SEC Filing | Harmonic Inc.

View:

Download DOC

Download PDF

Download XLS

Download XBRL

hlit-20230630

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 June 30, 2023


☐			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)

_____________________________________________________


Delaware			77-0201147
(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 class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.001 par value

HLIT

NASDAQ 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 filer	☐	Accelerated Filer	☒

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

Table of Contents

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 July 31, 2023 was 111,914,979.

Table of Contents

TABLE OF CONTENTS


PART I

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)			3
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			24
ITEM 4. CONTROLS AND PROCEDURES			24

PART II

ITEM 1. LEGAL PROCEEDINGS			25
ITEM 1A. RISK FACTORS			26
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			46


ITEM 5. OTHER INFORMATION			46
ITEM 6. EXHIBITS			47

SIGNATURES			48

Table of Contents

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HARMONIC INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except per share data)


	June 30, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	71,031	$	89,586
Accounts receivable, net	119,203		108,427
Inventories	113,587		120,949
Prepaid expenses and other current assets	27,695		26,337
Total current assets	331,516		345,299
Property and equipment, net	37,626		39,814
Operating lease right-of-use assets	23,138		25,469
Goodwill	238,709		237,739
Other non-current assets	59,363		61,697
Total assets	$	690,352	$	710,018
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Convertible debt, current	$	114,428	$	113,981
Other debts, current	4,851		4,756
Accounts payable	37,108		67,455
Deferred revenue	66,218		62,383
Operating lease liabilities, current	6,624		6,773
Other current liabilities	58,460		66,724
Total current liabilities	287,689		322,072

Other debts, non-current	10,539		11,161
Operating lease liabilities, non-current	21,557		24,110
Other non-current liabilities	27,766		28,169
Total liabilities	347,551		385,512
Commitments and contingencies (Note 11)

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; 111,584 and 109,871 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively	112		110
Additional paid-in capital	2,389,573		2,380,651
Accumulated deficit	(2,039,921)		(2,046,569)
Accumulated other comprehensive loss	(6,963)		(9,686)
Total stockholders’ equity	342,801		324,506
Total liabilities and stockholders’ equity	$	690,352	$	710,018

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

HARMONIC INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share data)


	Three Months Ended				Six Months Ended
	June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
Revenue:
Appliance and integration	$	111,127	$	121,868	$	225,921	$	234,852
SaaS and service	44,836		35,578		87,691		70,033
Total net revenue	155,963		157,446		313,612		304,885
Cost of revenue:
Appliance and integration	57,437		62,341		117,185		128,723
SaaS and service	13,586		12,704		27,433		24,579
Total cost of revenue	71,023		75,045		144,618		153,302
Total gross profit	84,940		82,401		168,994		151,583
Operating expenses:
Research and development	32,205		29,920		65,714		58,753
Selling, general and administrative	42,773		36,768		82,055		73,411
Restructuring and related charges	—		631		83		1,801
Total operating expenses	74,978		67,319		147,852		133,965
Income from operations	9,962		15,082		21,142		17,618
Interest expense, net	(800)		(1,394)		(1,506)		(2,827)

Other income (expense), net	(136)		4,274		(429)		4,336
Income before income taxes	9,026		17,962		19,207		19,127
Provision for income taxes	7,471		3,122		12,559		5,816
Net income	$	1,555	$	14,840	$	6,648	$	13,311

Net income per share:
Basic	$	0.01	$	0.14	$	0.06	$	0.13
Diluted	$	0.01	$	0.14	$	0.06	$	0.12
Weighted average shares outstanding:
Basic	111,462		104,630		111,130		104,312
Diluted	119,255		108,984		118,508		109,774

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

HARMONIC INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, in thousands)


	Three Months Ended				Six Months Ended
	June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
Net income	$	1,555	$	14,840	$	6,648	$	13,311
Change in foreign currency translation adjustments	667		(7,608)		2,626		(9,310)
Other comprehensive income (loss) before tax	667		(7,608)		2,626		(9,310)
Provision for (benefit from) income taxes	(25)		305		(97)		368
Other comprehensive income (loss), net of tax	692		(7,913)		2,723		(9,678)
Total comprehensive income	$	2,247	$	6,927	$	9,371	$	3,633

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

HARMONIC INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited, in thousands)


	Three Months Ended June 30, 2023
	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Shares	Amount
Balance at March 31, 2023	111,332	$	111	$	2,384,806	$	(2,041,476)	$	(7,655)	$	335,786
Net income	—	—		—		1,555		—		1,555
Other comprehensive income, net of tax	—	—		—		—		692		692
Issuance of common stock under award and purchase plans, net	252	1		(1,292)		—		—		(1,291)

Stock-based compensation	—	—		6,059		—		—		6,059
Balance at June 30, 2023	111,584	$	112	$	2,389,573	$	(2,039,921)	$	(6,963)	$	342,801


	Three Months Ended July 1, 2022
	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Shares	Amount
Balance at April 1, 2022	104,603	$	105	$	2,362,873	$	(2,073,288)	$	(5,037)	$	284,653
Net income	—	—		—		14,840		—		14,840
Other comprehensive loss, net of tax	—	—		—		—		(7,913)		(7,913)
Issuance of common stock under stock option, award and purchase plans, net	782	—		2,773		—		—		2,773
Repurchase of common stock	(324)	—		—		(2,872)		—		(2,872)
Stock-based compensation	—	—		5,355		—		—		5,355

Balance at July 1, 2022	105,061	$	105	$	2,371,001	$	(2,061,320)	$	(12,950)	$	296,836


	Six Months Ended June 30, 2023
	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2022	109,871	$	110	$	2,380,651	$	(2,046,569)	$	(9,686)	$	324,506
Net income	—	—		—		6,648		—		6,648
Other comprehensive income, net of tax	—	—		—		—		2,723		2,723
Issuance of common stock under award and purchase plans, net	1,713	2		(4,561)		—		—		(4,559)

Stock-based compensation	—	—		13,483		—		—		13,483
Balance at June 30, 2023	111,584	$	112	$	2,389,573	$	(2,039,921)	$	(6,963)	$	342,801

Table of Contents


	Six Months Ended July 1, 2022
	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2021	102,959	$	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, 2022	102,959	103		2,354,790		(2,069,618)		(3,272)		282,003
Net income	—	—		—		13,311		—		13,311
Other comprehensive loss, net of tax	—	—		—		—		(9,678)		(9,678)
Issuance of common stock under stock option, award and purchase plans, net	2,659	2		3,045		—		—		3,047
Repurchase of common stock	(557)					(5,013)				(5,013)
Stock-based compensation	—	—		13,166		—		—		13,166

Balance at July 1, 2022	105,061	$	105	$	2,371,001	$	(2,061,320)	$	(12,950)	$	296,836

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

HARMONIC INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)


	Six Months Ended
	June 30, 2023		July 1, 2022
Cash flows from operating activities:
Net income	$	6,648	$	13,311
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation	6,089		6,128
Stock-based compensation	13,483		13,161
Amortization of convertible debt discount	447		596
Amortization of warrant	870		863
Foreign currency remeasurement	991		(1,680)
Deferred income taxes, net	1,321		1,401
Provision for expected credit losses and returns	1,121		1,648
Provision for excess and obsolete inventories	3,383		3,805
Gain on sale of investment in equity securities	—		(4,370)
Other adjustments	(25)		338
Changes in operating assets and liabilities:
Accounts receivable	(11,513)		(21,386)
Inventories	6,894		(15,429)
Other assets	2,060		(1,367)
Accounts payable	(30,527)		(23,355)
Deferred revenues	1,223		16,393
Other liabilities	(12,717)		4,287
Net cash used in operating activities	(10,252)		(5,656)
Cash flows from investing activities:
Proceeds from sales of investments	—		7,962
Purchases of property and equipment	(3,833)		(5,504)
Net cash provided by (used in) investing activities	(3,833)		2,458
Cash flows from financing activities:
Repurchase of common stock	—		(5,013)
Proceeds from other debts	3,829		3,499
Repayment of other debts	(4,721)		(4,393)
Proceeds from common stock issued to employees	3,084		6,130
Taxes paid related to net share settlement of equity awards	(7,643)		(3,083)
Net cash used in financing activities	(5,451)		(2,860)
Effect of exchange rate changes on cash and cash equivalents	981		(5,554)
Net decrease in cash and cash equivalents	(18,555)		(11,612)
Cash and cash equivalents at beginning of period	89,586		133,431
Cash and cash equivalents at end of period	$	71,031	$	121,819



Supplemental schedule of non-cash investing activities:
Capital expenditures incurred but not yet paid	$	1,189	$	624

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

HARMONIC INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1: BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP") and applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Form 10-K”). The accompanying 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 interim periods are not necessarily indicative of the results that may be expected for any subsequent quarter or for the fiscal year ending December 31, 2023.

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 those estimates.

The Company’s significant accounting policies are described in Note 2 to its audited Consolidated Financial Statements included in the 2022 Form 10-K. There have been no significant changes to these policies during the six months ended June 30, 2023.

NOTE 2: INVESTMENTS IN EQUITY SECURITIES

In May 2022, the Company sold its investment in Encoding.com, Inc. for total consideration of up to approximately $10.7 million. The Company received $7.8 million in May 2022 and recognized a gain of $4.2 million. The balance of the consideration of up to approximately $2.9 million will be payable to the Company within 18 months from the date of sale, subject to certain conditions and indemnity obligations, and will be recorded upon receipt by the Company.

NOTE 3: CONTRACT ASSETS AND DEFERRED 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)	June 30, 2023		December 31, 2022
Contract assets	$	5,491	$	5,580
Deferred revenue	$	81,751	$	80,471

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 June 30, 2023 and July 1, 2022, that was included within the deferred revenue balance at January 1, 2023 and 2022 was $14.1 million and $11.3 million, respectively. Revenue recognized during the six months ended June 30, 2023 and July 1, 2022, that was included within the deferred revenue balance at January 1, 2023 and 2022 was $35.3 million and $34.8 million, respectively.

Remaining performance obligations represent contracted revenues that have not yet been recognized and include deferred revenue and unbilled amounts that will be recognized as revenue in the future. The aggregate balance of the Company’s remaining performance obligations as of June 30, 2023 was $663.8 million, a majority of which 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.

Table of Contents

NOTE 4: LEASES

The components of lease expense are as follows:


	Three Months Ended				Six Months Ended
(in thousands)	June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
Operating lease cost	$	1,761	$	2,148	$	3,525	$	4,035
Variable lease cost	425		431		850		892
Total lease cost	$	2,186	$	2,579	$	4,375	$	4,927

Supplemental information related to leases are as follows:


	Three Months Ended				Six Months Ended
(in thousands)	June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
Cash paid for amounts included in the measurement of operating lease liabilities	$	1,778	$	1,962	$	3,606	$	3,878
Right-of-use assets obtained in exchange for operating lease obligations	$	—	$	77	$	—	$	206

NOTE 5: OTHER FINANCIAL STATEMENT INFORMATION

The following tables provide details of selected balance sheet components:


Accounts receivable, net:	As of
(in thousands)	June 30, 2023		December 31, 2022
Accounts receivable	$	121,605	$	110,576
Less: allowances for expected credit losses and sales returns	(2,402)		(2,149)
Total	$	119,203	$	108,427


Inventories:	As of
(in thousands)	June 30, 2023		December 31, 2022
Finished goods	$	60,843	$	65,308
Raw materials	43,367		46,081
Work-in-process	3,856		3,251
Service-related spares	5,521		6,309
Total	$	113,587	$	120,949


Prepaid expenses and other current assets:	As of
(in thousands)	June 30, 2023		December 31, 2022
Prepaid expenses	$	4,233	$	5,558
Contract assets	5,491		5,583
Other current assets	17,971		15,196
Total	$	27,695	$	26,337

Table of Contents


Property and equipment, net:	As of
(in thousands)	June 30, 2023		December 31, 2022
Machinery and equipment	$	72,342	$	75,589
Capitalized software	27,421		30,588
Leasehold improvements	39,495		39,199
Furniture and fixtures	2,596		2,739
Construction-in-progress	2,308		2,691
Property and equipment, gross	144,162		150,806
Less: accumulated depreciation and amortization	(106,536)		(110,992)
Total	$	37,626	$	39,814


Other current liabilities:	As of
(in thousands)	June 30, 2023		December 31, 2022
Accrued employee compensation and related expenses	$	24,271	$	29,675
Other	34,189		37,049
Total	$	58,460	$	66,724

Table of Contents

NOTE 6: CONVERTIBLE DEBT

2.00% Convertible Senior Notes due 2024 (the “2024 Notes”)

In September 2019, the Company issued $115.5 million of the 2024 Notes pursuant to an indenture (the “2024 Notes Indenture”), dated September 13, 2019, by and between the Company and U.S. Bank Trust Company, National Association (as successor in interest to U.S. Bank National Association), as trustee. The 2024 Notes bear interest at a rate of 2.00% per year, payable semi-annually on March 1 and September 1 of each year, beginning March 1, 2020. The 2024 Notes will mature on September 1, 2024, unless earlier repurchased by the Company, 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, or a combination thereof, at the Company’s election, at an initial conversion rate of 115.5001 shares of the Company’s common stock per $1,000 principal amount of the 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 the fiscal year ended December 31, 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 the Company’s 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.

The 2024 Notes remained convertible as of June 30, 2023, 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 the last trading day of the immediately preceding fiscal quarter was greater than or equal to 130% of the conversion price of the 2024 Notes on each applicable trading day. All $114.4 million of the net carrying amount of the 2024 Notes outstanding as of June 30, 2023 was classified as a current liability as of that date.

The following table presents the components of the 2024 Notes:


	As of
(in thousands, except for years and percentages)	June 30, 2023		December 31, 2022
Liability:
Principal amount	$	115,500	$	115,500

Less: Debt issuance costs, net of amortization	(1,072)		(1,519)
Carrying amount	$	114,428	$	113,981

The following table presents interest expense recognized for the 2024 Notes:


	Three Months Ended				Six Months Ended
(in thousands)	June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
Contractual interest expense	$	578	$	578	$	1,156	$	1,156

Amortization of debt issuance costs	224		217		447		434
Total interest expense recognized	$	802	$	795	$	1,603	$	1,590

Table of Contents

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				Six Months Ended
(in thousands)	June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
Cost of revenue	$	439	$	604	$	1,289	$	1,131
Research and development expense	1,731		1,317		3,830		3,853
Selling, general and administrative expense	3,889		3,654		8,364		8,177
Total	$	6,059	$	5,575	$	13,483	$	13,161

Restricted Stock Units:


(in thousands, except per share amounts)	Number of Shares	Weighted Average Grant-Date Fair Value Per Share
Balance at December 31, 2022	3,499	$	8.93
Granted	2,269	13.83
Vested	(1,831)	8.75
Forfeited	(242)	8.90
Balance at June 30, 2023	3,695	$	11.91

The Company’s stock benefit plans include the 2002 Employee Stock Purchase Plan (“ESPP”) and current active stock plans adopted in 1995 and 2002 (“1995 Stock Plan” and “2002 Director Plan”, respectively). Refer to Note 13, “Employee Benefit Plans” of Notes to Consolidated Financial Statements in the 2022 Form 10-K for details pertaining to each plan.

The Company’s stockholders approved an amendment to the ESPP at the 2023 annual meeting of stockholders to increase the number of shares of common stock reserved for issuance under the ESPP by 650,000 shares. As of June 30, 2023, an aggregate of 9,221,697 shares of common stock were reserved for issuance under the 1995 Stock Plan, of which 5,713,754 shares remained available for future grants. As of June 30, 2023, an aggregate of 637,671 shares of common stock were reserved for issuance under the 2002 Director Plan, of which 451,077 shares remained available for future grants.

Share Repurchase Program

In February 2022, the Board of Directors of the Company (“Board”) 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.

There were no repurchase activities during the six months ended June 30, 2023. As of June 30, 2023, approximately $94.9 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:


	June 30, 2023								December 31, 2022
	Carrying		Fair Value						Carrying		Fair Value
(in thousands)	Value		Level 1		Level 2		Level 3		Value		Level 1		Level 2		Level 3

2024 Notes	$	114,428	$	—	$	218,586	$	—	$	113,981	$	—	$	181,139	$	—

The fair value of the Company’s convertible notes is influenced by interest rates, the price of the Company’s common stock 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.

Table of Contents

NOTE 9: EARNINGS PER SHARE

The following table sets forth the computation of the basic and diluted net income per share:


	Three Months Ended				Six Months Ended
(in thousands, except per share amounts)	June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
Numerator:
Net income	$	1,555	$	14,840	$	6,648	$	13,311
Denominator:
Weighted average number of shares outstanding:
Basic	111,462		104,630		111,130		104,312
2022 Notes	—		2,365		—		2,537
2024 Notes	6,144		491		5,554		1,014
Stock options	—		234		—		249
Restricted stock units	1,573		1,193		1,786		1,627
Stock purchase rights under the ESPP	76		71		38		35
Diluted	119,255		108,984		118,508		109,774
Net income per share:
Basic	$	0.01	$	0.14	$	0.06	$	0.13
Diluted	$	0.01	$	0.14	$	0.06	$	0.12

The following table sets forth the potential dilutive shares that were excluded from the computation of diluted net income per share, because their effects were anti-dilutive:


	Three Months Ended		Six Months Ended
(in thousands)	June 30, 2023	July 1, 2022	June 30, 2023	July 1, 2022


Restricted stock units	37	48	55	53
Stock purchase rights under the ESPP	—	398	150	404
Total	37	446	205	457

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 regularly 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 internal reporting structure, the Company consists of two operating segments: Video and Broadband. The operating segments were determined based on the nature of the products offered. The Video segment provides video processing, production and playout solutions and services worldwide to broadcast and media companies, new streaming media companies, broadband operators, and satellite and telecommunications (“telco”) Pay-TV service providers. The Broadband segment provides broadband access solutions and related services to broadband 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.

Table of Contents

The following table provides summary financial information by reportable segment:


	Three Months Ended				Six Months Ended
(in thousands)	June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
Video
Revenue	$	58,867	$	76,215	$	116,165	$	142,057
Gross profit	36,303		48,136		70,917		86,820
Operating income (loss)	90		11,271		(1,336)		14,410
Broadband
Revenue	$	97,096	$	81,231	$	197,447	$	162,828
Gross profit	49,076		34,936		99,366		65,947
Operating income	18,066		10,131		38,179		18,270
Total
Revenue	$	155,963	$	157,446	$	313,612	$	304,885
Gross profit	85,379		83,072		170,283		152,767
Operating income	18,156		21,402		36,843		32,680

A reconciliation of the Company’s consolidated segment operating income to consolidated income before income taxes is as follows:


	Three Months Ended				Six Months Ended
(in thousands)	June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
Total consolidated segment operating income	$	18,156	$	21,402	$	36,843	$	32,680
Unallocated corporate expenses(1)	(2,135)		(745)		(2,218)		(1,901)
Stock-based compensation	(6,059)		(5,575)		(13,483)		(13,161)
Consolidated income from operations	9,962		15,082		21,142		17,618
Non-operating expense, net	(936)		2,880		(1,935)		1,509
Income before income taxes	$	9,026	$	17,962	$	19,207	$	19,127

(1) Together with stock-based compensation, the Company does not allocate restructuring and related charges and other non-recurring expenses 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 Ended				Six Months Ended
(in thousands)	June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
Net revenue (1)
United States	$	101,908	$	106,109	$	207,649	$	192,987
Other countries	54,055		51,337		105,963		111,898
Total	$	155,963	$	157,446	$	313,612	$	304,885

(1) Revenue is attributed to countries based on the location of the customer.

Table of Contents

NOTE 11: COMMITMENTS AND CONTINGENCIES

Legal proceedings

From time to time, the Company is involved in lawsuits as well as subject to various legal proceedings, claims, threats of litigation, 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.

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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 Quarterly Report on Form 10-Q are forward-looking statements that involve risk and uncertainties. The statements contained in this Quarterly Report on 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;

•macroeconomic conditions, including inflation, rising interest rates, volatility and uncertainty in the banking and financial services sector, ongoing global supply chain disruptions, volatile capital markets and foreign currency fluctuations, particularly in certain geographies, and in financial markets;

•the impact of geopolitical events, including the Russia-Ukraine conflict and rising tensions between China and Taiwan, on our business and the markets in which we operate;

•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 Broadband and Video solutions;

•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 Quarterly Report on 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.

Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in the section titled “Risk Factors” and in other parts of this Quarterly Report on Form 10-Q.

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) broadband solutions that enable broadband 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 Broadband. Our Video business sells video processing, production and playout solutions, and services worldwide to broadband operators and satellite and 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 Broadband business sells broadband access solutions and related services, including our CableOS software-based broadband access solution, to broadband 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, and the impact of factors such as the Russia-Ukraine conflict, inflation, rising interest rates, potential supply chain disruptions, volatility in capital markets and foreign currency fluctuations; volatility and uncertainty in the banking and financial services sector; access to financing; annual budget cycles of each of the industries we serve; impact of industry consolidations; customers suspending or reducing spending in anticipation of new products or new standards; and 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 and suppliers, 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.

More recently, the United States has experienced high levels of inflation, which may result in decreased demand for our products and services, increases in our operating costs including our labor costs, constrained credit and liquidity, reduced customer spending and volatility in financial markets. The Federal Reserve has raised, and may continue to raise, interest rates in response to concerns over inflation risk. There continues to be uncertainty in the changing market and economic conditions, including the possibility of additional measures that could be taken by the Federal Reserve and other government agencies, related to macroeconomic conditions, adverse business conditions and liquidity concerns, or bank failures or instability in the financial services sector, geopolitical disruptions and concerns over inflation risk.

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.

Table of Contents

Our Broadband strategy is focused on continuing to develop and deliver software-based broadband access technologies, which we refer to as our CableOS solutions, to our broadband operator customers. We believe our CableOS software-based broadband 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 and/or FTTH data, video and voice services. We believe our CableOS solutions resolve space and power constraints in broadband 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 broadband access market. In the meantime, we believe our Broadband segment will continue to gain momentum in the marketplace as our customers adopt and deploy our virtualized DOCSIS, CMTS and FTTH solutions and distributed access architectures. We continue to make progress in the development of our CableOS solutions and in the growth of our Broadband business, with expanded commercial deployments, field trials, and customer engagements.

CRITICAL ACCOUNTING 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 estimates are disclosed in our 2022 Annual Report on Form 10-K, as filed with the SEC. There have been no significant changes to these estimates during the six months ended June 30, 2023.

ACCOUNTING PRONOUNCEMENTS

Refer to Note 2 to the audited Consolidated Financial Statements included in the 2022 Annual Report on Form 10-K.

RESULTS OF OPERATIONS

Net Revenue


	Three Months Ended										Six Months Ended
(in thousands, except percentages)	June 30, 2023			July 1, 2022			Change				June 30, 2023			July 1, 2022			Change
Appliance and integration	$	111,127		$	121,868		$	(10,741)	(9)	%	$	225,921		$	234,852		$	(8,931)	(4)	%
as % of total net revenue	71		%	77		%					72		%	77		%
SaaS and service	44,836			35,578			9,258		26	%	87,691			70,033			17,658		25	%
as % of total net revenue	29		%	23		%					28		%	23		%
Total net revenue	$	155,963		$	157,446		$	(1,483)	(1)	%	$	313,612		$	304,885		$	8,727	3	%

Appliance and integration net revenue decreased in the three and six months ended June 30, 2023, compared to the corresponding periods in 2022, primarily due to a decrease in our Video segment net revenue, which was primarily due to a reduction in sales of appliance products. The decrease was partially offset by an increase in our Broadband segment net revenue as a result of increased penetration of existing customers and new customer deployments.

SaaS and service net revenue increased in the three and six months ended June 30, 2023, compared to the corresponding periods in 2022, primarily due to increasing SaaS usage from existing customers and activation of new SaaS customers for both segments.

Table of Contents

Gross Profit


	Three Months Ended											Six Months Ended
(in thousands, except percentages)	June 30, 2023			July 1, 2022			Change					June 30, 2023			July 1, 2022			Change
Gross profit	$	84,940		$	82,401		$	2,539		3	%	$	168,994		$	151,583		$	17,411		11	%
as % of total net revenue (“gross margin”)	54		%	52		%	2		%			54		%	50		%	4		%

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 increased in the three and six months ended June 30, 2023, compared to the corresponding periods in 2022, primarily due to favorable product mix and lower freight costs in the current periods.

Research and Development Expenses


	Three Months Ended										Six Months Ended
(in thousands, except percentages)	June 30, 2023			July 1, 2022			Change				June 30, 2023			July 1, 2022			Change
Research and development	$	32,205		$	29,920		$	2,285	8	%	$	65,714		$	58,753		$	6,961	12	%
as % of total net revenue	21		%	19		%					21		%	19		%

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 Research and Development (“French R&D”) credits.

Research and development expenses increased in the three and six months ended June 30, 2023, compared to the corresponding periods in 2022, primarily due to higher employee compensation costs as a result of headcount increases and annual compensation adjustments to support the growth of our Broadband business and the strategic transition of our Video segment to SaaS business.

Selling, General and Administrative Expenses


	Three Months Ended										Six Months Ended
(in thousands, except percentages)	June 30, 2023			July 1, 2022			Change				June 30, 2023			July 1, 2022			Change
Selling, general and administrative	$	42,773		$	36,768		$	6,005	16	%	$	82,055		$	73,411		$	8,644	12	%
as % of total net revenue	27		%	23		%					26		%	24		%

Selling, general and administrative expenses increased in the three and six months ended June 30, 2023, compared to the corresponding periods in 2022, primarily due to higher employee compensation costs as a result of headcount increases to support the growth in Broadband and strategic transition to SaaS in Video, and annual compensation adjustments.

Table of Contents

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 appropriate 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								Six Months Ended
(in thousands, except percentages)	June 30, 2023		July 1, 2022		Change				June 30, 2023		July 1, 2022		Change
Cost of revenue	$	—	$	114	$	(114)	(100)	%	$	—	$	100	$	(100)	(100)	%
Operating expenses
Restructuring and related charges	—		631		(631)		(100)	%	83		1,801		(1,718)		(95)	%
Total restructuring and related charges	$	—	$	745	$	(745)	(100)	%	$	83	$	1,901	$	(1,818)	(96)	%

Restructuring and related charges decreased in the three and six months ended June 30, 2023, compared to the corresponding periods in 2022, primarily due to higher severance and employee benefit costs recorded in conjunction with restructuring activities in fiscal 2022.

Interest Expense, Net


	Three Months Ended								Six Months Ended
(in thousands, except percentages)	June 30, 2023		July 1, 2022		Change				June 30, 2023		July 1, 2022		Change
Interest expense, net	$	(800)	$	(1,394)	$	594	(43)	%	$	(1,506)	$	(2,827)	$	1,321	(47)	%

Interest expense, net decreased in the three and six months ended June 30, 2023, compared to the corresponding periods in 2022, primarily due to the repayment of the 4.375% Convertible Senior Notes due 2022 upon their maturity.

Other Income (Expense), Net


	Three Months Ended								Six Months Ended
(in thousands, except percentages)	June 30, 2023		July 1, 2022		Change				June 30, 2023		July 1, 2022		Change
Other income (expense), net	$	(136)	$	4,274	$	(4,410)	(103)	%	$	(429)	$	4,336	$	(4,765)	(110)	%

Changes in other income (expense), net in the three and six months ended June 30, 2023, compared to the corresponding periods in 2022, were primarily due to a gain of $4.2 million recorded on the sale of our investment in Encoding.com in fiscal 2022. Refer to Note 2 of the Notes to our Condensed Consolidated Financial Statement for details on the sale of Encoding.com.

Income Taxes


	Three Months Ended								Six Months Ended
(in thousands, except percentages)	June 30, 2023		July 1, 2022		Change				June 30, 2023		July 1, 2022		Change
Provision for income taxes	$	7,471	$	3,122	$	4,349	139	%	$	12,559	$	5,816	$	6,743	116	%

The provision for income taxes increased during the three and six months ended June 30, 2023, compared to the corresponding periods in 2022. The increase was largely driven by the decrease in tax loss and credit carry forwards available in the United States to offset taxable income. The mandatory capitalization and amortization of research and development expenses in the United States was required starting January 1, 2022, by the Tax Cuts and Jobs Act, which has resulted in income tax expense in the United States for both periods.

Table of Contents

Segment Financial Results


	Three Months Ended											Six Months Ended
(in thousands, except percentages)	June 30, 2023			July 1, 2022			Change					June 30, 2023			July 1, 2022			Change
Video
Revenue	$	58,867		$	76,215		$	(17,348)		(23)	%	$	116,165		$	142,057		$	(25,892)		(18)	%
as % of total revenue	38		%	48		%	(10)		%			37		%	47		%	(10)		%
Gross profit	36,303			48,136			(11,833)			(25)	%	70,917			86,820			(15,903)			(18)	%
Gross margin %	62		%	63		%	(1)		%			61		%	61		%	—		%
Operating income	90			11,271			(11,181)			(99)	%	(1,336)			14,410			(15,746)			109	%
Operating margin %	—		%	15		%	(15)		%			(1)		%	10		%	(11)		%
Broadband
Revenue	$	97,096		$	81,231		$	15,865		20	%	$	197,447		$	162,828		$	34,619		21	%
as % of total revenue	62		%	52		%	10		%			63		%	53		%	10		%
Gross profit	49,076			34,936			14,140			40	%	99,366			65,947			33,419			51	%
Gross margin %	51		%	43		%	8		%			50		%	41		%	9		%
Operating income	18,066			10,131			7,935			78	%	38,179			18,270			19,909			109	%
Operating margin %	19		%	12		%	7		%			19		%	11		%	8		%
Total
Revenue	$	155,963		$	157,446		$	(1,483)		(1)	%	$	313,612		$	304,885		$	8,727		3	%

Video

Our Video segment net revenue decreased during the three and six months ended June 30, 2023, compared to the corresponding periods in 2022, primarily due to a reduction in sales of appliance products attributed to non-recurring projects in fiscal 2022, partially offset by an increase in SaaS and service revenue, reflecting increased usage from existing customers and activation of new SaaS customers. Video segment operating margin decreased during the three and six months ended June 30, 2023, compared to the corresponding periods in 2022, primarily due to the decrease in revenue.

Broadband

Our Broadband segment net revenue increased during the three and six months ended June 30, 2023, compared to the corresponding periods in 2022, primarily due to increased penetration of our existing customers and new customer deployments, which was partially driven by an expansion of fiber-to-the-premises (“FTTP”). Our Broadband segment operating margin increased during the three and six months ended June 30, 2023, compared to the corresponding periods in 2022, primarily due to the increase in revenue and margin expansion driven by favorable mix and cost savings in freight.

Liquidity and Capital Resources

We expect to continue to manage our cash from operations effectively, together with deploying cash in working capital for growth. The cash we generate from our operations enables us to fund ongoing operations, our research and development projects for new products and technologies, working capital and other business activities. As part of our cash management strategy, we concentrate cash deposits with large financial institutions subject to the strictest regulations. We continually evaluate our cash needs and may decide it is best to raise additional capital or seek alternative financing sources in order to fund our operations, and the growth of our business, take advantage of unanticipated strategic opportunities, or 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 June 30, 2023, 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, stock repurchases, payments for payroll, restructuring expenses, and other operating expenses related to the development and marketing of our products, purchases of property and equipment, facility leases, and other contractual obligations for the foreseeable future.

Table of Contents

As of June 30, 2023, we had outstanding $130.9 million in aggregate principal amount of indebtedness, consisting of our 2024 Notes, and other debts, of which $119.3 million is scheduled to become due in the 12-month period following June 30, 2023. As of June 30, 2023, our total minimum lease payments are $34.1 million, of which $3.4 million is due before December 31, 2023.

In February 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. As of June 30, 2023, approximately $94.9 million of the share repurchase authorization remained available for repurchases under this program.

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 June 30, 2023, our principal sources of liquidity consisted of cash and cash equivalents of $71.0 million, accounts receivable, net, of $119.2 million, and our $25.0 million revolving credit facility with JPMorgan Chase Bank, N.A. This credit facility was renewed in October 2022 and will mature on October 28, 2025.

Our cash and cash equivalents of $71.0 million as of June 30, 2023 consisted of bank deposits held throughout the world, of which $62.6 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:


	Six Months Ended
(in thousands)	June 30, 2023		July 1, 2022
Net cash provided by (used in):
Operating activities	$	(10,252)	$	(5,656)
Investing activities	(3,833)		2,458
Financing activities	(5,451)		(2,860)
Effect of foreign exchange rate changes on cash and cash equivalents	981		(5,554)
Net decrease in cash and cash equivalents	$	(18,555)	$	(11,612)

Operating Activities

Net cash used in operating activities increased during the first six months of fiscal 2023, compared to the corresponding period in fiscal 2022, primarily due to lower net income in the first six months of fiscal 2023 and an increase in cash used in our 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, instability and uncertainty in the financial services sector, the Russia-Ukraine conflict and related macroeconomic conditions 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 increased during the first six months of fiscal 2023, compared to the corresponding period in 2022, primarily due to proceeds from sale of investments in Encoding.com in May 2022, partially offset by lower purchases of property and equipment in the first six months of fiscal 2023.

Financing Activities

Net cash used in financing activities increased during the first six months of fiscal 2023, compared to the corresponding period in 2022, primarily due to higher payment of tax withholding obligations related to net share settlement of restricted stock units and lower proceeds from issuance of common stock to employees through the employee stock purchase plan in the first six months of fiscal 2023, partially offset by lower stock repurchase transactions in fiscal 2023 in comparison to fiscal 2022.

Table of Contents

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 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, 2022. Our exposure related to foreign currency exchange risk and interest rate risk has not changed materially since December 31, 2022.

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) and 15d-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 June 30, 2023 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

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, 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. Refer to Note 11 of the Notes to the condensed consolidated financial statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q for details on legal proceedings.

Table of Contents

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 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 broadband 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;

•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 inflation, rising interest rates, lower consumer confidence, volatile capital markets, supply chain disruptions, uncertainty and volatility in the financial services sector and the impact of the Russia-Ukraine conflict, 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;

•the impact of industry consolidation;

Table of Contents

•customers suspending, reducing or shifting spending due to: (i) new video or broadband 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 broadband 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 telco, 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, such as the strengthening of the U.S. dollar; 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 effects of 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 those caused by the effects of the COVID-19 pandemic, Russia-Ukraine conflict and related inflationary pressure, bank insolvency and related uncertainty and volatility in the financial services sector 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.

Table of Contents

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 and six months ended June 30, 2023 accounted for approximately 68% and 67% of our net revenue, respectively, compared to 70% and 69% for the corresponding periods in 2022. 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 and six months ended June 30, 2023, Comcast accounted for approximately 47% of our net revenue, compared to 37% and 34% in the corresponding periods in 2022. 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 slower 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, in most quarters, we are involved 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.

Table of Contents

Our competitors in our Video appliance business are primarily comprised of providers of video delivery and video processing and compression products and solutions, broadcast equipment and solutions providers, and certain network infrastructure providers. Our competitors in our Video SaaS business include companies that offer video delivery and processing SaaS solutions, SaaS video streaming platform providers, and certain public cloud service providers. Our competitors in our Broadband business include a number of suppliers of networking and communications equipment and solutions to broadband service providers.

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 Amazon Web Services. With respect to our Broadband business, certain competitors are 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 effects of the COVID-19 pandemic, Russia-Ukraine conflict, bank insolvency and related uncertainty and volatility in the financial services sector and inflation. 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 us 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 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;

Table of Contents

•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

•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 broadband 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 broadband access solutions, supporting centralized, DAA or hybrid configurations, will significantly reduce broadband operator headend costs and increase operational efficiency, and are an important step in operators’ transition to all-IP networks. If we are unsuccessful in continuing to innovate and develop and deploy our broadband 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 broadband 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 broadband 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 broadband industry technology standards into competing broadband access solutions faster than we do, or promulgate a new or competitive architecture for next-generation broadband 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 broadband 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 impacts caused by the effects of the COVID-19 pandemic, the Russia-Ukraine conflict, rising tensions between China and Taiwan and China and the United States, bank insolvency and related uncertainty and volatility in the financial services sector, inflation 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;

Table of Contents

•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 in our Video segment since, unlike Video appliance sales, SaaS revenue is recognized over the applicable subscription term based on service usage;

•the timing of completion of our customers’ projects;

•the length of each customer product upgrade cycle and the volume of purchases during the cycle;

•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 ongoing 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 t