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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 September 29, 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)
_____________________________________________________
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 October 30, 2023 was 112,189,931.



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TABLE OF CONTENTS
 

2

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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)
September 29, 2023December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents$75,622 $89,586 
Short-term investments6,305  
Accounts receivable, net110,345 108,427 
Inventories103,748 120,949 
Prepaid expenses and other current assets33,117 26,337 
Total current assets329,137 345,299 
Property and equipment, net36,960 39,814 
Operating lease right-of-use assets21,604 25,469 
Goodwill237,161 237,739 
Other non-current assets48,949 61,697 
Total assets$673,811 $710,018 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Convertible debt, current$114,654 $113,981 
Other debts, current4,820 4,756 
Accounts payable47,123 67,455 
Deferred revenue56,325 62,383 
Operating lease liabilities, current6,511 6,773 
Other current liabilities45,786 66,724 
Total current liabilities275,219 322,072 
Other debts, non-current9,992 11,161 
Operating lease liabilities, non-current20,019 24,110 
Other non-current liabilities27,781 28,169 
Total liabilities333,011 385,512 
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; 112,171 and 109,871 shares issued and outstanding at September 29, 2023 and December 31, 2022, respectively
112 110 
Additional paid-in capital2,399,282 2,380,651 
Accumulated deficit(2,046,416)(2,046,569)
Accumulated other comprehensive loss(12,178)(9,686)
Total stockholders’ equity340,800 324,506 
Total liabilities and stockholders’ equity$673,811 $710,018 
The accompanying notes are an integral part of these condensed consolidated financial statements.

3

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HARMONIC INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
 Three Months EndedNine Months Ended
 September 29, 2023September 30, 2022September 29, 2023September 30, 2022
Revenue:
Appliance and integration$84,760 $116,441 $310,681 $351,293 
SaaS and service42,443 39,297 130,134 109,330 
Total net revenue127,203 155,738 440,815 460,623 
Cost of revenue:
Appliance and integration48,992 64,932 166,177 193,655 
SaaS and service16,527 12,202 43,960 36,781 
Total cost of revenue65,519 77,134 210,137 230,436 
Total gross profit61,684 78,604 230,678 230,187 
Operating expenses:
Research and development30,316 30,466 96,030 89,219 
Selling, general and administrative39,245 36,379 121,300 109,790 
Restructuring and related charges726 335 809 2,136 
Total operating expenses70,287 67,180 218,139 201,145 
Income (loss) from operations(8,603)11,424 12,539 29,042 
Interest expense, net(619)(1,284)(2,125)(4,111)
Other income (expense), net343 (118)(86)4,218 
Income (loss) before income taxes(8,879)10,022 10,328 29,149 
Provision for (benefit from) income taxes(2,384)1,282 10,175 7,098 
Net income (loss)$(6,495)$8,740 $153 $22,051 
Net income (loss) per share:
Basic$(0.06)$0.08 $ $0.21 
Diluted$(0.06)$0.08 $ $0.20 
Weighted average shares outstanding:
Basic112,031 105,228 111,431 104,617 
Diluted112,031 113,185 117,910 110,911 
The accompanying notes are an integral part of these condensed consolidated financial statements.

4

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HARMONIC INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, in thousands)
 Three Months EndedNine Months Ended
 September 29, 2023September 30, 2022September 29, 2023September 30, 2022
Net income (loss)$(6,495)$8,740 $153 $22,051 
Change in foreign currency translation adjustments(5,052)(8,840)(2,426)(18,150)
Other comprehensive loss before tax(5,052)(8,840)(2,426)(18,150)
Provision for income taxes163 523 66 891 
Other comprehensive loss, net of tax(5,215)(9,363)(2,492)(19,041)
Total comprehensive income (loss)$(11,710)$(623)$(2,339)$3,010 
The accompanying notes are an integral part of these condensed consolidated financial statements.

5

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HARMONIC INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited, in thousands)
Three Months Ended September 29, 2023
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive Loss
Total
Stockholders’
Equity
SharesAmount
Balance at June 30, 2023111,584 $112 $2,389,573 $(2,039,921)$(6,963)$342,801 
Net loss— — — (6,495)— (6,495)
Other comprehensive loss, net of tax— — — — (5,215)(5,215)
Issuance of common stock under award and purchase plans, net587 — 2,468 — — 2,468 
Stock-based compensation— — 7,241 — — 7,241 
Balance at September 29, 2023112,171 $112 $2,399,282 $(2,046,416)$(12,178)$340,800 
Three Months Ended September 30, 2022
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive Loss
Total
Stockholders’
Equity
SharesAmount
Balance at July 1, 2022105,061 $105 $2,371,001 $(2,061,320)$(12,950)$296,836 
Net income— — — 8,740 — 8,740 
Other comprehensive loss, net of tax— — — — (9,363)(9,363)
Issuance of common stock under stock option, award and purchase plans, net374 — (1,932)— — (1,932)
Repurchase of common stock(14)— — (120)— (120)
Stock-based compensation— — 6,460 — — 6,460 
Balance at September 30, 2022105,421 $105 $2,375,529 $(2,052,700)$(22,313)$300,621 
Nine Months Ended September 29, 2023
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive Loss
Total
Stockholders’
Equity
SharesAmount
Balance at December 31, 2022109,871 $110 $2,380,651 $(2,046,569)$(9,686)$324,506 
Net income— — — 153 — 153 
Other comprehensive loss, net of tax— — — — (2,492)(2,492)
Issuance of common stock under award and purchase plans, net2,300 2 (2,093)— — (2,091)
Stock-based compensation— — 20,724 — — 20,724 
Balance at September 29, 2023
112,171 $112 $2,399,282 $(2,046,416)$(12,178)$340,800 


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Nine Months Ended September 30, 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 income— — — 22,051 — 22,051 
Other comprehensive loss, net of tax— — — — (19,041)(19,041)
Issuance of common stock under stock option, award and purchase plans, net3,033 3 1,112 — — 1,115 
Repurchase of common stock(571)(1)— (5,133)— (5,134)
Stock-based compensation— — 19,627 — — 19,627 
Balance at September 30, 2022105,421 $105 $2,375,529 $(2,052,700)$(22,313)$300,621 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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HARMONIC INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 Nine Months Ended
 September 29, 2023September 30, 2022
Cash flows from operating activities:
Net income $153 $22,051 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation9,178 9,225 
Stock-based compensation20,724 19,621 
Amortization of convertible debt discount673 897 
Amortization of warrant870 1,298 
Foreign currency remeasurement(814)(3,312)
Deferred income taxes, net2,026 1,798 
Provision for expected credit losses and returns1,790 1,835 
Provision for excess and obsolete inventories6,514 4,521 
Gain on sale of investment in equity securities (4,370)
Other adjustments146 419 
Changes in operating assets and liabilities:
Accounts receivable(4,348)(22,115)
Inventories14,532 (34,952)
Other assets6,164 (10,371)
Accounts payable(20,606)1,305 
Deferred revenues(9,208)(955)
Other liabilities(27,002)(770)
Net cash provided by (used in) operating activities792 (13,875)
Cash flows from investing activities:
Purchases of short-term investments(6,305) 
Proceeds from sales of investments 7,962 
Purchases of property and equipment(5,749)(7,389)
Net cash provided by (used in) investing activities(12,054)573 
Cash flows from financing activities:
Repurchase of common stock (5,133)
Proceeds from other debts3,829 3,499 
Repayment of other debts(4,721)(4,480)
Proceeds from common stock issued to employees6,552 6,129 
Taxes paid related to net share settlement of equity awards(8,643)(5,014)
Net cash used in financing activities(2,983)(4,999)
Effect of exchange rate changes on cash and cash equivalents281 (9,850)
Net decrease in cash and cash equivalents(13,964)(28,151)
Cash and cash equivalents at beginning of period89,586 133,431 
Cash and cash equivalents at end of period$75,622 $105,280 
Supplemental schedule of non-cash investing activities:
Capital expenditures incurred but not yet paid$1,802 $819 
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 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 nine months ended September 29, 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)September 29, 2023December 31, 2022
Contract assets$4,396 $5,580 
Deferred revenue$71,121 $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 September 29, 2023 and September 30, 2022, that was included within the deferred revenue balance at January 1, 2023 and 2022 was $9.6 million and $7.9 million, respectively. Revenue recognized during the nine months ended September 29, 2023 and September 30, 2022, that was included within the deferred revenue balance at January 1, 2023 and 2022 was $44.9 million and $42.7 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 September 29, 2023 was $627.2 million, 48% 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.

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NOTE 4: LEASES
The components of lease expense are as follows:
Three Months EndedNine Months Ended
(in thousands)September 29, 2023September 30, 2022September 29, 2023September 30, 2022
Operating lease cost$1,788 $1,767 $5,313 $5,802 
Variable lease cost472 5031,322 1,395 
Total lease cost$2,260 $2,270 $6,635 $7,197 
Supplemental information related to leases are as follows:
Three Months EndedNine Months Ended
(in thousands)September 29, 2023September 30, 2022September 29, 2023September 30, 2022
Cash paid for operating lease liabilities$1,762 $1,925 $5,368 $5,803 
Right-of-use assets obtained in exchange for operating lease obligations$ $ $ $206 
NOTE 5: OTHER FINANCIAL STATEMENT INFORMATION
The following tables provide details of selected balance sheet components:
Accounts receivable, net:As of
(in thousands)September 29, 2023December 31, 2022
Accounts receivable$113,029 $110,576 
Less: allowances for expected credit losses and sales returns(2,684)(2,149)
Total$110,345 $108,427 
Inventories:As of
(in thousands)September 29, 2023December 31, 2022
Finished goods$58,377 $65,308 
Raw materials34,782 46,081 
Work-in-process5,046 3,251 
Service-related spares5,543 6,309 
Total$103,748 $120,949 
Prepaid expenses and other current assets:As of
(in thousands)September 29, 2023December 31, 2022
Prepaid expenses$13,173 $5,558 
Contract assets4,396 5,583 
Other current assets15,548 15,196 
Total$33,117 $26,337 
Property and equipment, net:As of
(in thousands)September 29, 2023December 31, 2022
Machinery and equipment$72,208 $75,589 
Capitalized software26,975 30,588 
Leasehold improvements39,720 39,199 
Furniture and fixtures2,502 2,739 
Construction-in-progress2,875 2,691 
Property and equipment, gross144,280 150,806 
Less: accumulated depreciation and amortization(107,320)(110,992)
Total$36,960 $39,814 

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Other current liabilities:As of
(in thousands)September 29, 2023December 31, 2022
Accrued employee compensation and related expenses$18,405 $29,675 
Other27,381 37,049 
Total$45,786 $66,724 

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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 are recorded at face value less unamortized debt issuance costs. Amortization costs are reported as a component of interest expenses and are computed using the effective interest method. As the 2024 Notes mature within the next twelve months, they are classified as “Convertible debt, current” on the condensed consolidated balance sheet as of September 29, 2023.
The following table presents the components of the 2024 Notes:
As of
(in thousands, except for years and percentages)September 29, 2023December 31, 2022
Liability:
Principal amount$115,500 $115,500 
Less: Debt issuance costs, net of amortization(846)(1,519)
Carrying amount$114,654 $113,981 
The following table presents interest expense recognized for the 2024 Notes:
Three Months EndedNine Months Ended
(in thousands)September 29, 2023September 30, 2022September 29, 2023September 30, 2022
Contractual interest expense$578 $578 $1,734 $1,734 
Amortization of debt issuance costs226 220 673 654 
Total interest expense recognized$804 $798 $2,407 $2,388 

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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 EndedNine Months Ended
(in thousands)September 29, 2023September 30, 2022September 29, 2023September 30, 2022
Cost of revenue$606 $607 $1,895 $1,691 
Research and development expense2,152 2,109 5,982 5,988 
Selling, general and administrative expense4,483 3,744 12,847 11,942 
Total$7,241 $6,460 $20,724 $19,621 
Restricted Stock Units:
(in thousands, except per share amounts)Number
of
Shares
Weighted Average
Grant-Date Fair Value
Per Share
Balance at December 31, 20223,499 $8.93 
Granted2,412 13.73
Vested(2,201)8.86
Forfeited(257)9.08
Balance at September 29, 20233,453 $12.19 
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 September 29, 2023, an aggregate of 8,851,861 shares of common stock were reserved for issuance under the 1995 Stock Plan, of which 5,585,931 shares remained available for future grants. As of September 29, 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 nine months ended September 29, 2023. As of September 29, 2023, approximately $94.9 million of the share repurchase authorization remained available for repurchases under this program.

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NOTE 8: FAIR VALUE MEASUREMENTS
The applicable accounting guidance establishes a framework for measuring fair value and requires disclosure about the fair value measurements of assets and liabilities. This guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. This guidance requires the Company to classify and disclose assets and liabilities measured at fair value on a recurring basis, as well as fair value measurements of assets and liabilities measured on a nonrecurring basis in periods subsequent to initial measurement, in a three-tier fair value hierarchy as follows:
Level 1 - Observable inputs that reflect quoted prices for identical assets or liabilities in active markets.
Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The carrying value of the Company’s financial instruments, including cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to their short maturities.
The following table sets forth the fair value of the Company’s financial assets measured at fair value on a recurring basis based on the three-tier fair value hierarchy (in thousands):
September 29, 2023December 31, 2022
(in thousands)
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Cash equivalents
Money market funds$10,054 $ $ $10,054 $ $ $ $ 
Short-term investments
Time deposits 6,305  6,305     
Total assets $10,054 $6,305 $ $16,359 $ $ $ $ 

The Company’s financial instruments not recorded at fair value on a recurring basis were as follows:
September 29, 2023December 31, 2022
CarryingFair ValueCarryingFair Value
(in thousands)
ValueLevel 1Level 2Level 3ValueLevel 1Level 2Level 3
2024 Notes$114,654 $ $139,724 $ $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.

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NOTE 9: NET INCOME (LOSS) PER SHARE
Basic earnings per share is computed by dividing net income (loss) for the period by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing net income (loss) by the weighted-average number of common shares and potentially dilutive securities outstanding during the period using the treasury stock method for the Company’s stock options, restricted stock units, and shares issuable under the ESPP, and the if-converted method for the 2024 Notes.
As noted in Note 6, “Convertible Debt,” the principal amount of the 2024 Notes will be settled in cash. Therefore, for the purpose of calculating diluted net income (loss) per share, it will be assumed that the conversion spread value will be settled in shares.
The following table sets forth the computation of the basic and diluted net income per share:
 Three Months EndedNine Months Ended
(in thousands, except per share amounts)September 29, 2023September 30, 2022September 29, 2023September 30, 2022
Numerator:
Net income (loss)
$(6,495)$8,740 $153 $22,051 
Denominator:
Weighted average number of shares outstanding:
Basic112,031 105,228 111,431 104,617 
2022 Notes 3,078  2,718 
2024 Notes 2,678 4,919 1,569 
Stock options 218  238 
Restricted stock units 1,920 1,515 1,725 
Stock purchase rights under the ESPP 63 45 44 
Diluted112,031 113,185 117,910 110,911 
Net income (loss) per share:
Basic$(0.06)$0.08 $ $0.21 
Diluted$(0.06)$0.08 $ $0.20 
The following table sets forth the potential dilutive shares that were excluded from the computation of diluted net income (loss) per share, because their effects were anti-dilutive:
 Three Months EndedNine Months Ended
(in thousands)September 29, 2023September 30, 2022September 29, 2023September 30, 2022
2024 Notes3,650    
Restricted stock units3,465 22 198 43 
Stock purchase rights under the ESPP425    
   Total7,540 22 198 43 

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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.
The following table provides summary financial information by reportable segment:
Three Months EndedNine Months Ended
(in thousands)September 29, 2023September 30, 2022September 29, 2023September 30, 2022
Video
Revenue$51,397 $63,824 $167,562 $205,881 
Operating income (loss)(6,050)2,907 (7,386)17,317 
Broadband
Revenue$75,806 $91,914 $273,253 $254,742 
Operating income6,128 15,303 44,307 33,573 
Total
Revenue$127,203 $155,738 $440,815 $460,623 
Operating income78 18,210 36,921 50,890 
A reconciliation of the Company’s consolidated segment operating income to consolidated income before income taxes is as follows:
Three Months EndedNine Months Ended
(in thousands)September 29, 2023September 30, 2022September 29, 2023September 30, 2022
Total consolidated segment operating income$78 $18,210 $36,921 $50,890 
Unallocated corporate expenses(1)
(1,440)(326)(3,658)(2,227)
Stock-based compensation(7,241)(6,460)(20,724)(19,621)
Consolidated income (loss) from operations(8,603)11,424 12,539 29,042 
Non-operating expense, net(276)(1,402)(2,211)107 
Income (loss) before income taxes$(8,879)$10,022 $10,328 $29,149 
(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.
Disaggregation of Revenues
The following table provides a summary of total revenues disaggregated by type:
Three Months EndedNine Months Ended
(in thousands)September 29, 2023September 30, 2022September 29, 2023September 30, 2022
Product sales$76,133 $105,602 $283,551 $313,390 
Professional services8,627 10,839 27,130 37,903 
Total Appliance and integration84,760 116,441 310,681 351,293 
SaaS12,540 8,862 37,707 24,168 
Support services29,903 30,435 92,427 85,162 
Total SaaS and services42,443 39,297 130,134 109,330 
Total revenue$127,203 $155,738 $440,815 $460,623 

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The following table provides a summary of total revenues by geographic region:
Three Months EndedNine Months Ended
(in thousands)September 29, 2023September 30, 2022September 29, 2023September 30, 2022
United States (1)
$80,501 $89,940 $288,150 $282,927 
Other countries (1)
46,702 65,798 152,665 177,696 
Total revenue$127,203 $155,738 $440,815 $460,623 
(1)  Revenue is attributed to countries based on the location of the customer.
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.

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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 Hamas-Israel and Russia-Ukraine conflicts, 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, including our plans with respect to the Video Business;
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.

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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 cOS (formerly 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 Hamas-Israel and Russia-Ukraine conflicts, 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. Currently, we are seeing a slow-down in capital spending by some of our Video business customers, which is causing delays for some of our appliance-based projects and creating near-term headwinds for our Video appliance business.

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Our Broadband strategy is focused on continuing to develop and deliver software-based broadband access technologies, which we refer to as our cOS solutions, to our broadband operator customers. We believe our cOS software-based broadband access solutions are superior to hardware-based systems and deliver unprecedented scalability, agility and cost savings for our customers. Our cOS 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 cOS 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 cOS solutions and in the growth of our Broadband business, with expanded commercial deployments, field trials, and customer engagements.
RECENT DEVELOPMENTS
After careful consideration of the growth opportunities in both our Broadband business and Video SaaS business, and our capital allocation priorities over the next several years, we have initiated a formal strategic review process for our Video business. Together with financial and legal advisors, we are assessing a range of alternatives for the Video business to better position the Company for long-term shareholder value creation. As part of this process, we have received indications of interest in our Video business from a number of parties over the past several months.
No timetable has been established for the completion of the review, and the review may not result in any transaction. We do not intend to disclose further developments with respect to the review process unless and until our board of directors approves a specific transaction or otherwise concludes its review.
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.
We believe that the following accounting estimates involve a greater degree of judgement or complexity than our other accounting estimates. Accordingly, the critical accounting estimates that we believe have the most significant impact on Harmonic’s unaudited condensed consolidated financial statements are set forth below:
Valuation of inventories; and
Accounting for income taxes
Valuation of Inventories
We state inventories at the lower-of-cost (determined on a first-in, first-out basis) or net realizable value, including allowances for excess and obsolete inventory. These reserves are based on management’s assumptions about and analysis of relevant factors including current levels of orders and backlog, forecasted demand, market conditions, and expected product lifecycles. Situations that could cause changes in the level of these inventory reserves include a decline in business and economic conditions, a decline in consumer confidence caused by changes in market conditions, a sudden and significant decline in demand for our products, inventory obsolescence because of rapidly changing technology and consumer requirements, or failure to estimate end customer demand properly. If actual market conditions deteriorate from those anticipated by management, additional allowances for excess and obsolete inventory could be required and may be material to our results of operations.
The gross amount of inventory reserves charged to the cost of revenues totaled $3.1 million, $6.5 million, in the three and nine months ended September 29, 2023, respectively.
Accounting for Income Taxes
In preparing our consolidated financial statements, we estimate our income taxes for each of the jurisdictions in which we operate. We estimate actual current tax expense together with assessing temporary differences resulting from different treatment of items, such as accruals and allowances not currently deductible for tax purposes. These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheets.

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Management’s judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. In evaluating the need for a full or partial valuation allowance, all positive and negative evidence must be considered, including our forecast of taxable income over the applicable carryforward periods, its current financial performance, its market environment, and other factors. Based on the available objective evidence, at September 29, 2023, management believes it is not more likely than not the domestic net deferred tax assets of $97 million will be realizable. Accordingly, the domestic net deferred tax assets are subject to a full valuation allowance. To the extent that we determine the deferred tax assets are realizable on a more likely than not basis and an adjustment is needed, an adjustment will be recorded in the fiscal period the determination is made.

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 EndedNine Months Ended
(in thousands, except percentages)September 29, 2023September 30, 2022ChangeSeptember 29, 2023September 30, 2022Change
Appliance and integration$84,760 $116,441 $(31,681)(27)%$310,681 $351,293 $(40,612)(12)%
as % of total net revenue67 %75 %70 %76 %
SaaS and service42,443 39,297 3,146 %130,134 109,330 20,804 19 %
as % of total net revenue33 %25 %30 %24 %
Total net revenue$127,203 $155,738 $(28,535)(18)%$440,815 $460,623 $(19,808)(4)%
Appliance and integration revenue decreased during the three months ended September 29, 2023, compared to the corresponding period in 2022, due to decreases in revenue in both our Broadband and Video segments. The decrease in our Broadband segment revenue was primarily attributed to customers delaying orders to maintain their existing inventory levels. The decrease in our Video segment revenue was primarily attributed to lower sales across all regions due to order and project delays by our customers.
Appliance and integration revenue decreased during the nine months ended September 29, 2023, compared to the corresponding period in 2022, primarily due to a decrease in our Video segment revenue, which was mainly attributed to a one-time deployment of our appliance products for a customer in 2022. The decrease was partially offset by an increase in our Broadband segment revenue as a result of higher volume from our existing customers.
Total SaaS and service revenue increased $3.1 million for the three months ended September 29, 2023, compared to the corresponding periods in 2022, primarily due to an increase of $1.5 million in revenue from the acquisition of new customers and a $2.1 million increase in revenue from increased usage by our existing customers. This increase in SaaS revenue was partially offset by a decrease in our revenue from support services.
SaaS and service revenue increased $20.8 million for the nine months ended September 29, 2023, compared to the corresponding period in 2022, due to an increase of $5.8 million from the acquisition of new customers, $7.7 million from increased usage by our existing customers, and $7.2 million from higher demand for support services from our existing customers.

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Gross Profit
Three Months EndedNine Months Ended
(in thousands, except percentages)September 29, 2023September 30, 2022ChangeSeptember 29, 2023September 30, 2022Change
Gross profit$61,684 $78,604 $(16,920)(22)%$230,678 $230,187 $491 — %
as % of total net revenue (“gross margin”)48 %50 %(2)%52 %50 %%
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 September 29, 2023, compared to the corresponding period in 2022, primarily due to an unfavorable appliance product mix in the current period. Our gross margin improved in the nine months ended September 29, 2023, compared to the corresponding period in 2022, primarily from margin expansion in our Broadband segment mainly due to a favorable product mix and, to a lesser extent, lower shipping costs. These increases were partially offset by a decrease in our Video segment, mainly due to an unfavorable appliance product mix in the current period.
Research and Development Expenses
 Three Months EndedNine Months Ended
(in thousands, except percentages)September 29, 2023September 30, 2022ChangeSeptember 29, 2023September 30, 2022Change
Research and development$30,316 $30,466 $(150)— %$96,030 $89,219 $6,811 %
as % of total net revenue24 %20 %22 %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 were relatively flat in the three months ended September 29, 2023, compared to the corresponding period in 2022. Research and development expenses increased in the nine months ended September 29, 2023, compared to the corresponding period 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 EndedNine Months Ended
(in thousands, except percentages)September 29, 2023September 30, 2022ChangeSeptember 29, 2023September 30, 2022Change
Selling, general and administrative$39,245 $36,379 $2,866 %$121,300 $109,790 $11,510 10 %
as % of total net revenue31 %23 %28 %24 %
Selling, general and administrative expenses increased in the three and nine months ended September 29, 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.

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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 EndedNine Months Ended
(in thousands, except percentages)September 29, 2023September 30, 2022ChangeSeptember 29, 2023September 30, 2022Change
Cost of revenue$714 $(9)$723 *$714 $91 $623 685 %
Operating expenses
 Restructuring and related charges362 335 27 %445 2,136 (1,691)(79)%
Total restructuring and related charges$1,076 $326 $750 230 %$1,159 $2,227 $(1,068)(48)%
*Not meaningful
Restructuring and related charges increased in the three months ended September 29, 2023, compared to the corresponding periods in 2022, primarily driven by higher severance and employee benefit costs recorded in conjunction with restructuring activities in the current fiscal quarter. Restructuring and related charges decreased in the nine months ended September 29, 2023, compared to the corresponding periods in 2022, mainly due to higher severance and employee benefit costs recorded in conjunction with restructuring activities in 2022.
Interest Expense, Net
Three Months EndedNine Months Ended
(in thousands, except percentages)September 29, 2023September 30, 2022ChangeSeptember 29, 2023September 30, 2022Change
Interest expense, net$(619)$(1,284)$665 (52)%$(2,125)$(4,111)$1,986 (48)%
Interest expense, net decreased in the three and nine months ended September 29, 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 EndedNine Months Ended
(in thousands, except percentages)September 29, 2023September 30, 2022ChangeSeptember 29, 2023September 30, 2022Change
Other income (expense), net$343 $(118)$461 (391)%$(86)$4,218 $(4,304)(102)%
Change in other income (expense), net in the three months ended September 29, 2023, compared to the corresponding period in 2022, was primarily due to foreign currency exchange gains resulting from the fluctuation of the Euro against the U.S. dollar in 2023. Change in other income (expense), net in the nine months ended September 29, 2023, compared to the corresponding period in 2022, was 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.

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Income Taxes
 Three Months EndedNine Months Ended
(in thousands, except percentages)September 29, 2023September 30, 2022ChangeSeptember 29, 2023September 30, 2022Change
Provision for (benefit from) income taxes$(2,384)$1,282 $(3,666)(286)%$10,175 $7,098 $3,077 43 %
The provision for income taxes decreased during the three months ended September 29, 2023 and increased during the nine months ended September 29, 2023, compared to the corresponding periods in 2022. The decrease in provision for income taxes for the three months ended September 29, 2023 was largely driven by the pre-tax loss in the current fiscal quarter, which resulted in a tax benefit. The increase in provision for income taxes for the nine months ended September 29, 2023 was driven by a 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.
Segment Financial Results
Below is a table of our segment financial results.
 Three Months EndedNine Months Ended
(in thousands, except percentages)September 29, 2023September 30, 2022ChangeSeptember 29, 2023September 30, 2022Change
Video
Revenue$51,397 $63,824 $(12,427)(19)%$167,562 $205,881 $(38,319)(19)%
as % of total revenue40 %41 %(1)%38 %45 %(7)%
Operating income (1)
(6,050)2,907 (8,957)(308)%(7,386)17,317 (24,703)(143)%
Operating margin % (1)
(12)%%(17)%(4)%%(12)%
Broadband
Revenue$75,806 $91,914 $(16,108)(18)%$273,253 $254,742 $18,511 %
as % of total revenue60 %59 %%62 %55 %%
Operating income (1)
6,128 15,303 (9,175)(60)%44,307 33,573 10,734 32 %
Operating margin % (1)
%17 %(9)%16 %13 %%
Total
Revenue$127,203 $155,738 $(28,535)(18)%$440,815 $460,623 $(19,808)(4)%
(1) Segment operating income and segment operating margins are Non-GAAP financial measures. Refer to Note 10, “Segment information,” of the Notes to our condensed consolidated financial statements for a reconciliation of the Company’s consolidated segment operating income to consolidated income before income taxes.
Video
Our Video segment revenue decreased by $12.4 million for the three months ended September 29, 2023, compared to the corresponding period in 2022. This decrease was primarily driven by lower appliance sales of $15.5 million, across all regions, due to customer order deferrals. This decrease was partially offset by a $3.1 million increase in our SaaS revenue, primarily due to the acquisition of new customers and increased usage from our existing customers.
Our Video segment revenue decreased by $38.3 million for the nine months ended September 29, 2023, compared to the corresponding period in 2022. This decrease was driven by lower appliance sales of $49.5 million, primarily due to a one-time deployment of our appliance products for a customer in 2022. This decrease was partially offset by an increase of $11.2 million in our SaaS revenue primarily due to the acquisition of new customers and increased usage from our existing customers.
Video segment operating margin decreased during the three and nine months ended September 29, 2023, compared to the corresponding periods in 2022, primarily due to the decrease in revenue.
Broadband
Our Broadband segment revenue decreased during the three months ended September 29, 2023, compared to the corresponding periods in 2022, primarily due to customers delaying orders to maintain their existing inventory levels. Our Broadband segment operating margin decreased during the three months ended September 29, 2023, compared to the corresponding period in 2022, primarily due to the decrease in revenue.

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Our Broadband segment revenue increased by $18.5 million for the nine months ended September 29, 2023, compared to the corresponding period in 2022, primarily due to a $9.6 million increase in support services revenue from our existing customers and an additional $8.9 million generated from higher product sales. Our Broadband segment operating margin increased during the nine months ended September 29, 2023, compared to the corresponding period in 2022, primarily due to the increase in revenue and margin expansion driven by a favorable product mix.
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 and short-term investments 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 September 29, 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.
As of September 29, 2023, we had outstanding $130.3 million in aggregate principal amount of indebtedness, consisting of our 2024 Notes, and other debts, of which $119.5 million is scheduled to become due in the 12-month period following September 29, 2023. As of September 29, 2023, our total minimum lease payments are $32.0 million, of which $1.6 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 September 29, 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 September 29, 2023, our principal sources of liquidity consisted of cash and cash equivalents of $75.6 million, short-term investments of $6.3 million, accounts receivable, net, of $110.3 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 $75.6 million as of September 29, 2023 consisted of bank deposits held throughout the world and money market funds, of which $55.6 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.

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Summary of Cash Flows
The table below sets forth selected cash flow data:
Nine Months Ended
(in thousands)September 29, 2023September 30, 2022
Net cash provided by (used in):
Operating activities$792 $(13,875)
Investing activities(12,054)573 
Financing activities(2,983)(4,999)
Effect of foreign exchange rate changes on cash and cash equivalents 281 (9,850)
Net decrease in cash and cash equivalents$(13,964)$(28,151)
Operating Activities
Net cash provided by operating activities increased during the first nine months of fiscal 2023, compared to the corresponding period in fiscal 2022, primarily due to a decrease in cash used in our working capital, partially offset by lower net income in the first nine months of fiscal 2023.
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 Hamas-Israel and Russia-Ukraine conflicts 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 nine 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 and purchases of short-term investments in fiscal 2023, partially offset by lower purchases of property and equipment in the first nine months of fiscal 2023.
Financing Activities
Net cash used in financing activities decreased during the first nine months of fiscal 2023, compared to the corresponding period in 2022, primarily due to lower stock repurchase transactions in fiscal 2023 in comparison to fiscal 2022, partially offset by higher payment of tax withholding obligations related to net share settlement of restricted stock units.
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.

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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 September 29, 2023 that had materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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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, 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.

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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