Posts Tagged ‘Thomson Video Networks’

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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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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