Harmonic's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Harmonic Inc. (HLIT)

Q2 2012 Earnings Call

July 24, 2012 5:00 pm ET


Carolyn V. Aver – Chief Financial Officer

Patrick Harshman – President and Chief Executive Officer


James Kissner – Jefferies & Co

Richard Ingrassia – Roth Capital Partners

Blair King – Avondale Partners LLC

Greg Mesniaeff – Maxim Group

Victor Chiu – Raymond James



Welcome to the Q2 2012, Harmonic Earnings Conference Call. My name is Monica, and I’ll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.

Please note that this conference is being recorded. I’d now turn the call over to Carolyn Aver, Chief Financial Officer. Ms. Aver, you may begin.

Carolyn V. Aver

Thanks Monica, hello everybody. With me at our headquarters in San Jose, California is Patrick Harshman our CEO. I would like to point out that in addition to the audio portion of this call, we’ve also provided slides which you can see by going to harmonicinc.com and clicking on the second quarter earnings call button on the event section of our home page.

Now turning to slide two, let me remind you that during this call, we will provide projections and other forward-looking statements regarding future events or the future financial performance of the company. We must caution you that such statements are only current expectation and actual events or results may differ materially. We refer you to documents that Harmonic filed with the SEC including our more recent 10-Q report and the forward-looking statement section of today’s earnings press release. These documents identify important risk factors that could cause actual results to differ materially from those contained in our projections or forward-looking statement.

Please note that unless otherwise indicated, the financial metrics we provide you on this call are determined on a non-GAAP basis. These items together with corresponding GAAP numbers and a reconciliation to GAAP are contained in today’s earnings press release which we’ve posted on our website and filed with the SEC on Form 8-K. We will also discuss historical, financial and other statistical information regarding our business and operation. Some of this information is included in the press release and the remainder of the information will be available in a recorded version of this call on our website.

With that let me turn the call over to Patrick.

Patrick Harshman

Thank you Carolyn, and thank you everyone for joining us. Turning now to our slide three, today we reported our results for the second quarter of 2012, which were broadly in line with our guidance issued a quarter ago. Reflecting healthy U.S. demand and our overall strong competitive position, our bookings were $139.5 million dollars up 6% from the second quarter of last year and in line with our expectations.

To the first half of the year, bookings outside Europe had grown 11%, although orders from Europe were down 5% year-over-year. A key driver of our strong order book across most geographies has been an increasing number of IP video project win, underscoring healthy IP video demand trends success of newest video delivery products and momentum leveraging our system expertise, top of high-value professional services as part of these project wins.

Revenue was $132.6 million, driven by 10% year-over-year growth of our business in the U.S., which slowed by 9% year-over-year decline in our international business, with Europe being our principal challenge. As with new bookings, year-over-year revenue performance was strongest for video processing product line in our services business. One of the consequences of strong resistance and project based order book is a move to more multi-period revenue recognition. Consequently, our book-to-bill ratio was again greater than one, and we have a record backlog of $146 million.

Turning to operating performance, our gross margins were 48%, but the first quarter was slightly lower than forecast due to both product mix and continuing competitive pricing environment market.

Operating expenses were approximately $54 million in the quarter. And non-GAAP earnings were $0.06 per share from last quarters $0.03. We also have robust cash performance, generating approximately $20 million cash from operations during the quarter, resulting in to cash balance increase of approximately $9 million after using $7 million for a share repurchase program.

Carolyn will provide additional details and is operating results and our repurchase activity in just a few months.

Turning now to slide 4, to provide context to these results and our opportunities going forward. I'd like to review three important topics, our strategic priorities in focus, our key new product initiatives, and important changes and additions we recently made to our corporate leadership team.

Let's turn to slide 5, to begin with an update on our strategic priorities. At the beginning of the year I laid out three areas of strategic focus for 2012, continuing to broaden our global customer base, extending our product leadership position, and driving continuous improvements of our operational execution. We've remained very focused on these initiatives and despite marketplace challenges, mainly in Europe, making meaningful progress in each of these areas. Broadening our global customer base has been a key strategic priority to which we remain committed, despite current European headwinds.

If we don't control macroeconomic conditions and our revenues are lower than we're aiming for. We do control a competitive positioning. Our strong bookings growth outside of Europe, demonstrates our solid competitive momentum worldwide. Specifically, during the quarter we gained market share by expanding our footprint and a number of existing accounts. By adding new customers across geographies, including here in the U.S., in Latin America and other emerging economy markets and even within Europe.

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