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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 April 1, 2022

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 


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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 May 2, 2022 was 104,489,365.



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TABLE OF CONTENTS
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HARMONIC INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except per share data)
April 1, 2022December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents$100,739 $133,431 
Accounts receivable, net115,594 88,529 
Inventories81,816 71,195 
Prepaid expenses and other current assets27,251 29,972 
Total current assets325,400 323,127 
Property and equipment, net42,577 42,721 
Operating lease right-of-use assets29,556 30,968 
Other non-current assets63,281 56,657 
Goodwill239,631 240,213 
Total assets$700,445 $693,686 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Convertible debt, current$37,518 $36,824 
Other debts, current4,906 4,992 
Accounts payable52,524 64,429 
Deferred revenue75,474 57,226 
Operating lease liabilities, current7,362 7,346 
Other current liabilities53,072 53,644 
Total current liabilities230,856 224,461 
Convertible debt, non-current113,324 98,941 
Other debts, non-current12,740 12,989 
Operating lease liabilities, non-current27,689 29,120 
Other non-current liabilities31,183 31,379 
Total liabilities415,792 396,890 
Commitments and contingencies (Note 11)
Convertible debt (Note 6)— 883 
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; 104,603 and 102,959 shares issued and outstanding at April 1, 2022 and December 31, 2021, respectively
105 103 
Additional paid-in capital2,362,873 2,387,039 
Accumulated deficit(2,073,288)(2,087,957)
Accumulated other comprehensive loss(5,037)(3,272)
Total stockholders’ equity284,653 295,913 
Total liabilities and stockholders’ equity$700,445 $693,686 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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HARMONIC INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
 Three Months Ended
 April 1, 2022April 2, 2021
Revenue:
Appliance and integration$112,984 $79,976 
SaaS and service34,455 31,600 
Total net revenue147,439 111,576 
Cost of revenue:
Appliance and integration66,382 42,619 
SaaS and service11,875 13,812 
Total cost of revenue78,257 56,431 
Total gross profit69,182 55,145 
Operating expenses:
Research and development28,833 23,528 
Selling, general and administrative36,643 34,911 
Amortization of intangibles 507 
Restructuring and related charges1,170 43 
Total operating expenses66,646 58,989 
Income (loss) from operations2,536 (3,844)
Interest expense, net(1,433)(2,603)
Other income (expense), net62 1,019 
Income (loss) before income taxes1,165 (5,428)
Provision for income taxes2,694 696 
Net loss$(1,529)$(6,124)
Net loss per share:
Basic and diluted$(0.01)$(0.06)
Shares used in per share calculation:
Basic and diluted103,994 99,868 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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HARMONIC INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited, in thousands)
 Three Months Ended
 April 1, 2022April 2, 2021
Net loss$(1,529)$(6,124)
Change in foreign currency translation adjustments(1,702)(4,249)
Other comprehensive loss before tax(1,702)(4,249)
Provision for (benefit from) income taxes63 (268)
Other comprehensive loss, net of tax(1,765)(3,981)
Total comprehensive loss$(3,294)$(10,105)
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 April 1, 2022
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive Loss
Total
Stockholders’
Equity
SharesAmount
Balance at December 31, 2021102,959 $103 $2,387,039 $(2,087,957)$(3,272)$295,913 
Cumulative effect of ASU 2020-06 adoption— — (32,249)18,339 — (13,910)
Balance at January 1, 2022102,959 103 2,354,790 (2,069,618)(3,272)282,003 
Net loss— — — (1,529)— (1,529)
Other comprehensive loss, net of tax— — — — (1,765)(1,765)
Issuance of common stock under stock option, award and purchase plans1,877 2 272 — — 274 
Repurchase of common stock(233)— — (2,141)— (2,141)
Stock-based compensation— — 7,811 — — 7,811 
Balance at April 1, 2022104,603 $105 $2,362,873 $(2,073,288)$(5,037)$284,653 
Three Months Ended April 2, 2021
 Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive Income (Loss)
Total
Stockholders’
Equity
 SharesAmount
Balance at December 31, 202098,204 $98 $2,353,559 $(2,101,211)$5,856 $258,302 
Net loss— — — (6,124)— (6,124)
Other comprehensive loss, net of tax— — — — (3,981)(3,981)
Issuance of common stock under stock option, award and purchase plans2,789 3 4,772 — — 4,775 
Stock-based compensation— — 8,362 — — 8,362 
Reclassification from equity to mezzanine equity for 2020 Notes— — (1,564)— — (1,564)
Balance at April 2, 2021100,993 $101 $2,365,129 $(2,107,335)$1,875 $259,770 
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)
 Three Months Ended
 April 1, 2022April 2, 2021
Cash flows from operating activities:
Net loss$(1,529)$(6,124)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation3,111 3,057 
Amortization of intangibles 507 
Stock-based compensation7,586 8,398 
Amortization of convertible debt discount297 1,532 
Amortization of warrant429 429 
Foreign currency remeasurement(563)(2,609)
Deferred income taxes627 432 
Provision for expected credit losses and returns1,348 1,089 
Provision for excess and obsolete inventories2,738 644 
Other adjustments77 143 
Changes in operating assets and liabilities:
Accounts receivable(28,479)(20,758)
Inventories(11,841)(1,119)
Other assets(3,949)(1,019)
Accounts payable(12,260)13,527 
Deferred revenues18,408 11,285 
Other liabilities(3,482)(7,736)
Net cash provided by (used in) operating activities(27,482)1,678 
Cash flows from investing activities:
Purchases of property and equipment(2,438)(3,645)
Net cash used in investing activities(2,438)(3,645)
Cash flows from financing activities:
Repurchase of common stock(2,141) 
Repayment of other debts(99)(108)
Proceeds from common stock issued to employees2,966 5,685 
Payment of tax withholding obligations related to net share settlements of restricted stock units(2,693)(913)
Net cash provided by (used in) financing activities(1,967)4,664 
Effect of exchange rate changes on cash and cash equivalents(805)(565)
Net increase (decrease) in cash and cash equivalents(32,692)2,132 
Cash and cash equivalents at beginning of period133,431 98,645 
Cash and cash equivalents at end of period$100,739 $100,777 
Supplemental disclosures of cash flow information:
Income taxes, net of refunds$1,026 $537 
Interest payments$1,178 $1,183 
Supplemental schedule of non-cash investing and financing activities:
Capital expenditures incurred but not yet paid$1,328 $973 
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 month period ended April 1, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022. 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, 2021.
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 2021 Form 10-K. There have been no significant changes to these policies during the three months ended April 1, 2022.
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. The Company adopted this ASU on January 1, 2022 on a modified retrospective basis. 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. As a result, the Company no longer separately presents in equity an embedded conversion feature for such debt. Similarly, the embedded conversion feature is no longer amortized into income as interest expense over the life of the instrument. The cumulative effect of the ASU adoption was as follows:
Adjustments from
Balance atAdoption ofBalance at
(in thousands)December 31, 2021ASU 2020-06January 1, 2022
Liabilities
Convertible debt, current$36,824 $626 $37,450 
Convertible debt, non-current98,941 14,167 113,108 
Mezzanine equity
Convertible debt883 (883) 
Equity
Additional paid-capital2,387,039 (32,249)2,354,790 
Accumulated deficit(2,087,957)18,339 (2,069,618)
The impact of ASU adoption on the consolidated statement of operations for the three months ended April 1, 2022 was a decrease of net interest expense by $1.4 million. This had the effect of decreasing the basic and diluted net loss per share for the three months ended April 1, 2022 by approximately $0.01. The required use of if-converted method to calculate the impact of convertible notes on diluted earnings per share does not have a material impact. The Company is contractually required to settle the principal amount of 2022 Notes and 2024 Notes in cash. Accordingly, the dilutive effect of the Company's 2022 Notes and 2024 Notes will be limited to the conversion premium. The adoption of this ASU does not have any impact on the consolidated statement of cash flows.
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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.
NOTE 3: REVENUE
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)April 1, 2022December 31, 2021
Contract assets$4,717 $8,101 
Deferred revenue$96,508 $78,167 
Contract assets and the non-current portion of Deferred revenue are reported as components of “Prepaid expenses and other current assets” and “Other non-current liabilities,” respectively, on the Condensed Consolidated Balance Sheets.
Revenue recognized during the three months ended April 1, 2022, that was included within the deferred revenue balance at January 1, 2022, was $23.5 million. Revenue recognized during the three months ended April 2, 2021, that was included within the deferred revenue balance at January 1, 2021 was $30.4 million.
Remaining performance obligations represent contracted revenues that had not yet been recognized and future revenue recognition is expected. The aggregate balance of the Company’s remaining performance obligations as of April 1, 2022 was $518.6 million, of which approximately 82% is expected to be recognized as revenue over the next 12 months and the remainder thereafter.
Refer to Note 10, “Segment Information” for disaggregated revenue information.
NOTE 4: LEASES
The components of lease expense are as follows:
Three Months Ended
(in thousands)April 1, 2022April 2, 2021
Operating lease cost$1,887 $1,866 
Variable lease cost461 1,099 
Total lease cost$2,348 $2,965 
Supplemental information related to leases are as follows:
Three Months Ended
(in thousands)April 1, 2022April 2, 2021
Cash paid for amounts included in the measurement of operating lease liabilities$1,916 $1,838 
Right-of-use assets obtained in exchange for operating lease obligations$129 $ 
NOTE 5: OTHER FINANCIAL STATEMENT INFORMATION
The following tables provide details of selected balance sheet components:
Accounts receivable, net:As of
(in thousands)April 1, 2022December 31, 2021
Accounts receivable$119,414 $91,382 
Less: allowances for expected credit losses and sales returns(3,820)(2,853)
Total$115,594 $88,529 
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Inventories:As of
(in thousands)April 1, 2022December 31, 2021
Raw materials$26,491 $22,245 
Work-in-process5,085 3,993 
Finished goods43,012 37,545 
Service-related spares7,228 7,412 
Total$81,816 $71,195 
Property and equipment, net:As of
(in thousands)April 1, 2022December 31, 2021
Machinery and equipment$79,483 $78,461 
Capitalized software38,243 38,306 
Leasehold improvements40,659 40,658 
Furniture and fixtures2,991 2,820 
Construction-in-progress3,048 1,892 
Property and equipment, gross164,424 162,137 
Less: accumulated depreciation and amortization(121,847)(119,416)
Total$42,577 $42,721 
Other current liabilities:As of
(in thousands)April 1, 2022December 31, 2021
Accrued employee compensation and related expenses$19,749 $26,820 
Other33,323 26,824 
Total$53,072 $53,644 
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 were initially 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). Pursuant to the supplemental indenture entered into by the Company and the trustee during the fourth quarter of fiscal 2021, the Company made an irrevocable election to settle the principal amounts of the 2022 Notes solely with cash and may pay or deliver, as the case may be, any conversion value greater than the principal amount in cash, shares of common stock or a combination thereof, at the Company’s election. 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.
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The 2022 Notes became convertible as of April 1, 2022, 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 April 1, 2022 was greater than 130% of the conversion price of the 2022 Notes on each applicable trading day. All $37.5 million of the net carrying amount of the 2022 Notes outstanding as of April 1, 2022 was classified as a current liability as of that date.
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 was $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 was being amortized, prior to adoption of ASU 2020-06, 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)April 1, 2022December 31, 2021
Liability component:
Principal amount$37,707 $37,707 
Less: Debt discount, net of amortization— (672)
Less: Debt issuance costs, net of amortization(189)(211)
Carrying amount$37,518 $36,824 
Remaining debt discount amortization period (years)n/a0.9
Effective interest rate on liability componentn/a6.95 %
The following table presents interest expense recognized for the 2022 Notes:
Three Months Ended
(in thousands)April 1, 2022April 2, 2021
Contractual interest expense$412 $412 
Amortization of debt discount— 166 
Amortization of debt issuance costs68 52 
Total interest expense recognized$480 $630 
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 were initially 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). Pursuant to the supplemental indenture entered into by the Company and the trustee during the fourth quarter of fiscal 2021, the Company made an irrevocable election to settle the principal amounts of the 2024 Notes solely with cash and may pay or deliver, as the case may be, any conversion value greater than the principal amount in cash, shares of common stock or a combination thereof, at the Company’s election. 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.
The 2024 Notes will be convertible at certain times and upon the occurrence of certain events in the future, in each case, specified in the 2024 Notes Indenture. Further, on or after June 1, 2024, until the close of business on the scheduled trading day immediately preceding the maturity date, holders of the 2024 Notes may convert all or a portion of their 2024 Notes regardless of these conditions.
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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 was being amortized, prior to adoption of ASU 2020-06, 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)April 1, 2022December 31, 2021
Liability component:
Principal amount$115,500 $115,500 
Less: Debt discount, net of amortization— (14,576)
Less: Debt issuance costs, net of amortization(2,176)(1,983)
Carrying amount$113,324 $98,941 
Remaining debt discount amortization period (years)n/a2.7
Effective interest rate on liability componentn/a7.95 %
The following table presents interest expense recognized for the 2024 Notes:
Three Months Ended
(in thousands)April 1, 2022April 2, 2021
Contractual interest expense$578 $578 
Amortization of debt discount— 1,146 
Amortization of debt issuance costs217 156 
Total interest expense recognized$795 $1,880 
NOTE 7: STOCKHOLDERS’ EQUITY
Share-based Compensation Plans
The following table sets forth the detailed allocation of the share-based compensation expense which was included in the Company’s Condensed Consolidated Statements of Operations:
 Three Months Ended
(in thousands)April 1, 2022April 2, 2021
Cost of revenue$527 $1,073 
Research and development expense2,536 2,540 
Selling, general and administrative expense4,523 4,785 
Total$7,586 $8,398 
Restricted Stock Units:
(in thousands, except per share amounts)Number
of
Shares
Weighted Average
Grant-Date Fair Value
Per Share
Balance at December 31, 20213,878 $7.31 
Granted1,548 9.19
Vested(1,744)7.22
Forfeited(38)8.11
Balance at April 1, 20223,644 $8.26 
As of April 1, 2022, an aggregate of 5,610,238 shares of common stock were reserved for issuance under the 1995 Stock Plan, of which 1,764,908 shares remained available for future grants. As of April 1, 2022, an aggregate of 713,431 shares of common stock were reserved for issuance under the 2002 Director Plan, of which 527,984 shares remained available for future grants.
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Share Repurchase Program
On February 3, 2022, the Board of Directors authorized the Company to repurchase up to $100 million of the Company’s outstanding shares of common stock through February 2025. The Company is authorized to repurchase, from time-to-time, shares of its outstanding common stock through open market purchases and 10b5-1 trading plans, in accordance with applicable rules and regulations, at such time and such prices as management may decide. The program does not obligate the Company to repurchase any specific number of shares and may be discontinued at any time. The actual timing and amount of repurchases are subject to business and market conditions, corporate and regulatory requirements, stock price, acquisition opportunities and other factors.
During the three months ended April 1, 2022, the company repurchased and retired approximately 0.2 million shares of the Company’s common stock for an aggregate amount of $2.1 million. As of April 1, 2022, approximately $98 million of the share repurchase authorization remained available for repurchases under this program.
NOTE 8: FAIR VALUE MEASUREMENTS
The Company’s financial instruments not measured at fair value on a recurring basis were as follows:
April 1, 2022December 31, 2021
CarryingFair ValueCarryingFair Value
(in thousands)
ValueLevel 1Level 2Level 3ValueLevel 1Level 2Level 3
2022 Notes$37,518 $— $62,405 $— $36,824 $— $78,619 $— 
2024 Notes$113,324 $— $148,432 $— $98,941 $— $173,419 $— 
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 9: EARNINGS PER SHARE
The diluted net loss per share was the same as the basic net loss per share for the three months ended April 1, 2022 and April 2, 2021, as the inclusion of potential common shares outstanding would have been anti-dilutive due to the Company’s net losses for all periods presented. The following table sets forth the potential weighted common shares outstanding that were excluded from the diluted net income (loss) per share computation:
 Three Months Ended
(in thousands)April 1, 2022April 2, 2021
Convertible debt4,244 1,795 
Stock options387 1,191 
Restricted stock units3,066 2,828 
Stock purchase rights under the ESPP409 340 
Total8,106 6,154 
NOTE 10: 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.
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The following table provides summary financial information by reportable segment:
Three Months Ended
(in thousands)April 1, 2022April 2, 2021
Video
Revenue$65,842 $70,331 
Gross profit38,684 38,774 
Operating income3,139 3,772 
Cable Access
Revenue$81,597 $41,245 
Gross profit31,011 17,408 
Operating income8,139 1,296 
Total
Revenue$147,439 $111,576 
Gross profit69,695 56,182 
Operating income$11,278 $5,068 
A reconciliation of the Company’s consolidated segment operating income to consolidated income (loss) before income taxes is as follows:
Three Months Ended
(in thousands)April 1, 2022April 2, 2021
Total consolidated segment operating income$11,278 $5,068 
Unallocated corporate expenses(1)
(1,156)(7)
Stock-based compensation(7,586)(8,398)
Amortization of intangibles (507)
Consolidated income (loss) from operations2,536 (3,844)
Non-operating expense, net(1,371)(1,584)
Income (loss) before income taxes$1,165 $(5,428)
(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 InformationThree Months Ended
(in thousands)April 1, 2022April 2, 2021
Net revenue (1)
United States$86,878 $67,095 
Other countries60,561 44,481 
Total$147,439 $111,576 
(1)  Revenue is attributed to countries based on the location of the customer.
NOTE 11: COMMITMENTS AND CONTINGENCIES
Indemnification
The Company is obligated to indemnify its officers and the members of its Board of Directors pursuant to its bylaws and contractual indemnity agreements. The Company also indemnifies some of its suppliers and most of its customers for specified intellectual property matters pursuant to certain contractual arrangements, subject to certain limitations. The scope of these indemnities varies, but, in some instances, includes indemnification for damages and expenses (including reasonable attorneys’ fees). There have been no amounts accrued in respect of these indemnification provisions through April 1, 2022.
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Legal proceedings
From time to time, the Company is involved in lawsuits as well as subject to various legal proceedings, claims, threats of litigation, audits of royalty payments for licensed technology and investigations in the ordinary course of business, including claims of alleged infringement of third-party patents and other intellectual property rights, commercial, employment, and other matters. The Company assesses potential liabilities in connection with each lawsuit and threatened lawsuits and accrues an estimated loss for these loss contingencies if both of the following conditions are met: information available prior to issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements and the amount of loss can be reasonably estimated. While certain matters to which the Company is a party specify the damages claimed, such claims may not represent reasonably probable losses. Given the inherent uncertainties of litigation, the ultimate outcome of these matters cannot be predicted at this time, nor can the amount of possible loss or range of loss, if any, be reasonably estimated.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The terms “Harmonic,” “Company,” “we,” “us,” “its,” and “our,” as used in this Quarterly Report on Form 10-Q (this “Form 10-Q”), refer to Harmonic Inc. and its subsidiaries and its predecessors as a combined entity, except where the context requires otherwise.
Some of the statements contained in this Form 10-Q are forward-looking statements that involve risk and uncertainties. The statements contained in this Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, statements regarding our expectations, beliefs, intentions or strategies regarding the future. In some cases, you can identify forward-looking statements by terminology such as, “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “intends,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements regarding:
developing trends and demands in the markets we address, particularly emerging markets;
economic conditions, particularly in certain geographies, and in financial markets;
new and future products and services;
spending of our customers;
our strategic direction, future business plans and growth strategy;
industry and customer consolidation;
expected demand for and benefits of our products and services;
concentration of revenue sources;
expectations regarding our CableOS solutions and SaaS solutions;
the impact of the COVID-19 pandemic, and related responses of businesses and governments to the pandemic, on our operations and personnel, on commercial activity in the markets in which we operate and worldwide and regional economies, and on our results of operations;
potential future acquisitions and dispositions;
anticipated results of potential or actual litigation;
our competitive environment;
the impact of our restructuring plans;
the impact of governmental regulations, including with respect to tariffs and economic sanctions;
anticipated revenue and expenses, including the sources of such revenue and expenses;
expected impacts of changes in accounting rules;
expectations regarding the usability of our inventory and the risk that inventory will exceed forecasted demand;
expectations and estimates related to goodwill and intangible assets and their associated carrying value; and
use of cash, cash needs and ability to raise capital, including repaying our convertible notes or repurchasing our common stock.
These statements are subject to known and unknown risks, uncertainties and other factors, any of which may cause our actual results to differ materially from those implied by the forward-looking statements. Important factors that may cause actual results to differ from expectations include those discussed in “Risk Factors” in Item 1A of Part II of this Form 10-Q. All forward-looking statements included in this Quarterly Report on Form 10-Q are based on information available to us on the date thereof, and we assume no obligation to update any such forward-looking statements.
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OVERVIEW
We are a leading global provider of (i) versatile and high performance video delivery software, products, system solutions and services that enable our customers to efficiently create, prepare, store, playout and deliver a full range of high-quality broadcast and streaming video services to consumer devices, including televisions, personal computers, laptops, tablets and smart phones and (ii) cable access solutions that enable cable operators to more efficiently and effectively deploy high-speed internet, for data, voice and video services to consumers’ homes.
We classify our total revenue in two categories, “Appliance and integration” and “SaaS and service.” The “Appliance and integration” revenue category includes hardware, licenses and professional services and is reflective of non-recurring revenue, while the “SaaS and service” category includes usage fees for our SaaS platform and support service revenue from our appliance-based customers and reflects our recurring revenue stream.
We conduct business in three geographic regions - the Americas, EMEA and APAC - and operate in two segments, Video and Cable Access. Our Video business sells video processing, production and playout solutions, and services worldwide to cable operators and satellite and telecommunications (“telco”) Pay-TV service providers, which we refer to collectively as “service providers,” as well as to broadcast and media companies, including streaming media companies. Our Video business infrastructure solutions are delivered either through shipment of our products, software licenses or as SaaS subscriptions. Our Cable Access business sells cable access solutions and related services, including our CableOS software-based cable access solution, primarily to cable operators globally.
Historically, our revenue has been dependent upon spending in the cable, satellite, telco, broadcast and media industries, including streaming media. Our customers’ spending patterns are dependent on a variety of factors, including but not limited to: economic conditions in the United States and international markets, including the impacts of the COVID-19 pandemic; access to financing; annual budget cycles of each of the industries we serve; impact of industry consolidations; and customers suspending or reducing spending in anticipation of new products or new standards, new industry trends and/or technology shifts. If our product portfolio and product development plans do not position us well to capture an increased portion of the spending in the markets in which we compete, our revenue may decline. As we attempt to further diversify our customer base in these markets, we may need to continue to build alliances with other equipment manufacturers, cloud service providers, content providers, resellers and system integrators, managed services providers and software developers; adapt our products for new applications; take orders at prices resulting in lower margins; and build internal expertise to handle the particular operational, payment, financing and/or contractual demands of our customers, which could result in higher operating costs for us.
The worldwide spread of COVID-19 has impacted our business, operations and financial performance. In our Cable Access segment, COVID-19 led to delays in certain deployments and new engagements with some cable operators, which generally occurred in the first half of fiscal 2020 when widespread public health responses were initially implemented, including travel bans and restrictions, social distancing requirements, and shelter-in-place orders. Similarly, in our Video segment, sales of video appliances and services fell during the first several months of the pandemic as transactions or shipments were delayed and we were unable to complete certain field deployment projects as customer facilities closed in the first half of 2020. Since the second half of fiscal 2020, we experienced a rebound and increases in sales activities, transactions and deployments in both business segments, in part due to the loosening of certain COVID-19 restrictions, and customer adaptation to such restrictions. We expect that the COVID-19 pandemic will continue to have an impact on our results of operations.
The extent to which our operations will be impacted by the pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including pandemic-related supply chain disruptions and the pricing and availability of certain materials and components, increased costs relating to securing timely and sufficient supply of key product components, new waves of infection in the countries and regions of the world in which we operate or conduct business, the impact of global vaccination efforts, and actions and policies of governments and businesses in response to future phases of the pandemic. As such, given the uncertainty around the duration and severity of the impact on market conditions and the business environment, we cannot reasonably estimate the full impacts of COVID-19 on our future results of operations. Refer to “Risk Factors” in Item 1A of Part II of this Quarterly Report on Form 10-Q for additional information.

We believe a material and growing portion of the opportunities for our Video business are linked to the industry and our customers (i) continuing to adopt streaming technologies to capture, process and deliver video content to consumers and, increasingly, utilizing public cloud solutions like our VOS SaaS platform to do so; (ii) transforming existing broadcast infrastructure workflows into more flexible, efficient and cost-effective operations running in public clouds; and (iii) for those customers maintaining on-premise video delivery infrastructure, continuing to upgrade and replace aging equipment with next-generation software-based appliances that significantly reduce operational complexity. Our Video business strategy is focused on continuing to develop and deliver products, solutions and services to enable and support these trends.
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Our Cable Access strategy is focused on continuing to develop and deliver software-based cable access technologies, which we refer to as our CableOS solutions, to our cable operator customers. We believe our CableOS software-based cable access solutions are superior to hardware-based systems and deliver unprecedented scalability, agility and cost savings for our customers. Our CableOS solutions, which can be deployed based on a centralized, DAA or hybrid architecture, enable our customers to migrate to multi-gigabit broadband capacity and the fast deployment of DOCSIS 3.1 and/or FTTH data, video and voice services. We believe our CableOS solutions resolve space and power constraints in cable operator facilities, eliminate dependence on hardware upgrade cycles and significantly reduce total cost of ownership, and are helping us become a major player in the cable access market. In the meantime, we believe our Cable Access segment will continue to gain momentum in the marketplace as our customers adopt and deploy our virtualized DOCSIS 3.1 CMTS and FTHH solutions and distributed access architectures. We continue to make progress in the development of our CableOS solutions and in the growth of our CableOS business, with expanded commercial deployments, field trials, and customer engagements.

CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES
Our unaudited condensed consolidated financial statements and the related notes included elsewhere in this report are prepared in accordance with U.S. GAAP. The preparation of these unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Our critical accounting policies, judgments and estimates are disclosed in our 2021 Annual Report on Form 10-K, as filed with the SEC. There have been no significant changes to these policies during the three months ended April 1, 2022.
ACCOUNTING PRONOUNCEMENTS
For a summary of recent accounting pronouncements applicable to our condensed consolidated financial statements, refer to Note 2 to the Condensed Consolidated Financial Statements in Item 1, which is incorporated herein by reference.
RESULTS OF OPERATIONS
Net Revenue
Three Months Ended
(in thousands, except percentages)April 1, 2022April 2, 2021Change
Appliance and integration112,984 $79,976 $33,008 41 %
as % of total net revenue77 %72 %
SaaS and service34,455 31,600 2,855 %
as % of total net revenue23 %28 %
Total net revenue$147,439 $111,576 $35,863 32 %
Appliance and integration net revenue increased in the three months ended April 1, 2022, compared to the corresponding period in 2021, primarily due to an increase in our Cable Access segment net revenue as a result of increased penetration of existing CableOS customers and new CableOS customer deployments.

SaaS and service net revenue increased in the three months ended April 1, 2022, compared to the corresponding period in 2021, primarily due to increasing SaaS usage from existing customers and activation of new SaaS customers.
Gross Profit
Three Months Ended
(in thousands, except percentages)April 1, 2022April 2, 2021Change
Gross profit$69,182 $55,145 $14,037 25 %
as % of total net revenue (“gross margin”)47 %49 %(3)%
Our gross margins are dependent upon, among other factors, the proportion of software sales, product mix, supply chain impacts, customer mix, product introduction costs, price reductions granted to customers and achievement of cost reductions.
Our gross margin decreased in the three months ended April 1, 2022, compared to the corresponding period in 2021, primarily due to unfavorable product mix.
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Research and Development Expenses
 Three Months Ended
(in thousands, except percentages)April 1, 2022April 2, 2021Change
Research and development$28,833 $23,528 $5,305 23 %
as % of total net revenue20 %21 %
Our research and development expenses consist primarily of employee salaries and related expenses, contractors and outside consultants, supplies and materials, equipment depreciation and facilities costs, all of which are associated with the design and development of new products and enhancements of existing products. The research and development expenses are net of French R&D tax credits.
Research and development expenses increased in the three months ended April 1, 2022, compared to the corresponding period in 2021, primarily due to higher employee compensation costs as a result of headcount increases and annual compensation adjustments.
Selling, General and Administrative Expenses
 Three Months Ended
(in thousands, except percentages)April 1, 2022April 2, 2021Change
Selling, general and administrative$36,643 $34,911 $1,732 %
as % of total net revenue25 %31 %
Selling, general and administrative expenses increased in the three months ended April 1, 2022, compared to the corresponding period in 2021, primarily due to higher employee compensation costs as a result of headcount increases and annual compensation adjustments.
Amortization of Intangibles
 Three Months Ended
(in thousands, except percentages)April 1, 2022April 2, 2021Change
Amortization of intangibles$— $507 $(507)(100)%
The amortization of intangibles expense decreased in the three months ended April 1, 2022, compared to the corresponding period in 2021, as all intangible assets were fully amortized during the first quarter of fiscal 2021.
Restructuring and Related Charges
We have implemented several restructuring plans in the past few years. The goal of these plans is to bring operational expenses to appropriate levels relative to our net revenues, while simultaneously implementing extensive company-wide expense control programs. We account for our restructuring plans under the authoritative guidance for exit or disposal activities. The restructuring and related charges are included in “Cost of revenue” and “Operating expenses-restructuring and related charges” in the Condensed Consolidated Statement of Operations.
 Three Months Ended
(in thousands, except percentages)April 1, 2022April 2, 2021Change
Cost of revenue$(14)$(36)$22 (61)%
Operating expenses - Restructuring and related charges1,170 43 1,127 2,621 %
Total restructuring and related charges$1,156 $$1,149 16,414 %
Restructuring and related charges increased in the three months ended April 1, 2022, compared to the corresponding period in 2021, primarily due to higher severance and employee benefit costs recorded in conjunction with restructuring activities during the first quarter of fiscal 2022.
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Interest Expense, Net
Three Months Ended
(in thousands, except percentages)April 1, 2022April 2, 2021Change
Interest expense, net$(1,433)$(2,603)$1,170 (45)%
Interest expense, net decreased in the three months ended April 1, 2022, compared to the corresponding period in 2021, primarily due to the adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, on January 1, 2022, which eliminated debt discounts on the 2022 Notes and 2024 Notes resulting in elimination of debt discount amortization expense. Refer to Note 2 of the Notes to our Condensed Consolidated Financial Statements for details of the ASU adoption.
Other Income (Expense), Net
 Three Months Ended
(in thousands, except percentages)April 1, 2022April 2, 2021Change
Other income (expense), net$62 $1,019 $(957)(94)%
Other income (expense), net is primarily comprised of foreign exchange gains and losses on cash, accounts receivable and intercompany balances denominated in currencies other than the functional currency of the reporting entity. Our foreign currency exposure is primarily driven by fluctuations in the foreign currency exchange rates of the Euro, British pound, Japanese yen and Israeli shekel. Change in other income (expense), net in the three months ended April 1, 2022, compared to the corresponding period in 2021, was primarily due to foreign currency exchange gains resulting from the fluctuation of the Euro against the U.S. dollar during the first quarter of fiscal 2021.
Income Taxes
 Three Months Ended
(in thousands, except percentages)April 1, 2022April 2, 2021Change
Provision for income taxes$2,694 $696 $1,998 287 %
The provision for income taxes increased in the three months ended April 1, 2022, compared to the corresponding period in 2021, primarily due to mandatory capitalization and amortization of research and development expenses in the United States starting January 1, 2022 as required by the Tax Cuts and Jobs Act, which will result in additional income tax expense in the United States.
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Segment Financial Results
 Three Months Ended
(in thousands, except percentages)April 1, 2022April 2, 2021Change
Video
Revenue$65,842 $70,331 $(4,489)(6)%
as % of total revenue45 %63 %(18)%
Gross profit38,684 38,774 (90)— %
Gross margin %59 %55 %%
Operating income (loss)3,139 3,772 (633)(17)%
Operating margin %%%— %
Cable Access
Revenue$81,597 $41,245 $40,352 98 %
as % of total revenue55 %37 %18 %
Gross profit31,011 17,408 13,603 78 %
Gross margin %38 %42 %(4)%
Operating income8,139 1,296 6,843 528 %
Operating margin %10 %%%
Total
Revenue$147,439 $111,576 $35,863 32 %
Video
Our Video segment net revenue decreased in the three months ended April 1, 2022, compared to the corresponding period in 2021, primarily due to the timing of a few broadcast projects and the impact of ceasing sales activities in Russia. Video segment operating margin was relatively flat in the three months ended April 1, 2022, compared to the corresponding period in 2021, primarily due to lower revenue offset by higher gross margins.
Cable Access
Our Cable Access segment net revenue increased in the three months ended April 1, 2022, compared to the corresponding period in 2021, primarily driven by increased penetration of our existing CableOS customers and new CableOS customer deployments. Cable Access segment operating margin increased in the three months ended April 1, 2022, compared to the corresponding period in 2021, primarily due to the increase in revenue and changes in product mix, partially offset by increased costs related to freight and shipping.
Liquidity and Capital Resources
We expect to continue to generate net positive operating cash flow as we have done in the last three fiscal years. The cash we generate from our operations enables us to fund ongoing operations, our research and development projects for new products and technologies, and other business activities. We continually evaluate our cash needs and may decide it is best to raise additional capital or seek alternative financing sources to fund our operations, the growth of our business, to take advantage of unanticipated strategic opportunities, or to strengthen our financial position, including through drawdowns on existing or new debt facilities or new financing (debt and equity) funds. In the future, we may enter into other arrangements for potential investments in, or acquisitions of, complementary businesses, services or technologies, which could require us to seek additional equity or debt financing. Additional funds may not be available on terms favorable to us or at all. Conversely, we may also from time to time determine that it is in our best interests to voluntarily repay certain indebtedness early. We believe that our current sources of funds will provide us with adequate liquidity during the 12-month period following April 1, 2022, as well as in the long-term.
Material Cash Requirements
Our principal uses of cash will include repayments of debt and related interest, purchases of inventory, payroll, restructuring expenses, and other operating expenses related to the development and marketing of our products, purchases of property and equipment and other contractual obligations for the foreseeable future.
As of April 1, 2022, we had outstanding $170.9 million in aggregate principal amount of indebtedness, consisting of our 2022 Notes, 2024 Notes, and other debts, of which $42.7 million is scheduled to become due in the 12-month period following December 31, 2021. As of April 1, 2022, our total minimum lease payments are $43.4 million, of which $5.8 million is due before December 31, 2022.
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On February 3, 2022, the Board of Directors authorized us to repurchase, from time to time, up to $100 million of our outstanding shares of common stock through February 2025, at such time and such prices as management may decide. The program does not obligate us to repurchase any specific number of shares and may be discontinued at any time.
Sources and Conditions of Liquidity
Our sources to fund our material cash requirements are predominately from our sales of our products and services and, when applicable, proceeds from debt facilities and debt and equity offerings.
As of April 1, 2022, our principal sources of liquidity consisted of cash and cash equivalents of $100.7 million, accounts receivable, net, of $115.6 million, and our $25.0 million revolving credit facility with JPMorgan Chase Bank, N.A.
On March 27, 2020, the “Coronavirus Aid, Relief, and Economic Security” Act that was signed into law in the United States. Under provisions of this law, we deferred remittance of $1.7 million in employer’s share of payroll taxes incurred from March 27, 2020 to December 31, 2020. During 2021, $0.8 million of the total deferred payroll taxes has been paid, and the remaining deferred amount will be paid before December 31, 2022.
Our cash and cash equivalents of $100.7 million as of April 1, 2022 consisted of bank deposits held throughout the world, of which $79.5 million was held outside of the United States. At present, such foreign funds are considered to be indefinitely reinvested in foreign countries to the extent of indefinitely reinvested foreign earnings. In the event funds from foreign operations are needed to fund cash needs in the United States and if U.S. taxes have not already been previously accrued, we may be required to accrue and pay additional U.S. and foreign withholding taxes in order to repatriate these funds.
Summary of Cash Flows
The table below sets forth selected cash flow data:
Three Months Ended
(in thousands)April 1, 2022April 2, 2021
Net cash provided by (used in):
Operating activities$(27,482)$1,678 
Investing activities(2,438)(3,645)
Financing activities(1,967)4,664 
Effect of foreign exchange rate changes on cash and cash equivalents (805)(565)
Net increase (decrease) in cash and cash equivalents$(32,692)$2,132 
Operating Activities
Net cash used in operating activities increased $29.2 million in the three months ended April 1, 2022, compared to the corresponding period in 2021, primarily due to an increase of cash used for working capital.
We expect that cash provided by or used in operating activities may fluctuate in future periods as a result of a number of factors, including, but not limited to, the impact of COVID-19 on demand for our offerings, fluctuations in our operating results, shipment linearity, accounts receivable collections performance, inventory and supply chain management, and the timing and amount of compensation and other payments.
Investing Activities
Net cash used in investing activities decreased $1.2 million in the three months ended April 1, 2022, compared to the corresponding period in 2021, primarily due to lower purchases of property and equipment in the first quarter of fiscal 2022.
Financing Activities
Net cash provided by financing activities decreased $6.6 million in the three months ended April 1, 2022, compared to the corresponding period in 2021, primarily due to lower proceeds from issuance of common stock to employees through stock option exercises and stock repurchase transactions initiated in the first quarter of fiscal 2022.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact our operating results, financial position or liquidity due to adverse changes in market prices and rates. We are exposed to market risk because of changes in interest rates, foreign currency exchange rates, when other currencies held by our subsidiaries are measured against the U.S. dollar, and to changes in the value of financial instruments held by us.
For quantitative and qualitative disclosures about market risk (including foreign currency exchange risk and interest rate risk) affecting the Company, see Item 7A “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Our exposure related to market risk has not changed materially since December 31, 2021.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, and not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at a reasonable assurance level.
Changes in Internal Control over Financial Reporting
Our Chief Executive Officer and Chief Financial Officer evaluated the changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q. Based on their evaluation, it is concluded that there had been no change in our internal control over financial reporting during the quarter ended April 1, 2022 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Although most of our employees are working remotely due to the COVID-19 pandemic, we have not experienced any material impact to our internal controls over financial reporting. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are involved in lawsuits as well as subject to various legal proceedings, claims, threats of litigation, audits of royalty payments for licensed technology and investigations in the ordinary course of business, including claims of alleged infringement of third-party patents and other intellectual property rights, and commercial, employment, and other matters. While certain matters to which we are a party may specify the damages claimed, such claims may not represent reasonably possible losses. Given the inherent uncertainties of litigation, the ultimate outcome of these matters cannot be predicted at this time, nor can the amount of possible loss or range of loss, if any, be reasonably estimated.
An unfavorable outcome on any litigation matters could require us to pay substantial damages, or, in connection with any intellectual property infringement claims, could require us to pay ongoing royalty payments or could prevent us from selling certain of our products. As a result, a settlement of, or an unfavorable outcome on, any of the matters referenced above or other litigation matters could have a material adverse effect on our business, operating results, financial condition and cash flows.
Our industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding patent and other intellectual property rights. From time to time, third parties have asserted, and may in the future assert, exclusive patent, copyright, trademark and other intellectual property rights against us or our customers. Such assertions arise in the normal course of our operations. The resolution of any such assertions and claims cannot be predicted with certainty.
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ITEM 1A. RISK FACTORS
Risk Factor Summary
Our business is subject to significant risks and uncertainties that make an investment in us speculative and risky. Below we summarize what we believe are the principal risk factors but these risks are not the only ones we face, and you should carefully review and consider the full discussion of our risk factors in the section titled “Risk Factors,” together with the other information in this Quarterly Report on Form 10-Q. If any of the following risks actually occurs (or if any of those listed elsewhere in this Quarterly Report on Form 10-Q occur), our business, reputation, financial condition, results of operations, revenue, and future prospects could be seriously harmed. In that event, the market price of our common stock could decline, and you could lose part or all of your investment. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business.
We depend on cable, satellite and telecommunications (“telco”), and broadcast and media industry spending for our revenue and any material decrease or delay in spending in any of these industries would negatively impact our operating results, financial condition and cash flows;
The loss of one or more of our key customers, a failure to continue diversifying our customer base, or a decrease in the number of larger transactions could harm our business and our operating results;
We need to develop and introduce new and enhanced products and solutions in a timely manner to meet the needs of our customers and to remain competitive;
The markets in which we operate are intensely competitive;
Our future growth depends on a number of video and broadband industry trends;
Our software-based cable access product initiatives expose us to certain technology transition risks that may adversely impact our operating results, financial condition and cash flows;
Our operating results are likely to fluctuate significantly and, as a result, may fail to meet or exceed the expectations of securities analysts or investors, causing our stock price to decline;
We purchase several key components, subassemblies and modules used in the manufacture or integration of our products from sole or limited sources, and we rely on contract manufacturers and other subcontractors;
The COVID-19 pandemic has disrupted and harmed, and may continue to disrupt and harm, our business, financial condition and operating results;
We face risks associated with having outsourced engineering resources located in Ukraine; and
We rely on resellers, value-added resellers and systems integrators for a significant portion of our revenue, and disruptions to, or our failure to develop and manage our relationships with these customers or the processes and procedures that support them could adversely affect our business.
Risks Related to Our Business and Our Industry
We depend on cable, satellite and telco, and broadcast and media industry spending for our revenue and any material decrease or delay in spending in any of these industries would negatively impact our operating results, financial condition and cash flows.
Our revenue has been derived from worldwide sales to service providers and broadcast and media companies, as well as, in recent years, streaming media companies. We expect that these markets will provide our revenue for the foreseeable future. Demand for our products and solutions will depend on the magnitude and timing of spending by customers in each of these markets for the purpose of creating, expanding or upgrading their systems. These spending patterns are dependent on a variety of factors, including:
the impact of general economic conditions, actual and projected, including the impact of the COVID-19 pandemic and government and business responses thereto on the global economy and regional economies;
access to financing;
annual budget cycles of customers in each of the industries we serve;
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the impact of industry consolidation;
customers suspending, reducing or shifting spending due to: (i) new video or cable industry standards; (ii) industry trends and technology shifts, such as virtualization and cloud-based solutions, and (iii) new products and solutions, such as products and services based on our VOS software platform or our CableOS software-based cable access solutions;
delayed or reduced near-term spending as customers transition away from video appliance solutions and adopt new business and operating models enabled by software- and cloud-based solutions, including SaaS unified video processing solutions;
federal, state, local and foreign government regulation of telecommunications, television broadcasting and streaming media;
overall demand for communication services and consumer acceptance of new video and data technologies and services;
competitive pressures, including pricing pressures;
the impact of fluctuations in currency exchange rates; and
discretionary end-user customer spending patterns.
In the past, specific factors contributing to reduced spending have included:
uncertainty and deteriorated market conditions regionally and globally due to the COVID-19 pandemic;
weak or uncertain economic and financial conditions in the United States or one or more international markets;
uncertainty related to development of industry technology;
delays in evaluations of new services, new standards and systems architectures by certain customers;
emphasis by certain of our customers on generating revenue from existing subscribers or end-customers, rather than from new subscribers or end-customers, through construction, expansion or upgrades;
a reduction in the amount of capital available to finance projects of our customers and potential customers;
proposed and completed business combinations and divestitures by our customers and the length of regulatory review of each;
completion of a new system or significant expansion or upgrade to a system; and
bankruptcies and financial restructuring of major customers.
In the past, adverse economic conditions in one or more of the geographies in which we offer our products have adversely affected our customers’ spending in those geographies and, as a result, our business. During challenging economic times, such as the ongoing COVID-19 pandemic, and in tight credit markets, many customers have delayed and reduced and may continue to delay or reduce capital expenditures. This has resulted and could continue to result in reductions in revenue from our products, longer sales cycles, difficulties in collection of accounts receivable, slower adoption of new technologies and increased price competition. If global economic and market conditions, or economic conditions in the United States, Europe or other key markets, remain uncertain or deteriorate, we could experience a material and adverse effect on our business, results of operations, financial condition and cash flows. Additionally, since most of our international revenue is denominated in U.S. dollars, global economic and market conditions may impact currency exchange rates and cause our products to become relatively more expensive to customers in a particular country or region, which could lead to delayed or reduced spending in those countries or regions, thereby negatively impacting our business and financial condition.
In addition, industry consolidation has in the past constrained, and may in the future constrain or delay, spending by our customers. Further, if our product portfolio and product development plans do not position us well to capture an increased portion of the spending of customers in the markets on which we focus, our revenue may decline.
As a result of these various factors and potential issues related to customer spending, we may not be able to maintain or increase our revenue in the future, and our operating results, financial condition and cash flows could be materially and adversely affected.
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The loss of one or more of our key customers, a failure to continue diversifying our customer base, or a decrease in the number of larger transactions could harm our business and our operating results.
Historically, a significant portion of our revenue has been derived from relatively few customers, due in part to the consolidation of media customers. Sales to our top 10 customers in the three months ended April 1, 2022 accounted for approximately 70% of our net revenue, compared to 61% for the corresponding period in 2021. Although we continue to seek to broaden our customer base by penetrating new markets and further expanding internationally, we expect to see continuing industry consolidation and customer concentration.
During the three months ended April 1, 2022 and April 2, 2021, Comcast accounted for approximately 31% and 23% of our net revenue, respectively. During the three months ended April 1, 2022, Intelsat and Vodafone accounted for approximately 13% and 10% of our net revenue, respectively. During the three months ended April 2, 2021, SES accounted for 16% of our net revenue. Further consolidation in the cable industry could lead to additional revenue concentration for us. The loss of any significant customer, or any material reduction in orders from any other significant customer, or our failure to qualify our new products with any significant customer could materially and adversely affect, either long term or in a particular quarter, our operating results, financial condition and cash flows. Further, while Comcast’s election to license our CableOS software contains commitments in license fees to us, if Comcast deploys our solutions more slowly or at a scale that is lower than we anticipate, our operating results, financial condition and cash flows could be materially and adversely effected.
In addition, we are involved in most quarters in one or more relatively large individual transactions. A decrease in the number of the relatively larger individual transactions in which we are involved in any quarter could materially and adversely affect our operating results for that quarter.
As a result of these and other factors, we may be unable to increase our revenues from some or all of the markets we address, or to do so profitably, and any failure to increase revenues and profits from these customers could materially and adversely affect our operating results, financial condition and cash flows.
We need to develop and introduce new and enhanced products and solutions in a timely manner to meet the needs of our customers and to remain competitive.
All of the markets we address are characterized by continuing technological advancement, changes in customer requirements and evolving industry standards. To compete successfully, we must continually design, develop, manufacture and sell new or enhanced products and solutions that provide increasingly higher levels of performance and reliability and meet our customers’ changing needs. However, we may not be successful in those efforts if, among other things, our products and solutions:
• are not cost effective;
• are not brought to market in a timely manner;
• are not in accordance with evolving industry standards;
• fail to meet market acceptance or customer requirements; or
• are ahead of the needs of their markets.
If new standards or some of our new products are adopted later than we predict or not adopted at all, or if adoption occurs earlier than we are able to deliver the applicable products or functionality, we risk spending significant research and development time and dollars on products or features that may never achieve market acceptance or that miss the customer demand window and thus do not produce the revenue that a timely introduction would have likely produced.
If we fail to develop and market new and enhanced products and solutions on a timely basis, our operating results, financial condition and cash flows could be materially and adversely affected.
The markets in which we operate are intensely competitive.
The markets for our products are extremely competitive and have been characterized by rapid technological change and declining average sales prices in the past.
Our competitors in our Video appliance business include ATEME, MediaKind, Synamedia, Grass Valley, Evertz Microsystems, CommScope and Imagine Communications. Our competitors in our Video SaaS business include Amazon Web Services (“AWS”), Kaltura, iStreamPlanet, Brightcove and Edgecast. Our competitors in our Cable Access business include CommScope, Casa Systems and Cisco Systems, Vecima Networks and Calix.
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A number of our principal business competitors in both of our business segments are substantially larger and/or may have access to greater financial, technical, marketing or other resources than we have. Consolidation in the Video industry has led to the acquisition of a number of our historic competitors over the last several years by private equity firms and by AWS. With respect to our Cable Access business, our competitors are generally substantially larger than us.
In addition, some of our larger competitors may have more long-standing and established relationships with certain domestic and foreign customers. Many of these large enterprises are in a better position to withstand any significant reduction in spending by customers in our markets and may be better able to navigate periods of market uncertainty, such as the uncertainty caused by the COVID-19 pandemic. They often have broader product lines and market focus, and may not be as susceptible to downturns in a particular market. These competitors may also be able to bundle their products together to meet the needs of a particular customer, and may be capable of delivering more complete solutions than we are able to provide. To the extent large enterprises that currently do not compete directly with us choose to enter our markets by acquisition or otherwise, competition would likely intensify.
Further, some of our competitors have offered, and in the future may offer, their products at lower prices than we offer for our competing products or on more attractive financing or payment terms, which has in the past caused, and may in the future cause, us to lose sales opportunities and the resulting revenue or to reduce our prices in response to that competition. Also, some competitors that are smaller than we are have engaged in, and may continue to engage in, aggressive price competition in order to gain customer traction and market share. Reductions in prices for any of our products could materially and adversely affect our operating margins and revenue.
Additionally, certain customers and potential customers have developed, and may continue to develop, their own solutions that may cause such customers or potential customers to not consider our product offerings or to displace our installed products with their own solutions. The growing availability of open source codecs and related software, as well as new server chipsets that incorporate encoding technology, has, in certain respects, lowered the barriers to entry for the video processing industry. The development of solutions by potential and existing customers and the reduction of the barriers to entry to enter the video processing industry could result in increased competition and adversely affect our results of operations and business.
If any of our competitors’ products or technologies were to become the industry standard, our business could be seriously harmed. If our competitors are successful in bringing their products to market earlier than us, or if these products are more technologically capable than ours, our revenue could be materially and adversely affected.
Our future growth depends on a number of video and broadband industry trends.
Technology, industry and regulatory trends and requirements may affect the growth of our business. These trends and requirements include the following:
convergence, whereby network operators bundle video, voice and data services to consumers, including mobile delivery options;
continued strong consumer demand for streaming video services;
continued adoption of public cloud SaaS platforms to stream video content to consumers, as well as for broadcast infrastructure workflows;
continued growth in targeted advertising as a key revenue source for video streaming service providers;
the pace of adoption and deployment of high-bandwidth technology, such as DOCSIS 3.x, DOCSIS 4.0, next generation LTE and fiber-to-the-premises (“FTTP”);
the use of digital video by businesses, governments and educational institutions globally;
efforts by regulators and governments in the United States and internationally to encourage the adoption of broadband and digital technologies, including 5G broadband networks, as well as to regulate broadband access and delivery;
the need to develop partnerships with other companies involved in video infrastructure workflow and broadband services;
the extent and nature of regulatory attitudes towards issues such as network neutrality, competition between operators, access by third parties to networks of other operators, local franchising requirements for telcos to offer video, and other new services, such as mobile video; and
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the outcome of disputes and negotiations between content owners and service providers regarding rights of service providers to store and distribute recorded broadcast content, which outcomes may drive adoption of one technology over another in some cases.
If we fail to recognize and respond to these trends, by timely developing products, features and services required by these trends, we are likely to lose revenue opportunities and our operating results, financial condition and cash flows could be materially and adversely affected.
Our software-based cable access product initiatives expose us to certain technology transition risks that may adversely impact our operating results, financial condition and cash flows.
We believe our CableOS software-based cable access solutions, supporting centralized, DAA or hybrid configurations, will significantly reduce cable headend costs and increase operational efficiency, and are an important step in cable operators’ transition to all-IP networks. If we are unsuccessful in continuing to innovate and develop and deploy our cable access solutions in a timely manner, or are otherwise delayed in making our solutions available to our customers, our business may be adversely impacted, particularly if our competitors develop and market similar or superior products and solutions.
We believe our software-based cable access solutions will continue to replace and make obsolete current CMTS solutions, which is a market our products have historically not addressed, as well as cable edge-QAM products. If demand for our software-based cable access solutions is weaker than expected, our near and long-term operating results, financial condition and cash flows could be adversely impacted. Moreover, if competitors adapt new cable industry technology standards into competing cable access solutions faster than we do, or promulgate a new or competitive architecture for next-generation cable access solutions that renders our CableOS solution obsolete, our business may be adversely impacted.
The sales cycle for our CableOS solutions tends to be long. For cable operators, upgrading or expanding network infrastructure is complex and expensive, and investing in a CableOS solution is a significant strategic decision that may require considerable time to evaluate, test and qualify. Potential customers need to ensure our CableOS solution will interoperate with the various components of its existing network infrastructure, including third-party equipment, servers and software. In addition, since we are a relatively new entrant into the CMTS market, we need to demonstrate significant performance, functionality and/or cost advantages with our CableOS solutions that outweigh customer switching costs. If sales cycles are significantly longer than anticipated or we are otherwise unsuccessful in growing our CableOS sales, our operating results, financial condition and cash flows could be materially and adversely affected.
Our operating results are likely to fluctuate significantly and, as a result, may fail to meet or exceed the expectations of securities analysts or investors, causing our stock price to decline.
Our operating results have fluctuated in the past and are likely to continue to fluctuate in the future, on an annual and a quarterly basis, as a result of several factors, many of which are outside of our control. Some of the factors that may cause these fluctuations include:
the level and timing of spending of our customers in the United States, Europe and in other markets;
economic and financial conditions specific to each of the cable, satellite and telco, and broadcast and media industries, as well as general economic and financial market conditions, including the global economic uncertainty caused by the COVID-19 pandemic and government and business responses thereto as well as related supply chain and labor shortage issues;
changes in market acceptance of and demand for our products or our customers’ services or products;
the timing and amount of orders, especially from large individual transactions and transactions with our significant customers;
the mix of our products sold and the effect it has on gross margins;
the timing of revenue recognition, including revenue recognition on sales arrangements and from transactions with significant service and support components, which may span several quarters;
our transition to a SaaS subscription model for our Video business, which may cause near-term declines in revenue;
the timing of completion of our customers’ projects;
the length of each customer product upgrade cycle and the volume of purchases during the cycle;
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competitive market conditions, including pricing actions by our competitors;
the level and mix of our domestic and international revenue;
new product introductions by our competitors or by us;
uncertainty in the European Union due to unrest or violence in Ukraine that the on going military conflict with the Russian Federation have caused, which could adversely affect our results, financial condition and prospects;
changes in domestic and international regulatory environments affecting our business;
the evaluation of new services, new standards and system architectures by our customers;
the cost and timely availability to us of components, subassemblies and modules;
the mix of our customer base, by industry and size, and sales channels;
changes in our operating and extraordinary expenses;
the timing of acquisitions and dispositions by us and the financial impact of such transactions;
impairment of our goodwill and intangibles;
the impact of litigation, such as related litigation expenses and settlement costs;
write-downs of inventory and investments;
changes in our effective federal tax rate, including as a result of changes in our valuation allowance against our deferred tax assets, and changes in our effective state tax rates, including as a result of apportionment;
changes to tax rules related to the deferral of foreign earnings and compliance with foreign tax rules;
the impact of applicable accounting guidance on accounting for uncertainty in income taxes that requires us to establish reserves for uncertain tax positions and accrue potential tax penalties and interest; and