Harmonic Inc. (NASDAQ:HLIT) reported its first quarter 2024 financial results, demonstrating solid execution and continued confidence in its growth opportunities. The company's Broadband segment maintained its strong momentum, while the Video segment is undergoing a strategic restructuring to improve profitability.
Business Overview
Harmonic is a leading global provider of broadband solutions that enable broadband operators to efficiently and effectively deploy high-speed internet, as well as versatile and high-performance video delivery software, products, system solutions and services. The company operates in two main segments: Broadband and Video.The Broadband segment sells broadband access solutions and related services, including the company's cOS software-based broadband access solutions, to broadband operators globally. The Video segment sells video processing, production and playout solutions, and services worldwide to cable operators, satellite and telco Pay-TV service providers, as well as to broadcast and media companies, including streaming media companies.
Broadband Segment Highlights
Harmonic's Broadband segment reported revenue of $78.9 million in Q1 2024, a decrease of 21% year-over-year, but in line with the company's expectations. The segment saw another strong quarter of new bookings, driving a record new backlog. The number of global customers deploying Harmonic's Broadband solutions reached 113, up 20% year-over-year, corresponding with 28.6 million DOCSIS cable modems now served worldwide.Harmonic continues to make progress in the development of its cOS solutions and the growth of its Broadband business, with expanded commercial deployments, field trials, and customer engagements. The company is well-positioned with its leading technology, strong backlog, and customer success to drive continued multiyear growth in the Broadband segment.
Video Segment Transformation
Harmonic's Video segment reported revenue of $43.2 million in Q1 2024, down from $57.3 million a year ago. The company has continued to see macroeconomic and sector headwinds impacting its traditional Pay-TV customer spending on appliances. Additionally, Harmonic's strategic review process caused a growing number of appliance and SaaS customers to hold back on new commitments pending the outcome.However, Harmonic's Video SaaS revenue grew 11% year-over-year to $12.9 million, representing 29.9% of the segment's revenue. The company is seeing growing usage by its largest and most successful SaaS customers, especially for live sports streaming, partially offset by the loss of a couple of mid-tier streaming customers.
To address the persistent industry-wide headwinds affecting appliance sales, Harmonic is taking actions to restructure and streamline its Video segment. The company expects to incur approximately $17 million of restructuring costs in 2024, but anticipates achieving around $18 million in savings this year and $28 million in annualized savings in 2025. Once the restructuring is completed, Harmonic believes the Video business will be able to achieve breakeven EBITDA at below $180 million of revenue per year.
Financial Performance
For the first quarter of 2024, Harmonic reported total revenue of $122.1 million, down 23% year-over-year. The company's Broadband segment generated $78.9 million in revenue, while the Video segment contributed $43.2 million.Gross margin for the quarter was 51.7%, compared to 53.3% in the prior-year period. The decrease was primarily due to margin contraction in the Broadband segment, partially offset by margin expansion in the Video segment.
Harmonic reported a net loss of $8.1 million, or $0.07 per share, in Q1 2024, compared to net income of $5.1 million, or $0.04 per share, in the same period last year. The company's annual net income for 2023 was $83,994,000.
The company's annual revenue for 2023 was $607,907,000, and its annual operating cash flow and free cash flow were $7,059,000 and -$1,416,000, respectively.
Liquidity
Harmonic ended the first quarter of 2024 with $84.3 million in cash and cash equivalents, flat compared to the end of 2023. The company generated $26.8 million in cash from operations during the quarter, primarily due to a decrease in accounts receivable from collections.In December 2023, Harmonic closed a $160 million credit facility, including a $120 million revolving credit line and a $40 million term loan. The company used this facility to redeem the entire $115.5 million in outstanding convertible notes subsequent to the end of the first quarter.
Harmonic also repurchased $21.7 million of its common stock during the first quarter, as part of its $100 million share repurchase program authorized in 2022. The company plans to maintain an overall net leverage of around 2x or less and available liquidity of no less than $100 million going forward.
Outlook
For the second quarter of 2024, Harmonic expects total revenue in the range of $125 million to $140 million, with Broadband revenue between $85 million and $95 million, and Video revenue between $40 million and $45 million.For the full year 2024, the company expects total revenue between $645 million and $695 million, with Broadband revenue in the range of $460 million to $500 million, and Video revenue between $185 million and $195 million. Harmonic also expects adjusted EBITDA for the full year to be in the range of $95 million to $124 million.
Risks and Challenges
Harmonic's business is subject to several risks and challenges, including:1. Dependence on cable, satellite and telco, and broadcast and media industry spending: The company's revenue is heavily dependent on spending in these industries, which can be affected by various macroeconomic and industry-specific factors.
2. Customer concentration: A significant portion of Harmonic's revenue has been derived from relatively few customers, and the loss of any significant customer could materially impact the company's results.
3. Competitive landscape: The markets in which Harmonic operates are intensely competitive, with larger competitors that may have access to greater resources.
4. Successful development and timely introduction of new products: Harmonic's ability to remain competitive depends on its capacity to design, develop, and sell new or enhanced products and solutions that meet the evolving needs of its customers.
5. Reliance on third-party suppliers and manufacturers: Harmonic's dependence on sole or limited suppliers and contract manufacturers for key components and services exposes the company to potential disruptions and cost increases.