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What changed in HARMONIC INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of HARMONIC INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+274 added−251 removedSource: 10-K (2024-02-16) vs 10-K (2023-02-28)

Top changes in HARMONIC INC.'s 2023 10-K

274 paragraphs added · 251 removed · 203 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

44 edited+2 added−3 removed54 unchanged
Biggest changeBUSINESS We are a leading global provider of (i) versatile and high performance video delivery software, products, system solutions and services that enable our customers to efficiently create, prepare, store, playout and deliver a full range of high-quality broadcast and streaming video services to consumer devices, including televisions, personal computers, laptops, tablets and smart phones and (ii) broadband access solutions that enable broadband operators to more efficiently and effectively deploy high-speed internet, for data, voice and video services to consumers’ homes.
Biggest changeBUSINESS 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.
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 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 product management organization is also responsible for setting price levels, demand forecasting and general support of the sales force, particularly at major accounts. 8 Table of Contents 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.
Each product management organization is also responsible for setting price levels, demand forecasting and general support of the sales force, particularly at major accounts. 8 Table of Contents 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.
In response to these trends, our customers are: • expanding their streaming offerings with video-on-demand (VOD) programming, live events and/or linear TV bundles to reach a larger and more global audience; • utilizing streaming technologies to expand monetization opportunities with personalized and targeted ad insertion; • continuing to enhance and differentiate their content offerings, consolidate to achieve greater economies of scale and subscriber concentration, and acquire other companies to expand their content libraries and capabilities to develop original content; and • improving the efficiency and utilization of legacy infrastructure to minimize operational and staffing needs and costs by migrating services to public cloud SaaS or upgrading on-premise equipment with the latest generation of highly dense and functionally rich technologies.
In response to these trends, our customers are: • expanding their streaming offerings with video-on-demand (VOD) programming, live events and/or linear TV bundles to reach a larger and more global audience; 5 Table of Contents • utilizing streaming technologies to expand monetization opportunities with personalized and targeted ad insertion; • continuing to enhance and differentiate their content offerings, consolidate to achieve greater economies of scale and subscriber concentration, and acquire other companies to expand their content libraries and capabilities to develop original content; and • improving the efficiency and utilization of legacy infrastructure to minimize operational and staffing needs and costs by migrating services to public cloud SaaS or upgrading on-premise equipment with the latest generation of highly dense and functionally rich technologies.
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 CableOS 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.
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.
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 by our customers which have not been completed. Approximately 80% of our backlog and deferred revenue is projected to be converted to revenue within a rolling one-year period.
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 51% of our backlog and deferred revenue is projected to be converted to revenue within a rolling one-year period.
We believe this distributed architecture will enable service providers to efficiently scale to support data and IP video growth. • Multiple Access . CableOS 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.
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.
Our direct sales team is organized 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, and we have support staff in Switzerland and France to support our international customers and operations.
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, and we have support staff in Switzerland and France to support our international customers and operations.
This agreement has automatic annual renewals, unless prior notice for nonrenewal is given, and has been automatically renewed for a term expiring in October 2023. We do not generally maintain long-term agreements with any of 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 2024. We do not generally maintain long-term agreements with any of our contract manufacturers.
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 .
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. 4 Table of Contents • Distributed Access Architecture .
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; and • bandwidth-intensive VOD and streaming video services, and interactive cloud applications.
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; and • bandwidth-intensive VOD and streaming video services, and interactive cloud applications.
Our product management organization 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.
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.
Industry Overview and Market Trends Video Business 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 .
Video Business 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 .
Set forth below is a representative list of our significant end user and integrator/reseller customers, listed alphabetically, based, in part, on revenue during 2022.
Set forth below is a representative list of our significant end user and integrator/reseller customers, listed alphabetically, based, in part, on revenue during 2023.
Video Infrastructure Technology Trends • Acceleration of Streaming Services. We believe the industry will continue to adopt streaming technologies at an accelerating pace to deliver video content to consumers and, increasingly, utilize public clouds to do so. 5 Table of Contents • Transformation of Broadcast Infrastructure.
Video Infrastructure Technology Trends • Acceleration of Streaming Services. We believe the industry will continue to adopt streaming technologies at an accelerating pace to deliver video content to consumers and, increasingly, utilize public clouds to do so. • Transformation of Broadcast Infrastructure.
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. 4 Table of Contents • Decline in Broadcast Viewing . Broadcast television viewership will continue to decline as the growth in streaming accelerates.
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. • Decline in Broadcast Viewing . Broadcast television viewership will continue to decline as the growth in streaming accelerates.
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 2022, 2021 and 2020, Comcast accounted for 39%, 26% and 20% 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 2023, 2022 and 2021, Comcast accounted for 44%, 39% and 26% of our net revenue, respectively.
Our direct sales force and resellers are supported by a 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 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.
As of December 31, 2022 and 2021, we had backlog, including deferred revenue, of $457.1 million and $441.0 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.
As of December 31, 2023 and 2022, we had backlog, including deferred revenue, of $653.2 million and $457.1 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.
Of those employees, 430 were located in the United States and Canada, and 910 employees were located outside of North America in 23 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.
Of those employees, 450 were located in the United States and Canada, and 909 employees were located outside of North America in 22 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 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.
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.
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 future adoption and deployment of the next-generation DOCSIS 4.0 standard. • Virtualization .
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 increasing adoption and deployment of the next-generation DOCSIS 4.0 standard, which has begun in certain markets. • Virtualization .
We believe that, in order to maximize cost savings, a material portion of these operations will migrate to public clouds in the coming years, while some customers will upgrade and replace their aging on-premise equipment with next-generation software-based appliances that significantly reduce operational complexity.
We believe that, in order to maximize cost savings, a material portion of these operations will migrate to public clouds in the coming years, while some customers will upgrade and replace their aging on-premise equipment with next-generation software-based appliances that significantly reduce operational complexity. 6 Table of Contents Our Products and Solutions Broadband Products and Solutions Software-Based Broadband Access Solution.
We do not generally maintain long-term agreements with any of our suppliers. Intellectual Property As of December 31, 2022, we held 121 issued U.S. patents and 49 issued foreign patents and had 56 patent applications pending. Our issued patents are scheduled to expire between 2023 and 2041.
We do not generally maintain long-term agreements with any of our suppliers. Intellectual Property As of December 31, 2023, we held 133 issued U.S. patents and 47 issued foreign patents and had 39 patent applications pending. Our issued patents are scheduled to expire between 2024 and 2041.
With respect to our Broadband business segment, our major research and development efforts are focused on broadband access solutions for both video and data, particularly the ongoing development of our centralized, distributed and hybrid CableOS software-based broadband access solutions.
With respect to our Broadband business segment, our major research and development efforts are focused on broadband access solutions for both video and data, 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.
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 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. 10 Table of Contents 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.
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.
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.
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 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.
Human Capital Resources As of December 31, 2022, we employed a total of 1,340 full time employees, including 565 in research and development, 203 in sales, 300 in service and support, 54 in operations, 57 in marketing (corporate and product) and 161 in a general and administrative capacity.
Human Capital Resources As of December 31, 2023, we employed a total of 1,359 full time employees, including 570 in research and development, 238 in sales, 267 in service and support, 81 in operations, 67 in marketing (corporate and product) and 136 in a general and administrative capacity.
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. 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 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.
Our CableOS Central Cloud Services is a value-add subscription service for CableOS customers that bundles three elements: (i) 24x7 technical support, (ii) a dedicated customer success team focused on customer satisfaction and retention, and (iii) a CableOS Central Suite SaaS that enhances and simplifies the deployment, monitoring, operation and maintenance of the CableOS solution. 7 Table of Contents 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.
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.
We believe our CableOS 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 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.
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.
The Europe, Middle East and Africa (EMEA) and Asia Pacific (APAC) regions accounted for 21% and 6% of our 2022 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.
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.
Research and Development We have historically devoted a significant amount of our resources to research and development. Research and development expenses in 2022, 2021 and 2020 were approximately $120.3 million, $102.2 million and $82.5 million, respectively. Research and development expenses as a percentage of revenue in 2022, 2021 and 2020 were approximately 19%, 20% and 22%, respectively.
Research and development expenses in 2023, 2022 and 2021 were approximately $126.3 million, $120.3 million and $102.2 million, respectively. Research and development expenses as a percentage of revenue in 2023, 2022 and 2021 were approximately 21%, 19% and 20%, respectively.
United States International AT&T America Movil Charter Communications Groupe Canal Comcast IISN Systems Cox Communications Millicom Deltatre Netorium Heartland Video Systems NYL Electronica Intelsat Rogers Communications Mega Hertz Tele2 Sverige AB SES Vodafone Sales to our 10 largest customers in 2022, 2021 and 2020 accounted for approximately 67% , 58% and 51% of our net revenue, respectively.
United States International Apple Inc America Movil Cable One Inc Comcast Charter Communications Deutsche Telekom Comcast Eurasiatrans B&PE Cox Communications Groupe Canal DirecTV Millicom International Dish Network Normann Engineering Heartland Video Systems NYL Eletronica SES Tele2 Sverige AB Sinclair Broadcast Group Vodafone Sales to our 10 largest customers in 2023, 2022 and 2021 accounted for approximately 66%, 67% and 58% of our net revenue, respectively.
With CableOS, FTTH services over passive optical networks (PON) can be supported with software running on the CableOS servers and with remote optical line termination (OLT) modules plugged into the DAA nodes.
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.
We also provide an on-premise SaaS offering with our VOS cloud-native software solution for customers seeking to deploy a cloud-like architecture in a private data center. Broadband Products and Solutions Software-Based Broadband Access Solution.
We also provide an on-premise SaaS offering with our VOS cloud-native software solution for customers seeking to deploy a cloud-like architecture in a private data center. 7 Table of Contents 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.
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. Our development strategy is to identify features and capabilities in our core software appliances and SaaS platforms that are, or are expected to be, needed by our customers.
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.
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. 6 Table of Contents Our Products and Solutions 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.
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 business infrastructure solutions are delivered either through shipment of our products, software licenses or as software-as-a-service (“SaaS”) subscriptions. Our Broadband business provides broadband access solutions and related services, including our CableOS software-based broadband access solution to broadband operators globally. Across our two business segments, we derived approximately 73% of our revenue from the Americas in 2022.
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 74% of our revenue from the Americas in 2023. The Europe, Middle East and Africa (EMEA) and Asia Pacific (APAC) regions accounted for 21% and 5% of our 2023 revenue, respectively.
We have not experienced any work stoppages, and we consider our relations with our employees to be good. 10 Table of Contents 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.
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 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 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.
Our CableOS solution can be deployed based on a centralized, distributed access or hybrid architecture. CableOS Central Cloud 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 .
The result is that the CableOS 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.
As fiber is pulled deeper into the network, broadband operators will have the infrastructure and technology to deliver both traditional cable services and FTTH. 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.
Removed
We operate in two segments, Video and Broadband. During the third quarter of fiscal 2022, the Company’s Cable Access segment was renamed the Broadband segment to reflect a broader strategic view of the category. There has been no change to the composition of the segment; therefore, no prior periods were restated.
Added
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.
Removed
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.
Added
We offer rewards and recognition programs, including spot awards to recognize employee contributions, patent incentive awards, and various functional recognition awards.
Removed
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.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur 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 COVID-19 pandemic, the Russia-Ukraine conflict and rising tensions between China and Taiwan and the United States; • fluctuations in currency exchange rates; • changes in foreign government regulations and telecommunications 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 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; 28 Table of Contents • compliance with the FCPA, the U.K.
Biggest changeIn 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. 28 Table of Contents 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 Hamas-Israel and Russia-Ukraine 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.
If we are unsuccessful in continuing to innovate and 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.
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.
In addition, the Organization for Economic Co-operation and Development, 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.
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.
These trends and requirements include the following: • convergence, whereby network operators bundle video, voice and data services to consumers, including mobile delivery options; • continued strong consumer demand for streaming video services; • continued adoption of public cloud SaaS platforms to stream video content to consumers, as well as for broadcast infrastructure workflows; 14 Table of Contents • continued growth in targeted advertising as a key revenue source for video streaming service providers; • the pace of adoption and deployment of high-bandwidth technology, such as DOCSIS 3.x, DOCSIS 4.0, next generation LTE and fiber-to-the-premises (“FTTP”); • 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 video infrastructure workflow and broadband services; • 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.
These trends and requirements include the following: • convergence, whereby network operators bundle video, voice and data services to consumers, including mobile delivery options; • continued strong consumer demand for streaming video services; • continued adoption of public cloud SaaS platforms to stream video content to consumers, as well as for broadcast infrastructure workflows; 14 Table of Contents • continued growth in targeted advertising as a key revenue source for video streaming service providers; • the pace of adoption and deployment of high-bandwidth technology, such as DOCSIS 3.x, DOCSIS 4.0, next generation LTE and FTTP; • 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 video infrastructure workflow and broadband services; • 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.
Furthermore, OFAC may consider our regulatory history, including this subpoena, our disclosures and Cautionary Letter, if we are involved in future enforcement cases for failure to comply with export control laws and regulations.
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.
Our ability to manage our business effectively in the future, inclu ding 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 such as our acquisition of TVN, 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.
Our ability to manage our business effectively in the future, inclu ding 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.
For broadband operators, upgrading or expanding network infrastructure is complex and expensive, and investing in a CableOS solution is a significant strategic decision that may require considerable time to evaluate, test and qualify. Potential customers need to ensure our CableOS solution will interoperate with the various components of its existing network infrastructure, including third-party equipment, servers and software.
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.
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 at the time, we may be unable to secure capital necessary to complete an acquisition on reasonable terms, or at all.
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.
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 2023.
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 2024.
Changes in telecommunications 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, on December 14, 2017, the U.S. Federal Communications Commission (“FCC”) voted to repeal the “net neutrality” rules and return to a “light-touch” regulatory framework.
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, on December 14, 2017, the U.S. Federal Communications Commission (“FCC”) voted to repeal the “net neutrality” rules and return to a “light-touch” regulatory framework.
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.
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.
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 CableOS solution obsolete, our business may be adversely impacted. The sales cycle for our CableOS solutions tends to be long.
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. The sales cycle for our cOS solutions tends to be long.
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 majority, and potentially increasing, percentage of our annual revenue for the foreseeable future.
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.
We believe our CableOS software-based broadband access solutions, supporting centralized, DAA or hybrid configurations, will significantly reduce broadband operator headend costs and increase operational efficiency, and are an important step in operators’ transition to all-IP networks.
We believe our cOS software-based broadband access solutions, supporting centralized, DAA or hybrid configurations, will significantly reduce broadband operator headend costs and increase operational efficiency, and are an important step in operators’ transition to all-IP networks.
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 and continued uncertainty in financial, capital and credit markets.
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.
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 CableOS solutions that outweigh customer switching costs.
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.
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.
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. 25 Table of Contents Legal, Regulatory and Compliance Risks We or our customers may face intellectual property infringement claims from third parties.
Accordingly, if one or more holders elect to convert their Notes, we would be required to settle the principal portion of our conversion obligation through the payment of cash, which could adversely affect our liquidity.
Accordingly, if one or more holders elect to convert their Notes, we will be required to settle the principal portion of our conversion obligation through the payment of cash, which could adversely affect our liquidity.
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 telecommunications industry have extensive patent portfolios.
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.
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. 29 Table of Contents 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.
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.
Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including our 2.00% Convertible Senior Notes due in 2024 (the “Notes”), or to make cash payments in connection with any conversion of the Notes or in connection with any repurchase of Notes upon the occurrence of a fundamental change before the maturity date at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest thereon, as set forth in the indenture governing the Notes, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control.
Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including our 2.00% Convertible Senior Notes due in 2024 (the “Notes”) and any amounts borrowed under our Credit Agreement, or to make cash payments in connection with any conversion of the Notes or in connection with any repurchase of Notes upon the occurrence of a fundamental change before the maturity date at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest thereon, as set forth in the indenture governing the Notes, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control.
If sales cycles are significantly longer than anticipated or we are otherwise unsuccessful in growing our CableOS sales, our operating results, financial condition and cash flows could be materially and adversely affected.
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 competitors may provide incentives to any of our reseller, VAR or systems integrator customers to favor their products or, in effect, to prevent or reduce sales of our products. Any of our reseller, VAR or systems integrator customers may independently choose not to purchase or offer our products.
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.
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.
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. 26 Table of Contents Our use of open source software in some of our products may expose us to certain risks.
In the past, specific factors contributing to reduced spending have included: • uncertainty and deteriorated market conditions regionally and globally due to the COVID-19 pandemic; • 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 • bankruptcies and financial restructuring of major customers. 12 Table of Contents 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.
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 • bankruptcies and financial restructuring of major customers. 12 Table of Contents 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.
Acquisitions involve numerous risks, including the following: • unanticipated costs or delays associated with an acquisition; • difficulties in the assimilation and integration of acquired operations, technologies and/or products; • potential disruption of our business and the diversion of management’s attention from the regular operations of the business during the acquisition process; • the challenges of managing a larger and more geographically widespread operation and product portfolio after the closing of the acquisition; • potential adverse effects on new and existing business relationships with suppliers, contract manufacturers, resellers, partners and customers; • compliance with regulatory requirements, such as local employment regulations and organized labor in France; • 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; • 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; 22 Table of Contents • 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.
Acquisitions involve numerous risks, including the following: • unanticipated costs or delays associated with an acquisition; • difficulties in the assimilation and integration of acquired operations, technologies and/or products; • potential disruption of our business and the diversion of management’s attention from the regular operations of the business during the acquisition process; • the challenges of managing a larger and more geographically widespread operation and product portfolio after the closing of the acquisition; • potential adverse effects on new and existing business relationships with suppliers, contract manufacturers, resellers, partners and customers; • 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; • 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. 23 Table of Contents Competition within our industry for acquisitions of businesses, technologies, assets and product lines has been, and is likely to continue to be, intense.
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; 15 Table of Contents • economic and financial conditions specific to each of the cable, satellite and telco, and broadcast and media industries, as well as general economic and financial market conditions, including the global economic impacts caused by the COVID-19 pandemic, the Russia-Ukraine conflict, rising tensions between China and Taiwan and China and the United States, 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 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 have caused, which could 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; • the timing of acquisitions and dispositions by us and the financial impact of such transactions; • impairment of our goodwill and intangibles; • 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.
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, as well as general economic and financial market conditions, including the Hamas-Israel and Russia-Ukraine conflicts, tensions between China and Taiwan and China and the United States, bank insolvency 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; 15 Table of Contents • 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 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 conflict between Hamas and Israel, 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; • 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.
Further, rising interest rates 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.
Further, rising 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.
Sales to our top 10 customers in the fiscal years ended December 31, 2022, 2021 and 2020 accounted for approximately 67% , 58% and 51% 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.
Sales to our top 10 customers in the fiscal years ended December 31, 2023, 2022 and 2021 accounted for approximately 66%, 67% and 58% 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.
We generate a significant percentage of our revenue 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.
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.
These spending patterns are dependent on a variety of factors, including: • the impact of general economic conditions, actual and projected, including inflation, rising interest rates, lower consumer confidence, volatile capital markets, supply chain disruptions and the impact of the Russia-Ukraine conflict, 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 video or broadband 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 VOS software platform or our CableOS software-based broadband access solutions; • 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 unified video processing solutions; • federal, state, local and foreign government regulation of telecommunications, 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.
These spending patterns are dependent on a variety of factors, including: • the impact of general economic conditions, actual and projected, including inflation, rising interest rates, lower consumer confidence, volatile capital markets, supply chain disruptions, uncertainty and volatility in the financial services sector and the impact of the Hamas-Israel 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 video or broadband 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 VOS software platform or our cOS (formerly CableOS) software-based broadband access solutions; • 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 unified 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.
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 reseller, 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.
Accordingly, our future success is highly dependent upon establishing and maintaining successful relationships with a variety of channel partners. 17 Table of Contents 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.
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. 25 Table of Contents Our failure to adequately protect our proprietary rights and data may adversely affect us.
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. Our failure to adequately protect our proprietary rights and data may adversely affect us.
Further, the Inflation Reduction Act of 2022 (the “IRA”), has become effective as of January 1, 2023, which, 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.
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.
Our employees in Israel engage in a number of activities, for both our Video and Broadband business segments, including research and development, product development, product manag ement, supply chain management for certain product lines and sales activities. 18 Table of Contents As such, we are directly affected by the political, economic and military conditions affecting Israel.
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 manag ement, 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 Hamas-Israel conflict.
We believe that our existing cash of approximately $89.6 million at December 31, 2022 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.
We believe that our existing cash of approximately $84.3 million at December 31, 2023 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.
Any significant conflict involving Israel could have a direct effect on our business or that of our Israeli contract manufacturers, in the form of physical damage or injury, 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 milit ary duty.
Any significant conflict involving Israel could have a direct effect on our business, in the form of physical damage or injury, 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.
In the fiscal years ended December 31, 2022, 2021 and 2020, Comcast accounted for 39%, 26% and 20% of our net revenue, respectively. Further consolidation in the cable industry could lead to additional revenue concentration for us.
During the fiscal years ended December 31, 2023, 2022 and 2021, Comcast accounted for 44%, 39% and 26% of our net revenue respectively. Further consolidation in the cable industry could lead to additional revenue concentration for us.
Our revenue has been derived from worldwide sales to service providers and broadcast and media companies, as well as, in recent years, streaming media companies. We expect that these markets will provide our revenue for the foreseeable future.
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.
As of December 31, 2022, we maintained facilities in Israel with a total of 251 employees, or approxi mately 19% of our worldwide workforce.
As of December 31, 2023, we maintained facilities in Israel with a total of 255 employees, or approxi mately 19% of our worldwide workforce.
We expect that this volatility will continue in the future due to factors such as: • general market and economic conditions, including inflation, rising interest rates, volatile capital markets and ongoing supply chain disruptions and the related impacts of the COVID-19 pandemic, the Russia-Ukraine conflict 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.
We expect that this volatility will continue in the future due to factors such as: • general market and economic conditions, including inflation, rising interest rates, volatile capital markets, uncertainty and volatility in the financial services sector, the Hamas-Israel and Russia-Ukraine 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; 30 Table of Contents • 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.
Additionally, current or future tensions or conflicts in the Middle East could materially and adversely affect our business, operating results, financial condition and cash flows. In order to manage our growth, we must be successful in addressing management succession issues and attracting and retaining qualified personnel.
Additionally, current or future tensions or conflicts in the Middle East, such as the ongoing Hamas-Israel conflict, could materially and adversely affect our business, operating results, financial condition and cash flows. 18 Table of Contents In order to manage our growth, we must be successful in addressing management succession issues and attracting and retaining qualified personnel.
In addition, in most quarters, we are involved in one or more relatively large individual transactions. A decrease in the number of the relatively larger individual transactions in which we are involved in any quarter could materially and adversely affect our operating results for that quarter.
A decrease in the number of the relatively larger individual transactions in which we are involved in any quarter could materially and adversely affect our operating results for that quarter.
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, 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), 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, such as the COVID-19 pandemic, which has led and may continue to lead to trade shows and in-person meetings being canceled or delayed and employees working remotely, and which has impacted our supply chain and may continue to impact our supply chain or general business in other manners.
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, 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.
New laws and interpretations of the law are taken into account for financial statement purposes in the quarter or year that they become applicable. Tax authorities are increasingly scrutinizing the tax positions of multinational companies.
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.
Most of our employees in Israel are currently obligated to perform annual reserve duty in the Israel Defense Forces, and approximatel y 8% of those employees were called for active military duty in 2022.
Most of our employees in Israel are currently obligated to perform annual reserve duty in the Israel Defense Forces, and approximately 14% of those employees were called for active military duty in 2023.
An inability to obtain adequate and timely deliveries of our products or any materials used in our products, or the inability of any of our contract manufacturers to scale their production to meet demand, such as the inability of certain of our contract manufacturers to operate at capacity for periods of time due to the COVID-19 pandemic, or any other circumstance that would require us to seek alternative sources of supply, had negatively impacted and could continue to 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.
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.
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.
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.
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 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.
As of December 31, 2022, we had approximately $237.7 million of goodwill rec orded on our balance sheet associated with prior acquisitions.
As of December 31, 2023, we had approximately $239.2 million of goodwill rec orded on our balance sheet associated with prior acquisitions.
While we have invested in and continue to update our network security and cybersecurity infrastructure and systems, if our cybersecurity systems fail to protect against unauthorized access, sophisticated cyber-attacks, phishing schemes, ransomware, data protection breaches, computer viruses, denial-of-service attacks and similar disruptions from unauthorized tampering or human error, our ability to conduct our business effectively could be damaged in a number of ways, including: • our intellectual property and other proprietary data, or financial assets, could be stolen; • 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 • personally identifiable data of our customers, employees and business partners could be compromised.
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: • our intellectual property and other proprietary data, or financial assets, could be stolen; • 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 • 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.
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.
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.
If adequate capital is not available, or is not available on reasonable terms, when needed, we may not be able to take advantage of acquisition or other market opportunities, to timely develop new products, or to otherwise respond to competitive pressures.
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.
We periodically evaluate our various product lines and may, as a result, consider the divestiture of one or more of those product lines. We have 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.
We have 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.
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.
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 COVID-19 pandemic, Russia-Ukraine conflict and inflation.
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 Hamas-Israel and Russia-Ukraine conflicts, bank insolvency and related uncertainty and volatility in the financial services sector and inflation.
Based on our evaluation, we recorded a net increase in valuation allowance of $10.8 million and $0.3 million in 2022 and 2021, respectively, against the net deferred tax assets. There was no valuation allowance release in 2022.
Based on our evaluation, we recorded a net decrease in valuation allowance of $63.9 million and a net increase of $10.8 million in 2023 and 2022, respectively, against the net deferred tax assets. In 2023, there was a full release of the valuation allowance against U.S.
Cyber criminals and hackers may attempt to penetrate our network security, misappropriate our proprietary information or cause business interruptions. 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.
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.
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.
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.
(“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. Most of the products manufactured by our French and Israeli operations are outsourced to another third-party manufacturer in France and Israel, respectively.
(“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.
Revenue derived from cu stomers outside of the United States in the fiscal years ended December 31, 2022, 2021 and 2020 represented approximatel y 37%, 44% and 49% of our revenue, respectively.
Revenue derived from customers outside of the United States in the fiscal years ended December 31, 2023, 2022 and 2021 represented approximately 33%, 37% and 44% of our revenue, respectively.
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.
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.
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.
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. 27 Table of Contents Our business and industry are subject to various laws and regulations that could adversely affect our business, operating results, cash flows and financial condition.
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 Table of Contents 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.
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.
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.
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.
To the extent we raise capital through debt financing arrangements, we may be required to pledge assets or enter into covenants that could restrict our operations or our ability to incur further indebtedness and the interest on such debt may adversely affect our operating results.
Our current debt agreements and any debt financing that we secure in the future require or may require us to pledge assets or enter into covenants that could restrict our operations or our ability to incur further indebtedness and the interest on such debt may adversely affect our operating results.
A default under the indenture, or the fundamental change itself, could also lead to a default under agreements governing our future indebtedness. Moreover, the occurrence of a fundamental change under the indenture governing the Notes could constitute an event of default under any such agreement.
Moreover, the occurrence of a fundamental change or change of control, as applicable, under the indenture governing the Notes could itself constitute an event of default under any such indenture.
As of December 31, 2022, we had 964 employees in our international operations, representing approximately 72% of our worldwide workforce. In recent years, we have expanded our international operations significantly.
As of December 31, 2023, we had 974 employees in our international operations, representing approximately 72% of our worldwide workforce.
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. 23 Table of Contents 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.
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.
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 other pandemics, such as the COVID-19 pandemic, which has adversely impacted and may continue to adversely impact our supply chain.
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 other pandemics. These risks could also be heightened by geopolitical factors.
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.
For example, our former Chief Financial Officer announced his decision to resign in March 2023 and we appointed our current Chief Financial Officer in May 2023. 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.
Our ability to refinance our indebtedness, including the Notes will depend on 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 the Notes.
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 the Notes and any outstanding loans under the Credit Agreement.
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.
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. 20 Table of Contents 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.
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, 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.
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 Table of Contents 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.
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.
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 COVID-19, the Russia-Ukraine conflict and related macroeconomic conditions.
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.
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. 20 Table of Contents 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.
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.
At December 31, 2022, we he ld 121 issued U.S. patents and 49 issued foreign patents, and had 56 paten t applications pending.
As of December 31, 2023, we he ld 133 issued U.S. patents and 47 issued foreign patents, and had 39 paten t applications pending.
In the event that more of our employees are called to active duty, certain of our research and development activities may be s ignificantly delayed and adversely affected.
Approximately 10% of our employees in Israel have been called for military duty in connection with the Hamas-Israel conflict and in the event that more of our employees are called to active duty, certain of our research and development, product development and other activities may be significantly delayed and adversely affected.
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. 17 Table of Contents Operational Risks We rely on resellers, value-added resellers and systems integrators for a significant portion of our 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.
Operational Risks 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.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur leases, which expire at various dates throu gh September 2032, are for an aggregate of approximately 303,087 s quare feet of space. We have two business segments: Video and Broadband.
Biggest changeOur leases, which expire at various dates throu gh September 2032, are for an aggregate of approximately 292,742 s quare feet of space. We have two business segments: Video and Broadband.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeHarmonic 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. 12/17 12/18 12/19 12/20 12/21 12/22 Harmonic Inc. 100.00 112.38 185.71 175.95 280.00 311.90 S&P 500 100.00 95.62 125.72 148.85 191.58 156.89 NASDAQ Telecom 100.00 77.39 91.90 101.16 103.32 75.55 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. 34 Table of Contents
Biggest changeHarmonic 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. 12/18 12/19 12/20 12/21 12/22 12/23 Harmonic Inc. 100.00 165.25 156.57 249.15 277.54 276.27 S&P 500 100.00 131.49 155.68 200.37 164.08 207.21 NASDAQ Telecom 100.00 118.74 130.71 133.51 97.62 108.00 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.
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, 2022 .
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, 2023 .
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, 2017, and assumes the reinvestment of dividends, if any. The comparisons shown in the graph below are based upon historical data.
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, 2018, and assumes the reinvestment of dividends, if any. The comparisons shown in the graph below are based upon historical data.
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. As of December 31, 2022, approximately $94.9 million of the share repurchase authorization remained available.
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. As of December 31, 2023, approximately $94.9 million of the share repurchase authorization remained available.
Issuer Purchases of Equity Securities On February 3, 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.
Issuer Purchases of Equity Securities 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.
There were no repurchase activities during the three months ended December 31, 2022. 33 Table of Contents 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, 2017 and ending on December 31, 2022.
There were no repurchase activities during the year ended December 31, 2023. 34 Table of Contents 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, 2018 and ending on December 31, 2023.
Holders As of February 22, 2023, there were approximately 287 holders of record of our common stock. Dividend Policy We have never declared or paid any dividends on our capital stock.
Holders As of February 12, 2024, there were approximately 269 holders of record of our common stock. Dividend Policy We have never declared or paid any dividends on our capital stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeAny changes in estimate, or settlement of any particular position, could have a material impact on our operating results, financial condition and cash flows. 38 Table of Contents 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) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Appliance and integration $ 473,806 $ 369,767 $ 252,014 $ 104,039 28 % $ 117,753 47 % as % of total net revenue 76 % 73 % 67 % SaaS and service 151,151 137,382 126,817 13,769 10 % 10,565 8 % as % of total net revenue 24 % 27 % 33 % Total net revenue $ 624,957 $ 507,149 $ 378,831 $ 117,808 23 % $ 128,318 34 % Americas $ 452,869 $ 335,731 $ 219,394 $ 117,138 35 % $ 116,337 53 % as % of total net revenue 73 % 66 % 58 % EMEA 133,095 126,427 117,126 6,668 5 % 9,301 8 % as % of total net revenue 21 % 25 % 31 % APAC 38,993 44,991 42,311 (5,998) (13) % 2,680 6 % as % of total net revenue 6 % 9 % 11 % Total net revenue $ 624,957 $ 507,149 $ 378,831 $ 117,808 23 % $ 128,318 34 % Appliance and integration net revenue increased in 2022, as compared to 2021, primarily due to an increase in our Broadband segment net revenue as a result of continued penetration of existing Broadband customers and new Broadband customer deployments.
Biggest changeTo 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. 38 Table of Contents 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) 2023 2022 2021 2023 vs. 2022 Appliance and integration $ 435,878 $ 473,806 $ 369,767 $ (37,928) (8) % as % of total net revenue 72 % 76 % 73 % SaaS and service 172,029 151,151 137,382 20,878 14 % as % of total net revenue 28 % 24 % 27 % Total net revenue $ 607,907 $ 624,957 $ 507,149 $ (17,050) (3) % Americas $ 447,700 $ 452,869 $ 335,731 $ (5,169) (1) % as % of total net revenue 74 % 73 % 66 % EMEA 127,689 133,095 126,427 (5,406) (4) % as % of total net revenue 21 % 21 % 25 % APAC 32,518 38,993 44,991 (6,475) (17) % as % of total net revenue 5 % 6 % 9 % Total net revenue $ 607,907 $ 624,957 $ 507,149 $ (17,050) (3) % Appliance and integration net revenue decreased by $37.9 million in 2023, as compared to 2022, primarily due to a decrease of $68.2 million in our Video segment revenue, partially offset by an increase of $30.3 million in our Broadband segment revenue.
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, 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.
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.
Business Overview We are a leading global provider of (i) versatile and high performance video delivery software, products, system solutions and services that enable our customers to efficiently create, prepare, store, playout and deliver a full range of high-quality broadcast and streaming video services to consumer devices, including televisions, personal computers, laptops, tablets and smart phones and (ii) broadband solutions that enable broadband operators to more efficiently and effectively deploy high-speed internet, for data, voice and video services to consumers’ homes.
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.
For discussion of comparison of our results of operations and cash flows for the fiscal years ended December 31, 2021 and 2020, 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, 2021, filed with the SEC on February 28,2022.
For discussion of comparison of our results of operations and cash flows for the fiscal years ended December 31, 2022 and 2021, 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, 2022, filed with the SEC on February 28,2023.
As of December 31, 2022, approximately $94.9 million of the share repurchase authorization remained available. Sources and Conditions of Liquidity Our sources to fund our material cash requirements are predominantly from our sales of our products and services and, when applicable, proceeds from debt facilities and debt and equity offerings.
As of December 31, 2023, approximately $94.9 million of the share repurchase authorization remained available. Sources and Conditions of Liquidity Our sources to fund our material cash requirements are predominantly from sales of our products and services and, when applicable, proceeds from debt facilities and debt and equity offerings.
We believe our CableOS solutions resolve space and power constraints in broadband operator facilities, eliminate dependence on hardware upgrade cycles and significantly reduce total cost of ownership, and are helping us become a major player in the broadband access market.
We believe our cOS solutions resolve space and power constraints in broadband operator facilities, eliminate dependence on hardware upgrade cycles and significantly reduce total cost of ownership, and are helping us become a major player in the broadband access market.
Our CableOS solutions, which can be deployed based on a centralized, DAA or hybrid architecture, enable our customers to migrate to multi-gigabit broadband capacity and the fast deployment of DOCSIS and/or FTTH data, video and voice services.
Our cOS solutions, which can be deployed based on a centralized, DAA or hybrid architecture, enable our customers to migrate to multi-gigabit broadband capacity and the fast deployment of DOCSIS and/or FTTH data, video and voice services.
We believe our CableOS software-based broadband access solutions are superior to hardware-based systems and deliver unprecedented scalability, agility and cost savings for our 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.
For details regarding our indebtedness and lease obligations, refer to Note 12, “Convertible Notes and Other Debts”, and Note 5, “Leases”, respectively, of the Notes to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
For details regarding our indebtedness and lease obligations, refer to Note 11, “Convertible Notes and Other Debts”, and Note 4, “Leases”, respectively, of the Notes to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
Our Video business sells video processing, production and playout solutions, and services worldwide to broadband operators and satellite and telecommunications (“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 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 customers’ spending patterns are dependent on a variety of factors, including but not limited to: economic conditions in the United States and international markets, including the impacts of the COVID-19 pandemic and the Russia-Ukraine conflict, such as inflation, rising interest rates, potential supply chain disruptions, volatility in capital markets and foreign currency fluctuations; access to financing; annual budget cycles of each of the industries we serve; impact of industry consolidations; and customers suspending or reducing spending in anticipation of new products or new standards, new industry trends and/or technology shifts.
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 Hamas-Israel and Russia-Ukraine conflicts, inflation, rising interest rates, potential supply chain disruptions, volatility in capital markets and foreign currency fluctuations; volatility and uncertainty in the banking and financial services sector; access to financing; annual budget cycles of each of the industries we serve; impact of industry consolidations; customers suspending or reducing spending in anticipation of new products or new standards; and new industry trends and/or technology shifts.
As of December 31, 2022, we had outstanding $131.4 million in aggregate principal amount of indebtedness, consisting of our 2024 Notes and other debts, of which $4.8 million is scheduled to become due in the 9-month period following December 31, 2022.
As of December 31, 2023, we had outstanding $130.9 million in aggregate principal amount of indebtedness, consisting of our 2024 Notes and other debts, of which $120.4 million is scheduled to become due in the 12-month period following December 31, 2023.
As of December 31, 2022, our total minimum lease payments are $37.6 million, of which $7.1 million is due in the 12-month period following December 31, 2022.
As of December 31, 2023, our total minimum lease payments are $30.7 million, of which $7.1 million is due in the 12-month period following December 31, 2023.
Our cash and cash equivalents of $89.6 million as of December 31, 2022 consisted of bank deposits held throughout the world, of which $67.7 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.
Our cash and cash equivalents of $84.3 million as of December 31, 2023 consisted of bank deposits held throughout the world, of which $57.3 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.
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, the impact of COVID-19, the Russia-Ukraine conflict and related macroeconomic conditions on demand for our offerings, fluctuations in our operating results, shipment linearity, accounts receivable collections performance, inventory and supply chain management, and the timing and amount of compensation and other payments.
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 impact of the Russia-Ukraine and Hamas-Israel conflicts on macroeconomic conditions, which may affect demand for our offerings; fluctuations in our operating results; shipment linearity; accounts receivable collections performance; inventory and supply chain management; and the timing and amount of compensation and other payments.
Our Video business infrastructure solutions are delivered either through shipment of our products, software licenses or as SaaS subscriptions. Our Broadband business sells broadband access solutions and related services, including our CableOS software-based broadband access solution, to broadband operators globally. Historically, our revenue has been dependent upon spending in the cable, satellite, telco, broadcast and media industries, including streaming media.
Our 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.
Gross Profit Year ended December 31, (in thousands, except percentages) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Gross profit $ 315,884 $ 259,742 $ 194,997 $ 56,142 22% $ 64,745 33% as % of total net revenue (“gross margin”) 50.5 % 51.2 % 51.5 % (0.7) % (0.3) % 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.
Gross Profit Year Ended December 31, (in thousands, except percentages) 2023 2022 2021 2023 vs. 2022 Gross profit $ 312,545 $ 315,884 $ 259,742 $ (3,339) (1)% as % of total net revenue (“gross margin”) 51.4 % 50.5 % 51.2 % 0.9 % 39 Table of Contents 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.
We continue to make progress in the development of our CableOS solutions and in the growth of our CableOS business, with expanded commercial deployments, field trials, and customer engagements.
We continue to make progress in the development of our cOS solutions and related DAA nodes and hardware devices, in the growth of our Broadband business, with expanded commercial deployments, field trials, and customer engagements.
The research and development expenses are net of French Research and Development credits. Research and development expenses increased in 2022, as compared to 2021, primarily due to higher employee compensation costs as a result of headcount increases and annual compensation adjustments to support the growth of our Broadband business and the strategic transition of our Video segment to SaaS business.
The research and development expenses are net of French Research and Development (“French R&D”) credits. Research and development expenses increased in 2023, as compared to 2022, primarily due to higher employee compensation costs as a result of headcount increases to support the growth of our Broadband business.
There continues to be uncertainty in the changing market and economic conditions, including the possibility of additional measures that could be taken by the Federal Reserve and other government agencies, related to macroeconomic conditions, geopolitical disruptions and concerns over inflation risk. 36 Table of Contents 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.
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.
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.
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.
Our gross margin decreased in 2022, as compared to 2021, primarily due to increased mix of Broadband segment revenue as a portion of total company revenue. 39 Table of Contents Research and Development Expenses Year ended December 31, (in thousands, except percentages) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Research and development $ 120,307 $ 102,231 $ 82,494 $ 18,076 18 % $ 19,737 24 % as % of total net revenue 19 % 20 % 22 % 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.
Research and Development Expenses Year Ended December 31, (in thousands, except percentages) 2023 2022 2021 2023 vs. 2022 Research and development $ 126,282 $ 120,307 $ 102,231 $ 5,975 5 % as % of total net revenue 21 % 19 % 20 % 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.
Refer to Note 2 of the Notes to our Consolidated Financial Statements for details of our accounting estimates. We believe that the following critical accounting estimates involve a greater degree of judgement or complexity than our other accounting estimates.
We believe that the following accounting estimates involve a greater degree of judgement or complexity than our other accounting estimates.
We believe that our current sources of funds will provide us with adequate liquidity during the 12-month period following December 31, 2022, as well as in the long-term. 42 Table of Contents 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.
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.
Selling, General and Administrative Expenses Year ended December 31, (in thousands, except percentages) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Selling, general and administrative $ 146,717 $ 138,085 $ 119,611 $ 8,632 6 % $ 18,474 15 % as % of total net revenue 23 % 27 % 32 % Selling, general and administrative expenses increased in 2022, as compared to 2021 , primarily due to higher employee compensation costs as a result of headcount increases and annual compensation adjustments.
Selling, General and Administrative Expenses Year Ended December 31, (in thousands, except percentages) 2023 2022 2021 2023 vs. 2022 Selling, general and administrative $ 163,282 $ 146,717 $ 138,085 $ 16,565 11 % as % of total net revenue 27 % 23 % 27 % Selling, general and administrative expenses increased in 2023, as compared to 2022, primarily due to higher employee compensation costs of $11.4 million as a result of headcount increases and annual compensation adjustments to support the growth of our Broadband business and non-recurring advisory fees of $5.2 million incurred for the strategic review of the Video business.
Year ended December 31, (in thousands, except percentages) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Cost of revenue $ 533 $ 571 $ 1,094 $ (38) (7) % $ (523) (48) % Operating expenses Restructuring and related charges 3,341 110 2,322 3,231 2,937 % (2,212) (95) % Total restructuring and related charges $ 3,874 $ 681 $ 3,416 $ 3,193 469 % $ (2,735) (80) % 40 Table of Contents Restructuring and related charges increased in 2022, as compared to 2021, primarily due to higher severance and employee benefit costs recorded in conjunction with restructuring activities in fiscal 2022, including the impact of ceasing operations in China and Russia.
Year Ended December 31, (in thousands, except percentages) 2023 2022 2021 2023 vs. 2022 Cost of revenue $ 687 $ 533 $ 571 $ 154 29 % Operating expenses Restructuring and related charges 809 3,341 110 (2,532) (76) % Total restructuring and related charges $ 1,496 $ 3,874 $ 681 $ (2,378) (61) % Restructuring and related charges decreased in 2023, as compared to 2022, primarily due to higher severance and employee benefit costs recorded in conjunction with restructuring activities in fiscal 2022.
Accordingly, the critical accounting estimates that we believe have the most significant impact on Harmonic’s financial statements are set forth below: • Revenue recognition; • Valuation of inventories; and • Accounting for income taxes.
Accordingly, the critical accounting estimates that we believe have the most significant impact on Harmonic’s unaudited condensed consolidated financial statements are set forth below: • Valuation of inventories; and • Accounting for income taxes Valuation of Inventories We state inventories at the lower-of-cost (determined on a first-in, first-out basis) or net realizable value, including allowances for excess and obsolete inventory .
Summary of Cash Flows Year ended December 31, (in thousands) 2022 2021 2020 Net cash provided by (used in) Operating activities $ 5,476 $ 41,017 $ 39,163 Investing activities (1,288) (12,975) (32,205) Financing activities (43,133) 7,939 (2,109) Effect of exchange rate changes on cash and cash equivalents (4,900) (1,195) 738 Net increase (decrease) in cash, cash equivalents and restricted cash $ (43,845) $ 34,786 $ 5,587 Operating Activities Net cash provided by operating activities decreased $35.5 million in 2022, as compared to 2021, primarily due to an increase of cash used for working capital mainly due to timing of accounts payable and investments in inventories, partially offset by higher net income in fiscal 2022.
For details regarding our Credit Agreement, refer to N ote 11, “Convertible Notes and Other Debts”, of the Notes to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. 43 Table of Contents Summary of Cash Flows Year Ended December 31, (in thousands) 2023 2022 2021 Net cash provided by (used in) Operating activities $ 7,059 $ 5,476 $ 41,017 Investing activities (8,475) (1,288) (12,975) Financing activities (4,990) (43,133) 7,939 Effect of exchange rate changes on cash and cash equivalents 1,089 (4,900) (1,195) Net increase (decrease) in cash, cash equivalents and restricted cash $ (5,317) $ (43,845) $ 34,786 Operating Activities Net cash provided by operating activities increased by $1.6 million in 2023, as compared to 2022, primarily due to a decrease of cash used in our working capital, partially offset by lower income before income taxes.
Our foreign currency exposure is primarily driven by the fluctuations in the foreign currency exchanges rates of the Euro, British pound, Japanese yen and Israeli shekel. The change in other income (expense), net in 2022, as compared to 2021, was primarily due to a gain of $4.2 million recognized on the sale of our investment in Encoding.com in May 2022.
Other Income (Expense), Net Year Ended December 31, (in thousands, except percentages) 2023 2022 2021 2023 vs. 2022 Other income (expense), net $ (335) $ 4,006 $ 687 $ (4,341) (108) % The change in other income (expense), net in 2023, as compared to 2022, was primarily due to a gain of $4.2 million recognized on the sale of our investment in Encoding.com in May 2022.
EMEA net revenue increased in 2022, as compared to 2021, primarily due to continued expansion of customer deployments of our Broadband segment. APAC net revenue decreased in 2022, as compared to 2021, mainly due to a reduction in sales of Video Appliance products.
Americas net revenue decreased by $5.2 million in 2023, as compared to 2022, primarily due to a one-time deployment of our Video appliance products for a customer in 2022 amounting to a $41.6 million, and a $2.6 million reduction in sales within our Video segment in 2023.
Our Video business strategy is focused on continuing to develop and deliver products, solutions and services to enable and support these trends. Our Broadband strategy is focused on continuing to develop and deliver software-based broadband access technologies, which we refer to as our CableOS solutions, to our broadband operator customers.
Our Video business strategy is focused on continuing to develop and deliver products, solutions and services to enable and support these trends. Currently, we are seeing a slow-down in capital spending by some of our Video business customers, which is causing delays for some of our appliance-based projects and creating near-term headwinds for our Video appliance business.
Conversely, we may also from time to time determine that it is in our best interests to voluntarily repay certain indebtedness early. We repaid $37.7 million of principal in cash of the 2022 Notes upon maturity in December 2022.
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, 2023, as well as in the long-term.
We conduct business in three geographic regions - the Americas, EMEA and APAC - and operate in two segments, Video and Broadband. During the third quarter of fiscal 2022, our Cable Access segment was renamed the Broadband segment to reflect a broader strategic view of the category.
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 (formerly CableOS) software-based broadband access solutions, to broadband operators globally.
This involves estimating our actual current tax expense and assessing temporary differences resulting from differing treatment of items, such as reserves and accruals, for tax and accounting purposes. These temporary differences result in deferred tax assets and liabilities, which are included within our Consolidated Balance Sheets.
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.
Our Broadband segment operating margin increased in 2022, as compared to 2021, primarily due to the increase in revenue and margin expansion driven by favorable mix and cost savings in freight and shipping as a result of strategic investments in inventory.
Our gross margin increased by 90 basis points (bps) in 2023, as compared to 2022, primarily driven by margin expansion in both our Broadband and Video segments, largely attributed to an increase of 53 bps from lower shipping costs and an increase of 37 bps due to favorable product mix.
SaaS and service net revenue increased in 2022, as compared to 2021, primarily due to increasing usage from existing customers and activation of new SaaS customers. Americas net revenue increased in 2022, as compared to 2021, primarily due to increased penetration of existing Broadband customers and addition of new Broadband customer deployments.
SaaS and service net revenue increased by $20.9 million in 2023, as compared to 2022, primarily due to an increase of $10.4 million in revenue from increased usage by our existing customers, a $5.8 million increase in revenue from the acquisition of new customers, and a $4.7 million increase in revenue from higher demand for support services from our existing customers.
Broadband Our Broadband segment net revenue increased in 2022, as compared to 2021, primarily due to the increased penetration of our existing customers and new customer deployments in 2022.
Video segment operating margin decreased in 2023, compared to 2022, primarily due to the decrease in revenue. Broadband Our Broadband segment net revenue increased by $37.7 million in 2023, as compared to 2022, primarily due to a $30.3 million increase in revenue from higher product sales and a $7.4 million increase in support services revenue from our existing customers.
The increase was partially offset by a decrease in our Video segment net revenue, which was primarily due to a reduction in sales of Appliance products and the impact of ceasing sales activities in Russia.
This decrease was primarily driven by a reduction in appliance and integration revenue of $68.2 million, partially offset by an increase of $13.4 million in our SaaS and services revenue.
Income Taxes Year ended December 31, (in thousands, except percentages) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Provision for (benefit from) income taxes $ 16,303 $ (4,383) $ 3,054 $ 20,686 (472) % $ (7,437) (244) % The change in provision for (benefit from) income taxes for 2022, as compared to 2021, was primarily due to mandatory capitalization and amortization of research and development expenses in the United States starting January 1, 2022, as required by the Tax Cuts and Jobs Act, which resulted in additional income tax in the United States, offset by the utilization of net operating losses and tax credits.
Income Taxes Year Ended December 31, (in thousands, except percentages) 2023 2022 2021 2023 vs. 2022 Provision for (benefit from) income taxes $ (64,853) $ 16,303 $ (4,383) $ (81,156) (498) % The change in provision for (benefit from) income taxes for 2023, as compared to 2022, was primarily due to the release of the valuation allowance against U.S.
Critical Accounting Estimates The preparation of consolidated financial statements and related disclosures, which are prepared in accordance with GAAP, requires Harmonic to make judgments, assumptions and estimates that affect the reported amounts of assets and liabilities, the disclosure of contingencies and the reported amounts of revenue and expenses in the financial statements and accompanying notes.
The preparation of these unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Investing Activities Net cash used in investing activities decreased $11.7 million in 2022, as compared to 2021, primarily due to proceeds from the sale of our investment in Encoding.com and lower purchases of property and equipment in fiscal 2022. 43 Table of Contents Financing Activities Net cash used in financing activities increased $51.1 million in 2022 compared to 2021, primarily due to the repayment of the $37.7 million principal of the 2022 Notes in December 2022, lower proceeds from issuance of common stock to employees through stock option exercises, and stock repurchase transactions initiated in fiscal 2022. 44 Table of Contents New Accounting Pronouncements Refer to Note 2 of 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. 45 Table of Contents
The decreases were partially offset by higher payment of tax withholding obligations related to the net share settlement of restricted stock units and payments of debt issuance costs associated with the Credit Agreement. 44 Table of Contents 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. 45 Table of Contents
Removed
There has been no change to the composition of the segment; therefore, no prior periods were restated.
Added
There continues to be uncertainty in the changing market and economic conditions, including the possibility of additional measures that could be taken by the Federal Reserve and other government agencies, related to macroeconomic conditions, adverse business conditions and liquidity concerns, or bank failures or instability in the financial services sector, geopolitical disruptions and concerns over inflation risk. 36 Table of Contents Our Broadband strategy is focused on continuing to develop and deliver software-based broadband access technologies and related DAA nodes and other hardware devices, which we refer to as our cOS solutions, to our broadband operator customers.
Removed
We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions we believe to be reasonable under the circumstances. Material differences may result in the amount and timing of revenue and expenses if different judgments or different estimates were made.
Added
Video Business Strategic Review As previously disclosed in our Q3 2023 earnings press release and Form 10-Q filed on November 3, 2023, we initiated a formal strategic review process for our Video business to better position the Company for long-term shareholder value creation.
Removed
Revenue Recognition We recognize revenue from contracts with customers using the following five steps: a) Identify the contract(s) with a customer; b) Identify the performance obligations in the contract; c) Determine the transaction price; d) Allocate the transaction price to the performance obligations in the contract; and e) Recognize revenue when (or as) we satisfy a performance obligation.
Added
As noted in our prior disclosures, we received indications of interest in our Video business from a number of parties. To date, that interest has not yet translated into a definitive agreement with any party. We are continuing the strategic review process, and no specific timetable has been established for the completion of the review.
Removed
Refer to Note 4, “Revenue,” of the Notes to our Consolidated Financial Statements for additional information about our revenue recognition policies, including critical judgments and estimates associated with our revenue recognition. 37 Table of Contents Valuation of Inventories We state inventories at the lower-of-cost (determined on first-in, first-out basis) or net realizable value.
Added
We do not intend to disclose further details with respect to the review process unless and until our board of directors approves a specific transaction or otherwise concludes its review. 37 Table of Contents CRITICAL ACCOUNTING ESTIMATES Our unaudited condensed consolidated financial statements and the related notes included elsewhere in this report are prepared in accordance with U.S. GAAP.
Removed
We write down the cost of excess or obsolete inventory to net realizable value based on future demand forecasts and historical consumption.
Added
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 .
Removed
If there were to be a sudden and significant decrease in demand for our products, or if there were a higher incidence of inventory obsolescence because of rapidly changing technology and customer requirements, we could be required to record additional charges for excess and obsolete inventory and our gross margin could be adversely affected.
Added
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.
Removed
Inventory management is of critical importance in order to balance the need to maintain strategic inventory levels to ensure competitive lead times against the risk of inventory obsolescence because of rapidly changing technology and customer requirements. Accounting for Income Taxes In preparing our consolidated financial statements, we estimate our income taxes for each of the jurisdictions in which we operate.
Added
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 reven ues totaled $7.4 million, $6.0 million, in 2023 and 2022, respectively.
Removed
We maintain valuation allowances for deferred tax assets when it is likely that all or a portion of a deferred tax asset will not be realized.
Added
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.
Removed
In determining whether a valuation allowance is warranted, we take into account such factors as prior earnings history, expected future earnings, unsettled circumstances that, if unfavorably resolved, would adversely affect the utilization of a deferred tax asset. We are subject to examination of our income tax returns by various tax authorities on a periodic basis.
Added
We record a valuation allowance to reflect uncertainties about whether we will be able to utilize our deferred tax assets before they expire.
Removed
We regularly assess the likelihood of adverse outcomes resulting from such examinations to determine the adequacy of our provision for income taxes. We apply the provisions of the applicable accounting guidance regarding accounting for uncertainty in income taxes, which requires application of a more-likely-than-not threshold to the recog nition and derecognition of uncertain tax positions.
Added
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.
Removed
If the recognition threshold is met, the applicable accounting guidance permits us to recognize a tax benefit measured at the largest amount of such tax benefit that, in our judgment, is more than fifty percent l ikely to be realized upon settlement.
Added
Based on the available objective evidence, at December 31, 2023, we determined it appropriate to release the valuation allowance against U.S. federal and certain other states net deferred tax assets of $67.7 million and recorded a one-time income tax benefit.
Removed
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 in which such determination is made. We file 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.
Added
We believe it is not more likely than not the California net deferred tax assets of $32.3 million will be realizable. Accordingly, a full valuation allowance of $32.3 million is maintained against the California net deferred tax assets.
Removed
While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, we believe that our reserves for income taxes reflect the most likely outcome. We adjust these reserves, as well as the related interest and penalties, in light of changing facts and circumstances.
Added
The decrease in our Video segment revenue was mainly due to a one-time deployment of our appliance products for a customer in 2022 amounting to a $41.6 million and a decrease of $26.6 million attributable to lower sales across all regions in 2023.
Removed
If our estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense would result. 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.
Added
The increase in our Broadband segment revenue was mainly contributed by higher volume from our existing customers including initial shipments on a new project with a large Tier 1 customer in 2023.
Removed
Amortization of Intangibles Year ended December 31, (in thousands, except percentages) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Amortization of intangibles $ — $ 507 $ 3,019 $ (507) (100) % $ (2,512) (83) % There was no amortization of intangibles expense in 2022, as intangible assets were fully amortized during the first quarter of fiscal 2021.
Added
These decreases were partially offset by an increase in our Broadband segment revenue of $39.0 million resulting from higher volume from our existing customers including initial shipments on a new project with a large Tier 1 customer in 2023. EMEA net revenue decreased by $5.4 million in 2023, as compared to 2022.
Removed
Refer to Note 11, “Restructuring and Related Charges,” of the Notes to our Consolidated Financial Statements for additional information.
Added
This decline was primarily attributed to reduced sales, with decreases in our Video and Broadband segments of $3.4 million and $2.0 million, respectively. The reduction in sales in both segments was a consequence of lower demand for our products.
Removed
Interest Expense, Net Year ended December 31, (in thousands, except percentages) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Interest expense, net $ (5,040) $ (10,625) $ (11,509) $ 5,585 (53) % $ 884 (8) % Interest expense, net decreased in 2022, as compared to 2021, primarily due to the adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, on January 1, 2022, which eliminated debt discounts on the 2022 Notes and 2024 Notes resulting in an elimination of debt discount amortization expense.
Added
APAC net revenue decreased by $6.5 million in 2023, as compared to 2022, primarily due to a reduction in sales of $8.2 million in Video segment due to lower demand, partially offset by a $1.7 million increase in revenue from higher demand in our Broadband segment.
Removed
Refer to Note 2, “Recently Issued Accounting Pronouncements,” of the Notes to our Consolidated Financial Statements for details of the ASU adoption. The decrease is also attributed to the repayment of the 2022 Notes in December 2022 upon their maturity.
Added
Refer to Note 10, “Restructuring and Related Charges,” of the Notes to our Consolidated Financial Statements for additional information. 40 Table of Contents Interest Expense, Net Year Ended December 31, (in thousands, except percentages) 2023 2022 2021 2023 vs. 2022 Interest expense, net $ (2,696) $ (5,040) $ (10,625) $ 2,344 (47) % Interest expense, net decreased in 2023, as compared to 2022, primarily due to the repayment of the 4.375% Convertible Senior Notes due 2022 upon their maturity.
Removed
Loss on Convertible Debt Extinguishment Year ended December 31, (in thousands, except percentages) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Loss on convertible debt extinguishment $ — $ — $ (1,362) $ — n/a $ 1,362 (100) % The loss on convertible debt extinguishment of $1.4 million in 2020 includes $0.9 million loss related to the exchange of a portion of the 2020 Notes in June 2020 and a $0.5 million loss related to the settlement of the remaining 2020 Notes in December 2020.
Added
Federal and certain state deferred tax assets due to improved historical earnings and projected earnings. 41 Table of Contents Segment Financial Results Year Ended December 31, (in thousands, except percentages) 2023 2022 2021 2023 vs. 2022 Video Revenue $ 219,425 $ 274,189 $ 288,507 $ (54,764) (20) % as % of total revenue 36 % 44 % 57 % (8) % Operating income (1) (8,741) 22,322 28,460 (31,063) (139) % Operating margin % (1) (4) % 8 % 10 % (12) % Broadband Revenue $ 388,482 $ 350,768 $ 218,642 $ 37,714 11 % as % of total revenue 64 % 56 % 43 % 8 % Operating income (1) 64,575 52,283 15,599 12,292 24 % Operating margin % (1) 17 % 15 % 7 % 2 % Total Revenue $ 607,907 $ 624,957 $ 507,149 $ (17,050) (3) % (1) Segment operating income and segment operating margins are Non-GAAP financial measures.
Removed
Refer to Note 12, “Convertible Notes and Other Debts,” of the Notes to our Consolidated Financial Statements for additional information.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

8 edited+5 added−3 removed4 unchanged
Biggest changeAs amended, the revolving loans bear interest, at our election, at a floating rate per annum equal to either (1) 2.00% plus the greater of (i) 2.50% and (ii) the prime rate as reported in the Wall Street Journal from time to time or (2) 3.00% plus adjusted term SOFR for an interest period of one, three or six months.
Biggest changeLoans under the Revolving Facility and Term Facility will bear interest, at the Company’s election, at a floating rate per annum equal to either (a) a base rate, defined as the greatest of (i) the prime rate then in effect, (ii) the federal funds rate then in effect, plus 0.50%, or (iii) an adjusted term SOFR rate determined on the basis of a one-month interest period, plus 1.00%, in each case, plus a margin of between 1.00% to 1.75% (“Base Rate Loans”); and (b) an adjusted term SOFR rate (based on one, three or six month interest periods), plus a margin of between 2.00% to 2.75% (“Adjusted Term SOFR Loans”).
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 97% , 96 % and 95% of our consolidated net revenues in 2022, 2021 and 2020, respectively.
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 97% , 97 % and 96% of our consolidated net revenues in 2023, 2022 and 2021, respectively.
For our French entity, the aggregate debt balance at December 31, 2022 was $15.9 million, which are financed by French government agencies. These debt instruments have maturities ranging from one to five years, expiring from 2023 through 2026. These loans are tied to the 1-month EURIBOR rate plus spread.
For our French entity, the aggregate debt balance at December 31, 2023 was $15.4 million, which are financed by French government agencies. These debt instruments have maturities ranging from one to five years, expiring from 2024 through 2026. These loans are tied to the 1-month EURIBOR rate plus spread.
The U.S. dollar equivalents of all outstanding notional amounts of foreign currency forward contracts are summarized as follows: December 31, (in thousands) 2022 2021 Derivatives not designated as hedging instruments: Purchase $ 7,971 $ 2,926 Sell $ — $ 5,175 Interest Rate Risk Our exposure to market risk for changes in interest rates relates primarily to our outstanding debt arrangements with variable rate interests as well as our borrowings under the Credit Agreement.
The U.S. dollar equivalents of all outstanding notional amounts of foreign currency forward contracts are summarized as follows: December 31, (in thousands) 2023 2022 Derivatives not designated as hedging instruments: Purchase $ 54,169 $ 7,971 46 Table of Contents Interest Rate Risk Our exposure to market risk for changes in interest rates relates primarily to our outstanding debt arrangements with variable rate interests as well as our borrowings under the Credit Agreement.
We recorded net billings denominated in foreign currencies of approximately 15% , 18% and 22% of total company billings in 2022, 2021 and 2020, respectively.
We recorded net billings denominated in foreign currencies of approximatel y 15% , 15% and 18% of total company billings in 2023, 2022 and 2021, respectively.
Additionally, during fiscal 2020, we received a loan from Société Générale S.A. in France which bears an effective interest rate of 0.51% per annum, in connection with relief loan programs related to the COVID-19 pandemic. As of December 31, 2022, the outstanding balance of this loan was $5.3 million. 47 Table of Contents
As of December 31, 2023, we had $115.5 million aggregate principal of the 2024 Notes outstanding, which have a fixed 2.00% coupon rate. Additionally, during fiscal 2020, we received a loan from Société Générale S.A. in France which bears an effective interest rate of 0.51% per annum, in connection with relief loan programs related to the COVID-19 pandemic.
As of December 31, 2022, a hypothetical 1.0% increase in interest rates on our debts subject to variable interest rate fluctuations would increase our interest expense by approximately $0.2 million annually. 46 Table of Contents As of December 31, 2022, we had $115.5 million aggregate principal of the 2024 Notes outstanding, which have a fixed 2.00% coupon rate.
Refer to Note 11, “Convertible Notes and Other Debts,” of the Notes to our Consolidated Financial Statements for additional information. As of December 31, 2023, a hypothetical 1.0% increase in interest rates on our debts subject to variable interest rate fluctuations would increase our interest expense by approximately $0.1 million annually.
On December 19, 2019, we entered into a Credit Agreement with JPMorgan Chase Bank, N.A. as lender, and Harmonic International GmbH, as co-borrower. The Credit Agreement provides for a secured revolving loan facility in an aggregate principal amount of up to $25.0 million, based on a borrowing base of eligible accounts receivable and inventory.
The Credit Agreement provides for a secured revolving loan 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”).
Removed
On October 28, 2022, we amended the Credit Agreement to (i) extend the Credit Agreement maturity date to October 28, 2025, or subject to certain exceptions, the date that is 90 days prior to the maturity date of our 2024 Notes (to the extent the 2024 Notes remain outstanding as of such date) and (ii) amend the interest rate provisions to replace LIBOR with SOFR as the interest rate benchmark for the revolving loans.
Added
On December 21, 2023, we entered into a Credit Agreement (the “Credit Agreement”), with Citibank, N.A., as administrative agent for the lenders.
Removed
Except in cases of default, prepayment or conversion, Interest on the revolving loans is payable monthly in arrears, in the case of prime rate loans, and at the end of the applicable interest period, in the case of SOFR loans. We had no revolving borrowings under the Credit Agreement from the closing of the Credit Agreement through December 31, 2022.
Added
The Credit Agreement refinances and replaces the Company’s existing credit agreement, dated as of December 19, 2019, as amended, with JPMorgan Chase Bank, N.A., as lender.
Removed
Refer to Note 12, “Convertible Notes and Other Debts,” of the Notes to our Consolidated Financial Statements for additional information.
Added
The applicable margin in each case is determined based on the Company’s consolidated net leverage ratio. Interest is payable quarterly in arrears, in the case of Base Rate Loans, and at the end of the applicable interest period, but at least every three months, in the case of Adjusted Term SOFR Loans.
Added
The Company is also obligated to pay other customary fees (including letter of credit fees) for a credit agreement of this size and type . We had no borrowings under the Credit Agreement from the closing of the Credit Agreement through December 31, 2023.
Added
As of December 31, 2023, the outstanding balance of this loan was $4.1 million . 47 Table of Contents

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