Sankaranarayanan, CEO, Prime Focus Technologies

 

12:30pm – Leveraging Hyperscale IT Infrastructure for Next-Generation Media Workflows

Dave Ward, Senior Vice President, Engineering Chief Technology Officer and Chief Architect, Cisco Systems

Keith McAuliffe, Vice President and Chief Technologist, HPE Servers Global Business Unit Hewlett Packard Enterprise

Peter Guglielmino, Media & Entertainment CTO, IBM

Tom Burns, Media & Entertainment CTO, DELL EMC

Moderator: Al Kovalick, Founder, Media Systems Consulting

 

1:15pm – Service Provider C-Suite: Perspectives on the Future of Media Technology

Barry Tishgart, Vice President, Comcast Technology Solutions

Bill Wheaton, Executive Vice President & Chief Strategy Officer, Akamai

Darcy Antonellis, Chief Executive Officer, Vubiquity

Usman Shakeel, Worldwide Technology Leader Media & Entertainment, Amazon Web Services

Moderator: Janet Gardner, President, Perspective Media Group

 

1:50pm – The Broadcaster C-Suite: Trends Driving Investment Decisions

John Honeycutt, CTO Discovery Communications

Renu Thomas, EVP Media Operations, Engineering & IT Disney/ABC Television Group

Richard Friedel, EVP and GM, Fox Network Engineering and Operations

 

2:30pm – The Broadcaster C-Suite: The Opinion of Financial Decision-Makers

Christine Dorfler, Chief Financial Officer, NBCUniversal Owned Television Stations

Joe Dorrego, EVP/CFO, FOX Television Stations

Lucy Rutishauser, Senior Vice President Chief Financial Officer & Treasurer, Sinclair

Michael Tuvell, Senior Vice President Chief Financial Officer, Tribune Media

 

Related Content:

2017 Media Technology Business Summit Agenda on NAB Show website

 

© Devoncroft Partners 2009 – 2017. All Rights Reserved.

 

Dolby Announces 2016 Results; Continued Dolby Vision Progress

Analysis, Broadcast technology vendor financials, Quarterly Results | Posted by Josh Stinehour
Nov 03 2016

Dolby announced fiscal fourth quarter and full year revenue for the twelve months ending September 30, 2016.  2016 fiscal year revenue was $1,025.7 million, a 5.68% increase versus the 2015 fiscal year.  Dolby_logo.svg

Full year revenue was within the guidance provided at the end of fiscal 2015 for total revenue between $1 billion and $1.03 billion.

2016 FY GAAP net income was $185.9 million or $1.81 earnings per share (diluted).  This represents a 2.5% increase over the net income for the 2015 fiscal year of $181.4 million ($1.75 earnings per share).

GAAP gross margins were 89.4% for the year, a slight decrease versus the gross margins of 90.2% from the year earlier period.  Operating margins were 23%, an increase of 100 basis points over the operating margins from fiscal 2015.

2016 Fiscal Year Revenue by Type:

Dolby reports revenue across licensing, product, and service activities.  Product revenues consists primarily of sales of Digital Cinema Servers and Dolby Cinema Audio Products.

  • Licensing revenue for fiscal year 2016 was $917.0 million, an increase of 5.6% versus fiscal year 2015.
  • Product revenue was $90.5 million for the year, an increase of 7.9% compared to the 2015 fiscal year.
  • Services revenue were $18.2 million during fiscal year 2016, a decrease of 2.5% against 2015.

Product gross margins for 2016 were 28%, a substantial increase over the 16% gross margins from 2015.

2016 Fiscal Year Licensing Revenue by Customer Vertical:

Licensing revenue in the Broadcast vertical for televisions and set-top box sales was 46% of total licensing revenue or $421.8 million during fiscal 2016.  On an aggregate basis, broadcast licensing grew 10.4% versus the 2015 fiscal year.

As part of management’s prepared comments on the Dolby’s earnings call, President and CEO Kevin Yeaman drew attention to the strong performance in the broadcast sector.  “We had another strong year in broadcast. Dolby Audio is an established format in developed markets like North America and Western Europe, and we are well positioned in areas like Africa, India and China, when the transition to digital broadcast is underway. Future growth in broadcast will come from the continued migration of emerging markets to digital televisions and the rollout of high-definition and 4K set-top boxes with Dolby Audio in both developed and emerging markets” said Mr. Yeaman (Sourced from Seeking Alpha transcript).

Fiscal Q4 2016 Results:

Fiscal fourth quarter revenue was $233 million, flat against the year earlier period, and a decrease of 16.1% versus the preceding quarter, FQ3 2016. Management attributed the sequential drop in revenue to the higher timing of licensing payments in Q3 compared to Q4.

For the quarter, Dolby’s GAAP net income was $23.9 million or $0.23 earnings per share, a 48.6% decline when measured against the fiscal fourth quarter of 2015, and a 62.4% decline against the preceding quarter.

GAAP Gross Margins were 87% during the fourth quarter, a 210 basis point decline from the year earlier period and a 410 basis point decline versus FQ3 2016.  Operating margins were 16%, an increase over the 12% from FQ4 2015 and a decrease versus the 29% operating margins during the preceding quarter.

Management guidance at the end of third fiscal quarter was for revenue in the range of $220 million to $230 million for the fourth quarter with gross margins between 88% and 89%, and GAAP earnings per share of $0.16 and $0.22.  Dolby exceeded its guidance on both revenue and earnings per share, though underperformed on gross margins.

Update on Dolby Atmos, Doly Cinema, and Dolby Vision:

Among the revenue drivers cited by management were the growing adoption of Dolby Atmos (next-generation immersive audio technology), Dolby Vision (next-generation imaging technology), and Dolby Cinema (premium cinema experience combining multiple Dolby technologies).

  • Dolby Atmos is now installed or committed in over 2,400 cinematic screens worldwide. 550 feature films using Dolby Atmos have been announced or released.
  • The first televisions incorporating Dolby Vision become available in the past year. LG is including Dolby Vision in their OLED and Super UHD LCD TVs; VIZIO is including Dolby Vision in their R, P, and M Series; and TCL and Skyworth are also shipping TVs with Dolby Vision.  Content incorporating Dolby Vision is now available from Warner Bros., Sony Pictures, MGM, Universal, Lionsgate, Netflix and Amazon Studios.
  • Over 30 Dolby Cinema locations were added during 2016, bringing the total to over 40.

“We are well on our way to establishing that Dolby Vision is the best way to experience HDR content” stated Mr. Yeaman on Dolby’s earning call with analysts.  “Our job this year is to accelerate the deployment of Dolby Vision” continued Mr. Yeaman.

Financial Guidance

Dolby’s guidance for the fiscal year 2017 is for revenue between $1.06 billion and $1.09 billion.  Broadcast licensing revenue is expected to remain relatively flat in 2017.

Guidance for the first quarter of fiscal 2017 is revenue in the range of $250 million to $260 million, gross margins between 88% and 89%, and earnings per share between $0.34 and $0.40.

 

 

Related Content:

Press Release: Dolby Fiscal Fourth Quarter and Full Year 2016 Earnings Release

Earnings Transcript: Dolby Fiscal Fourth Quarter Results (SeekingAlpha)

 

 

© Devoncroft Partners 2009 – 2016. All Rights Reserved.

 

 

Download New Report: IBC 2016 Media Technology Industry Analysis

Analysis, broadcast industry technology trends, broadcast industry trends, broadcast technology market research, Broadcast technology vendor financials, technology trends | Posted by Josh Stinehour
Sep 09 2016

As the 2016 IBC Show kicks off in Amsterdam, Devoncroft Partners has published a 100+ page overview of recent developments in the broadcast and media technology sector.

A link to the download the report is available at the bottom of this page.

ibcshow-frontpage

The analysis reflects recent discussions we’ve had with executives at media companies, service providers, and technology vendors.  In particular, the presentation includes perspectives on the following,

  • Media Revenue Models Transitioning
  • Investment in OTT Technologies, Services
  • Invesotr Concerns on Media Industry Transition
  • Continued Media Restructuring
  • Media Technology Industry Market Performance 2009 – 2015
  • Technology Vendor Results in 2016
  • Market Catalysts in 2016
  • Sector Expectations for 2017
  • Review of Technology Trends, Project Deployments
  • Considerations for Future Media Technology Architectures
  • Implications of Market Developments on Technology Vendors

 

We welcome feedback, comments, and questions on this report.

If you would like to schedule a meeting at the IBC show, please let us know as soon as possible.  We have limited availability remaining.

We hope to see you in Amsterdam.

 

Please click here to download a PDF copy (10 MB) IBC Show 2016 – Observations and Analysis of the Media Technology Industry from Devoncroft Partners (registration required).

 

© Devoncroft Partners 2009 – 2016. All Rights Reserved.

 

 

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