Harmonic Inc. reports 12.6% revenue growth in 2018 and 17.4 pp EBITDA Margin growth from -13.4% to 4.0%
02/04/2019 • About Harmonic Inc. (
$HLIT) • By InTwits
Harmonic Inc. reported 2018 financial results today. Here are the key drivers of the company's long term financial model:
- Harmonic Inc. motivates its personel by high Stock Based Compensation (SBC): average SBC/Revenue for 2014-2018 was 0.0% while average EBITDA Margin was -2.2% for the sames years
- Harmonic Inc. has low CAPEX intensity: 5 year average CAPEX/Revenue was 3.0%. At the same time it's in pair with industry average of 3.6%
- CAPEX is quite volatile: $3m in 2018, $4m in 2017, $2m in 2016, $2m in 2015, $1m in 2014
- The company has unprofitable business model: ROIC is -1.4%
- It operates with medium-size leverage: Net Debt/EBITDA is 3.4x while industry average is -0.5x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
Harmonic Inc.'s Revenue surged on 12.6%. Revenue growth showed small slowdown in 18Q4 - it was 12.6% YoY. Having declining revenue the company managed to increase EBITDA margin. EBITDA Margin increased slightly on 0.63 pp from 3.1% to 3.7% in 2018. During the last 5 years EBITDA Margin bottomed in 2017 at -13.4%.
Gross Margin increased on 4.4 pp from 47.4% to 51.8% in 2018. SG&A as a % of Revenue decreased on 8.6 pp from 38.0% to 29.5% in 2018. During the last 5 years SG&A as a % of Revenue topped in 2017 at 38.0%.
Net Income margin jumped on 17.9 pp from -23.2% to -5.2% in 2018.
Investments (CAPEX, working capital and M&A)
The company's CAPEX/Revenue was 1.7% in 2018. Harmonic Inc.'s CAPEX/Revenue decreased on 2.1 pp from 3.8% in 2015 to 1.7% in 2018. For the last three years the average CAPEX/Revenue was 2.9%. During the last 5 years CAPEX as a % of Revenue topped in 2015 at 3.8% and was declining since that time.
Return on investment
The company operates at negative ROIC (-1.4%) and ROE (-9.4%). ROIC surged on 18.1 pp from -19.5% to -1.4% in 2018. ROE jumped on 24.5 pp from -33.9% to -9.4% in 2018.
Leverage (Debt)
Company's Net Debt / EBITDA is 3.4x and Debt / EBITDA is 7.5x. Net Debt / EBITDA surged3.4x from to 3.4x in 2018. Debt increased on 4.8% while cash jumped on 15.7%.
Harmonic Inc. has no short term refinancing risk: cash is higher than short term debt (919.7%).
Management team
The company's CEO is Patrick J Harshman. Patrick J Harshman is a founder and has 13 years tenure with the company. Sanjay Kalra is a the company's CFO. Sanjay Kalra has spent 2 years at the company.
Financial and operational results
FY ended 12/31/2018
Harmonic Inc. ($HLIT) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 433.6 | 377.0 | 405.9 | 358.2 | 403.6 | 12.6% |
| Gross Profit | 212.3 | 202.7 | 200.7 | 169.8 | 209.2 | 23.2% |
| SG&A | 131.3 | 121.0 | 144.4 | 136.3 | 119.0 | -12.7% |
| EBITDA | 15.4 | 6.8 | -33.4 | -48.0 | 16.3 | |
| Net Income | -46.2 | -15.7 | -72.3 | -83.0 | -21.0 | |
Balance Sheet
|
|---|
| Cash | 73.0 | 126.2 | 55.6 | 57.0 | 66.0 | 15.7% |
| Short Term Debt | 0.0 | 0.0 | 7.3 | 7.6 | 7.2 | -5.7% |
| Long Term Debt | 0.0 | 98.3 | 103.3 | 108.7 | 114.8 | 5.6% |
Cash flow
|
|---|
| Capex | 10.1 | 14.4 | 15.1 | 11.4 | 7.0 | -38.2% |
Ratios
|
|---|
| Revenue growth | -6.1% | -13.0% | 7.7% | -11.7% | 12.6% | |
| EBITDA growth | -26.4% | -55.9% | -591.3% | 43.7% | -134.0% | |
|
|---|
| Gross Margin | 49.0% | 53.8% | 49.5% | 47.4% | 51.8% | 4.4% |
| EBITDA Margin | 3.6% | 1.8% | -8.2% | -13.4% | 4.0% | 17.4% |
| SG&A, % of revenue | 30.3% | 32.1% | 35.6% | 38.0% | 29.5% | -8.6% |
| Net Income Margin | -10.7% | -4.2% | -17.8% | -23.2% | -5.2% | 17.9% |
| CAPEX, % of revenue | 2.3% | 3.8% | 3.7% | 3.2% | 1.7% | -1.4% |
|
|---|
| ROIC | -5.0% | -3.3% | -16.7% | -19.5% | -1.4% | 18.1% |
| ROE | -10.7% | -4.5% | -24.2% | -33.9% | -9.4% | 24.5% |
| Net Debt/EBITDA | -4.7x | -4.1x | | | 3.4x |
Harmonic Inc. ($HLIT) key quoterly financial indicators
| mln. $ | 18Q1 | 18Q2 | 18Q3 | 18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 90 | 99 | 101 | 114 | | 8.7% | 20.5% | 9.3% | 12.6% |
| EBITDA | -4 | 6 | 2 | 12 | | | | | |
| Net Income | -14 | -3 | -8 | 3 | | | | | |
Balance Sheet
|
|---|
| Cash | 52 | 54 | 62 | 66 | | -5.9% | 2.3% | 23.2% | 15.7% |
| Short Term Debt | 8 | 2 | 8 | 7 | | 11.0% | -75.8% | 3.3% | -5.7% |
| Long Term Debt | 110 | 112 | 113 | 115 | | 5.4% | 5.4% | 5.5% | 5.6% |
Ratios
|
|---|
| Gross Margin | 52.4% | 52.0% | 49.8% | 53.1% | | 3.6% | 11.0% | -1.3% | 5.0% |
| EBITDA Margin | -4.2% | 6.1% | 1.6% | 11.0% | | 14.5% | 32.6% | 10.5% | 13.4% |
| Net Income Margin | -15.2% | -2.9% | -7.7% | 2.9% | | 13.8% | 35.3% | 9.2% | 14.7% |
Peers in Communications Equipment
Below we provide Harmonic Inc. benchmarking against other companies in Communications Equipment industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.
Top companies by Revenue growth, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Ribbon Communications Inc. ($RBBN) | | | | 30.6% | 75.2% |
| Extreme Networks, Inc. ($EXTR) | | 6.4% | -4.4% | 13.2% | 64.4% |
| Optical Cable Corporation ($OCC) | | -11.3% | -12.2% | -0.8% | 37.0% |
| ParkerVision Inc ($PRKR) | | | 37,601.2% | -97.5% | 35.0% |
| Network-1 Technologies, Inc. ($NTIP) | | 34.6% | 292.9% | -74.7% | 34.4% |
| |
|---|
| Median (66 companies) | | 0.7% | 7.3% | 5.6% | 2.8% |
|---|
| Harmonic Inc. ($HLIT) | | -13.0% | 7.7% | -11.7% | 12.6% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| F5 Networks, Inc. ($FFIV) | 82.1% | 82.7% | 83.1% | 83.1% | 83.3% |
| Radware Ltd. ($RDWR) | 82.1% | 82.4% | 81.8% | 81.3% | 82.2% |
| Radcom Ltd. ($RDCM) | 63.2% | 76.8% | 69.6% | 71.8% | 74.0% |
| Casa Systems, Inc. ($CASA) | | 70.8% | 69.1% | 73.4% | 73.4% |
| NetScout Systems, Inc. ($NTCT) | 78.7% | 79.2% | 65.6% | 70.2% | 72.4% |
| |
|---|
| Median (67 companies) | 41.4% | 41.3% | 43.7% | 41.0% | 40.5% |
|---|
| Harmonic Inc. ($HLIT) | 49.0% | 53.8% | 49.5% | 47.4% | 51.8% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Network-1 Technologies, Inc. ($NTIP) | 35.5% | 33.7% | 50.6% | 37.8% | 42.8% |
| InterDigital, Inc. ($IDCC) | 50.8% | 58.1% | 73.6% | 67.3% | 41.9% |
| EchoStar Corporation ($SATS) | 25.7% | 39.7% | 40.3% | 38.1% | 37.4% |
| Ubiquiti Networks, Inc. ($UBNT) | 34.7% | 25.5% | 37.3% | 34.3% | 32.8% |
| Ituran Location and Control Ltd. ($ITRN) | 32.4% | 30.5% | 29.9% | 29.9% | 30.4% |
| |
|---|
| Median (65 companies) | 5.6% | 6.1% | 5.9% | 6.5% | 5.4% |
|---|
| Harmonic Inc. ($HLIT) | 3.6% | 1.8% | -8.2% | -13.4% | 4.0% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Resonant Inc. ($RESN) | | | 132.5% | 124.8% | 245.2% |
| ViaSat, Inc. ($VSAT) | 22.8% | 26.5% | 26.7% | 33.0% | 32.1% |
| Applied Optoelectronics, Inc. ($AAOI) | 31.5% | 30.1% | 19.0% | 17.5% | 26.9% |
| EchoStar Corporation ($SATS) | 19.7% | 43.8% | 39.9% | 30.9% | 26.5% |
| Finisar Corporation ($FNSR) | 11.3% | 11.9% | 9.4% | 9.7% | 16.8% |
| |
|---|
| Median (65 companies) | 2.2% | 2.2% | 1.9% | 1.8% | 1.6% |
|---|
| Harmonic Inc. ($HLIT) | 2.3% | 3.8% | 3.7% | 3.2% | 1.7% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| F5 Networks, Inc. ($FFIV) | 33.9% | 40.8% | 43.1% | 46.9% | 47.9% |
| Ubiquiti Networks, Inc. ($UBNT) | 61.4% | 31.5% | 41.5% | 38.5% | 39.1% |
| Motorola Solutions, Inc. ($MSI) | -16.1% | 18.9% | 26.4% | 39.5% | 35.3% |
| Ituran Location and Control Ltd. ($ITRN) | 50.9% | 46.8% | 50.1% | 48.5% | 35.1% |
| Casa Systems, Inc. ($CASA) | | | 43.2% | 39.7% | 21.9% |
| |
|---|
| Median (70 companies) | 2.1% | 2.3% | 2.4% | 2.2% | 0.7% |
|---|
| Harmonic Inc. ($HLIT) | -5.0% | -3.3% | -16.7% | -19.5% | -1.4% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Extreme Networks, Inc. ($EXTR) | | | -2.2x | -1.5x | 7.1x |
| ViaSat, Inc. ($VSAT) | 3.4x | 2.5x | 3.2x | 2.5x | 5.8x |
| CommScope Holding Company, Inc. ($COMM) | 2.3x | 9.6x | 4.3x | 4.6x | 4.4x |
| Inseego Corp. ($INSG) | | | | | 3.9x |
| Finisar Corporation ($FNSR) | -0.3x | 0.2x | -0.5x | 1.6x | 3.8x |
| |
|---|
| Median (45 companies) | -0.7x | -0.6x | -0.9x | -0.7x | -0.3x |
|---|
| Harmonic Inc. ($HLIT) | -4.7x | -4.1x | | | 3.4x |
