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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)

_____________________________________________________

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			☐

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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

 

PART I
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)			3
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			26
ITEM 4. CONTROLS AND PROCEDURES			27
PART II
ITEM 1. LEGAL PROCEEDINGS			28
ITEM 1A. RISK FACTORS			29
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			49
ITEM 5. OTHER INFORMATION			49
ITEM 6. EXHIBITS			50
SIGNATURES			51

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, 2023						December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents			$	75,622					$	89,586
Short-term investments			6,305						—
Accounts receivable, net			110,345						108,427
Inventories			103,748						120,949
Prepaid expenses and other current assets			33,117						26,337
Total current assets			329,137						345,299
Property and equipment, net			36,960						39,814
Operating lease right-of-use assets			21,604						25,469
Goodwill			237,161						237,739
Other non-current assets			48,949						61,697
Total assets			$	673,811					$	710,018
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Convertible debt, current			$	114,654					$	113,981
Other debts, current			4,820						4,756
Accounts payable			47,123						67,455
Deferred revenue			56,325						62,383
Operating lease liabilities, current			6,511						6,773
Other current liabilities			45,786						66,724
Total current liabilities			275,219						322,072
Other debts, non-current			9,992						11,161
Operating lease liabilities, non-current			20,019						24,110
Other non-current liabilities			27,781						28,169
Total liabilities			333,011						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 capital			2,399,282						2,380,651
Accumulated deficit			(2,046,416)						(2,046,569)
Accumulated other comprehensive loss			(12,178)						(9,686)
Total stockholders’ equity			340,800						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 Ended												Nine Months Ended
			September 29, 2023						September 30, 2022						September 29, 2023						September 30, 2022
Revenue:
Appliance and integration			$	84,760					$	116,441					$	310,681					$	351,293
SaaS and service			42,443						39,297						130,134						109,330
Total net revenue			127,203						155,738						440,815						460,623
Cost of revenue:
Appliance and integration			48,992						64,932						166,177						193,655
SaaS and service			16,527						12,202						43,960						36,781
Total cost of revenue			65,519						77,134						210,137						230,436
Total gross profit			61,684						78,604						230,678						230,187
Operating expenses:
Research and development			30,316						30,466						96,030						89,219
Selling, general and administrative			39,245						36,379						121,300						109,790
Restructuring and related charges			726						335						809						2,136
Total operating expenses			70,287						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), net			343						(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:
Basic			112,031						105,228						111,431						104,617
Diluted			112,031						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 Ended												Nine Months Ended
			September 29, 2023						September 30, 2022						September 29, 2023						September 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 taxes			163						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.

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HARMONIC INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited, in thousands)

			Three Months Ended September 29, 2023
			Common Stock												Additional Paid-in Capital						Accumulated Deficit						Accumulated Other Comprehensive Loss						Total Stockholders’ Equity
			Shares						Amount
Balance at June 30, 2023			111,584						$	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, net			587						—						2,468						—						—						2,468
Stock-based compensation			—						—						7,241						—						—						7,241
Balance at September 29, 2023			112,171						$	112					$	2,399,282					$	(2,046,416)					$	(12,178)					$	340,800

			Three Months Ended September 30, 2022
			Common Stock												Additional Paid-in Capital						Accumulated Deficit						Accumulated Other Comprehensive Loss						Total Stockholders’ Equity
			Shares						Amount
Balance at July 1, 2022			105,061						$	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, net			374						—						(1,932)						—						—						(1,932)
Repurchase of common stock			(14)						—						—						(120)						—						(120)
Stock-based compensation			—						—						6,460						—						—						6,460
Balance at September 30, 2022			105,421						$	105					$	2,375,529					$	(2,052,700)					$	(22,313)					$	300,621

			Nine Months Ended September 29, 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			—						—						—						153						—						153
Other comprehensive loss, net of tax			—						—						—						—						(2,492)						(2,492)
Issuance of common stock under award and purchase plans, net			2,300						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 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			—						—						—						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, net			3,033						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, 2022			105,421						$	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, 2023						September 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:
Depreciation			9,178						9,225
Stock-based compensation			20,724						19,621
Amortization of convertible debt discount			673						897
Amortization of warrant			870						1,298
Foreign currency remeasurement			(814)						(3,312)
Deferred income taxes, net			2,026						1,798
Provision for expected credit losses and returns			1,790						1,835
Provision for excess and obsolete inventories			6,514						4,521
Gain on sale of investment in equity securities			—						(4,370)
Other adjustments			146						419
Changes in operating assets and liabilities:
Accounts receivable			(4,348)						(22,115)
Inventories			14,532						(34,952)
Other assets			6,164						(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 activities			792						(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 debts			3,829						3,499
Repayment of other debts			(4,721)						(4,480)
Proceeds from common stock issued to employees			6,552						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 equivalents			281						(9,850)
Net decrease in cash and cash equivalents			(13,964)						(28,151)
Cash and cash equivalents at beginning of period			89,586						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, 2023						December 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 Ended												Nine Months Ended
(in thousands)			September 29, 2023						September 30, 2022						September 29, 2023						September 30, 2022
Operating lease cost			$	1,788					$	1,767					$	5,313					$	5,802
Variable lease cost			472						503						1,322						1,395
Total lease cost			$	2,260					$	2,270					$	6,635					$	7,197

Supplemental information related to leases are as follows:

			Three Months Ended												Nine Months Ended
(in thousands)			September 29, 2023						September 30, 2022						September 29, 2023						September 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, 2023						December 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, 2023						December 31, 2022
Finished goods			$	58,377					$	65,308
Raw materials			34,782						46,081
Work-in-process			5,046						3,251
Service-related spares			5,543						6,309
Total			$	103,748					$	120,949

Prepaid expenses and other current assets:			As of
(in thousands)			September 29, 2023						December 31, 2022
Prepaid expenses			$	13,173					$	5,558
Contract assets			4,396						5,583
Other current assets			15,548						15,196
Total			$	33,117					$	26,337

Property and equipment, net:			As of
(in thousands)			September 29, 2023						December 31, 2022
Machinery and equipment			$	72,208					$	75,589
Capitalized software			26,975						30,588
Leasehold improvements			39,720						39,199
Furniture and fixtures			2,502						2,739
Construction-in-progress			2,875						2,691
Property and equipment, gross			144,280						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, 2023						December 31, 2022
Accrued employee compensation and related expenses			$	18,405					$	29,675
Other			27,381						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, 2023						December 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 Ended												Nine Months Ended
(in thousands)			September 29, 2023						September 30, 2022						September 29, 2023						September 30, 2022
Contractual interest expense			$	578					$	578					$	1,734					$	1,734
Amortization of debt issuance costs			226						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 Ended												Nine Months Ended
(in thousands)			September 29, 2023						September 30, 2022						September 29, 2023						September 30, 2022
Cost of revenue			$	606					$	607					$	1,895					$	1,691
Research and development expense			2,152						2,109						5,982						5,988
Selling, general and administrative expense			4,483						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, 2022			3,499						$	8.93
Granted			2,412						13.73
Vested			(2,201)						8.86
Forfeited			(257)						9.08
Balance at September 29, 2023			3,453						$	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, 2023																		December 31, 2022
(in thousands)			Level 1			Level 2			Level 3						Total						Level 1			Level 2			Level 3						Total
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, 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			$	114,654					$	—		$	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 Ended												Nine Months Ended
(in thousands, except per share amounts)			September 29, 2023						September 30, 2022						September 29, 2023						September 30, 2022
Numerator:
Net income (loss)			$	(6,495)					$	8,740					$	153					$	22,051
Denominator:
Weighted average number of shares outstanding:
Basic			112,031						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
Diluted			112,031						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 Ended												Nine Months Ended
(in thousands)			September 29, 2023						September 30, 2022						September 29, 2023						September 30, 2022
2024 Notes			3,650						—						—						—
Restricted stock units			3,465						22						198						43
Stock purchase rights under the ESPP			425						—						—						—
Total			7,540						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 Ended												Nine Months Ended
(in thousands)			September 29, 2023						September 30, 2022						September 29, 2023						September 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 income			6,128						15,303						44,307						33,573
Total
Revenue			$	127,203					$	155,738					$	440,815					$	460,623
Operating income			78						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 Ended												Nine Months Ended
(in thousands)			September 29, 2023						September 30, 2022						September 29, 2023						September 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 Ended												Nine Months Ended
(in thousands)			September 29, 2023						September 30, 2022						September 29, 2023						September 30, 2022
Product sales			$	76,133					$	105,602					$	283,551					$	313,390
Professional services			8,627						10,839						27,130						37,903
Total Appliance and integration			84,760						116,441						310,681						351,293
SaaS			12,540						8,862						37,707						24,168
Support services			29,903						30,435						92,427						85,162
Total SaaS and services			42,443						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 Ended												Nine Months Ended
(in thousands)			September 29, 2023						September 30, 2022						September 29, 2023						September 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 Ended																					Nine Months Ended
(in thousands, except percentages)			September 29, 2023						September 30, 2022						Change									September 29, 2023						September 30, 2022						Change
Appliance and integration			$	84,760					$	116,441					$	(31,681)		(27)		%				$	310,681					$	351,293					$	(40,612)		(12)		%
as % of total net revenue			67		%				75		%													70		%				76		%
SaaS and service			42,443						39,297						3,146			8		%				130,134						109,330						20,804			19		%
as % of total net revenue			33		%				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 Ended																					Nine Months Ended
(in thousands, except percentages)			September 29, 2023						September 30, 2022						Change									September 29, 2023						September 30, 2022						Change
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		%				2		%

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 Ended																					Nine Months Ended
(in thousands, except percentages)			September 29, 2023						September 30, 2022						Change									September 29, 2023						September 30, 2022						Change
Research and development			$	30,316					$	30,466					$	(150)		—		%				$	96,030					$	89,219					$	6,811		8		%
as % of total net revenue			24		%				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 Ended																					Nine Months Ended
(in thousands, except percentages)			September 29, 2023						September 30, 2022						Change									September 29, 2023						September 30, 2022						Change
Selling, general and administrative			$	39,245					$	36,379					$	2,866		8		%				$	121,300					$	109,790					$	11,510		10		%
as % of total net revenue			31		%				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 Ended																					Nine Months Ended
(in thousands, except percentages)			September 29, 2023						September 30, 2022						Change									September 29, 2023						September 30, 2022						Change
Cost of revenue			$	714					$	(9)					$	723		*						$	714					$	91					$	623		685		%
Operating expenses
Restructuring and related charges			362						335						27			8		%				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 Ended																					Nine Months Ended
(in thousands, except percentages)			September 29, 2023						September 30, 2022						Change									September 29, 2023						September 30, 2022						Change
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 Ended																					Nine Months Ended
(in thousands, except percentages)			September 29, 2023						September 30, 2022						Change									September 29, 2023						September 30, 2022						Change
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 Ended																					Nine Months Ended
(in thousands, except percentages)			September 29, 2023						September 30, 2022						Change									September 29, 2023						September 30, 2022						Change
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 Ended																					Nine Months Ended
(in thousands, except percentages)			September 29, 2023						September 30, 2022						Change									September 29, 2023						September 30, 2022						Change
Video
Revenue			$	51,397					$	63,824					$	(12,427)		(19)		%				$	167,562					$	205,881					$	(38,319)		(19)		%
as % of total revenue			40		%				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)		%				5		%				(17)		%							(4)		%				8		%				(12)		%
Broadband
Revenue			$	75,806					$	91,914					$	(16,108)		(18)		%				$	273,253					$	254,742					$	18,511		7		%
as % of total revenue			60		%				59		%				1		%							62		%				55		%				7		%
Operating income (1)			6,128						15,303						(9,175)			(60)		%				44,307						33,573						10,734			32		%
Operating margin % (1)			8		%				17		%				(9)		%							16		%				13		%				3		%
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, p