HARMONIC INC

Previous wording

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

Current wording

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

Previous wording

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 impact of factors such as the conflict in the Middle East 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.

Current wording

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 impact of factors such as the conflict in the Middle East and Russia-Ukraine conflicts, inflation, changes in 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; customer end-market conditions; 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.

Previous wording

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.

Current wording

More recently, the United States has experienced high levels of inflation, which has resulted, and may continue to 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.

Previous wording

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.

Current wording

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, lab and field trials, and customer engagements.

Previous wording

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.

Current wording

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. In recent quarters, we have seen a slow-down in capital spending by some of our Video business customers, which has caused delays for some of our appliance-based projects. While market activity leads us to believe these near-term headwinds for our Video business may be receding, the capital spending slow-down may persist longer than expected.

Previous wording

Appliance and integration net revenue decreased by $33.2 million during the three months ended March 29, 2024, compared to the corresponding period in 2023, primarily due to a decrease of $20.2 million in our Broadband segment revenue and a decrease of $13.0 million in our Video segment revenue. The decrease in our Broadband segment revenue was primarily attributed to a customer delaying orders due to a technology transition. The decrease in our Video segment revenue was primarily attributed to lower sales across most regions due to order and project delays by our customers.

Current wording

Appliance and integration net revenue decreased by $50.1 million during the six months ended June 28, 2024, compared to the corresponding period in 2023, primarily due to a decrease of $25.1 million in our Video segment revenue and a decrease of $25.0 million in our Broadband segment revenue. The decrease in our Video segment revenue in the fiscal 2024 periods presented, relative to corresponding prior fiscal year periods, was primarily attributed to lower sales across most regions due to order and project delays by our customers. The decrease in our Broadband segment revenue in the fiscal 2024 periods presented, relative to the corresponding prior fiscal year periods, was primarily attributed to a customer adjusting its shipment schedule to later periods in the current fiscal year due to a technology transition that will ramp throughout 2024.

Previous wording

Total SaaS and service net revenue decreased by $2.4 million during the three months ended March 29, 2024, compared to the corresponding period in 2023, primarily due to a decrease of $3.7 million in support services mainly driven by lower contract renewals in Video segment, partially offset by an increase in SaaS revenue of $1.3 million, mainly due to the acquisition of new customers.

Current wording

Total SaaS and service net revenue decreased by $0.3 million during the three months ended June 28, 2024, compared to the corresponding period in 2023, primarily due to a decrease of $0.6 million in support services mainly driven by lower contract renewals in Video segment, partially offset by an $0.4 million increase in SaaS revenue, mainly due to the acquisition of new customers.

Previous wording

Our gross margin decreased by 160 basis points (bps) in the three months ended March 29, 2024, compared to the corresponding period in 2023, primarily from margin contraction in our Broadband segment, mainly due to unfavorable product mix. This decrease was partially offset from margin expansion in our Video segment, mainly due to an increase in SaaS and services as a percentage of segment revenue.

Current wording

Our gross margin decreased by 60 basis points and 150 basis points in the three and six months ended June 28, 2024, respectively, compared to the corresponding periods in 2023, primarily from margin contraction in our Broadband segment, mainly due to unfavorable product mix. This decrease was partially offset by margin expansion in our Video segment, mainly due to an increase in SaaS and services as a percentage of segment revenue.

Previous wording

Selling, general and administrative expenses decreased by $0.4 million in the three months ended March 29, 2024, compared to the corresponding period in 2023, primarily due to a reduction of $0.8 million in spending, partially offset by non-recurring advisory fees of $0.4 million incurred for the strategic review of the Video business.

Current wording

Selling, general and administrative expenses decreased by $3.0 million in the three months ended June 28, 2024, compared to the corresponding period in 2023, primarily due to a reduction in spending resulting from headcount reductions related to restructuring activities in the Video business.

Previous wording

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. Refer to Note 12, “Restructuring and related charges”, of the Notes to our condensed consolidated financial statements for additional information regarding our restructuring activities.

Current wording

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 primarily included in “Operating expenses-restructuring and related charges” in the condensed consolidated statement of operations. Refer to Note 11, “Restructuring and Related Charges”, of the Notes to our condensed consolidated financial statements for additional information regarding our restructuring activities.

Previous wording

Restructuring and related charges increased in the three months ended March 29, 2024, compared to the corresponding period in 2023, primarily driven by higher severance and employee benefit costs recorded in 2024, in connection with the 2024 restructuring activities.

Current wording

Restructuring and related charges increased in the three and six months ended June 28, 2024, compared to the corresponding periods in 2023, primarily driven by higher severance and employee benefit costs recorded in 2024, in connection with the 2024 restructuring activities. Refer to Note 11, “Restructuring and Related Charges”, of the Notes to our condensed consolidated financial statements for additional information.

Previous wording

The change in provision for (benefit from) income taxes during the three months ended March 29, 2024, compared to the corresponding period in 2023, was primarily due to the pre-tax loss in the current fiscal quarter, which resulted in a tax benefit since there is no longer a full valuation allowance in the U.S. The mandatory capitalization and amortization of research and development expenses in the United States were required starting January 1, 2022, by the Tax Cuts and Jobs Act, which resulted in income tax expense in the United States in the prior period due to the full valuation allowance in the U.S. at that time.

Current wording

The changes in provision for (benefit from) income taxes during the three and six months ended June 28, 2024, compared to the corresponding periods in 2023, were primarily due to the year-to-date pre-tax losses in the current fiscal year, which resulted in a tax benefit since there is no longer a full valuation allowance in the United States. The Company is forecasting pre-tax book income for the year, and anticipates recording tax expense during the remainder of 2024. The mandatory capitalization and amortization of research and development expenses in the United States were required starting January 1, 2022, by the Tax Cuts and Jobs Act, which resulted in income tax expense in the United States in the prior period due to the full valuation allowance in the United States at that time.

Previous wording

Our Broadband segment revenue decreased by $21.5 million during the three months ended March 29, 2024, compared to the corresponding period in 2023, primarily due to a customer delaying orders due to a technology transition. Our Broadband segment operating margin decreased during the three months ended March 29, 2024, compared to the corresponding period in 2023, primarily due to the decrease in revenue.

Current wording

Our Broadband segment revenue decreased by $4.2 million and $25.6 million, respectively, during the three and six months ended June 28, 2024, compared to the corresponding periods in 2023. The decreases were primarily attributed to lower appliance and integration revenue, primarily driven by a customer adjusting its shipment schedule to later periods in 2024 due to a technology transition that will ramp throughout 2024. Our Broadband segment operating margin decreased during the three and six months ended June 28, 2024, compared to the corresponding periods in 2023, primarily due to the decrease in revenue.

Previous wording

Our Video segment revenue decreased by $14.1 million for the three months ended March 29, 2024, compared to the corresponding period in 2023, primarily due to lower product sales across all regions, mainly driven by order and project delays by our customers.

Current wording

Our Video segment revenue decreased by $13.1 million for the three months ended June 28, 2024, compared to the corresponding period in 2023, primarily due to a $12.2 million decrease in product sales across all regions, mainly driven by order and project delays by our customers, and a $1.3 million decrease in support services, mainly due to lower customer contract renewals, partially offset by a $0.4 million increase in SaaS revenue, mainly driven by the acquisition of new customers.

Previous wording

Video segment operating margin decreased during the three months ended March 29, 2024, compared to the corresponding periods in 2023, primarily due to the decrease in revenue.

Current wording

Video segment operating margin decreased during the three and six months ended June 28, 2024, compared to the corresponding periods in 2023, primarily due to the decrease in revenue.

Previous wording

As of March 29, 2024, we had outstanding $130.6 million in aggregate principal amount of indebtedness, consisting of our 2024 Notes, and other debts, of which $119.9 million is scheduled to become due in the 12-month period following March 29, 2024. As of March 29, 2024, our total minimum lease payments are $28.7 million, of which $5.3 million is due before December 31, 2024.

Current wording

As of June 28, 2024, we had outstanding $128.3 million in aggregate principal amount of indebtedness, consisting of our $75.0 million Revolving Facility and our $40.0 million Term Facility loan under our Credit Agreement, and other debts, of which $9.3 million is scheduled to become due in the 12-month period following June 28, 2024. As of June 28, 2024, our total minimum lease payments are $26.9 million, of which $3.5 million is due before December 31, 2024, and $6.4 million is due within 12 months.

Previous wording

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 March 29, 2024, approximately $73.2 million of the share repurchase authorization remained available for repurchases under this program.

Current wording

In February 2022, the Board of Directors authorized us to repurchase, from time to time, up to $100 million of our outstanding shares of common stock through February 2025, at such time and such prices as management may decide. The program does not obligate us to repurchase any specific number of shares and may be discontinued at any time. As of June 28, 2024, approximately $64.8 million of the share repurchase authorization remained available for repurchases under this program.

Previous wording

As of March 29, 2024, our principal sources of liquidity consisted of cash and cash equivalents of $84.3 million, net accounts receivable of $105.9 million, $30.0 million from our receivables purchase arrangement, $160.0 million from our Credit Agreement, and financing from French government agencies.

Current wording

As of June 28, 2024, our principal sources of liquidity consisted of cash and cash equivalents of $45.9 million, net accounts receivable of $120.0 million, $30.0 million from our Master Receivables Purchase Agreement (described below), $45.0 million remaining available under the Revolving Facility of our Credit Agreement, and financing from French government agencies.

Previous wording

Our cash and cash equivalents of $84.3 million as of March 29, 2024 consisted of bank deposits held throughout the world and money market funds, of which $41.9 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.

Current wording

Our cash and cash equivalents of $45.9 million as of June 28, 2024 consisted of bank deposits held throughout the world and money market funds, of which $26.6 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.

Previous wording

Net cash provided by operating activities increased by $20.6 million during the first three months of fiscal 2024, compared to the corresponding period in fiscal 2023, primarily due to a decrease in cash used in our working capital, partially offset by a net loss in the first three months of fiscal 2024, compared to a net income in the first three months of fiscal 2023.

Current wording

Net cash provided by operating activities increased by $14.9 million during the first six months of fiscal 2024, compared to the corresponding period in fiscal 2023, primarily due to a decrease in cash used in our working capital, partially offset by a net loss in the first six months of fiscal 2024, compared to a net income in the first six months of fiscal 2023.

Previous wording

Net cash used in investing activities decreased by $0.4 million during the first three months of fiscal 2024, compared to the corresponding period in 2023, primarily due to fewer purchases of property and equipment in the first three month of fiscal 2024.

Current wording

Net cash used in investing remained flat during the first six months of fiscal 2024, compared to the corresponding period in 2023. Our investing activities were primarily attributed to purchases of property and equipment for both periods.

Previous wording

Net cash used in financing activities increased by $20.5 million during the first three months of fiscal 2024, compared to the corresponding period in 2023, primarily due to the stock repurchases of $21.7 million in the first three months of fiscal 2024, partially offset by $0.9 million lower payment of tax withholding obligations related to net share settlement of restricted stock units.

Current wording

Net cash used in financing activities increased by $29.5 million during the first six months of fiscal 2024, compared to the corresponding period in 2023, primarily due to the $115.5 million repayment of the 2024 Notes and the $30.0 million of stock repurchases in the first six months of fiscal 2024, partially offset by the proceeds of $75 million in loans under the Revolving Facility and $40 million in loans under the Term Facility.