HARMONIC INC

Previous wording

•the impact of geopolitical events, including the conflicts in the Middle East and Russia-Ukraine conflicts and risks of escalation and broader regional conflicts, and tensions between China and Taiwan and China and the United States, on our business and the markets in which we operate;

Current wording

•the impact of geopolitical events, including the Middle East and Russia-Ukraine conflicts and risks of escalation and broader regional conflicts, and tensions between China and Taiwan and China and the United States, on our business and the markets in which we operate;

Previous wording

•our strategic direction, future business plans and growth strategy, including our plans with respect to the Video Business;

Current wording

•our strategic direction, future business plans and growth strategy;

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, 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.

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 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

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.

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, distributed access architecture (DAA) or hybrid architecture, enable our customers to migrate to multi-gigabit broadband capacity and the fast deployment of DOCSIS and/or fiber-to-the-home (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

Appliance and integration net revenue decreased by $16.9 million during the three months ended June 28, 2024, compared to the corresponding period in 2023, primarily due to a decrease of $12.2 million in our Video segment revenue and a decrease of $4.8 million in our Broadband segment revenue.

Current wording

Appliance and integration net revenue increased by $68.9 million during the three months ended September 27, 2024, compared to the corresponding period in 2023, primarily due to an increase of $70.2 million in our Broadband segment revenue, partially offset by a decrease of $1.3 million in our Video segment revenue.

Previous 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.

Current wording

The increases in our Broadband segment revenue in the fiscal 2024 periods presented, relative to the corresponding prior fiscal year periods, were primarily attributed to certain customers ramping up due to technology transitions and new deployments. The ramp-up is expected to continue throughout fiscal 2024. The decreases in our Video segment revenue in the fiscal 2024 periods presented, relative to corresponding prior fiscal year periods, were primarily attributed to lower sales across most regions due to project delays by our customers.

Previous 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.

Current wording

Total SaaS and service net revenue decreased by $0.4 million during the three months ended September 27, 2024, compared to the corresponding period in 2023, primarily due to a decrease of $2.0 million in support services mainly driven by $1.3 million lower support contract renewals in the Video segment and $0.7 million lower professional services related to a non-recurring engagement in the Broadband segment. These decreases were partially offset by a $1.6 million increase in SaaS revenue that was mainly due to the acquisition of new customers.

Previous wording

Total SaaS and service net revenue decreased by $2.7 million during the six months ended June 28, 2024, compared to the corresponding period in 2023, primarily due to a decrease of $4.4 million in support services mainly driven by lower contract renewals in the Video segment, partially offset by an increase in SaaS revenue of $1.7 million, mainly due to the acquisition of new customers.

Current wording

Total SaaS and service net revenue decreased by $3.0 million during the nine months ended September 27, 2024, compared to the corresponding period in 2023, primarily due to a decrease of $6.4 million in support services that was mainly driven by lower contract renewals in the Video segment, partially offset by an increase in SaaS revenue of $3.4 million, mainly due to the acquisition of new customers.

Previous 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.

Current wording

Our gross margin improved by 50 basis points in the nine months ended September 27, 2024, compared to the corresponding period in 2023, primarily due to margin expansion in the Video segment, mainly driven by an increase in SaaS as a percentage of segment revenue and additional benefits from a favorable appliance product mix.

Previous wording

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.

Current wording

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 credits.

Previous wording

Research and development expenses decreased by $3.4 million and $6.2 million in the three and six months ended June 28, 2024, respectively, compared to the corresponding periods in 2023. The primary reasons for these decreases include headcount reductions related to restructuring activities, which resulted in $1.3 million and $1.5 million decreases in the Video business for the three and six-month periods, respectively. Additionally, there were $2.1 million and $4.3 million decreases in the Broadband business for the three and six-month periods, respectively, due to resources being redeployed to support certain customer projects.

Current wording

Research and development expenses were relatively flat, compared to the corresponding period in 2023. Research and development expenses decreased by $6.5 million in the nine months ended September 27, 2024, compared to the corresponding period in 2023. The decrease was primarily driven by a $4.0 million decrease in the Broadband business due to resources being redeployed to support certain customer projects. Additionally, there was a $2.5 million decrease in the Video business due to headcount reductions related to restructuring activities.

Previous 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.

Current wording

Selling, general and administrative expenses decreased by $3.4 million in the three months ended September 27, 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

Selling, general and administrative expenses decreased by $3.4 million in the six months ended June 28, 2024, compared to the corresponding period in 2023, primarily due to lower spending of $2.0 million resulting from headcount reductions related to restructuring activities in the Video business and a decrease of $1.4 million in non-recurring advisory fees incurred for the strategic review of the Video business. These decreases were partially offset by higher stock-based compensation primarily related to the acceleration of expenses for the awards granted to our former CEO.

Current wording

Selling, general and administrative expenses decreased by $6.8 million in the nine months ended September 27, 2024, compared to the corresponding period in 2023, primarily due to lower spending of $5.0 million resulting from headcount reductions related to restructuring activities in the Video business and a decrease of $1.7 million in non-recurring advisory fees incurred for the strategic review of the Video business.

Previous wording

Lease Related Impairment and Other Charges

Current wording

During the three and nine months ended September 27, 2024, we recorded an impairment charge of $1.8 million related to the total capitalized value of internally developed software with no future benefit. During the three and nine months ended September 27, 2024, we also recorded total lease-related asset impairment and other charges of $1.3 million and $10.3 million, respectively. The $1.3 million charges consisted of $0.8 million in right-of-use asset impairments, $0.1 million in leasehold improvement asset impairments, and $0.4 million related to the fair value of other unrecoverable facility costs. The $10.3 million charges consisted of $3.7 million in right-of use asset impairments, $4.3 million in leasehold improvement asset impairments, and $2.3 million related to the fair value of other unrecoverable facility costs. Refer to Note 4, “Leases”, of the Notes to our condensed consolidated financial statements for additional information.

Previous 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.

Current wording

Restructuring and related charges decreased in the three months ended September 27, 2024, compared to the corresponding period in 2023, primarily driven by higher severance and employee benefit costs recorded in 2023. Restructuring and related charges increased in the nine months ended September 27, 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

Interest expense, net in the three and six months ended June 28, 2024 increased by $0.6 million, compared to the corresponding periods in 2023, primarily due to higher interest rates for the borrowings under the Credit Agreement compared to the interest rate for the 2024 Notes. Refer to Note 6, “ Debt”, of the Notes to our condensed consolidated financial statements for additional information regarding the interest rates applicable to our outstanding loans.

Current wording

Interest expense, net in the three and nine months ended September 27, 2024 increased by $2.1 million and $2.7 million, respectively, compared to the corresponding periods in 2023, primarily due to higher interest rates for the borrowings under the Credit Agreement compared to the interest rate for the 2024 Notes. Refer to Note 6, “Debt”, of the Notes to our condensed consolidated financial statements for additional information regarding the interest rates applicable to our outstanding loans.

Previous wording

Other income (expense), net in the three and six months ended June 28, 2024 increased by $0.8 million compared to the corresponding periods in 2023, primarily due to the fluctuation of foreign exchange gains and losses.

Current wording

The changes in other income (expense), net in the three and nine months ended September 27, 2024, compared to the corresponding periods in 2023, were primarily due to higher unrealized foreign exchange losses resulting from the strengthening of the Euro against the U.S. dollar in 2024.

Previous 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.

Current wording

The provision for income taxes increased during the three months ended September 27, 2024 and decreased during the nine months ended September 27, 2024, compared to the corresponding periods in 2023. The increase in provision for income taxes for the three months ended September 27, 2024 was largely driven by pretax income in the current fiscal quarter compared to a pretax loss in the corresponding quarter of 2023. The decrease in provision for income taxes for the nine months ended September 27, 2024 was largely driven by a decrease in pretax income for the nine months ended September 27, 2024 compared to the same period in the prior year. In addition, a full valuation allowance was maintained on deferred tax assets in the United States during the three and nine months ended September 29, 2023, which was released during the three months ended December 31, 2023. 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 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.

Current wording

Our Video segment revenue decreased by $1.0 million for the three months ended September 27, 2024, compared to the corresponding period in 2023, primarily due to a $1.3 million decrease in product sales across all regions, mainly driven by project delays by our customers, and a $1.3 million decrease in support services, mainly due to lower customer support contract renewals, partially offset by a $1.6 million increase in SaaS revenue, mainly driven by the acquisition of new customers.

Previous wording

Our Video segment revenue decreased by $27.2 million for the six months ended June 28, 2024, compared to the corresponding period in 2023, primarily due to a $25.1 million decrease in product sales across most regions, mainly driven by order and project delays by our customers, and a $3.8 million decrease in support services, mainly due to lower customer contract renewals, partially offset by a $1.7 million increase in SaaS revenue, mainly driven by the acquisition of new customers.

Current wording

Our Video segment revenue decreased by $28.2 million for the nine months ended September 27, 2024, compared to the corresponding period in 2023, primarily due to a $26.5 million decrease in product sales across most regions, mainly driven by project delays by our customers, and a $5.1 million decrease in support services, mainly due to lower customer support contract renewals, partially offset by a $3.4 million increase in SaaS revenue, mainly driven by the acquisition of new customers.

Previous 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.

Current wording

Video segment operating margin improved during the three and nine months ended September 27, 2024, compared to the corresponding periods in 2023, primarily due to realized benefits from cost saving initiatives combined with an increase in SaaS and services as a percentage of segment revenue.

Previous 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.

Current wording

As of September 27, 2024, we had outstanding $129.5 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 $7.2 million is scheduled to become due in the 12-month period following September 27, 2024. As of September 27, 2024, our total minimum lease payments are $25.4 million, of which $1.8 million is due before December 31, 2024, and $6.3 million is due within 12 months.

Previous 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.

Current wording

As of September 27, 2024, our principal sources of liquidity consisted of cash and cash equivalents of $58.2 million, net accounts receivable of $173.7 million, $30.0 million from our Master Receivables Purchase Agreement (described below), and $45.0 million remaining available under the Revolving Facility of our Credit Agreement, and financing from French government agencies.

Previous wording

In September 2023, we entered into a Master Receivables Purchase Agreement with JPMorgan Chase Bank N.A, as purchaser. The agreement allows us, from time to time, to sell certain eligible billed receivables in an aggregate outstanding amount of up to $30 million. As of June 28, 2024, there were no receivables sold under this agreement.

Current wording

In September 2023, we entered into a Master Receivables Purchase Agreement with JPMorgan Chase Bank N.A, as purchaser. The agreement allows us, from time to time, to sell certain eligible billed receivables in an aggregate outstanding amount of up to $30 million. On September 10, 2024, we delivered a notice to JP Morgan Chase Bank N.A. to, among other things, extend the purchase termination date to September 29, 2025. As of September 27, 2024, there were no receivables sold under this agreement.

Previous 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.

Current wording

Our cash and cash equivalents of $58.2 million as of September 27, 2024 consisted of bank deposits held throughout the world and money market funds, of which $46.0 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 $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.

Current wording

Net cash provided by operating activities increased by $12.6 million during the first nine months of fiscal 2024, compared to the corresponding period in fiscal 2023. The increase was primarily due to higher net income, adjusted for non-cash asset impairment and other charges in fiscal 2024.

Previous wording

We expect that cash provided by or used in operating activities may fluctuate in future periods as a result of a number of factors, including, but not limited to, instability and uncertainty in the financial services sector, risk of regional escalation of the conflicts in the Middle East and Russia-Ukraine conflicts and related macroeconomic conditions on demand for our offerings as well as potential impact on our operations in Israel and Ukraine, fluctuations in our operating results, shipment linearity, accounts receivable collections performance, inventory and supply chain management, and the timing and amount of compensation and other payments.

Current wording

We expect that cash provided by or used in operating activities may fluctuate in future periods as a result of a number of factors, including, but not limited to, instability and uncertainty in the financial services sector, the potential impact of the Middle East and Russia-Ukraine conflicts on our operations in those regions, fluctuations in our operating results, shipment linearity, accounts receivable collections performance, inventory and supply chain management, and the timing and amount of compensation and other payments.

Previous 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.

Current wording

Net cash used in investing activities decreased by $5.2 million during the first nine months of fiscal 2024, compared to the corresponding period in 2023. The decrease was primarily due to purchases of short-term investments in fiscal 2023 and lower purchases of property and equipment in fiscal 2024.

Previous 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.

Current wording

Net cash used in financing activities increased by $29.0 million during the first nine 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 nine 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.