MaxLinear(MXL) - 2023 Q1 - Quarterly Report

Part I Part I - Financial Information This section provides the unaudited consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2023 Financial Statements (unaudited) This section presents the unaudited consolidated financial statements for MaxLinear, Inc. as of March 31, 2023, and for the three months ended March 31, 2023 and 2022, including balance sheets, income statements, and cash flow statements Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 (unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $207,850 | $187,353 | | Accounts receivable, net | $188,733 | $170,971 | | Inventory | $149,585 | $160,544 | | Goodwill | $318,910 | $306,739 | | Total assets | $1,198,478 | $1,180,025 | | Liabilities & Equity | | | | Total current liabilities | $300,162 | $341,086 | | Long-term debt | $121,910 | $121,757 | | Total liabilities | $464,366 | $503,640 | | Total stockholders' equity | $734,112 | $676,385 | Consolidated Statements of Income Consolidated Statements of Income (in thousands, except per share data) | Metric | Three Months Ended Mar 31, 2023 | Three Months Ended Mar 31, 2022 | | :--- | :--- | :--- | | Net revenue | $248,442 | $263,927 | | Gross profit | $140,307 | $154,590 | | Income from operations | $27,277 | $48,127 | | Net income | $9,533 | $33,586 | | Diluted EPS | $0.12 | $0.42 | - The company experienced a significant decrease in net income, falling to $9.5 million in Q1 2023 from $33.6 million in Q1 2022. This was driven by a 6% decline in revenue and increased operating expenses, including $4.6 million in restructuring charges and $2.4 million in impairment losses not present in the prior year[14] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three Months Ended Mar 31, 2023 | Three Months Ended Mar 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $42,159 | $134,166 | | Net cash used in investing activities | ($15,511) | ($42,762) | | Net cash used in financing activities | ($6,170) | ($70,659) | | Increase in cash, cash equivalents and restricted cash | $20,479 | $20,515 | - Cash from operating activities decreased significantly to $42.2 million in Q1 2023 from $134.2 million in Q1 2022, primarily due to lower net income and changes in operating assets and liabilities. Cash used in financing activities decreased substantially, mainly because there were no stock repurchases in Q1 2023, compared to $26.3 million in repurchases in Q1 2022[25][207] Notes to Consolidated Financial Statements - On May 5, 2022, MaxLinear entered into an agreement to acquire Silicon Motion Technology Corporation for approximately $4.3 billion. The transaction is pending antitrust approval in China[37][38][39] - On January 17, 2023, the Company acquired 'Company Y', a provider of engineering design services in India, for $9.7 million in cash plus up to $2.6 million in contingent consideration. This resulted in an increase of $12.2 million in goodwill[42][43][54] - In Q1 2023, the company initiated a restructuring plan to reduce its workforce, resulting in $4.6 million in restructuring charges, primarily for employee separation expenses[50] Net Revenue by Market (in thousands) | Market | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Broadband | $81,681 | $134,556 | | Connectivity | $66,268 | $60,179 | | Infrastructure | $46,302 | $33,181 | | Industrial and multi-market | $54,191 | $36,011 | | Total | $248,442 | $263,927 | - On March 10, 2023, the company settled all outstanding litigation with Bell Semiconductor LLC by entering into a Settlement and Patent License Agreement. The settlement amount was not material[141] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial performance for the quarter ended March 31, 2023, covering revenue trends, profitability, operating expenses, and the impact of macroeconomic conditions, along with liquidity and capital resources Results of Operations - Net revenue decreased by $15.5 million (6%) YoY, primarily due to a $52.9 million (39%) decline in the Broadband market, which was impacted by adverse macroeconomic conditions. This was partially offset by growth in Connectivity (+10%), Infrastructure (+40%), and Industrial and multi-market (+50%)[174] - Gross profit margin decreased from 59% in Q1 2022 to 56% in Q1 2023. The decline was attributed to changes in revenue mix and lower absorption of intangible asset amortization[177] - Operating expenses increased as a percentage of revenue from 40% to 45% YoY. This was driven by new restructuring charges of $4.6 million and impairment losses of $2.4 million in Q1 2023[173][183] - The income tax provision increased to $15.6 million from $11.5 million YoY, despite lower pre-tax income. The effective tax rate was influenced by the geographic mix of income, taxes on global intangible low-taxed income (GILTI), and recent legislative changes requiring capitalization of R&D costs[187][188] Liquidity and Capital Resources - As of March 31, 2023, the company had $207.9 million in cash and cash equivalents and $293.4 million in working capital[192] - The company has $125.0 million of principal outstanding under its term loan as of March 31, 2023. A revolving credit facility of up to $100.0 million remained undrawn[194][195] - The pending acquisition of Silicon Motion will be funded with cash on hand and up to $3.5 billion in committed debt financing. A portion of these proceeds will be used to repay the company's existing debt in full[193] Material Cash Requirements as of March 31, 2023 (in thousands) | Obligation Type | Total | Less than 1 year | 2-3 years | 4-5 years | More than 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Long-term debt obligations | $125,000 | $— | $— | $— | $125,000 | | Operating lease obligations | $33,379 | $8,444 | $15,619 | $8,745 | $571 | | Inventory purchase obligations | $92,414 | $92,387 | $27 | $— | $— | | Other obligations | $33,346 | $20,820 | $12,526 | $— | $— | | Total | $284,139 | $121,651 | $28,172 | $8,745 | $125,571 | Quantitative and Qualitative Disclosures about Market Risk This section outlines the company's exposure to market risks, primarily from fluctuations in foreign currency exchange rates and interest rates - The company has limited exposure to foreign currency risk as international customer and vendor agreements are mostly denominated in U.S. dollars[212] - The company is subject to interest rate risk on its variable-rate credit agreements. A hypothetical 10% increase in LIBOR rates during Q1 2023 would have had an immaterial impact on interest expense[213] Controls and Procedures Management evaluated the company's disclosure controls and procedures, concluding they were effective as of March 31, 2023, with no material changes to internal control over financial reporting - 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[215] - There were no changes in the company's internal control over financial reporting during the quarter ended March 31, 2023, that materially affected, or are reasonably likely to materially affect, internal controls[216] Part II Part II - Other Information This section covers legal proceedings, risk factors, equity security sales, and other significant corporate information Legal Proceedings This section details the company's recent legal activities, including a patent infringement settlement with Bell Semiconductor LLC - On March 10, 2023, MaxLinear and Bell Semiconductor entered into a Settlement and Patent License Agreement, resolving all patent infringement claims filed by Bell Semiconductor in 2022[221] Risk Factors This section outlines material risks and uncertainties that could adversely affect the company's business, financial condition, and results of operations - Merger Risks: Key risks associated with the Silicon Motion merger include failure to successfully integrate, disruption to business relationships, difficulty retaining key personnel, potential for a $160 million termination fee, and a material increase in indebtedness up to $3.5 billion[228][237][246] - Business Risks: The company faces intense competition, cyclicality of the semiconductor industry, and risks from global economic conditions like inflation. A substantial portion of revenue comes from a limited number of customers and is concentrated in Asia (77% of net revenue in Q1 2023)[264][270][296] - Third-Party Reliance Risks: MaxLinear operates a fabless model, relying on a limited number of third-party foundries (like SMIC, TSMC, UMC) primarily in Asia. This exposes the company to capacity shortages, quality control issues, and geopolitical risks[383][384] - Regulatory and IP Risks: The business is subject to complex export control laws, particularly regarding China. The company faces risks of intellectual property infringement claims and must protect its own IP. A voluntary self-disclosure of a potential EAR violation was submitted to BIS on March 3, 2023[278][286][365] Unregistered Sales of Equity Securities and Use of Proceeds This section reports that there were no unregistered sales of equity securities or share repurchases during the period due to the pending merger - There were no unregistered sales of equity securities in the quarter[424] - The company did not repurchase any of its equity securities during the quarter[425] Other Information This section discloses a workforce reduction completed in April 2023 to align operational needs with macroeconomic conditions, incurring restructuring costs - In April 2023, the company completed a workforce reduction to reduce operating expenses in response to macroeconomic conditions[428] - As a result of the workforce reduction, the company incurred ~$4.6 million in restructuring costs in Q1 2023 and estimates an additional $4 million to $5 million in costs for the remainder of 2023[429] Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the Principal Executive Officer and Principal Financial Officer - The exhibits filed with this report include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act, as well as XBRL data files[433]