The GAAP net loss for the quarter was $9.5m, or ($0.08) per share, compared with a GAAP net loss of $8.7m, or ($0.07) per share, during the same period last year, and GAAP of $0.9m, or $0.01 per share in the previous quarter.
On a non-GAAP basis, the net loss for the first quarter of 2013 was $2.7m, or ($0.02) per share, compared with non-GAAP net income of $2.2m, or $0.02 per share, during the same period last year, and non-GAAP net income of $8.3m, or $0.07 per share, during the previous quarter.
These figures exclude revenue from the company’s cable Access HFC business, which was sold to Aurora Networks for $46m on March 5, 2013. GAAP net income from discontinued operations, excluding the $15.0m gain on the sale of Cable Access HFC, was $1m, or $0.01 per share. Non-GAAP net income from discontinued operations, excluding the gain on the sale of the Cable Access HFC business, was also $1m, or $0.01 per share.
The results were at the low end of the company’s previously issued revenue guidance of net revenue in the first quarter of 2013 to be in the range of $100m to $110m, down from $115m to $125m prior to the sale of the cable access business. However, they were below the consensus estimates of equity analysts who were looking for revenue of $110.8m and a profit of $0.01 per share.
International markets accounted for 58% of total revenue in the quarter, up from 52% last year, and down from 62% last quarter. Harmonic CEO Patrick Harshman said that the company’s international growth was driven largely by improvement in the EMEA region, which had recorded its best quarterly intake since 2011. Harshman said that the “lion’s share” of EMEA demand was coming from northern Europe, eastern Europe and Russia.
However, Harshman cautioned that revenue from domestic service providers continued to be challenged, continuing the trend from the previous quarter.
On a product basis, production and playout (Omneon product sales minus associated service revenue) represented 22% of revenue this quarter compared to 18% for the same quarter last year. Cable edge business represented 17% of revenue, a decrease from 22% of revenue last year. Service and support business increased to 19% of revenue from 15% for the same quarter last year.
On a segment basis, broadcast & media represented 38% of revenue, cable represented 39%, and satellite and telco represented 23% of revenue.
GAAP gross margin for the quarter were 45%, up from 43% last year. Non-GAAP gross margins were 51%, up from 49% last quarter, and down from 56% last quarter. Harmonic CFO Carolyn Aver said that the company’s gross margins last quarter were unusually high and not expected to be repeated in the first quarter. The company had previously said that it expected gross margins for the quarter to be in the range of 51.5% to 52.5%.
Harshman attributed the margin expansion to “both an increase from recent run rate margins due to the divestiture of the margin-diluted access business and a reduction from the high-margin software heavy mix that of the previous quarter.”
The GAAP operating margin for the quarter was -15% last year, compared -8% last year. The non-GAAP operating margin was – 3%, compared 2% last year.
On the company’s earnings call, Harshman described the three primary elements of the company’s strategy to enhance shareholder value:
- the company’s previously announced strategic growth plan, which includes investments in new technologies (including CCAP, HEVC encoding, 4K, and multi-platform content delivery); and a significant expansion of the company’s global customer base
- continuing capital structure optimization, as evidenced by the company’s recently $100m share buyback program – up to 14.1% of the company’s outstanding shares
- the continuing evolution of the company’s board of directors
Harmonic ended the quarter with 1,096 employees, up from 1,081 at the end of the previous quarter, and $228.3m in cash, up $27.1 million from the previous quarter.
The company’s current cash position and stated intention to repurchase up to $100m of its stock prompted Cortina Asset Management analyst Andrew Storm to ask Harshman if this means that Harmonic has “effectively put M&A off the table for the next couple of years.”
Harshman responded by saying “I think our position on M&A hasn’t changed. But we have not said that it’s definitively off the table, and I think that position hasn’t changed. That being said, we see ample opportunity the technology we have under the roof and the opportunity we have to bring that technology to market, our focus has been and continues to be very much on the organic development of our market — the organic pursuit of these opportunities.”
Storm followed up by asking if Harmonic would do a large M&A deal in the next year or two. Harshman responded saying “I don’t anticipate that we would, and we have had not anticipated that for some time.”
Aver said that Harmonic entered the quarter with the highest percentage of backlog in deferred revenue to revenue in the company’s history, and that the company is currently working on several large projects that won’t be recognized until the latter half of this year.
“Therefore, we expect to see our revenue build over the year and our Q2 revenue to be in the range of $105m to $115m in the second quarter of 2013. Non-GAAP gross margins for the second quarter are expected to be in the range of 51.5% to 52.5%, and we have targeted our non-GAAP operating expenses for the second quarter to be $54m to $55m.
“Harmonic continues to execute on our organic growth strategy and shareholder value initiatives,” said Harshman. “During the quarter, we saw year-over-year growth in orders from international customers and domestic broadcast and media customers – both verticals core to our strategic growth plan. Although demand from domestic pay TV service providers remained soft during the quarter, many domestic customers are beginning to look ahead to new video infrastructure investments in emerging CCAP, HEVC, and Ultra HD technologies. Harmonic is making good progress in our efforts to establish a market-leading position in these new technology areas, as evidenced by our recent product announcements and positive customer feedback. In addition, with a strong balance sheet and continuing prospects for positive cash flow, we announced yesterday a tender offer for up to $100 million of our common stock as part of our ongoing commitment to create shareholder value.”
Press Release: Harmonic Announces First Quarter 2013 Results
Previous Quarter: Harmonic Announces Q4 and Full Year 2012 Results
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