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Harmonic: A Tedious Yet Determined Effort To Harmonize Liquidity With Potential Growth And Stability

Mar. 07, 2021 10:26 AM ETHarmonic Inc. (HLIT)8 Comments

Summary

  • Growth may have been stagnant and unimpressive, but Harmonic, Inc. has maintained impressive liquidity and adequate cash inflows to cover its operations and obligations.
  • As sustained viability remains elusive, the possibility of dividend payments remains low and ambiguous.
  • Although the YTD stock price has been moving sideways, its general pattern remains bullish with a reasonable valuation and volatility.
  • Despite the unimpressive growth over the past decade, adverse effects of the pandemic and a more challenging environment did not hurt its overall operations.

Harmonic, Inc. (NASDAQ: HLIT) may not be in harmony with its growth and goals over the past decade, but it remained safe and grounded at the height of the pandemic. Despite its usual net losses, Free Cash Flow ("FCF") and Current Ratio have been adequate to help it remain highly operational and capable of expansion while covering its obligations. Moreover, the stock price continues to show investors' high hopes for the company as it remains in a generally upward pattern although its YTD trend has been sideways.

Company Financials

Operating Revenue and Operating Costs

For more than 30 years, Harmonic, Inc. has been working with video, cable, and media companies with its innovative products, solutions, and services. It has been one of those at the forefront of industry innovations since its popularity spread across the region. As expected, its operating revenue is primarily sourced from VOS SaaS, appliance and integration, and services to the companies in the industry. Over the past decade, there was nothing extraordinary with its revenues despite amounting at $300-$400 million with no sharp increases and decreases. This shows that amidst the generally downward pattern, demand for its products and services remained high. Its operating costs have been following the trend which proves its effort to optimize its operations. From $424 million in 2010, although the general pattern was downwards, it has remained stable at $400 million in 2019 while costs moved from $227 million to $179 million. Meanwhile, the gross profit margin has gradually yet generally increased from 46% to 55%. This proves the intention of the company to optimize its costs, improve efficiency, and maintain stability and profitability in the core operations. With that, it is safe to assume that despite the underwhelming growth in 2010-2019, stability and viability in the core operations have been sustained.

This article was written by

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Comments (8)

b
Harmonic has made some big strides since this article was published about 9 months ago . Tier one operators are using their systems and the comments from the industry are all quite bullish. I notice no follow-up articles or new comments.
Investigating The Stock Market profile picture
@bike 05673 Thanks for your comment. I plan to post an update soon.
b
This is an article about the past, investing is about the future Comcast who is a leader seems to think the HLIT future is bright but the author never mentions their huge investment, the analyst sounds like they have not interviewed any of the new Harmonic clients. The industry is changing and Harmonic deserves much more study.
A
@bike 05673 Comcast has been a 20% customer of Harmonic. Comcast’s investment in Harmonic is not huge. It owns a single-digit percentage of HLIT. A couple of years ago, it infused cash into Harmonic, awarding Harmonic a large 3-year software deal but at the expense of getting favorable pricing by Harmonic and stock warrants. Without Comcast, Harmonic would be insolvent by now.
On 2020-02-13 Comcast Corp filed an SC 13G/A form disclosing ownership of 3,217,547 shares of Harmonic. This represented 3.6 percent ownership of the company. In their previous filing dated 2019-02-11, Comcast Corp had reported owning 6,643,740 shares, indicating a decrease of -51.57 percent.
The industry is changing but Harmonic’s progress is very sluggish and it does face intense competition in that transition.
bcota01 profile picture
@bike 05673

Investing is only about the future.
A
The only dividends this company will ever pay is to its management. Harmonic’s transition to a software model has already been in effect for several years; yet, growth and profitability have been sluggish. Other than the CFO, at the helm of this company is an entrenched poor management team. This team has never delivered in a sustained manner on their promises.
b
@Ari987 For the industry to make this huge transition takes plenty of time, my homework says it will happen and I am willing to invest and watch the slow long-term progress. It seems to be happening plenty of patience needed.
h
Not the same business model in 2020 as in 2010 explaining lack of revenue growth but much improved gross margins. They've gone from a significant amount of low margined reselling other companies' hardware in their solutions mix to a predominantly software model. Price to book and dividends are irrelevant in this situation.
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