Harmonic raises 2026 outlook again, but orders fell to 71% of sales

Harmonic used to run two businesses. On June 16 it finished selling its Video unit to MediaKind, a business that made about 37% of its 2025 revenue.¹ What is left is a pure-play broadband company with one reporting segment.² Its main product is cOS, a virtualized broadband platform, sold alongside fiber and DOCSIS equipment and a growing line of network software it calls intelligence. DOCSIS is the standard that carries internet over cable TV lines.³ cOS is deployed at 167 customers serving 52.6 million devices in homes and businesses.⁴

2025 was a hard year. Sales from the continuing business fell 26% to $360.5 million, mainly because of a $148.0 million drop in U.S. equipment sales as customers delayed DOCSIS 4.0 upgrades.¹ One customer made 54% of 2025 revenue.² In 2026 those upgrades came back. Harmonic has now raised its full-year sales outlook for the third time, and the midpoint is about 20% above its February view.³ Second-quarter sales were $133.5 million and second-quarter bookings were $144.3 million.⁴

The stock has not followed the raises. When the chief financial officer's restricted stock vested in mid-August, the shares withheld for his taxes were valued at $13.92.¹ The company's own third-quarter average price was $11.98, and a sales executive's tax withholding in mid-October was priced at $10.58.² Both insider filings record shares withheld for tax on vesting stock, not open-market sales.³ It closed at $10.24 on October 30, about 26% below the mid-August value.⁴ The results came out after the market closed on November 2, at 16:05, so that day's close does not show how investors judged the quarter.⁵

Harmonic sells to a short list of cable and telecom operators. Its top 10 customers made about 89% of second-quarter sales, and further consolidation among operators could concentrate revenue even more.¹ Smaller rivals have competed aggressively on price, and the cOS sales cycle tends to be long.² A quarter with fewer large deals can hurt results.³ On the call, the chief executive said satellite broadband does not change what customers are investing in.⁴ Harmonic depends on contract manufacturers and limited-source suppliers, which matters now because memory chip costs are rising.⁵

Sales, gross margin, operating profit and earnings per share all beat guidance, though operating expenses of $44.5 million ran above the guided range. Adjusted operating profit was $33.0 million against a $23 million to $28 million forecast.¹ Management tied the higher spending to performance-based incentive pay and earnouts from a small acquisition, and moving engineers from cost of revenue into research and development shifts about $2 million a quarter into operating expenses from the third quarter on.² Reported GAAP operating profit was $26.2 million, a 17.6% margin.³ The $6.8 million gap between the two is mostly stock-based pay of $6.1 million, which the adjusted figure adds back.⁴ Both figures still carry about $1.5 million of stranded costs, overhead left behind by the Video sale.⁵ Continuing operations earned $18.1 million after tax. The sold Video business still lost $3.5 million, so total net income was $14.6 million.⁶ These are preliminary, unaudited results.⁷

Growth is spreading beyond the two biggest buyers. Sales to everyone else, which the company calls Rest-of-Market, were $68.7 million, or 46% of the total, up from 37% in the second quarter.¹ Those customers also made over 60% of bookings, and nine new customers signed, including Liberty Latin America.² The top two still bought $80.1 million, or 54% of sales, down from 63% in the second quarter. On the call, management put them at 37% and 16%.³

The order slowdown sits mostly with those two big customers. Book-to-bill, new orders divided by sales, was 0.7 overall and about 1.0 for Rest-of-Market.¹ If Rest-of-Market made over 60% of the $105.9 million in bookings, the top two signed under $42.4 million of orders.² Against their $80.1 million of sales, that is a book-to-bill of about 0.5 or lower.³ Management blamed seasonally lower bookings, and bookings were still above the $97.4 million of a year earlier.⁴

The backlog still gives cover. At $534.0 million it is 58% above the $338 million of a year earlier, and it equals about 3.6 quarters of sales at the third-quarter pace.¹ Management expects 72% of it, about $384 million, to turn into revenue within 12 months.² That $384 million covers the $141 million to $151 million fourth-quarter guide but is well below the roughly $595 million a year that third-quarter sales would run at, so Harmonic must keep winning new orders to hold its growth rate.³

Part of the raised outlook is the third-quarter beat carried forward. Sales through October 2 were $404.0 million, against a full-year low end of $545 million.¹ The gap, $141.0 million, is the bottom of the fourth-quarter guide. That guide's midpoint, $146 million, is below the third quarter's $148.8 million, though it would still be about 49% growth from a year earlier.² Management named the situation in the Middle East and, second, component supply and pricing as outside factors behind the guidance.³ It built in about $3 million of higher memory costs for the fourth quarter that it does not expect to pass on, and it expects tight supply and high costs to last into 2027.⁴

On a GAAP basis the full-year outlook is lower. GAAP operating profit is guided at $93 million to $99 million and GAAP earnings at $0.54 to $0.57 a share, against adjusted ranges of $118 million to $124 million and $0.80 to $0.84.¹ Much of the gap is about $24 million of stock-based pay for the year, plus a 31% GAAP tax rate guided for the fourth quarter against 23% on the adjusted basis.² At $10.19, the stock trades at about 18.4 times the GAAP earnings midpoint.³

Cash is where growth costs money. Nine-month operating cash flow was $23.9 million, down from $95.7 million a year earlier.¹ Inventory used $51.5 million of cash and higher receivables used $35.5 million.² After $5.8 million of capital spending, nine-month free cash flow was about $18.1 million. In the third quarter alone it was negative $5.1 million.³ Days of inventory on hand rose to 120 from 95, and customers took 71 days to pay, up from 61.⁴ Management plans to keep building inventory over the next several quarters, including buying memory early.⁵ The nine-month GAAP tax charge was $22.3 million, but cash taxes paid were $5.5 million, and the balance sheet carries $90.9 million of net deferred tax assets.⁶

The balance sheet is sound. Cash was $142.8 million on October 2, down $89.1 million from July 3, mainly because Harmonic repaid $75 million on its revolving credit line, a facility it can draw and repay.¹ That repayment raised what it can borrow under the line to $160 million.² Balance-sheet debt fell to $36.4 million, so cash exceeds debt by about $106.5 million.³ What remains is the term loan, which stood at $35.8 million at July 3 next to the $75.0 million revolver balance since repaid.⁴ Interest is no burden: net interest was income of $231,000 in the quarter. With net cash, a net debt to earnings ratio does not apply.⁵ The term loan and revolver both mature on December 21, 2028, and are secured by substantially all of the company's assets.⁶ They carry a maximum net leverage test and a minimum fixed charge coverage test, and Harmonic was in compliance at July 3.⁷ About $3.0 million of term loan principal was due within 12 months, and $49.7 million of the July 3 cash was held outside the United States.⁸

Dilution is modest. Shares outstanding fell to 109.0 million from 111.2 million at the end of 2025, after $46.6 million of nine-month buybacks.¹ Harmonic bought $4 million of stock in the third quarter and $16 million more after it ended. With $78.0 million of authorization left at July 3, about $58 million would remain if nothing else was bought, under a program that expires in February 2028.² Its stated minimum goal is to buy enough each year to offset stock awards.³ About 3.5 million restricted stock units were outstanding at July 3, and the guide assumes 109.2 million diluted shares in the fourth quarter.⁴ The secured lenders rank ahead of common holders.⁵

Three money flows shaped the quarter. First, the Video sale: Harmonic gave up a unit that made about 37% of 2025 revenue for a $145 million price.¹ It received $137.9 million at closing, $7.1 million less, with final adjustments expected in the first quarter of 2027. After costs and cash left in the unit, it kept $132.0 million.² It said it would use the money for growth and buybacks.³ Second, $75 million went to repay the revolver, which cut debt and restored borrowing room.⁴ Third, cash went into inventory to secure memory and other parts, which ties up money until customers pay.⁵

The strongest bull case is that the business is growing fast, profitably and more broadly. Sales rose 64%, adjusted operating profit beat the top of the forecast by $5 million or more, and Rest-of-Market orders about matched its sales.¹ At about $1.11 billion, less about $106.5 million of net cash, the business is valued near 8.3 times the midpoint of its adjusted operating profit outlook and about 1.8 times the midpoint of 2026 sales.² The company has also cut expected stranded costs for the year to $7.6 million from $10 million.³

The strongest bear case, ranked. First, orders: a 0.7 book-to-bill and a $53.6 million backlog drop can be read as a sign the two big customers' upgrades are slowing.¹ Second, concentration: two customers still make 54% of sales, and losing a key customer is a named risk.² Third, cash: growth is eating working capital, with free cash flow negative in the quarter and inventory at 120 days. Fourth, costs: memory and other parts are getting dearer into 2027, and the fourth-quarter guide's midpoint sits below third-quarter sales.³

Management's own targets are goals, not guidance. It expects its intelligence software to reach about 10% of revenue within three years and sees a total market of more than $7 billion by 2030 across its three growth areas, about $5.4 billion of it in its core connectivity business.¹ It plans to remove 30% or more of the original $10 million of stranded costs by the end of the second quarter of 2027, and to introduce a 50G fiber product in 2027.²

What would prove the bull case wrong is a second soft order quarter. If fourth-quarter bookings again fall well short of sales and the backlog drops again, the 2026 beat will look like a peak rather than a trend. If bookings climb back above sales, the third-quarter dip was the seasonal lull management described.¹ The first test is how the stock trades once the market digests the release. The Video sale's final price should settle in the first quarter of 2027, the stranded-cost cuts are due by the end of the second quarter of 2027, and the credit lines mature on December 21, 2028.² We say YES: the stock closed at $10.19 before a release that beat every revenue and profit forecast and raised the full-year outlook, and it trades at about 12.4 times the adjusted earnings outlook, but the cushion over $10 is under 2% and a sell-off on the 0.7 book-to-bill would flip the answer.³

The results came out at 16:05 Eastern time on November 2, after the close. How the stock traded on the news is not in our price data or in the notes on any filing.

The call gave the two largest customers' shares of third-quarter sales, 37% and 16%, but did not name them; the 2025 10-K lists Comcast and Charter Communications among its significant customers.

Harmonic gave no sales or earnings range for 2027. Management only said tight supply and high costs should last into 2027.

MediaKind paid $137.9 million at closing against a $145 million price, and final adjustments are expected in the first quarter of 2027. Which way they go, and by how much, is not disclosed.

The credit agreement tests maximum net leverage and minimum fixed charge coverage, but the filings do not give the required levels.

Harmonic bought the fiber management company now called cOS Loop in the third quarter. The cash flow statement shows $1.8 million spent on acquisitions, net of cash acquired, and $1.6 million of holdback not yet paid.¹ The full price is not given, and neither is the size of the earnouts that raised operating expenses.²