All sounds very good. Synergy, technology, scale, efficiency, customers, eliminating a competitor - the usual claims of an acquiring company. Alas, not all acquistions turn out successful as claimed initially, and Harmonic has a bad track record under Harshman.
What Harshman means: don't judge me on my past mismanagement and destruction of your shareholder value for I've just acquired a company and has given you new hope. Look forward, not backward. Leave me in power and give me a couple of years to prove myself...
As I suspected, TVN's book value is nil. This is OK if TVN were actually an efficient profitable growth company. This is not the case. For either Q1 2015 and Q1 2016, TVN generated meager $10M in revenues, and with workforce that is 40% the size of Harmonic's. For 2014, TVN had almost $80M in revenues. Conclusion: TVN is a company on the decline and its private owners were probably happy to let it go for $80M.
So why did Harmonic acquire TVN with its 430 (mostly) French employees? In a country notorious for its restrictive labor laws.
Has Harmonic "the worldwide leader in video infrastructure delivery" fallen behind in technology that it needed the help of TVN's R&D? Has Harmonic's marketing had become so ineffective that it needed the help of TVN's marketing? If that were the case, how come TVN's sales have been stagnant or even contracting?
Was the acquisiton of TVN a ruse by Harshman to keep him in power?
Goodwill and intangibles assets are valuable assets as long as they result eventually in significant growth and profits. This is not the case with respect to Harmonic's acquistions. In the case of Harmonic, the goodwill and intangibles represent waste of shareholder value and their GAAP writedown losses are very real.
Total assets of TVN (thousands): $68,884
Total liabilities. of TVN: $67,174
The TVN acquisition cost: $84,586
Of which: Goodwill - $39,206, Intangibles - $43,670
Pro Forma Financial Information:
The following unaudited pro forma summary presents consolidated information of the Company as if the acquisition of TVN had occurred on January 1, 2015, the beginning of the comparable prior annual period.
Three months ended: April 1, 2016 April 3, 2015
Net revenue (millions): $90.6 $114.8
The contribution of TVN would be about $10M for Q1. It is not clear what it would be in Q2, Q3 ,Q4.
TVN has about 430 employees.
What good is an aging tech company if it cannot grow much (despite acquisitions) and cannot earn money?
What good is a tech company if its products and services do not cover the expenses of providing them? (And yes, employee bonuses and stocks awards are expenses.)
What good is an aging tech company if it has been surviving mostly by issuing secondaries over the years?
What good is a tech company if it is controlled by poor entrenched management?
The answers to the above:
1. For sure, that company's stock is only good if it sells below its tangible book value because the company might be headeing towards eventual liquidation.
2. For speculation (in case of an eventual forced change of management), that company's stock is good only if it is half-way between tangible book and book values. (Another $0.37 down and we are there.)
Market cap less than $110M over what Harmonic paid for TVN, a minor stagnant video company with less than 1/4 the annual sales of Harmonic...
Price to sales (2016) is now below 0.5. Yet Harmonic claims to be " the worldwide leader in video infrastructure".......
Market cap is much below the price Harmonic paid in 2010 for Omneon.. Is this shareholder value creation under Harshman?
Rebounding from $2.75 to $15 after dropping from $157 to $2.75 is nothing but a dead cat bounce. Also, in 2001 HLIT was still a relatively young promising company. Now it is an aging tech company with a terrible track record and an entrenched CEO that would not relinquish even after a decade of poor performance and destruction of shareholder value.
1. We are talking here about a penny stock that is supposed to be very sensitive to short covering.
2. Granted, it was higher in 4/29 than in 4/15 (by whopping of 15 cents..) but check 4/22 to 4/29 and beyond. Soon the short count on 5/15 will be available. We shall see whether the trend continued.
So the 5 analysts that upgraded the stock after the recent earnings are fools or did they pump to dump?
5/17/2016 B. Riley Reiterated Rating Buy $7.50
5/4/2016 MKM Partners Boost Price Target Buy $6.00 - $6.50
5/4/2016 Piper Jaffray Boost Price Target Overweight $6.50 - $6.75
5/4/2016 Needham & Company LLC Boost Price Target Buy $6.50 - $7.00
5/4/2016 Stifel Nicolaus Boost Price Target Buy $6.00 - $6.50
The known short count is down after 4/15/2016 yet the stock had dropped. The shares are being distributed by the institutions.
Date. Shares short.
Mind you that the actual percentage is likely lower because some shorted shares are double-counted. (Some institutions still count the shares that were borrowed from them for shorting while the same shares are counted by the institutions that bought them.)
Can it be broken? Yes, if there are 3 more bad quarters under Harshman. There is no support for the stock from its tangible book value which is currently a paltry $0.35.
" Are we there yet ? " is a very valid question when a CEO that has been promising shareholder value for over 10 years, has actually ruined shareholder value. Surely, even dense IR like you can understand it? Should I also post Harshman's quotes from 2013, 2012,2011.....?
"Baseless complaints"? Really? The financial reports, the stock chart, and even analysts' opinions are the evidence.
"candid assessments " by Harshman? May be in his own mind. We are not compensating him to the tune of almost $2M annually to deliver fancy "candid assessments" but to perform and enhance shareholder value.
Harshman quotes from earnings CC a year ago:
Q4 2014: Correspondingly, we had a solid book-to-bill ratio of 1.1 and we exited the quarter with materially increased product and services backlog.
Q1 2015: And the road signs to solid earnings growth this year remain compelling. Our margins are expanding, operating expenses are carefully controlled, our share count has been significantly reduced, and we continue to be laser focused on delivering earnings growth and expanding enterprise value.
Q2 2015: In our cross customer verticals, our differentiation really is taking center stage with unparallel innovation, powerful service and support capabilities, a compelling total cost of ownership proposition and a very strong global brand and we're increasingly outpacing competitors as we better leverage our existing intellectual property and create intellectual property to take market share, expand margins, drive operating synergies and position our company to further strengthen cash flow, earnings growth and ultimately enterprise value.
1. TVN was acquired to add revenues and to eliminate a competitor, to add some technical knowhow (as perhaps Harmonic had fallen behind), bust most importantly - to keep Harshman in power. It came with liabilities and 430 French employees that had been generating stagnant annual revenues to the tune of only $75 M.
2. The Tangible Book value trend is the true measure of shareholder value creation. This is not a laughing matter other to the Harmonic's IR (aka aharmonicat).
3. Deferred revenues (millions): Quarters after the Omneon acquisition and presently.
Q4 2010, Q1 2011, Q2 2011 ........ Q1 2016
$46.28 $49.82 $47.62 ......... $59.75
Deferred revenues are an item found on the balance sheet. It does not include backlog. Typically for Harmonic it had been in the $30s.
"Deferred revenue is a liability because it refers to revenue that has not yet been earned, but represents products or services that are owed to the customer. As the product or service is delivered over time, it is recognized as revenue on the income statement."
Since Harmonic has never paid dividends, the tangible book value per share is the true measure of shareholder value creation. The sharp dip in value from Dec 15 to Mar16 is due to the assumed TVN liabilities. Since Harmonic is yet to demonstrate growth and profitability, the share price is pulled down by the meager $0.35 tangible book value. While management claims record deferred revenues, there were similar claims following the acquisiton of Omneon. Management promises in the past had have failed to materialize and revenues growth proved ephemeral. Will it be any different from now on? Under Harshman, a proven destroyer of shareholder value?
Harmonic Inc Quarterly Data:
Dec13 Mar14 Jun14 Sep14 Dec14 Mar15 Jun15 Sep15 Dec15 Mar16
Tangibles_book_per_share 2.67 2.51. 2.04 1.92 1.86 1.86 1.88 1.79 1.66 0.35
The DVD-video is typically 720 X 480 resolution using H.262 MPEG-2 compression. HD-video is higher resolution up 1080P using typically H.264 MPEG-4 compression. The point is that video resolution has gone up over the years since the founding of Harmonic, presently UHD at 4K and higher. It is not a stationary field. Harmonic should have capitalized on it, and enhance value for its shareholders. It has not done so. Why? Slowly-reacting poor management. Harmonic has not been the leader.
Now Harmonic has a bloated workforce (close to 1400 with TVN) generating only $400 M revenues in 2016.
Why haven't we heard analysts' upgrades following that revelation of $180M of backlogs and deferred revenues? Why is HLIT's market cap only about half of its annual revenues? Is that because the market had heard before about backlog and deferred-revenues excuses before, following the acquisiton of Omneon?
The number of shares issued for compensation has not gone down. It's dilutive effect is in full force. The value of the stock-based compensation might go down as the stock price plummets.
You better do a better job at Harmonic's IR. The market is not buying your rosy look ahead. The market will react positively if Harshman is kicked out.
So says Investor Relations (aka aharmonicat). Listening to IR one would think that the competition is asleep and Harmonic is the leader and the trend setter. Alas, this is not the case. The inaptitude of Harmonic's management with respect to execution is well established. Harmonic never quite capitalized on the changing trends in video like the transition from DVD to HD and now to UHD and streaming video. The stock chart and the decline of shareholder equity are the evidence. Why would it be any different from now forward? Anyway, that software transition has been going on for at least a couple of years. Compare the revenues of Harmonic by segments in 2016 vs 2015. With the acquisition of TVN, Haromonic's workforce has become bloated and its balance sheet is now more encumbered with liabilities, goodwill and intangibles. Cash is now loo low for repurchasing stock so expect the share count to rise because the stock-based compensation to management BOD and employees continues unabated (read the recent proxy).
Harmonic' s management is in need of shakeup and its workforce needs restructuring. In particular, Harshman has to go!