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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________
Form 10-Q
_____________________________________________________
(Mark One)
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended October 1, 2021

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File No. 000-25826
_____________________________________________________
HARMONIC INC.
(Exact name of registrant as specified in its charter)
_____________________________________________________
Delaware77-0201147
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
2590 Orchard Parkway
San Jose, CA 95131
(408) 542-2500
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
____________________________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.001 par valueHLITNASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filerAccelerated Filer
Non-accelerated filerSmaller reporting company
Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No  
The number of shares of the registrant’s Common Stock, $0.001 par value, outstanding on November 1, 2021 was 102,568,369.



Table of Contents
TABLE OF CONTENTS
 

3

Table of Contents
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HARMONIC INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except per share data)
October 1, 2021December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents$128,434 $98,645 
Accounts receivable, net75,442 66,227 
Inventories51,856 35,031 
Prepaid expenses and other current assets35,443 38,132 
Total current assets291,175 238,035 
Property and equipment, net43,848 43,141 
Operating lease right-of-use assets29,216 27,556 
Other non-current assets38,325 39,117 
Goodwill241,302 243,674 
Total assets$643,866 $591,523 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Convertible debt, current$36,592 $ 
Other debts, current5,028 11,771 
Accounts payable32,352 23,543 
Deferred revenue58,106 54,294 
Operating lease liabilities, current6,698 7,354 
Other current liabilities64,963 50,333 
Total current liabilities203,739 147,295 
Convertible debt, non-current97,563 129,507 
Other debts, non-current13,538 10,086 
Operating lease liabilities, non-current28,049 26,071 
Other non-current liabilities26,181 20,262 
Total liabilities369,070 333,221 
Commitments and contingencies (Note 10)
Convertible debt (Note 6)1,115  
Stockholders’ equity:
Preferred stock, $0.001 par value, 5,000 shares authorized; no shares issued or outstanding
  
Common stock, $0.001 par value, 150,000 shares authorized; 102,549 and 98,204 shares issued and outstanding at October 1, 2021 and December 31, 2020, respectively
103 98 
Additional paid-in capital2,381,177 2,353,559 
Accumulated deficit(2,107,814)(2,101,211)
Accumulated other comprehensive income
215 5,856 
Total stockholders’ equity273,681 258,302 
Total liabilities and stockholders’ equity$643,866 $591,523 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4

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HARMONIC INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
 Three Months EndedNine Months Ended
 October 1, 2021September 25, 2020October 1, 2021September 25, 2020
Revenue:
Appliance and integration$91,853 $63,251 $250,427 $153,227 
SaaS and service34,468 31,641 100,918 94,076 
Total net revenue126,321 94,892 351,345 247,303 
Cost of revenue:
Appliance and integration47,326 32,082 130,310 81,153 
SaaS and service12,841 13,886 39,231 42,715 
Total cost of revenue60,167 45,968 169,541 123,868 
Total gross profit66,154 48,924 181,804 123,435 
Operating expenses:
Research and development26,552 20,206 74,863 61,827 
Selling, general and administrative34,231 28,773 102,728 86,996 
Amortization of intangibles 752 507 2,264 
Restructuring and related charges 814 43 1,572 
Total operating expenses60,783 50,545 178,141 152,659 
Income (loss) from operations5,371 (1,621)3,663 (29,224)
Interest expense, net(2,686)(2,807)(7,919)(8,772)
Loss on convertible debt extinguishment   (834)
Other income (expense), net(213)(167)659 (813)
Income (loss) before income taxes2,472 (4,595)(3,597)(39,643)
Provision for income taxes942 786 3,006 3,093 
Net income (loss)$1,530 $(5,381)$(6,603)$(42,736)
Net income (loss) per share:
Basic$0.01 $(0.06)$(0.07)$(0.44)
Diluted$0.01 $(0.06)$(0.07)$(0.44)
Shares used in per share calculation:
Basic102,099 97,563 101,057 96,623 
Diluted106,421 97,563 101,057 96,623 
The accompanying notes are an integral part of these condensed consolidated financial statements.
5

Table of Contents
HARMONIC INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited, in thousands)
 Three Months EndedNine Months Ended
 October 1, 2021September 25, 2020October 1, 2021September 25, 2020
Net income (loss)$1,530 $(5,381)$(6,603)$(42,736)
Change in foreign currency translation adjustments(2,372)3,518 (5,302)3,238 
Other comprehensive income (loss) before tax(2,372)3,518 (5,302)3,238 
Provision for (benefit from) income taxes128 (255)339 (224)
Other comprehensive income (loss), net of tax(2,500)3,773 (5,641)3,462 
Total comprehensive loss$(970)$(1,608)$(12,244)$(39,274)
The accompanying notes are an integral part of these condensed consolidated financial statements.
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HARMONIC INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited, in thousands)
Three Months Ended October 1, 2021
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive Income
Total
Stockholders’
Equity
SharesAmount
Balance at July 2, 2021101,794 $102 $2,373,851 $(2,109,344)$2,715 $267,324 
Net income— — — 1,530 — 1,530 
Other comprehensive loss, net of tax— — — — (2,500)(2,500)
Issuance of common stock under stock option, award and purchase plans755 1 1,907 — — 1,908 
Stock-based compensation— — 6,534 — — 6,534 
Reclassification from equity to mezzanine equity for 2022 Notes— — (1,115)— — (1,115)
Balance at October 1, 2021102,549 $103 $2,381,177 $(2,107,814)$215 $273,681 
Three Months Ended September 25, 2020
 Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive Income (Loss)
Total
Stockholders’
Equity
 SharesAmount
Balance at June 26, 202096,863 $97 $2,342,856 $(2,109,295)$(3,376)$230,282 
Net loss— — — (5,381)— (5,381)
Other comprehensive income, net of tax— — — — 3,773 3,773 
Issuance of common stock under stock option, award and purchase plans869 1 1,891 — — 1,892 
Stock-based compensation— — 3,972 — — 3,972 
Conversion feature of 2022 Notes— — — — —  
Reclassification from equity to mezzanine equity for 2020 Notes— — (81)— — (81)
Balance at September 25, 202097,732 $98 $2,348,638 $(2,114,676)$397 $234,457 
Nine Months Ended October 1, 2021
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive Income
Total
Stockholders’
Equity
SharesAmount
Balance at December 31, 202098,204 $98 $2,353,559 $(2,101,211)$5,856 $258,302 
Net loss— — — (6,603)— (6,603)
Other comprehensive loss, net of tax— — — — (5,641)(5,641)
Issuance of common stock under stock option, award and purchase plans4,345 5 9,778 — — 9,783 
Stock-based compensation— — 18,955 — — 18,955 
Reclassification from equity to mezzanine equity for 2022 Notes— $— $(1,115)$— $— $(1,115)
Balance at October 1, 2021102,549 $103 $2,381,177 $(2,107,814)$215 $273,681 
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Nine Months Ended September 25, 2020
 Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive Income (Loss)
Total
Stockholders’
Equity
 SharesAmount
Balance at December 31, 201991,875 $92 $2,327,359 $(2,071,940)$(3,065)$252,446 
Net loss— — — (42,736)— (42,736)
Other comprehensive income, net of tax— — — — 3,462 3,462 
Issuance of common stock under stock option, award and purchase plans3,444 4 3,839 — — 3,843 
Stock-based compensation— — 13,768 — — 13,768 
Conversion feature of 2022 Notes— — 8,254 — — 8,254 
Conversion feature of exchanged portion of 2020 Notes— — (6,909)— — (6,909)
Exercise of warrant2,413 2 (2)— —  
Reclassification from mezzanine equity to equity for 2020 Notes— — 2,329 — — 2,329 
Balance at September 25, 202097,732 $98 $2,348,638 $(2,114,676)$397 $234,457 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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HARMONIC INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 Nine Months Ended
 October 1, 2021September 25, 2020
Cash flows from operating activities:
Net loss$(6,603)$(42,736)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation9,395 8,683 
Amortization of intangibles507 3,214 
Stock-based compensation18,863 13,737 
Amortization of convertible debt discount4,685 5,451 
Amortization of warrant1,302 1,307 
Foreign currency remeasurement(3,435)2,537 
Loss on convertible debt extinguishment 834 
Deferred income taxes1,268 1,527 
Provision for expected credit losses and returns3,049 1,966 
Provision for excess and obsolete inventories1,849 1,390 
Other adjustments215 177 
Changes in operating assets and liabilities:
Accounts receivable(12,470)5,436 
Inventories(18,783)(9,301)
Other assets2,614 23,685 
Accounts payable10,144 (11,047)
Deferred revenues9,978 6,066 
Other liabilities11,078 (15,345)
Net cash provided by (used in) operating activities33,656 (2,419)
Cash flows from investing activities:
Purchases of property and equipment(10,570)(26,176)
Net cash used in investing activities(10,570)(26,176)
Cash flows from financing activities:
Payment of convertible debt (25)
Payment of convertible debt issuance costs (672)
Proceeds from other debts3,861 9,398 
Repayment of other debts(6,070)(6,342)
Proceeds from common stock issued to employees11,401 5,227 
Payment of tax withholding obligations related to net share settlements of restricted stock units(1,619)(1,384)
Net cash provided by financing activities7,573 6,202 
Effect of exchange rate changes on cash and cash equivalents(870)152 
Net increase (decrease) in cash and cash equivalents29,789 (22,241)
Cash and cash equivalents at beginning of period98,645 93,058 
Cash and cash equivalents at end of period$128,434 $70,817 
Supplemental disclosures of cash flow information:
Income taxes, net of refunds$1,732 $(426)
Interest payments$3,242 $3,216 
Supplemental schedule of non-cash investing and financing activities:
Capital expenditures incurred but not yet paid$1,055 $3,284 
Fair value of 2022 Notes used to settle 2020 Notes
$ $44,357 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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HARMONIC INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") and include the accounts of Harmonic Inc. and its controlled subsidiaries (collectively, “Harmonic” or the “Company”). Intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the Company's financial position as of balance sheet dates and its operating results and cash flows for the interim periods presented. Operating results for the three and nine month periods ended October 1, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021. These unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.
Certain prior period balances have been reclassified to conform to the current period’s presentation. These reclassifications did not have a material impact on previously reported financial statements.
The Company’s significant accounting policies are described in Note 2 to its audited Consolidated Financial Statements included in the 2020 Form 10-K. There have been no significant changes to these policies during the nine months ended October 1, 2021.
NOTE 2: RECENT ACCOUNTING PRONOUNCEMENTS
In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-06, Accounting for Convertible Instruments in an Entity’s Own Equity, which simplifies the accounting for convertible instruments and contracts on an entity’s own equity. Among other changes, ASU No. 2020-06 removes from U.S. GAAP the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt. Similarly, the embedded conversion feature will no longer be amortized into income as interest expense over the life of the instrument. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. This ASU is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted after December 15, 2020 and can be adopted either on a modified retrospective or full retrospective basis. The Company is evaluating the impact, timing and method of adoption of this ASU. Upon adoption of this ASU, the Company expects to recombine the equity conversion component of its convertible notes, which was initially separated and recorded in equity, and remove the remaining debt discounts recorded for this previous separation. Adoption of this ASU will also result in the elimination of a portion of non-cash interest expense related to amortization of debt discount. Additionally, ASU No. 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share, which would result in an increase in the number of shares for calculating diluted earnings per share by approximately 19.9 million shares.
From time to time, new accounting pronouncements are issued by the FASB, or other standards setting bodies, that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes the impact of recently issued standards that are not yet effective will not have a material impact on its consolidated financial position, results of operations and cash flows upon adoption.
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NOTE 3: CONTRACT ASSETS AND DEFERRED REVENUE
Contract Balances. Contract assets exist when the Company has satisfied a performance obligation but does not have an unconditional right to consideration (e.g., because the entity first must satisfy another performance obligation in the contract before it is entitled to invoice the customer). Deferred revenue represents the Company’s obligation to transfer goods or services to a customer for which the Company has received consideration (or an amount of consideration is due) from the customer.
Contract assets and deferred revenue consisted of the following:
As of
(in thousands)October 1, 2021December 31, 2020
Contract assets$11,688 $9,800 
Deferred revenue$73,267 $63,533 
Contract assets and Deferred revenue (long-term) are reported as components of “Prepaid expenses and other current assets” and “Other non-current liabilities,” respectively, on the Condensed Consolidated Balance Sheets.
During the three months ended October 1, 2021 and September 25, 2020, the Company recognized revenue of $8.2 million and $5.7 million, respectively, that was included in the deferred revenue balance at the beginning of each fiscal year. During the nine months ended October 1, 2021 and September 25, 2020, the Company recognized revenue of $47.3 million and $32.4 million, respectively, that was included in the deferred revenue balance at the beginning of each fiscal year.
In July 2019, Comcast elected enterprise license pricing for the Company’s CableOS® software under certain existing commercial agreements between the Company and Comcast (the “CableOS software license agreement”), which also includes maintenance and support services, and material rights. As of October 1, 2021, the aggregate amount of the transaction price under this agreement allocated to the remaining performance obligations is $52.1 million, and the Company will recognize this revenue as the related performance obligations are delivered over the next 21 months.
Refer to Note 9, “Segment Information” for disaggregated revenue information.
NOTE 4: LEASES
The components of lease expense are as follows:
Three Months EndedNine Months Ended
(in thousands)October 1, 2021September 25, 2020October 1, 2021September 25, 2020
Operating lease cost$1,911 $1,873 $5,654 $6,556 
Variable lease cost467 681 1,494 2,183 
Total lease cost$2,378 $2,554 $7,148 $8,739 
Supplemental information related to leases are as follows:
Three Months EndedNine Months Ended
(in thousands)October 1, 2021September 25, 2020October 1, 2021September 25, 2020
Cash payments$1,987 $3,134 $5,744 $7,772 
Right-of-use assets obtained in exchange for operating lease obligations$194 $69 $5,670 $1,740 
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NOTE 5: OTHER FINANCIAL STATEMENT INFORMATION
The following tables provide details of selected balance sheet components:
As of
(in thousands)October 1, 2021December 31, 2020
Accounts receivable, net:
Accounts receivable$77,962 $68,295 
Less: allowances for expected credit losses and sales returns(2,520)(2,068)
Total$75,442 $66,227 
As of
(in thousands)October 1, 2021December 31, 2020
Inventories:
Raw materials$12,105 $2,529 
Work-in-process2,945 1,689 
Finished goods28,761 22,777 
Service-related spares8,045 8,036 
Total$51,856 $35,031 
As of
(in thousands)October 1, 2021December 31, 2020
Prepaid expenses and other current assets:
Prepaid expenses$9,900 $11,453 
Contract assets11,688 9,800 
Other13,855 16,879 
Total$35,443 $38,132 
As of
(in thousands)October 1, 2021December 31, 2020
Property and equipment, net:
Machinery and equipment$76,357 $72,731 
Capitalized software38,107 37,141 
Leasehold improvements40,489 38,718 
Furniture and fixtures2,880 2,913 
Construction-in-progress3,150 2,209 
Property and equipment, gross160,983 153,712 
Less: accumulated depreciation and amortization(117,135)(110,571)
Total$43,848 $43,141 
As of
(in thousands)October 1, 2021December 31, 2020
Other current liabilities:
Accrued employee compensation and related expenses$19,118 $23,131 
Customers’ advances and deposits22,534 3,385 
Other23,311 23,817 
Total$64,963 $50,333 
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NOTE 6: CONVERTIBLE DEBT
4.375% Convertible Senior Notes due 2022 (the “2022 Notes”)
In June 2020, the Company issued the 2022 Notes with an aggregate principal amount of $37.7 million in a non-cash exchange for its 2020 Notes with an equal principal amount pursuant to an indenture, dated June 2, 2020 (the “2022 Notes Indenture”), by and between the Company and U.S. Bank National Association, as trustee. The 2022 Notes bear interest at a rate of 4.375% per year, payable in cash on June 1 and December 1 of each year. The 2022 Notes will mature on December 1, 2022, unless earlier repurchased or redeemed by the Company, or converted pursuant to their terms.
The 2022 Notes are convertible into cash, shares of the Company’s common stock, par value $0.001 (“Common Stock”), or a combination thereof, at the Company’s election, at an initial conversion rate of 173.9978 shares of Common Stock per $1,000 principal amount of 2022 Notes (which is equivalent to an initial conversion price of approximately $5.75 per share). The conversion rate, and thus the effective conversion price, may be adjusted under certain circumstances, including in connection with conversions made following certain fundamental changes and under other circumstances as set forth in the 2022 Notes Indenture.
Prior to the close of business on the business day immediately preceding September 1, 2022, the 2022 Notes will be convertible only under the following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ended on June 26, 2020 (and only during such fiscal quarter), if the last reported sale price of Common Stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of 2022 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of Common Stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. Commencing on September 1, 2022 until the close of business on the second scheduled trading day immediately preceding the maturity date, the 2022 Notes will be convertible in multiples of $1,000 principal amount regardless of the foregoing circumstances.
As the 2022 Notes were issued in exchange for the 2020 Notes, which was accounted for as an extinguishment, the 2022 Notes were initially accounted for at fair value, which was estimated to be $44.4 million. In accordance with the accounting guidance on embedded conversion features, the conversion feature associated with the 2022 Notes was initially valued at $8.3 million and bifurcated from the host debt instrument and recorded in “Additional paid-in capital.” The remaining amount of $36.0 million, which represents the fair value of the liability component of the 2022 Notes, was recorded as the initial carrying value of the 2022 Notes. The initial debt discount on the 2022 Notes is $1.7 million, calculated as the difference between the stated principal amount of $37.7 million and the initial carrying value of the liability component of $36.0 million. The debt discount is being amortized to interest expense at the effective interest rate over the contractual term of the 2022 Notes.
The following table presents the components of the 2022 Notes:
As of
(in thousands, except for years and percentages)October 1, 2021December 31, 2020
Liability component:
Principal amount$37,707 $37,707 
Less: Debt discount, net of amortization(849)(1,357)
Less: Debt issuance costs, net of amortization(266)(425)
Carrying amount$36,592 $35,925 
Remaining debt discount amortization period (years)1.21.9
Effective interest rate on liability component6.95 %6.95 %
The following table presents interest expense recognized for the 2022 Notes:
Three Months EndedNine Months Ended
(in thousands)October 1, 2021September 25, 2020October 1, 2021September 25, 2020
Contractual interest expense$412 $412 $1,236 $540 
Amortization of debt discount171 161 508 210 
Amortization of debt issuance costs54 50 159 65 
Total interest expense recognized$637 $623 $1,903 $815 

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The 2022 Notes became convertible as of October 1, 2021, as the last reported sale price of the Company’s common stock for at least 20 trading days during a period of 30 consecutive trading days ending on October 1, 2021 was greater than 130% of the conversion price of the 2022 Notes on each applicable trading day. As a result of the 2022 Notes becoming convertible for cash up to the principal amount of $37.7 million, the Company reclassified the unamortized debt discount for the 2022 Notes in the amount of $1.1 million from “Additional paid-in capital” to “Convertible Debt” in the mezzanine equity section in the Condensed Consolidated Balance Sheet as of October 1, 2021. Additionally, all $36.6 million of the net carrying amount of the liability component of the 2022 Notes outstanding as of October 1, 2021 was classified as a current liability as of that date.
2.00% Convertible Senior Notes due 2024 (the “2024 Notes”)
In September 2019, the Company issued the 2024 Notes with an aggregate principal amount of $115.5 million pursuant to an indenture (the “2024 Notes Indenture”), dated September 13, 2019, by and between the Company and U.S. Bank National Association, as trustee. The 2024 Notes bear interest at a rate of 2.00% per year, payable semiannually on March 1 and September 1 of each year. The 2024 Notes will mature on September 1, 2024, unless earlier repurchased or redeemed by the Company, or converted pursuant to their terms.
The 2024 Notes are convertible into cash, shares of the Company’s common stock, par value $0.001 (“Common Stock”), or a combination thereof, at the Company’s election, at an initial conversion rate of 115.5001 shares of Common Stock per $1,000 principal amount of 2024 Notes (which is equivalent to an initial conversion price of approximately $8.66 per share). The conversion rate, and thus the effective conversion price, may be adjusted under certain circumstances, including in connection with conversions made following certain fundamental changes or a notice of redemption and under other circumstances, in each case, as set forth in the 2024 Notes Indenture.
Prior to the close of business on the business day immediately preceding June 1, 2024, the 2024 Notes will be convertible only under the following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ended on December 31, 2019, and only during such fiscal quarter, if the last reported sale price of the Common Stock for at least 20 trading days (whether or not consecutive) in a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price for the 2024 Notes on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of 2024 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Common Stock and the conversion rate on each such trading day; (3) if the Company calls any or all of the 2024 Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after June 1, 2024, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the 2024 Notes may convert all or any portion of their 2024 Notes regardless of the foregoing conditions.
In accordance with the accounting guidance on embedded conversion features, the conversion feature associated with the 2024 Notes was valued at $24.9 million and bifurcated from the host debt instrument and recorded in “Additional paid-in capital”. The resulting debt discount on the 2024 Notes is being amortized to interest expense at the effective interest rate over the contractual term of the 2024 Notes.
The following table presents the components of the 2024 Notes:
As of
(in thousands, except for years and percentages)October 1, 2021December 31, 2020
Liability component:
Principal amount$115,500 $115,500 
Less: Debt discount, net of amortization(15,789)(19,294)
Less: Debt issuance costs, net of amortization(2,148)(2,624)
Carrying amount$97,563 $93,582 
Remaining debt discount amortization period (years)2.93.7
Effective interest rate on liability component7.95 %7.95 %
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The following table presents interest expense recognized for the 2024 Notes:
Three Months EndedNine Months Ended
(in thousands)October 1, 2021September 25, 2020October 1, 2021September 25, 2020
Contractual interest expense$578 $578 $1,734 $1,734 
Amortization of debt discount1,193 1,102 3,505 3,237 
Amortization of debt issuance costs162 153 476 443 
Total interest expense recognized$1,933 $1,833 $5,715 $5,414 
NOTE 7: FAIR VALUE MEASUREMENTS
The Company’s financial instruments not measured at fair value on a recurring basis were as follows:
October 1, 2021December 31, 2020
CarryingFair ValueCarryingFair Value
(in thousands)
ValueLevel 1Level 2Level 3ValueLevel 1Level 2Level 3
2022 Notes$36,592 $— $62,405 $— $35,925 $— $54,204 $— 
2024 Notes$97,563 $— $140,720 $— $93,582 $— $125,953 $— 
The fair value of the Company’s convertible notes is influenced by interest rates, the Company’s stock price and stock market volatility. The difference between the carrying value and the fair value is primarily due to the spread between the conversion price and the market value of the shares underlying the conversion as of each respective balance sheet date.
NOTE 8: EARNINGS PER SHARE
The following table sets forth the computation of the basic and diluted net income (loss) per share:
 Three Months endedNine Months Ended
(in thousands, except per share amounts)October 1, 2021September 25, 2020October 1, 2021September 25, 2020
Numerator:
Net income (loss)$1,530 $(5,381)$(6,603)$(42,736)
Denominator:
Weighted average number of shares outstanding:
Basic102,099 97,563 101,057 96,623 
Effect of dilutive securities:
Stock options, restricted stock units and ESPP1,505    
Convertible debt2,817    
Diluted106,421 97,563 101,057 96,623 
Net income (loss) per share:
Basic$0.01 $(0.06)$(0.07)$(0.44)
Diluted$0.01 $(0.06)$(0.07)$(0.44)
The diluted net loss per share was the same as basic net loss per share for the three and nine months ended September 25, 2020 and nine months ended October 1, 2021, as the inclusion of potential common shares outstanding would have been anti-dilutive due to the Company’s net losses for these periods. The following table sets forth the potential weighted common shares outstanding and anti-dilutive weighted shares that were excluded from the computation of basic and diluted net income (loss) per share:
 Three Months endedNine Months Ended
(in thousands)October 1, 2021September 25, 2020October 1, 2021September 25, 2020
Convertible debt  2,085 390 
Stock options 1,558 926 1,637 
Restricted stock units69 3,336 3,079 3,066 
Stock purchase rights under the ESPP 525 381 516 
   Total69 5,419 6,471 5,609 
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The Company applies the treasury stock method to determine the potential dilutive effect of its convertible debt on net earnings per share as a result of the Company's intent and stated policy to settle the principal amount of its convertible debt in cash. Under the treasury stock method, the Company’s convertible debt is excluded from the calculation of diluted earnings per share for the periods when its conversion price exceeds the average market price for the Company's common stock. Under the if-converted method, the Company’s convertible debt has potential dilutive effect of 19.9 million shares.
NOTE 9: SEGMENT INFORMATION
Operating segments are defined as components of an enterprise that engage in business activities for which separate financial information is available and evaluated by the Company’s Chief Operating Decision Maker (the “CODM”), which for the Company is its Chief Executive Officer, in deciding how to allocate resources and assess performance. Based on the Company’s internal reporting structure, the Company consists of two operating segments: Video and Cable Access. The operating segments were determined based on the nature of the products offered. The Video segment provides video processing and production and playout solutions and services worldwide to broadcast and media companies, streaming new media companies, cable operators, and satellite and telecommunications Pay-TV service providers. The Cable Access segment provides cable access solutions and related services to cable operators globally. A measure of assets by segment is not applicable as segment assets are not included in the discrete financial information provided to the CODM.
The following table provides summary financial information by reportable segment:
Three Months EndedNine Months Ended
(in thousands)October 1, 2021September 25, 2020October 1, 2021September 25, 2020
Video
Revenue$68,729 $54,641 $202,415 $156,466 
Gross profit42,534 29,825 118,879 83,756 
Operating income (loss)7,904 (1,699)13,235 (12,203)
Cable Access
Revenue$57,592 $40,251 $148,930 $90,837 
Gross profit24,165 19,682 65,111 42,224 
Operating income3,903 5,876 10,191 1,733 
Total
Revenue$126,321 $94,892 $351,345 $247,303 
Gross profit66,699 49,507 183,990 125,980 
Operating income (loss)$11,807 $4,177 $23,426 $(10,470)
A reconciliation of the Company’s consolidated segment operating income (loss) to consolidated income (loss) before income taxes is as follows:
Three Months EndedNine Months Ended
(in thousands)October 1, 2021September 25, 2020October 1, 2021September 25, 2020
Total consolidated segment operating income (loss)$11,807 $4,177 $23,426 $(10,470)
Unallocated corporate expenses(1)
 (1,116)(389)(1,803)
Stock-based compensation(6,436)(3,930)(18,867)(13,737)
Amortization of intangibles (752)(507)(3,214)
Consolidated income (loss) from operations5,371 (1,621)3,663 (29,224)
Non-operating expense, net(2,899)(2,974)(7,260)(10,419)
Income (loss) before income taxes$2,472 $(4,595)$(3,597)$(39,643)
(1) Together with amortization of intangibles and stock-based compensation, the Company does not allocate restructuring and related charges to the operating income (loss) for each segment because management does not include this information in the measurement of the performance of the operating segments.
Geographic Information
Three Months endedNine Months Ended
(in thousands)October 1, 2021September 25, 2020October 1, 2021September 25, 2020
Net revenue (1)
United States$64,451 $44,933 $192,840 $114,559 
Other countries61,870 49,959 158,505 132,744 
Total$126,321 $94,892 $351,345 $