Quarterly Report for Quarter Ending October 2, 2026 (Form 10-Q)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in the forward-looking statements as a result of various factors, including, but not limited to, those discussed in the section titled "Risk Factors" and in other parts of this Quarterly Report on Form 10-Q.

OVERVIEW

We are a leading global provider of broadband solutions that enable broadband operators to more efficiently and effectively deploy high-speed internet, for data, voice and video services for their customers.

We classify our total revenue in two categories, "Appliance and integration" and "SaaS and service." The "Appliance and integration" revenue category includes hardware, licenses and professional services and is reflective of non-recurring revenue, while the "SaaS and service" category includes usage fees for our SaaS platform and support service revenue and reflects our recurring revenue stream.

We conduct business in three geographic regions-the Americas, Europe, the Middle East, and Africa and Asia-Pacific. We sell broadband solutions and related services, including our cOS™ software-based broadband solutions, to broadband operators globally.

Historically, our revenue has been dependent upon spending in the cable and telco industries. Our customers' spending patterns are dependent on a variety of factors, including but not limited to: economic conditions in the United States and international markets, and impact of factors such as the Middle East and Russia-Ukraine conflicts, inflation, changes in interest rates, potential supply chain disruptions, volatility in capital markets and foreign currency fluctuations; volatility and uncertainty in the banking and financial services sector; access to financing; annual budget cycles of each of the industries we serve; impact of industry consolidations; customer end-market conditions; customers suspending or reducing spending in anticipation of new products or new standards; impact of heightened, new, or proposed tariffs; and new industry trends and/or technology shifts. If our product portfolio and product development plans do not position us well to capture an increased portion of the spending in the markets in which we compete, our revenue may decline. As we attempt to further diversify our customer base in these markets, we may need to continue to build alliances with other equipment manufacturers and suppliers, and we may need to take orders at prices resulting in lower margins.

Our strategy is focused on continuing to develop and deliver software-based broadband technologies, which we refer to as our cOS solutions, to our broadband operator customers. We believe our cOS software-based broadband solutions are superior to hardware-based systems and deliver unprecedented scalability, agility and cost savings for our customers. Our cOS solutions, which can be deployed based on a centralized, distributed access architecture ("DAA") or hybrid architecture, enable our customers to migrate to multi-gigabit broadband capacity and the fast deployment of DOCSIS and/or fiber-to-the-home ("FTTH") data, video and voice services. We believe our cOS solutions resolve space and power constraints in broadband operator facilities, eliminate dependence on hardware upgrade cycles and significantly reduce total cost of ownership, and are helping us to be a major player in the broadband market. We expect continued strong long-term growth in our business, driven by increasing adoption of our virtualized DOCSIS, CMTS, and FTTH solutions and distributed access architectures among both our existing customers and a growing base of new customers.

As previously reported, on December 8, 2025, we entered into a Put Option Agreement to sell our Video business to Leone Media Inc. (d/b/a MediaKind) (the "Buyer") for a purchase price of $145 million in cash. On March 20, 2026, we executed the Asset Purchase Agreement ("APA") to complete the transaction. On June 16, 2026, we completed the sale of our Video business to the Buyer pursuant to the APA. Proceeds from the sale were $137.9 million paid at closing, subject to final adjustment under the terms of the APA. The results of the Video business are presented as discontinued operations in the accompanying unaudited condensed consolidated statements of operations for all periods presented. The assets and liabilities of the Video business have been reflected as assets and liabilities of discontinued operations in the accompanying unaudited condensed consolidated balance sheet for all prior periods presented. The Company and Buyer are in the process of finalizing the post-closing adjustments, which are currently expected to be completed in the first quarter of 2027.

Unless otherwise noted, all amounts, percentages and discussions below reflect only the results of operations and financial condition of our continuing operations. Refer to "Discontinued Operations" below and Note 3 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information on discontinued operations.

On July 31, 2026, the Company, through its subsidiary Harmonic Brazil, acquired 100 percent of the outstanding shares of INT6 Tecnologia S.A. ("INT6"), a Brazilian technology company specializing in automation and management platforms for fiber-optic networks serving internet service providers and telecommunications operators, for total consideration of $3.4 million. The INT6 financial results have been accounted for in our condensed consolidated financial statements since the acquisition date. Refer to Note 4 to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q for additional information.

CRITICAL ACCOUNTING ESTIMATES

Our unaudited condensed consolidated financial statements and the related notes included elsewhere in this report are prepared in accordance with U.S. GAAP. The preparation of these unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Our critical accounting estimates are disclosed in our 2025 Annual Report on Form 10-K, as filed with the SEC on February 24, 2026. There have been no significant changes to these estimates during the nine months ended October 2, 2026.

ACCOUNTING PRONOUNCEMENTS

For a summary of recent accounting pronouncements applicable to our condensed consolidated financial statements, refer to Note 2 to the condensed consolidated financial statements in Item 1, which is incorporated herein by reference.

RESULTS OF OPERATIONS

Net Revenue

Appliance and integration net revenue increased by $61.0 million and $137.7 million for the three and nine months ended October 2, 2026, respectively, compared to the corresponding period in 2025. The increases were primarily driven by customers ramping up new deployments in the Americas, which contributed to $50.6 million and $114.5 million of the increase for the three and nine months ended October 2, 2026, respectively. Outside plant services accounted for $10.5 million and $20.9 million of the increase for the three and nine months ended October 2, 2026, respectively.

SaaS and service net revenue decreased by $2.7 million for the three months ended October 2, 2026, compared to the corresponding period in 2025, primarily due to a $4.4 million decrease from the completion of a multi-year custom development project in the second quarter of 2026, partially offset by a $1.7 million increase in support services.

SaaS and service net revenue increased by $4.1 million for the nine months ended October 2, 2026, compared to the corresponding period in 2025, primarily due to a $7.1 million increase in support services, partially offset by a $3.0 million decrease from the completion of a multi-year custom development project in the second quarter of 2026.

Gross Profit

Our gross margins are dependent upon, among other factors, the proportion of software sales, product mix, supply chain impacts, customer mix, product introduction costs, price reductions granted to customers and achievement of cost reductions.

Our gross margin improved by 510 basis points and 310 basis points in the three- and nine-months periods ended October 2, 2026, respectively, compared to the corresponding periods in 2025, primarily due to a favorable product mix associated with increased customer deployments in North America.

Research and Development Expenses

Our research and development expenses consist primarily of employee salaries and related expenses, contractors and outside consultants, supplies and materials, equipment depreciation and facilities costs, all of which are associated with the design and development of new products and enhancements of existing products. The research and development expenses are net of French research and development tax credits.

Research and development expenses increased by $4.9 million, and $9.3 million, for the three- and nine-month periods ended October 2, 2026, respectively, compared to the corresponding period in 2025, mainly due to higher incentive compensation and increased investment to support business growth. The three month increase also reflects approximately $2.0 million of engineering costs, now recorded in research and development expenses rather than cost of revenue, following the completion of a multi-year custom development project in the second quarter of 2026.

As discussed previously, the results of the Video business have been classified as discontinued operations for all periods presented. Certain indirect corporate costs, such as IT and facility costs, previously allocated to the Video reporting segment, do not qualify for discontinued operations accounting classification and are now reported within continuing operations. These stranded costs, which are included in research and development expenses, were $0.3 million and $0.6 million for the three months ended October 2, 2026, and the corresponding period in 2025, respectively. The stranded costs were $0.9 million and $1.7 million for the nine months ended October 2, 2026 and the corresponding period in 2025, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $8.6 million, and $15.3 million, for the three- and nine-month periods ended October 2, 2026, respectively, compared to the corresponding periods in 2025, primarily due to higher incentive compensation and increased investment to support business growth.

As discussed above, the stranded costs resulting from the disposition of the Video business included in selling, general and administrative expense were $1.0 million and $4.5 million for the three- and nine-month periods ended October 2, 2026, respectively. The stranded costs were $1.2 million and $3.1 million for the corresponding periods in 2025.

Asset Impairment and Related Charges

*not meaningful

During the three months ended October 2, 2026, the Company recorded additional lease-related impairment and other charges of $0.2 million, primarily consisting of right-of-use asset impairments.

During the nine months ended October 2, 2026 the Company recorded additional lease-related impairment and other charges of $0.6 million, which consisted of $0.3 million in right-of-use asset impairments, and $0.3 million in leasehold improvement asset impairments. These adjustments were driven by changes in underlying assumptions, including updated estimates of space utilization, sublease recoverability, and expected cost obligations.

Restructuring and Related Charges

*not meaningful

Restructuring and related charges decreased by $1.0 million and $1.4 million in the three and nine months ended October 2, 2026, respectively, compared to the corresponding periods in 2025, primarily due to higher severance and employee benefits costs recorded in the prior periods and a reversal of previously accrued charges in the current periods.

Interest Income (Expense), Net

*not meaningful

Interest income (expense), net improved by $1.2 million and $1.5 million in the three and nine months ended October 2, 2026, respectively, compared to the corresponding periods in 2025, primarily due to lower interest expense following the repayment in full of the $75.0 million balance outstanding under our Revolving Facility in July 2026 and higher interest income on increased cash balances following the sale of the Video business.

Other Income (Expense), Net

*not meaningful

Other income (expense), net decreased by $1.0 million and increased by $0.2 million in the three and nine months ended October 2, 2026, respectively, compared to the corresponding periods in 2025, primarily due to fluctuations in foreign currency exchange rates against the U.S. dollar.

Income Taxes

*not meaningful

The provision for income taxes increased by $3.7 million during the three months ended October 2, 2026, compared to the corresponding period in 2025, primarily due to higher pretax income in the current period.

The provision for income taxes increased by $17.8 million during the nine months ended October 2, 2026, compared to the corresponding period in 2025, primarily due to higher pretax income and $4.6 million of withholding taxes on the distribution from a foreign subsidiary in the current period.

Liquidity and Capital Resources

We expect to continue to manage our cash from operations effectively, together with deploying cash in working capital for growth. The cash we generate from our operations enables us to fund ongoing operations, our research and development projects for new products and technologies, and other business activities. We continually evaluate our cash needs and may decide it is best to raise additional capital or seek alternative financing sources to fund our operations and the growth of our business, to take advantage of unanticipated strategic opportunities, or to strengthen our financial position, including through drawdowns on existing or new debt facilities or new debt and equity financing. In the future, we may enter into other arrangements for potential investments in, or acquisitions of, complementary businesses, services or technologies, which could require us to seek additional equity or debt financing. Additional funds may not be available on terms favorable to us or at all. Conversely, we may also from time to time determine that it is in our best interests to voluntarily repay certain indebtedness early. We believe that our current sources of funds will provide us with adequate liquidity during the 12-month period following October 2, 2026, and over the longer-term.

In addition, on June 16, 2026, we completed the previously announced sale of our Video business. Proceeds from the sale, received at closing, were $137.9 million, subject to final adjustments under the terms of the purchase agreement. We plan to use the proceeds from the sale to support strategic growth initiatives and to further fund our share repurchase program.

Material Cash Requirements

Our principal uses of cash include repayments of debt and related interest, purchases of inventory, stock repurchases, payments for payroll, restructuring expenses, and other operating expenses related to the development and marketing of our products, purchases of property and equipment, facility leases, and other contractual obligations for the foreseeable future.

As of October 2, 2026, we had an outstanding principal amount equal to $35.0 million under our Credit Agreement, consisting of our Term Facility, of which $3.0 million is scheduled to become due in the 12-month period following October 2, 2026. On July 7, 2026, we used cash on hand to repay in full the $75.0 million balance outstanding under our Revolving Facility. As of October 2, 2026, our total minimum lease payments are $20.0 million, of which $5.7 million is due within 12 months of October 2, 2026.

In February 2025, the Board of Directors authorized us to repurchase, from time to time, up to $200 million of our outstanding shares of common stock through February 2028 (the "Share Repurchase Authorization"), at such time and such prices as management may decide. The program does not obligate us to repurchase any specific number of shares and may be discontinued at any time. As of October 2, 2026, approximately $74.4 million of the Share Repurchase Authorization remained available for repurchases under this program. Subsequent to October 2, 2026, and through October 21, 2026, we repurchased approximately 1.5 million shares of our common stock for an aggregate amount of $16.4 million pursuant to a 10b5-1 trading plan, after which approximately $58.0 million remained available under the Share Repurchase Authorization.

Sources and Conditions of Liquidity

Our sources to fund our material cash requirements are predominantly from the sales of our products and services and, when applicable, proceeds from debt facilities and debt and equity offerings.

As of October 2, 2026, our principal sources of liquidity consisted of cash and cash equivalents of $142.8 million, net accounts receivable of $117.1 million, and $159.7 million remaining available under the Revolving Facility of our Credit Agreement.

Our cash and cash equivalents of $142.8 million as of October 2, 2026 consisted of bank deposits held throughout the world and money market funds, of which $58.1 million was held outside of the United States. At present, such foreign funds are considered to be indefinitely reinvested in foreign countries to the extent of indefinitely reinvested foreign earnings. In the event funds from foreign operations are needed to fund cash needs in the United States and if U.S. taxes have not already been previously accrued, we may be required to accrue and pay additional U.S. and foreign withholding taxes in order to repatriate these funds. As discussed above, we plan to use the proceeds from the sale of the Video business to support strategic growth initiatives and to further fund our share repurchase program. We do not expect the disposition of the Video business to have a material impact on our ongoing liquidity and capital resources.

Summary of Cash Flows

The table below sets forth selected cash flow data:

Operating Activities

Net cash provided by operating activities decreased $71.7 million in the first nine months of fiscal 2026, compared to the same period in fiscal 2025. The decrease was primarily due to a $109.6 million unfavorable change in accounts receivable, which used $35.5 million in the current period compared to providing $74.1 million in the prior period, when collections were elevated following strong fourth-quarter fiscal 2024 revenue. Cash used for inventory purchases, including memory, also increased $47.6 million as we took early delivery to secure supply for anticipated growth. These factors were partially offset by a $48.0 million favorable change in accounts payable, primarily due to the timing of vendor payments; a $25.0 million increase in non-cash deferred income tax expense; a $23.3 million favorable change in other liabilities; and an $8.1 million increase in net income.

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

Investing Activities

Net cash provided by investing activities increased by $132.7 million during the first nine months of fiscal 2026, compared to the corresponding period in 2025. The change was primarily due to cash proceeds from the sale of the Video business and lower capital expenditures in the current period, partially offset by cash paid for the acquisition of INT6, net of cash acquired.

Financing Activities

Net cash used in financing activities increased by $60.8 million during the first nine months of fiscal 2026, compared to the corresponding period in fiscal 2025, primarily due to the repayment of the $75.0 million balance outstanding under our Revolving Facility, partially offset by a $19.2 million decrease in stock repurchases in the current period.

Discontinued Operations

As previously noted, we classified the results of our Video business as discontinued operations in the consolidated statements of operations for all periods presented. The related assets and liabilities associated with the Video business were classified as held for sale in the consolidated balance sheets for the prior period presented.

Net sales from discontinued operations were nil and $89.6 million for the three and nine months ended October 2, 2026, respectively, compared to $51.9 million and $151.3 million for the prior year periods. The decreases in net sales during the current periods were primarily due to the completion of the sale of the Video business on June 16, 2026, for the nine months ended October 2, 2026. The losses from discontinued operations, net of tax, for the three and nine months ended October 2, 2026 were primarily attributable to the loss on disposal of the business, advisory fees and employee compensation costs related to the disposition of our Video business incurred in the current periods.