Posts Tagged ‘Patrick Harshman’

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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Harmonic Exceeds Revenue Guidance for Q2. Anticipates Double-Digit Operating Margins by Q4

Analysis, Broadcast technology vendor financials, Quarterly Results | Posted by Josh Stinehour
Aug 10 2016

Harmonic announced revenue for second quarter of 2016 of $109.5 million, an increase of 6% versus Q2 2015 and an increase of 33% versus the preceding quarter Q1 2016.  Guidance for Q2 2016 had been for revenue in the range of $102 million – $107 million.  Meaning, the quarter’s revenue result exceeded the high-end of previous guidance. Harmonic_Logo

The quarter’s growth was primarily the result of revenue contribution from the Thomson Video Networks (“TVN”) acquisition, which closed in late February.  TVN contributed approximately $18 million in revenue for the quarter.  Management is expecting TVN to contribute $55 million to $60 million for the full year.

Included below is a slide from Harmonic’s earning presentation, which highlights several updates with the Company’s Video Business.  Of particular note, Harmonic’s VOS platform – for software bundles, COTS servers, and pure virtual machines – exceeded 75% of video encoding sales during the quarter.

harmonic-slide

GAAP gross margins were 46.9% for the second quarter, a 599 basis point decline versus the 52.8% recorded in Q2 2015 and a 288 basis point decline when compared to the 49.7% gross margins in Q1 2016.  Harmonic attributed the gross margin declines to a less favorable product mix and delays in recognizing software and services revenue.

For the quarter, Harmonic recorded a GAAP net loss of $20.4 million or $(0.27) per diluted share.  This compares to a net loss of $0.3 million or ($0.01) per share in Q2 2015 and a net loss of $25.2 million or ($0.33) per share in Q1 2016. This brings Harmonic’s GAAP net loss for the first six months of 2016 to $45.6 million.

The GAAP figures include several non-cash items or one-item items such as restructuring charges, amortization of intangibles, stock-based compensation, and inventory write-downs.  On a non-GAAP basis Harmonic’s net loss for the first six months of 2016 was $8.4 million.  One of the larger one-time items are charges related to the restructuring and integration of TVN.  Management is anticipating these costs in the in the range of $22 million to $24 million for 2016.

In its conference call with analyst, Harmonic confirmed it remains on track to realize $20 – $22 million of annual synergy savings from the integration of TVN.  The full impact of these savings will begin with the start of 2017.  Management believes the savings, combined with higher revenue levels will result in the Company achieving double-digit non-GAAP operating profit in Q4 2016.

“…as a percent of revenue our OpEx in Q3 and Q4 will be lower and particular in Q4 we’ll be at probably I think the lowest point that Harmonic has had for OpEx as a percent of revenue in a number of years and I think the most important point is with the operating expense run rate that we expect to have we will be in a position to generate double-digit operating profit in 2017 without a significant increase in revenue” said Harmonic’s CEO Patrick Harshman on the Company’s earnings call with management.

Bookings for the second quarter of 2016 were $117.3 million, an increase of 18.1% versus the year earlier period, and a 7.0% increase versus the preceding quarter.

The Company’s total backlog and deferred revenue was $190 million, up 57.7% and 5.8%over Q2 2015 and Q1 2016, respectively.  This is the highest level of backlog and deferred revenue in Harmonic history.

On a geographic basis:

  • Revenue from the Americas region contributed $57.7 million for the quarter, a decrease of 4.4% versus the prior year and a sequential increase of 17.8% against the preceding quarter. Americas accounted for 53% of Harmonic’s revenue for Q2 2016, a decline versus the 58% from Q2 2015, and also a decline when compared to the 59% contribution recorded in Q1 2016
  • Revenue from the EMEA region was $33.4 million for Q2 2016, an increase of 22.3% versus Q2 2015, and a substantial increase of 68.5% against the preceding quarter. The EMEA region was responsible for 31% of Harmonic’s revenue in the quarter, an increase versus the 27% contribution from Q2 2015, and a further increase from the 25% contribution in Q1 2016.  The strong performance in EMEA is likely attributable to the TVN acquisition.  At the time of the acquisition 50% of TVN’s revenue came from the EMEA region.
  • APAC revenue was $17.6 million during the quarter, a 14.4% increase against Q2 2015, and a 35.6% increase against Q1 2016. APAC represented 16% of Harmonic’s revenue for the quarter, a slight increase versus the 15% contribution in Q2 2015, and equivalent to the contribution in Q1 2016

On a product line basis:

  • Video products revenue for the quarter was $62.2 million, an increase of 10.8% compared to Q2 2015, and a significant increase of 6% versus Q1 2016. As a percent of total sales, video products represented 57% of revenue in Q2 2016.  This compares to 54% in year-earlier period Q2 2015 and 54% in the preceding quarter Q1 2016.  TVN contributed $18 million to Video products revenue in the quarter.  Management is expected continued sequential growth from Video products in Q3 and Q4.
  • Cable Edge revenue was $15.8 million during the quarter, a decrease of 26.2% versus Q2 2015, though an increase of 17.3% compared to the preceding quarter. Cable Edge represented 14% of revenue in Q2 2016, a decrease versus the 21% contribution in Q2 2015, and a decrease against the 16% of revenue recorded in Q1 2016.  A continued near-term decline of Harmonic’s legacy EdgeQAM technology is anticipated.  Harmonic remains on schedule to ship its CableOS product line in the fourth quarter of this year.
  • Services and support revenue amounted to $30.9 million in Q2 2016, an increase of 20.2% against Q2 2015, and an increase of 27.5% versus Q1 2016. Service and support revenue was 29% of revenue for Q2 2016, an increase over the 25% from Q2 2015, and a decrease against the 30% from Q1 2016

On a segment basis:

  • Broadcast and Media sales were $43.8 million during the quarter, a year-over-year increase of 12.2%, and a substantial rise of 43.4% against the preceding quarter. Broadcast and Media was responsible for 40% of revenue for the second quarter of 2016, a slight percent increase from the 38% in both Q2 2015 and Q1 2016.
  • Service Provider sales were $64.9 million in the second quarter, a 1.4% year-over-year increase, and an increase of 26.6% versus Q1 2016. Service Provider represented 60% of revenue in the quarter, a slight decrease from 62% contribution in Q2 2015, and a decrease from the 62% contribution during Q1 2016.

Operating Expenses:

  • Research and development (“R&D”) expense was $26.5 million for the quarter, an increase of 21.5% compared to Q2 2015, and an increase of 12.5% against Q1 2016. Expressed as a percentage of total revenue, R&D expense represented 24.3% of sales in the quarter.  This is up from 21.2% in Q2 2015, though down from the 28.8% in Q1 2016.
  • SG&A expense was $36.5 million for the quarter, an increase of 16.7% versus Q2 2015, and a rise of 11.1% compared to Q1 2016. As a percentage of total sales, SG&A was 33.5% of revenue in the quarter.  This compares to 30.3% in Q2 2015 and 40.2% in Q1 2016.

The increases in both operating expense categories was driven by the integration of TVN operations.

The Company’s cash position ended the second quarter of 2016 at $65.3 million, down from $76.2 million from the end of Q1 2016.  The decrease in cash was primarily due to an increase in accounts receivable.

Harmonic ended the second quarter with 1,403 employees, up from 1,019 at the end of Q1 2016.  The TVN acquisition added approximately 438 employees.

Business outlook:

For Q3 2016 management is anticipating total revenue in the range of $104.5M – $109.5M and GAAP gross margins of 50.0% – 51.0%.  Operating loss is expected between $12.5 million and $10.5 million with net loss of between $12.5 million to $10.5 million.

Video revenue is expected to contribute between $92.5 million and $95.5 million in the upcoming quarter with Cable Edge accounting for revenue of $12.0 million to $14.0 million.

Also, as part of the earning release, Management increased full year guidance to a GAAP revenue expectation of $408 million to $418 million for 2016.  Video revenue is now anticipated between $348 million to $353 million and Cable Edge revenue is expected between $60.0 million and $65.0 million.

Commenting on quarter’s results, Mr. Harshman stated, “So putting it all together here, our strong order book, positive market demand trends, and strong internal execution enable us to remain confident in delivering the double digit operating profit we targeted in Q4 as we exit the year.”

 

 

Related Content:

Press Release: Harmonic Q2 2016 Earnings Announcement

Press Release: Harmonic Q2 2016 Earnings Presentation

 

 

© Devoncroft Partners 2009 – 2016. All Rights Reserved.

 

 

Harmonic Declines 21.3% in Q1 Due to Revenue Recognition Challenges

Analysis, Broadcast technology vendor financials, Quarterly Results | Posted by Josh Stinehour
May 13 2016

Harmonic announced revenue for first quarter of 2016 of $81.8 million, a decrease of 21.3% versus Q1 2015 and a decrease of 5.5% versus the Q4 2015. Harmonic_Logo

Guidance for Q1 2016 had been for revenue in the range of $82 million to $86 million.  The guidance not include any potential contribution from the acquisition of Thomson Video Networks (“TVN”), which closed in late February.  Revenue contribution from TVN was approximately $3.5 million during quarter.

Managed attributed the underperformance of revenue against guidance to challenges in recognizing software and services revenue.  This is a visible aspect of Harmonic’s ongoing transformation to a software business model, which has created complexity in the accounting for the separate portions of software and services in solutions sales.

The accounting impact highlights Harmonic’s progress in selling its virtualized solutions, including VOS.  During the earnings release, Harmonic announced VOS has surpassed 20,000 channel deployments globally.  Management expects to clear up the revenue recognition challenges later in year, which would lead to an acceleration of revenue recognition in Q4 2016.

GAAP gross margins were 49.7% for the first quarter, a decline versus the 52.9% recorded in Q1 2015 and a decline against the 54.3% gross margins in Q4 2015.  Harmonic attributed lower gross margins to the delays in recognizing software and services revenue, which has high gross margins.

For the quarter, Harmonic recorded a GAAP net loss of $25.1 million or $(0.33) per diluted share.  This compares to a net loss of $2.6 million or $(0.03) per share in Q1 2015 and a net loss of $7.2 million or $(0.08) per share in Q4 2015.  The decline in overall profitability is due to the lower revenue levels for the quarter.

Bookings for the first quarter of 2016 were $109.6 million (including $5 million from TVN), an increase of 8.5% versus the year earlier period, and a 12.6% increase versus the preceding quarter.

The Company’s total backlog in deferred revenue was $180 million, up 47% and 49.8% over Q1 2015 and Q4 2015, respectively.  The backlog benefited from the slippage in revenue recognition and also a $21 million contribution from the acquisition of TVN.

On a geographic basis:

  • Americas accounted for 54% of the revenue for Q1 2016, a slight decline versus the 47% from Q1 2015, and equivalent to the 54% contribution recorded in the fourth quarter of 2015
  • The EMEA region was responsible for 24% of the revenue in the quarter, equivalent to the contribution from Q1 2015, and slightly lower than the 25% contribution in Q4 2015
  • APAC represented 16% of the revenue for the quarter, a slight decline versus the 18% contribution in Q1 2015, and a steeper decline against the 22% contribution in Q4 2015

On a product line basis:

  • Video products revenue for the quarter was $44.2 million, a decrease of 9.2% compared to Q1 2015, and a decrease of 12% versus Q4 2015. As a percent of total sales, video products represented 54% of revenue in Q1 2016.  This compares to 47% in year-earlier period Q1 2015 and 58% in the preceding quarter Q4 2015
  • Cable Edge revenue was $13.4 million during the quarter, a decrease of 57.8% versus first quarter of 2015, though an increase of 17.3% compared to the preceding fourth quarter. Cable Edge represented 16% of revenue in Q1 2016, a decrease versus the 30% contribution in Q1 2015, though an increase over the 13% of revenue recorded in Q4 2015.  The continued decline of Harmonic’s legacy EdgeQAM technology was anticipated.  Harmonic remains on schedule to ship its CableOS product line in the second half of 2016.
  • Services and support revenue amounted to $24.1 million in Q1 2016, an increase of 2.7% against Q1 2015, and a decrease of 2.8% versus Q4 2015. Service and support revenue was 30% of revenue for Q1 2016, an increase over the 23% from Q1 2015, and in-line with the 29% from Q4 2015

On a segment basis:

  • Broadcast and Media sales were $30.5 million during the quarter, a year-over-year decrease of 15.2%, and a decrease of 11.5% against the preceding quarter. Broadcast and Media was responsible for 37% of revenue for the first quarter of 2016, a slight percent increase from 35% in Q1 2015, and a decrease versus the 40% in Q4 2015.
  • Service Provider sales were $51.3 million in the first quarter, a 24.5% year-over-year decrease, and a decrease of 1.5% versus Q4 2015. Service Provider represented 63% of revenue in the quarter, a slight decrease from 65% contribution in Q1 2015, though an increase from the 60% contribution during Q4 2015.

The Company’s cash position ended the first quarter of 2016 at $76.2 million, down from $152.8 million from the end of 2015.  The decrease is primarily attributable to the cash purchase price paid for the acquisition of TVN.

Harmonic ended the first quarter with 1,418 employees, up from 989 at the end of 2015.  The TVN acquisition added approximately 430 employees.

Business outlook:

For Q2 2016 management is anticipating total revenue in the range of $102M – $107M and GAAP gross margins of 48% – 49%.  Operating loss is expected between $14.5 million and $12.5 million with earnings per share of $(0.19) to $(0.16).

As part of the release, management confirmed it remains on track to realize the $20 million annual synergy savings expected from the integration of TVN.  The full impact of these savings will begin with the start of 2017.

Managed also reiterated the prior financial guidance for 2016 from the Q4 2015 earnings release.

Commenting on quarter’s results, Harmonic President and CEO Patrick Harsham stated, “While our first quarter results fell below our expectations, new bookings grew sequentially and year-over-year and we ended the quarter with record backlog and deferred revenue.  We are excited that our transformation to virtual architectures and associated services remains on track including the announcement of our new VOS Cloud and VOS 360 software-as-a-service offerings. Our full-year financial guidance remains unchanged.”

 

Related Content:

Harmonic Q1 2016 Earnings Press Release

Harmonic Q1 2016 Earnings Presentation

 

 

© Devoncroft Partners 2009 – 2016. All Rights Reserved.

 

 

Harmonic Closes Thomson Video Networks Acquisition

Analysis, Broadcast Vendor M&A, SEC Filings | Posted by Joe Zaller
Mar 02 2016

Harmonic+TVN logos

Harmonic said it has completed the acquisition of rival compression vendor Thomson Video Networks (TVN), nearly a month earlier than the April 1, 2016 date predicted in the company’s Q4 and full-year 2015 announcement.

This indicates that conditions of the deal were met ahead of schedule.

In a filing with securities regulators, Harmonic said the completion of the “transaction will be subject to TVN’s reacquisition of its patent portfolio from France Brevets (a third-party patent licensing firm), the receipt of certain historical audited financial statements of TVN prepared in accordance with U.S. generally accepted accounting principles, the receipt of certain regulatory approvals required under French law, and certain other customary closing conditions.”

The Harmonic-TVN deal was structured as a “put option” for TVN’s shareholders.  A put option gives the holder the right but not the obligation to sell shares to the option writer (in this instance Harmonic).  The “put” option is subject to the selling TVN shareholders’ 60-day consultation process with TVN’s employee works council in France.  When/if TVN’s shareholders execute the “put” option subsequent to the consultation process, then the parties would immediately execute a formal purchase and sale agreement.

According to filings with securities regulators, “On February 11, 2016, pursuant to the terms of the Put Option Agreement,” a Harmonic company “entered into a securities purchase agreement (SPA) relating to the purchase of 100% of the share capital and voting rights of Thomson Video Networks.”

The terms of the deal include an initial purchase price of $75,000,000, “subject to customary working capital and other closing adjustments as set forth in the SPA, payable at closing of the transaction. In addition, there may be additional post-closing payments in amounts respectively capped to (i) the difference between €76,000,000 (as converted from euros into U.S. dollars) and $75,000,000, with respect to an adjustment based on TVN’s 2015 revenue, and (ii) $5,000,000, with respect to an adjustment based on TVN’s 2015 backlog that ships during the first half of 2016, all of which at such times and under the circumstances set forth in the SPA.

TVN has changed ownership several times in the past five years.  TVN was divested by Technicolor in 2011 in a management-led buyout sponsored by Fonds de Consolidation & Développement des Entreprises (FDCE) for a reported price of around $8 million.  When Technicolor announced that it had sold TVN to FDCE in 2009, it said that the company had 525 employees and operated in 15 countries, and that its 2009 revenues was €61m.

Institutional investor Edmon de Rothschild Investment Partners then acquired a 49% stake in TVN in December 2014.

“We are pleased to announce the closing of the TVN acquisition,” said Patrick Harshman, President and CEO of Harmonic. “By bringing together two powerhouses in the video industry, we further extend our position as the market leader. With expanded global R&D, sales and support teams, we are accelerating innovation and driving delivery of best-in-class solutions, products, capabilities and support services for our customers.”

 

 

Related Content:

Press Release: Harmonic Completes Acquisition of Thomson Video Networks

Harmonic-TVN — Put Option Agreement and Securities Purchase Agreement

Delayed Purchasing Decisions Drive Harmonic Revenue Down 13 Percent in 2015

Harmonic Announces Binding Offer to Acquire Thomson Video Networks for up to $90 Million

Press Release: Harmonic Announces Binding Offer to Acquire Thomson Video Networks

Press Release: Thomson Video Networks Receives Harmonic Group’s Acquisition Offer

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© Devoncroft Partners 2009-2016. All Rights Reserved.

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Delayed Purchasing Decisions Drive Harmonic Revenue Down 13 Percent in 2015

Analysis, Broadcast technology vendor financials, Quarterly Results | 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

 

 

© Devoncroft Partners 2009 – 2016. All Rights Reserved.

 

 

Harmonic Announces Binding Offer to Acquire Thomson Video Networks for up to $90 Million

Analysis, Broadcast Vendor M&A | Posted by Joe Zaller
Dec 07 2015

Harmonic announced its intention to acquire Thomson Video Networks (“TVN”), a compression solution provider based in France. Harmonic_Logo

The purchase price of the acquisition is $75 million (USD) in cash, plus up to an additional $15 million in post-closing adjustments.  The transaction is expected to close in Q1 2016.

Thomson-VN_Logo

For 2014 TVN had sales of 71 million (EUR).  At prevailing 2014 exchange rates, this equates to approximately $95 million (USD).  Assuming an enterprise value of $90 million ($75 million at closing plus $15 million), the valuation is slightly more than 1x annual sales.

The “Binding Offer” is structured as a put option for TVN’s shareholders.  A put option gives the holder the right but not the obligation to sell shares to the option writer (in this instance Harmonic).  The “put” option is subject to the selling TVN shareholders’ 60-day consultation process with TVN’s employee works council in France.  Should the TVN shareholders execute the “put” option subsequent to the consultation process, then the parties would immediately execute a formal purchase and sale agreement.

Harmonic does maintain the right to terminate the transaction if the company is unable to raise adequate financing for the transaction (more below).

According to Harmonic’s regulatory filing there may be additional post-closing payments based on TVN’s 2015 revenue and TVN’s 2015 backlog that ships during the first half of 2016.  A review of the regulatory filing also highlights several closing conditions including the requirement of TVN to reacquire its patent portfolio from France Brevets (a third-party patent licensing firm).

TVN has changed ownership several times in the past five years.  TVN was divested by Technicolor in 2011 in a management-led buyout sponsored by Fonds de Consolidation & Développement des Entreprises (FDCE) for a reported price of around $8 million.  When Technicolor announced that it had sold TVN to FDCE in 2009, it said that the company had 525 employees and operated in 15 countries, and that its 2009 revenues was €61m.

Institutional investor Edmon de Rothschild Investment Partners then acquired a 49% stake in TVN in December 2014.  

 

Transaction Financing

In large part to finance the acquisition, Harmonic also announced today its intention to offer $125 million in convertible senior notes due in 2020.  At Harmonic’s election, the notes will be convertible into cash, shares of Harmonic’s common stock, or a combination.  Management expects to use $70 million of the offering to pay a portion of the costs of the TVN acquisition.  Management also intends to use up to $25 million from the offering to repurchase shares of its common stock.

Commenting on the choice of a convertible offering, Harmonic’s CFO Harold Cover highlighted the opportunity to lower the companies cost of capital and maintain an appropriate cash balance for company operations.

 

Transaction Rationale

Harmonic’s press release announcing the deal and subsequent conference call reiterated in several instances how the acquisition of TVN was an acceleration of Harmonic’s existing video strategy.  Harmonic’s CEO Patrick Harshman commented, “The combined product portfolios, R&D teams and global sales and service personnel would allow us to accelerate innovation for our customers while leveraging greater scale to drive operational efficiencies.”  A slide from conference call is also included below as a reference on several key points of the intended combination.

 

Harmonic - Thomson IR Slide

 

Harshman added further emphasis to the regional strength of TVN outside of the US – over 95% of TVN’s revenue profile is outside the US.  During the question and answer session, the Harmonic CEO cited a regional allocation of revenue for TVN of 50% EMEA, 25% APAC, and 25% Americas (with the majority coming from Latin America).  Management believes this regional profile is highly complementary, as there is less than 50% overlap in the respective company’s customer bases.

 

Consolidation Continues in Transcoding, Encoding, and Compression

The acquisition of TVN is the latest in a series of M&A transactions in the compression segment.  Ahead of the recent IBC Show Amazon announced its acquisition of Elemental Technologies and during the exhibition Ericsson announced its acquisition of Envivio.

Harmonic’s intention to buy Thomson Video Networks is the latest in a series of deals related to video compression, transcoding, and multi-screen video delivery.  As broadcasters and media companies scramble to deploy multi-screen services, transcoding is seen by many as a key technology.  As a result, transcoding has also attracted its fair share of financing and M&A activity.  Here’s a quick run-down of some of the recent transcoding deals and related-financial news:

 

 

 

 

 

 

  • In April 2014, Imagine Communications acquired Digital Rapids for an undisclosed amount

 

  • In April 2014, Dalet acquired Amberfin for an undisclosed amount

 

  • In January 2013, Amazon unveiled its “Amazon Elastic Transcoder.” Based on the company’s Amazon Web Services (AWS) cloud computing platform, the Elastic Transcoder the service provides “a highly scalable, easy to use and a cost-effective way for developers and businesses to transcode video files from their source format into versions that will playback on devices like smartphones, tablets and PCs.”

 

  • In August 2012 Brightcove bought Zencoder, a 2-year old start-up with $2m in revenue for $30m, and subsequently launched a cloud based transcoding service at IBC 2012

 

 

 

 

 

 

 

 

 

 

  • RGB Networks bought transcoding vendor Ripcode in 2010

 

 

Related Content:

Press Release: Harmonic Announces Binding Offer to Acquire Thomson Video Networks

Press Release: Thomson Video Networks Receives Harmonic Group’s Acquisition Offer

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© Devoncroft Partners 2009 – 2015. All Rights Reserved.

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Industry Thought Leaders to Discuss “Shifting Media Economics: Impact on Strategy, Finance, and Technology” at 2015 NAB Show

Analysis, broadcast industry technology trends, broadcast technology market research, Broadcast technology vendor financials, Broadcast Vendor M&A, Conference Sessions, Online Video, OTT Video | Posted by Joe Zaller
Apr 09 2015

Whether you are a supplier, buyer, or investor in the media technology sector, you won’t want to miss the fourth annual NAB Show event co-produced by Devoncroft Partners and the organizers of the NAB Show.

 

NAB Devoncroft 2015 Shifting Media Economics Session Announcement

 

Now part of the NAB 2015 Media Finance and Investor Conference, “Shifting Media Economics: Impact on Strategy, Finance, and Technology,” will be held on Sunday April 12, 2015 in room N235 of the Las Vegas Convention Center.

Designed to be a thought-provoking kickoff to the 2015 NAB Show, this half-day conference examines the “the business of the media business” from the perspective of all levels of the media value chain. It includes panel discussions featuring C-level executives from leading broadcasters, service providers, technology vendors, and private equity investors. Each group will offer a candid assessment of how their respective business models, operational practices, and strategic decision making have been impacted by the dramatic shift in media industry economics.

The keynote, “The Future of TV. One Man’s Opinion.” will be delivered by Bob Bowman, President, Business & Media of Major League Baseball (MLB), who oversees MLB Advanced Media (MLBAM) and MLB Network.

MLBAM has been involved with several recent high-profile streaming events including WrestleMania 31, the opening day of Major League Baseball, the NCAA March Madness basketball tournament, and the recent launch of HBO Now.  Bowman is scheduled to take the stage just one hour before the highly anticipated season 5 premiere of “Game of Thrones” becomes available via HBO Now.

The conference will also include presentations of the latest market research on industry trends and financial performance.  This includes preliminary excerpts from the Devoncroft Big Broadcast Survey, the industry’s definitive demand-side study of the broadcast and digital media industry; and the 2015 IABM DC Global Market Valuation Report, the industry’s definitive supply-side market sizing report.

In advance of the NAB Show, Devoncroft Partners has published an analysis of the trends and strategic drivers in the broadcast and media technology sector. This report is available to download here (registration required).

This conference is intended for senior executives from technology vendors, end-users, and investment firms in the media technology sector. It provides an excellent opportunity to network with industry executives and the financial community ahead of NAB show commitments.

Approximately 400 executives attended this standing-room only event in 2014. We hope to see you there on Sunday April 12, 2015.

Please note that because this event is part the 2015 NAB Show Media, Finance and Investor Conference, registration is required.

 

An overview of the conference is included below.  Full details are available on the NAB Show website.

 

Shifting Media Economics: Impact on Strategy, Finance, and Technology

 

1:40pm – Welcome and Introductions

Presenter:

  • Peter White, CEO IABM

 

 

1:50pm – Review of Market Developments

Josh Stinehour of Devoncroft will take the podium for his annual (enthusiastic) presentation on developments in the media technology sector.  If you have any final announcements you would like Josh to consider for his presentation, let him know.

Presenter:

  • Joshua Stinehour, Principal Analyst Devoncroft Partners

 

 

2:15pm – The Broadcast & Media Technology Industry in 2015

Devoncroft founder Joe Zaller will present a data-driven overview of the forces bringing dynamic change to the media technology sector in 2015. This will include preliminary results of the 2015 Big Broadcast Survey, the industry’s most comprehensive demand-side study, and observations from the 2015 IABM DC Global Market Valuation Report, the industry’s definitive supply-side market sizing report.

Presenter:

  • Joe Zaller, President Devoncroft Partners

 

 

2:40pm – Business Strategy Perspectives from Industry Executives

CEOs from four of the media and broadcast industry’s largest technology suppliers will debate the most important commercial issues facing the industry, and discuss their strategies to position their companies for success in a rapidly evolving marketplace.  The panelists will also offer opinions on how changes in the business environment are impacting vendors and customers.

Moderator:

  • Joe Zaller, President Devoncroft Partners

 

Panelists:

  • Patrick Harshman: President and Chief Executive Officer, Harmonic, Inc.
  • John Stroup: President, Chief Executive Officer, Belden, Inc.
  • Tim Thorsteinson: Chief Executive Officer, Quantel and Snell
  • Charlie Vogt: Chief Executive Officer, Imagine Communications

 

 

3:20pm – The Broadcast Buyer Perspective on Industry Trends

Senior technology executives from four leading broadcasters will offer informed perspectives on the most significant industry trends affecting technology budgets and the technology purchase decision.  The audience will benefit from an emphasis on the business implications of technology decisions to broadcasters.

Moderator:

  • Joe Zaller, President Devoncroft Partners

 

Panelists:

  • Ken Brady: SVP Media Technology and Operations, Turner Broadcasting Systems
  • Richard Friedel: EVP & General Manager, Fox NE&O
  • Fred Mattocks: GM Media Operations & Technology, Canadian Broadcasting Corporation
  • Bob Ross: SVP East Coast Operations, CBS Broadcasting, Inc.

 

 

4:00pm – The Service Provider Perspective on Industry Trends

A panel of executives from leading media service providers will discuss views on both technology developments and deployment considerations for media organizations.  Discussion topics will include solutions for multi-platform content delivery, the economics of outsourcing, how service providers can leverage their scale to deliver increased performance and agility, and how next-generation data center architecture may impact the media ecosystem.

Moderator:

  • Joe Zaller, President Devoncroft Partners

 

Panelists:

  • Darcy Antonellis: Chief Executive Officer, Vubiquity
  • Anil Jain: SVP & GM Media Group, Brightcove, Inc.
  • Steve Plunkett: Chief Technology Officer, Ericsson Broadcast & Media Services

 

  

4:30pm – The Institutional Investor Perspective on Industry Trends

A panel of leading investment professionals in the media and entertainment sector will offer the audience the institutional investor’s perspective on the industry. The discussion will include the panelists’ intelligence-gathering plans for the NAB Show, views on the trends that are driving investment dollars in the sector, and a review of the characteristics influencing the evaluation of an investment opportunity in the media technology industry.

Moderator:

  • Joshua Stinehour, Principal Analyst Devoncroft Partners

 

Panelists:

  • Chris Kanaley: Vice President, Parallax Capital
  • Nick Lukens: Vice President, Vector Capital
  • Bryce Winkle: Vice President, The Gores Group

 

5:00pm – Keynote: The Future of TV. One Man’s Opinion.


Presenter:

  • Bob Bowman, CEO MLB Advanced Media

 

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© Devoncroft Partners 2009 – 2015. All Rights Reserved.

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Harmonic Exceeds Expectations in Q2 2013 Thanks to Strength in Broadcast and Media Markets

Broadcast technology vendor financials, Quarterly Results | Posted by Joe Zaller
Jul 29 2013

Harmonic announced that it revenue for the second quarter of 2013 was $117.1M, a decline of 4% versus the same period a year ago, and an increase of 15% versus the previous quarter. The company’s  largest customer for the second quarter of 2013 was Comcast, at 11% of revenue.

Q2 results were presented on a pro-forma basis, excluding revenue from the Harmonic’s cable Access HFC business, which was sold to Aurora Networks for $46m on March 5, 2013.

Harmonic CEO Patrick Harshman said that although the quarter started off slowly in January, momentum built throughout February and March, and the company “saw better linearity throughout the quarter than we’ve seen for some time.”  Harshman added that “the second quarter also saw the percentage of domestic business increase, with particular strength from the broadcast and media market, driving our product mix towards higher-margin video processing and production and playout products.”

Investors like the results, which exceeded the expectations of equity analysts as well as Harmonic’s previously issued guidance of Q2 or revenue in the range of $105m to $115m, and sent the company’s shares higher following the announcement.

The GAAP net loss for the quarter was $3.4m, or ($0.03) per share, compared with a GAAP net loss of $3.9m, or ($0.03) per share, during the same period last year, and a GAAP net loss of $9.5m, or ($0.08) per share, in the previous quarter.

On a non-GAAP basis, the company posted net income of $5.6m, or $0.05 per share, compared with non-GAAP net income of $6.5m, or $0.06 per share last year, and a non-GAAP net loss of $2.7m, or ($0.02) per share, for the first quarter of 2013,

Bookings in the second quarter of 2013 were $126.3 million, compared with $110.1 million for the first quarter of 2013 and $128.5 million for the second quarter of 2012.

Harshman noted that bookings “significantly exceeded revenues in the quarter,” and were driven by continuing improvement in the Europe, Middle East, and Africa region and strong performance and Latin America. Harshman also said that the company’s broadcast and media market, and its Omneon business, “continue[s] to be strong and notably drove progress in our domestic business.” However, Harshman said that demand from US Pay-TV service providers continue to be soft.

 

On a geographic basis:

international markets accounted for 53% of total revenue in the quarter, down from 54% last year, and down from 58% last quarter.

Harmonic’s CFO Carolyn Aver said “while our international revenues grew in absolute dollars, the biggest growth in dollars came from the US; strongest in broadcast and media, but also in telco, satellite, and cable. Video processing represented 53% of revenue, up from 49% in the second quarter of 2012.”

 

On a product line basis:

  • Video processing represented 53% of revenue, up from 49% in the second quarter. Harshman said that strength from the broadcast and media market drove Harmonic’s product mix towards higher-margin video processing products, including positive progress around its new CCAP platform.

 

  • Production and playout (Omneon product sales minus associated service revenue) represented 19% of revenue this quarter compared to 17% for the same quarter last year, and 22% last quarter.

 

  • Cable edge business represented 11% of revenue, a decrease from 19% of revenue last year, and 17% of revenue last quarter. Aver said: “It is worth noting that in this quarter last year we had higher Edge revenue but lower gross margin, as we sold more of the hardware platform, or the razors. This quarter, we sold more software licenses into that equipment, or the razor blades, which resulted in lower revenue dollars but higher gross margin.”

 

  • Service and support revenue was 17% of revenue this quarter, up from 15% last year and down from 19% last quarter.

 

 

On a segment basis:

  • Broadcast & media represented 40% of revenue, up from 33% last year, and 38% last quarter. The company attributed the increase in broadcast sales to the continuing success of cross-selling video products from both Harmonic and Scopus into this customer base. Harshman said that Harmonic has made progress with broadcast and media companies globally, and that the company sees these organizations as a large and growing opportunity. He said the company’s Spectrum ChannelPort solution is “gaining real market traction,” and that the company had a “big competitive win with a new account, taking us to significant projects now in three of the top five US media companies so far this year.”

 

  • Cable represented 36% of revenue, down from 44% last year, and 39% last quarter.  Aver said that the company believes cable revenues will increase “back to the historical range” once its new NSG Pro product is deployed in the market. Harshman noted that “while the US Pay-TV operator market has, of late, represented a challenging space for us due to where they are in technology cycles, it’s important to remember that the levels of consumer penetration and high RPUs mean that they will always have tremendous buying power.”

 

  • Satellite and telco represented 24% of revenue versus 23% of revenue last year and last quarter.

 

Q2 2013 Revenue Details:

 

Harmonic Q2 2013 Revenue Mix

 

GAAP gross margin was 49% and GAAP operating margin was (4%) for the second quarter of 2013, compared with 45% and (15%), respectively, for the first quarter of 2013, and 45% and (3%), respectively, for the same period of 2012.

Non-GAAP gross margins were 54% in the quarter, better than previously issued guidance of 51.5% to 52.5%. The non-GAAP operating margin was 6%, compared with 51% and (3%), respectively, for the first quarter of 2013, and 50% and 7%, respectively, for the same period of 2012.

Aver attributed the margin expansion in the quarter to greater sales of higher margin video processing products, particularly in the cable edge category, than to sales of new software licenses on existing hardware platforms.

Aver went on to say that the company’s margins “started in the 40s and have moved up. We certainly expected, with the sale of the Access business, that low 50% would move to, call it, 52% or 53%, and for some time, we’ve targeted the mid-50s as the place we want to go. I don’t think this says we’re there yet. I think it shows that when we do well in video processing and P&P, those are definitely our highest gross margin products. And that has a big influence on how our margins come out. Also, as more and more of our products have more of the software component, and we get to quarters where we’re delivering a lot of licenses, that as well has a big impact on the margins.”

Non-GAAP operating expenses for this quarter were $56.1 million, up from $55.2 million in the first quarter of 2013, and up from $52.4 million in the second quarter of 2012.   Non-GAAP operating expenses were higher than the previous guidance of $54m to $55m. The company said the increase in operating expenses was due to costs related to bringing our new products to market, as well as increased costs related to litigation.

Harmonic generated approximately $24.8m of cash from operations in the second quarter, and used approximately $85.6m, excluding related costs, for its repurchase of approximately 12 million shares in the tender offer and approximately 1.8 million shares under its previously announced share repurchase program.

The Company also announced it will expand its existing share repurchase program by $85 million, providing for a total of approximately $100 million of share repurchases going forward. Since April 2012, Harmonic has authorized the repurchase of $220 million of its common stock, and has repurchased approximately $120 million of its common stock to date.

Harmonic ended the quarter with 1,078 employees, slightly down from 1096 at the end of the previous quarter. Cash at the end of the second quarter was $161.7m, down $66.6m from $228.3 at the end of the first quarter of 2013. quarter.  The decrease in cash was due primarily to repurchasing of the company’s stock.  Backlog and deferred revenue at the end of the second quarter was $132.5m, compared to $126.3m as of March 29, 2013.

 

Business Outlook

Aver said the company is “cautiously optimistic about our international business and our domestic broadcast and media business,” and noted that the company expects some project revenue that was previously booked to be recognized in the third quarter of 2013.

Therefore, Harmonic expects Q3 2013 revenue to be in a range of $115m to $125m in the third quarter of 2013.  Q3 GAAP gross margins are expected to be in the range of 45% to 46% . Q3 GAAP operating expenses are expected to be in the range of $60.5m to $61.5m.  Q3 Non-GAAP gross margins Are expected to be in the range of 50% to 51% . Q3 Non-GAAP operating expenses are expected to be in the range of $54.5m to $55.5m.

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© Devoncroft Partners 2009 – 2013. All Rights Reserved.

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Related Content:

Press Release: Harmonic Announces Second Quarter 2013 Results

Harmonic Q2 2013 Results Earnings Call Transcript

Harmonic Q2 2013 Earnings Conference Call Presentation

Video: Harmonic & Gray TV Currently Among “The Best Stocks Under $10” According to Bespoke Capital

Previous Quarter: Harmonic Revenue Declines 14 Percent in Q1 2013

Previous Year: Euro Weakness Offsets Strength in US for Harmonic in Q2 2012

Activist Investor Targets Harmonic

Harmonic Announces $100 Million Stock Buyback, New Chairman

Broadcast Vendor M&A: Harmonic Divests Low Margin Cable Access Business to Aurora Networks for $46 Million

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Harmonic Revenue Declines 14 Percent in Q1 2013

broadcast technology market research | Posted by Joe Zaller
Apr 25 2013

Harmonic announced that it revenue for the first quarter of 2013 was $101.7m, down a decline of 14% versus the same period a year ago, and a decline of 13% versus the previous quarter.

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

 

 

  • 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.”

 

Guidance:

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.

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“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.”

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Related Content:

Press Release: Harmonic Announces First Quarter 2013 Results

Harmonic Q1 2013 Earnings Call Presentation

Broadcast Vendor M&A: Harmonic Divests Low Margin Cable Access Business to Aurora Networks for $46 Million

Previous Quarter: Harmonic Announces Q4 and Full Year 2012 Results

Previous Year: Harmonic Q1 2012: Weakness in Europe Results in 4% Revenue Decline

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© Devoncroft Partners. All Rights Reserved.

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Activist Investor Targets Harmonic

Broadcast technology vendor financials | Posted by Joe Zaller
Apr 25 2013

Harmonic disclosed that it received notice on Friday, April 19, 2013, from Voce Catalyst Partners LP that Voce intends to nominate three directors for election to Harmonic`s Board of Directors at the Company`s 2013 Annual Meeting of Stockholders.

According to Harmonic, Voce and its affiliates report owning 106,000 Harmonic shares, representing less than 0.1% of the company`s shares outstanding.

Harmonic said in a statement that it will continue to evaluate the structure of its board of directors, and will “evaluate Voce`s nominees and make a recommendation in the best interests of all shareholders in due course.”

On the company’s Q1 2013 earnings call with analysts, Harmonic CEO Patrick Harshman said the company has not yet filed response letter to Voce, and added “we’re always interested in a dialogue with our shareholders, big, small, and frankly, prospective shareholders, and we continue to talk to anyone who’s got interesting ideas, and we’ll continue that stance.”

Harshman said his last conversation with Voce was “sometime within the last month” and that the company’s recently announced board transition and $100m share buyback program was not related to the approach from Voce.

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Related Content:

Harmonic Announces $100 Million Stock Buyback, New Chairman

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