MaxLinear(MXL) - 2020 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (unaudited) This section presents the company's unaudited consolidated financial statements and accompanying notes for the period Consolidated Balance Sheets Consolidated Balance Sheets | Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :----- | :---------------------------- | :------------------------------- | | Total Assets | $693,425 | $705,791 | | Total Liabilities | $285,268 | $290,871 | | Total Stockholders' Equity | $408,157 | $414,920 | Consolidated Statements of Operations Consolidated Statements of Operations | Metric | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | Change (YoY) | | :----- | :----------------------------------------------- | :----------------------------------------------- | :----------- | | Net Revenue | $62,027 | $84,635 | -$22,608 (-26.7%) | | Gross Profit | $30,762 | $45,077 | -$14,315 (-31.8%) | | Loss from Operations | $(20,134) | $(7,830) | -$12,304 (-157.1%) | | Net Loss | $(15,469) | $(4,851) | -$10,618 (-218.9%) | | Basic Net Loss Per Share | $(0.21) | $(0.07) | -$0.14 | | Diluted Net Loss Per Share | $(0.21) | $(0.07) | -$0.14 | Consolidated Statements of Comprehensive Income (Loss) Consolidated Statements of Comprehensive Income (Loss) | Metric | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :----- | :----------------------------------------------- | :----------------------------------------------- | | Net Loss | $(15,469) | $(4,851) | | Foreign currency translation adjustments, net of tax benefit | $(580) | $513 | | Unrealized loss on interest rate swap, net of tax benefit | $(153) | $(488) | | Other comprehensive income (loss) | $(733) | $25 | | Total Comprehensive Loss | $(16,202) | $(4,826) | Consolidated Statements of Stockholders' Equity Consolidated Statements of Stockholders' Equity | Metric | December 31, 2019 (in thousands) | March 31, 2020 (in thousands) | | :----- | :------------------------------- | :---------------------------- | | Balance at Period Start | $414,920 | $414,920 | | Common stock issued pursuant to equity awards, net | $2,612 | $2,612 | | Stock-based compensation | $6,827 | $6,827 | | Other comprehensive loss | $(733) | $(733) | | Net loss | $(15,469) | $(15,469) | | Balance at Period End | $408,157 | $408,157 | Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows | Cash Flow Activity | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :----------------- | :----------------------------------------------- | :----------------------------------------------- | | Net cash provided by operating activities | $6,648 | $16,045 | | Net cash used in investing activities | $(1,035) | $(2,155) | | Net cash provided by (used in) financing activities | $13 | $(16,791) | | Increase (decrease) in cash, cash equivalents and restricted cash | $5,323 | $(2,324) | | Cash, cash equivalents and restricted cash at end of period | $98,440 | $71,867 | Notes to Consolidated Financial Statements 1. Organization and Summary of Significant Accounting Policies - MaxLinear, Inc is a fabless integrated circuit design company providing radio-frequency, high-performance analog, and mixed-signal communications system-on-chip solutions[28][131] - Revenues in Q1 2020 declined due to the COVID-19 pandemic, experiencing customer shipment delays and supply constraints, with continued uncertainty in future impact[33][137][138] - The company adopted ASC Topic 326 (Measurement of Credit Losses on Financial Instruments) on January 1, 2020, which did not have a material impact on its financial position[37][40][146] 2. Net Income (Loss) Per Share Net Income (Loss) Per Share | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :----- | :-------------------------------- | :-------------------------------- | | Net Loss | $(15,469) | $(4,851) | | Weighted average common shares outstanding—basic | 72,039 | 69,968 | | Dilutive common stock equivalents | — | — | | Net Loss Per Share (Basic) | $(0.21) | $(0.07) | | Net Loss Per Share (Diluted) | $(0.21) | $(0.07) | - For Q1 2020 and Q1 2019, 3.3 million and 2.9 million common stock equivalents, respectively, were excluded from diluted net loss per share calculations due to their anti-dilutive nature[48] 3. Restructuring Activity Restructuring Charges | Restructuring Charges | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | Change (YoY) | | :-------------------- | :----------------------------------------------- | :----------------------------------------------- | :----------- | | Employee separation expenses | $44 | $472 | -$428 | | Lease related charges | $275 | $1,345 | -$1,070 | | Other | $170 | $100 | +$70 | | Total | $489 | $1,917 | -$1,428 (-74.5%) | Restructuring Liability | Restructuring Liability | December 31, 2019 (in thousands) | March 31, 2020 (in thousands) | | :-------------------- | :------------------------------- | :---------------------------- | | Total Liability | $837 | $827 | | Current Portion | $294 | $319 | | Long-term Portion | $543 | $508 | 4. Goodwill and Intangible Assets - The carrying amount of goodwill remained at $238.3 million as of March 31, 2020, with no impairment recognized[11][53][54] Finite-Lived Intangible Assets | Finite-Lived Intangible Assets | March 31, 2020 (Net Carrying Amount, in thousands) | December 31, 2019 (Net Carrying Amount, in thousands) | | :----------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Licensed technology | $385 | $573 | | Developed technology | $126,258 | $134,839 | | Trademarks and trade names | $6,724 | $7,289 | | Customer relationships | $40,203 | $45,253 | | Non-compete covenants | — | $17 | | Total | $173,570 | $187,971 | Amortization Expense | Amortization Expense | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :------------------- | :----------------------------------------------- | :----------------------------------------------- | | Cost of net revenue | $8,591 | $8,434 | | Research and development | $1 | $34 | | Selling, general and administrative | $5,723 | $5,798 | | Total | $14,315 | $14,266 | - Indefinite-lived intangible assets, consisting of acquired in-process research and development (IPR&D), had a balance of $0 for the three months ended March 31, 2020, with no impairment losses recorded[58] 5. Financial Instruments Financial Instrument | Financial Instrument | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :------------------- | :---------------------------- | :------------------------------- | | Interest rate swap (liability) | $231 | $37 | - The interest rate swap is classified within Level 2 of the fair value hierarchy, valued using market observable inputs like one-month LIBOR-based yield curves[61] Interest Rate Swap Activity | Interest Rate Swap Activity | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :-------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Beginning balance | $(37) | $1,623 | | Unrealized loss recognized in other comprehensive income (loss) | $(194) | $(618) | | Ending balance | $(231) | $1,005 | 6. Balance Sheet Details Asset/Liability Details | Asset/Liability | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :-------------- | :---------------------------- | :------------------------------- | | Cash and cash equivalents | $98,373 | $92,708 | | Total cash, cash equivalents and restricted cash | $98,440 | $93,117 | | Inventory | $31,088 | $31,510 | | Property and equipment, net | $15,751 | $16,613 | | Accrued price protection liability | $8,024 | $12,557 | | Accrued expenses and other current liabilities | $30,661 | $31,171 | Accumulated Other Comprehensive Income (Loss) | Accumulated Other Comprehensive Income (Loss) | December 31, 2019 (in thousands) | March 31, 2020 (in thousands) | | :------------------------------------------ | :------------------------------- | :---------------------------- | | Cumulative Translation Adjustments | $(747) | $(1,327) | | Interest Rate Hedge | $(140) | $(293) | | Total | $(887) | $(1,620) | 7. Debt and Interest Rate Swap Debt Metrics | Debt Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :---------- | :---------------------------- | :------------------------------- | | Principal | $212,000 | $212,000 | | Net carrying amount of long-term debt | $207,197 | $206,909 | - The weighted average effective interest rate on long-term debt was approximately 4.6% at March 31, 2020, down from 4.9% at December 31, 2019[75] - An interest rate swap effectively fixes the interest rate at approximately 4.25% on a substantial portion of the long-term debt and expires in October 2020[79][195] - The fair value of the interest rate swap was a $0.2 million liability at March 31, 2020, and a $0.04 million liability at December 31, 2019[79] 8. Stock-Based Compensation and Employee Benefit Plans Stock-Based Compensation Expense | Stock-Based Compensation Expense | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Cost of net revenue | $148 | $130 | | Research and development | $3,746 | $4,213 | | Selling, general and administrative | $2,933 | $3,404 | | Total | $6,827 | $7,747 | Restricted Stock Units (RSUs) | Restricted Stock Units (RSUs) | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :---------------------------- | :------------------------------ | :------------------------------- | | Outstanding | 4,530 | 2,924 | | Weighted-Average Grant Date Fair Value per Share | $17.64 | $21.72 | Performance-Based RSUs | Performance-Based RSUs | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--------------------- | :------------------------------ | :------------------------------- | | Outstanding | 1,808 | 445 | | Weighted-Average Grant Date Fair Value per Share | $13.95 | $22.21 | - Total unrecognized compensation cost for unvested equity awards was $58.0 million for RSUs, $17.6 million for performance-based RSUs, and $1.7 million for stock options as of March 31, 2020[82] 9. Income Taxes Income Tax Benefit | Income Tax Benefit | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :----------------- | :----------------------------------------------- | :----------------------------------------------- | | Income tax benefit | $(6,736) | $(6,462) | - The Q1 2020 income tax benefit included a benefit related to the CARES Act, allowing a carryback of the 2019 net operating loss to a higher federal tax rate period[95][171] - The company maintains a valuation allowance on its state, certain federal, and certain foreign deferred tax assets due to unlikelihood of utilization[93][172] 10. Concentration of Credit Risk, Significant Customers and Revenue by Geographic Region Customer Concentration | Customer (Type) | Percentage of Total Net Revenue (Q1 2020) | Percentage of Total Net Revenue (Q1 2019) | | :-------------- | :---------------------------------------- | :---------------------------------------- | | Customer A (distributor) | 18% | <10% | | Customer B (direct) | 10% | 12% | | Top 10 Customers (collectively) | 68% (Q1 2020) | N/A | Revenue by Geographic Area | Geographic Area (Ship-to) | Net Revenue Q1 2020 (in thousands) | % of Total Net Revenue Q1 2020 | Net Revenue Q1 2019 (in thousands) | % of Total Net Revenue Q1 2019 | | :------------------------ | :--------------------------------- | :----------------------------- | :--------------------------------- | :----------------------------- | | Asia | $52,035 | 84% | $71,548 | 85% | | United States | $1,616 | 3% | $4,352 | 5% | | Rest of world | $8,376 | 13% | $8,735 | 10% | | Total | $62,027 | 100% | $84,635 | 100% | Revenue by Country/Territory | Country/Territory (Ship-to) | Percentage of Total Net Revenue (Q1 2020) | Percentage of Total Net Revenue (Q1 2019) | | :-------------------------- | :---------------------------------------- | :---------------------------------------- | | Hong Kong | 50% | 45% | | China | <10% | 22% | Significant Suppliers | Significant Suppliers (Q1 2020) | % of Total Inventory Purchases | | :------------------------------ | :----------------------------- | | Vendor A | 19% | | Vendor B | 18% | | Vendor C | 17% | | Vendor D | 16% | 11. Revenue from Contracts with Customers Revenue by Market Segment | Market Segment | Net Revenue Q1 2020 (in thousands) | % of Net Revenue Q1 2020 | Net Revenue Q1 2019 (in thousands) | % of Net Revenue Q1 2019 | Change (YoY) | | :------------- | :--------------------------------- | :----------------------- | :--------------------------------- | :----------------------- | :----------- | | Connected home | $32,254 | 52% | $43,432 | 51% | -$11,178 (-25.7%) | | Infrastructure | $17,542 | 28% | $22,102 | 26% | -$4,560 (-20.6%) | | Industrial and multi-market | $12,231 | 20% | $19,101 | 23% | -$6,870 (-36.0%) | | Total Net Revenue | $62,027 | 100% | $84,635 | 100% | -$22,608 (-26.7%) | - Revenues from sales through distributors accounted for 61% of net revenue in Q1 2020, up from 41% in Q1 2019[112][278] - Obligations to customers for price protection rights totaled $8.0 million at March 31, 2020, a decrease from $12.6 million at December 31, 2019[115] 12. Leases Operating Lease Liabilities | Operating Lease Liabilities | Amount (in thousands) | | :------------------------ | :-------------------- | | Total lease liabilities (March 31, 2020) | $12,780 | | Short-term lease liabilities (March 31, 2020) | $4,751 | | Long-term lease liabilities (March 31, 2020) | $8,029 | - As of March 31, 2020, the weighted average discount rate for operating leases was 5.0%, and the weighted average remaining lease term was 2.7 years[118] Sublease Income | Sublease Income | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :-------------- | :----------------------------------------------- | :----------------------------------------------- | | Total sublease income | $0.2 million | $0.6 million | 13. Commitments and Contingencies Contractual Obligations | Contractual Obligations (March 31, 2020) | Total (in thousands) | Less than 1 year (in thousands) | 1-3 years (in thousands) | 3-5 years (in thousands) | | :--------------------------------------- | :------------------- | :------------------------------ | :----------------------- | :----------------------- | | Inventory Purchase Obligations | $22,252 | $22,252 | — | — | | Other Obligations (software licenses) | $5,827 | $2,985 | $2,395 | $447 | | Total Minimum Payments | $28,079 | $25,237 | $2,395 | $447 | - The company is subject to litigation in the ordinary course of business but believes no currently pending matters would have a material adverse effect on its financials[124][202] 14. Subsequent Event (Acquisition of Home Gateway Platform Division of Intel Corporation) - On April 5, 2020, MaxLinear entered an agreement to acquire Intel's Home Gateway Platform Division for $150.0 million in cash[125][140] - The acquisition is expected to be funded by $140.0 million of new secured term loan debt and $10.0 million in cash, with an expected close in Q3 2020[125][126][140][141] - The transaction is subject to customary closing conditions, including regulatory approval, which received early termination of the HSR Act waiting period on April 21, 2020[127] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses Q1 2020 financial performance, COVID-19 impacts, and the planned Intel acquisition Overview - MaxLinear is a fabless integrated circuit design company providing RF, high-performance analog, and mixed-signal communications system-on-chip solutions[131] - Q1 2020 revenues were $62.0 million, primarily from sales of RF receivers, RF receiver systems-on-chip, and connectivity solutions[133] - Products shipped to Asia accounted for 84% of net revenue in Q1 2020, with 50% from Hong Kong[134] Impact of COVID-19 - COVID-19 led to temporary delays in product shipments, supply constraints, and customer push-out requests in Q1 2020, impacting net revenue and gross profits[33][137] - Heightened volatility and uncertainty due to COVID-19 are expected to continue, potentially decreasing sales and revenues, especially for high-performance analog products[33][138] - The integration of the Intel Home Gateway Platform Division acquisition will be complicated by COVID-19 related travel restrictions, posing risks to employee retention and success[139] Recent Developments - On April 5, 2020, MaxLinear agreed to acquire Intel's Home Gateway Platform Division for $150.0 million in cash[140] - The acquisition will be funded primarily by $140.0 million of new secured term loan debt and $10.0 million in cash, with an expected closing in Q3 2020[140][141] Critical Accounting Policies and Estimates - Critical accounting policies include revenue recognition, inventory valuation, goodwill and intangible assets valuation, income taxes, and stock-based compensation[143] - There have been no material changes to the critical accounting policies and estimates during the three months ended March 31, 2020[145] Recently Adopted Accounting Pronouncements - Adopted ASC Topic 326 (Credit Losses) on January 1, 2020, which did not have a material impact on accounts receivable or results of operations[40][146] - Adopted ASU No 2017-04 (Goodwill Impairment) on January 1, 2020, simplifying the impairment test, with no expected material impact[41][147] - Adopted ASU No 2018-13 (Fair Value Measurement) and ASU No 2018-15 (Cloud Computing Arrangement Costs) in Q1 2020, neither of which had a material impact[43][44][148][149][150] Recently Issued Accounting Pronouncements - FASB issued ASU No 2019-12 (Income Taxes) in December 2019, effective for fiscal year 2021, which is not expected to have a material impact[45][151] Results of Operations Net Revenue Net Revenue by Market Segment | Market Segment | Net Revenue Q1 2020 (in thousands) | Net Revenue Q1 2019 (in thousands) | $ Change | % Change | | :------------- | :--------------------------------- | :--------------------------------- | :------- | :------- | | Connected home | $32,254 | $43,432 | $(11,178) | (26)% | | Infrastructure | $17,542 | $22,102 | $(4,560) | (21)% | | Industrial and multi-market | $12,231 | $19,101 | $(6,870) | (36)% | | Total Net Revenue | $62,027 | $84,635 | $(22,608) | (27)% | - The decrease in connected home net revenue was driven by slowdowns in satellite and cable markets, market transition from DOCSIS 3.0 to 3.1, and COVID-19 impacts[159] - The decrease in industrial and multi-market revenue was primarily attributed to decreased shipments of high-performance analog products due to the impact of COVID-19[159] Cost of Net Revenue and Gross Profit Cost of Net Revenue and Gross Profit | Metric | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | $ Change | % Change | | :----- | :----------------------------------------------- | :----------------------------------------------- | :------- | :------- | | Cost of net revenue | $31,265 | $39,558 | $(8,293) | (21)% | | Gross profit | $30,762 | $45,077 | $(14,315) | (32)% | | % of net revenue (Gross profit) | 50% | 53% | | | - The decrease in cost of net revenue was primarily driven by lower sales, while the decline in gross profit percentage was due to product mix[161] Research and Development Research and Development Expenses | Metric | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | $ Change | % Change | | :----- | :----------------------------------------------- | :----------------------------------------------- | :------- | :------- | | Research and development | $25,689 | $27,399 | $(1,710) | (6)% | | % of net revenue | 41% | 32% | | | - The decrease was primarily due to lower prototype expenses ($2.0 million), partially offset by an increase in outside services ($1.1 million)[163] Selling, General and Administrative Selling, General and Administrative Expenses | Metric | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | $ Change | % Change | | :----- | :----------------------------------------------- | :----------------------------------------------- | :------- | :------- | | Selling, general and administrative | $24,632 | $23,591 | $1,041 | 4% | | % of net revenue | 40% | 28% | | | - The increase was primarily due to a $2.5 million increase in professional fees related to acquisition activities[165] Impairment Losses Impairment Losses | Metric | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | $ Change | % Change | | :----- | :----------------------------------------------- | :----------------------------------------------- | :------- | :------- | | Impairment losses | $86 | $0 | $86 | 100% | - Impairment losses in Q1 2020 were related to the abandonment of a license of intellectual property[167] Restructuring Charges Restructuring Charges | Metric | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | $ Change | % Change | | :----- | :----------------------------------------------- | :----------------------------------------------- | :------- | :------- | | Restructuring charges | $489 | $1,917 | $(1,428) | (74)% | - Q1 2020 restructuring charges primarily consisted of lease-related charges ($0.3 million), while Q1 2019 charges included lease-related charges ($1.3 million) and severance charges ($0.6 million)[168] Interest and Other Income (Expense) Interest and Other Income (Expense), Net | Metric | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | $ Change | % Change | | :----- | :----------------------------------------------- | :----------------------------------------------- | :------- | :------- | | Interest and other income (expense), net | $(2,071) | $(3,483) | $1,412 | (41)% | - The improvement was primarily due to favorable foreign currency exchange ($0.9 million) and a decrease in interest expense ($0.5 million)[169] Income Tax Benefit Income Tax Benefit | Metric | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :----- | :----------------------------------------------- | :----------------------------------------------- | | Income tax benefit | $(6,736) | $(6,462) | - The Q1 2020 income tax benefit included a tax benefit from the CARES Act, allowing the carryback of the 2019 net operating loss[171] - The company maintains a valuation allowance on state and certain federal and foreign deferred tax assets[172] Liquidity and Capital Resources Liquidity Metrics | Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :----- | :---------------------------- | :------------------------------- | | Working capital | $118,181 | $115,208 | | Cash and cash equivalents | $98,373 | $92,708 | | Total cash, cash equivalents and restricted cash | $98,440 | $93,117 | - Management believes current cash is sufficient to fund projected operating requirements for at least the next twelve months[34][185] - The pending acquisition will be funded with approximately $140.0 million of new transaction debt and $10.0 million in cash[175][185] - COVID-19 impacts could necessitate raising additional capital or incurring more debt, especially for future acquisitions[34][176] Cash Flows from Operating Activities Net Cash Provided by Operating Activities | Metric | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :----- | :----------------------------------------------- | :----------------------------------------------- | | Net cash provided by operating activities | $6,648 | $16,045 | - Q1 2020 operating cash flow was driven by $17.8 million in non-cash items and $4.2 million in changes in operating assets/liabilities, offset by a $15.5 million net loss[180] Cash Flows from Investing Activities Net Cash Used in Investing Activities | Metric | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :----- | :----------------------------------------------- | :----------------------------------------------- | | Net cash used in investing activities | $(1,035) | $(2,155) | - Both periods' investing activities consisted entirely of purchases of property and equipment[182] Cash Flows from Financing Activities Net Cash Provided by (Used in) Financing Activities | Metric | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :----- | :----------------------------------------------- | :----------------------------------------------- | | Net cash provided by (used in) financing activities | $13 | $(16,791) | - Q1 2020 financing cash flow was driven by net proceeds from common stock issuance[183] - Q1 2019 financing cash flow included $15.0 million in debt prepayments and $4.4 million in tax withholding for restricted stock units[184] Warranties and Indemnifications - The company provides representations affirming that its products do not infringe on third-party intellectual property rights and indemnifies customers against such claims[187] - The company's certificate of incorporation and bylaws require indemnification of officers and directors[187] Off-Balance Sheet Arrangements - As of March 31, 2020, the company was not involved in any off-balance sheet arrangements[188] Contractual Obligations Contractual Obligations | Contractual Obligations (March 31, 2020) | Total (in thousands) | Less than 1 year (in thousands) | 1-3 years (in thousands) | 3-5 years (in thousands) | | :--------------------------------------- | :------------------- | :------------------------------ | :----------------------- | :----------------------- | | Long-term debt obligations | $212,000 | — | — | $212,000 | | Operating lease obligations | $13,696 | $3,989 | $8,692 | $1,015 | | Inventory purchase obligations | $22,252 | $22,252 | — | — | | Other obligations | $5,827 | $2,985 | $2,395 | $447 | | Total | $253,775 | $29,226 | $11,087 | $213,462 | - Total contractual obligations increased by $3.9 million to $253.8 million as of March 31, 2020, primarily due to increased inventory orders[192] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company's primary market risks are foreign currency and interest rates, managed via USD-denominated agreements and an interest rate swap Foreign Currency Risk - The company has limited exposure to foreign currency exchange rates as international agreements are mostly denominated in United States dollars[194] - A hypothetical 100 basis point change in foreign currency exchange rates would result in an approximate $0.3 million change to translation gain/loss[194] Interest Rate Risk - The company has $212.0 million in aggregate borrowings under its Initial Term Loan, which bears variable interest[195] - An interest rate swap effectively fixes the interest rate at approximately 4.25% on a substantial portion of the long-term debt through October 2020[195] - Due to recent significant decreases in interest rates, the company may pay higher interest expense than market for the duration of the swap[195] ITEM 4. CONTROLS AND PROCEDURES Management concluded that disclosure controls and procedures were effective as of March 31, 2020, with no material changes in internal controls Evaluation of Disclosure and Procedures - Management concluded that disclosure controls and procedures were effective as of March 31, 2020[198] - Disclosure controls and procedures are designed to provide reasonable assurance, not absolute assurance, of achieving control objectives[197] Changes in Internal Control over Financial Reporting - No changes in internal control over financial reporting were identified during the fiscal quarter that materially affected, or are likely to materially affect, internal controls[199] PART II — OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The company faces ordinary course litigation but believes no pending matters would have a material adverse effect on its financials - The company is subject to threats of litigation or actual litigation in the ordinary course of business[124][202] - Management believes no currently pending litigation matters would have a material effect on the company's financial position, results of operations, or cash flows[124][202] ITEM 1A. RISK FACTORS This section outlines significant risks related to the Intel acquisition, COVID-19, competition, customer concentration, and supply chain reliance Risks Relating to the Proposed Acquisition of the Home Gateway Platform Division of Intel Corporation - Failure to successfully integrate the acquired business and realize anticipated benefits could materially and adversely affect operating results[206][208][209] - The integration process is complex and time-consuming, with additional challenges posed by COVID-19 restrictions impacting employee retention[139][209][213] - Incurring approximately $140.0 million of incremental debt will increase interest obligations and impose covenants that could restrict strategic flexibility[215][217] - Business relationships may be disrupted due to uncertainty surrounding the acquisition, potentially leading to customer switching or renegotiated terms[211][212] Risks Related to Our Business - The COVID-19 pandemic could adversely affect the business through decreased demand, supply constraints, and integration delays[137][138][230][231][232] - The company faces intense competition in the global semiconductor market, which could lead to price pressure and loss of market share[232][233][234][235] - Dependence on a limited number of customers (top 10 accounted for 68% of Q1 2020 net revenue) poses risks of reduced orders or loss of business[135][236][237] - Failure to develop and introduce new products on a timely basis could impair customer attraction and harm competitive position[245][246][249][257][258][259] - Reliance on a limited number of third-party foundries and assembly/test contractors creates supply chain risks, including capacity shortages and disruptions[263][264][265][267][268] - Inability to protect intellectual property or defend against infringement claims could lead to costly litigation or loss of significant rights[260][261][262][269][273][274] - The business is subject to various governmental regulations and industry standards, with non-compliance potentially leading to significant expenses or penalties[318][319][320][321][322][328][329] Risks Relating to Our Common Stock - The trading price of common stock could be highly volatile due to fluctuations in financial condition, market conditions, and other factors[336][337][338] - Future sales of a substantial number of common shares in the public market could depress the market price[340][342] - The company does not intend to pay cash dividends for the foreseeable future, requiring investors to rely on stock price appreciation[343] - Anti-takeover provisions in charter documents and Delaware law could make an acquisition more difficult[332][335] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The company reported no unregistered sales or repurchases of equity securities during the period Recent Sales of Unregistered Securities - No unregistered sales of equity securities were reported[344] Recent Repurchases of Equity Securities - No recent repurchases of equity securities were reported[345] ITEM 3. DEFAULTS UPON SENIOR SECURITIES The company reported no defaults upon senior securities - No defaults upon senior securities were reported[346] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the company - This item is not applicable[347] ITEM 5. OTHER INFORMATION No other information was reported under this item - No other information was reported[348] ITEM 6. EXHIBITS This section lists the exhibits filed with the report, including acquisition and debt agreements, certifications, and XBRL documents Exhibit List | Exhibit Number | Exhibit Title | | :------------- | :------------ | | 2.1 | Asset Purchase Agreement, dated as of April 5, 2020, by and among MaxLinear, Inc., Intel Corporation, and MaxLinear Asia Singapore Private Limited. | | 10.1 | Debt Commitment Letter by and among MaxLinear, Inc., MUFG Union Bank, and Wells Fargo Bank, N.A. dated as of April 5, 2020. | | 31.1 | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | 31.2 | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | 32.1(*) | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | 101.INS | XBRL Instance Document. | | 101.SCH | XBRL Taxonomy Extension Schema Document. | | 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | | 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | | 101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | | 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | | 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | Signatures The report was signed on April 29, 2020, by the Chief Financial Officer and Chief Corporate Strategy Officer - The report was signed on April 29, 2020, by Steven G. Litchfield, Chief Financial Officer and Chief Corporate Strategy Officer[355]