MaxLinear(MXL) - 2019 Q1 - Quarterly Report

Part I - FINANCIAL INFORMATION Financial Statements (unaudited) Q1 2019 saw a net loss of $4.9 million, reversing $1.8 million net income in Q1 2018, driven by a 24% revenue decline Consolidated Statements of Operations Highlights (Q1 2019 vs Q1 2018) | Metric | Q1 2019 (in thousands) | Q1 2018 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenue | $84,635 | $110,827 | -23.6% | | Gross Profit | $45,077 | $62,668 | -28.1% | | Income (Loss) from Operations | $(7,830) | $4,430 | -276.7% | | Net Income (Loss) | $(4,851) | $1,847 | -362.6% | | Diluted EPS | $(0.07) | $0.03 | -333.3% | Consolidated Balance Sheets Highlights | Metric | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $71,102 | $73,142 | | Total Current Assets | $179,320 | $180,611 | | Goodwill | $238,330 | $238,330 | | Total Assets | $748,882 | $738,831 | | Long-term debt | $241,044 | $255,757 | | Total Liabilities | $340,678 | $338,895 | | Total Stockholders' Equity | $408,204 | $399,936 | - The company adopted the new lease accounting standard ASC 842 on January 1, 2019, recognizing approximately $24.8 million of right-of-use assets and a net increase of $25.1 million in lease-related liabilities[37] - Net cash provided by operating activities was $16.0 million, while net cash used in financing activities was $16.8 million, primarily due to a $15.0 million repayment of debt[25][170] Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue declined 24% due to cable market slowdown, gross margin fell to 53%, and operating expenses decreased due to cost controls Results of Operations Q1 2019 net revenue fell 24% to $84.6 million, mainly due to a 34% drop in Connected Home, with gross margin contracting to 53% Net Revenue by Market (Q1 2019 vs Q1 2018) | Market | Q1 2019 (in thousands) | Q1 2018 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Connected home | $43,432 | $65,658 | (34)% | | Infrastructure | $22,102 | $20,490 | 8% | | Industrial and multi-market | $19,101 | $24,679 | (23)% | | Total Net Revenue | $84,635 | $110,827 | (24)% | - The decrease in Connected Home revenue was driven by a slowdown in the cable market transition from DOCSIS 3.0 to DOCSIS 3.1 and related customer inventory reductions[147] - Gross margin decreased from 57% to 53% year-over-year, attributed to lower revenue and product mix[148][149] - R&D expense decreased by 12% ($3.7 million) due to lower headcount, depreciation, and prototype expenses. SG&A expense decreased by 13% ($3.5 million) primarily from lower intangible asset amortization and payroll expenses[151][153] Liquidity and Capital Resources The company held $71.1 million cash, generated $16.0 million from operations, and repaid $15.0 million debt in Q1 2019 Cash Flow Summary (Three Months Ended March 31) | Cash Flow Activity | 2019 (in thousands) | 2018 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $16,045 | $11,971 | | Net cash used in investing activities | $(2,155) | $(2,381) | | Net cash used in financing activities | $(16,791) | $(26,411) | - Financing activities in Q1 2019 included a $15.0 million repayment of debt and $4.4 million for tax withholding on employee stock units, offset by $2.6 million in proceeds from stock option exercises[170] - The company had $247.0 million in long-term debt obligations remaining as of March 31, 2019, all due in more than 5 years[178] Quantitative and Qualitative Disclosures about Market Risk Primary market risks are foreign currency and interest rates, with a swap fixing a portion of the $247.0 million variable-rate debt at 4.25% - The company has limited exposure to foreign currency risk as most international customer and vendor agreements are denominated in U.S. dollars[183] - To hedge interest rate risk on its term loan, the company entered into a fixed-for-floating interest rate swap, effectively fixing the rate on a substantial portion of its debt at approximately 4.25%[184] - The company is still subject to variable interest rates on the portion of its debt principal that exceeds the notional amount of the interest rate swap[184] Controls and Procedures Management concluded disclosure controls were effective as of March 31, 2019, with no material changes to internal controls during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report (March 31, 2019)[187] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[188] Part II - OTHER INFORMATION Legal Proceedings The company faces ongoing legal proceedings with CrestaTech over patent disputes and Trango Systems regarding fraud and contract claims - In the CrestaTech litigation, the District Court case was dismissed in April 2018, but disputes related to the '585 Patent continue through the inter parties review (IPR) process[191] - In the Trango Systems, Inc. litigation, the court granted MaxLinear's motion for summary judgment in part on April 5, 2019, dismissing Trango's fraud-based claims. The trial for remaining claims is scheduled for August 9, 2019[192] Risk Factors The company faces intense competition, customer concentration, market/geographic dependence, supply chain, acquisition/debt, and IP litigation risks - Competition: The company faces intense competition from large, international semiconductor companies, which could result in price pressure, reduced profitability, and loss of market share[197][198] - Customer Concentration: A significant portion of revenue depends on a limited number of customers. In Q1 2019, one customer accounted for 12% of net revenue, and the top ten accounted for 60%[201][202] - Market & Geographic Dependence: The business is heavily reliant on the connected home market (51% of Q1 2019 revenue) and sales to Asia (85% of revenue), with China alone accounting for 67% of revenue, creating vulnerability to market downturns and trade policy changes[207][266][270] - Supply Chain Risk: The company operates a fabless model, relying on a limited number of third-party foundries located primarily in the Pacific Rim region (China, Taiwan, Singapore), which presents risks of capacity shortages and geopolitical or natural disaster disruptions[239][241] - Acquisition & Debt Risk: The company faces risks integrating acquired businesses and managing the $425.0 million in debt incurred for the Exar acquisition, which could limit operational flexibility and require significant cash for servicing[295][305][306] - Intellectual Property Risk: The company is party to ongoing IP litigation (Trango) and faces the risk of future infringement claims, which are costly and time-consuming to defend[220][298] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales or repurchases of equity securities during the quarter - There were no unregistered sales of equity securities during the period[314] - There were no repurchases of equity securities by the company during the period[315] Defaults Upon Senior Securities The company reported no defaults on its senior securities during the period - None[316] Mine Safety Disclosures This item is not applicable to the company - Not applicable[317] Other Information The company reported no other information for the period - None[318] Exhibits This section lists exhibits filed with Form 10-Q, including officer certifications and XBRL data - The exhibits include certifications from the Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[319]