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Harmonic Announces Fourth Quarter and Year End 2011 Results

Record Revenue Driven by Growth Across International Regions and in the Broadcast and Media Markets (January 31, 2012)

SAN JOSE, CA -- (Marketwire) -- 01/31/12 -- Harmonic Inc. (NASDAQ: HLIT), a global leader in video infrastructure solutions, today announced its preliminary and unaudited results for the quarter and year ended December 31, 2011. Results for the entire year of 2011 and for the fourth quarter of 2010 include full quarterly contributions from Omneon Inc., which was acquired on September 15, 2010.

Net revenue for the fourth quarter of 2011 was $143.6 million, up 4% from $138.2 million in the fourth quarter of 2010. International sales represented 57% of total revenue for the fourth quarter of 2011. Total bookings in the fourth quarter of 2011 were approximately $142.0 million, up from approximately $134.8 million for the fourth quarter of 2010.

For the full year 2011, GAAP net revenue was $549.3 million, up from $423.3 million for 2010, Pro forma annual revenue, which includes revenue from Omneon and certain deferred revenue excluded in GAAP results for both years, was $551.4 million for 2011, up 8% from $509.0 million for 2010.

The Company reported GAAP net income for the fourth quarter of 2011 of $4.3 million, or $0.04 per diluted share, compared to a net loss of $13.7 million, or ($0.12) per diluted share, for the fourth quarter of 2010. For the full year 2011, GAAP net income was $8.8 million, or $0.08 per diluted share, compared to a net loss of $4.3 million, or ($0.04) per diluted share, for 2010.


Non-GAAP net income for the fourth quarter of 2011 was $14.0 million, or $0.12 per diluted share, up from $12.5 million, or $0.11 per diluted share, for the same period of 2010. For the full year 2011, non-GAAP net income was $47.5 million, or $0.41 per diluted share, up from $36.4 million, or $0.35 per diluted share, for 2010. See "Use of Non-GAAP Financial Measures" and "GAAP to Non-GAAP Net Income (Loss) Reconciliation" below.

For the fourth quarter of 2011, Harmonic had GAAP gross margins of 47% and GAAP operating margins of 5%, compared to 44% and (2%), respectively, for the same period of 2010. Non-GAAP gross margins and non-GAAP operating margins were 51% and 13%, respectively, for the fourth quarter of 2011, comparable to the fourth quarter of 2010.

As of December 31, 2011, the Company had cash, cash equivalents and short-term investments of $161.8 million, up from $140.9 million as of September 30, 2011 and $120.4 million as of December 31, 2010.

"We delivered record revenue for the fourth quarter and the full year of 2011," said Patrick Harshman, president and chief executive officer of Harmonic. "During the year, our growth was primarily driven by increased video processing wins across our expanding global customer base, with video processing revenue up 17% and international revenue up 14% on a pro forma basis. Our successful integration of Omneon also extended our business into new markets, driving significant growth in our broadcast and media revenue, up 17% on a pro forma basis.

"We move into 2012 with broad technological and market leadership, and proven expertise in enabling our global customers to produce and deliver compelling new high-definition, on-demand and Internet-based video services. We believe the global proliferation of video content and media outlets, along with increasing demand for higher quality video in every format delivered over bandwidth constrained networks, plays into our core strengths."

Business Outlook
Harmonic anticipates net revenue to be in the range of $132 million to $142 million for the first quarter of 2012, which is historically the Company's slowest quarter for the year. GAAP gross margins and operating expenses for the first quarter of 2012 are expected to be in the range of 45% to 47% and $61 million to $63 million, respectively. Non-GAAP gross margins and operating expenses for the first quarter of 2012, which will exclude charges for stock-based compensation and the amortization of intangibles, are anticipated to be in the range of 50% to 52% and $55 million to $57 million, respectively.

Conference Call Information
Harmonic will host a conference call today to discuss its financial results at 2:00 p.m. Pacific (5:00 p.m. Eastern). A listen-only broadcast of the conference call can be accessed on the Company's website at www.harmonicinc.com or by calling +1.706.634.9047 (conference identification code 51971320). The replay will be available after 6:00 p.m. Pacific at the same website address or by calling +1.404.537.3406 (conference identification code 51971320).

About Harmonic Inc.
Harmonic Inc. (NASDAQ: HLIT) provides infrastructure that powers the video economy. The company enables content and service providers to efficiently create, prepare, and deliver differentiated video services for television and new media platforms. More information is available at www.harmonicinc.com.

Legal Notice Regarding Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements related to our expectations regarding: our final results for the fourth quarter and year ended December 31, 2011; our momentum, broad technological and market leadership and proven expertise, which enables our global customers to produce and deliver compelling new high-definition, on-demand and internet-based services; the global proliferation of video content and media outlets, and increased demand for higher quality video in every format delivered over bandwidth constrained networks, which plays into our core strengths; and net revenue, GAAP gross margins, GAAP operating expenses, non-GAAP gross margins and non-GAAP operating expenses for the first quarter of 2012. Our expectations regarding these matters may not materialize, and actual results in future periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include the possibility, in no particular order, that: the trends toward more high-definition, on-demand and anytime, anywhere video will not continue to develop at its current pace, or at all; the possibility that our products will not generate sales that are commensurate with our expectations or that our cost of revenue or operating expenses may exceed our expectations; the mix of products and services sold in various geographies and various markets and the effect it has on gross margins; delays or decreases in capital spending in the cable, satellite and telco and broadcast and media industries; customer concentration and consolidation; the impact of general economic conditions, including as a result of recent turmoil in the global financial markets, particularly on our European and other international sales and operations; our ability to develop and introduce new and enhanced products and market acceptance of new or existing Harmonic products; losses of one or more key customers; risks associated with Harmonic's international operations; inventory management; the lack of timely availability of parts or raw materials necessary to produce our products; the impact of increases in the prices of raw materials and oil; the effect of competition; difficulties associated with rapid technological changes in Harmonic's markets; risks associated with unpredictable sales cycles; our dependence on contract manufacturers and sole or limited source suppliers; the effect on Harmonic's business of natural disasters; and the risks that our international sales and support center will not provide the operational or tax benefits that we anticipate or that its expenses exceed our plans. The forward-looking statements contained in this press release are also subject to other risks and uncertainties, including those more fully described in Harmonic's filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2010, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K. The forward-looking statements in this press release are based on information available to the Company as of the date hereof, and Harmonic disclaims any obligation to update any forward-looking statements.

EDITOR'S NOTE - Product and company names used herein are trademarks or registered trademarks of their respective owners.

Harmonic Inc. Condensed Consolidated Balance Sheets (Unaudited) December 31, December 31, 2011 2010 ------------ ------------ (In thousands) ASSETS Current assets: Cash and cash equivalents $ 90,983 $ 96,533 Short-term investments 70,854 23,838 Accounts receivable, net 109,886 101,652 Inventories 70,649 58,065 Deferred income taxes 28,032 39,849 Prepaid expenses and other current assets 21,474 28,614 ------------ ------------ Total current assets 391,878 348,551 Property and equipment, net 40,469 39,825 Goodwill, intangibles and other assets 301,819 332,010 ------------ ------------ Total assets $ 734,166 $ 720,386 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 30,537 $ 26,300 Income taxes payable 2,290 6,791 Deferred revenue 33,095 46,279 Accrued liabilities 46,896 51,283 ------------ ------------ Total current liabilities 112,818 130,653 Income taxes payable, long-term 47,307 48,883 Deferred income taxes, long-term 655 14,849 Other non-current liabilities 9,070 5,798 ------------ ------------ Total liabilities 169,850 200,183 ------------ ------------ Stockholders' equity: Common stock 2,433,280 2,397,783 Accumulated deficit (1,868,089) (1,876,868) Accumulated other comprehensive loss (875) (712) ------------ ------------ Total stockholders' equity 564,316 520,203 ------------ ------------ Total liabilities and stockholders' equity $ 734,166 $ 720,386 ============ ============ Harmonic Inc. Condensed Consolidated Statements of Operations (Unaudited) Quarter ended Year ended December December 31, 31, -------------------- -------------------- 2011 2010 2011 2010 --------- --------- --------- --------- (In thousands, except per share amounts) Net revenue $ 143,630 $ 138,194 $ 549,332 $ 423,344 Cost of revenue 76,760 76,813 294,818 227,943 --------- --------- --------- --------- Gross profit 66,870 61,381 254,514 195,401 Operating expenses: Research and development 25,283 24,252 102,732 77,197 Selling, general and administrative 32,730 37,232 131,091 108,150 Amortization of intangibles 2,230 2,885 8,918 4,912 --------- --------- --------- --------- Total operating expenses 60,243 64,369 242,741 190,259 --------- --------- --------- --------- Income (loss) from operations 6,627 (2,988) 11,773 5,142 Interest and other income (expense), net (371) 225 (140) 297 --------- --------- --------- --------- Income (loss) before income taxes 6,256 (2,763) 11,633 5,439 Provision for income taxes 1,929 10,975 2,854 9,774 --------- --------- --------- --------- Net income (loss) $ 4,327 $ (13,738) $ 8,779 $ (4,335) ========= ========= ========= ========= Net income (loss) per share: Basic $ 0.04 $ (0.12) $ 0.08 $ (0.04) ========= ========= ========= ========= Diluted $ 0.04 $ (0.12) $ 0.08 $ (0.04) ========= ========= ========= ========= Weighted average shares: Basic 116,123 112,062 115,175 101,487 Diluted 116,664 112,062 116,427 101,487 Harmonic Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) Year ended December 31, -------------------------- 2011 2010 ------------ ------------ (In thousands) Cash flows from operating activities: Net income (loss) $ 8,779 $ (4,335) Adjustments to reconcile net income to net cash provided by operating activities: Amortization of intangibles 30,420 17,425 Depreciation 13,867 9,990 Stock-based compensation 20,913 15,539 Net loss on disposal of fixed assets 671 162 Deferred income taxes (2,316) (1,732) Other non-cash adjustments, net 801 1,529 Changes in assets and liabilities: Accounts receivable, net (8,242) (19,744) Inventories (12,652) (11,979) Prepaid expenses and other assets 7,924 (5,445) Accounts payable 4,750 (3,080) Deferred revenue (13,470) 5,086 Income taxes payable (6,843) 11,017 Accrued excess facility costs (327) (2,412) Accrued and other liabilities 902 5,545 ------------ ------------ Net cash provided by operating activities 45,177 17,566 ------------ ------------ Cash flows from investing activities: Purchases of investments (107,544) (51,457) Proceeds from sales and maturities of investments 59,732 144,230 Acquisition of property and equipment (17,269) (35,624) Acquisition of Omneon, net of cash acquired - (153,254) Other acquisitions (250) (250) ------------ ------------ Net cash used in investing activities (65,331) (96,355) ------------ ------------ Cash flows from financing activities: Proceeds from lease financing liability - 18,833 Proceeds from issuance of common stock, net 12,701 3,859 Excess tax benefits from stock-based compensation 1,955 271 ------------ ------------ Net cash provided by financing activities 14,656 22,963 ------------ ------------ Effect of exchange rate changes on cash and cash equivalents (52) (118) ------------ ------------ Net decrease in cash and cash equivalents (5,550) (55,944) Cash and cash equivalents at beginning of period 96,533 152,477 ------------ ------------ Cash and cash equivalents at end of period $ 90,983 $ 96,533 ============ ============ Harmonic Inc. Revenue Information (Unaudited) Quarter ended December 31, Year ended December 31, 2011 2010 2011 2010 ------------- ------------- ------------- ------------- (In thousands, except percentages) Product Video Processing $ 64,314 45% $ 63,005 46% $236,624 43% $202,898 48% Production and Playout 25,837 18% 27,699 20% 98,842 18% 32,579 8% Edge and Access 32,218 22% 30,787 22% 141,880 26% 135,306 32% Services and Support 21,261 15% 16,703 12% 71,986 13% 52,561 12% -------- ---- -------- ---- -------- ---- -------- ---- Total $143,630 100% $138,194 100% $549,332 100% $423,344 100% ======== ======== ======== ======== Geography United States $ 61,647 43% $ 63,194 46% $244,897 45% $209,583 50% International 81,983 57% 75,000 54% 304,435 55% 213,761 50% -------- ---- -------- ---- -------- ---- -------- ---- Total $143,630 100% $138,194 100% $549,332 100% $423,344 100% ======== ======== ======== ======== Market Cable $ 62,526 44% $ 65,806 48% $245,310 45% $238,000 56% Satellite and Telco 30,686 21% 28,363 20% 128,005 23% 105,949 25% Broadcast and Media 50,418 35% 44,025 32% 176,017 32% 79,395 19% -------- ---- -------- ---- -------- ---- -------- ---- Total $143,630 100% $138,194 100% $549,332 100% $423,344 100% ======== ======== ======== ========

Use of Non-GAAP Financial Measures

In establishing operating budgets, managing its business performance, and setting internal measurement targets, the Company excludes a number of items required by GAAP. Management believes that these accounting charges and credits, most of which are non-cash or non-recurring in nature, are not useful in managing its operations and business. Historically, the Company has also publicly presented these supplemental non-GAAP measures in order to assist the investment community to see the Company "through the eyes of management," and thereby enhance understanding of its operating performance. The non-GAAP measures presented here are gross margins, operating expense, net income and net income per share. The presentation of non-GAAP information is not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP, and is not necessarily comparable to non-GAAP results published by other companies. A reconciliation of the historical non-GAAP financial measures discussed in this press release to the most directly comparable historical GAAP financial measures is included with the financial statements contained in this presentation. The non-GAAP adjustments described below have historically been excluded from our GAAP financial measures. These adjustments are excess facilities charges, severance charges, acquisition related costs, discrete tax items and adjustments and non-cash items, such as stock-based compensation expense, amortization of intangibles and the fair value write-up of acquired inventories sold.

Harmonic Inc. GAAP to Non-GAAP Net Income (Loss) Reconciliation (Unaudited) Quarter ended December 31, ------------------------------------------------------- 2011 2010 --------------------------- --------------------------- Net Gross Operating Net Gross Operating Income Profit Expense Income Profit Expense (Loss) -------- --------- -------- -------- --------- -------- (In thousands, except per share amounts) GAAP $ 66,870 $ 60,243 $ 4,327 $ 61,381 $ 64,369 $(13,738) Cost of revenue related to stock- based compensation expense 723 - 723 676 - 676 Purchase accounting fair value adjustments related to inventory - - - 2,061 - 2,061 Cost of revenue related to severance costs - - - 63 - 63 Research and development expense related to stock-based compensation expense - (1,661) 1,661 - (1,578) 1,578 Research and development expense related to severance costs - - - - (47) 47 Selling, general and administrative expense related to stock-based compensation expense - (2,430) 2,430 - (3,105) 3,105 Selling, general and administrative expense related to excess facility costs and severance costs - - - - (3,481) 3,481 Selling, general and administrative expense related to anticipated litigation settlement - - - - (863) 863 Acquisition costs related to Omneon - - - - (175) 175 Amortization of intangibles 5,423 (2,230) 7,653 5,636 (2,885) 8,521 Discrete tax items and adjustments - - (2,751) - - 5,633 -------- --------- -------- -------- --------- -------- Non-GAAP $ 73,016 $ 53,922 $ 14,043 $ 69,817 $ 52,235 $ 12,465 ======== ========= ======== ======== ========= ======== GAAP net income (loss) per share - basic $ 0.04 $ (0.12) ======== ======== GAAP net income (loss) per share - diluted $ 0.04 $ (0.12) ======== ======== Non-GAAP net income per share - basic $ 0.12 $ 0.11 ======== ======== Non-GAAP net income per share - diluted $ 0.12 $ 0.11 ======== ======== Shares used in per share calculation - basic 116,123 112,062 ======== ======== Shares used in per share calculation - diluted, GAAP 116,664 112,062 ======== ======== Shares used in per share calculation - diluted, Non- GAAP 116,664 113,670 ======== ======== Year ended December 31, ------------------------------------------------------- 2011 2010 --------------------------- --------------------------- Net Gross Operating Net Gross Operating Income Profit Expense Income Profit Expense (Loss) -------- --------- -------- -------- --------- -------- (In thousands, except per share amounts) GAAP $254,514 $ 242,741 $ 8,779 $195,401 $ 190,259 $ (4,335) Cost of revenue related to stock- based compensation expense 3,075 - 3,075 2,197 - 2,197 Purchase accounting fair value adjustments related to inventory - - - 2,473 - 2,473 Cost of revenue related to severance costs - - - 63 - 63 Research and development expense related to stock-based compensation expense - (6,926) 6,926 - (5,013) 5,013 Research and development expense related to severance costs - - - - (47) 47 Selling, general and administrative expense related to stock-based compensation expense - (10,912) 10,912 - (8,329) 8,329 Selling, general and administrative expense related to excess facility costs, severance costs and other non-recurring expenses - (409) 409 - (4,251) 4,251 Selling, general and administrative expense related to anticipated litigation settlement - - - - (863) 863 Acquisition costs related to Omneon - - - - (5,867) 5,867 Amortization of intangibles 21,502 (8,918) 30,420 12,513 (4,912) 17,425 Discrete tax items and adjustments - - (12,989) - - (5,816) -------- --------- -------- -------- --------- -------- Non-GAAP $279,091 $ 215,576 $ 47,532 $212,647 $ 160,977 $ 36,377 ======== ========= ======== ======== ========= ======== GAAP net income (loss) per share - basic $ 0.08 $ (0.04) ======== ======== GAAP net income (loss) per share - diluted $ 0.08 $ (0.04) ======== ======== Non-GAAP net income per share - basic $ 0.41 $ 0.36 ======== ======== Non-GAAP net income per share - diluted $ 0.41 $ 0.35 ======== ======== Shares used in per share calculation - basic 115,175 101,487 ======== ======== Shares used in per share calculation - diluted, GAAP 116,427 101,487 ======== ======== Shares used in per share calculation - diluted, Non- GAAP 116,427 102,512 ======== ======== Harmonic Inc. Proforma Revenue Information (Unaudited) 2010Q1 2010Q2 2010Q3 2010Q4 ------------- ------------- ------------- ------------- Product Video Processing $ 38,890 34% $ 49,998 39% $ 51,005 39% $ 63,005 45% Production and Playout 24,828 22% 26,589 21% 26,024 20% 27,699 20% Edge and Access 35,544 32% 34,263 27% 34,712 27% 30,787 22% Services and Support 13,777 12% 16,623 13% 17,760 14% 17,514 13% -------- ---- -------- ---- -------- ---- -------- ---- Total $113,039 100% $127,473 100% $129,501 100% $139,005 100% ======== ======== ======== ======== Geography United States $ 49,632 44% $ 65,456 51% $ 62,415 48% $ 64,230 46% International 63,407 56% 62,017 49% 67,086 52% 74,775 54% -------- ---- -------- ---- -------- ---- -------- ---- Total $113,039 100% $127,473 100% $129,501 100% $139,005 100% ======== ======== ======== ======== Market Cable $ 56,441 50% $ 53,555 42% $ 63,419 49% $ 65,817 47% Satellite and Telco 25,030 22% 36,218 28% 28,212 22% 28,455 21% Broadcast and Media 31,568 28% 37,700 30% 37,870 29% 44,733 32% -------- ---- -------- ---- -------- ---- -------- ---- Total $113,039 100% $127,473 100% $129,501 100% $139,005 100% ======== ======== ======== ======== 2010 ------------- Product Video Processing $202,898 40% Production and Playout 105,140 21% Edge and Access 135,306 26% Services and Support 65,674 13% -------- ---- Total $509,018 100% ======== Geography United States $241,733 47% International 267,285 53% -------- ---- Total $509,018 100% ======== Market Cable $239,232 47% Satellite and Telco 117,915 23% Broadcast and Media 151,871 30% -------- ---- Total $509,018 100% ======== 2011Q1 2011Q2 2011Q3 2011Q4 ------------- ------------- ------------- ------------- Product Video Processing $ 63,758 47% $ 51,525 38% $ 57,027 41% $ 64,314 45% Production and Playout 22,408 17% 25,453 19% 26,619 19% 25,837 18% Edge and Access 31,176 23% 40,178 30% 38,308 28% 32,218 22% Services and Support 17,566 13% 16,840 13% 16,917 12% 21,261 15% -------- ---- -------- ---- -------- ---- -------- ---- Total $134,908 100% $133,996 100% $138,871 100% $143,630 100% ======== ======== ======== ======== Geography United States $ 60,608 45% $ 55,578 41% $ 68,718 49% $ 61,647 43% International 74,300 55% 78,418 59% 70,153 51% 81,983 57% -------- ---- -------- ---- -------- ---- -------- ---- Total $134,908 100% $133,996 100% $138,871 100% $143,630 100% ======== ======== ======== ======== Market Cable $ 55,950 42% $ 64,142 48% $ 62,722 45% $ 62,526 44% Satellite and Telco 35,388 26% 28,193 21% 33,974 25% 30,686 21% Broadcast and Media 43,570 32% 41,661 31% 42,175 30% 50,418 35% -------- ---- -------- ---- -------- ---- -------- ---- Total $134,908 100% $133,996 100% $138,871 100% $143,630 100% ======== ======== ======== ======== 2011 ------------- Product Video Processing $236,624 43% Production and Playout 100,317 18% Edge and Access 141,880 26% Services and Support 72,584 13% -------- ---- Total $551,405 100% ======== Geography United States $246,551 45% International 304,854 55% -------- ---- Total $551,405 100% ======== Market Cable $245,340 45% Satellite and Telco 128,241 23% Broadcast and Media 177,824 32% -------- ---- Total $551,405 100% ======== Note: Data includes a full quarter proforma revenue for Omneon, including certain deferred revenue excluded in reported results, for the periods prior to 2011Q2.

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CONTACTS:
Carolyn V. Aver
Chief Financial Officer
Harmonic Inc.
(408) 542-2500

Michael Newman
Investor Relations
StreetConnect
(408) 542-2760


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