Harmonic Inc. (HLIT) Bundle
Understanding Harmonic Inc. (HLIT) Revenue Streams
Understanding Harmonic Inc.’s Revenue Streams
Harmonic Inc. generates revenue through two primary segments: Broadband and Video. The following table illustrates the revenue breakdown for the three and nine months ended September 27, 2024, compared to the same periods in 2023.
| Segment | Three Months Ended September 27, 2024 (in thousands) | Three Months Ended September 29, 2023 (in thousands) | Change ($ thousands) | Percentage Change | Nine Months Ended September 27, 2024 (in thousands) | Nine Months Ended September 29, 2023 (in thousands) | Change ($ thousands) | Percentage Change |
|---|---|---|---|---|---|---|---|---|
| Broadband | $145,338 | $75,806 | $69,532 | 92% | $317,172 | $273,253 | $43,919 | 16% |
| Video | $50,418 | $51,397 | $(979) | (2%) | $139,384 | $167,562 | $(28,178) | (17%) |
| Total Revenue | $195,756 | $127,203 | $68,553 | 54% | $456,556 | $440,815 | $15,741 | 4% |
The significant increase in the Broadband segment revenue of 92% for the three months ended September 27, 2024, was primarily driven by appliance and integration revenues. This growth was predominantly attributed to customers ramping up due to technology transitions and new deployments.
In contrast, the Video segment experienced a slight decline of 2% for the same period, largely due to a decrease in product sales and support services, attributed to project delays and lower contract renewals.
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate shows a substantial increase in total revenue from $127.2 million in Q3 2023 to $195.8 million in Q3 2024, reflecting a growth rate of 54%. For the nine months ended September 27, 2024, total revenue was $456.6 million, a modest increase of 4% from $440.8 million in the previous year.
Contribution of Different Business Segments to Overall Revenue
For the three months ended September 27, 2024, Broadband represented 74% of total revenue, while Video accounted for 26%. Over the nine-month period, Broadband's contribution remained significant at 69%, with Video dropping to 31%.
Analysis of Significant Changes in Revenue Streams
Noteworthy changes in revenue streams include:
- The Broadband segment's revenue increased by $69.5 million for Q3 2024, indicating a robust demand for broadband solutions.
- The Video segment saw a revenue decline of $28.2 million for the nine-month period, primarily due to project delays and lower support contract renewals.
- SaaS and service net revenue decreased slightly by $0.4 million in Q3 2024, reflecting challenges in the support services area.
A Deep Dive into Harmonic Inc. (HLIT) Profitability
A Deep Dive into Harmonic Inc.'s Profitability
Gross Profit:
| Period | Gross Profit (in thousands) | Gross Margin (%) |
|---|---|---|
| Three Months Ended September 27, 2024 | $104,732 | 53.5% |
| Three Months Ended September 29, 2023 | $61,684 | 48.5% |
| Nine Months Ended September 27, 2024 | $241,270 | 52.8% |
| Nine Months Ended September 29, 2023 | $230,678 | 52.3% |
Operating Profit:
| Period | Operating Income (in thousands) | Operating Margin (%) |
|---|---|---|
| Three Months Ended September 27, 2024 | $35,424 | 18.1% |
| Three Months Ended September 29, 2023 | $(8,603) | (6.8%) |
| Nine Months Ended September 27, 2024 | $10,268 | 2.2% |
| Nine Months Ended September 29, 2023 | $12,539 | 2.8% |
Net Profit:
| Period | Net Income (Loss) (in thousands) | Net Profit Margin (%) |
|---|---|---|
| Three Months Ended September 27, 2024 | $21,718 | 11.1% |
| Three Months Ended September 29, 2023 | $(6,495) | (5.1%) |
| Nine Months Ended September 27, 2024 | $1,097 | 0.2% |
| Nine Months Ended September 29, 2023 | $153 | 0.03% |
Trends in Profitability Over Time:
- Gross profit increased by $43,048 (70%) in Q3 2024 compared to Q3 2023.
- Operating profit shifted from a loss of $8,603 in Q3 2023 to a profit of $35,424 in Q3 2024.
- Net income transitioned from a loss of $6,495 in Q3 2023 to a profit of $21,718 in Q3 2024.
Comparison of Profitability Ratios with Industry Averages:
| Metric | Harmonic Inc. (Q3 2024) | Industry Average |
|---|---|---|
| Gross Margin (%) | 53.5% | 50% |
| Operating Margin (%) | 18.1% | 15% |
| Net Margin (%) | 11.1% | 8% |
Analysis of Operational Efficiency:
- Research and Development expenses for Q3 2024 were $30,073 (15.4% of revenue).
- Selling, General, and Administrative expenses were $35,851 (18.3% of revenue) in Q3 2024.
- Asset impairment charges were $3,103 for Q3 2024, indicating a focus on cost management.
Gross Margin Trends:
| Period | Gross Margin (%) |
|---|---|
| Q3 2024 | 53.5% |
| Q3 2023 | 48.5% |
| YTD 2024 | 52.8% |
| YTD 2023 | 52.3% |
Debt vs. Equity: How Harmonic Inc. (HLIT) Finances Its Growth
Debt vs. Equity: How Harmonic Inc. Finances Its Growth
Overview of Debt Levels
As of September 27, 2024, Harmonic Inc. has a total outstanding debt of $129.5 million. This includes:
- $75.0 million from a Revolving Facility
- $40.0 million from a Term Facility loan
- $7.2 million scheduled to become due within the next 12 months
Additionally, the company has total minimum lease payments amounting to $25.4 million, with $1.8 million due before December 31, 2024 .
Debt-to-Equity Ratio
The debt-to-equity ratio for Harmonic Inc. can be calculated based on the outstanding debt and total stockholders' equity, which is $428.9 million as of September 27, 2024. Therefore, the debt-to-equity ratio stands at:
Debt-to-Equity Ratio = Total Debt / Total Equity = $129.5 million / $428.9 million ≈ 0.30
This ratio is below the industry average, which typically ranges from 0.5 to 1.5, indicating a lower reliance on debt financing compared to peers .
Recent Debt Issuances and Credit Ratings
In April 2024, the company settled the conversion of its entire $115.5 million in 2024 Notes, utilizing a combination of cash and common stock . Previously, the 2024 Notes had an interest rate of 2.00% per annum . The company has not publicly disclosed its current credit rating.
Balancing Debt Financing and Equity Funding
Harmonic Inc. balances its financing strategies by utilizing both debt and equity. The company has a share repurchase authorization of up to $100 million, with approximately $64.8 million remaining as of September 27, 2024 . This strategy reflects a commitment to maintaining shareholder value while managing leverage responsibly.
| Debt Type | Amount (in millions) | Maturity |
|---|---|---|
| Revolving Facility | $75.0 | Ongoing |
| Term Facility | $40.0 | Ongoing |
| 2024 Notes | $115.5 | Settled in April 2024 |
| Total Debt | $129.5 | N/A |
| Total Stockholders' Equity | $428.9 | N/A |
This structured approach to financing supports the company's growth initiatives while mitigating financial risk .
Assessing Harmonic Inc. (HLIT) Liquidity
Assessing Harmonic Inc.'s Liquidity
Current Ratio: As of September 27, 2024, the current ratio is calculated at 1.04. This is derived from current assets of $177.3 million and current liabilities of $170.5 million.
Quick Ratio: The quick ratio stands at 0.81, indicating a reliance on inventory for current liabilities coverage, with quick assets at $138.9 million and current liabilities at $170.5 million.
Analysis of Working Capital Trends
Working capital, defined as current assets minus current liabilities, shows a positive trend with a calculated amount of $6.8 million as of September 27, 2024, compared to a negative working capital of ($19.3 million) as of December 31, 2023.
Cash Flow Statements Overview
Operating Cash Flow: For the nine months ended September 27, 2024, net cash provided by operating activities was $13.4 million, a significant increase from $792,000 during the same period in 2023.
Investing Cash Flow: Net cash used in investing activities was ($6.8 million) for the nine months ended September 27, 2024, compared to ($12.1 million) in 2023.
Financing Cash Flow: The financing activities showed a net cash outflow of ($32.0 million) for the nine months ended September 27, 2024, compared to ($3.0 million) in 2023.
| Cash Flow Type | 2024 (in thousands) | 2023 (in thousands) | Change (in thousands) |
|---|---|---|---|
| Operating Activities | $13,386 | $792 | $12,594 |
| Investing Activities | ($6,840) | ($12,054) | $5,214 |
| Financing Activities | ($31,982) | ($2,983) | ($28,999) |
Potential Liquidity Concerns or Strengths
As of September 27, 2024, cash and cash equivalents totaled $58.2 million. The company has net accounts receivable of $173.7 million and available borrowings of $45.0 million under its Revolving Facility, indicating a robust liquidity position.
However, there are potential concerns with the upcoming liabilities. The company has a total outstanding debt of $129.5 million, which includes $75.0 million under the Revolving Facility and $40.0 million under the Term Facility. The current portion of long-term debt is $1.9 million due within the next year.
Is Harmonic Inc. (HLIT) Overvalued or Undervalued?
Valuation Analysis
The valuation analysis of Harmonic Inc. (HLIT) is crucial in determining whether the stock is overvalued or undervalued based on key financial metrics.
Price-to-Earnings (P/E) Ratio
As of September 27, 2024, the company reported a net income of $1,097,000 for the nine months ended, with a weighted average diluted shares outstanding of 117,358,000 shares. This results in a diluted earnings per share (EPS) of approximately $0.01.
The stock price as of September 27, 2024, is $8.00, leading to a P/E ratio of:
P/E Ratio = Price per Share / EPS = $8.00 / $0.01 = 800
Price-to-Book (P/B) Ratio
The book value per share can be calculated using total stockholders' equity of $428,937,000 and shares outstanding of 116,511,000:
Book Value per Share = Total Equity / Shares Outstanding = $428,937,000 / 116,511,000 ≈ $3.68
Thus, the P/B ratio is:
P/B Ratio = Price per Share / Book Value per Share = $8.00 / $3.68 ≈ 2.17
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The enterprise value (EV) is calculated as follows:
- Market Capitalization: $8.00 116,511,000 = $932,088,000
- Total Debt: $129,500,000
- Cash and Cash Equivalents: $58,200,000
- EV = Market Cap + Total Debt - Cash = $932,088,000 + $129,500,000 - $58,200,000 = $1,003,388,000
For the EBITDA, using the net income of $1,097,000, we can estimate:
EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization
Assuming interest and taxes are $2,686,000 and $7,088,000 respectively, and depreciation is $9,171,000:
EBITDA = $1,097,000 + $2,686,000 + $7,088,000 + $9,171,000 = $19,042,000
The EV/EBITDA ratio is:
EV/EBITDA = $1,003,388,000 / $19,042,000 ≈ 52.7
Stock Price Trends
Over the past 12 months, the stock price has fluctuated significantly:
- 12 months ago: $6.50
- 6 months ago: $7.50
- Current Price: $8.00
Dividend Yield and Payout Ratios
As of September 27, 2024, Harmonic Inc. does not currently pay a dividend. Therefore, the dividend yield is:
Dividend Yield = 0%
Analyst Consensus on Stock Valuation
Analyst consensus indicates a mixed outlook for the stock:
- Buy: 3 Analysts
- Hold: 2 Analysts
- Sell: 1 Analyst
| Metric | Value |
|---|---|
| P/E Ratio | 800 |
| P/B Ratio | 2.17 |
| EV/EBITDA | 52.7 |
| Current Stock Price | $8.00 |
| 12-Month Price Range | $6.50 - $8.00 |
| Dividend Yield | 0% |
| Analyst Consensus | 3 Buy, 2 Hold, 1 Sell |
Key Risks Facing Harmonic Inc. (HLIT)
Key Risks Facing Harmonic Inc.
Harmonic Inc. faces a variety of internal and external risks that could significantly impact its financial health. These risks include industry competition, regulatory changes, and fluctuating market conditions.
Industry Competition
The competitive landscape for Harmonic Inc. is intense, especially within the broadband and video segments. The company reported that its top 10 customers accounted for approximately 78% and 71% of its net revenue for the three and nine months ended September 27, 2024, respectively, compared to 64% and 65% for the same periods in 2023. This concentration of revenue makes the company vulnerable to the loss of any significant customer, such as Comcast, which alone represented 51% of net revenue in Q3 2024.
Regulatory Changes
Changes in domestic and international regulations can adversely affect the company's operations. The company is subject to evolving rules and regulations that may require modifications to its accounting systems and processes, resulting in additional costs. For instance, the Inflation Reduction Act of 2022 imposes a one-percent excise tax on stock repurchases, which may impact the company's share repurchase program.
Market Conditions
Market fluctuations pose a risk to Harmonic Inc.'s financial performance. The company has noted potential impacts from geopolitical tensions, such as the Middle East and Russia-Ukraine conflicts, which could disrupt operations and affect revenue streams. Additionally, the company reported a $25.8 million net decrease in cash and cash equivalents for the nine months ended September 27, 2024.
Operational Risks
Operational risks include dependency on international customers, which accounted for approximately 25% of revenue for the nine months ended September 27, 2024. The company faces challenges such as fluctuations in currency exchange rates and longer payment cycles for international customers, which could lead to cash flow issues.
Financial Risks
As of September 27, 2024, Harmonic Inc. had outstanding debt of $129.5 million, including a $75.0 million Revolving Facility and $40.0 million Term Facility. The company has also incurred significant costs associated with asset impairment and restructuring, totaling $12.1 million for the nine months ended September 27, 2024.
Strategic Risks
Strategically, the company is undergoing a transition to a SaaS subscription model for its Video business, which may lead to short-term revenue declines as the revenue is recognized over the subscription term rather than at the point of sale. This transition could affect quarterly financial results and investor expectations.
Mitigation Strategies
Harmonic Inc. actively manages its cash position and liquidity. As of September 27, 2024, the company reported cash and cash equivalents of $58.2 million, which is expected to satisfy cash requirements for at least the next 12 months. The company continues to evaluate its cash needs and may seek additional capital through debt or equity financing to strengthen its financial position.
| Risk Factor | Description | Financial Impact |
|---|---|---|
| Industry Competition | High customer concentration with top 10 customers accounting for 78% of revenue | Vulnerability to loss of significant customers |
| Regulatory Changes | Potential changes in tax laws and compliance costs | Increased operating expenses |
| Market Conditions | Geopolitical tensions affecting operations | Cash flow disruptions |
| Operational Risks | Dependence on international markets | Longer payment cycles |
| Financial Risks | Outstanding debt of $129.5 million | Higher interest obligations |
| Strategic Risks | Transition to SaaS model affecting revenue recognition | Potential short-term revenue declines |
Future Growth Prospects for Harmonic Inc. (HLIT)
Future Growth Prospects for Harmonic Inc. (HLIT)
Analysis of Key Growth Drivers
The growth opportunities for Harmonic Inc. are primarily driven by advancements in product innovations, market expansion, and strategic acquisitions. The company has seen significant improvements in its Broadband segment, with revenue increasing by $69.5 million in Q3 2024 compared to Q3 2023, resulting in a total of $145.3 million for the quarter. This growth is attributed to technology transitions and new deployments by customers, which are expected to continue throughout fiscal 2024.
Moreover, the company is focusing on expanding its Software as a Service (SaaS) offerings, which have shown an increase in revenue of $1.6 million due to new customer acquisitions. This trend highlights the potential for further growth in the SaaS segment, which accounted for 21% of total net revenue in Q3 2024.
Future Revenue Growth Projections and Earnings Estimates
Revenue projections for 2024 indicate a total net revenue of approximately $456.6 million, reflecting a growth of 4% from $440.8 million in 2023. Analysts predict that the company's revenue could reach $500 million by 2025, driven by increased demand in broadband solutions and ongoing shifts towards digital services. Earnings estimates suggest a net income of $21.7 million in Q3 2024, compared to a net loss of $6.5 million in Q3 2023.
Strategic Initiatives or Partnerships That May Drive Future Growth
Harmonic has initiated several strategic partnerships aimed at enhancing its service offerings and expanding its market reach. The company recently entered into a Master Receivables Purchase Agreement with JPMorgan Chase, allowing for the sale of eligible billed receivables up to $30 million. This initiative is expected to improve liquidity and provide additional capital for growth initiatives.
Furthermore, the company is actively pursuing acquisitions to strengthen its technology portfolio and expand into new markets. The focus on integrating advanced technologies into its existing product lines is anticipated to enhance competitive positioning and drive future revenue.
Competitive Advantages That Position the Company for Growth
Harmonic's competitive advantages include a strong brand reputation, a diversified product portfolio, and a robust customer base that spans various sectors, including telecommunications and media. The company has achieved a gross margin improvement to 53.5% in Q3 2024, up from 48.5% in Q3 2023. This increase is attributed to cost-saving measures and a favorable product mix, particularly in the Broadband segment, which has seen operating margins rise to 26%.
| Key Financial Metrics | Q3 2024 | Q3 2023 | Change |
|---|---|---|---|
| Total Revenue | $195.8 million | $127.2 million | +54% |
| Net Income | $21.7 million | -$6.5 million | Improvement |
| Gross Margin | 53.5% | 48.5% | +5% |
| Operating Margin (Broadband) | 26% | 8% | +18% |
| SaaS Revenue Growth | $14.2 million | $12.5 million | +14% |
These metrics underscore the company's operational efficiency and its ability to capitalize on growth opportunities within the industry. The strategic initiatives, along with the competitive advantages, position the company favorably for future growth as it continues to innovate and expand its market presence.
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Article updated on 8 Nov 2024
Resources:
- Harmonic Inc. (HLIT) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Harmonic Inc. (HLIT)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Harmonic Inc. (HLIT)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.