2024 Annual Report
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________
Form 10-K
_______________________________________________________
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2024
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
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 No.)
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
Name of each exchange on which registered
Common Stock, par value $0.001 per share
HLIT
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
_______________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No ☒
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 and post
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
☐
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. ☐
officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of February 10, 2025, there were 117,052,884 shares of the Registrant’s Common Stock, $0.001 par value, outstanding.
_______________________________________________________
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant’s 2025 Annual Meeting of Stockholders (which will be filed with the Securities and Exchange
Commission within 120 days of the end of the fiscal year ended December 31, 2024) are incorporated by reference in Part III of this Annual Report on
Form 10-K.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared
or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in
the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Based on the reported closing sale price of the Common Stock on The NASDAQ Global Select Market on June 28, 2024, the aggregate market value
of the voting Common Stock held by non-affiliates of the registrant was approximately $743.9 million. Shares of Common Stock held by each executive
HARMONIC INC.
FORM 10-K
TABLE OF CONTENTS
Page
PART I
ITEM 1.
BUSINESS
4
ITEM 1A.
RISK FACTORS
11
ITEM 1B.
UNRESOLVED STAFF COMMENTS
32
ITEM 1C.
CYBER SECURITY
32
ITEM 2.
PROPERTIES
33
ITEM 3.
LEGAL PROCEEDINGS
33
ITEM 4.
MINE SAFETY DISCLOSURE
33
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
34
ITEM 6.
[RESERVED]
35
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
36
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
45
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
46
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
81
ITEM 9A.
CONTROLS AND PROCEDURES
81
ITEM 9B.
OTHER INFORMATION
81
ITEM 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
81
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
82
ITEM 11.
EXECUTIVE COMPENSATION
82
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
82
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
82
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
82
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
83
ITEM 16.
FORM 10-K SUMMARY
85
SIGNATURES
86
1
Forward Looking Statements
Some of the statements contained in this Annual Report on Form 10-K are forward-looking statements that involve risk and uncertainties. The
statements contained in this Annual Report on Form 10-K that are not purely historical are forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended (the “Securities Acts”), and Section-21E of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), 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,” “could,” “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, changes in interest rates, volatility and uncertainty in the banking and financial services sector,
supply chain disruptions, tariffs, and volatile capital markets and foreign currency fluctuations, particularly in certain geographies;
•
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;
•
new and future products and services;
•
spending of our customers;
•
our strategic direction, future business plans and growth strategy;
•
industry and customer consolidation;
•
expected demand for and benefits of our products and services;
•
concentration of revenue sources;
•
expectations regarding our Broadband and Video solutions;
•
potential future acquisitions and dispositions;
•
anticipated results of potential or actual litigation;
•
our competitive environment;
•
the impact of our restructuring plans;
•
the impact of governmental regulations, including with respect to tariffs and economic sanctions;
•
anticipated revenue and expenses, including the sources of such revenue and expenses;
•
expected impacts of changes in accounting rules;
•
expectations regarding the usability of our inventory and the risk that inventory will exceed forecasted demand;
•
expectations and estimates related to goodwill and its associated carrying value; and
•
use of cash, cash needs and ability to raise capital, including 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 this Annual Report on Form 10-K. All forward-looking statements included in this Annual Report on Form 10-K are based
on information available to us on the date thereof, and we assume no obligation to update any such forward-looking statements. The terms “Harmonic,”
“Company,” “we,” “us,” “its,” and “our,” as used in this Annual Report on Form 10-K, refer to Harmonic Inc. and its subsidiaries and its predecessors as a
combined entity, except where the context requires otherwise.
2
Risk Factor Summary
Our business is subject to significant risks and uncertainties that make an investment in us speculative and risky. Below we summarize what we
believe are the principal risk factors but these risks are not the only ones we face, and you should carefully review and consider the full discussion of our
risk factors in the section titled “Risk Factors,” together with the other information in this Annual Report on Form 10-K. If any of the following risks
actually occurs (or if any of those listed elsewhere in this Annual Report on Form 10-K occur), our business, reputation, financial condition, results of
operations, revenue, and future prospects could be seriously harmed. In that event, the market price of our common stock could decline, and you could lose
part or all of your investment. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become
important factors that adversely affect our business.
•
We depend on cable, satellite and telco, and broadcast and media industry spending for our revenue and any material decrease or delay in
spending in any of these industries would negatively impact our operating results, financial condition and cash flows;
•
The loss of one or more of our key customers, a failure to continue diversifying our customer base, or a decrease in the number of larger
transactions could harm our business and our operating results;
•
We need to develop and introduce new and enhanced products and solutions in a timely manner to meet the needs of our customers and to remain
competitive;
•
The markets in which we operate are intensely competitive;
•
Our future growth depends on a number of broadband and video industry trends;
•
Our software-based broadband product initiatives expose us to certain technology transition risks that may adversely impact our operating results,
financial condition and cash flows;
•
Our operating results are likely to fluctuate significantly and, as a result, may fail to meet or exceed the expectations of securities analysts or
investors, causing our stock price to decline;
•
We purchase several key components, subassemblies and modules used in the manufacture or integration of our products from sole or limited
sources, and we rely on contract manufacturers and other subcontractors;
•
We face risks associated with having employees and operations in Israel and outsourced engineering resources located in Ukraine; and
•
We rely on resellers, value-added resellers and systems integrators for a significant portion of our Video business revenue, and disruptions to, or
our failure to develop and manage our relationships with these customers or the processes and procedures that support them could adversely
affect our business.
3
PART I
Item 1.
BUSINESS
We are a leading global provider of (i) broadband access solutions that enable broadband operators to more efficiently and effectively deploy high-
speed internet for data, voice and video services for their customers and (ii) 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.
We operate in two segments, Broadband and Video. Our Broadband business provides broadband access solutions and related services, including our
cOS software-based broadband access solution, to broadband operators globally. Our Video business provides video processing and 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,” and 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 software-as-a-service (“SaaS”) subscriptions.
Across our two business segments, we derived approximately 82% of our revenue from the Americas in 2024. The Europe, Middle East and Africa
(EMEA) and Asia Pacific (APAC) regions accounted for 14% and 4% of our 2024 revenue, respectively.
Harmonic was initially incorporated in California in June 1988 and was reincorporated in Delaware in May 1995. Our principal executive offices are
currently located at 2590 Orchard Parkway, San Jose, California 95131. Our telephone number is (408) 542-2500. Our Internet website is
http://www.harmonicinc.com. Other than the information expressly set forth in this Annual Report on Form 10-K, the information contained or referred to
on our website is not part of this report.
Industry Overview and Market Trends
Broadband Business
Industry Challenges
Broadband operators continue to face challenges from the rapid growth of demand for broadband bandwidth in their networks, driven primarily by:
•
more users with more connected devices and applications;
•
bundled digital video, voice and high-speed data services;
•
bandwidth-intensive Video-on-demand (VOD) and streaming video services, and interactive cloud applications;
•
work-from-home (WFH) and remote education demands for high-quality video conferencing; and
•
Internet-of-Things (IoT) devices that contribute to continuous data generation and transmission.
In addition, the operation of network infrastructure is space, power and personnel intensive. Hardware-centric networks can also be expensive to
update or replace. To remain competitive, especially in the face of heightened competition between cable service providers and telcos to deliver multi-
gigabit and symmetric data rates, broadband operators need to significantly upgrade existing equipment and network technologies.
Technology Trends
•
DOCSIS. We believe the cable industry will continue to deploy the DOCSIS 3.1 standard, which enables high bandwidth data transfer over
existing broadband infrastructure, and we expect accelerating adoption and deployment of the next-generation DOCSIS 4.0 standard, which
has begun in certain markets.
4
•
Virtualization. We believe broadband operators will continue to move toward more software-driven architectures, which is central to our
Broadband business and product strategy. Virtualized software solutions that are decoupled from underlying hardware and run on commercial-
off-the-shelf (COTS) servers and/or cloud-native architectures allow for significantly increased efficiencies, upgradability, configuration
flexibility, service agility and scalability not feasible with hardware-centric approaches. We believe a software-based broadband access
solution can significantly reduce broadband operator facility costs, especially costs related to physical space and power consumption, and
increase operational efficiency, and that the deployment of these systems will be an important step in broadband operators’ transition to all-IP
networks.
•
Distributed Access Architecture. In addition to centralized broadband access solutions, we believe interest in distributed access solutions
continues to accelerate, particularly in competitive gigabit service markets where broadband operators are competing with fiber-to-the-home
(FTTH) services and are extending fiber networks deeper into their access networks. A distributed access architecture (DAA) coupled with a
software-based broadband access solution running on COTS servers at a headend, and the distribution of DAA nodes closer to end users,
alleviates the power and space requirements of centralized systems at headend sites due to the fact that the radio frequency (RF) processing is
distributed into the field outside of the headend. We believe this distributed architecture will enable service providers to efficiently scale to
support data and IP video growth.
•
Multiple Access. cOS is a software-based solution that runs on COTS servers connected to distributed access nodes. Traditionally, the
distributed access nodes deliver service to the subscribers over RF signals with DOCSIS. With cOS, FTTH services over passive optical
networks (PON) can be supported with software running on cOS servers and with remote optical line termination (OLT) modules plugged into
the DAA nodes. The result is that the cOS solution can support delivering both DOCSIS and PON services to different subscribers, which we
believe is another key differentiating competitive advantage for Harmonic. As fiber is pulled deeper into the network, broadband operators
will have the infrastructure and technology to deliver both traditional cable services and FTTH. Harmonic offers a range of indoor OLT
shelves and hardened outdoor OLT shelves and OLT modules as part of the cOS solution, delivering PON services to telcos. Additionally, our
open optical network unit (ONU) approach, which supports a growing list of ONUs, fosters an open ecosystem that benefits Telcos.
Our Broadband business strategy is focused on providing our customers with software-based solutions, on a centralized, distributed access or hybrid
architecture, to enable and support these technology and industry trends.
Video Business
Industry Trends
We believe our customers must continue to employ innovative technologies and services to address key trends in the dynamic video industry.
•
Demand for Streaming Services. In the highly competitive video industry, there is strong demand for video content to be captured, processed
and streamed to millions of subscribers at scale, and with personalized service features and characteristics. We believe video streaming is, and
will continue to be, the most significant trend affecting the video industry for the foreseeable future.
•
Demand for Targeted Advertising. Streaming technology makes it possible for streaming platforms to insert personalized targeted
advertisements into video streams to consumers. This capability is highly sought after by advertisers and results in significantly higher
advertising revenue for video streaming service providers. With streaming viewership continuing to grow rapidly, we believe targeted ad
insertion will be a foundational pillar of the video industry in the coming years.
•
Streaming of Live Events. In contrast to the constraints of traditional linear broadcast channels, there is effectively no limit to the number of
live events that can be streamed or the audience reach of streamed events. Consequently, we believe the number of live events globally that
will be streamed to consumers, especially live sporting events, will continue to grow for the foreseeable future.
•
Demand for High Quality Video. High quality video for both traditional broadcast television and streaming continues to be an important factor
for consumers. Compression technologies such as High Efficiency Video Compression (HEVC) or advances in H.264/AVC codecs, as well as
increasing requirements for HDR encoding, will continue to remain a high priority for both broadcast and streaming providers.
5
•
Decline in Broadcast Viewing. Broadcast television viewership will continue to decline as the growth in streaming accelerates. We believe this
transition will cause traditional Pay-TV service providers and broadcasters to focus their investments on (i) providing streaming services and
(ii) reducing the operational complexities and cost of broadcast television.
•
Transformation of Broadcast Infrastructure. We believe the industry will continue to seek to transform existing broadcast infrastructure
workflows into more flexible and efficient operations, in order to reduce operational and investment costs. We believe that, in order to
maximize cost savings, our customers will migrate all or a portion of these operations to public clouds, or upgrade and replace their aging on-
premise equipment with next-generation software-based appliances that significantly reduce operational complexity, or invest in hybrid
infrastructure approaches that combine public cloud and on-premise equipment.
Our Video business strategy is focused on providing our broadcast and media, streaming, and service provider customers with software-based
appliances and SaaS platforms to enable and support these trends and transitions.
Our Products and Solutions
Broadband Products and Solutions
Software-Based Broadband Access Solution. As demand continues to rapidly grow for high-speed broadband services such as streaming, VOD, time-
shift TV and cloud DVR, we believe we can help broadband operators take advantage of this opportunity with our cOS software-based broadband access
solution, an end-to-end solution consisting of virtualized cloud-native software elements that orchestrate and connect with a variety of Harmonic and third-
party indoor and outdoor hardware devices. Harmonic hardware products include our Oyster, Pebble, Ripple, and Shell DAA nodes, Reef and Wave PHY
shelf products; and OLT modules and devices.
We believe our cOS solution delivers unprecedented scalability, agility and cost savings, and enables our customers to migrate to multi-gigabit
broadband capacity and the fast deployment of DOCSIS and FTTx data, video and voice services. We believe our solution resolves space and power
constraints in broadband operator facilities, significantly reduces dependence on hardware upgrade cycles, and reduces total cost of ownership. Our cOS
solution can be deployed based on a centralized, distributed access or hybrid architecture.
cOS Central Cloud Services. Our cOS Central Cloud Services is a value-add subscription service for cOS customers that bundles three elements: (i)
24x7 technical support, (ii) a dedicated customer success team focused on customer satisfaction and retention, and (iii) a cOS Central SaaS that enhances
and simplifies the deployment, monitoring, operation and maintenance of the cOS solution with advanced analytics, management and engagement tools.
Video Processing and Delivery Solutions
We offer two categories of solutions - a broad range of software-based video appliances and SaaS platforms - to deliver broadcast and streaming
services and capabilities in the media market.
Software-based Appliances. Our video processing appliances, which include network management and application software and hardware products,
provide our customers with the ability to acquire a variety of signals from different sources and in different protocols in order to deliver a variety of real-
time and stored content to their subscribers for viewing on a broad range of devices. Our appliance product families include:
•
Encoders. Our high-performance encoders compress video and audio files to low bit rates, and prepare such files for the proper formats and
specifications required for playback, while maintaining high audio/video quality. Our latest software-based XOS encoders can deliver video in
multiple formats, including standard, HD and Ultra HD, and in any video compression standard, including MPEG-2, MPEG-4 AVC and
HEVC. This capability allows the encoders to converge workflows targeted for all forms of video delivery, whether broadcast or streaming.
•
Video Servers. Our Spectrum family of video server systems are used by broadcast and media companies to create play-to-air television
channels. Our customers typically use these video server products to record incoming content from either live feeds or from tapes, encoding
that content in real-time into standard media files that are then stored in the server’s file system until the content is needed for playback as part
of a scheduled playlist.
•
High-density stream processing. We offer high-density, real-time stream processing systems capable of high-performance, high-throughput
video processing for mission-critical IP video delivery applications, including multiplexing, scrambling, splicing and blackout source
switching.
6
•
Edge processors. Our family of Edge processing platforms allows service providers to acquire content delivered via satellite, IP or terrestrial
networks for distribution to their subscribers. These products are used by broadcasters to decode signals backhauled from live news and
sporting events in contribution applications, as well as by content owners looking to distribute their content in a controlled manner to a large
base of affiliates.
SaaS platforms. Our VOS360 SaaS platforms provide both streaming and channel origination and distribution services in a public cloud environment
that is fully managed and operated by our 24/7 DevOps teams. Our SaaS solutions enable the packaging and delivery of high-quality streaming services,
including live streaming, VOD, catch-up TV, start-over TV, network-DVR and cloud-DVR services through HTTP streaming to any device, along with
dynamic and personal ad insertion. In addition, our VOS360 SaaS platforms enable the transformation of traditional broadcast video workflows into cloud-
based workflows, resulting in more efficient and leaner operations for our customers. We continue to see an increasing number of customers seeking to
leverage the inherent commercial, operational and infrastructure flexibility offered by our VOS360 SaaS platforms. We also provide an on-premise SaaS
offering with our VOS Media Software solution for customers seeking to deploy a cloud-like architecture in a private data center.
Technical Support and Professional Services
We provide maintenance and support services to most of our customers under service level agreements that are generally renewed on an annual basis.
We also provide consulting, implementation and integration services to our customers worldwide. We draw upon our expertise in broadcast television,
communications networking, compression technology and broadband access technologies to design, integrate and install complete solutions for our
customers, including integration with third-party products and services. We offer a broad range of services, including SaaS-related support and deployment,
program management, technical design and planning, building and site preparation, integration and equipment installation, end-to-end system testing and
comprehensive training.
Customers
We sell our products to a variety of cable, satellite and telco, and broadcast and media companies. Set forth below is a representative list of our
significant end user and integrator/reseller customers, listed alphabetically, based, in part, on revenue during 2024.
United States
International
Apple Inc
America Movil
Charter Communications
Comcast
Comcast
Groupe Canal
DirecTV
Millicom International
Dish Network
Netorium
EPlus Technology
NYL Eletronica
GCI Communication
Rogers Communications
Heartland Video Systems
Sky Perfect
SES
Tele2 Sverige AB
Sinclair Broadcast Group
Vodafone
Sales to our 10 largest customers in 2024, 2023 and 2022 accounted for approximately 72%, 66% and 67% of our net revenue, respectively. Although
we continue to seek to broaden our customer base by penetrating new markets and further expanding internationally, we expect to see continuing industry
consolidation and customer concentration.
During 2024, 2023 and 2022, Comcast accounted for 44%, 44% and 39% of our net revenue, respectively. The loss of any significant customer, or
any material reduction in orders from any significant customer, or our failure to qualify our new products with any significant customer could materially
and adversely affect our operating results, financial condition and cash flows. In addition, we are involved in most quarters in one or more relatively large
individual transactions. A decrease in the number of relatively larger individual transactions in which we are involved in any quarter could adversely affect
our operating results for that quarter.
7
Sales and Marketing
In the United States and internationally, we sell our products through our own direct sales force, as well as through independent resellers and systems
integrators. Our direct sales team is organized by business segment, and geographically and by major customers and markets to support customer
requirements. Our principal sales offices outside of the United States are located in Europe and Asia. Our international resellers are generally responsible
for importing our products and providing certain installation, technical support and other services to customers in their territory after receiving training
from us.
Our direct sales force and resellers for each business segment are supported by highly trained technical staff, which includes application engineers
who work closely with our customers to develop technical proposals and design systems to optimize system performance and economic benefits for our
customers. Our technical support teams provide a customized set of services, as required, for ongoing maintenance, support-on-demand and training for our
customers and resellers, both in our facilities and on-site.
Our product management organization for each business segment develops strategies for product lines and markets and, in conjunction with our sales
force, identifies the evolving technical and application needs of customers so that our product development resources can be most effectively and
efficiently deployed to meet anticipated product requirements. Each product management organization is also responsible for setting price levels, demand
forecasting and general support of the sales force, particularly at major accounts.
Our corporate marketing organization is responsible for building awareness of the Harmonic brand in our markets and driving engagement with our
strategies, solutions and products. The group develops our corporate messaging and manages our customer and industry communication channels,
including public relations, web and social media, events and trade shows, as well as demand generation marketing campaigns in conjunction with our sales
force.
Manufacturing and Suppliers
We rely on third-party contract manufacturers to assemble our products and the subassemblies and modules for our products. In 2003, we entered into
an agreement with Plexus Services Corp. (“Plexus”) to act as our primary contract manufacturer. Plexus accounts for the majority of the products we
purchase from our contract manufacturers. This agreement has automatic annual renewals, unless prior notice for nonrenewal is given, and has been
automatically renewed for a term expiring in October 2025. We do not generally maintain long-term agreements with any of our contract manufacturers.
Many components, subassemblies and modules necessary for the manufacture or integration of our products are obtained from a sole supplier or a
limited group of suppliers. While we expend considerable efforts to qualify additional component sources, consolidation of suppliers in the industry and the
small number of viable alternatives have limited the results of these efforts. We do not generally maintain long-term agreements with any of our suppliers.
Intellectual Property
As of December 31, 2024, we held 133 issued U.S. patents and 48 issued foreign patents and had 48 patent applications pending. Our issued patents
are scheduled to expire between 2025 and 2043. Although we attempt to protect our intellectual property rights through patents, trademarks, copyrights,
licensing arrangements, maintaining certain technology as trade secrets and other measures, we cannot assure you that any patent, trademark, copyright or
other intellectual property rights owned by us will not be invalidated, circumvented or challenged, that such intellectual property rights will provide
competitive advantages to us, or that any of our pending or future patent applications will be issued with the claims, or the scope of the claims, sought by
us, if at all. We cannot assure you that others will not develop technologies that are similar or superior to our technology, duplicate our technology or design
around the patents that we own. In addition, effective patent, copyright and trade secret protection may be unavailable or limited in a territory in which we
do business or may do business in the future.
We enter into confidentiality or license agreements with our employees, consultants, vendors and customers as needed, and generally limit access to,
and distribution of, our proprietary information. However, no assurances can be given that these actions will prevent misappropriation of our technology. In
addition, if necessary, we are prepared to take legal action, in the future, to enforce our patents and other intellectual property rights, to protect our trade
secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity. Any such litigation
could result in substantial costs and diversion of resources, including management time, and could negatively affect our business, operating results,
financial position and cash flows.
8
In order to successfully develop and market our products, we may be required to enter into technology development or licensing agreements with
third parties. Although many companies are often willing to enter into such technology development or licensing agreements, we cannot assure you that
such agreements can be negotiated on reasonable terms or at all. The failure to enter into technology development or licensing agreements, when necessary,
could limit our ability to develop and market new products and could harm our business.
Backlog
We schedule production of our products and solutions based upon our backlog, open contracts, informal commitments from customers and sales
projections. Our backlog consists of unfilled firm purchase orders and contracts by our customers which have not been completed. Approximately 57% of
our backlog and deferred revenue is projected to be converted to revenue within a rolling one-year period. As of December 31, 2024 and 2023, we had
backlog, including deferred revenue, of $496.3 million and $653.2 million, respectively. Delivery schedules on such orders may be deferred or canceled for
a number of reasons, including reductions in spending by our customers or changes in specific customer requirements. In addition, due to annual budget
cycles at many of our customers, the amount of our backlog at any given time is not necessarily indicative of actual revenues for any succeeding period.
Competition
The markets in which our Video and Broadband businesses operate are extremely competitive and have been characterized by rapid technological
change and declining average selling prices in the past. The principal competitive factors in these markets include product performance, functionality and
features, reliability, pricing, breadth of product offerings, brand recognition and awareness, sales and distribution capabilities, technical operations, support
and services, and customer relationships with our customers. We believe that we compete favorably in each of these categories.
Our competitors in our Broadband business include a number of suppliers of networking and communications equipment and solutions to broadband
service providers.
Our competitors in our Video appliance business are primarily comprised of providers of video delivery and video processing and compression
products and solutions, broadcast equipment and solutions providers, and certain network infrastructure providers. Our competitors in our Video SaaS
business include companies that offer video delivery and processing SaaS solutions, SaaS video streaming platform providers, and certain public cloud
service providers.
Research and Development
We have historically devoted a significant amount of our resources to research and development. Research and development expenses in 2024, 2023
and 2022 were approximately $121.0 million, $126.3 million and $120.3 million, respectively. Research and development expenses as a percentage of
revenue in 2024, 2023 and 2022 were approximately 18%, 21% and 19%, respectively. Our internal research and development activities are conducted
primarily in the United States, France, Israel, Hong Kong, Canada and India. In addition, a portion of our research and development is conducted through
third-party partners with engineering resources in Ukraine, Poland and India.
Our research and development program is primarily focused on developing new products and solutions, and adding new features and other
improvements to existing products and solutions. With respect to our Broadband business segment, our major research and development efforts are focused
on broadband access solutions, particularly the ongoing development of our centralized, distributed and hybrid cOS software-based broadband access
solutions and converging fiber and DOCSIS capabilities on our cOS solution platform. For our Video business segment, our current research and
development efforts are focused on enhancing our streaming capabilities, expanding our targeted advertising technologies, and improving the efficiency
and flexibility of broadcast workflows for our traditional appliances and within our SaaS platform.
Our success in designing, developing, manufacturing and selling new or enhanced products and solutions will depend on a variety of factors,
including the identification of market demand for new products and solutions, product selection, timely product design and development, product
performance, effective manufacturing and assembly processes, and sales and marketing. Because of the complexity inherent in such research and
development efforts, we cannot assure you that we will successfully develop new products and solutions, or that new products and solutions developed by
us will achieve market acceptance. Our failure to successfully develop and introduce new products and solutions would materially and adversely affect our
business, operating results, financial condition and cash flows.
9
Human Capital Resources
As of December 31, 2024, we employed a total of 1,240 full time employees, including 561 in research and development, 178 in sales, 236 in service
and support, 67 in operations, 56 in marketing (corporate and product) and 142 in a general and administrative capacity. Of those employees, 408 were
located in the United States and Canada, and 832 employees were located outside of North America in 21 countries in Central and South America, the
Middle East and Africa, Europe and the Asia Pacific region. From time to time, we also employ a number of temporary employees and consultants on a
contract basis. Our employees in each of France and Spain are represented by labor unions and an employee works council. None of our other employees
are represented by a labor union with respect to their employment with us. We have not experienced any work stoppages, and we consider our relations
with our employees to be good.
Competition for qualified personnel in the technology space is intense, and we believe that our future success largely depends upon our continued
ability to attract, develop and retain highly skilled individuals across the globe. We believe we offer competitive compensation (including salary, incentive
bonus and equity awards) and comprehensive benefits packages in each of our locations around the globe. We aim to create an environment in which our
employees can develop and grow, and be recognized for their achievements. We offer training, development and on-demand learning programs to support
continuous learning and cultivate talent throughout the company, and promote opportunities for internal mobility and recruitment across functions and
geographies. We offer rewards and recognition programs, including spot awards to recognize employee contributions, patent incentive awards, and various
functional recognition awards. We regularly conduct employee surveys to gauge employee engagement and satisfaction, and we use the views expressed in
the surveys to influence our people strategy and policies.
As a global company, much of our success is rooted in the diversity of our teams and our commitment to inclusion, where all employees are respected
regardless of gender, race, color, national origin, ancestry, citizenship, religion, age, physical or mental disability, medical condition, genetic information,
pregnancy, sexual orientation, gender identity or gender expression, veteran status, or marital status. We support regional employee-led groups that promote
and drive various volunteering initiatives aimed at assisting underrepresented and disadvantaged populations in the communities where we operate. We
continue to focus on building a pipeline for talent to create more opportunities for workplace gender and other diversity and to support greater
representation within the company.
Available Information
Our website is located at www.harmonicinc.com, and our investor relations website is located at investor.harmonicinc.com. Copies of the Company’s
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge on our investor relations website as soon as reasonably practicable after
we file such material electronically with or furnish it to the Securities and Exchange Commission (the SEC). The SEC also maintains a website that
contains our SEC filings at www.sec.gov.
We announce material information to the public about us, our products and services and other matters through a variety of means, including filings
with the SEC, press releases, public conference calls, webcasts, and our investor relations web site (investor.harmonicinc.com) in order to achieve broad,
non-exclusionary distribution of information to the public and for complying with our disclosure obligations under Regulation FD. Except as expressly set
forth in this Annual Report on Form 10-K, the contents of our web site are not incorporated by reference into, or otherwise to be regarded as part of, this
report or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.
10
Item 1A.
RISK FACTORS
Risks Related to Our Business and Our Industry
We depend on cable, satellite and telco, and broadcast and media industry spending for our revenue and any material decrease or delay in spending in
any of these industries would negatively impact our operating results, financial condition and cash flows.
Our revenue has been derived from worldwide sales to service providers and broadcast and media companies, and streaming media companies. We
expect that these markets will provide our revenue for the foreseeable future. Demand for our products and solutions will depend on the magnitude and
timing of spending by customers in each of these markets for the purpose of creating, expanding or upgrading their systems. These spending patterns are
dependent on a variety of factors, including:
•
the impact of general economic conditions, actual and projected, including inflation, changing interest rates, lower consumer confidence,
volatile capital markets, supply chain disruptions, tariffs, uncertainty and volatility in the financial services sector and the impact of the
Middle East and Russia-Ukraine conflicts, and government and business responses thereto, on the global economy and regional
economies;
•
access to financing;
•
annual budget cycles of customers in each of the industries we serve;
•
the impact of industry consolidation;
•
customers suspending, reducing or shifting spending due to: (i) new broadband or video industry standards; (ii) industry trends and
technology shifts, such as virtualization and cloud-based solutions; and (iii) new products and solutions, such as products and services
based on our cOS software-based broadband access solutions or VOS software platform;
•
delayed or reduced near-term spending as customers transition away from video appliance solutions and adopt new business and
operating models enabled by software and cloud-based solutions, including SaaS video processing solutions;
•
federal, state, local and foreign government regulation of broadband, telco, television broadcasting and streaming media;
•
overall demand for communication services and consumer acceptance of new video and data technologies and services;
•
competitive pressures, including pricing pressures;
•
the impact of fluctuations in currency exchange rates, such as the strengthening of the U.S. dollar; and
•
discretionary end-user customer spending patterns.
In the past, specific factors contributing to reduced spending have included:
•
weak or uncertain economic and financial conditions in the United States or one or more international markets;
•
uncertainty related to development of industry technology;
•
delays in evaluations of new services, new standards and systems architectures by certain customers;
•
emphasis by certain of our customers on generating revenue from existing subscribers or end-customers, rather than from new
subscribers or end-customers, through construction, expansion or upgrades;
•
a reduction in the amount of capital available to finance projects of our customers and potential customers;
•
proposed and completed business combinations and divestitures by our customers and the length of regulatory review of each;
•
completion of a new system or significant expansion or upgrade to a system; and
11
•
bankruptcies and financial restructuring of major customers.
In the past, adverse economic conditions in one or more of the geographies in which we offer our products have adversely affected our customers’
spending in those geographies and, as a result, our business. During challenging economic times, such as those caused by the Middle East and Russia-
Ukraine conflicts, inflation, currency devaluation, and bank insolvencies and related uncertainty and volatility in the financial services sector and in tight
credit markets, many customers have delayed and reduced and may continue to delay or reduce capital expenditures. This has resulted and could continue
to result in reductions in revenue from our products, longer sales cycles, difficulties in collection of accounts receivable, slower adoption of new
technologies and increased price competition. If global economic and market conditions, or economic conditions in the United States, Europe or other key
markets, remain uncertain or deteriorate, we could experience a material and adverse effect on our business, results of operations, financial condition and
cash flows. Additionally, since most of our international revenue is denominated in U.S. dollars, global economic and market conditions may impact
currency exchange rates and cause our products to become relatively more expensive to customers in a particular country or region, which could lead to
delayed or reduced spending in those countries or regions, thereby negatively impacting our business and financial condition.
In addition, industry consolidation has in the past constrained, and may in the future constrain or delay, spending by our customers. Further, if our
product portfolio and product development plans do not position us well to capture an increased portion of the spending of customers in the markets on
which we focus, our revenue may decline.
As a result of these various factors and potential issues related to customer spending, we may not be able to maintain or increase our revenue in the
future, and our operating results, financial condition and cash flows could be materially and adversely affected.
The loss of one or more of our key customers, a failure to continue diversifying our customer base, or a decrease in the number of larger transactions
could harm our business and our operating results.
Historically, a significant portion of our revenue has been derived from relatively few customers, due in part to customer consolidation. Sales to our
top 10 customers in the fiscal years ended December 31, 2024, 2023 and 2022 accounted for approximately 72%, 66% and 67% of our net revenue,
respectively. Although we continue to seek to broaden our customer base by penetrating new markets and further expanding internationally, we expect to
see continuing industry consolidation activity and customer concentration.
During the fiscal year ended December 31, 2024, Comcast and Charter Communications accounted for 44% and 18% of our net revenue respectively.
During the fiscal years ended December 31, 2023 and 2022, Comcast accounted for 44% and 39% of our net revenue respectively. Further consolidation in
the cable and broadcast and media industries could lead to additional revenue concentration for us. The loss of any significant customer, or any material
reduction in orders from any other significant customer, or our failure to qualify our new products with any significant customer could materially and
adversely affect, either long term or in a particular quarter, our operating results, financial condition and cash flows. If Comcast or other significant
Broadband customers deploy our solutions slower or at a scale that is lower than we anticipate, our operating results, financial condition and cash flows
could be materially and adversely effected.
In addition, in most quarters, we are involved in one or more relatively large individual transactions with respect to our Broadband and/or Video
business. A decrease in the number of the relatively larger individual transactions in which we are involved in any quarter could materially and adversely
affect the operating results for that quarter for the applicable business unit or the Company as a whole.
As a result of these and other factors, we may be unable to increase our revenues from some or all of the markets we address, or to do so profitably,
and any failure to increase revenues and profits from these customers could materially and adversely affect our operating results, financial condition and
cash flows.
We need to develop and introduce new and enhanced products and solutions in a timely manner to meet the needs of our customers and to remain
competitive.
All of the markets we address are characterized by continuing technological advancement, changes in customer requirements and evolving industry
standards. To compete successfully, we must continually design, develop, manufacture and sell new or enhanced products and solutions that provide
increasingly higher levels of performance and reliability and meet our customers’ changing needs. However, we may not be successful in those efforts if,
among other things, our products and solutions:
• are not cost effective;
• are not brought to market in a timely manner;
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• are not in accordance with evolving industry standards;
• fail to meet market acceptance or customer requirements; or
• are ahead of the needs of their markets.
If new standards or some of our new products are adopted later than we predict or not adopted at all, or if adoption occurs earlier than we are able to
deliver the applicable products or functionality, we risk spending significant research and development time and dollars on products or features that may
never achieve market acceptance or that miss the customer demand window and thus do not produce the revenue that a timely introduction would have
likely produced.
If we fail to develop and market new and enhanced products and solutions on a timely basis, our operating results, financial condition and cash flows
could be materially and adversely affected.
The markets in which we operate are intensely competitive.
The markets for our products are extremely competitive and have been characterized by rapid technological change and declining average sales prices
in the past.
Our competitors in our Broadband business include a number of suppliers of networking and communications equipment and solutions to broadband
service providers. Our competitors in our Video appliance business are primarily comprised of providers of video delivery and video processing and
compression products and solutions, broadcast equipment and solutions providers, and certain network infrastructure providers. Our competitors in our
Video SaaS business include companies that offer video delivery and processing SaaS solutions to SaaS video streaming platform providers, and certain
public cloud service providers.
A number of our principal business competitors in both of our business segments are substantially larger and/or may have access to greater financial,
technical, marketing or other resources than we have. Consolidation in the Video industry has led to the acquisition of a number of our historic competitors
over the last several years by private equity firms and by Amazon Web Services. With respect to our Broadband business, certain competitors are
substantially larger than us.
In addition, some of our larger competitors may have more long-standing and established relationships with certain domestic and foreign customers.
Many of these large enterprises are in a better position to withstand any significant reduction in spending by customers in our markets and may be better
able to navigate periods of market uncertainty, such as the uncertainty caused by the Middle East and the Russia-Ukraine conflicts and related risks of
escalation or broader regional conflicts, bank insolvency and related uncertainty and volatility in the financial services sector and inflation. They often have
broader product lines and market focus, and may not be as susceptible to downturns in a particular market. These competitors may also be able to bundle
their products together to meet the needs of a particular customer, and may be capable of delivering more complete solutions than we are able to provide.
To the extent large enterprises that currently do not compete directly with us choose to enter our markets by acquisition or otherwise, competition would
likely intensify.
Further, some of our competitors have offered, and in the future may offer, their products at lower prices than we offer for our competing products or
on more attractive financing or payment terms, which has in the past caused, and may in the future cause, us to lose sales opportunities and the resulting
revenue or to reduce our prices in response to that competition. Also, some competitors that are smaller than us have engaged in, and may continue to
engage in, aggressive price competition in order to gain customer traction and market share. Reductions in prices for any of our products could materially
and adversely affect our operating margins and revenue.
Additionally, with respect to our Video business in particular, certain customers and potential customers have developed, and may continue to
develop, their own solutions that may cause such customers or potential customers to not consider our product offerings or to displace our installed
products with their own solutions. The growing availability of open source codecs and related software, as well as new server chipsets that incorporate
encoding technology, has, in certain respects, lowered the barriers to entry for the video processing industry. The development of solutions by potential and
existing customers and the reduction of the barriers to entry to enter the video processing industry could result in increased competition and adversely
affect our results of operations and business.
If any of our competitors’ products or technologies were to become the industry standard, our business could be seriously harmed. If our competitors
are successful in bringing their products to market earlier than us, or if these products are more technologically capable than ours, our revenue could be
materially and adversely affected.
13
Our future growth depends on a number of broadband and video industry trends.
Technology, industry and regulatory trends and requirements may affect the growth of our business. These trends and requirements include the
following:
•
more consumers with more connected devices and applications;
•
convergence, whereby network operators bundle video, voice and data services to consumers, including mobile delivery options;
•
continued strong consumer demand for bandwidth-intensive video-on-demand and streaming video services, and interactive cloud
applications;
•
the pace of adoption and deployment of high-bandwidth technology, such as DOCSIS 3.x, DOCSIS 4.0, next generation LTE and FTTP,
along with virtualized broadband access solutions and distributed multiple access architectures;
•
continued adoption of public cloud SaaS platforms to stream video content to consumers, as well as for broadcast infrastructure
workflows;
•
continued growth in targeted advertising as a key revenue source for video streaming service providers;
•
the use of digital video by businesses, governments and educational institutions globally;
•
efforts by regulators and governments in the United States and internationally to encourage the adoption of broadband and digital
technologies, including 5G broadband networks, as well as to regulate broadband access and delivery;
•
the need to develop partnerships with other companies involved in broadband services and video infrastructure workflow;
•
the extent and nature of regulatory attitudes towards issues such as network neutrality, competition between operators, access by third
parties to networks of other operators, local franchising requirements for telcos to offer video, and other new services, such as mobile
video; and
•
the outcome of disputes and negotiations between content owners and service providers regarding rights of service providers to store and
distribute recorded broadcast content, which outcomes may drive adoption of one technology over another in some cases.
If we fail to recognize and respond to these trends, by timely developing products, features and services required by these trends, we are likely to lose
revenue opportunities and our operating results, financial condition and cash flows could be materially and adversely affected.
Our software-based broadband access product initiatives expose us to certain technology transition risks that may adversely impact our operating
results, financial condition and cash flows.
We believe our cOS software-based broadband access solutions, supporting centralized, DAA or hybrid configurations, will continue to significantly
reduce broadband operator headend costs and increase operational efficiency, and are an important step in operators’ transition to all-IP networks. If we are
unsuccessful in continuing to innovate, develop, and deploy our broadband access solutions in a timely manner, or are otherwise delayed in making our
solutions available to our customers, our business may be adversely impacted, particularly if our competitors develop and market similar or superior
products and solutions.
We believe our software-based broadband access solutions will continue to replace and make obsolete current CMTS solutions, which is a market our
products have historically not addressed, as well as cable edge-QAM products. If demand for our software-based broadband access solutions is weaker than
expected, our near and long-term operating results, financial condition and cash flows could be adversely impacted. Moreover, if competitors adapt new
broadband industry technology standards into competing broadband access solutions faster than we do, or promulgate a new or competitive architecture for
next-generation broadband access solutions that renders our cOS solution obsolete, our business may be adversely impacted.
14
The sales cycle for our cOS solutions tends to be long. For broadband operators, upgrading or expanding network infrastructure is complex and
expensive, and investing in a cOS solution is a significant strategic decision that may require considerable time to evaluate, test and qualify. Potential
customers need to ensure our cOS solution will interoperate with the various components of its existing network infrastructure, including third-party
equipment, servers and software. In addition, since we are a relatively new entrant into the CMTS market, we need to demonstrate significant performance,
functionality and/or cost advantages with our cOS solutions that outweigh customer switching costs. If sales cycles are significantly longer than anticipated
or we are otherwise unsuccessful in growing our cOS sales, our operating results, financial condition and cash flows could be materially and adversely
affected.
Our operating results are likely to fluctuate significantly and, as a result, may fail to meet or exceed the expectations of securities analysts or investors,
causing our stock price to decline.
Our operating results have fluctuated in the past and are likely to continue to fluctuate in the future, on an annual and a quarterly basis, as a result of
several factors, many of which are outside of our control. Some of the factors that may cause these fluctuations include:
•
the level and timing of spending of our customers in the United States, Europe and in other markets;
•
economic and financial conditions specific to each of the cable, satellite and telco, and broadcast and media industries; general economic
and financial market conditions, including impacts from the Middle East and Russia-Ukraine conflicts and related risks of escalation or
broader regional conflicts, tensions between China and Taiwan and China and the United States; tariffs; bank insolvencies and related
uncertainty and volatility in the financial services sector; inflation; and government and business responses thereto as well as related
supply chain and labor shortage issues;
•
changes in market acceptance of and demand for our products or our customers’ services or products;
•
the timing and amount of orders, especially from large individual transactions and transactions with our significant customers;
•
the mix of our products sold and the effect it has on gross margins;
•
the timing of revenue recognition, including revenue recognition on sales arrangements and from transactions with significant service and
support components, which may span several quarters;
•
our ongoing transition to a SaaS subscription model for our Video business, which may cause near-term declines in revenue in our Video
segment since, unlike Video appliance sales, SaaS revenue is recognized over the applicable subscription term based on service usage;
•
the timing of completion of our customers’ projects;
•
the length of each customer product upgrade cycle and the volume of purchases during the cycle;
•
competitive market conditions, including pricing actions by our competitors;
•
the level and mix of our domestic and international revenue;
•
new product introductions by our competitors or by us;
•
uncertainty in the European Union due to unrest or violence in Ukraine that the ongoing military conflict with the Russian Federation has
caused, which could adversely affect our results, financial condition and prospects;
•
uncertainty in the Middle East due to the latest developments in the conflicts in the Middle East and the risk of escalation and broader
conflict in the region, which could also adversely affect our results, financial condition and prospects;
•
changes in domestic and international regulatory environments affecting our business;
•
the evaluation of new services, new standards and system architectures by our customers;
•
the cost and timely availability to us of components, subassemblies and modules;
•
the mix of our customer base, by industry and size, and sales channels;
•
changes in our operating and extraordinary expenses;
15
•
the timing of acquisitions and dispositions by us and the financial impact of such transactions;
•
impairment of our goodwill;
•
the impact of litigation, such as related litigation expenses and settlement costs;
•
write-downs of inventory and investments;
•
changes in our effective federal tax rate, including as a result of changes in our valuation allowance against our deferred tax assets, and
changes in our effective state tax rates, including as a result of apportionment;
•
changes to tax rules related to the deferral of foreign earnings and compliance with foreign tax rules;
•
the impact of applicable accounting guidance on accounting for uncertainty in income taxes that requires us to establish reserves for
uncertain tax positions and accrue potential tax penalties and interest; and
•
the impact of applicable accounting guidance on business combinations that requires us to record charges for certain acquisition related
costs and expenses and generally to expense restructuring costs associated with a business combination subsequent to the acquisition
date.
The timing of deployment of our products by our customers can be subject to a number of other risks, including the availability of skilled engineering
and technical personnel, and the availability of third-party equipment and services. For our Video business, deployment risks may also include our
customers’ ability to negotiate and enter into rights agreements with video content owners that provide our customers with the right to deliver certain video
content, and our customers’ need for local franchise and licensing approvals.
We often recognize a substantial portion of our quarterly revenue in the last month of the quarter. We establish our expenditure levels for product
development and other operating expenses based on projected revenue levels for a specified period, and expenses are relatively fixed in the short term.
Accordingly, even small variations in the timing of revenue, particularly from relatively large individual transactions, can cause significant fluctuations in
operating results in a particular quarter.
As a result of these factors and other factors, our operating results in one or more future periods may fail to meet or exceed the expectations of
securities analysts or investors. In that event, the trading price of our common stock would likely decline.
We purchase several key components, subassemblies and modules used in the manufacture or integration of our products from sole or limited sources,
and we rely on contract manufacturers and other subcontractors.
Our reliance on sole or limited suppliers, particularly foreign suppliers, and our reliance on contractors for manufacturing and installation of our
products, involves several risks, including a potential inability to obtain an adequate supply of required components, subassemblies or modules; reduced
control over costs, quality and timely delivery of components, subassemblies or modules; supplier discontinuation of components, subassemblies or
modules we require; and timely installation of products. In addition, our financial results may be impacted by tariffs imposed by the United States on goods
from other countries and tariffs imposed by other countries on U.S. goods. For example, On February 1, 2025, the White House issued three executive
orders directing the United States to impose an increase of the duty on imports from Canada and Mexico and China and empowering the U.S. president to
raise the tariffs further should any country retaliate. On February 3, 2025, the prospective tariffs on Canada and Mexico were deferred for 30 days, though
the execution of these tariff increases remain possible beyond the current short-term reprieve. The 10% additional tariff on all imports from China went into
effect, and on February 4, 2025 China retaliated with various levels of tariffs on certain products imported into that country from the U.S. We are closely
monitoring these actions, which could have an adverse impact on our business and financial results. There can be no assurances that these disruptions will
not continue or increase in the future, with the previously mentioned countries or additional countries with which we do business. The degree to which
these changes in the global marketplace affect our financial results will be influenced by the specific details of the changes in trade policies, their timing
and duration, and our effectiveness in deploying tools to address these issues. If any such tariffs are imposed on products or components that we import,
including those obtained from a sole supplier or a limited group of suppliers, we could experience reduced revenues or may have to raise our prices, either
of which could have an adverse effect on our business, financial condition and operating results.
16
These risks could be heightened during a substantial economic slowdown because our suppliers and subcontractors are more likely to experience
adverse changes in their financial condition and operations during such a period. Further, these risks could materially and adversely affect our business if
one of our sole sources, or a sole source of one of our suppliers or contract manufacturers, is adversely affected by a natural disaster or the outbreak of
disease, epidemics and pandemics. These risks could also be heightened by geopolitical factors. For example, a number of the components we use in our
products are sourced through Taiwan. Deterioration of relations between Taiwan and China and the United States, the resulting actions taken by any of
these parties, and other factors affecting the political or economic conditions of Taiwan in the future, could adversely impact our supply chain, international
sales and operations. While we expend resources to qualify additional component sources, consolidation of suppliers and the small number of viable
alternatives have limited the results of these efforts. Managing our supplier and contractor relationships is particularly difficult during time periods in which
we introduce new products and during time periods in which demand for our products is increasing, especially if demand increases more quickly than we
expect.
Plexus Services Corp. (“Plexus”), which manufactures our products at its facilities in Malaysia, currently serves as our primary contract manufacturer,
and currently accounts for a majority, by dollar amount, of the products that we purchase from our contract manufacturers. From time to time, we assess
our relationship with our contract manufacturers, and we do not generally maintain long-term agreements with any of our suppliers or contract
manufacturers. Our agreement with Plexus has automatic annual renewals, unless prior notice is given by either party, and has been automatically renewed
for a term expiring in October 2025.
Difficulties in managing relationships with any of our current contract manufacturers, particularly Plexus, that manufacture our products off-shore, or
any of our suppliers of key components, subassemblies and modules used in our products, could impede our ability to meet our customers’ requirements
and adversely affect our operating results. An inability to obtain adequate and timely deliveries of our products or any components or materials used in our
products, or the inability of any of our contract manufacturers to scale their production to meet demand, or any other circumstance that would require us to
seek alternative sources of supply, would negatively affect our ability to ship our products on a timely basis, which could damage relationships with current
and prospective customers and harm our business and materially and adversely affect our revenue and other operating results. Furthermore, if we fail to
meet customers’ supply expectations, our revenue would be adversely affected and we may lose sales opportunities, both short and long term, which could
materially and adversely affect our business and our operating results, financial condition and cash flows. Increases, from time to time, in demand on our
suppliers and subcontractors from our customers or from other parties have, on occasion, caused delays in the availability of certain components and
products. In response, we may increase our inventories of certain components and products and expedite shipments of our products when necessary. These
actions could increase our costs and could also increase our risk of holding obsolete or excess inventory, which, despite our use of a demand order
fulfillment model, could materially and adversely affect our business, operating results, financial condition and cash flows.
Operational Risks
We face risks associated with having facilities and employees located in Israel.
As of December 31, 2024, we maintained facilities in Israel with a total of 246 employees, or approximately 20% of our worldwide workforce. Our
employees in Israel engage in a number of activities, for both our Broadband and Video business segments, including research and development, product
development, product management, supply chain management for certain product lines and sales activities.
As such, we are directly affected by the political, economic and military conditions affecting Israel, such as the ongoing conflict in the Middle East
and the risk of escalation and broader conflict in the region. Any significant conflict involving Israel could have a direct effect on our business, in the form
of physical damage to our facilities or injury to personnel, restrictions from traveling or reluctance to travel to from or within Israel by our Israeli and other
employees or those of our subcontractors, or the loss of Israeli employees to active military duty. Most of our employees in Israel are currently obligated to
perform annual reserve duty in the Israel Defense Forces, and approximately 13% of those employees were called for active military duty in 2024.
Approximately 13% of our employees in Israel have been called for military duty in connection with the current conflict in the Middle East, and in the
event that more of our employees are called to active duty, certain of our research and development, product development and testing and other activities
may be significantly delayed and adversely affected. Further, the interruption or curtailment of supply chains or trade between Israel and its trading
partners, as a result of terrorist attacks or hostilities, conflicts between Israel and any other Middle Eastern country or organization, or any other cause,
could significantly harm our business. Additionally, current or future tensions or conflicts in the Middle East, such as the ongoing Hamas-Israel, Hezbollah-
Israel and Iran-Israel conflicts, could materially and adversely affect our business, operating results, financial condition and cash flows.
17
We face risks associated with having outsourced engineering resources located in Ukraine.
We outsource a portion of our research and development and product support activities to our third-party partner, GlobalLogic, a Hitachi group
company. Through GlobalLogic, we have a significant number of engineering resources located in Kyiv, Ukraine that are dedicated to our Broadband and
Video business segments. Political, social and economic instability and unrest or violence in Ukraine from the ongoing military conflict with the Russian
Federation have caused, and may continue to cause, disruptions to the business and operations of GlobalLogic, which could slow or delay the development
work our outsourced engineering teams are undertaking for us. Any escalation of political tensions, military activity, instability, unrest or conflict could
disrupt or prevent the work of our outsourced engineering teams; limit or prevent our employees from traveling to, from, or within Ukraine to direct and
coordinate our outsourced engineering teams; or cause us to shift all or portions of the development work occurring in Ukraine, and/or cause GlobalLogic
to relocate personnel to other locations or countries pursuant to its business continuity plans. Any resulting delays could negatively impact our product
development efforts, operating results and our business. In addition, increased costs associated with managing or relocating our outsourced engineering
teams in Ukraine, or engaging with alternative engineering resources outside of Ukraine, could negatively impact our operating results and financial
condition.
We rely on resellers, value-added resellers and systems integrators for a significant portion of our Video business revenue, and disruptions to, or our
failure to develop and manage our relationships with these customers or the processes and procedures that support them could adversely affect our
business.
We generate a significant percentage of our revenue, particularly in our Video business, through sales to resellers, value-added resellers (“VARs”) and
systems integrators that assist us with fulfillment or installation obligations. We expect that these sales will continue to generate a significant percentage of
our revenue in the future. Accordingly, our future success is highly dependent upon establishing and maintaining successful relationships with a variety of
channel partners.
We generally have no long-term contracts or minimum purchase commitments with any of our resellers, VAR or system integrator customers, and our
contracts with these parties do not prohibit them from purchasing or offering products or services that compete with ours. Our competitors may provide
incentives to any of our resellers, VAR or systems integrator customers to favor their products or, in effect, to prevent or reduce sales of our products. Any
of our resellers, VAR or systems integrator customers may independently choose not to purchase or offer our products. Many of our resellers, and some of
our VARs and system integrators are small, are based in a variety of international locations, and may have relatively unsophisticated processes and limited
financial resources to conduct their business. Any significant disruption of our sales to these customers, including as a result of the inability or
unwillingness of these customers to continue purchasing our products, or their failure to properly manage their business with respect to the purchase of, and
payment for, our products, or their ability to comply with our policies and procedures as well as applicable laws, could materially and adversely affect our
business, operating results, financial condition and cash flows. In addition, our failure to continue to establish or maintain successful relationships with
reseller, VAR and systems integrator customers could likewise materially and adversely affect our business, operating results, financial condition and cash
flows.
We may not be able to effectively manage our operations.
As of December 31, 2024, we had 901 employees in our international operations, representing approximately 73% of our worldwide workforce. Our
ability to manage our business effectively in the future, including with respect to any future growth, our operation as both a hardware and increasingly
software- and SaaS-centric business, the integration of any acquisition efforts, and the breadth of our international operations, will require us to train,
motivate and manage our employees successfully, to attract and integrate new employees into our overall operations, to retain key employees and to
continue to improve and evolve our operational, financial and management systems. There can be no assurance that we will be successful in any of these
efforts, and our failure to effectively manage our operations could have a material and adverse effect on our business, operating results, cash flows and
financial condition.
In order to manage our growth, we must be successful in addressing management succession issues and attracting and retaining qualified personnel.
Our future success will depend, to a significant extent, on the ability of our management to operate effectively, both individually and as a group. We
must successfully manage transition and replacement issues that may result from the departure or retirement of members of our executive management. For
example, Nimrod Ben-Natan, the former Senior Vice President and General Manager of our Broadband business, succeeded Patrick Harshman as President
and Chief Executive Officer of the Company on June 11, 2024. Any significant leadership change or senior management transition involves inherent risks
and any failure to ensure timely and suitable replacements and smooth transition could hinder our strategic planning, business execution, and future
performance. We cannot provide assurances that any current or future changes of management personnel in the future will not cause disruption to
operations or customer relationships or a decline in our operating results.
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We are also dependent on our ability to retain and motivate our existing highly qualified personnel, in addition to attracting new highly qualified
personnel. Competition for qualified management, technical and other personnel is often intense, particularly in Silicon Valley, Israel and Hong Kong
where we have significant research and development activities, and we may not be successful in attracting and retaining such personnel. Competitors and
others have in the past attempted, and are likely in the future to attempt, to recruit our employees. While our employees are required to sign standard
agreements concerning confidentiality, non-solicitation and ownership of inventions, other than in Israel, we generally do not have non-competition
agreements with our personnel. The loss of the services of any of our key personnel, the inability to attract or retain highly qualified personnel in the future
or delays in hiring such personnel, particularly senior management and engineers and other technical personnel, could negatively affect our business and
operating results. Furthermore, a certain portion of our personnel in the United States is comprised of foreign nationals whose ability to work for us
depends on obtaining the necessary visas. Our ability to hire and retain foreign nationals in the United States, and their ability to remain and work in the
United States, is affected by various laws and regulations, including limitations on the availability of visas. Changes in U.S. laws or regulations affecting
the availability of visas have, and may continue to adversely affect, our ability to hire or retain key personnel and as a result may impair our operations.
Our products include third-party technology and intellectual property, and our inability to acquire new technologies or use third-party technology in
the future could harm our business.
In order to successfully develop and market certain of our planned products, we may be required to enter into technology development or licensing
agreements with third parties. Although companies with technology useful to us are often willing to enter into technology development or licensing
agreements with respect to such technology, we cannot provide assurances that such agreements may be negotiated on commercially reasonable terms, or at
all. The failure to enter, or a delay in entering, into such technology development or licensing agreements, when necessary or desirable, could limit our
ability to develop and market new products and could materially and adversely affect our business.
We incorporate certain third-party technologies, including software programs, into our products, and, as noted, intend to utilize additional third-party
technologies in the future. In addition, the technologies that we license may not operate properly or as specified, and we may not be able to secure
alternatives in a timely manner, either of which could harm our business. We could face delays in product releases until alternative technology can be
identified, licensed or developed, and integrated into our products, if we are able to do so at all. These delays, or a failure to secure or develop adequate
technology, could materially and adversely affect our business, operating results, financial condition and cash flows.
Cybersecurity incidents, including data security breaches or computer viruses, could harm our business by disrupting our business operations,
compromising our products and services, damaging our reputation or exposing us to liability.
Cyber criminals and hackers may attempt to penetrate our network security, or the network security of third parties we work with, including our third-
party vendors, service providers, manufacturers, solution providers, partners and consultants, misappropriate our proprietary information or cause business
interruptions, or access or misappropriate other sensitive data. Because the techniques used by such computer programmers to access or sabotage networks
change frequently and may not be recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate
preventative measures. In the past, we and relevant third parties have faced compromises to our network security, though no prior incidents we have
identified to date have materially affected our business, results of operations or financial condition. Companies are facing additional attacks as workforces
have become more distributed as a result of remote and hybrid working arrangements. Additionally, geopolitical events such as the Middle East and Russia-
Ukraine conflicts and heightened tension between Israel and Iran may increase the cybersecurity risks we and the third parties we work with face. Our
business operations utilize and rely upon numerous third-party vendors, service providers, manufacturers, solution providers, partners and consultants, and
any failure of such third parties’ cybersecurity measures could materially and adversely affect or disrupt our business. While we have invested in and
continue to update our network security and cybersecurity infrastructure and systems, if our cybersecurity systems, or the cybersecurity systems of relevant
third parties, fail to protect against unauthorized access, sophisticated cyber-attacks, phishing schemes, ransomware and other malicious code, data
protection breaches, computer viruses, denial-of-service attacks, or disruptions from unauthorized tampering or human error, our ability to conduct our
business effectively could be damaged in a number of ways, including:
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our intellectual property and other proprietary data, or financial assets, could be stolen, lost, altered, or otherwise unavailable;
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our ability to manage and conduct our business operations could be seriously disrupted;
•
defects and security vulnerabilities could be introduced into our product, software and SaaS offerings, thereby damaging the reputation
and perceived reliability and security of our products; and
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confidential or otherwise sensitive information, including personal data of our customers, employees and business partners, could be
compromised and lead to unauthorized, unlawful, or accidental access to, or acquisition, use, corruption, loss, destruction, unavailability,
alteration or dissemination of, or damage to, such information.
In addition, our systems, and the systems of third parties we work with, are potentially vulnerable to breakdown or other damage or interruption from
service interruptions, system malfunction, natural disasters, terrorism, war and telecommunication and electrical failures, as well as security breaches and
incidents from inadvertent or intentional actions by our employees, contractors, consultants, business partners, and/or other third parties, which may
compromise our system infrastructure or lead to the loss, destruction, alteration, prevention of access to, disclosure, or dissemination of, or damage or
unauthorized access to, our data (including trade secrets or other confidential information, intellectual property, proprietary business information, and
personal information) or data that is processed or maintained on our behalf, or other assets.
Should any of the above events occur, or be perceived to have occurred, our reputation, competitive position and business could be significantly
harmed, and we could be subject to claims, demands and litigation from customers, third parties, and other individuals and groups, and investigations or
other proceedings by governmental authorities, and may be subject to fines, penalties, damages, and other liabilities. Additionally, we could incur
significant costs in order to upgrade our cybersecurity systems and remediate damages and otherwise respond to the incident. Consequently, our business,
operating results, financial condition and cash flows could be materially and adversely affected.
We may not have applicable or otherwise adequate insurance to protect us from, or adequately mitigate, liabilities or damages resulting from security
breaches or incidents. The successful assertion of one or more large claims against us that exceeds any available insurance coverage that we might have, or
results in changes to insurance policies (including premium increases or the imposition of large deductible or co-insurance requirements), could have an
adverse effect on our business. In addition, we cannot be sure that insurance coverage will be available on acceptable terms or that insurers will not deny
coverage as to any future claim.
Our operating results could be adversely affected by natural disasters affecting us or impacting our third-party manufacturers, suppliers, resellers or
customers.
Our corporate headquarters is located in California, which is prone to earthquakes. In addition, climate change is contributing to an increase in erratic
weather patterns globally and intensifying the impact of certain types of catastrophes, such as floods, wildfires and droughts. We have employees,
consultants and contractors located in regions and countries around the world. In the event that any of our business, sales or research and development
centers or offices in the United States or internationally are adversely affected by an earthquake, flood, wildfire or by any other natural disaster, we may
sustain damage to our operations and properties, which could cause a sustained interruption or loss of affected operations, and cause us to suffer significant
financial losses.
We rely on third-party contract manufacturers for the production of our products. Any significant disruption in the business or operations of such
manufacturers or of their or our suppliers could adversely impact our business. Our principal contract manufacturers and several of their and our suppliers
and our resellers have operations in locations that are subject to natural disasters, such as severe weather, tsunamis, floods, fires and earthquakes, which
could disrupt their operations and, in turn, our operations.
In addition, if there is a natural disaster in any of the locations in which our significant customers are located, we face the risk that our customers may
incur losses or sustained business interruption, or both, which may materially impair their ability to continue their purchase of products from us.
Accordingly, natural disaster in one of the geographies in which we, or our third-party manufacturers, their or our suppliers or our customers, operate could
have a material and adverse effect on our business, operating results, cash flows and financial condition.
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Financial, Transactional and Tax Risks
We may need additional capital in the future and may not be able to secure adequate funds at all or on terms acceptable to us.
We engage in the design, development and manufacture and sale of a variety of video and broadband products and system solutions, which has
required, and will continue to require, significant research and development expenditures.
We are monitoring and managing our cash position in light of ongoing market conditions due to potential volatility and uncertainty in the banking and
financial services sector, and the Middle East and Russia-Ukraine conflicts, and related macroeconomic conditions. We believe that our existing cash of
approximately $101.5 million as of December 31, 2024 will satisfy our cash requirements for at least the next 12 months. However, we may need to raise
additional funds to take advantage of presently unanticipated strategic opportunities, satisfy our other cash requirements from time to time, or strengthen
our financial position. Our ability to raise funds may be adversely affected by a number of factors, including factors beyond our control, such as weakness
in the economic conditions in markets in which we sell our products, bank failures and continued uncertainty in financial, capital and credit markets. There
can be no assurance that equity or debt financing will be available to us on reasonable terms, if at all, when and if it is needed.
We may raise additional financing through public or private equity or convertible debt offerings, debt financings, or corporate partnership or licensing
arrangements. To the extent we raise additional capital by issuing equity securities or convertible debt, our stockholders may experience dilution, and any
new equity or convertible debt securities we issue could have rights, preferences, and privileges superior to holders of our common stock. Further, volatility
in equity capital markets may adversely affect market prices of our common stock. This may materially and adversely affect our ability to raise additional
capital through public or private equity offerings. To the extent that we raise additional funds through collaboration and licensing arrangements, it may be
necessary to relinquish some rights to our technologies or products, or grant licenses on terms that are not favorable to us. Our current debt agreements
require, and any debt financing that we secure in the future may require us to pledge assets or enter into covenants that could restrict our operations or our
ability to incur further indebtedness and our interest obligations with respect to such debt may adversely affect our operating results. Further, historically
high interest rates and tightening credit markets may reduce our access to debt financing, which may adversely affect our future business plans and
expected growth and would increase the cost of long-term fixed rate and short-term variable rate borrowings, which could reduce our earnings.
If adequate capital is not available, or is not available on reasonable terms, when needed, we may not be able to take advantage of acquisitions or
other market opportunities, to timely develop new products, or to otherwise respond to competitive pressures.
Our Credit Agreement imposes operating and financial restrictions on us.
On December 21, 2023, we entered into a Credit Agreement, among the Company, certain subsidiaries of the Company from time to time party
thereto, the lenders party thereto from time to time and Citibank, N.A., as administrative agent (the “Credit Agreement”). The obligations under the Credit
Agreement and the other loan documents are required to be guaranteed by certain of our material subsidiaries, and secured by substantially all of the assets
of the Company and such subsidiary guarantors. The Credit Agreement provides for a $160.0 million secured revolving loan facility (the “Revolving
Facility”), with a $10.0 million sublimit for the issuance of letters of credit, and a $40.0 million secured delayed draw term loan facility (the “Term
Facility”). To finance the settlement of the conversions of the 2024 Notes in connection with our delivery of the notice of redemption for such notes, we
drew down $75.0 million on the Revolving Facility and $40.0 million on the Term Facility, respectively. As of December 31, 2024, we had $82.0 million
remaining available for borrowing under the Revolving Facility and no remaining amounts available for borrowing under the Term Facility.
Our Credit Agreement contains covenants that limit our ability and the ability of our subsidiaries to, subject to certain limitations and exceptions:
•
grant liens;
•
incur debt;
•
make acquisitions and other investments;
•
undergo certain fundamental changes;
•
dispose of assets;
•
make certain restricted payments;
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•
enter into transactions with affiliates; and
•
enter into burdensome agreements.
Further, the Credit Agreement contains financial covenants that require compliance with a maximum consolidated net leverage ratio and minimum
fixed charge coverage ratio, in each case, determined in accordance with the terms of the Credit Agreement. These covenants may adversely affect our
ability to finance our operations, meet or otherwise address our capital needs, pursue business opportunities or react to market conditions, or otherwise
restrict our activities or business plans. In addition, our obligations to repay principal and interest on our indebtedness could make us vulnerable to
economic or market downturns.
A breach of any of these covenants could result in an event of default under the Credit Agreement. As of December 31, 2024, we were in compliance
with all covenants under the Credit Agreement; however, if an event of default occurs, the lenders may terminate their commitments and accelerate our
obligations under the Credit Agreement. We might not be able to repay our debt or borrow sufficient funds to refinance it on terms that are acceptable to us.
Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt.
Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including any amounts borrowed
under our Credit Agreement, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control.
Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If
we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining
additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on our ability to borrow
under the terms of the Credit Agreement, the capital markets and our financial condition at such time. We may not be able to engage in any of these
activities or engage in these activities on desirable terms, which could result in a default on our debt obligations, including any outstanding loans under the
Credit Agreement.
Despite our current debt levels, we may still incur substantially more debt or take other actions which would intensify the risks discussed above.
Despite our current consolidated debt levels, we and our subsidiaries may be able to incur substantial additional debt in the future, subject to the
restrictions contained in our debt instruments, some of which may be secured debt. Such additional indebtedness could have the effect of diminishing our
ability to make payments on our debt when due. Our Credit Agreement permits us to incur certain additional indebtedness and grant certain liens on our
assets, subject to limitations and requirements as set forth in the Credit Agreement, that could intensify the risks discussed above.
We have made, and may continue to make, acquisitions, and any acquisition could disrupt our operations, cause dilution to our stockholders and
materially and adversely affect our business, operating results, cash flows and financial condition.
As part of our business strategy, from time to time we have acquired, and we may continue to acquire, businesses, technologies, assets and product
lines that we believe complement or expand our existing business. Acquisitions involve numerous risks, including the following:
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unanticipated costs or delays associated with an acquisition;
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difficulties in the assimilation and integration of acquired operations, technologies and/or products;
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potential disruption of our business and the diversion of management’s attention from the regular operations of the business during the
acquisition process;
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the challenges of managing a larger and more geographically widespread operation and product portfolio after the closing of the
acquisition;
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potential adverse effects on new and existing business relationships with suppliers, contract manufacturers, resellers, partners and
customers;
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compliance with regulatory requirements, such as local employment regulations and organized labor requirements;
•
risks associated with entering markets in which we may have no or limited prior experience;
•
the potential loss of key employees of acquired businesses and our own business as a result of integration;
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•
difficulties in bringing acquired products and businesses into compliance with applicable legal requirements in jurisdictions in which we
operate and sell products;
•
impact of known potential liabilities or unknown liabilities, including litigation and infringement claims, associated with companies we
acquire;
•
substantial charges for acquisition costs or for the amortization of certain purchased intangible assets, deferred stock compensation or
similar items;
•
substantial impairments to goodwill or intangible assets in the event that an acquisition proves to be less valuable than the price we paid
for it;
•
difficulties in establishing and maintaining uniform financial and other standards, controls, procedures and policies;
•
delays in realizing, or failure to realize, the anticipated benefits of an acquisition; and
•
the possibility that any acquisition may be viewed negatively by our customers or investors or the financial markets.
Competition within our industry for acquisitions of businesses, technologies, assets and product lines has been, and is likely to continue to be, intense.
As such, even if we are able to identify an acquisition that we would like to consummate, we may not be able to complete the acquisition on commercially
reasonable terms or because the target chooses to be acquired by another company. Furthermore, in the event that we are able to identify and consummate
any future acquisitions, we may, in each of those acquisitions:
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issue equity securities which would dilute current stockholders’ percentage ownership;
•
incur substantial debt to finance the acquisition or assume substantial debt in the acquisition;
•
incur significant acquisition-related expenses;
•
assume substantial liabilities, contingent or otherwise; or
•
expend significant cash.
These financing activities or expenditures could materially and adversely affect our operating results, cash flows and financial condition or the price
of our common stock. Alternatively, due to difficulties in the capital or credit markets that may exists at the time, we may be unable to secure capital
necessary to complete an acquisition on reasonable terms, or at all. Moreover, even if we were to obtain benefits from acquisitions in the form of increased
revenue and earnings per share, there may be a delay between the time the expenses associated with an acquisition are incurred and the time we recognize
such benefits.
As of December 31, 2024, we had approximately $236.9 million of goodwill recorded on our balance sheet associated with prior acquisitions. In the
event we determine that our goodwill is impaired, we would be required to write down all or a portion of such goodwill, which could result in a material
non-cash charge to our results of operations in the period in which such write-down occurs.
If we are unable to successfully address one or more of these risks, our business, operating results, financial condition and cash flows could be
materially and adversely affected.
We may sell one or more of our product lines, from time to time, as a result of our evaluation of our products and markets, and any such divestiture
could adversely affect our continuing business and our expenses, revenues, results of operation, cash flows and financial position.
We periodically evaluate our various product lines and may, as a result, consider the divestiture of one or more of those product lines. Such
evaluations may disrupt our business by causing distractions to management, shifts in strategy, decreased employee morale and productivity, and increased
turnover. We have considered selling and sold product lines in the past, and any prior or future divestiture could adversely affect our continuing business
and expenses, revenues, results of operations, cash flows and financial position.
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Divestitures of product lines have inherent risks, including the expense of selling the product line, the possibility that any anticipated sale will not
occur, delays in closing any sale, the risk of lower-than-expected proceeds from the sale of the divested business, unexpected costs associated with the
separation of the business to be sold from the seller’s information technology and other operating systems, and potential post-closing claims for
indemnification or breach of transition services obligations of the seller. Expected cost savings, which are offset by revenue losses from divested
businesses, may also be difficult to achieve or maximize due to the seller’s fixed cost structure, and a seller may experience varying success in reducing
fixed costs or transferring liabilities previously associated with the divested business.
The nature of our business requires the application of complex revenue and expense recognition rules and the current legislative and regulatory
environment affecting generally accepted accounting principles is uncertain. Significant changes in current principles could affect our financial
statements going forward and changes in financial accounting standards or practices may cause adverse, unexpected financial reporting fluctuations
and harm our operating results.
United States generally accepted accounting principles (“U.S. GAAP”) are subject to interpretation by the Financial Standards Accounting Board
(“FASB”), the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. We are also subject to evolving rules and
regulations of the countries in which we do business. Changes to accounting standards or interpretations thereof may result in different accounting
principles under U.S. GAAP that have a significant effect on our reported financial results and require us to incur costs and expenses in order to comply
with the updated standards or interpretations.
In addition, we have in the past and may in the future need to modify our customer contracts, accounting systems and processes when we adopt future
or proposed changes in accounting principles. The cost and effect of these changes may negatively impact our results of operations during the periods of
transition.
Fluctuations in our future effective tax rates could affect our future operating results, financial condition and cash flows.
We are required to periodically review our deferred tax assets and determine whether, based on available evidence, a valuation allowance is necessary.
The realization of our deferred tax assets, which are predominantly in the United States, is dependent upon the generation of sufficient U.S. and foreign
taxable income in the future to offset these assets. Based on our evaluation, we recorded a net increase in valuation allowance of $0.4 million in 2024 and a
net decrease of $63.9 million in 2023, respectively, against the net deferred tax assets. In 2023, there was a full release of the valuation allowance against
U.S. Federal and certain state deferred tax assets due to improved historical earnings and projected earnings. Changes in the amount of the valuation
allowance in the U.S. and in foreign jurisdictions could result in a material non-cash expense or benefit in the period in which the valuation allowance is
adjusted, and our results of operations could be materially affected.
The calculation of tax liabilities involves dealing with uncertainties in the application of complex global tax regulations. We recognize potential
liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes
will be due. In the event we determine that it is appropriate to create a reserve or increase an existing reserve for any such potential liabilities, the amount of
the additional reserve will be charged as an expense in the period in which it is determined. If payment of these amounts ultimately proves to be
unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer
necessary. If the estimate of tax liabilities proves to be less than the ultimate tax assessment for the applicable period, a further charge to expense in the
period such shortfall is determined would result. Either such charge to expense could have a material and adverse effect on our operating results for the
applicable period.
Our future effective income tax rates could be adversely affected if tax authorities challenge our international tax structure or if our relative mix of
U.S. and international income changes for any reason. Accordingly, there can be no assurance that our effective income tax rate will remain consistent.
We are subject to taxation-related risks in multiple jurisdictions, and the adoption and interpretation of new tax legislation, tax regulations, tax rulings,
or exposure to additional tax liabilities could materially affect our business, financial condition and results of operations.
Tax laws are regularly re-examined and evaluated globally. New laws and interpretations of the law are considered for financial statement purposes in
the quarter or year that they are enacted. Tax authorities are increasingly scrutinizing the tax positions of multinational companies. If U.S. or other foreign
tax authorities change applicable tax laws, or if there is a change in interpretation of existing law, our overall liability could increase, and our business,
financial condition and results of operations may be harmed.
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For example, effective as of January 1, 2022, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development
expenditures currently and requires such expenditures to be capitalized and amortized ratably over a five-year period for domestic expenditures or a fifteen-
year period for foreign expenditures. The Internal Revenue Service has not issued Treasury Regulations that provide guidance on how to apply this new tax
law. If or when Treasury Regulations are released, it may impact the Company’s estimate of capitalized costs or the Company’s current interpretation of the
tax law. Any change in tax law will be accounted for in the period of enactment.
Further, the Inflation Reduction Act of 2022, among other things, imposes a one-percent non-deductible excise tax on certain repurchases of stock
that are made by U.S. publicly traded corporations on or after January 1, 2023, which may affect our share repurchase program.
In addition, the Organization for Economic Co-operation and Development (the “OECD”), the European Union, as well as a number of other
countries and organizations have recently enacted new laws, and proposed or recommended changes to existing tax laws, that may increase our tax
obligations in many countries where we do business or require us to change the manner in which we operate our business. For example, the OECD has
introduced a framework to implement a 15% global minimum corporate tax, referred to as Pillar 2, which Member States in the European Union have
implemented into national legislation as of the end of 2023 and has been adopted by certain other jurisdictions. As we expand the scale of our business
activities, any changes in U.S. or foreign tax laws that apply to such activities may increase our worldwide effective tax rate and harm our business,
financial condition and results of operations.
Legal, Regulatory and Compliance Risks
We or our customers may face intellectual property infringement claims from third parties.
Our industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding patent and other
intellectual property rights. In particular, leading companies in the telco industry have extensive patent portfolios. Also, patent infringement claims and
litigation by entities that purchase or control patents, but do not produce goods or services covered by the claims of such patents (so-called “non-practicing
entities” or “NPEs”), have increased rapidly over the last decade or so. From time to time, third parties, including NPEs, have asserted, and may assert in
the future, patent, copyright, trademark and other intellectual property rights against us or our customers, and have initiated audits to determine whether we
have missed royalty payments for technology that we license. Our suppliers and their customers, including us, may have similar claims asserted against
them. A number of third parties, including companies with greater financial and other resources than us, have asserted patent rights to technologies that are
important to us.
Any intellectual property litigation, regardless of its outcome, could result in substantial expense and significant diversion of the efforts of our
management and technical personnel. An adverse determination in any such proceeding could subject us to significant liabilities and temporary or
permanent injunctions and require us to seek licenses from third parties or pay royalties that may be substantial. Furthermore, necessary licenses may not
be available on terms satisfactory to us, or at all. An unfavorable outcome on any such litigation matter could require that we pay substantial damages,
could require that we pay ongoing royalty payments, or could prohibit us from selling certain of our products. Any such outcome could have a material and
adverse effect on our business, operating results, financial condition and cash flows.
Our suppliers and customers may have intellectual property claims relating to our products asserted against them. We have agreed to indemnify some
of our suppliers and most of our customers for patent infringement relating to our products. The scope of this indemnity varies, but, in some instances,
includes indemnification for damages and expenses (including reasonable attorney’s fees) incurred by the supplier or customer in connection with such
claims. If a supplier or a customer seeks to enforce a claim for indemnification against us, we could incur significant costs defending such claim, the
underlying claim or both. An adverse determination in either such proceeding could subject us to significant liabilities and have a material and adverse
effect on our operating results, cash flows and financial condition.
We may be the subject of litigation which, if adversely determined, could harm our business and operating results.
We may be subject to claims arising in the normal course of business. The costs of defending any litigation, whether in cash expenses or in
management time, could harm our business and materially and adversely affect our operating results and cash flows. An unfavorable outcome on any
litigation matter could require that we pay substantial damages, or, in connection with any intellectual property infringement claims, could require that we
pay ongoing royalty payments or prohibit us from selling certain of our products. In addition, we may decide to settle any litigation, which could cause us
to incur significant settlement costs. A settlement or an unfavorable outcome on any litigation matter could have a material and adverse effect on our
business, operating results, financial condition and cash flows.
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Our failure to adequately protect our proprietary rights and data may adversely affect us.
As of December 31, 2024, we held 133 issued U.S. patents and 48 issued foreign patents, and had 48 patent applications pending. Although we
attempt to protect our intellectual property rights through patents, trademarks, copyrights, licensing arrangements, maintaining certain technology as trade
secrets and other measures, we can give no assurances that any patent, trademark, copyright or other intellectual property rights owned by us will not be
invalidated, circumvented or challenged, that such intellectual property rights will provide competitive advantages to us, or that any of our pending or
future patent applications will be issued with the scope of the claims sought by us, if at all. We can give no assurances that others will not develop
technologies that are similar or superior to our technologies, duplicate our technologies or design around the patents that we own. In addition, effective
patent, copyright and trade secret protection may be unavailable or limited in certain foreign countries in which we do business or may do business in the
future.
We may enter into confidentiality or license agreements with our employees, consultants, and vendors and our customers, as needed, and generally
limit access to, and distribution of, our proprietary information. Nevertheless, we cannot provide assurances that the steps taken by us will prevent
misappropriation of our technology. In addition, we have taken in the past, and may take in the future, legal action to enforce our patents and other
intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of
infringement or invalidity. Such litigation could result in substantial costs and diversion of management time and other resources, and could materially and
adversely affect our business, operating results, financial condition and cash flows.
Our use of open source software in some of our products may expose us to certain risks.
Some of our products contain software modules licensed for use from third-party authors under open source licenses. Use and distribution of open
source software may entail greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or other
contractual protections regarding infringement claims or the quality of the code. Some open source licenses contain requirements that we make available
source code for modifications or derivative works we create based upon the type of open source software we use. If we combine our proprietary software
with open source software in a certain manner, we could, under certain of the open source licenses, be required to release the source code of our proprietary
software to the public. This could allow our competitors to create similar products with lower development effort and in less time and ultimately could
result in a loss of product sales for us.
Although we monitor our use of open source closely, it is possible our past, present or future use of open source has triggered or may trigger the
foregoing requirements. Furthermore, the terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that such licenses
could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our products. In such event, we
could be required to seek licenses from third parties in order to continue offering our products, to re-engineer our products or to discontinue the sale of our
products in the event re-engineering cannot be accomplished on a timely basis, any of which could materially and adversely affect our operating results,
financial condition and cash flows.
26
We are subject to import and export control and trade and economic sanction laws and regulations that could subject us to liability or impair our ability
to compete in international markets.
Our products are subject to U.S. export control laws, and may be exported outside the United States only with the required export license or through
an export license exception, in most cases because we incorporate encryption technology into certain of our products. We are also subject to U.S. trade and
economic sanction regulations which include prohibitions on the sale or supply of certain products and services to the United States embargoed or
sanctioned countries, governments, persons and entities. In addition, various countries regulate the import of certain technology and have enacted laws that
could limit our ability to distribute our products, or could limit our customers’ ability to implement our products, in those countries. Although we take
precautions and have processes in place to prevent our products and services from being provided in violation of such laws, our products may have been in
the past, and could in the future be, provided inadvertently in violation of such laws, despite the precautions we take. In March 2020, we received an
administrative subpoena from the U.S. Treasury Department’s office of Foreign Assets Control (“OFAC”) requesting information about transactions
involving Iran. The transactions were by the French company TVN, which we acquired in early 2016. Pursuant to regulations that remained in place until
2018, foreign subsidiaries of U.S. companies were allowed to engage in transactions with Iran if certain requirements were met. In February 2023, OFAC
notified us that it had completed its review of these matters and closed its review with the issuance of a Cautionary Letter. While OFAC did not assess any
penalties, the Cautionary Letter does not preclude OFAC from taking future enforcement actions if additional information warrants renewed attention.
Furthermore, OFAC may consider our regulatory history, including this subpoena, our disclosures and the Cautionary Letter, if we are involved in future
enforcement cases for failure to comply with export control laws and regulations. If we are found to have violated U.S. export control laws as a result of
future investigations, we and certain of our employees could be subject to civil or criminal penalties, including the possible loss of export privileges,
monetary penalties, and, in extreme cases, imprisonment of responsible employees for knowing and willful violations of these laws which could lead to
penalties, reputational harm, loss of access to certain markets, or otherwise.
In addition, we may be subject to customs duties that could have a significant adverse impact on our operating results or, if we are able to pass on the
related costs in any particular situation, would increase the cost of the related product to our customers. As a result, the future imposition of significant
increases in the level of customs duties or the creation of import quotas on our products in Europe or in other jurisdictions, or any of the limitations on
international sales described above, could have a material adverse effect on our business, operating results, financial condition and cash flows. Further,
some of our customers in Europe have been, or are being, audited by local governmental authorities regarding the tariff classifications used for importation
of our products. Import duties and tariffs vary by country and a different tariff classification for any of our products may result in higher duties or tariffs,
which could have an adverse impact on our operating results and potentially increase the cost of the related products to our customers.
Our business and industry are subject to various laws and regulations that could adversely affect our business, operating results, cash flows and
financial condition.
Our business and industry are regulated under various federal, state, local and international laws. For example, we are subject to environmental
regulations such as the European Union’s Waste Electrical and Electronic Equipment (“WEEE”) and Restriction on the Use of Certain Hazardous
Substances in Electrical and Electronic Equipment (“RoHS”) directives and similar legislation enacted in other jurisdictions worldwide. Our failure to
comply with these laws could result in our being directly or indirectly liable for costs, fines or penalties and third-party claims, and could jeopardize our
ability to conduct business in such regions and countries. We expect that our operations will be affected by other new environmental laws and regulations
on an ongoing basis. Although we cannot predict the ultimate impact of any such new laws and regulations, they would likely result in additional costs, and
could require that we redesign or change how we manufacture our products, any of which could have a material and adverse effect on our operating results,
financial condition and cash flows.
We are subject to the Sarbanes-Oxley Act of 2002 which, among other things, requires an annual review and evaluation of our internal control over
financial reporting. If we conclude in future periods that our internal control over financial reporting is not effective or if our independent registered public
accounting firm is unable to provide an unqualified attestation as of future year-ends, we may incur substantial additional costs in an effort to correct such
problems, and investors may lose confidence in our financial statements, and our stock price may decrease in the short term, until we correct such
problems, and perhaps in the long term, as well.
27
We are subject to requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 that require us to conduct research,
disclose, and report whether or not our products contain certain conflict minerals sourced from the Democratic Republic of Congo or its surrounding
countries. The implementation of these requirements could adversely affect the sourcing, availability, and pricing of the materials used in the manufacture
of components used in our products. In addition, we may incur certain additional costs to comply with the disclosure requirements, including costs related
to conducting diligence procedures to determine the sources of conflict minerals that may be used or necessary to the production of our products and, if
applicable, potential changes to products, processes or sources of supply as a consequence of such verification activities. It is also possible that we may
face reputational harm if we determine that certain of our products contain minerals not determined to be conflict-free and/or we are unable to alter our
products, processes or sources of supply to avoid such materials.
Changes in telco legislation and regulations in the United States and other countries could affect our sales and the revenue we are able to derive from
our products. In particular, changes in laws or regulations that adversely affect the growth, popularity or use of the internet, including laws impacting net
neutrality or requiring payment of network access fees, could decrease the demand for our service and increase our cost of doing business. Certain laws
intended to prevent network operators from discriminating against the legal traffic that traverse their networks have been implemented in many countries,
including across the European Union. In others, the laws may be nascent or non-existent. Furthermore, favorable laws may change, including for example,
in the United States where net neutrality regulations were recently repealed. We cannot predict whether such laws and regulations will be modified,
overturned, or vacated. The repeal of the net neutrality rules or other regulations dealing with access by competitors to the networks of incumbent operators
could slow or stop infrastructure and services investments or expansion by service providers. Increased regulation of our customers’ pricing or service
offerings could limit their investments and, consequently, revenue from our products. The impact of new or revised legislation or regulations could have a
material adverse effect on our business, operating results, financial condition and cash flows.
We are also subject to laws and regulations to our collection and other processing of personal data of our employees, customers, and others. These
laws and regulations are subject to frequent modifications and updates and require ongoing supervision. For example, the European Union adopted a
General Data Protection Regulation (“GDPR”) that became effective in May 2018, and has established new, and in some cases more stringent,
requirements for data protection in Europe, and which provides for substantial penalties for noncompliance. Additionally, California has the California
Consumer Privacy Act (“CCPA”), which went into effect on January 1, 2020. In November 2020, California passed the California Privacy Rights Act
(“CPRA”), which went into effect on January 1, 2023. The CPRA amends and augments the CCPA including by expanding individuals’ rights and the
obligations of businesses that handle personal data. Other legislation relating to these matters, in many cases general legislation similar to the CCPA, has
been proposed or adopted in several other states. Aspects of the CCPA, CPRA and these other laws and regulations, as well as their enforcement, remain
unclear. The U.S. federal government also is contemplating federal privacy legislation. The effects and impact of these or other laws and regulations
relating to privacy and data protection are potentially significant and may require us to modify our data processing practices and policies and to incur
substantial costs and expenses in efforts to comply. Laws and regulations relating to privacy and data protection continue to evolve in various jurisdictions,
with existing laws and regulations subject to new and differing interpretations and new laws and regulations being proposed and adopted. It is possible that
our practices may be deemed not to comply with those privacy and data protection legal requirements that apply to us now or in the future. Our failure or
perceived failure to comply with any of the foregoing legal and regulatory requirements, or other actual or asserted obligations relating to privacy, data
protection or information security could result in increased costs for our products, monetary penalties, damage to our reputation, government inquiries,
investigations and other legal proceeds, legal claims, demands and litigation and other obligations and liabilities.
We depend significantly on our international revenue and are subject to the risks associated with international operations, including those of our
resellers, contract manufacturers and outsourcing partners, which may negatively affect our operating results.
Revenue derived from customers outside of the United States in the fiscal years ended December 31, 2024, 2023 and 2022 represented approximately
24%, 33% and 37% of our revenue, respectively. Although no assurance can be given with respect to international sales growth in any one or more regions,
we expect that international revenue will likely continue to represent, from year to year, a significant, and potentially increasing, percentage of our annual
revenue for the foreseeable future. A significant percentage of our revenue is generated from sales to resellers, VARs and systems integrators, particularly
in emerging market countries. Furthermore, the majority of our employees are based in our international offices and locations, and most of our contract
manufacturing occurs outside of the United States. In addition, we outsource a portion of our research and development activities to certain third-party
partners with development centers located in different countries, particularly Ukraine and India.
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Our international operations, international operations of our resellers, contract manufacturers and outsourcing partners, and our efforts to maintain and
increase revenue in international markets are subject to a number of risks, which are generally greater with respect to emerging market countries, including
the following:
•
growth and stability of the economy in one or more international regions, including regional economic impacts of the Middle East and
Russia-Ukraine conflicts and potential escalations and broader regional conflicts, and tensions between China and Taiwan and the United
States;
•
fluctuations in currency exchange rates;
•
ability of certain non-U.S. customers to timely make payments in U.S. dollar due to local government currency controls;
•
changes in foreign government regulations and telco standards;
•
import and export license requirements, tariffs, taxes, economic sanctions, contractual limitations and other trade barriers;
•
our significant reliance on resellers and others to purchase and resell our products and solutions, particularly in our Video business and in
emerging market countries;
•
availability of credit, particularly in emerging market countries;
•
longer collection periods and greater difficulty in enforcing contracts and collecting accounts receivable, especially from smaller
customers and resellers, particularly in emerging market countries;
•
compliance with the FCPA, the U.K. Bribery Act and/or similar anti-corruption and anti-bribery laws, particularly in emerging market
countries;
•
the burden of complying with a wide variety of foreign laws, regulations, treaties and technical standards;
•
fulfilling “country of origin” requirements for our products for certain customers;
•
difficulty in staffing and managing foreign operations;
•
business and operational disruptions or delays caused by political, social and/or economic instability and unrest (e.g., Ukraine and Israel),
including risks related to terrorist activity, particularly in emerging market countries;
•
changes in economic policies by foreign governments, including the imposition and potential continued expansion of economic sanctions
by the United States and the European Union on the Russian Federation;
•
changes in diplomatic and trade relationships, including the imposition of new trade restrictions, trade protection measures, import or
export requirements, trade embargoes and other trade barriers, including those between the United States and China;
•
any negative economic impacts resulting from the political environment in the United States or the United Kingdoms’ exit from the
European Union; and
•
business and economic disruptions and delays caused by outbreaks of disease, epidemics and potential pandemics.
We have certain international customers who are billed in their local currency, primarily the Euro, British pound and Japanese yen, which subjects us
to foreign currency risk. In addition, a portion of our operating expenses relating to the cost of certain international employees, are denominated in foreign
currencies, primarily the Euro, Israeli shekel, British pound, Singapore dollar, Chinese yuan and Indian rupee. Gains and losses on the conversion to U.S.
dollars of accounts receivable, accounts payable and other monetary assets and liabilities arising from international operations may contribute to
fluctuations in our operating results. Furthermore, payment cycles for international customers are typically longer than those for customers in the United
States. Unpredictable payment cycles could cause us to fail to meet or exceed the expectations of security analysts and investors for any given period.
29
Most of our international revenue is denominated in U.S. dollars, and fluctuations in currency exchange rates could cause our products to become
relatively more expensive to customers in a particular country or region, leading to a reduction in revenue or profitability from sales in that country or
region. The potential negative impact of a strong U.S. dollar on our business may be exacerbated by the significant devaluation of a number of foreign
currencies. Also, if the U.S. dollar were to weaken against many foreign currencies, there can be no assurance that a weaker dollar would lead to growth in
customer spending in foreign markets.
Our operations outside the United States also require us to comply with a number of U.S. and international regulations that prohibit improper
payments or offers of payments to foreign governments and their officials and political parties for corrupt purposes. For example, our operations in
countries outside the United States are subject to the FCPA and similar laws, including the U.K. Bribery Act. Our activities in certain emerging countries
create the risk of unauthorized payments or offers of payments by one of our employees, consultants, sales agents or channel partners that could be in
violation of various anti-corruption laws, even though these parties may not be under our control. Under the FCPA and U.K. Bribery Act, companies may
be held liable for the corrupt actions taken by their directors, officers, employees, channel partners, sales agents, consultants, or other strategic or local
partners or representatives. We have internal control policies and procedures with respect to FCPA compliance, have implemented FCPA training and
compliance programs for our employees, and include in our agreements with resellers a requirement that those parties comply with the FCPA. However, we
cannot provide assurances that our policies, procedures and programs will prevent violations of the FCPA or similar laws by our employees or agents,
particularly in emerging market countries, and as we expand our international operations. Any such violation, even if prohibited by our policies, could
result in criminal or civil sanctions against us.
The effect of one or more of these international risks could have a material and adverse effect on our business, financial condition, operating results
and cash flows.
Risks Related to Ownership of Our Common Stock
Some anti-takeover provisions contained in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could impair a takeover
attempt.
We have provisions in our certificate of incorporation and bylaws that could have the effect of rendering more difficult or discouraging an acquisition
deemed undesirable by our Board. These include provisions:
•
authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our
common stock;
•
limiting the liability of, and providing indemnification to, our directors and officers;
•
limiting the ability of our stockholders to call, and bring business before, special meetings;
•
requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of
candidates for election to our Board;
•
controlling the procedures for conducting and scheduling of Board and stockholder meetings; and
•
providing our Board with the express power to postpone previously scheduled annual meetings and to cancel previously scheduled
special meetings.
These provisions could delay hostile takeovers, changes in control of the Company or changes in our management. As a Delaware corporation, we are
also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation law, which prevents some stockholders holding
more than 15% of our outstanding common stock from engaging in certain business combinations without approval of the holders of substantially all of our
outstanding common stock. Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a
change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the
price that some investors are willing to pay for our common stock.
30
Our common stock price may be extremely volatile, and the value of an investment in our stock may decline.
Our common stock price has been highly volatile. We expect that this volatility will continue in the future due to factors such as:
•
general market and economic conditions, including inflation, interest rates, volatile capital markets, uncertainty and volatility in the
financial services sector, the Middle East and Russia-Ukraine conflicts and potential escalations and broader regional conflicts, and rising
tensions between China and Taiwan and the United States;
•
actual or anticipated variations in operating results;
•
increases or decreases in the general stock market or to the stock prices of technology companies;
•
announcements of technological innovations, new products or new services by us or by our competitors or customers;
•
changes in financial estimates or recommendations by stock market analysts regarding us or our competitors;
•
announcements by us or our competitors of significant acquisitions, dispositions, strategic partnerships, joint ventures or capital
commitments;
•
announcements by our customers regarding end user market conditions and the status of existing and future infrastructure network
deployments;
•
additions or departures of key personnel; and
•
future equity or debt offerings or our announcements of these offerings.
In addition, in recent years, the stock market in general, and The NASDAQ Global Select Market and the securities of technology companies in
particular, have experienced extreme price and volume fluctuations. These fluctuations have often been unrelated or disproportionate to the operating
performance of individual companies. These broad market fluctuations have in the past, and may in the future, materially and adversely affect our stock
price, regardless of our operating results. In these circumstances, investors may be unable to sell their shares of our common stock at or above their
purchase price over the short term, or at all.
We cannot guarantee that our stock repurchase program will be fully implemented or that it will enhance long-term stockholder value.
In February 2025, our Board of Directors terminated our existing $100 million stock repurchase program and approved a new stock repurchase
program for the repurchase of up to $200 million of the outstanding shares of common stock. The repurchase program expires in February 2028 and we are
not obligated to repurchase a specified number or dollar value of shares. Share repurchases will be made from time to time in open market purchases and
10b5-1 trading plans, as permitted by securities laws and other legal requirements. Any share repurchases remain subject to the circumstances in place at
that time, including prevailing market prices. As a result, there can be no guarantee around the timing or volume of our share repurchases. The stock
repurchase program could affect the price of our common stock, increase volatility and diminish our cash reserves. Our repurchase program may be
suspended or terminated at any time and, even if fully implemented, may not enhance long-term stockholder value.
Our stock price may decline if additional shares are sold in the market or if analysts drop coverage of or downgrade our stock.
Future sales of substantial amounts of shares of our common stock by our existing stockholders in the public market, or the perception that these sales
could occur, may cause the market price of our common stock to decline. In addition, we issue additional shares upon exercise of stock options, including
under our 2002 ESPP, and in connection with grants of restricted stock units on an ongoing basis. Increased sales of our common stock in the market after
exercise of outstanding stock options or grants of restricted stock units could exert downward pressure on our stock price. These sales also might make it
more difficult for us to sell equity or equity-related securities in the future at a time and price we deem appropriate.
The trading market for our common stock relies in part on the availability of research and reports that third-party industry or securities analysts
publish about us and our business. If we do not maintain adequate research coverage or if one or more of the analysts who do cover us downgrade our stock
or publishes inaccurate or unfavorable research about our business, our stock price may decline. If one or more of these analysts cease coverage of us or
fails to publish reports on us regularly, we could lose visibility in the market, which in turn could cause the liquidity of our stock and our stock price to
decline.
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Item 1B.
UNRESOLVED STAFF COMMENTS
None.
Item 1C.
CYBER SECURITY
Risk Management and Strategy
We have established policies and processes for assessing, identifying, and managing material risk from cybersecurity threats, and have integrated
these processes into our overall risk management systems and processes. We routinely assess material risks from cybersecurity threats, including any
potential unauthorized occurrence on or conducted through our information systems that may result in adverse effects on the confidentiality, integrity, or
availability of our information systems or any information residing therein.
We conduct periodic and ad-hoc risk assessments to identify cybersecurity threats, as well as assessments in the event of a material change in our
business practices that may affect information systems that are vulnerable to such cybersecurity threats. These risk assessments include identification of
reasonably foreseeable internal and external risks, the likelihood and potential damage that could result from such risks, and the sufficiency of existing
policies, procedures, systems, and safeguards in place to manage such risks.
Following these risk assessments, we evaluate whether and how to re-design, implement, and maintain reasonable safeguards to mitigate identified
risks and reasonably address any identified gaps in existing safeguards. We also regularly monitor the effectiveness of our safeguards. We devote
significant resources and designate high-level personnel, including our Chief Cybersecurity Officer (“CCO”), who reports to our Chief Financial Officer
(“CFO”) , to manage the risk assessment and mitigation process.
As part of our overall risk management system, we monitor and test our safeguards and train our employees on these safeguards, in collaboration with
human resources, IT, and management. Personnel at all levels and departments are made aware of our cybersecurity policies through trainings.
We engage auditors and other third parties in connection with our risk assessment processes. These service providers assist us to monitor, enhance and
test our safeguards.
We require key third-party service providers to certify that such providers have the ability to implement and maintain appropriate security measures,
consistent with all applicable laws, to implement and maintain reasonable security measures in connection with their work with us, and to promptly report
any suspected breach of their security measures that may affect our company.
For additional information regarding whether any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have
materially affected or are reasonably likely to materially affect our company, including our business strategy, results of operations, or financial condition,
please refer to Item 1A, “Risk Factors,” in this annual report on Form 10-K, including the risk factors entitled “Cybersecurity incidents, including data
security breaches or computer viruses, could harm our business by disrupting our business operations, compromising our products and services, damaging
our reputation or exposing us to liability”.
Governance
One of the key functions of our board of directors is informed oversight of our risk management process, including risks from cybersecurity threats.
Our board of directors is responsible for monitoring and assessing strategic risk exposure, and our executive officers are responsible for the day-to-day
management of the material risks we face. Our board of directors administers its cybersecurity risk oversight function directly as a whole, as well as
through the audit committee.
Our CCO is primarily responsible for assessing and managing our material risks from cybersecurity threats, in close coordination with our Senior
Vice President, Operations and IT, and the senior executive leaders of our Video and Broadband business segments. Our CCO’s cybersecurity experience
includes overseeing the design and implementation of cybersecurity measures and safeguards for Harmonic’s Video business software and SaaS offerings
as the former long-serving Chief Technology Officer of the Video business, and responsibility at a previous company for the cybersecurity architecture and
implementation of an online banking platform and an online transaction processing system for gaming.
32
Our CCO oversees our cybersecurity policies and processes, including those described in “Risk Management and Strategy” above, in close
coordination with the senior executive leaders of our corporate information technology function and Video and Broadband business segments. The
processes by which our CCO is informed about and monitors the prevention, detection, mitigation, and remediation of cybersecurity incidents includes the
following: regular reports from the Company’s 24/7 cybersecurity operations center monitoring systems and established incident reporting and escalation
from the executive leaders of our corporate information technology function and Video and Broadband business segments.
Our CCO provides briefings to the audit committee throughout the year regarding our company’s cybersecurity risks and activities, including any
recent cybersecurity incidents and related responses, cybersecurity systems testing, activities of third parties, and the like. Our audit committee provides
regular updates to the board of directors on such reports. In addition, our CCO provides annual briefings to the board of directors on cybersecurity risks and
activities. Our board may also be notified and engaged as part of the Company’s cybersecurity incident response plans, depending on the significance of an
incident.
Our current CCO will depart the Company at the end of February 2025, and will be succeeded by our new Chief Information Officer (“CIO”), who
will join the Company in March 2025. The CIO’s responsibilities will include the Company’s cybersecurity efforts and policies, and he will report directly
to our CFO. Our new CIO previously served in relevant leadership positions at other large public companies and brings to the role a wealth of information
security and information technology knowledge and experience.
Item 2.
PROPERTIES
All of our facilities are leased, including our principal operations and corporate headquarters in San Jose, California. We have research and
development centers in the United States, France, Israel and Hong Kong. We have sales and service offices primarily in the United States and various
locations in Europe and Asia. Our leases, which expire at various dates through September 2032, are for an aggregate of approximately 291,039 square feet
of space. We have two business segments: Broadband and Video. Because of the interrelation of these segments, a majority of these segments use
substantially all of the properties, at least in part, and we retain the flexibility to use each of the properties in whole or in part for each of the segments. We
believe that the facilities that we currently occupy are adequate for our current needs and that suitable additional space will be available, as needed, to
accommodate the presently foreseeable expansion of our operations.
Item 3.
LEGAL PROCEEDINGS
This information set forth under Note 17, “Legal Proceedings”, included in Part II, Item 8 of this Annual Report on Form 10-K, is incorporated herein
by reference. For an additional discussion of certain risks associated with legal proceedings, refer to “Risk Factors” above.
Item 4.
MINE SAFETY DISCLOSURE
Not applicable.
33
PART II
Item 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Market Information of our Common Stock
Our common stock is traded on The NASDAQ Global Select Market under the symbol HLIT, and has been listed on NASDAQ since our initial
public offering in 1995.
Holders
As of February 10, 2025, there were approximately 253 holders of record of our common stock.
Dividend Policy
We have never declared or paid any dividends on our capital stock. At this time, we expect to retain future earnings, if any, for use in the operation
and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future.
Unregistered Sales of Equity Securities
There were no unregistered sales of equity securities during the year ended December 31, 2024.
Issuer Purchases of Equity Securities
Common Stock Repurchases. In February 2022, the Board of Directors authorized the Company to repurchase up to $100 million of the Company’s
outstanding shares of common stock through February 2025. This authorization was terminated by the Board of Directors on February 10, 2025 with $35.2
million of repurchases effectuated. In connection with the termination of the existing program, the Board of Directors authorized a new repurchase program
for the Company to repurchase up to $200 million of the Company’s outstanding shares of common stock through February 2028. 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.
During the year ended December 31, 2024, the company repurchased and retired approximately 2.4 million shares of the Company’s common stock for
an aggregate amount of $30.0 million. There were no repurchase activities during the three months ended December 31, 2024.
During the quarter ended December 31, 2024, we paid approximately $0.6 million in employee withholding taxes due upon the vesting of net settled
equity awards. We withheld approximately 52,159 shares of common stock from employees in connection with such net share settlement at an average
price of $12.21 per share. These shares may be deemed to be “issuer purchases” of shares.
Total Number of Shares
Purchased
Average Price Paid per
Share
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
Approximate Dollar
Value of Shares that May
Yet Be Purchased Under
Publicly Announced Plan
or Program
September 28, 2024 - October 25, 2024
4,632 $
13.72
— $
—
October 26, 2024 - November 22, 2024
43,786 $
11.97
— $
—
November 23, 2024 - December 31, 2024
3,741 $
13.19
— $
—
Total
52,159
—
(1) Represents shares withheld on net settlements of restricted stock units that vested under the Company’s equity incentive plan.
(1)
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Stock Performance Graph
Set forth below is a line graph comparing the annual percentage change in the cumulative return to the stockholders of our common stock with the
cumulative return of The NASDAQ Telecommunications Index and of the Standard & Poor’s (S&P) 500 Index for the period commencing December 31,
2019 and ending on December 31, 2024. The graph assumes that $100 was invested in each of the Company’s common stock, the S&P 500 and The
NASDAQ Telecommunications Index on December 31, 2019, and assumes the reinvestment of dividends, if any. The comparisons shown in the graph
below are based upon historical data. Harmonic cautions that the stock price performance shown in the graph below is not indicative of, nor intended to
forecast, the potential future performance of the Company’s common stock.
12/19
12/20
12/21
12/22
12/23
12/24
Harmonic Inc.
$
100.00
$
94.74
$
150.77
$
167.95
$
167.18
$
169.62
S&P 500
$
100.00
$
118.40
$
152.39
$
124.79
$
157.59
$
197.02
NASDAQ Telecom
$
100.00
$
110.08
$
112.44
$
82.21
$
90.96
$
103.21
The information contained in this Stock Performance Graph section shall not be deemed to be “soliciting material,” “filed” or incorporated by
reference in previous or future filings with the SEC, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that Harmonic
specifically incorporates it by reference into a document filed under the Securities Act or the Exchange Act.
Item 6.
[RESERVED]
35
Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated financial statements and the related notes. The following discussion
contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and those
listed under Item 1A, Risks Factors. For discussion of comparison of our results of operations and cash flows for the fiscal years ended December 31, 2023
and 2022, refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K
for the fiscal year ended December 31, 2023, filed with the SEC on February 16, 2024.
Business Overview
We are a leading global provider of (i) broadband solutions that enable broadband operators to more efficiently and effectively deploy high-speed
internet, for data, voice and video services for their customers and (ii) 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.
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, Broadband and Video. Our
Broadband business sells broadband access solutions and related services, including our cOS
software-based broadband access solutions, to broadband
operators globally. Our Video business sells video processing, production and playout solutions, and services worldwide to cable 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.
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; impact of new or proposed tariffs; 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.
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 to be a
major player in the broadband access market. In the meantime, we believe our Broadband segment will continue to experience strong long-term growth as
our customers adopt and deploy our virtualized DOCSIS, CMTS and FTTH solutions and distributed access architectures.
TM
36
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.
CRITICAL ACCOUNTING ESTIMATES
Our consolidated financial statements and the related notes included elsewhere in this report are prepared in accordance with U.S. GAAP. The
preparation of these 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 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 $11.0 million and $7.4 million, in 2024 and 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.
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. We record a valuation allowance to reflect uncertainties about whether we will be able to utilize our deferred
tax assets before they expire. 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. We believe it is not more likely than not the California and Swiss net deferred tax assets of $32.8 million and $4.7 million, respectively, will be
realizable. Accordingly, full valuation allowances of $32.8 million and $4.7 million are maintained against the California and Swiss net deferred tax assets,
respectively. 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.
37
Results of Operations
Net Revenue
The following table presents the breakdown of net revenue by category and geographical region:
Year Ended December 31,
(in thousands, except percentages)
2024
2023
2022
2024 vs. 2023
Appliance and integration
$
507,378
$
435,878
$
473,806
$
71,500
16 %
as % of total net revenue
75 %
72 %
76 %
SaaS and service
171,344
172,029
151,151
(685)
(0.4)%
as % of total net revenue
25 %
28 %
24 %
Total net revenue
$
678,722
$
607,907
$
624,957
$
70,815
12 %
Americas
$
557,255
$
447,700
$
452,869
$
109,555
24 %
as % of total net revenue
82 %
74 %
73 %
EMEA
92,553
127,689
133,095
(35,136)
(28)%
as % of total net revenue
14 %
21 %
21 %
APAC
28,914
32,518
38,993
(3,604)
(11)%
as % of total net revenue
4 %
5 %
6 %
Total net revenue
$
678,722
$
607,907
$
624,957
$
70,815
12 %
Appliance and integration net revenue increased by $71.5 million in 2024, as compared to 2023, primarily due to a $99.8 million increase in our
Broadband segment revenue, partially offset by a $28.3 million decrease in our Video segment revenue. The increase in our Broadband segment revenue
was mainly driven by certain customers ramping up due to technology transitions and new deployments. The decrease in our Video segment revenue was
mainly attributable to lower sales across most regions due to project delays by our customers.
SaaS and service net revenue decreased by $0.7 million in 2024, as compared to 2023, primarily due to a $6.6 million decrease in Video segment
support services resulting from lower contract renewals, partially offset by a $6.0 million increase in Video SaaS revenue, mainly driven by the acquisition
of new customers.
Americas net revenue increased by $109.6 million in 2024, as compared to 2023, primarily driven by a $115.1 million increase in our Broadband
segment revenue, partially offset by a $5.5 million decrease in our Video segment revenue. The Broadband segment revenue growth was mainly due to
higher volume from our existing customers, including $83.9 million from new technology deployments with one Tier 1 customer and $26.5 million from
expansion deployments with another Tier 1 customer. The decrease in our Video segment revenue was mainly attributable to lower sales across most
regions due to project delays by our customers.
EMEA net revenue decreased by $35.1 million in 2024, as compared to 2023, driven by lower sales of $20.5 million in the Video segment and $14.6
million in the Broadband segment. The decline in the Video segment was primarily due to lower appliance product sales as a result of customer project
delays, while in the Broadband segment, one of our large Tier 1 customers reduced spending in 2024 due to high inventory levels from prior years’
purchases.
APAC net revenue decreased by $3.6 million in 2024, as compared to 2023, primarily due to a decline in Video product sales.
Gross Profit
Year Ended December 31,
(in thousands, except percentages)
2024
2023
2022
2024 vs. 2023
Gross profit
$
365,921
$
312,545
$
315,884
$
53,376
17%
as % of total net revenue (“gross margin”)
53.9 %
51.4 %
50.5 %
2.5 %
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.
38
Our gross margin improved by 250 basis points in 2024, as compared to 2023, contributed by both the Broadband and Video segments. The margin
expansion was primarily contributed by Broadband segment, benefiting from a favorable product mix. Video segment margin also improved, supported by
an increase in SaaS as a percentage of segment revenue and additional benefits from a favorable appliance product mix.
Research and Development Expenses
Year Ended December 31,
(in thousands, except percentages)
2024
2023
2022
2024 vs. 2023
Research and development
$
120,975
$
126,282
$
120,307
$
(5,307)
(4)%
as % of total net revenue
18 %
21 %
19 %
Our research and development expenses consist primarily of employee salaries and related expenses, contractors and outside consultants, supplies and
materials, equipment depreciation and facilities costs, all of which are associated with the design and development of new products and enhancements of
existing products. The research and development expenses are net of French Research and Development credits.
Research and development expenses decreased by $5.3 million in 2024, as compared to 2023. The decrease was primarily driven by a $7.6 million
decline in the Video segment due to headcount reductions from restructuring activities and a $3.7 million decrease in the Broadband segment due to
resources being redeployed to support certain customer projects. These decreases were partially offset by a $6.0 million increase in investments to support
the growth of our Broadband business.
Selling, General and Administrative Expenses
Year Ended December 31,
(in thousands, except percentages)
2024
2023
2022
2024 vs. 2023
Selling, general and administrative
$
153,124
$
163,282
$
146,717
$
(10,158)
(6)%
as % of total net revenue
23 %
27 %
23 %
Selling, general and administrative expenses decreased by $10.2 million in 2024, as compared to 2023. The decrease was primarily driven by a $5.0
million reduction in spending resulting from headcount reductions related to restructuring activities in the Video business and a $5.2 million non-recurring
advisory fees incurred for the strategic review of the Video business in 2023.
39
Asset Impairment and Related Charges
Year Ended December 31,
(in thousands, except percentages)
2024
2023
2022
2024 vs. 2023
Lease-related asset impairment and other charges
$
10,889 $
— $
— $
10,889
% *
Asset impairment charges
$
1,824 $
— $
— $
1,824
% *
*Not meaningful
During the year ended December 31, 2024, we recorded an impairment charge of $1.8 million related to the total capitalized value of internally
developed software with no future benefit. We also recorded total lease-related impairment and other charges of $10.9 million. These charges primarily
consisted of $3.9 million in right-of-use asset impairments, $4.3 million in leasehold improvement impairments, and $2.7 million related to the fair value of
other unrecoverable facility costs. Refer to Note 3, “Leases,” of the Notes to our consolidated financial statements for additional information.
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 primarily included in “Operating expenses-restructuring and
related charges” in the Consolidated Statements of Operations.
Year Ended December 31,
(in thousands, except percentages)
2024
2023
2022
2024 vs. 2023
Cost of revenue
$
460 $
687 $
533 $
(227)
(33)%
Operating expenses
Restructuring and related charges
$
15,973 $
809 $
3,341 $
15,164
1,874 %
Total restructuring and related charges
$
16,433 $
1,496 $
3,874 $
14,937
998 %
Restructuring and related charges increased in 2024, as compared to 2023, primarily driven by higher severance and employee benefit costs recorded
in fiscal 2024, in connection with the 2024 restructuring activities. Refer to Note 9, “Restructuring and Related Charges,” of the Notes to our Consolidated
Financial Statements for additional information.
Interest Expense, Net
Year Ended December 31,
(in thousands, except percentages)
2024
2023
2022
2024 vs. 2023
Interest expense, net
$
(7,326) $
(2,696) $
(5,040) $
(4,630)
172 %
Interest expense, net increased in 2024, as compared to 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 10, “Debt,” of the Notes to our Consolidated Financial Statements for additional information
regarding the interest rates applicable to our outstanding loans.
Other Income (Expense), Net
Year Ended December 31,
(in thousands, except percentages)
2024
2023
2022
2024 vs. 2023
Other income (expense), net
$
2,123 $
(335) $
4,006 $
2,458
(734)%
The change in other income (expense), net in 2024, as compared to 2023, was primarily due to higher unrealized foreign exchange gains resulting
from the strengthening of the U.S. dollar against the Euro in 2024.
40
Income Taxes
Year Ended December 31,
(in thousands, except percentages)
2024
2023
2022
2024 vs. 2023
Provision for (benefit from) income taxes
$
18,716 $
(64,853) $
16,303 $
83,569
(129)%
The change in provision for (benefit from) income taxes for 2024, as compared to 2023, was primarily due to the prior period release of the valuation
allowance against U.S. Federal and certain state deferred tax assets.
Segment Financial Results
Year Ended December 31,
(in thousands, except percentages)
2024
2023
2022
2024 vs. 2023
Broadband
Revenue
$
488,200
$
388,482
$
350,768
$
99,718
26 %
as % of total revenue
72 %
64 %
56 %
8 %
Operating income
118,354
64,575
52,283
53,779
83 %
Operating margin %
24 %
17 %
15 %
7 %
Video
Revenue
$
190,522
$
219,425
$
274,189
$
(28,903)
(13)%
as % of total revenue
28 %
36 %
44 %
(8)%
Operating income
2,756
(8,741)
22,322
11,497
(132)%
Operating margin %
1 %
(4)%
8 %
5 %
Total
Revenue
$
678,722
$
607,907
$
624,957
$
70,815
12 %
Broadband
Our Broadband segment net revenue increased by $99.7 million in 2024, as compared to 2023, primarily driven by appliance and integration revenues,
mainly attributed to certain customers ramping up due to technology transitions and new deployments. The operating margin of our Broadband segment
also improved in 2024 primarily due to higher revenue and gross margin expansion.
Video
Our Video segment net revenue decreased by $28.9 million in 2024, as compared to 2023. The decrease was primarily driven by a $28.3 million
reduction in product sales across most regions, mainly due to project delays by our customers, and a $6.6 million decrease in support services, resulting
from lower customer support contract renewals. These decreases were partially offset by a $6.0 million increase in SaaS revenue, primarily driven by the
acquisition of new customers. Video segment operating margin improved in 2024 primarily due to realized benefits from cost saving initiatives combined
with an increase in SaaS and services as a percentage of segment revenue.
41
Liquidity and Capital Resources
We expect to continue to manage our cash from operations effectively, together with deploying cash in working capital for growth. The cash we
generate from our operations enables us to fund ongoing operations, our research and development projects for new products and technologies, and other
business activities. We continually evaluate our cash needs and may decide it is best to raise additional capital or seek alternative financing sources to fund
our operations and the growth of our business, to take advantage of unanticipated strategic opportunities, or to strengthen our financial position, including
through drawdowns on existing or new debt facilities or new financing (debt and equity) funds. In the future, we may enter into other arrangements for
potential investments in, or acquisitions of, complementary businesses, services or technologies, which could require us to seek additional equity or debt
financing. Additional funds may not be available on terms favorable to us or at all. Conversely, we may also from time to time determine that it is in our
best interests to voluntarily repay certain indebtedness early. We believe that our current sources of funds will provide us with adequate liquidity during the
12-month period following December 31, 2024, as well as in the long-term.
Material Cash Requirements
Our principal uses of cash will include repayments of debt and related interest, purchases of inventory, stock repurchases, payments for payroll,
restructuring expenses, and other operating expenses related to the development and marketing of our products, purchases of property and equipment,
facility leases, and other contractual obligations for the foreseeable future.
As of December 31, 2024, we had outstanding $128.1 million in aggregate principal amount of indebtedness, consisting of our $75.0 million
Revolving Facility and our $39.5 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 December 31, 2024. As of December 31, 2024, our total minimum lease payments are $23.5 million, of which $5.8
million is due in the 12-month period following December 31, 2024. For details regarding our indebtedness and lease obligations, refer to Note 10, “Debt”,
and Note 3, “Leases”, respectively, of the Notes to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
In February 2025, the Board of Directors authorized us to repurchase, from time to time, up to $200 million of our outstanding shares of common stock
through February 2028, 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.
Sources and Conditions of Liquidity
Our sources to fund our material cash requirements are predominantly from the sales of our products and services and, when applicable, proceeds from
debt facilities and debt and equity offerings.
As of December 31, 2024, our principal sources of liquidity consisted of cash and cash equivalents of $101.5 million, net accounts receivable of
$178.0 million, $30.0 million from our Master Receivables Purchase Agreement (described below), and $82.0 million remaining available under the
Revolving Facility of our Credit Agreement, and financing from French government agencies.
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. In September 2024, we extended
the agreement termination date to September 29, 2025. As of December 31, 2024, there were no receivables sold under this agreement.
Our cash and cash equivalents of $101.5 million as of December 31, 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.
42
Summary of Cash Flows
Year Ended December 31,
(in thousands)
2024
2023
2022
Net cash provided by (used in)
Operating activities
$
61,917 $
7,059 $
5,476
Investing activities
(9,186)
(8,475)
(1,288)
Financing activities
(33,269)
(4,990)
(43,133)
Effect of foreign exchange rate changes on cash and cash equivalents
(1,942)
1,089
(4,900)
Net increase (decrease) in cash, cash equivalents and restricted cash
$
17,520 $
(5,317) $
(43,845)
Operating Activities
Net cash provided by operating activities increased by $54.9 million in 2024, as compared to 2023, primarily due to higher income before income
taxes, adjusted for non-cash asset impairment and other charges in fiscal 2024.
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.
Investing Activities
Net cash used in investing activities increased by $0.7 million in 2024, as compared to 2023, primarily due to higher purchases of property and
equipment in fiscal 2024.
Financing Activities
Net cash used in financing activities increased by $28.3 million in 2024, as compared to 2023, primarily due to the $115.5 million repayment of the
2024 Notes and the $30.0 million of stock repurchases in 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.
43
New Accounting Pronouncements
Refer to Note 2 to the accompanying Consolidated Financial Statements for a full description of recent accounting pronouncements, including the
dates of adoption and estimated effects, if any, on results of operations and financial condition.
44
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Foreign Currency Exchange Risk
We market and sell our products and services through our direct sales force and indirect channel partners in North America, EMEA, APAC and Latin
America. Accordingly, we are subject to exposure from adverse movements in foreign currency exchange rates, primarily the Euro, British pound, Israeli
shekel and Japanese yen. Our U.S. dollar functional subsidiaries account for approximately 98%, 97% and 97% of our consolidated net revenues in 2024,
2023 and 2022, respectively. We recorded net billings denominated in foreign currencies of approximately 9%, 15% and 15% of total company billings in
2024, 2023 and 2022, respectively. In addition, a portion of our operating expenses, primarily the cost of personnel to deliver technical support on our
products and professional services, sales and sales support and research and development, are denominated in foreign currencies, primarily the Euro, Israeli
shekel and British pound.
We use derivative instruments, primarily forward contracts, to manage exposures to foreign currency exchange rates and we do not enter into foreign
currency forward contracts for trading purposes.
From time to time, we use foreign currency forward contracts to hedge a portion of our exposures to changes in currency exchange rates, which result
from our global operating and financing activities. We do not use derivative financial instruments for trading or speculative purposes. A hypothetical 10%
change in currency exchange rates would not have a material impact on our consolidated financial statements.
Interest Rate Risk
As of December 31, 2024, our variable-rate debt included the Term Loan and the Revolving Loan under the Credit Agreement, with carrying values
of $39.3 million and $74.1 million, respectively, as well as other borrowings with carrying value of $10.9 million. A hypothetical 100 basis point change in
the interest rate would increase or decrease the interest expense on these loans for the next twelve months by approximately $1.1 million. The carrying
value of the variable-rate loans approximate their fair values as the underlying interest rates are tied to the Secured Overnight Financing Rate.
As of December 31, 2024, our debt also included fixed-rate debt with a carrying value of $2.8 million. Fixed rate debt exposes us to changes in
market interest rates reflected in the fair value of the debt and to the risk that we may need to refinance maturing debt with new debt at higher rates. Except
in very limited circumstances, we do not have an obligation to repay fixed-rate debt prior to maturity and, as a result, interest rate and changes in fair value
would not have a significant impact on our cash flows related to our fixed-rate debt.
45
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Page
Report of Ernst & Young LLP - Independent Registered Public Accounting Firm (PCAOB Firm ID 42)
47
Consolidated Balance Sheets
50
Consolidated Statements of Operations
51
Consolidated Statements of Comprehensive Income (Loss)
52
Consolidated Statements of Stockholders’ Equity
53
Consolidated Statements of Cash Flows
54
Notes to Consolidated Financial Statements
56
46
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Harmonic Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Harmonic Inc. (the Company) as of December 31, 2024 and 2023, the
related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the three years in the
period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion,
the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and
2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated
February 14, 2025 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the
financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit
matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating
the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
47
Inventory Valuation
Description of the Matter
The Company’s net inventory totaled $64 million as of December 31, 2024. As explained in “Note 2:
Accounting Policies” within the consolidated financial statements, inventory is stated at the lower of cost
(determined on a first-in, first-out basis) or net realizable value. The Company establishes a provision for
excess and obsolete inventory to reduce such inventory to its estimated net realizable value.
Auditing management’s estimates for excess and obsolete inventory involved auditor judgment due to the
assessment of management’s estimates of whether a provision for excess and obsolete inventory is
required. The measurement of any excess of cost over net realizable value is judgmental and is impacted
by a number of factors that are affected by general economic and market conditions outside the Company’s
control. Specifically, excess and obsolete inventory calculations are sensitive to assumptions that relate to
future customer demand for the Company’s products.
How We Addressed the Matter
in Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of internal
controls over the Company’s excess and obsolete inventory reserve process. This included controls over
management’s determination of inventory valuation, including the evaluation of future demand of the
Company’s products and the completeness and accuracy of the data underlying the excess and obsolete
inventory valuation.
We performed audit procedures that included, among others, assessing the Company’s methodology over
the computation of the provision for excess and obsolete inventory, testing the significant assumptions and
the underlying inputs used by the Company in its analysis including historical sales trends, expectations
regarding future demand, changes in the Company’s business, customer base, product life cycles and other
relevant factors. We evaluated current inventory levels compared to future demand and historical sales.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2021.
San Jose, California
February 14, 2025
48
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Harmonic Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Harmonic Inc.’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the
COSO criteria). In our opinion, Harmonic Inc. (the Company) maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2024, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
2024 consolidated financial statements of the Company and our report dated February 14, 2025 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
San Jose, California
February 14, 2025
49
HARMONIC INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
As of December 31,
2024
2023
ASSETS
Current assets:
Cash and cash equivalents
$
101,457 $
84,269
Restricted cash
332
—
Accounts receivable, net
178,013
141,531
Inventories
64,004
83,982
Prepaid expenses and other current assets
22,270
20,950
Total current assets
366,076
330,732
Property and equipment, net
26,823
36,683
Operating lease right-of-use assets
12,411
20,817
Goodwill
236,876
239,150
Deferred income taxes, net
121,028
104,707
Other non-current assets
33,292
36,117
Total assets
$
796,506 $
768,206
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Convertible debt
$
— $
114,880
Current portion of long-term debt
2,194
—
Current portion of other borrowings
4,941
4,918
Accounts payable
35,250
38,562
Deferred revenue
47,069
46,217
Operating lease liabilities
5,675
6,793
Other current liabilities
72,440
61,024
Total current liabilities
167,569
272,394
Long-term debt
112,084
—
Other long-term borrowings
8,694
10,495
Operating lease liabilities, non-current
14,727
18,965
Other non-current liabilities
28,174
29,478
Total liabilities
331,248
331,332
Commitments and contingencies (Note 16)
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; 116,735 and 112,407 shares issued and outstanding at
December 31, 2024 and 2023, respectively
117
112
Additional paid-in capital
2,432,733
2,405,043
Accumulated deficit
(1,953,495)
(1,962,575)
Accumulated other comprehensive loss
(14,097)
(5,706)
Total stockholders’ equity
465,258
436,874
Total liabilities and stockholders’ equity
$
796,506 $
768,206
The accompanying notes are an integral part of these consolidated financial statements.
50
HARMONIC INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Year Ended December 31,
2024
2023
2022
Revenue:
Appliance and integration
$
507,378 $
435,878 $
473,806
SaaS and service
171,344
172,029
151,151
Total net revenue
678,722
607,907
624,957
Cost of revenue:
Appliance and integration
255,707
236,773
259,027
SaaS and service
57,094
58,589
50,046
Total cost of revenue
312,801
295,362
309,073
Total gross profit
365,921
312,545
315,884
Operating expenses:
Research and development
120,975
126,282
120,307
Selling, general and administrative
153,124
163,282
146,717
Asset impairment and related charges
12,713
—
—
Restructuring and related charges
15,973
809
3,341
Total operating expenses
302,785
290,373
270,365
Income from operations
63,136
22,172
45,519
Interest expense, net
(7,326)
(2,696)
(5,040)
Other income (expense), net
2,123
(335)
4,006
Income before income taxes
57,933
19,141
44,485
Provision for (benefit from) income taxes
18,716
(64,853)
16,303
Net income
$
39,217 $
83,994 $
28,182
Net income per share:
Basic
$
0.34 $
0.75 $
0.27
Diluted
$
0.33 $
0.72 $
0.25
Weighted average common shares:
Basic
115,120
111,651
105,080
Diluted
117,482
117,359
112,378
The accompanying notes are an integral part of these consolidated financial statements.
51
HARMONIC INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Year Ended December 31,
2024
2023
2022
Net income
$
39,217 $
83,994 $
28,182
Other comprehensive income (loss):
Defined benefit plan
(330)
25
626
Foreign currency translation adjustments
(7,845)
3,806
(6,956)
Other comprehensive income (loss) before tax
(8,175)
3,831
(6,330)
Provision for (benefit from) income taxes
216
(149)
84
Other comprehensive income (loss), net of tax
(8,391)
3,980
(6,414)
Total comprehensive income
$
30,826 $
87,974 $
21,768
The accompanying notes are an integral part of these consolidated financial statements.
52
HARMONIC INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (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
—
—
—
28,182
—
28,182
Other comprehensive loss, net of tax
—
—
—
—
(6,414)
(6,414)
Issuance of common stock under option, stock
award and purchase plans
3,601
4
787
—
—
791
Repurchase of common stock
(571)
(1)
—
(5,133)
—
(5,134)
Stock-based compensation
—
—
25,078
—
—
25,078
Issuance of common stock upon conversion of 2022
Notes
3,882
4
(4)
—
—
—
Balance at December 31, 2022
109,871 $
110 $
2,380,651 $
(2,046,569) $
(9,686) $
324,506
Net income
—
—
—
83,994
—
83,994
Other comprehensive income, net of tax
—
—
—
—
3,980
3,980
Issuance of common stock under stock option,
award and purchase plans, net
2,536
2
(2,937)
—
—
(2,935)
Stock-based compensation
—
—
27,329
—
—
27,329
Balance at December 31, 2023
112,407 $
112 $
2,405,043 $
(1,962,575) $
(5,706) $
436,874
Net income
—
—
—
39,217
—
39,217
Other comprehensive loss, net of tax
—
—
—
—
(8,391)
(8,391)
Issuance of common stock under award and
purchase plans, net
2,159
2
(888)
—
—
(886)
Repurchase of common stock
(2,409)
(2)
—
(30,047)
—
(30,049)
Excise tax on share repurchases
—
—
—
(90)
—
(90)
Stock-based compensation
—
—
28,635
—
—
28,635
Issuance of common stock upon conversion of 2024
Notes
4,578
5
(57)
—
—
(52)
Balance at December 31, 2024
116,735 $
117 $
2,432,733 $
(1,953,495) $
(14,097) $
465,258
The accompanying notes are an integral part of these consolidated financial statements.
53
HARMONIC INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
2024
2023
2022
Cash flows from operating activities:
Net income
$
39,217 $
83,994 $
28,182
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
12,139
12,255
12,260
Asset impairment and related charges
12,036
—
—
Stock-based compensation
28,073
27,329
25,212
Foreign currency remeasurement
315
1,453
(2,685)
Deferred income taxes, net
(16,436)
(92,856)
4,894
Provision for excess and obsolete inventories
10,971
7,396
5,988
Gain on sale of investment in equity securities
—
—
(4,370)
Other adjustments
569
1,920
3,418
Changes in operating assets and liabilities:
Accounts receivable, net
(38,241)
(32,695)
(21,182)
Inventories
8,374
35,403
(54,431)
Other assets
3,199
25,483
(8,402)
Accounts payable
(3,107)
(29,358)
5,837
Deferred revenues
(2,210)
(20,823)
2,610
Other liabilities
7,018
(12,442)
8,145
Net cash provided by operating activities
61,917
7,059
5,476
Cash flows from investing activities:
Purchases of investments
—
(6,305)
—
Proceeds from maturities of investments
—
6,305
—
Proceeds from sales of equity investments
—
—
7,962
Purchases of property and equipment
(9,186)
(8,475)
(9,250)
Net cash used in investing activities
(9,186)
(8,475)
(1,288)
Cash flows from financing activities:
Proceeds from long-term debt
115,000
—
—
Repayment of convertible debt
(115,500)
—
(37,707)
Payments for debt issuance costs
(332)
(1,025)
—
Proceeds from other borrowings
3,943
3,835
3,499
Repayment of other borrowings
(5,447)
(4,865)
(4,583)
Repurchase of common stock
(30,047)
—
(5,133)
Proceeds from common stock issued to employees
6,628
6,558
7,092
Taxes paid related to net share settlement of equity awards
(7,514)
(9,493)
(6,301)
Net cash used in financing activities
(33,269)
(4,990)
(43,133)
Effect of exchange rate changes on cash and cash equivalents and restricted cash
(1,942)
1,089
(4,900)
Net increase (decrease) in cash and cash equivalents and restricted cash
17,520
(5,317)
(43,845)
Cash and cash equivalents and restricted cash, beginning of the year
84,269
89,586
133,431
Cash and cash equivalents and restricted cash, end of the year
$
101,789 $
84,269 $
89,586
Cash and cash equivalents and restricted cash at end of period
Cash and cash equivalents
$
101,457 $
84,269 $
89,586
Restricted cash
332
—
—
Total cash, cash equivalents and restricted cash as shown in the consolidated statement of cash
flows
$
101,789 $
84,269 $
89,586
The accompanying notes are an integral part of these consolidated financial statements.
54
HARMONIC INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
2024
2023
2022
Supplemental cash flow disclosure:
Income tax payments, net
$
27,308 $
18,128 $
9,036
Interest payments, net
$
6,283 $
1,626 $
3,796
Supplemental schedule of non-cash investing activities:
Capital expenditures incurred but not yet paid
$
488 $
618 $
1,075
Supplemental schedule of non-cash financing activities:
Shares of common stock issued upon redemption of convertible debt
4,578
—
3,882
The accompanying notes are an integral part of these consolidated financial statements.
55
HARMONIC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: DESCRIPTION OF BUSINESS
Harmonic Inc. (“Harmonic” or the “Company”) is a leading global provider of (i) broadband access solutions that enable broadband operators to more
efficiently and effectively deploy high-speed internet, for data, voice and video services for their customers and (ii) 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.
The Company operates in two segments, Broadband and Video. The Broadband business provides broadband access solutions and related services,
including our cOS software-based broadband access solution, to broadband operators globally. The Video business provides video processing and
production and playout solutions and services worldwide to broadband operators and satellite and telecommunications (“telco”) pay-TV service providers,
which are collectively referred to as “service providers,” and to broadcast and media companies, including streaming media companies.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include those of Harmonic and its wholly-owned subsidiaries, after elimination of all
intercompany accounts and transactions. The Company has reclassified certain amounts previously reported in its consolidated financial statements that
were not material, to conform to the current presentation. The Company’s fiscal quarters are based on 13-week periods, except for the fourth quarter which
ends on December 31.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“US GAAP”) 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. The Company’s
reported financial positions or results of operations may be materially different under changed conditions or when using different estimates and
assumptions, particularly with respect to significant accounting policies. If estimates or assumptions differ from actual results, subsequent periods are
adjusted to reflect more current information.
Cash and Cash Equivalents
All highly liquid investments with an original maturity of three months or less at the date of purchase are considered cash equivalents. The carrying
amount of cash and cash equivalents approximates fair value because of the short maturity of those instruments.
Credit Risk and Major Customers/Supplier Concentration
Financial instruments which subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, and accounts receivable.
Cash and cash equivalents are invested in short-term, highly liquid, investment-grade instruments, in accordance with the Company’s investment policy.
The investment policy limits the amount of credit exposure to any one financial institution, commercial or governmental issuer.
The Company’s accounts receivable are derived from sales to worldwide cable, satellite, telco, and broadcast and media companies. The Company
generally does not require collateral from its customers, and performs ongoing credit evaluations of its customers and provides for expected losses. The
Company maintains an allowance for doubtful accounts based upon the expected collectability of its accounts receivable. Two customers had a balance
greater than 10% of the Company’s net accounts receivable balance as of December 31, 2024, and 2023. During the year ended December 31, 2024,
Comcast and Charter Communications accounted for more than 10% of the Company’s total net revenue. During the year ended December 31, 2023 and
2022, Comcast was the only customer that accounted for more than 10% of the Company’s total net revenue.
56
Certain of the components and subassemblies included in the Company’s products are obtained from a single source or a limited group of suppliers.
Although the Company seeks to reduce dependence on those sole source and limited source suppliers, the partial or complete loss of certain of these
sources could have at least a temporary adverse effect on the Company’s results of operations and damage customer relationships.
Revenue Recognition
The Company classifies its total revenue in two categories on the face of the statement of operations, “Appliance and integration” and “SaaS and
service”. Appliance and integration revenue includes revenue from the sale of hardware products and perpetual software licenses, as well as the associated
professional services such as testing, design, installation, commissioning, and integration, collectively referred to as “professional services”. These
professional service agreements, associated with the sale of hardware products and perpetual software licenses, are typically of a short duration and are
considered an important component of the appliance business by management. SaaS and service revenue include usage fees for the Company’s SaaS
platform and support service revenue from its appliance-based customers.
The Company applies the provisions of ASC 606, Revenue from Contracts with Customers (ASC 606) as a single standard for revenue recognition that
applies to all of its hardware products, software licenses and services arrangements and generally require revenues to be recognized upon the transfer of
control of promised goods or services provided to its customers, reflecting the amount of consideration the Company expects to receive for those goods or
services. Pursuant to ASC 606, revenue is recognized upon the application of the following steps:
•
identification of the contract, or contracts, with a customer;
•
identification of the performance obligations in the contract;
•
determination of the transaction price;
•
allocation of the transaction price to each performance obligation in the contract; and
•
recognition of revenues when, or as, the contractual performance obligations are satisfied.
Hardware and Software: Revenue from the sale of hardware and software products is recognized when control is transferred. For most of the
Company’s product sales (including sales to distributors and system integrators), control is transferred at the time the product is shipped or delivery has
occurred because the customer has significant risks and rewards of ownership of the asset and the Company has a present right to payment at that time.
Shipping and handling costs are accounted for as a fulfillment cost and are recorded in “Cost of revenue” in the Company’s Consolidated Statements of
Operations. Sales tax and other amounts collected on behalf of third parties are excluded from the transaction price.
Professional services: Revenues from professional services are generally recognized as the services are performed.
SaaS services: Revenue for SaaS service is recognized ratably over the contractual term as the customer simultaneously receives and consumes the
benefit of the underlying service. Over-usage fees are recognized as revenue when consumed and are included in the transaction price of an arrangement as
variable consideration.
Support and maintenance: Support and maintenance services are satisfied ratably over time as the customer simultaneously receives and consumes the
benefits of the services.
Arrangements with Multiple Performance Obligations: The Company has revenue arrangements that include multiple performance obligations. The
Company allocates the transaction price to all distinct performance obligations based on their relative standalone selling prices (“SSP”). The Company may
exercise judgment when determining whether products and services are considered distinct performance obligations that should be accounted for separately
versus together. The determination of SSP is based on the contractually stated, observable prices of the promised goods and services charged when sold
separately to the customer. Where SSP is not directly observable, we determine the SSP using information which considers multiple factors including, but
not limited to, major product groupings, gross margin objectives and pricing practices. Pricing practices taken into consideration include discounts offered
and applicable price lists.
57
Contract Balances: 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. The Company’s payment terms vary by the type and location of its
customer and the products or services offered. The term between invoicing and when payment is due is not significant. For certain products or services and
customer types, the Company requires payment before the products or services are delivered to the customer.
The amount of revenues recognized during the years ended December 31, 2024 and 2023 that were included in the opening deferred revenue balance
as of January 1, 2024 and 2023, respectively, were $40.4 million and $54.1 million.
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).
Contract assets and deferred revenue consisted of the following:
As of December 31,
(in thousands)
2024
2023
Contract assets
$
4,288 $
4,772
Deferred revenue
$
57,269 $
59,705
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 Consolidated Balance Sheets.
Remaining performance obligations represent contracted revenues that had not yet been recognized and future revenue recognition is expected. The
aggregate balance of the Company’s remaining performance obligations as of December 31, 2024, was $496.3 million, of which approximately 57% is
expected to be recognized as revenue over the next 12 months and the remainder thereafter.
Contract costs. The incremental costs of obtaining a contract are capitalized if the costs are expected to be recovered. Costs that are recognized as
assets are amortized on a straight-line basis over the period during which the related goods or services transfer to the customer. Costs incurred to fulfill a
contract are capitalized if they are not covered by other relevant guidance, relate directly to a contract, will be used to satisfy future performance
obligations, and are expected to be recovered.
The balances of net capitalized contract costs included in the Company’s Consolidated Balance Sheets were as follows:
(in thousands)
As of December 31,
Balance Sheet Location:
2024
2023
Prepaid expenses and other current assets
$
2,458 $
1,879
Other non-current assets
1,407
1,944
Total net capitalized contract costs
$
3,865 $
3,823
The amortization of the capitalized contract costs for the years ended December 31, 2024, 2023 and 2022 was $2.1 million, $2.3 million and
$2.2 million, respectively.
Refer to Note 15, “Segment Information, Geographic Information and Customer Concentration” for disaggregated revenue information.
Inventories
Inventories are stated at the lower of cost (determined on first-in, first-out basis) or net realizable value. The cost of inventories is comprised of
material and manufacturing labor and overheads. The Company establishes provisions for excess and obsolete inventories to reduce such inventories to
their estimated net realizable value after evaluation of historical sales, future demand and market conditions, expected product life cycles and current
inventory levels. Such provisions are charged to cost of revenue in the Company’s Consolidated Statements of Operations.
58
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets.
Estimated useful lives are generally five years for furniture and fixtures, three years for software and four years for machinery and equipment. Depreciation
for leasehold improvements are computed using the shorter of estimated useful lives or the terms of the related leases. The Company reviews property and
equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For the year
ended December 31, 2024, the Company recorded a $1.8 million impairment charge for the total capitalized value of internally developed software.
Additionally, the Company recognized impairment charges of $4.3 million related to leasehold improvements for the same period. Refer to Note 3,
“Leases” for more details. For the years ended December 31, 2023 and 2022, there were no impairment charges for property and equipment.
Goodwill
Goodwill is assigned to one or more reporting segments on the date of acquisition. We review our goodwill for impairment annually during our fourth
quarter of each fiscal year and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of any
one of our reporting units below its respective carrying amount. The Company monitors changing business conditions as well as industry and economic
factors, among others, for events which could trigger the need for an interim impairment analysis. In performing our goodwill impairment test, we first
perform a qualitative assessment, which requires that we consider events or circumstances including macroeconomic conditions, industry and market
considerations, cost factors, overall financial performance, changes in management or key personnel, changes in strategy, changes in customers, changes in
the composition or carrying amount of a reporting segment’s net assets and changes in our stock price. If, after assessing the totality of events or
circumstances, we determine that it is more likely than not that the fair values of our reporting segments are greater than the carrying amounts, then the
quantitative goodwill impairment test is not performed.
If the qualitative assessment indicates that the quantitative analysis should be performed, we then evaluate goodwill for impairment by comparing the
fair value of each of our reporting segments to its carrying value, including the associated goodwill. To determine the fair values, we use the market
approach based on comparable publicly traded companies in similar lines of businesses and the income approach based on estimated discounted future cash
flows. Our cash flow assumptions consider historical and forecasted revenue, operating costs and other relevant factors.
We completed our annual goodwill impairment test in the fourth quarter of fiscal 2024. We determined, after performing a qualitative review of each
reporting segment, that it is more likely than not that the fair value of each of our reporting segments exceeds the respective carrying amounts. Accordingly,
there was no indication of impairment and the quantitative goodwill impairment test was not performed. For the years ended December 31, 2024, 2023 and
2022, there were no impairment charges for goodwill.
Leases
The Company determines if an arrangement is a lease at inception. Operating lease liabilities are recognized at the lease commencement date based on
the present value of lease payments over the lease term. The Company’s lease contracts do not provide an implicit borrowing rate; hence the Company
determined the incremental borrowing rate based on information available at lease commencement to determine the present value of lease liability. Right-
of-use (“ROU”) assets related to our operating lease liabilities are measured at lease inception based on the initial measurement of the lease liability, plus
any prepaid lease payments and less any lease incentives. As of December 31, 2024, the Company has operating leases primarily consisting of facilities
with remaining lease terms of 1 year to 8 years, some of which included the option to extend the term. Optional periods to extend the lease, including by
not exercising a termination option, are included in the lease term when it is reasonably certain that the option will be exercised. The Company amortizes
ROU assets as operating lease expense on a straight-line basis over the lease term. Operating leases are included in “Operating lease right-of-use assets”,
“Operating lease liabilities, current”, and “operating lease liabilities, non-current” in the Consolidated Balance Sheets.
Foreign Currency
The functional currency of the Company’s Israeli and Swiss subsidiaries is the U.S. dollar. All other foreign subsidiaries use the respective local
currency as the functional currency. When the local currency is the functional currency, gains and losses from translation of these foreign currency financial
statements into U.S. dollars are recorded as a separate component of other comprehensive income (loss) in stockholders’ equity.
59
The Company’s foreign currency exposure is also related to its net position of monetary assets and monetary liabilities held by its foreign subsidiaries
in their nonfunctional currencies. These monetary assets and liabilities are being remeasured into the subsidiaries’ respective functional currencies using
exchange rates as of the balance sheet date. Such remeasurement gains and losses are included in “Other income (expense), net” in the Company’s
Consolidated Statements of Operations. During the year ended December 31, 2024, the Company recorded remeasurement gain of approximately
$2.4 million. During the years ended 2023 and 2022, the Company recorded remeasurement loss of approximately $0.2 million and $0.3 million,
respectively.
Derivative Instruments
The Company enters into derivative instruments, primarily foreign currency forward contracts, to minimize the short-term impact of foreign currency
exchange rate fluctuations on certain foreign currency denominated assets and liabilities as well as certain foreign currencies denominated expenses. The
Company does not enter into derivative instruments for trading purposes and these derivatives generally have maturities within three months.
The derivative instruments are recorded at fair value in prepaid expenses and other current assets or accrued and other current liabilities in the
Company’s Consolidated Balance Sheets. The Company enters into derivative instruments to hedge existing foreign currency denominated assets or
liabilities, the gains or losses on these hedges are recorded immediately in earnings to offset the changes in the fair value of the assets or liabilities being
hedged.
Research and Development
Research and development (“R&D”) costs are expensed as incurred and consist primarily of employee salaries and related expenses, contractors and
outside consultants, supplies and materials, equipment depreciation and facilities costs, all associated with the design and development of new products and
enhancements of existing products.
The Company’s French subsidiary participates in the French Crédit d’Impôt Recherche (“CIR”) program which allows companies to monetize eligible
research expenses. The R&D credits receivable from the French government for spending on innovative R&D under the CIR program are recorded as an
offset to R&D expenses. In the years ended December 31, 2024, 2023 and 2022, the Company had R&D credits of $5.9 million, $6.2 million and $5.4
million, respectively.
Restructuring and Related Charges
The Company’s restructuring charges consist primarily of employee severance, one-time termination benefits related to the reduction of its workforce,
and other costs. Liabilities for costs associated with a restructuring activity are recognized when the liability is incurred and are measured at fair value.
One-time termination benefits are expensed at the date the entity notifies the employee, unless the employee must provide future service, in which case the
benefits are expensed ratably over the future service period. Termination benefits are calculated based on regional benefit practices and local statutory
requirements.
Warranty
The Company accrues for estimated warranty costs at the time of revenue recognition and records such accrued liabilities as part of cost of revenue.
Management periodically reviews its warranty liability and adjusts the accrued liability based on the terms of warranties provided to customers, historical
and anticipated warranty claims experience, and estimates of the timing and cost of warranty claims.
Advertising Expenses
All advertising costs are expensed as incurred and included in “Selling, general and administrative expenses” in the Company’s Consolidated
Statements of Operations. Advertising expense was $0.3 million, $0.5 million and $0.7 million for the years ended December 31, 2024, 2023 and 2022,
respectively.
Stock-based Compensation
The Company measures and recognizes compensation expense for all stock-based compensation awards made to employees, including stock options,
restricted stock units (“RSUs”) and stock purchase rights under the Company’s Employee Stock Purchase Plan (“ESPP”), based upon the grant-date fair
value of those awards. The Company recognizes the impact of forfeitures as they occur.
The fair value of the Company’s stock options and stock purchase rights under ESPP is estimated at grant date using the Black-Scholes option pricing
model. The fair value of the Company’s RSUs and performance-based RSUs (“PRSUs”) is calculated based on the market value of the Company’s stock at
the grant date. The fair value of the Company’s market-based RSUs (“MRSUs”) is estimated using the Monte-Carlo valuation model with market vesting
conditions.
60
The Company recognizes the stock-based compensation expense for RSUs, PRSUs, MRSUs and stock purchase rights under ESPP on straight-line
basis over the requisite service period, which is generally the vesting period. The Company recognizes the stock-based compensation expense for PRSUs
based on the probability of achieving performance criteria defined in the PRSU agreements. The Company estimates the number of PRSUs ultimately
expected to vest and recognizes expense using the graded vesting attribution method over the requisite service period. Changes in the estimates related to
probability of achieving certain performance criteria and number of PRSUs expected to vest could significantly affect the related stock-based compensation
expense from one period to the next. The Company recognizes the expense for MRSUs over the requisite services periods regardless of whether the market
conditions are satisfied.
Pension Plan
Under French law, the Company’s subsidiary in France is obligated to provide for a defined benefit plan to its employees upon their retirement from
the Company. The Company’s defined benefit pension plan in France is unfunded.
The Company records its obligations related to the pension plans based on calculations that include various actuarial assumptions including
employees’ age and period of service with the company, projected mortality rates, mobility rates and increases in salaries, and a discount rate. The
Company reviews its actuarial assumptions on an annual basis as of December 31 (or more frequently if a significant event requiring remeasurement
occurs) and modifies the assumptions based on current rates and trends when it is appropriate to do so. The effect of modifications to those assumptions is
recorded in other comprehensive income (loss) and amortized to net periodic benefit cost over the expected remaining period of service of the covered
employees using the corridor method. The Company believes that the assumptions utilized in recording its obligations under its pension plan are reasonable
based on its experience, market conditions and input from its actuaries.
Income Taxes
The Company accounts for income taxes using the asset and liability method of accounting for income taxes. The Company calculates and provides for
income taxes in each of the tax jurisdictions in which it operates. The deferred tax assets and liabilities are recognized for future tax consequences
attributable to temporary differences between the financial statement carrying values of existing assets and liabilities and their respective tax bases and all
operating losses carried forward, if any. Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in
which the applicable temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
or tax status is recognized in the statements of income in the period in which the change is identified. Deferred tax assets are reduced by a valuation
allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company is subject to examination of its income tax returns by various tax authorities on a periodic basis. The Company regularly assesses the
likelihood of adverse outcomes resulting from such examinations to determine the adequacy of its provision for income taxes. The Company has applied
the provisions of the applicable accounting guidance on accounting for uncertainty in income taxes, which requires application of a more-likely-than-not
threshold to the recognition and de-recognition of uncertain tax positions. If the recognition threshold is met, the applicable accounting guidance permits
the Company to recognize a tax benefit measured at the largest amount of tax benefit that, in the Company’s judgment, is more than 50% likely to be
realized upon settlement. It further requires that a change in judgment related to the expected ultimate resolution of uncertain tax positions be recognized in
earnings in the period of such change.
The Company files annual income tax returns in multiple taxing jurisdictions around the world. A number of years may elapse before an uncertain tax
position is audited and finally resolved. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax
position, the Company believes that its reserves for income taxes reflect the most likely outcome. The Company adjusts these reserves and penalties, as
well as the related interest, in light of changing facts and circumstances. Changes in the Company’s assessment of its uncertain tax positions or settlement
of any particular position could materially and adversely impact the Company’s income tax rate, operating results, financial position and cash flows.
61
Recently Adopted Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2023-07, Segment
Reporting, which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant
segment expenses. The updated standard is effective for our annual periods beginning in fiscal 2024 and interim periods beginning in the first quarter of
fiscal 2025. We adopted this ASU for our 2024 annual period and applied the amendments retrospectively to all prior periods presented in our consolidated
financial statements. Refer to Note 15, “Segment information, Geographic Information and Customer Concentration”, for our updated presentation.
Recently Issued Accounting Pronouncement
In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures. This ASU requires disaggregated information about
a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for
annual periods beginning after December 15, 2024. This ASU will result in the required additional disclosures being included in our consolidated financial
statements, once adopted.
In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures.
The ASU requires entities to disclose specified information about certain expenses in the notes to the financial statements, including employee
compensation. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2026 and interim periods within fiscal years
beginning after December 15, 2027 with early adoption permitted. The Company is currently assessing the impact of this ASU on our consolidated
financial statements and related disclosures.
From time to time, new accounting pronouncements are issued by the FASB, or other standards setting bodies, that are adopted by the Company as of
the specified effective date. Unless otherwise discussed, the Company believes the impact of recently issued standards that are not yet effective will not
have a material impact on its consolidated financial position, results of operations and cash flows upon adoption.
NOTE 3. LEASES
The components of lease expense are as follows:
Year Ended December 31,
(in thousands)
2024
2023
Operating lease cost
$
6,943 $
7,116
Variable lease cost
1,537
1,813
Total lease cost
$
8,480 $
8,929
Supplemental cash flow information related to leases are as follows:
Year Ended December 31,
(in thousands)
2024
2023
Cash paid for amounts included in the measurement of operating lease liabilities
$
7,163 $
6,970
Right-of-use assets obtained in exchange for operating lease obligations
$
489 $
—
During the year ended December 31, 2024, we reviewed the right-of-use assets and other fixed assets associated with our leased facilities for potential
impairment due to intended changes in the use of these office locations, as we continue to adapt to the changing dynamics of work and seek to optimize the
value of our business. Following our analyses, we recorded total lease-related impairment and other charges of $10.9 million. These charges primarily
consisted of $3.9 million in right-of-use asset impairments, $4.3 million in leasehold improvement impairments, and $2.7 million related to the fair value of
other unrecoverable facility costs.
For asset groups where impairment was triggered, the Company utilized an income approach to value the asset groups by developing discounted cash
flow models. The assumptions used in the discounted cash flow models for each of the asset groups included projected sublease income over the remaining
lease terms, expected downtime prior to the commencement of future subleases, expected lease incentives offered to future tenants, and discount rates that
reflected the level of risk associated with these future cash flows.
62
Other information related to leases are as follows:
Year Ended December 31,
2024
2023
Operating leases
Weighted-average remaining lease term (years)
5.0
5.5
Weighted-average discount rate
6.5 %
6.4 %
Future minimum lease payments under non-cancelable operating leases as of December 31, 2024 are as follows (in thousands):
Years ending December 31,
2025
$
5,809
2026
4,784
2027
3,833
2028
3,255
2029
3,288
Thereafter
2,577
Total future minimum lease payments
$
23,546
Less: imputed interest
(3,144)
Total lease liability balance
$
20,402
NOTE 4: DERIVATIVES AND HEDGING ACTIVITIES
Derivatives Not Designated as Hedging Instruments (Balance Sheet Hedges)
The Company transacts business in various foreign currencies and has established a program that primarily utilizes foreign currency forward contracts
to offset the risks associated with the effects of certain foreign currency exposures. Under this program, the Company’s strategy is to enter into foreign
currency forward contracts so that increases or decreases in its foreign currency exposures are offset by gains or losses on the foreign currency forward
contracts in order to mitigate the risks and volatility associated with its foreign currency transactions. The Company may suspend this program from time
to time. The Company’s foreign currency exposures typically arise from foreign currency exchange rate fluctuation on cash and certain trade and
intercompany receivables and payables. The Company’s foreign currency forward contracts are generally short-term in duration.
The Company does not designate these forward contracts as hedging instruments pursuant to ASC 815, Derivatives and Hedging. Accordingly,
changes in the fair value of these foreign currency forward contracts are recognized in “Other income (expense), net” in the Consolidated Statements of
Operations and are largely offset by the changes in the fair value of the assets or liabilities being hedged. The balance sheet classification for the fair value
of these forward contracts is other current assets for forward contracts in an unrealized gain position and other current liabilities for forward contracts in an
unrealized loss position. Foreign currency forward contracts’ losses recognized during the years ended December 31, 2024 and 2023 were $1.4 million, and
$0.2 million, respectively. Foreign currency forward contracts’ gains recognized during the year ended December 31, 2022 were $0.3 million.
The U.S. dollar equivalents of all outstanding notional amounts of foreign currency forward contracts were as follows:
As of December 31,
(in thousands)
2024
2023
Purchase
$
— $
54,169
While the Company’s arrangements with its counterparties allow for net settlement, which is designed to reduce credit risk by permitting net settlement
with the same counterparty, the Company recognizes all derivative instruments in the Consolidated Balance Sheets on a gross basis. There were no
outstanding foreign currency forward contracts outstanding as of December 31, 2024. As of December 31, 2023, gross fair values of derivative assets and
liabilities, recorded as components of “Prepaid expenses and other current assets” and “Other current liabilities” were $0.2 million and $0.4 million,
respectively, in the Consolidated Balance Sheets.
63
In connection with foreign currency derivatives entered in Israel, the Company’s subsidiaries in Israel are required to maintain a compensating balance
with their bank at the end of each month. The compensating balance arrangements do not legally restrict the use of cash. As of December 31, 2024 and
2023, the total compensating balance maintained was $1.0 million.
NOTE 5: 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, 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:
December 31, 2024
December 31, 2023
(in thousands)
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Cash equivalents
Money market funds
$
10,000 $
— $
— $
10,000 $
23,683 $
— $
— $
23,683
The Company's financial instruments not measured at fair value on a recurring basis were as follows:
December 31, 2024
December 31, 2023
Carrying
Fair Value
Carrying
Fair Value
(in thousands)
Value
Level 1
Level 2
Level 3
Value
Level 1
Level 2
Level 3
Long-term debt
$
114,278 $
— $
114,278 $
— $
— $
— $
— $
—
2024 Notes
$
— $
— $
— $
— $
114,880 $
— $
177,405 $
—
Other borrowings
$
13,635 $
— $
13,635 $
— $
15,413 $
— $
15,413 $
—
The carrying values of the amounts outstanding under the Credit Agreement approximate fair value because its variable interest rates are tied to market
rates and the applicable credit spreads represent current market rates for the credit risk profile of the Company. The fair value of the Company’s convertible
notes was 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. The Company’s French and other loans are classified within Level 2 because these borrowings are not actively traded and the majority
of them have a variable interest rate structure based upon market rates currently available to the Company for debt with similar terms and maturities;
therefore, the carrying value of these debts approximate its fair value. Refer to Note 10, “Debt,” for additional information.
During the years ended December 31, 2024, 2023, and 2022, there were no nonrecurring fair value measurements of assets and liabilities subsequent to
initial recognition.
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NOTE 6: GOODWILL
The changes in the Company’s carrying amount of goodwill are as follows:
(in thousands)
Video
Broadband
Total
Balance as of December 31, 2022
$
176,989 $
60,750 $
237,739
Foreign currency translation adjustment
1,380
31
1,411
Balance as of December 31, 2023
$
178,369 $
60,781 $
239,150
Foreign currency translation adjustment
(2,266)
(8)
(2,274)
Balance as of December 31, 2024
$
176,103 $
60,773 $
236,876
NOTE 7: ACCOUNTS RECEIVABLE
Accounts receivable, net of allowances, consisted of the following:
As of December 31,
(in thousands)
2024
2023
Accounts receivable
$
180,541 $
144,731
Less: allowance for expected credit losses and sales returns
(2,528)
(3,200)
Total
$
178,013 $
141,531
Trade accounts receivable are recorded at invoiced amounts and do not bear interest. The Company generally does not require collateral and performs
ongoing credit evaluations of its customers and provides for expected losses. The Company maintains an allowance for expected credit losses based upon
the expected collectability of its accounts receivable. The expectation of collectability is based on the Company’s review of credit profiles of customers,
contractual terms and conditions, current economic trends and historical payment experience. The Company offers return rights which are specifically
identified and accrued for as sales returns at the end of the period.
The following table is a summary of activities in allowances for expected credit losses and sales returns:
(in thousands)
Balance at
Beginning of
Period
Charges to
Revenue
Charges to
Expense
Deductions
from Reserves
Balance at End
of Period
Year ended December 31,
2024
$
3,200 $
1,010 $
1,034 $
(2,716) $
2,528
2023
$
2,149 $
1,224 $
1,554 $
(1,727) $
3,200
2022
$
2,853 $
1,118 $
836 $
(2,658) $
2,149
In September 2023, we entered into a Master Receivables Purchase Agreement with JP Morgan 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 the notice to JP Morgan Chase Bank N.A. to, among other things, extend the purchase termination date to September 29, 2025. As of December
31, 2024, there were no receivables sold under this agreement.
NOTE 8: CERTAIN BALANCE SHEET COMPONENTS
Inventories:
As of December 31,
(in thousands)
2024
2023
Finished goods
$
37,634 $
43,987
Raw materials
14,214
27,806
Work-in-process
2,951
5,056
Service-related spares
9,205
7,133
Total
$
64,004 $
83,982
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Prepaid expenses and other current assets:
As of December 31,
(in thousands)
2024
2023
Prepaid expenses
$
4,219 $
3,789
Contract assets
4,288
4,772
Other current assets
13,763
12,389
Total
$
22,270 $
20,950
(1) Contract assets reflect the satisfied performance obligations for which the Company does not yet have an unconditional right to consideration.
Property and equipment, net:
As of December 31,
(in thousands)
2024
2023
Machinery and equipment
$
77,710 $
74,659
Capitalized software
26,882
27,129
Leasehold improvements
25,701
40,931
Furniture and fixtures
2,583
2,547
Construction-in-progress
1,081
1,789
Property and equipment, gross
133,957
147,055
Less: accumulated depreciation and amortization
(107,134)
(110,372)
Total
$
26,823 $
36,683
During the year ended December 31, 2024, the Company recorded a $1.8 million impairment charge for the total capitalized value of internally
developed software. Additionally, the Company recognized an impairment charge of $4.3 million related to our leasehold improvements. Refer to Note 3,
“Leases” for more details.
Other current liabilities:
As of December 31,
(in thousands)
2024
2023
Accrued employee compensation and related expenses
$
25,053 $
22,779
Income tax payable
11,728
4,407
Other
35,659
33,838
Total
$
72,440 $
61,024
NOTE 9: RESTRUCTURING AND RELATED CHARGES
The Company has implemented several restructuring plans in the past few years. The goal of these plans was to bring operational expenses to
appropriate levels relative to the Company’s net revenue, while simultaneously implementing extensive company-wide expense control programs. The
restructuring plans have primarily been comprised of severance payments and termination benefits related to headcount reductions.
During the first quarter of 2024, management initiated restructuring plans to further improve the Video business efficiencies in order to drive long-term
growth and profitability. The planned activities were substantially completed in 2024. Total restructuring cost associated with these restructuring activities
was $16.0 million and recorded to the restructuring expense line item within our Consolidated Statements of Operations.
(1)
66
The following table summarizes the activities related to the Company’s restructuring plans accrual, reported as components of “Other current
liabilities” and “Other non-current liabilities” on the Consolidated Balance Sheets:
(in thousands)
Severance and
Benefits
Balance at December 31, 2023
$
313
Charges for current period
16,433
Cash payments
(10,128)
Other adjustments
1,062
Balance at December 31, 2024
$
7,680
Included in other current liabilities
$
4,414
Included in other non-current liabilities
3,266
Balance at December 31, 2024
$
7,680
(1) Other adjustments include $1.6 million transfer from pension liabilities and $(0.5) million foreign exchange impact.
For the year ended December 31, 2024, $0.5 million and $16.0 million of restructuring and related charges are included in “Cost of revenue” and
“Operating expenses - Restructuring and related charges”, respectively, in the Consolidated Statements of Operations.
NOTE 10: DEBT
4.375% Convertible Senior Notes due 2022 (the “2022 Notes”)
In June 2020, the Company issued the 2022 Notes with an aggregate principal amount of $37.7 million in a non-cash exchange for its 2020 Notes with
an equal principal amount pursuant to an indenture, dated June 2, 2020 (the “2022 Notes Indenture”), 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 principal amount of $37.7 million that matured on December 1, 2022 was paid in cash. The conversion value greater than the principal amount
was delivered in 3.9 million shares of the Company’s common stock.
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 bore 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 would have matured 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 would 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 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.
In April 2024, the Company settled the conversion of the entire $115.5 million in aggregate principal amount of the 2024 Notes. In accordance with
the provisions of the 2024 Notes Indenture, the Company settled such conversions of the 2024 Notes by paying and delivering, as applicable, a
combination of $115.5 million in cash and 4.6 million shares of the Company’s common stock.
(1)
67
The following table presents the components of the 2024 Notes:
As of December 31,
(in thousands)
2024
2023
Liability:
Principal amount
$
— $
115,500
Less: Debt issuance costs, net of amortization
—
(620)
Carrying amount
$
— $
114,880
The following table presents interest expense recognized for the 2024 Notes:
Year Ended December 31,
(in thousands)
2024
2023
2022
Contractual interest expense
$
912 $
2,312 $
2,312
Amortization of debt issuance costs
282
898
874
Total interest expense recognized
$
1,194 $
3,210 $
3,186
Other Debts
The Company has a variety of debt and credit facilities primarily in France to satisfy the financing requirements of the operations of its French
subsidiary. These arrangements are summarized in the table below:
As of December 31,
(in thousands)
2024
2023
Financing from French government agencies related to various government incentive programs
$
11,024 $
11,268
Relief loans
2,611
4,145
Total debt obligations
13,635
15,413
Less: current portion
(4,941)
(4,918)
Long-term portion
$
8,694 $
10,495
(1) These loans bear variable interest rate at EURIBOR 1 month plus 1.9% and mature between 2025 through 2027.
(2) Refer to the below section “Relief Loans” for the description of these loans.
The table below presents the future minimum repayments of other debts as of December 31, 2024 (in thousands):
Year ending December 31,
2025
$
4,941
2026
4,959
2027
3,735
Total
$
13,635
(1)
(2)
68
Relief Loans
In June 2020, Harmonic France was granted a loan from Société Générale S.A. (the “SG Loan”) in the aggregate amount of 5 million Euros, pursuant
to a state guarantee program introduced in March 2020 to provide relief to companies from the financial consequences of the COVID-19 pandemic. The SG
Loan was initially maturing in June 2021. During 2021, SG Loan maturity was extended to June 2026. The SG loan bears an effective interest rate of
0.51% per annum payable annually and may be repaid at any time prior to maturity with no repayment penalties. There are no restrictions on the use of
funds from the SG Loan. The purpose of the funds from the SG Loan is to allow the preservation of activity and employment in France. As of
December 31, 2024, there was $2.6 million outstanding under the loan, of which $1.3 million was recorded in “Other debts, current” and $1.3 million was
recorded in “Other debts, non-current” in the Consolidated Balance Sheets.
Revolving and Term Facilities
In December 2023, the Company entered into a five-year Credit Agreement (the “Credit Agreement”), by and among the Company, certain
subsidiaries of the Company from time to time party thereto, the lenders from time to time party thereto, and Citibank N.A., as administrative agent for the
lenders. The Credit Agreement provides for a secured revolving credit facility in an aggregate principal amount of up to $120.0 million (“the Revolving
Facility”), with a $10.0 million sublimit for the issuance of letters of credit, and a secured delayed draw term loan facility in an aggregate principal amount
of up to $40.0 million (the “Term Facility”). The Revolving Facility and the Term Facility both mature on December 21, 2028. The proceeds of the loans
under the Revolving Facility may be used for general corporate purposes. The proceeds of the loans under the Term Facility must be used to repurchase,
redeem, acquire or otherwise settle the 2024 Notes. The Credit Agreement also includes an uncommitted accordion feature whereby the Company may
increase the Revolving Facility by an aggregate amount not to exceed $100 million, subject to certain conditions, including lender consent.
Loans under the Revolving and Term Facilities bear interest, at a floating rate per annum equal to an adjusted Term Secured Overnight Financing Rate
(“SOFR”) rate (based on one-, three- or six-month interest periods), plus a SOFR premium fee of 0.1% and an applicable margin of between 2.00% to
2.75% (Adjusted Term SOFR Loans), determined based on the Company’s consolidated net leverage ratio. Unused commitments under the Revolving
Facility are subject to a quarterly fee ranging from 0.25% to 0.35%, determined based on the Company’s consolidated net leverage ratio.
The Credit Agreement contains customary affirmative and negative covenants. The Company is also required to maintain compliance with a maximum
consolidated net leverage ratio and a minimum fixed charge coverage ratio, in each case, determined in accordance with the terms of the Credit Agreement.
As of December 31, 2024, the Company was in compliance with the covenant under the Credit Agreement.
As of December 31, 2024, the Company had borrowings of $75.0 million and $39.5 million under the Revolving Facility and the Term Facility,
respectively.
Beginning December 31, 2024, the principal amount of the term loans shall be repaid in quarterly installments equal to 1.25% of the principal amount
of such Term Loans outstanding as of September 1, 2024, increasing to 1.875% beginning December 31, 2025, and to 2.50% beginning December 31,
2027. As of December 31, 2024, $2.3 million of such installment payments were due in twelve months and therefore classified as current portion of long-
term debt on the consolidated balance sheet. The carrying value of the borrowings under the Credit Agreement approximate their fair value because they
bear interest at a market rate.
On July 11, 2024, the Company amended the Credit Agreement to, among other things, allow the Company and its subsidiaries to request letter of
credits denominated in foreign currencies. On September 27, 2024, the Company further amended the Credit Agreement to align the dates on which the
term loan amortization payments are made with the Company’s accounting calendar.
On December 20, 2024, the Company executed an additional amendment to, among other things, allow the Company and its subsidiaries to increase
the borrowing capacity under the Revolving Facility of the Credit Agreement from $120.0 million to $160.0 million.
As of December 31, 2024, there were approximately $2.8 million of letters of credit outstanding under the Credit Agreement.
69
NOTE 11: EMPLOYEE BENEFIT PLANS
Equity Award Plans
1995 Stock Plan
The 1995 Stock Plan provides for the grant of incentive stock options, non-statutory stock options and restricted stock units (“RSUs”). Incentive stock
options may be granted only to employees. All other awards may be granted to employees and non-employees. Under the terms of the 1995 Stock Plan, no
incentive stock option or non-statutory stock option may be granted in the ordinary course of business with a per share exercise price that is less than 100%
of the fair value of the Company’s common stock on the date of grant. RSUs have no exercise price. Both options and RSUs vest over a period of time as
determined by the Company’s Board of Directors (the “Board”), generally two to four years, and options expire seven years from the date of grant. Some of
the RSUs granted by the Company have performance-based vesting terms, where vesting is dependent on achievement of certain financial and non-
financial operating goals of the Company (performance-based RSUs, or “PRSUs”), or where vesting is dependent on performance of the Company’s total
shareholder return (“TSR”) relative to the TSR of the NASDAQ Telecommunication Index (market-based RSUs, or “MRSUs”). The fair value of PRSUs is
estimated on the date of grant based on the market value of our common stock. If the performance goals are not met as of the end of the performance
period, no compensation expense is recognized and any previously recognized compensation expense is reversed. The expected cost is based on the portion
of the awards that is probable to vest and is reflected over the service period. The fair value of MRSUs subject to targeted levels of relative TSR is
estimated on the date of grant using a Monte Carlo simulation model. Compensation expense is recognized based upon the assumption of 100%
achievement of the TSR goal and will not be reversed even if the threshold level of TSR is never achieved and is reflected over the service period. During
the fiscal year 2024, the Company granted 77,571 and 329,166 shares of PRSUs and MRSUs, respectively.
The Company’s stockholders approved an amendment to the 1995 Stock Plan at the 2024 Annual Meeting to increase the number of shares of common
stock reserved for issuance thereunder by 5,000,000 shares. As of December 31, 2024, an aggregate of 16,492,660 shares of common stock were reserved
for issuance under the 1995 Stock Plan, of which 12,723,305 shares remained available for future grants.
2002 Director Plan
The 2002 Director Plan provides for the grant of non-statutory stock options and RSUs to non-employee directors of the Company. Under the terms of
the 2002 Director Plan, no non-statutory stock option may be granted with a per share exercise price that is less than 100% of the fair value of the
Company’s common stock on the date of grant. RSUs have no exercise price. Both options and RSUs vest over a period of time as determined by the
Board, generally one year for RSUs and three years for options, and options expire seven years from the date of grant. As of December 31, 2024, an
aggregate of 576,084 shares of common stock were reserved for issuance under the 2002 Director Plan, of which 374,341 shares remained available for
future grants.
Employee Stock Purchase Plan
The 2002 Employee Stock Purchase Plan (“ESPP”) provides for the issuance of share purchase rights to employees of the Company. The ESPP is
intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code. The ESPP enables employees to purchase
shares at 85% of the fair market value of the Common Stock at the beginning or end of the offering period, whichever is lower. Offering periods generally
begin on the first trading day on or after January 1 and July 1 of each year. Employees may participate through payroll deductions of 1% to 10% of their
earnings. In the event that there are insufficient shares in the plan to fully fund the issuance, the available shares will be allocated across all participants
based on their contributions relative to the total contributions received for the offering period. The Company’s stockholders approved an amendment to the
ESPP Plan at the 2024 Annual Meeting to increase the number of shares of common stock reserved for issuance thereunder by 400,000 shares. As of
December 31, 2024, 1,061,928 shares were reserved for future purchases by eligible employees. Under the ESPP, 622,004, 733,030 and 817,243 shares
were issued during fiscal 2024, 2023 and 2022, respectively, representing $6.6 million, $6.6 million and $5.9 million in contributions.
Stock Options
All stock options were fully vested and exercised as of December 31, 2022. No stock options were granted in 2024.
70
Restricted Stock Units
(in thousands, except per share amounts)
Number
of
Shares
Weighted Average
Grant-Date Fair Value
Per Share
Balance at December 31, 2023
3,242 $
12.42
Granted
3,180
13.22
Vested and issued
(2,107)
12.16
Forfeited
(868)
13.93
Balance at December 31, 2024
3,447 $
12.95
The fair value of RSUs vested and issued during the years ended December 31, 2024, 2023 and 2022 was $25.6 million, $22.5 million and
$22.4 million, respectively.
Share-based Compensation Cost
The following table sets forth the detailed allocation of the share-based compensation expense which was included in the Company’s Consolidated
Statements of Operations:
Year Ended December 31,
(in thousands)
2024
2023
2022
Share-based compensation expense included in:
Cost of revenue
$
1,091 $
2,348 $
2,233
Research and development expense
8,015
7,889
7,519
Selling, general and administrative expense
18,967
17,092
15,460
Total
$
28,073 $
27,329 $
25,212
Share-based compensation expense by type of award:
RSUs
$
23,299 $
19,863 $
17,786
PRSUs
1,044
3,398
3,865
MRSUs
1,646
1,705
1,558
Employee stock purchase rights under ESPP
2,084
2,363
2,003
Total
$
28,073 $
27,329 $
25,212
As of December 31, 2024, total unrecognized share-based compensation cost related to unvested RSUs was $28.9 million and is expected to be
recognized over a weighted-average period of approximately 1.7 years.
French Pension Plan
Under French law, the Company’s subsidiaries in France are obligated to make certain payments to their employees upon their retirement from the
Company. These payments are based on the retiring employee’s salary for a number of months that varies according to the employee’s period of service and
position. Salary used in the calculation is the employee’s average monthly salary for the twelve months prior to retirement. The payments are made in one
lump-sum at the time of retirement. The French pension plan is unfunded and there are no contributions to the plan required by related laws or funding
regulations. No required contributions are expected in fiscal 2025, but the Company, at its discretion, may make contributions to the defined benefit plan.
The Company’s defined benefit pension obligations are measured annually as of December 31. The present value of these lump-sum payments is
determined on an actuarial basis and the actuarial valuation considers the employees’ age and period of service with the Company, projected mortality
rates, mobility rates, increases in salaries and a discount rate.
71
The Company’s pension obligations as of December 31, 2024 and 2023, and the changes to the Company’s pension obligations for each of those years,
were as follows:
(in thousands)
2024
2023
Projected benefit obligation:
Balance at January 1
$
5,596 $
5,283
Service cost
242
217
Interest cost
205
169
Actuarial losses (gains)
330
(25)
Settlement
(1,612)
—
Benefits paid
(28)
(275)
Foreign currency translation adjustment
(201)
227
Balance at December 31
$
4,532 $
5,596
Presented on the Consolidated Balance Sheets as:
Current portion (included in “Accrued and other current liabilities”)
$
— $
33
Long-term portion (included in “Other non-current liabilities”)
$
4,532 $
5,563
The table below presents the components of net periodic benefit costs:
Year Ended December 31,
(in thousands)
2024
2023
2022
Service cost
$
242 $
217 $
259
Interest cost
205
169
50
Net periodic benefit cost included in result of operations
$
447 $
386 $
309
The following assumptions were used in determining the Company’s pension obligation:
As of December 31,
2024
2023
Discount rate
3.2 %
3.8 %
Mobility rate
6.3 %
6.2 %
Salary progression rate
3.0 %
3.0 %
The Company evaluates the discount rate assumption annually. The discount rate is determined using the average yields on high-quality fixed-income
securities that have maturities consistent with the timing of benefit payments.
The Company also evaluates other assumptions related to demographic factors, such as retirement age, mortality rates and turnover periodically,
updating them to reflect experience and expectations for the future. The mortality assumption related to the Company’s defined benefit pension plan used
the most current mortality tables published by the French National Institute of Statistics and Economic Studies.
As of December 31, 2024, future benefits expected to be paid in each of the next five years, and in the aggregate for the five-year period thereafter are
as follows (in thousands):
Year ending December 31,
2025
$
—
2026
74
2027
195
2028
349
2029
273
2030 – 2034
3,436
Total
$
4,327
72
Valuation Assumptions
The Company estimates the fair value of stock purchase rights under the ESPP using a Black-Scholes option valuation model. The value of the stock
purchase rights under the ESPP consists of: (1) the 15% discount on the purchase of the stock; (2) 85% of the fair value of the call option; and (3) 15% of
the fair value of the put option. The call option and put option were valued using the Black-Scholes option pricing model. At the date of grant, the
Company estimated the fair value of each stock purchase right granted under the ESPP using the following weighted average assumptions:
Year Ended December 31,
2024
2023
2022
Expected term (in years)
0.50
0.50
0.50
Volatility
50 %
46 %
47 %
Risk-free interest rate
5.3 %
5.2 %
1.4 %
Expected dividends
0.0 %
0.0 %
0.0 %
The expected term of the stock purchase right under ESPP represents the period of time from the beginning of the offering period to the purchase date.
The Company uses its historical volatility for a period equivalent to the expected term to estimate the expected volatility. The risk-free interest rate that the
Company uses in the Black-Scholes option valuation model is based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected
term. The Company has not paid and does not plan to pay any cash dividends in the foreseeable future.
The estimated weighted-average fair value per share of stock purchase rights under the ESPP, granted for the years ended December 31, 2024, 2023
and 2022 was $3.76, $4.23 and $2.91, respectively.
NOTE 12: STOCKHOLDERS’ EQUITY
Share Repurchase Program
On February 10, 2025, the Board of Directors terminated the Company’s existing stock repurchase program and authorized a new program under
which the Company may repurchase up to $200 million of its outstanding shares of common stock through February 2028. 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.
During the year ended December 31, 2024, the company repurchased and retired approximately 2.4 million shares of the Company’s common stock for
an aggregate amount of $30.0 million.
NOTE 13: INCOME TAXES
Income (loss) before income tax:
Year Ended December 31,
(in thousands)
2024
2023
2022
Domestic
$
37,949 $
(1,734) $
24,680
Foreign
19,984
20,875
19,805
Income before income taxes
$
57,933 $
19,141 $
44,485
73
Provision for (benefit from) income taxes:
Year Ended December 31,
(in thousands)
2024
2023
2022
Current:
Federal
$
24,749 $
19,441 $
4,443
State
5,755
4,582
3,236
Foreign
4,648
3,980
3,730
Deferred:
Federal
(19,152)
(81,632)
—
State
104
(12,416)
—
Foreign
2,612
1,192
4,894
Total provision for (benefit from) income taxes
$
18,716 $
(64,853) $
16,303
The difference between the tax provision at the statutory federal income tax rate and the provision for (benefit from) income tax as a percentage of
income (loss) before income taxes (effective tax rate) for each period was as follows:
Year Ended December 31,
2024
2023
2022
Statutory U.S. federal income tax rate
21 %
21 %
21 %
Increase (reduction) in rate resulting from:
State Taxes
5 %
(4)%
7 %
Differential in rates on foreign earnings
2 %
(13)%
1 %
Change in valuation allowance
1 %
(350)%
15 %
Change in liabilities for uncertain tax positions
1 %
— %
— %
Non-deductible stock-based compensation
3 %
6 %
4 %
Permanent differences
(1)%
(5)%
(1)%
Adjustments related to tax positions taken during prior years
1 %
12 %
(8)%
Research and development credits
(1)%
(6)%
(2)%
Effective tax rate
32 %
(339)%
37 %
The Company operates in multiple jurisdictions and its profits are taxed pursuant to the tax laws of these jurisdictions. The Company’s effective
income tax rate differs from the U.S. federal statutory rate primarily due to the geographical mix of income and losses and the resulting income and
withholding taxes from operations in the foreign tax jurisdictions. The Company’s effective income tax rate may be affected by changes in its
interpretations of tax laws and tax agreements in any given jurisdiction, changes in geographical mix of income and expense, and changes in management's
assessment of matters such as the ability to realize deferred tax assets, as well as one-time discrete items. During fiscal 2024, the Company recorded
income tax expense of $18.7 million.
74
The components of deferred taxes are as follows:
As of December 31,
(in thousands)
2024
2023
Deferred tax assets:
Reserves and accruals
$
25,069 $
24,908
Net operating loss carryforwards
11,044
14,376
Research and development credit carryforwards
30,350
30,117
Deferred stock-based compensation
2,341
1,863
Intangibles
4,912
5,651
Operating lease liabilities
4,953
6,216
Capitalized research and development expenses
83,055
64,075
Other
3,219
3,110
Gross deferred tax assets
164,943
150,316
Valuation allowance
(37,489)
(37,084)
Gross deferred tax assets after valuation allowance
127,454
113,232
Deferred tax liabilities:
Depreciation
(3,127)
(3,506)
Operating lease right-of-use assets
(3,299)
(5,019)
Gross deferred tax liabilities
(6,426)
(8,525)
Net deferred tax assets
$
121,028 $
104,707
The following table summarizes the activities related to the Company’s valuation allowance:
Year Ended December 31,
(in thousands)
2024
2023
2022
Balance at beginning of period
$
37,084 $
101,020 $
90,247
Additions
481
477
10,773
Deductions
(76)
(64,413)
—
Balance at end of period
$
37,489 $
37,084 $
101,020
Management regularly assesses the ability to realize deferred tax assets recorded based upon the weight of available evidence, including such factors as
recent earnings history and expected future taxable income on a jurisdiction-by-jurisdiction basis. In 2023, the Company determined that deferred tax assets
in the U.S federal and certain state jurisdictions would be realizable and released the valuation allowance against those assets accordingly. In the event that
the Company changes its determination as to the amount of realizable deferred tax assets, the Company will adjust its valuation allowance with a
corresponding impact to the provision for income taxes in the period in which such determination is made.
As of December 31, 2024, the Company had $59.2 million and $25.7 million of foreign and U.S. state net operating loss (“NOL”) carryforwards,
respectively. Certain foreign NOLs expire beginning in 2026, if not utilized, while the majority of the foreign NOLs carryforward indefinitely. Certain U.S.
states NOL carryforward expires at various dates beginning in 2027, if not utilized.
As of December 31, 2024, the Company had U.S. federal and California state tax credit carryforwards of approximate $2.2 million and $37.1 million,
respectively. If not utilized, the U.S. federal tax credit carryforwards will begin to expire in 2031, while the California tax credit carryforward will not
expire.
In the event the Company experiences an ownership change within the meaning of Section 382 of the Internal Revenue Code (“IRC”), the Company’s
ability to utilize U.S. net operating losses, tax credits and other tax attributes may be limited.
The Company has not provided U.S. state income taxes and foreign withholding taxes, on approximately $85.6 million of cumulative earnings for
certain non-U.S. subsidiaries, because such earnings are intended to be indefinitely reinvested. Determination of the amount of unrecognized deferred tax
liability for temporary differences related to investments in these non-U.S. subsidiaries that are essentially permanent in duration is not practicable.
75
The Company applies the provisions of the applicable accounting guidance regarding accounting for uncertainty in income taxes, which require
application of a more-likely-than-not threshold to the recognition and derecognition of uncertain tax positions. If the recognition threshold is met, the
applicable accounting guidance permits the recognition of a tax benefit measured at the largest amount of such tax benefit that, in the Company’s judgment,
is more than fifty percent likely to be realized upon settlement. It further requires that a change in judgment related to the expected ultimate resolution of
uncertain tax positions to be recognized in earnings in the period in which such determination is made. The Company will continue to review its tax
positions and provide for, or reverse, unrecognized tax benefits as issues arise. As of December 31, 2024, the Company had $12.0 million of unrecognized
future tax benefits. Of these, $5.3 million would favorably impact the effective tax rate in future periods if recognized, and $6.7 million will have no or
minimal impact on the effective tax rate in future periods if recognized due to a valuation allowance on such unrecognized tax benefits.
The following table summarizes the activities related to the Company’s gross unrecognized tax benefits:
Year Ended December 31,
(in millions)
2024
2023
2022
Balance at beginning of period
$
12.5 $
11.1 $
13.8
Increase in balance related to tax positions taken during current year
0.2
0.4
0.3
Decrease in balance as a result of a lapse of the applicable statutes of limitations
—
—
—
Increase in balance related to tax positions taken during prior years
0.3
1.0
—
Decrease in balance related to tax positions taken during prior years
(1.0)
—
(3.0)
Balance at end of period
$
12.0 $
12.5 $
11.1
The Company recognizes interest and penalties related to unrecognized tax positions in income tax expenses on the Consolidated Statements of
Operations. The net interest and penalties charges recorded for the years ended December 31, 2022 through 2024, were not material. Although inherently
uncertain, the Company does not expect its unrecognized tax benefits to change significantly over the next 12 months.
The 2021 through 2024 tax years generally remain subject to examination by U.S. federal and most state tax authorities. Net operating losses generated
on a tax return basis by the Company for the 2015 to 2020 tax years and research and development credits for 2011 to 2024 tax years remain open to
examination. In addition, the Company remains subject to income tax examination for several other jurisdictions, including in Switzerland for years after
2014, Israel for years after 2019, and France for years after 2015.
76
NOTE 14: NET INCOME PER SHARE
Basic earnings per share is computed by dividing net income 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 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 convertible Notes.
As noted in Note 10, “Debt,” the principal amount of the 2022 Notes and the 2024 Notes was settled in cash and the conversion spread value of the
2022 Notes and the 2024 Notes was settled in shares.
The following table sets forth the computation of the basic and diluted net income per share:
Year Ended December 31,
(in thousands, except per share amounts)
2024
2023
2022
Numerator:
Net income
$
39,217 $
83,994 $
28,182
Denominator:
Weighted average number of shares outstanding:
Basic
115,120
111,651
105,080
2022 Notes
—
—
2,681
2024 Notes
1,435
4,320
2,441
Stock options
—
—
213
Restricted stock units
921
1,355
1,884
Stock purchase rights under ESPP
6
33
79
Diluted
117,482
117,359
112,378
Net income per share:
Basic
$
0.34 $
0.75 $
0.27
Diluted
$
0.33 $
0.72 $
0.25
The following table set forth the potential dilutive shares that were excluded from the computation of diluted net income per share, because their
effects were anti-dilutive:
Year Ended December 31,
(in thousands)
2024
2023
2022
Restricted stock units
539
276
38
77
NOTE 15: SEGMENT INFORMATION, GEOGRAPHIC INFORMATION AND CUSTOMER CONCENTRATION
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 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: Broadband and
Video. The operating segments were determined based on the nature of the products offered. The Broadband segment provides broadband access solutions
and related services to broadband operators globally. 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 telco Pay-TV service providers.
The Company’s CODM allocates resources to and assesses the performance of each operating segment using information about the operating
segment’s revenue and income (loss) from operations. Our CODM does not evaluate operating segments using asset or liability information.
The following table set forth our segment information of revenue, expense, and income (loss) from operations:
Year Ended December 31, 2024
(in thousands)
Broadband
Video
Total
Revenue
$
488,200 $
190,522 $
678,722
Less:
Cost of revenue
246,014
65,238
311,252
Research and development expense
57,822
55,139
112,961
Selling, general and administrative
66,010
67,389
133,399
Segment operating income
$
118,354 $
2,756 $
121,110
Year Ended December 31, 2023
(in thousands)
Broadband
Video
Total
Revenue
$
388,482 $
219,425 $
607,907
Less:
Cost of revenue
206,550
85,776
292,326
Research and development expense
55,494
62,899
118,393
Selling, general and administrative
61,863
79,491
141,354
Segment operating income (loss)
$
64,575 $
(8,741) $
55,834
Year Ended December 31, 2022
(in thousands)
Broadband
Video
Total
Revenue
$
350,768 $
274,189 $
624,957
Less:
Cost of revenue
197,737
108,571
306,308
Research and development expense
50,620
62,166
112,786
Selling, general and administrative
50,128
81,130
131,258
Segment operating income
$
52,283 $
22,322 $
74,605
78
A reconciliation of the Company’s consolidated segment operating income to consolidated income before income taxes is as follows:
Year Ended December 31,
(in thousands)
2024
2023
2022
Total consolidated segment operating income
$
121,110 $
55,834 $
74,605
Stock-based compensation
(28,073)
(27,329)
(25,212)
Restructuring and related charges
(16,433)
(1,132)
(3,874)
Lease-related asset impairment and other charges
(10,889)
—
—
Asset impairment charges
(1,824)
—
—
Non-recurring advisory fees
(755)
(5,201)
—
Consolidated income from operations
63,136
22,172
45,519
Non-operating expense, net
(5,203)
(3,031)
(1,034)
Income before income taxes
$
57,933 $
19,141 $
44,485
(1) Together with stock-based compensation, the Company does not allocate restructuring and related charges, lease-related and other charges, asset impairment charges
and other non-recurring expenses to the operating income 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:
Year Ended December 31,
(in thousands)
2024
2023
2022
Product sales
$
482,110 $
396,682 $
423,858
Professional services
25,268
39,196
49,948
Total Appliance and integration
507,378
435,878
473,806
SaaS
56,211
50,888
34,665
Support services
115,133
121,141
116,486
Total SaaS and services
171,344
172,029
151,151
Total revenue
$
678,722 $
607,907 $
624,957
The following table provides a summary of total net revenues by geographic region:
Net revenue:
Year Ended December 31,
(in thousands)
2024
2023
2022
United States
$
515,040 $
408,951 $
393,991
Other countries
163,682
198,956
230,966
Total
$
678,722 $
607,907 $
624,957
(1) Revenue is attributed to countries based on the location of the customer.
Other than the United States, no single country accounted for 10% or more of the Company’s net revenues for the years ended December 31, 2024,
2023 and 2022.
Property and equipment, net:
As of December 31,
(in thousands)
2024
2023
United States
$
16,467 $
24,260
Israel
7,351
9,542
France
2,757
2,520
Other countries
248
361
Total
$
26,823 $
36,683
(1)
(1)
(1)
(1)
(1)
(1)
(1)
79
Customer Concentration
Comcast and Charter Communications accounted for 44% and 18% of the Company’s total net revenues during the year ended December 31, 2024,
respectively. Comcast accounted 44% and 39% of the Company’s total net revenues during the years ended December 31, 2023 and 2022, respectively.
NOTE 16: COMMITMENTS AND CONTINGENCIES
Bank Guarantees and Standby Letters of Credit
As of December 31, 2024 and 2023, the Company has outstanding bank guarantees and standby letters of credit in aggregate of $2.9 million and $2.3
million, respectively, consisting of building leases and performance bonds issued to customers.
In December 2023, the Company entered into a Credit Agreement, with Citibank, N.A., as administrative agent for the lenders. The Credit Agreement
refinances and replaces the Company’s prior credit agreement, dated as of December 19, 2019, as amended, with JPMorgan Chase Bank, N.A., as lender. In
July 2024, the Company amended the Credit Agreement to allow the Company and its subsidiaries to request letter of credits denominated in foreign
currencies. As of December 31, 2024, there were no borrowings under the Credit Agreement outstanding and approximately $2.8 million of letters of credit
outstanding under the Credit Agreement. The Company was in compliance with the covenants under the Credit Agreement as of December 31, 2024. Refer
to Note 10, “Debt” of the Notes to the Consolidated Financial Statements for additional information regarding the Credit Agreement.
Indemnification
The Company is obligated to indemnify its officers and its directors pursuant to its bylaws and contractual indemnity agreements. The Company also
indemnifies some of its suppliers and most of its customers for specified intellectual property matters pursuant to certain contractual arrangements, subject
to certain limitations. The scope of these indemnities varies, but, in some instances, includes indemnification for damages and expenses (including
reasonable attorneys’ fees). There have been no amounts accrued in respect of the indemnification provisions through December 31, 2024.
Purchase Commitments
As of December 31, 2024, the Company had approximately $113.9 million of commitments to purchase goods and services.
NOTE 17: 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.
NOTE 18: SUBSEQUENT EVENT
On February 10, 2025, Harmonic announced that its board of directors has terminated the Company’s existing stock repurchase program and
authorized a new program under which the Company may repurchase up to $200 million of its outstanding shares of common stock through February 2028.
The Company intends to fund the share repurchases from cash on hand and cash generated from operations. Repurchases under the program may be made
from time to time through open market purchases and 10b5-1 trading plans, in accordance with applicable securities laws. The timing and amount of any
repurchases will depend on a variety of factors, including the price of Harmonic's common stock, business and market conditions, corporate regulatory
requirements, strategic opportunities and other factors. The stock repurchase program does not commit Harmonic to acquire any particular amounts of its
common stock, and the program may be amended, suspended or discontinued at any time at the Company's discretion.
80
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Exchange Act, that are designed to ensure that
information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our
disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure
controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure
controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, our Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and procedures were effective.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under
the Exchange Act). Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the
criteria set forth in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on the Company’s assessment, management concluded that its internal control over financial reporting was effective as of December 31, 2024.
The Company’s independent registered public accounting firm, Ernst & Young LLP, has audited the effectiveness of the Company’s internal control
over financial reporting, as stated in their report which appears in Part II, Item 8 of this Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during our fourth quarter of fiscal year 2024, which were identified in
connection with management’s evaluation required by paragraph (d) of rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or
are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.
OTHER INFORMATION
None.
Item 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
81
PART III
Certain information required by Part III is omitted from this Annual Report on Form 10-K pursuant to Instruction G to Exchange Act Form 10-K, and
the Registrant will file its definitive Proxy Statement for its 2025 Annual Meeting of Stockholders, pursuant to Regulation 14A of the Securities Exchange
Act of 1934, as amended (the “2025 Proxy Statement”), not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-
K, and certain information included in the 2025 Proxy Statement is incorporated herein by reference.
Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item will be set forth in the 2025 Proxy Statement and is incorporated herein by reference.
Harmonic has adopted a Code of Business Conduct and Ethics (the “Code”) that applies to all employees, including Harmonic’s Chief Executive
Officer, Chief Financial Officer and Corporate Controller. The Code is available on the Company’s website at www.harmonicinc.com.
Harmonic intends to satisfy the disclosure requirement under Form 8-K regarding an amendment to, or waiver from, a provision of this Code of
Ethics by posting such information on our website, at the address specified above, and, to the extent required by the listing standards of The NASDAQ
Global Select Market, by filing a Current Report on Form 8-K with the Securities and Exchange Commission disclosing such information.
We have adopted an insider trading policy governing the purchase, sale and other dispositions of our securities that applies to all personnel of
Harmonic and our subsidiaries, including directors, officers, and employees and, to certain other covered persons, as well as to Harmonic itself. We believe
that our insider trading policy is reasonably designed to promote compliance with insider trading laws, rules, and regulations, as well as applicable listing
standards. A copy of our insider trading policy is filed as Exhibit 19.1 to this Annual Report on Form 10-K.
Item 11.
EXECUTIVE COMPENSATION
The information required by this item will be set forth in the 2025 Proxy Statement and is incorporated herein by reference.
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
Information related to security ownership of certain beneficial owners and security ownership of management and related stockholder matters will be
set forth in the 2025 Proxy Statement and is incorporated herein by reference.
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item will be set forth in the 2025 Proxy Statement and is incorporated herein by reference.
Item 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item will be set forth in the 2025 Proxy Statement and is incorporated herein by reference.
82
PART IV
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1. Financial Statements. See Index to Consolidated Financial Statements in Item 8 on page of this Annual Report on Form 10-K.
2. Financial Statement Schedules. Financial statement schedules have been omitted because the information is not required to be set forth herein, is
not applicable or is included in the financial statements or the notes thereto.
3. Exhibits. The documents listed in the Exhibit Index of this Annual Report on Form 10-K are filed herewith or are incorporated by reference in this
Annual Report on Form 10-K, in each case as indicated therein.
Exhibit
Number
Description
3.1 (i)
Certificate of Incorporation of Harmonic Inc., as amended
3.2 (ii)
Amended and Restated Bylaws of Harmonic Inc.
4.1 (iii)
Form of Common Stock Certificate
4.2 (iv)
Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock of Harmonic Inc.
4.3 (v)
Description of Common Stock
10.1 (vi)*
Form of Indemnification Agreement
10.2 (vii)*
1995 Stock Plan, as amended and restated on June 11, 2024
10.3 (viii)*
2002 Director Stock Plan, as amended and restated on June 8, 2021
10.4 (ix)*
2002 Employee Stock Purchase Plan, as amended and restated on June 11, 2024
10.5 (x)*
Form of Change of Control Severance Agreement between Harmonic Inc. and Timothy Chu
10.6 (xi)*
Offer Letter, dated as of May 10, 2023, between Harmonic Inc. and Walter Jankovic
10.7 (xii)*
Change of Control Severance Agreement, dated as of May 22, 2023, between Harmonic Inc. and Walter Jankovic
10.8 (xiii)*
Amended and Restated Change of Control Severance Agreement, dated as of November 30, 2023, between Harmonic Inc. and
Neven Haltmayer
10.9 (xiv)
Harmonic Inc. 2002 Director Stock Plan Restricted Stock Unit Agreement
10.10 (xv)
Professional Service Agreement between Harmonic Inc. and Plexus Services Corp., dated September 22, 2003
10.11 (xvi)
Amendment, dated January 6, 2006, to the Professional Services Agreement for Manufacturing between Harmonic Inc. and
Plexus Services Corp., dated September 22, 2003
10.12 (xvii)
Addendum 1, dated November 26, 2007, to the Professional Services Agreement between Harmonic Inc. and Plexus Services
Corp., dated September 22, 2003
10.13 (xviii)
Harmonic Inc. 1995 Stock Plan Restricted Stock Unit Agreement
10.14 (xix)
Fifth Amendment to Credit Agreement, dated as of September 29, 2023, by and among Harmonic Inc., Harmonic International
GmbH and JPMorgan Chase Bank, N.A.
10.15 (xx)
Master Receivables Purchase Agreement dated as of September 29, 2023, by and between Harmonic Inc. and JPMorgan Chase
Bank, N.A.
10.16 (xxi)
Credit Agreement, dated as of December 21, 2023, by and among Harmonic Inc., the lenders party thereto and Citibank, N.A.,
as administrative agent, swingline lender and L/C issuer
10.17 (xxii)
Third Amendment to Credit Agreement, dated as of December 23, 2024, by and among Harmonic Inc., the subsidiary
guarantor party thereto, the lenders party thereto and Citibank, N.A.
10.18 (xxiii)
Settlement Agreement by and between the Company and Ian Graham dated April 15, 2024.
10.19 (xxiv)*
CEO Appointment Letter between Harmonic Video Networks Ltd. and Nimrod Ben-Natan, signed April 29, 2024.
10.20 (xxv)*
Change of Control Severance Agreement between the Company and Nimrod Ben-Natan, as amended and restated, effective
June 11, 2024.
83
10.21 (xxvi)
Consulting Agreement between the Company and Patrick Harshman, signed April 29, 2024.
19.1
Insider Trading Policy
21.1
Subsidiaries of Harmonic Inc.
23.1
Consent of Independent Registered Public Accounting Firm
31.1
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
97.1
Compensation Recovery Policy dated October 30, 2023
101
The following materials from Registrant’s Annual Report on Form 10-K for the year ended December 31, 2024, formatted in
Inline Extensible Business Reporting Language (XBRL) includes: Consolidated Balance Sheets at December 31, 2024 and
December 31, 2023; (ii) Consolidated Statements of Operations for the Years Ended December 31, 2024, December 31, 2023
and December 31, 2022; (iii) Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2024,
December 31, 2023 and December 31, 2022; (iv) Consolidated Statements of Stockholders’ Equity for the Years Ended
December 31, 2024, December 31, 2023 and December 31, 2022; (v) Consolidated Statements of Cash Flows for the Years
Ended December 31, 2024, December 31, 2023 and December 31, 2022; and (vi) Notes to Consolidated Financial Statements.
104
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
* Indicates a management contract or compensatory plan or arrangement relating to executive officers or directors of the Company.
† Registrant has omitted portions of this exhibit and filed such exhibit separately with the Securities and Exchange Commission pursuant to a grant of
confidential treatment under Rule 406 promulgated under the Securities Act.
(i)
Previously filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.
(ii)
Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the three months ended September 29, 2023.
(iii)
Previously filed as an exhibit to the Company’s Registration Statement on Form S-1 No. 33-90752.
(iv)
Previously filed as an exhibit to the Company’s Current Report on Form 8-K dated July 25, 2002.
(v)
Previously filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
(vi)
Previously filed as an exhibit to the Company’s Registration Statement on Form S-1 No. 33-90752.
(vii)
Previously filed as an exhibit to the Company’s Registration Statement on Form S-8, dated November 1, 2024.
(viii) Previously filed as an exhibit to the Company’s Registration Statement on Form S-8, dated August 20, 2021.
(ix)
Previously filed as an exhibit to the Company’s Registration Statement on Form S-8, dated November 1, 2024.
(x)
Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on March 26, 2018.
(xi)
Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on May 22, 2023.
(xii)
Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on May 22, 2023.
(xiii) Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on December 6, 2023.
(xiv) Previously filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
(xv)
Previously filed as an exhibit to the Company’s Current Annual Report on Form 10-K for the year ended December 31, 2008.
(xvi) Previously filed as an exhibit to the Company’s Current Annual Report on Form 10-K for the year ended December 31, 2008.
84
(xvii) Previously filed as an exhibit to the Company’s Current Annual Report on Form 10-K for the year ended December 31, 2008.
(xviii)Previously filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
(xix) Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on October 4, 2023.
(xx)
Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on October 4, 2023.
(xxi) Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on December 21, 2023.
(xxii) Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on December 26, 2024.
(xxiii)Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on April 18, 2024.
(xxiv) Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on April 29, 2024.
(xxv) Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on April 29, 2024.
(xxvi) Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on April 29, 2024.
Item 16.
FORM 10-K SUMMARY
None.
85
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant, Harmonic Inc., a Delaware corporation,
has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Jose, State of
California, on February 14, 2025.
HARMONIC INC.
By:
/s/ NIMROD BEN-NATAN
Nimrod Ben-Natan
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ NIMROD BEN-NATAN
President & Chief Executive Officer (Principal Executive Officer)
February 14, 2025
(Nimrod Ben-Natan)
/s/ WALTER JANKOVIC
Chief Financial Officer (Principal Financial and Accounting Officer)
February 14, 2025
(Walter Jankovic)
/s/ PATRICK GALLAGHER
Chairperson
February 14, 2025
(Patrick Gallagher)
/s/ DAN WHALEN
Director
February 14, 2025
(Dan Whalen )
/s/ DAVID KRALL
Director
February 14, 2025
(David Krall)
/s/ DEBORAH L. CLIFFORD
Director
February 14, 2025
(Deborah L. Clifford)
/s/ DANA CRANDALL
Director
February 14, 2025
(Dana Crandall)
/s/ NEEL DEV
Director
February 14, 2025
(Neel Dev)
/s/ STEPHANIE COPELAND
Director
February 14, 2025
(Stephanie Copeland)
86
HARMONIC INC.
INSIDER TRADING COMPLIANCE PROGRAM
Amended and Restated: May 3, 2023
In order to take an active role in the prevention of insider trading violations by its officers, directors, employees and other related
individuals, Harmonic Inc. (the "Company") has adopted the policies and procedures described in this Memorandum.
I.
Adoption of Insider Trading Policy.
The Company has adopted the Insider Trading Policy attached hereto as Exhibit A (the "Policy"), which prohibits trading based on
material, non-public information regarding the Company ("Inside Information"). The Policy applies to officers, directors and all employees
of, advisors or consultants to, the Company, as well as family members of such persons, and others who have or may have access to Inside
Information. The Policy (and/or a summary thereof) is to be delivered to all new directors, officers, employees, advisors and consultants on
the commencement of their relationships with the Company, and is to be circulated to all employees at least annually.
II.
Designation of Certain Persons.
A.
Section 16 Individuals. The Board of Directors shall periodically determine the directors and officers who are subject to the
reporting and penalty provisions of Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder ("Section 16 Individuals").
B.
Persons subject to Pre-Clearance. The Board of Directors has determined that the Compliance Officer shall designate those
individuals, together with the Section 16 Individuals, who are subject to the preclearance requirement described in Section IV.A. below, in
that the Company believes that, in the normal course of their duties, such persons have, or are likely to have, regular access to Inside
Information ("Restricted Persons"). Under special circumstances, the Compliance officer may determine that other persons may have access
to Inside Information. During the period that such persons have access to Inside Information, such persons should also be subject to the
preclearance procedure described in Section IV.A. below.
C.
Other Persons subject to the Trading Window. The Board of Directors has determined that the Compliance Officer shall also
designate those individuals who are subject to the Trading Window (but not subject to preclearance requirements). Such determination shall
be based on such person’s access to Inside Information.
III.
Appointment of Compliance Officer.
The Company has appointed Timothy C. Chu, the Company's General Counsel, SVP HR and Secretary (or his successor in office), as the
Company's Insider Trading Compliance Officer (the "Compliance Officer").
IV.
Duties of Compliance Officer.
The duties of the Compliance Officer shall include, but not be limited to, the following:
A.
Preclearing all transactions involving the Company's securities by Restricted Persons, in order to determine compliance with
the Policy, insider trading laws, Section 16 of the Exchange Act and Rule 144 promulgated under the Securities Act of 1933, as amended.
B.
Assisting in the preparation and filing of Section 16 reports (Forms 3, 4 and 5) for all Section 16 Individuals.
C.
Serving as the designated recipient at the Company of copies of reports filed with the Securities and Exchange Commission
(the "SEC") by Section 16 Individuals under Section 16 of the Exchange Act.
D.
Regularly sending reminders to all Section 16 Individuals regarding their obligations to report.
E.
Performing periodic cross-checks of available materials, which may include Forms 3, 4 and 5, Forms 144, Schedules 13D
and G, officers' and directors' questionnaires, and reports received from the Company's stock administrator and transfer agent, to determine
trading activity by officers, directors and others who have, or may have, access to Inside Information.
F.
Circulating the Policy (and/or a summary thereof) to all employees, including Section 16 Individuals, on an annual basis, and
providing the Policy and other appropriate materials to new officers, directors and others who have, or may have, access to Inside
Information.
G.
Assisting the Company's Board of Directors in implementation of the Policy and Sections I and II of this memorandum.
H.
Coordinating with Company counsel regarding compliance activities with respect to Rule 144 sales.
I.
Approving all trading plans adopted pursuant to SEC Rule 10b5-1 and meeting the Requirements for Trading Plans set forth
in Exhibit B to the Policy.
EXHIBIT A
HARMONIC INC.
INSIDER TRADING POLICY
and Guidelines with Respect to
Certain Transactions in Company Securities
___________________
This Policy provides guidelines to directors, officers, employees, consultants, contractors or advisors of Harmonic Inc. (the "Company")
with respect to transactions in the Company's securities.
Applicability of Policy
This Policy applies to all transactions in the Company's securities, including common stock, options to purchase common stock and any
other securities the Company may issue from time to time, such as preferred stock, warrants and convertible debentures, as well as to
derivative securities relating to the Company's stock, whether or not issued by the Company, such as exchange-traded options; and any offer
to engage in the following: (i) any disposition in the form of a gift of any securities of the Company; (ii) any distribution to holders of
interests in an entity if the entity is subject to this Policy; and (iii) any other arrangement that generates gains or losses from or based on
changes in the price of our securities including derivative securities, hedging and pledging transactions, short sales and certain arrangements
regarding participation in benefit plans. It applies to all officers of the Company, all members of the Company's Board of Directors, and all
employees of, and consultants, contractors or advisors to, the Company and its subsidiaries who receive or have access to Material Non-
public Information (as defined below) regarding the Company. This group of people, members of their immediate families, and members of
their households, persons who are your economic dependents and entities whose transaction in securities you influence, direct or control, are
sometimes referred to in this Policy as "Insiders." This Policy also applies to any person who receives Material Non-public Information from
any Insider.
Any person who possesses Material Non-public Information regarding the Company is an Insider for so long as the information is not
publicly known.
There are no exceptions from insider trading laws or this Policy based on the size of the transaction of the type of consideration received.
General Policy
It is the policy of the Company to oppose the unauthorized disclosure of any non-public information acquired in the workplace and the
misuse of Material Non-public Information in securities trading.
Specific Policies
1.
Trading on Material Non-public Information. No Insiders, and no member of the immediate family or household of any
such Insider, shall engage in any transaction involving a purchase, sale, loan or other transfer or disposition of the Company's securities,
including any offer to purchase or offer to sell, during any period commencing with the date that he or she possesses Material Non-public
Information concerning the Company, and ending at the open of business on the second Trading Day following the date of
public disclosure of that information, or at such time as such non-public information is no longer material. As used herein, the term "Trading
Day" shall mean a day on which national stock exchanges and the National Association of Securities Dealers, Inc. Automated Quotation
(NASDAQ) System are open for trading. This restriction on trading does not apply to transaction made under a trading plan adopted pursuant
to Securities and Exchange Commission Rule 10b5-1(c) (17 C.F.R. 240-10b5-1(c)) ("Rule 10b5-1") and meeting the Requirements for
Trading Plans set forth in Exhibit B and approved by the Compliance Officer (or in the case of a Trading Plan for the Compliance Officer,
approved by the Chief Executive Officer) (an "approved Rule 10b5-1 Trading Plan").
2.
Tipping. No Insider shall disclose ("tip") Material Non-public Information to any other person (including family members)
where such information may be used by such person to his or her profit by trading in the securities of companies to which such information
relates, nor shall such Insider or related person make recommendations or express opinions on the basis of Material Non-public Information
as to trading in the Company's securities.
3.
Confidentiality of Nonpublic Information. Non-public information relating to the Company is the property of the
Company and the unauthorized disclosure of such information is forbidden.
4.
Additional Prohibited Transactions. No Insider, and no member of the immediate family or household of any such Insider,
should engage in, or offer to engage in, any of the following activities with respect to the securities of the Company:
a.
Short Sales. This involves selling Company securities not then owned by the seller in the expectation that the price
of the stock will fall.
b.
Options Trading. A transaction in options (other than Company issued stock options) is, in effect, a bet on the short-
term movement of the Company's securities and therefore may create the appearance that the Insider is trading based on Inside Information.
Transactions in options also may focus the Insider’s attention on short-term performance at the expense of the Company's long-term
objectives. Accordingly, transactions in puts, calls or other derivative securities indexing, referencing or otherwise involving the Company's
securities, on an exchange or in any other organized market, are prohibited by this Policy.
c. Hedging Transactions. Hedging or monetization transactions allow an individual to lock in much of the value of his or her securities
holdings, often in exchange for all or part of the potential for upside appreciation in the security. These transactions allow the individual to
continue to own the covered securities, but without the full risks and rewards of ownership. When that occurs, the Insider may no longer have
the same objectives as the other holders of the Company's securities. Therefore, hedging transactions (such as prepaid forward variable
contracts, equity swaps, collars and exchange funds) with respect to the Company's securities are prohibited by this Policy.
d. Pledging Transactions. Directors and officers of the Company may not engage in transactions involving pledging of the Company's
securities as collateral for any loan or as part of any other pledging transaction.
e. Margin Accounts. You may not hold the Company's common stock in margin accounts.
Potential Criminal and Civil Liability
and/or Disciplinary Action
1. Liability for Insider Trading. Insiders may be subject to penalties of up to $5,000,000 and up to 20 years in jail for engaging in
transactions in the Company's securities at a time when they have knowledge of non-public information regarding the Company.
2. Liability for Tipping. Insiders may also be liable for improper transactions by any person (commonly referred to as a "tippee") to
whom they have disclosed non-public information regarding the Company or to whom they have made recommendations or expressed
opinions on the basis of such information as to trading in the Company's securities. The Securities and Exchange Commission (the "SEC")
has imposed large penalties even when the disclosing person did not profit from the trading. The SEC, the stock exchanges and the National
Association of Securities Dealers, Inc. use sophisticated electronic surveillance techniques to uncover insider trading.
3. Possible Disciplinary Actions. Employees of the Company who violate this Policy shall also be subject to disciplinary action by the
Company, which may include ineligibility for future participation in the Company's equity incentive plans or termination of employment.
Recommended Guidelines
1. Black-Out Period and Recommended Trading Window.
All directors, officers and employees with access to the Company's internal financial statements or other Material Non-public Information
shall refrain from conducting transactions involving the purchase or sale of the Company's securities other than during the following period
(the "Trading Window"):
Trading Window: The period in any fiscal quarter commencing at the open of business on the second Trading Day following
the date of public disclosure of the financial results for the prior fiscal quarter or year and ending on the 15th day of the third
accounting month of the fiscal quarter. If such public disclosure occurs on a Trading Day before the markets close, then such
date of disclosure shall be considered the first Trading Day following such public disclosure.
The safest period for trades involving Company's securities, assuming the absence of Material Non-public Information, is generally the
first ten Trading Days of the Trading Window. Periods outside the Trading Window (i.e., the last month of each fiscal quarter and the period
of time from the end of such quarter until the public disclosure of quarterly results) are particularly sensitive periods of time for transactions
involving the Company's stock from the perspective of compliance with applicable securities laws (this restriction does not apply to
transactions made under an approved Rule 10b5-1 Trading Plan). This is due to the fact that officers, directors and certain other employees
will, as any quarter progresses, be increasingly likely to possess Material Non-public Information about the expected financial results for the
quarter.
The purpose behind the recommended Trading Window is to help establish a diligent effort to avoid any improper transactions. An Insider
may choose not to follow this suggestion, but he or she should be particularly careful with respect to trading outside the Trading Window,
since the Insider may, at such time,
have access to (or later be deemed to have had access to) Material Non-public Information regarding, among other things, the Company's
anticipated financial performance for the quarter.
It should be noted that even during the Trading Window any person possessing Material Non-public Information concerning the Company
should not engage in any transactions in the Company's securities until such information has been known publicly for at least two Trading
Days (this restriction does not apply to transactions made under an approved Rule 10b5-1 Trading Plan). Although the Company may from
time to time recommend during a Trading Window that directors, officers, selected employees and others suspend trading because of
developments known to the Company and not yet disclosed to the public, each person is individually responsible at all times for compliance
with the prohibitions against insider trading. Trades involving the Company's securities during the Trading Window should not be considered
a "safe harbor," and all directors, officers and other persons should use good judgment at all times.
From time to time, the Company may also require that directors, officers, selected employees and others suspend trading because of
developments known to the Company and not yet disclosed to the public. In such event, such persons will be restricted from engaging in any
transaction involving the purchase or sale of the Company's securities during such period, and will also be prohibited from disclosing to
others the fact of such suspension of trading.
2. Preclearance of Trades. The Board of Directors has determined that all officers and directors of the Company, and certain other
employees designated by the Compliance Officer, should refrain from trading in the Company's securities, even during the Trading Window,
without first complying with the Company's "preclearance" process. Each officer and director should contact the Company's Compliance
Officer prior to initiating any purchase or sale of the Company's securities. The Company may also find it necessary, from time to time, to
require compliance with the preclearance process from certain other Insiders. Although officers and directors wishing to trade pursuant to an
approved Rule 10b5-1 Trading Plan need not seek preclearance from the Company's Compliance Officer before each trade takes place, such
persons must obtain the Compliance Officer's approval (or in the case of the Compliance Officer, the Chief Executive Officer's approval) of
the proposed Rule 10b5-1 Trading Plan before it is adopted.
3. Individual Responsibility. Every officer, director and employee has the individual responsibility to comply with this Policy
regardless of whether the Company has recommended a trading window to that Insider or any other Insiders of the Company. The guidelines
set forth in this Policy are guidelines only, and appropriate judgment should be exercised in connection with any trade in the Company's
securities.
An Insider may, from time to time, have to forego a proposed transaction in the Company's securities even if he or she planned to make the
transaction before learning of the Material Non-public Information and even though the Insider believes he or she may suffer an economic
loss or forego anticipated profit by waiting.
Applicability of Policy to Material Non-public Information
Regarding Other Companies
This Policy and the guidelines described herein also apply to Material Non-public Information relating to other companies, including the
Company's customers, vendors or suppliers ("business partners"), when that information is obtained in the course of services performed on
behalf of, the Company. Civil and criminal penalties, and termination of employment, may result from trading on Material Non-public
Information regarding the Company's business partners. All employees should treat Material Non-public Information about the Company's
business partners with the same care as is required with respect to information relating directly to the Company.
Definition of Material Non-public Information
It is not possible to define all categories of material information. However, information should be regarded as material if there is a
reasonable likelihood that it would be considered important to an investor in making an investment decision regarding the purchase or sale of
the Company's securities.
While it may be difficult under this standard to determine whether particular information is material, there are various categories of
information that are particularly sensitive and, as a general rule, should always be considered material. Examples of such information may
include:
° Financial results
° Projections of future earnings or losses
° News of a pending or proposed merger
° News of the disposition of a subsidiary
° Impending bankruptcy or financial liquidity problems
° Gain or loss of a substantial customer or supplier
° Changes in dividend policy
° New product announcements of a significant nature
° Significant product defects or modifications
° Significant pricing changes
° Stock splits
° New equity or debt offerings
° Acquisitions
° Significant litigation exposure due to actual or threatened litigation
° Major changes in senior management
° data breaches or other cybersecurity events
Either positive or negative information may be material.
Non-public information is information that has not been previously disclosed to the general public and is otherwise not available to the
general public.
Certain Exceptions
The following are certain limited exceptions to the quarterly blackout period restrictions and pre-clearance requirements imposed by the
Company under this Policy:
1. Exercise of Stock Options for Cash. For purposes of this Policy, the Company considers that the exercise of stock options for cash
under the Company's stock option plans (but not the sale of any such shares) is exempt from this Policy, since the other party to the
transaction is the Company itself and the price does not vary with the market but is fixed by the terms of the option agreement or the plan.
2. Equity Compensation. The trading restrictions under this Policy do not apply to receipt and vesting of stock options, restricted stock
units, restricted stock or other equity compensation awards from the Company.
3. Net Share Withholding. Net share withholding with respect to equity awards where shares are withheld by the Company in order to
satisfy tax withholding obligations (and any associated broker or other fees), provided that, provided that, (i) such withholding is mandated
by the Company at the direction of the Compliance Officer with no discretion on the part of the seller or (ii) prior to such withholding, you
irrevocably elect in writing at a time during a Trading Window and you are not in possession of Material Non-Public Information to sell such
shares to cover tax withholding obligations in a manner approved by the Compliance Officer.
4. Sale of Shares to Cover Tax Withholdings. The trading restrictions under this Policy do not apply to the sale of shares of common
stock issued upon vesting of restricted stock units for the limited purpose of covering tax withholding obligations (and any associated broker
or other fees), provided that, (i) such sale is mandated by the Company at the direction of the Compliance Officer with no discretion on the
part of the seller or (ii) prior to such sale, you irrevocably elect in writing at a time during a Trading Window and you are not in possession of
Material Non-Public Information to sell such shares to cover tax withholding obligations in a manner approved by the Compliance Officer.
5. Transfer by Will, Estate Planning. The trading restrictions under this Policy do not apply to transfers by will or the laws of descent
or distribution and, provided that, prior written notice is provided to the Compliance Officer, the distributions or transfers (such as certain tax
planning or estate planning transfers) that only effect a change in the form of beneficial interest without changing your pecuniary interest in
the Company's securities.
6. Trade made pursuant to an Employee Stock Purchase Plan. The trading restrictions under this Policy do not apply to purchases of
shares pursuant to the employee stock purchase plan; however, this exception does not apply to subsequent sales of the shares.
7. Trade made pursuant to a 10b5-1 Trading Plan. The trading restrictions under this Policy do not apply to transaction made pursuant
to a valid approved 10b5-1 Trading Plan.
8. Stock Splits and Dividends. The trading restrictions under this Policy do not apply to changes in the number of the Company's
securities you hold due to a stock split or a stock dividend that applies equally to all securities of a class, or similar transactions.
Additional Information - Directors and Officers
Directors and officers of the Company must also comply with the reporting obligations and limitations on short-swing transactions set
forth in Section 16 of the Securities Exchange Act of 1934, as
amended. The practical effect of these provisions is that officers and directors who purchase and sell the Company's securities within a six-
month period must disgorge all profits to the Company whether or not they had knowledge of any Material Non-public Information. Under
these provisions, and so long as certain other criteria are met, neither the receipt of an option under the Company's option plans, nor the
exercise of that option, is deemed a purchase under Section 16; however, the sale of any such shares is a sale under Section 16. The Company
has provided, or will provide, separate memoranda and other appropriate materials to its officers and directors regarding compliance with
Section 16 and its related rules.
Inquiries
Please direct your questions as to any of the matters discussed in this Policy to the Company's Compliance Officer.
EXHIBIT B
HARMONIC INC.
REQUIREMENTS FOR TRADING PLANS
For transactions under a trading plan to be exempt from (i) the prohibitions in the Company’s insider trading policy with respect to
transactions made while aware of material nonpublic information and (ii) the pre-clearance procedures and blackout periods established
under the Insider Trading Policy, the trading plan must comply with the affirmative defense set forth in Exchange Act Rule 10b5-1 and must
meet the following requirements:
1.
The trading plan must be in writing and signed by the person adopting the trading plan.
2.
The trading plan must be adopted at a time when:
•
the person adopting the trading plan is not aware of any material nonpublic information; and
•
there is no quarterly, special or other trading blackout in effect with respect to the person adopting the plan.
3.
The trading plan must be entered in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b5-1, and the
person adopting the trading plan must act in good faith with respect to the trading plan.
4.
The trading plan must include representations that, on the date of adoption of the trading plan, the person adopting the trading plan:
•
is not aware of material nonpublic information about the securities of the Company; and
•
is adopting the trading plan in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b5-1.
5.
The person adopting the trading plan may not have entered into or altered a corresponding or hedging transaction or position with
respect to the securities subject to the trading plan and must agree not to enter into any such transaction while the trading plan is in
effect.
6.
For officers and directors of the Company, the first trade under the trading plan may not occur until the expiration of a cooling-off
period consisting of the later of (i) 90 calendar days after the adoption of the trading plan and (b) two business days after the filing by
the Company of its financial results in a Form 10-Q or Form 10-K for the completed fiscal quarter in which the trading plan was
adopted (but, in any event, this required cooling-off period is subject to a maximum of 120 days after adoption of the trading plan).
The first trade under the trading plan for all other persons (other than the Company) may not occur until the expiration of a cooling-
off period that is 30 calendar days after the adoption of the trading plan.
7.
The trading plan must have a minimum term of one year (starting from the date of adoption of the trading plan).
8.
All transactions during the term of the trading plan (except for the “Certain Exceptions” identified in the Policy and bona fide gifts)
must be conducted through the trading plan. In addition, the person adopting the trading plan may not have an outstanding (and may
not subsequently enter into any additional) trading plan except as permitted by Rule 10b5-1. For example, as contemplated by Rule
10b5-1, a person may adopt a new trading plan before the scheduled termination date of an existing trading plan, so long as the first
scheduled trade under the new trading plan does not occur prior to the last scheduled trade(s) of the existing trading plan and
otherwise complies with these guidelines. Termination of the existing trading plan prior to its scheduled termination date may impact
the timing of the first trade or the availability of the affirmative defense for the new trading plan; therefore, persons adopting a new
trading plan are advised to exercise caution and consult with the Compliance Officer prior to the early termination of an existing
trading plan.
9.
Any modification or change to the amount, price or timing of transactions under the trading plan is deemed the termination of the
trading plan, and the adoption of a new trading plan (“Modification”). Therefore, a Modification is subject to the same condition as a
new trading plan as set forth in Section 1 through 8 herein.
10. Within the one year period preceding the adoption or a Modification of a trading plan, a person may not have otherwise adopted or
done a Modification to a plan more than once.
11. A person may adopt a trading plan designed to cover a single trade only once in any consecutive 12-month period except as
permitted by Rule 10b5-1.
12. If the person that adopted the trading plan terminates the plan prior to its stated duration, he or she may not trade in the Company’s
securities until after the expiration of 30 calendar days following termination, and then only in accordance with the Policy.
13. The Company must be promptly notified of any Modification or termination of the trading plan, including any suspension of trading
under the trading plan.
14. If the trading plan grants discretion to a stockbroker or other person with respect to the execution of trades under the trading plan:
•
trades made under the trading plan must be executed by someone other than the stockbroker or other person that executes
trades in other securities for the person adopting the trading plan;
•
the person adopting the trading plan may not confer with the person administering the trading plan regarding the company or
its securities; and
•
the person administering the trading plan must provide prompt notice to the Company of the execution of a transaction
pursuant to the plan.
15. All transactions under the trading plan must be in accordance with applicable law.
16. The trading plan (including any Modification) must meet such other requirements as the Compliance Officer may determine.
17. In certain limited instances (including without limitation if the Company’s filings with the SEC are not current) the company’s
Compliance Officer may suspend trading under a validly adopted trading plan.
18. Any trading plan adopted or modified prior to February 27, 2023 (the “Effective Date”) are permitted to continue in place until all
trades are executed thereunder or they expire by their terms (“Grandfathered Plans”). If a person undertakes a Modification of a
Grandfathered Plan on or after the Effective Date, then the Modifications must meet all of the requirements set forth herein.
Exhibit 21.1
HARMONIC INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
The following table lists the direct and indirect subsidiaries of Harmonic Inc. as of December 31, 2024:
Name
State or Other Jurisdiction
of Incorporation or Organization
Harmonic Delaware, L.L.C.
U.S.A.
Harmonic Germany GmbH
Germany
Harmonic Japan GK
Japan
Harmonic India Private Limited
India
Harmonic International GmbH
Switzerland
Harmonic International Inc
U.S.A.
Harmonic Lightwaves (Israel) Ltd
Israel
Harmonic Singapore P.T.E. Ltd.
Singapore
Harmonic Spain SL
Spain
Harmonic Technologies (HK) Limited
Hong Kong
Harmonic (UK) Limited
United Kingdom
Harmonic Video Networks Ltd.
Israel
Horizon Acquisition Ltd
Israel
Harmonic Brasil LTDA
Brazil
Harmonic S.R.I.
Argentina
Harmonic Mexico International
Mexico
Harmonic Video Networks Malaysia Sdn Bhd
Malaysia
Harmonic International Australia Pty Ltd
Australia
Harmonic Italia Srl
Italy
Financiere Kepler SAS
France
Harmonic France SAS
France
Thomson Video Networks India Private Ltd
India
Harmonic Technologies (Canada)
Canada
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements (Form S-8 Nos. 333-38025, 333-65051, 333-86649,
333-84720, 333-91464, 333-116467, 333-136425, 333-154715, 333-159877, 333-167197, 333-176211, 333-182931, 333-192089, 333-
200032, 333-207866, 333-212242, 333-218902, 333-225874, 333-232431, 333-244390, 333-258980, 333-267002, 333-275317, and 333-
282948) of Harmonic Inc. of our reports dated February 14, 2025, with respect to the consolidated financial statements of Harmonic Inc. and
the effectiveness of internal control over financial reporting of Harmonic Inc. included in this Annual Report (Form 10-K) of Harmonic Inc. for
the year ended December 31, 2024.
/s/ Ernst & Young LLP
San Jose, California
February 14, 2025
Exhibit 31.1
HARMONIC INC.
CERTIFICATION
I, Nimrod Ben-Natan, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Harmonic Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting.
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: February 14, 2025
By:
/s/ Nimrod Ben-Natan
Nimrod Ben-Natan
President and Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
HARMONIC INC.
CERTIFICATION
I, Walter Jankovic, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Harmonic Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting.
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: February 14, 2025
By:
/s/ Walter Jankovic
Walter Jankovic
Chief Financial Officer
Exhibit 32.1
HARMONIC INC.
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
As of the date hereof, I, Nimrod Ben-Natan, President and Chief Executive Officer of Harmonic Inc. (the “Company”), certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the annual report of the Company on Form 10-K for the fiscal
year ended December 31, 2024, as filed with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. This written statement is being furnished to the Securities and Exchange Commission as an
exhibit accompanying such Report and shall not be deemed filed pursuant to the Securities Exchange Act of 1934, as amended.
Date: February 14, 2025
/s/ Nimrod Ben-Natan
Nimrod Ben-Natan
President and Chief Executive Officer
Exhibit 32.2
HARMONIC INC.
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
As of the date hereof, I, Walter Jankovic, Chief Financial Officer of Harmonic Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the annual report of the Company on Form 10-K for the fiscal year ended
December 31, 2024, as filed with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company. This written statement is being furnished to the Securities and Exchange Commission as an exhibit accompanying
such Report and shall not be deemed filed pursuant to the Securities Exchange Act of 1934, as amended.
Date: February 14, 2025
/s/ Walter Jankovic
Walter Jankovic
Chief Financial Officer
Exhibit 97.1
HARMONIC INC.
COMPENSATION RECOVERY POLICY
As adopted on October 30, 2023
Harmonic Inc. (the “Company”) is committed to strong corporate governance. As part of this commitment, the Compensation
Committee of the Company’s Board of Directors (the “Committee”) has adopted this clawback policy called the Compensation Recovery
Policy (the “Policy”). The Policy is intended to further the Company’s pay-for-performance philosophy and to comply with applicable law
by providing for the reasonably prompt recovery of certain executive compensation in the event of an Accounting Restatement.
Capitalized terms used in the Policy are defined below, and the definitions have substantive impact on its application so reviewing them
carefully is important to your understanding.
The Policy, which was approved as set forth above, is intended to comply with Section 10D of the Securities Exchange Act of
1934 (the “Exchange Act”), with Exchange Act Rule 10D-1 and with the listing standards of the national securities exchange (the
“Exchange”) on which the securities of the Company are listed. The Policy will be interpreted in a manner that is consistent with the
requirements of Section 10D of the Exchange Act, Exchange Act Rule 10D-1 and with the listing standards of the Exchange, including any
interpretive guidance provided by the Exchange.
In summary, the Policy provides rules related to the reasonably prompt recovery of certain incentive-based compensation
received by Executive Officers. With limited exceptions, which are detailed below, the application of the Policy to Executive Officers is not
discretionary and applies without regard to whether an Executive Officer was at fault, except to the limited extent provided below.
Persons Covered by the Policy
The Policy is binding and enforceable against all Executive Officers. “Executive Officer” means each individual who is or was ever
designated as an “officer” by the Board in accordance with Exchange Act Rule 16a-1(f). Each Executive Officer will be required to sign
and return to the Company an acknowledgement that such Executive Officer will be bound by the terms and comply with the Policy. The
failure to obtain such acknowledgement will have no impact on the applicability or enforceability of the Policy.
Administration of the Policy
The Committee has full delegated authority to administer the Policy. The Committee is authorized to interpret and construe the
Policy and to make all determinations necessary, appropriate, or advisable for the administration of the Policy. In addition, if determined
in the discretion of the Board, the Policy may be administered by the independent members of the Board or another committee of the
Board made up of independent members of the Board, in which case all references to the Committee will be deemed to refer to the
independent members of the Board or the other Board committee. All determinations of the Committee will be final and binding and
will be given the maximum deference permitted by law.
Events Requiring Application of the Policy
If the Company is required to prepare an accounting restatement due to the material noncompliance of the Company with any
financial reporting requirement under the securities laws, including any required accounting restatement to correct an error in
previously issued financial statements that is material to the previously issued financial statements, or that would result in a material
misstatement if the error were corrected in the current period or left uncorrected in the current period (an “Accounting Restatement”),
then the Committee must determine what compensation, if any, must be recovered.
Compensation Covered by the Policy
The Policy applies to all Incentive-Based Compensation (certain terms used in this Section are defined below) that is Received
on or after October 2, 2023 (the “Effective Date”), while the Company has a class of securities listed on a national securities exchange,
and during the Covered Period by a person who was an Executive Officer during the Covered Period and during the performance period
for the Incentive-Based Compensation (“Clawback Eligible Incentive-Based Compensation”). The Incentive-Based Compensation that
must be recovered is the amount of Clawback Eligible Incentive-Based Compensation that exceeds the amount of Clawback Eligible
Incentive-Based Compensation that otherwise would have been Received had such Clawback Eligible Incentive-Based Compensation
been determined based on the restated amounts (such compensation, as computed without regard to any taxes paid, the “Excess
Compensation,” is referred to in the listings standards as “erroneously awarded incentive-based compensation”).
To determine the amount of Excess Compensation for Incentive-Based Compensation based on stock price or total shareholder
return, where it is not subject to mathematical recalculation directly from the information in an Accounting Restatement, the amount
must be based on a reasonable estimate of the effect of the Accounting Restatement on the stock price or total shareholder return upon
which the Incentive-Based Compensation was received and the Company must maintain documentation of the determination of that
reasonable estimate and provide such documentation to the Exchange.
“Incentive-Based Compensation” means any compensation that is granted, earned, or vested based wholly or in part upon the
attainment of a Financial Reporting Measure. For the avoidance of doubt, no compensation that is potentially subject to recovery under
the Policy will be earned until the Company’s right to recover under the Policy has lapsed. The following items of compensation are not
Incentive-Based Compensation under the Policy: salaries, bonuses paid solely at the discretion of the Committee or Board that are not
paid from a bonus pool that is determined by satisfying a Financial Reporting Measure, bonuses paid solely upon satisfying one or more
subjective standards and/or completion of a specified employment period, non-equity incentive plan awards earned solely upon
satisfying one or more strategic measures or operational measures, and equity awards for which the grant is not contingent upon
achieving any Financial Reporting Measure performance goal and vesting is contingent solely upon completion of a specified
employment period (e.g., time-based vesting equity awards) and/or attaining one or more non-Financial Reporting Measures.
“Financial Reporting Measures” are measures that are determined and presented in accordance with the accounting principles
used in preparing the Company’s financial statements, and any measures that are derived wholly or in part from such measures. Stock
price and total shareholder return are also Financial Reporting Measures. A Financial Reporting Measure need not be presented within
the financial statements or included in a filing with the Securities and Exchange Commission.
Incentive-Based Compensation is “Received” under the Policy in the Company’s fiscal period during which the Financial
Reporting Measure specified in the Incentive-Based Compensation award is attained, even if the payment, vesting, settlement or grant
of the Incentive-Based Compensation occurs after the end of that period.
“Covered Period” means the three completed fiscal years immediately preceding the Accounting Restatement Determination
Date. In addition, Covered Period can include certain transition periods resulting from a change in the Company’s fiscal year. The
Company’s obligation to recover Excess Compensation is not dependent on if or when the restated financial statements are filed.
“Accounting Restatement Determination Date” means the earliest to occur of: (a) the date the Board, a committee of the
Board, or one or more of the officers of the Company authorized to take such action if Board action is not required, concludes, or
reasonably should have concluded, that the Company is required to prepare an Accounting Restatement; and (b) the date a court,
regulator, or other legally authorized body directs the Company to prepare an Accounting Restatement.
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Repayment of Excess Compensation
The Company must recover such Excess Compensation reasonably promptly and Executive Officers are required to repay Excess
Compensation to the Company. Subject to applicable law, the Company may recover such Excess Compensation by requiring the
Executive Officer to repay such amount to the Company by direct payment to the Company or such other means or combination of
means as the Committee determines to be appropriate (these determinations do not need to be identical as to each Executive Officer).
These means may include:
(1)
requiring reimbursement of cash Incentive-Based Compensation previously paid;
(2)
seeking recovery of any gain realized on the vesting, exercise, settlement, sale, transfer, or other disposition of any
equity-based awards;
(3)
offsetting the amount to be recovered from any unpaid or future compensation to be paid by the Company or any
affiliate of the Company to the Executive Officer;
(4)
cancelling outstanding vested or unvested equity awards; and/or
(5)
taking any other remedial and recovery action permitted by law, as determined by the Committee.
The repayment of Excess Compensation must be made by an Executive Officer notwithstanding any Executive Officer’s belief
(whether legitimate or non-legitimate) that the Excess Compensation had been previously earned under applicable law and therefore is
not subject to clawback.
In addition to its rights to recovery under the Policy, the Company or any affiliate of the Company may take any legal actions it
determines appropriate to enforce an Executive Officer’s obligations to the Company or to discipline an Executive Officer, including
(without limitation) termination of employment, institution of civil proceedings, reporting of misconduct to appropriate governmental
authorities, reduction of future compensation opportunities or change in role. The decision to take any actions described in the
preceding sentence will not be subject to the approval of the Committee and can be made by the Board, any committee of the Board, or
any duly authorized officer of the Company or of any applicable affiliate of the Company.
Limited Exceptions to the Policy
The Company must recover the Excess Compensation in accordance with the Policy except to the limited extent that the
conditions set forth below are met, and the Committee determines that recovery of the Excess Compensation would be impracticable:
(1)
The direct expense paid to a third party to assist in enforcing the Policy would exceed the amount to be recovered.
Before reaching this conclusion, the Company must make a reasonable attempt to recover such Excess Compensation,
document such reasonable attempt(s) to recover, and provide that documentation to the Exchange;
(2)
Recovery would violate a law in the country where the Company was incorporated that was adopted prior to November
28, 2022. Before making this determination, the Company must obtain an opinion of home country counsel, acceptable
to the Exchange, that recovery would result in such a violation, and must provide such opinion to the Exchange; or
(3)
Recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to
employees of the Company, to fail to meet the legal requirements as such.
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Other Important Information in the Policy
The Policy is in addition to the requirements of Section 304 of the Sarbanes-Oxley Act of 2002 that are applicable to the
Company’s Chief Executive Officer and Chief Financial Officer, as well as any other applicable laws, regulatory requirements, rules, but
the Policy supersedes in full all of the clawback policies of the Company that were in effect prior to the Effective Date to the extent such
policies were applicable with respect to Executive Officers and the operative portions of such policies shall have no further force or effect
on or after the Effective Date.
Notwithstanding the terms of any of the Company’s organizational documents (including, but not limited to, the Company’s
bylaws), any corporate policy or any contract (including, but not limited to, any indemnification agreement), neither the Company nor
any affiliate of the Company will indemnify or provide advancement for any Executive Officer against any loss of Excess Compensation.
Neither the Company nor any affiliate of the Company will pay for or reimburse insurance premiums for an insurance policy that covers
potential recovery obligations. In the event the Company is required to recover Excess Compensation from an Executive Officer who is no
longer an employee pursuant to the Policy, the Company will be entitled to seek such recovery in order to comply with applicable law,
regardless of the terms of any release of claims or separation agreement such individual may have signed.
The Committee or Board may review and modify the Policy from time to time.
If any provision of the Policy or the application of any such provision to any Executive Officer is adjudicated to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability will not affect any other provisions of the Policy or the
application of such provision to another Executive Officer, and the invalid, illegal or unenforceable provisions will be deemed amended
to the minimum extent necessary to render any such provision or application enforceable.
The Policy will terminate and no longer be enforceable when the Company ceases to be listed issuer within the meaning of
Section 10D of the Exchange Act.
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ACKNOWLEDGEMENT
•
I acknowledge that I have received and read the Compensation Recovery Policy (the “Policy”) of Harmonic Inc. (the “Company”).
•
I understand and acknowledge that the Policy applies to me, and all of my beneficiaries, heirs, executors, administrators or other
legal representatives and that the Company’s right to recovery in order to comply with applicable law will apply, regardless of the
terms of any release of claims or separation agreement I have signed or will sign in the future.
•
I agree to be bound by and to comply with the Policy and understand that determinations of the Committee (as such term is
used in the Policy) will be final and binding and will be given the maximum deference permitted by law.
•
I understand and agree that my current indemnification rights, whether in an individual agreement or the Company’s
organizational documents, exclude the right to be indemnified for amounts required to be recovered under the Policy.
•
I understand that my failure to comply in all respects with the Policy is a basis for termination of my employment with the
Company and any affiliate of the Company as well as any other appropriate discipline.
•
I understand that neither the Policy, nor the application of the Policy to me, gives rise to a resignation for good reason (or similar
concept) by me under any applicable employment agreement or arrangement.
•
I acknowledge that if I have questions concerning the meaning or application of the Policy, it is my responsibility to seek
guidance from the Compliance Officer, Human Resources or my own personal advisers.
•
I acknowledge that neither this Acknowledgement nor the Policy is meant to constitute an employment contract.
Please review, sign and return this form to Human Resources.
Executive
(print name)
(signature)
(date)
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BR413160-0425-10K