PART I — FINANCIAL INFORMATION This section provides MaxLinear, Inc.'s unaudited consolidated financial statements and management's discussion and analysis for the quarter ended June 30, 2023, along with market risk disclosures and controls ITEM 1. FINANCIAL STATEMENTS This section presents MaxLinear, Inc.'s unaudited consolidated financial statements for the quarter ended June 30, 2023, including balance sheets, statements of operations, comprehensive income (loss), stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, business combinations, restructuring activities, and other financial details Consolidated Balance Sheets This section provides a snapshot of MaxLinear's financial position, detailing assets, liabilities, and equity as of June 30, 2023, and December 31, 2022 | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Assets | | | | Total current assets | $554,491 | $563,124 | | Total assets | $1,161,480 | $1,180,025 | | Liabilities & Equity | | | | Total current liabilities | $241,729 | $341,086 | | Total liabilities | $415,433 | $503,640 | | Total stockholders' equity | $746,047 | $676,385 | - Total current assets decreased by $8.6 million, and total current liabilities decreased by $99.3 million from December 31, 2022, to June 30, 2023, primarily due to reductions in accounts payable, accrued price protection liability, and accrued compensation10 Consolidated Statements of Operations This section outlines MaxLinear's financial performance, including net revenue, gross profit, and net income (loss) for the three and six months ended June 30, 2023 and 2022 | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net revenue | $183,938 | $280,009 | $432,380 | $543,936 | | Gross profit | $102,873 | $164,351 | $243,180 | $318,941 | | Income (loss) from operations | $(5,937) | $39,007 | $21,340 | $87,134 | | Net income (loss) | $(4,351) | $31,966 | $5,182 | $65,552 | | Basic EPS | $(0.05) | $0.41 | $0.06 | $0.85 | | Diluted EPS | $(0.05) | $0.40 | $0.06 | $0.81 | - Net revenue decreased significantly by 34% for the three months ended June 30, 2023, and by 21% for the six months ended June 30, 2023, compared to the same periods in 2022. The company reported a net loss of $4.351 million for the three months ended June 30, 2023, a substantial decline from a net income of $31.966 million in the prior year period12 Consolidated Statements of Comprehensive Income (Loss) This section details MaxLinear's comprehensive income (loss), including net income (loss) and other comprehensive loss, for the three and six months ended June 30, 2023 and 2022 | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income (loss) | $(4,351) | $31,966 | $5,182 | $65,552 | | Other comprehensive loss | $(1,078) | $(3,988) | $(1,270) | $(5,063) | | Total comprehensive income (loss) | $(5,429) | $27,978 | $3,912 | $60,489 | - Total comprehensive income shifted from a gain of $27.978 million in Q2 2022 to a loss of $5.429 million in Q2 2023, primarily driven by the net loss and foreign currency translation adjustments15 Consolidated Statements of Stockholders' Equity This section presents changes in MaxLinear's stockholders' equity, including additional paid-in capital and accumulated deficit, for the fiscal quarters ended June 30, 2023 and 2022 | Metric (in thousands) | Dec 31, 2022 | Mar 31, 2023 | Jun 30, 2023 | | :-------------------- | :----------- | :----------- | :----------- | | Total Stockholders' Equity | $676,385 | $734,112 | $746,047 | | Additional Paid-In Capital | $722,778 | $771,164 | $788,528 | | Accumulated Deficit | $(45,380) | $(35,847) | $(40,198) | - Total stockholders' equity increased from $676.385 million at December 31, 2022, to $746.047 million at June 30, 2023, primarily due to increases in additional paid-in capital from equity awards and stock-based compensation, despite a net loss in Q2 202318 Consolidated Statements of Cash Flows This section summarizes MaxLinear's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2023 and 2022 | Activity (in thousands) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :---------------------- | :--------------------------- | :--------------------------- | | Net cash provided by operating activities | $72,737 | $257,603 | | Net cash used in investing activities | $(28,161) | $(59,035) | | Net cash used in financing activities | $(6,062) | $(116,525) | | Increase in cash, cash equivalents and restricted cash | $37,286 | $80,681 | | Cash, cash equivalents and restricted cash at end of period | $225,643 | $212,419 | - Net cash provided by operating activities decreased significantly from $257.603 million in H1 2022 to $72.737 million in H1 2023, primarily due to lower net income and changes in operating assets and liabilities, including a substantial decrease in accrued price protection liability23 Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures regarding MaxLinear's accounting policies, business transactions, and financial statement line items 1. Organization and Summary of Significant Accounting Policies MaxLinear, Inc. is a fabless integrated circuit design company providing communications systems-on-chip (SoC) solutions. The financial statements are unaudited and prepared in accordance with GAAP for interim information, with no significant changes to accounting policies in H1 2023. The company adopted ASU No. 2021-08 in fiscal year 2023 for business combinations - MaxLinear, Inc. is a fabless integrated circuit design company specializing in communications systems-on-chip (SoC) solutions for broadband, mobile and wireline infrastructure, data center, and industrial and multi-market applications24 - The company's unaudited consolidated interim financial statements are prepared in accordance with GAAP for interim financial information and include normal recurring accruals2526 - MaxLinear adopted ASU No. 2021-08 in fiscal year 2023, which provides specific guidance on recognizing and measuring acquired contract assets and liabilities from customer contracts in business combinations32 2. Net Income Per Share The company calculates basic and diluted EPS, excluding anti-dilutive common stock equivalents in periods of net loss. For Q2 2023, both basic and diluted EPS were $(0.05), reflecting a net loss, compared to $0.41 and $0.40 respectively in Q2 2022 | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income (loss) (in thousands) | $(4,351) | $31,966 | $5,182 | $65,552 | | Weighted average common shares outstanding—basic (in thousands) | 80,446 | 77,858 | 79,961 | 77,527 | | Dilutive common stock equivalents (in thousands) | — | 2,421 | 1,559 | 2,935 | | Net income (loss) per share: Basic | $(0.05) | $0.41 | $0.06 | $0.85 | | Net income (loss) per share: Diluted | $(0.05) | $0.40 | $0.06 | $0.81 | - For the three months ended June 30, 2023, 5.4 million potentially dilutive securities were excluded from diluted EPS calculation due to their anti-dilutive nature, compared to 1.0 million in the same period of 202234 3. Business Combinations MaxLinear terminated its Merger Agreement with Silicon Motion on July 26, 2023, citing unfulfilled conditions and material breaches, without incurring a break-up fee. Separately, the company completed the acquisition of Company Y, an engineering design services provider, for $9.7 million in cash and up to $2.6 million in contingent consideration, recognizing $11.7 million in goodwill - MaxLinear terminated the Merger Agreement with Silicon Motion on July 26, 2023, due to unfulfilled closing conditions, a Material Adverse Effect on Silicon Motion, and material breaches by Silicon Motion. MaxLinear is not required to pay a break-up fee38155 - On January 17, 2023, MaxLinear acquired Company Y, an engineering design services provider, for $9.7 million in cash and up to $2.6 million in contingent consideration, which is subject to personnel objectives by June 17, 20244547 - The acquisition of Company Y resulted in the recognition of $11.7 million in goodwill, primarily attributable to the acquired workforce4952 4. Restructuring Activity MaxLinear initiated a restructuring plan in Q1 2023 to reduce its workforce and save costs, incurring $4.4 million in charges for Q2 2023 and $9.1 million for H1 2023, primarily for employee separation expenses. The restructuring liability at June 30, 2023, was $5.489 million - MaxLinear initiated a restructuring plan in Q1 2023 to reduce its workforce and achieve cost savings, incurring additional costs in Q2 2023 due to statutory requirements53 Restructuring Charges | Expense Type (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Employee separation expenses | $4,287 | $— | $8,876 | $— | | Lease related charges | $34 | $462 | $42 | $462 | | Other | $115 | $— | $166 | $— | | Total Restructuring Charges | $4,436 | $462 | $9,084 | $462 | - The restructuring liability as of June 30, 2023, was $5.489 million, primarily for employee separation expenses55 5. Goodwill and Intangible Assets Goodwill increased by $11.7 million in H1 2023 due to the acquisition of Company Y, reaching $318.456 million. Finite-lived intangible assets, primarily developed technology, decreased to $91.203 million at June 30, 2023, from $109.316 million at December 31, 2022, due to amortization and impairment losses of $2.4 million on licensed technology Goodwill Balance | Metric (in thousands) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------- | :--------------------------- | :--------------------------- | | Beginning goodwill balance | $306,739 | $306,668 | | Acquisitions (Note 3) | $11,717 | $— | | Ending goodwill balance | $318,456 | $306,739 | Intangible Assets Net Carrying Amount | Intangible Asset (in thousands) | June 30, 2023 Net Carrying Amount | December 31, 2022 Net Carrying Amount | | :------------------------------ | :---------------------------------- | :------------------------------------ | | Licensed technology | $18,366 | $21,184 | | Developed technology | $64,291 | $82,729 | | Trademarks and trade names | $595 | $1,339 | | Customer relationships | $3,223 | $3,993 | | Backlog | $61 | $71 | | Patents | $4,667 | $— | | Total | $91,203 | $109,316 | - Impairment losses of $2.4 million related to finite-lived intangible assets were recognized during the six months ended June 30, 2023, attributable to certain purchased licensed technology63 6. Financial Instruments MaxLinear's financial instruments include marketable equity investments and contingent consideration liabilities. Marketable equity investments had a fair value of $20.5 million at June 30, 2023, with a net unrealized gain of $0.5 million. Contingent consideration liabilities, primarily from the Company Y acquisition, were $2.620 million, classified as Level 3 due to unobservable inputs Financial Instrument Fair Values | Financial Instrument (in thousands) | June 30, 2023 Fair Value | December 31, 2022 Fair Value | | :-------------------------------- | :----------------------- | :--------------------------- | | Marketable equity investments | $20,488 | $18,529 | | Contingent consideration liability | $2,620 | $2,941 | - Marketable equity investments held by the Company are classified as Level 1 and had a net unrealized gain of $0.5 million as of June 30, 2023, recorded in other income (expense), net6670 - The contingent consideration liability, primarily from the acquisition of Company Y, is classified as a Level 3 financial instrument, with its fair value based on Monte Carlo simulation and probability-based methodologies using unobservable inputs7273 7. Balance Sheet Details Cash, cash equivalents, and restricted cash totaled $225.6 million at June 30, 2023, up from $188.4 million at December 31, 2022. Inventory decreased to $126.2 million, while property and equipment, net, slightly decreased to $73.8 million. Accrued price protection liability significantly decreased to $80.1 million from $113.3 million, reflecting payments and reductions in revenue Selected Balance Sheet Metrics | Metric (in thousands) | June 30, 2023 | December 31, 2022 | | :-------------------- | :------------ | :---------------- | | Cash and cash equivalents | $224,579 | $187,353 | | Total cash, cash equivalents and restricted cash | $225,643 | $188,357 | | Inventory | $126,152 | $160,544 | | Property and equipment, net | $73,845 | $79,018 | | Accrued price protection liability | $80,133 | $113,274 | | Accrued expenses and other current liabilities | $90,693 | $100,155 | - Cash and cash equivalents increased to $224.6 million at June 30, 2023, from $187.4 million at December 31, 2022, with money market funds comprising a significant portion78 - Accrued price protection liability decreased by $33.1 million during the six months ended June 30, 2023, due to payments and charges as a reduction of revenue82 8. Debt MaxLinear's long-term debt remained at a principal balance of $125.0 million at June 30, 2023, under the June 23, 2021 Credit Agreement, with a weighted average effective interest rate of 7.2%. The company also has an undrawn $100.0 million revolving credit facility. The commitment letters for the Silicon Motion merger financing were terminated Debt Metrics | Metric (in thousands) | June 30, 2023 | December 31, 2022 | | :-------------------- | :------------ | :---------------- | | Principal balance | $125,000 | $125,000 | | Net carrying amount of long-term debt | $122,064 | $121,757 | | Weighted average effective interest rate | 7.2% | 3.8% | - The company's long-term debt principal balance remained at $125.0 million, due in full on June 23, 2028, with a significant increase in the weighted average effective interest rate from 3.8% to 7.2% YoY8486 - The $100.0 million senior secured revolving credit facility under the June 23, 2021 Credit Agreement remained undrawn as of June 30, 2023. The financing commitments for the Silicon Motion merger were terminated87156 9. Stock-Based Compensation MaxLinear recognized $17.2 million in stock-based compensation expense for Q2 2023 and $33.6 million for H1 2023. Unrecognized compensation cost for unvested restricted stock units was $168.5 million (2.73 years weighted average vesting) and $9.5 million for performance-based restricted stock units (1.62 years weighted average vesting) as of June 30, 2023 Stock-Based Compensation Expense | Expense Category (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Cost of net revenue | $246 | $162 | $456 | $325 | | Research and development | $12,237 | $9,983 | $23,692 | $19,659 | | Selling, general and administrative | $4,714 | $9,324 | $9,497 | $18,039 | | Total Stock-Based Compensation | $17,197 | $19,469 | $33,645 | $38,023 | - Total unrecognized compensation cost for unvested restricted stock units was $168.5 million as of June 30, 2023, with a weighted average vesting period of 2.73 years99 - For performance-based restricted stock units, unrecognized compensation cost was $9.5 million, with a weighted average vesting period of 1.62 years, based on expected achievement of net sales and non-GAAP diluted EPS metrics100105 10. Income Taxes MaxLinear recorded an income tax benefit of $0.4 million for Q2 2023, a significant change from a $11.9 million provision in Q2 2022. For H1 2023, the income tax provision was $15.2 million, down from $23.3 million in H1 2022. The effective tax rate differs from the U.S. federal statutory rate due to jurisdictional income mix, permanent tax items, and the capitalization of R&D costs - The company recorded an income tax benefit of $0.4 million for the three months ended June 30, 2023, compared to an income tax provision of $11.9 million for the same period in 2022114 - For the six months ended June 30, 2023, the income tax provision was $15.2 million, down from $23.3 million in the prior year period114 - The difference between the effective tax rate and the 21.0% U.S. federal statutory rate is primarily due to the mix of pre-tax income among jurisdictions, permanent tax items (including global intangible low-taxed income), stock-based compensation, and the capitalization of research and experimentation costs115116 11. Concentration of Credit Risk, Significant Customers and Geographic Information MaxLinear's revenue concentration shows one customer accounted for 11% of net revenue in H1 2023, and its top ten customers collectively accounted for 58%. Geographically, Asia remained the largest revenue source at 74% in H1 2023, with Hong Kong and China being significant contributors. The company relies on a few key suppliers for inventory purchases, with Vendor B and Vendor A being the largest Customer Revenue Concentration | Customer | 3 Months Ended June 30, 2023 (% of total net revenue) | 3 Months Ended June 30, 2022 (% of total net revenue) | 6 Months Ended June 30, 2023 (% of total net revenue) | 6 Months Ended June 30, 2022 (% of total net revenue) | | :--------- | :---------------------------------------------------- | :---------------------------------------------------- | :---------------------------------------------------- | :---------------------------------------------------- | | Customer A | * | 18% | * | 17% | | Customer B | * | 11% | 11% | 11% | Geographic Revenue Distribution | Geographic Area (in thousands) | 6 Months Ended June 30, 2023 Amount | 6 Months Ended June 30, 2023 % of total net revenue | 6 Months Ended June 30, 2022 Amount | 6 Months Ended June 30, 2022 % of total net revenue | | :----------------------------- | :---------------------------------- | :------------------------------------- | :---------------------------------- | :------------------------------------- | | Asia | $320,831 | 74% | $439,320 | 81% | | Europe | $85,172 | 20% | $76,974 | 14% | | United States | $21,090 | 5% | $18,552 | 3% | | Rest of world | $5,287 | 1% | $9,090 | 2% | | Total | $432,380 | 100% | $543,936 | 100% | Supplier Inventory Purchase Concentration | Supplier | 3 Months Ended June 30, 2023 (% of total inventory purchases) | 3 Months Ended June 30, 2022 (% of total inventory purchases) | 6 Months Ended June 30, 2023 (% of total inventory purchases) | 6 Months Ended June 30, 2022 (% of total inventory purchases) | | :--------- | :---------------------------------------------------------- | :---------------------------------------------------------- | :---------------------------------------------------------- | :---------------------------------------------------------- | | Vendor A | 11% | 30% | 19% | 29% | | Vendor B | 29% | 23% | 26% | 25% | | Vendor C | * | 13% | * | 12% | | Vendor D | 12% | * | 11% | * | 12. Revenue from Contracts with Customers MaxLinear's net revenue decreased across most markets in Q2 and H1 2023 compared to 2022, with Broadband revenue declining significantly by 62% and 51% respectively. Infrastructure revenue, however, increased by 37% and 38%. Sales through distributors accounted for 53% of net revenue in Q2 2023. Customer contract liabilities and obligations for price adjustments remained notable Net Revenue by Market | Market (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Broadband | $53,549 (29%) | $139,098 (50%) | $135,230 (31%) | $273,654 (50%) | | Connectivity | $37,939 (21%) | $56,400 (20%) | $104,207 (24%) | $116,579 (21%) | | Infrastructure | $49,262 (27%) | $35,889 (13%) | $95,564 (22%) | $69,070 (13%) | | Industrial and multi-market | $43,188 (23%) | $48,622 (17%) | $97,379 (23%) | $84,633 (16%) | | Total net revenue | $183,938 (100%) | $280,009 (100%) | $432,380 (100%) | $543,936 (100%) | - Sales through distributors accounted for 53% of net revenue for the three months ended June 30, 2023, and 47% for the six months ended June 30, 2023130131 - Obligations to customers for price protection rights totaled $80.1 million at June 30, 2023, a decrease from $113.3 million at December 31, 2022134 13. Leases MaxLinear's operating lease liabilities totaled $39.6 million at June 30, 2023, with a weighted average remaining lease term of 4.3 years and a weighted average discount rate of 4.6%. Operating lease costs were $2.5 million for Q2 2023 and $5.4 million for H1 2023 Lease Metrics | Lease Metric | June 30, 2023 | | :-------------------------------- | :------------ | | Total lease liabilities (in thousands) | $39,622 | | Weighted average discount rate | 4.6% | | Weighted average remaining lease term | 4.3 years | - Operating lease cost was $2.5 million for the three months ended June 30, 2023, and $5.4 million for the six months ended June 30, 2023139140 14. Employee Retirement Plans MaxLinear offers a 401(k) defined contribution plan but does not contribute to it. The company maintains defined benefit retirement plans in certain foreign jurisdictions, with a defined benefit obligation of $1.1 million at June 30, 2023. Net periodic benefit costs were $0.1 million for Q2 2023 and $0.1 million for H1 2023 - MaxLinear has a 401(k) defined contribution retirement plan for eligible employees but does not contribute to it142143 - The defined benefit obligation for foreign retirement plans was $1.1 million at June 30, 2023, decreasing from $1.7 million at December 31, 2022144 - Net periodic benefit costs were $0.1 million for both the three and six months ended June 30, 2023, recorded in research and development expenses145 15. Commitments and Contingencies MaxLinear has future minimum payments of $121.6 million under inventory purchase and other contractual obligations. The company settled patent infringement litigation with Bell Semiconductor in March 2023, granting MaxLinear a license to certain patents. No material loss contingencies were accrued for other legal matters as of June 30, 2023 Contractual Obligations | Obligation Type (in thousands) | Total Payments Due | | :----------------------------- | :----------------- | | Inventory Purchase Obligations | $46,637 | | Other Obligations | $74,958 | | Total | $121,595 | - MaxLinear settled patent infringement litigation with Bell Semiconductor in March 2023 through a Settlement and Patent License Agreement, which grants MaxLinear a license to certain listed patents151 - As of June 30, 2023, no material loss contingencies have been accrued for other legal proceedings152 16. Stock Repurchases MaxLinear's $100 million stock repurchase program, authorized in February 2021, has been temporarily suspended since July 2022 due to the previously pending Silicon Motion merger. As of June 30, 2023, approximately $45.0 million remained available under the program, with no repurchases made in H1 2023 - MaxLinear's $100 million stock repurchase program, authorized in February 2021, has been temporarily suspended since July 2022 due to the previously pending merger with Silicon Motion153 - As of June 30, 2023, approximately $45.0 million remained available for repurchase under the program, and no shares were repurchased during the six months ended June 30, 2023154 17. Subsequent Events On July 26, 2023, MaxLinear terminated its Merger Agreement with Silicon Motion, citing unfulfilled conditions and material breaches, and is relieved of its obligations without a break-up fee. Concurrently, the associated debt financing commitment letters were also terminated - On July 26, 2023, MaxLinear terminated the Merger Agreement with Silicon Motion, citing unfulfilled closing conditions, a Material Adverse Effect on Silicon Motion, and material breaches by Silicon Motion155 - Under the terms of the Merger Agreement, MaxLinear is not required to pay a break-up fee or other fee as a result of the termination155 - In connection with the termination of the merger agreement, the second amended and restated commitment letter with Wells Fargo Bank and other lenders for financing was also terminated156 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on MaxLinear's financial condition and operational results for the quarter ended June 30, 2023. It highlights a significant decline in net revenue due to macroeconomic conditions and excess channel inventory, details the termination of the Silicon Motion merger, and discusses key financial line items, critical accounting policies, and liquidity Overview This overview introduces MaxLinear as a fabless integrated circuit design company, highlighting its product focus, geographic revenue distribution, and reliance on competitive design wins - MaxLinear is a fabless integrated circuit design company providing communications systems-on-chip (SoC) solutions for broadband, mobile and wireline infrastructure, data center, and industrial and multi-market applications159 - In the six months ended June 30, 2023, 74% of net revenue was derived from products shipped to Asia, including 31% from Hong Kong and 14% from mainland China162 - The company's business relies on winning competitive design bids, which involve lengthy sales cycles and significant design and development expenditures without guaranteed revenue164 Impact of the Global Economic Downturn This section discusses the anticipated continued volatility in MaxLinear's sales and revenues due to ongoing inflation, uncertain customer demand, and channel inventory oversupply - MaxLinear expects continued volatility in sales and revenues due to ongoing inflation, uncertainty in customer demand, and inventory oversupply in the channel, which could lead to inventory write-downs165 - As customer lead times improve, visibility into customer demand is reducing, and the company is closely monitoring channel inventory165 Silicon Motion Merger This section details the termination of MaxLinear's Merger Agreement with Silicon Motion, including the reasons for termination and the implications for associated debt financing - MaxLinear terminated the Merger Agreement with Silicon Motion on July 26, 2023, citing unfulfilled closing conditions, a Material Adverse Effect on Silicon Motion, and material breaches by Silicon Motion167 - The termination means MaxLinear is relieved of its obligations to close the merger and is not required to pay a break-up fee167 - The previously committed debt financing of up to $3.5 billion from Wells Fargo Bank and other lenders for the merger was terminated in connection with the merger agreement's termination172 Acquisition of Company Y This section describes MaxLinear's acquisition of Company Y, an engineering design services provider, including the cash consideration and potential contingent payments - On January 17, 2023, MaxLinear acquired Company Y, an engineering design services provider based in Bangalore, India, for $9.7 million in cash173174 - The acquisition also includes potential contingent consideration of up to $2.6 million, subject to Company Y satisfying certain personnel objectives by June 17, 2024173 Critical Accounting Policies and Estimates This section highlights the key accounting policies and estimates that require significant management judgment, such as business combinations, revenue recognition, and asset valuations - Management's discussion and analysis relies on estimates and judgments, particularly for business combinations, revenue recognition, inventory valuation, goodwill and other intangible assets, and income taxes175 - There have been no material changes to the company's critical accounting policies and estimates during the six months ended June 30, 2023177 Recently Issued Accounting Pronouncements This section refers to the notes to the consolidated financial statements for details on new accounting pronouncements that have been issued but not yet adopted by the company - The company refers to Note 1 of its consolidated financial statements for details on recently issued accounting pronouncements not yet adopted178 Results of Operations This section provides a detailed analysis of MaxLinear's financial performance, examining key revenue and expense line items for the three and six months ended June 30, 2023 and 2022 Net Revenue This section analyzes MaxLinear's net revenue performance across different market segments, highlighting significant declines in Broadband and overall revenue, alongside growth in Infrastructure | Market (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | % Change (YoY) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | % Change (YoY) | | :-------------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Broadband | $53,549 | $139,098 | (62)% | $135,230 | $273,654 | (51)% | | Connectivity | $37,939 | $56,400 | (33)% | $104,207 | $116,579 | (11)% | | Infrastructure | $49,262 | $35,889 | 37% | $95,564 | $69,070 | 38% | | Industrial and multi market | $43,188 | $48,622 | (11)% | $97,379 | $84,633 | 15% | | Total net revenue | $183,938 | $280,009 | (34)% | $432,380 | $543,936 | (21)% | - Net revenue decreased by $96.1 million (34%) for Q2 2023 and $111.6 million (21%) for H1 2023, primarily due to macroeconomic conditions and excess channel inventory187189 - Broadband net revenue saw the largest decline, decreasing by 62% in Q2 2023 and 51% in H1 2023, mainly from gateway and cable revenues. In contrast, infrastructure revenues increased by 37% and 38% respectively, driven by wireless backhaul product shipments187189 Cost of Net Revenue and Gross Profit This section analyzes the changes in MaxLinear's cost of net revenue and gross profit, highlighting the impact of lower sales, revenue mix, and intangible asset amortization on profitability | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | % Change (YoY) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | % Change (YoY) | | :-------------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Cost of net revenue | $81,065 | $115,658 | (30)% | $189,200 | $224,995 | (16)% | | Gross profit | $102,873 | $164,351 | (37)% | $243,180 | $318,941 | (24)% | | % of net revenue (Gross profit) | 56% | 59% | -3 ppts | 56% | 59% | -3 ppts | - Cost of net revenue decreased by 30% for Q2 2023 and 16% for H1 2023, primarily due to lower sales and expenses191192 - Gross profit percentage declined by 3 percentage points for both the three and six months ended June 30, 2023, compared to the same periods in 2022, mainly due to revenue mix and decreased absorption of intangible asset amortization191192 Research and Development This section examines MaxLinear's research and development expenses, noting a decrease in absolute spending due to headcount reductions, but an increase as a percentage of net revenue | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | % Change (YoY) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | % Change (YoY) | | :-------------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Research and development expense | $70,657 | $80,395 | (12)% | $137,948 | $146,281 | (6)% | | % of net revenue | 38% | 29% | +9 ppts | 32% | 27% | +5 ppts | - Research and development expense decreased by $9.7 million (12%) for Q2 2023 and $8.3 million (6%) for H1 2023, primarily due to a reduction in headcount194195 - Despite the absolute decrease, R&D expense as a percentage of net revenue increased significantly from 29% to 38% in Q2 2023 and from 27% to 32% in H1 2023, reflecting the larger decline in net revenue186194 Selling, General and Administrative This section analyzes the changes in MaxLinear's selling, general and administrative expenses, noting a decrease primarily due to reduced amortization of intangibles and stock-based compensation | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | % Change (YoY) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | % Change (YoY) | | :-------------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Selling, general and administrative expense | $33,717 | $44,487 | (24)% | $72,370 | $85,064 | (15)% | | % of net revenue | 18% | 16% | +2 ppts | 17% | 16% | +1 ppts | - Selling, general and administrative expense decreased by $10.8 million (24%) for Q2 2023 and $12.7 million (15%) for H1 2023, primarily due to decreased amortization of intangibles and stock-based compensation expenses197198 Impairment losses This section reports the impairment losses recognized by MaxLinear during the period, specifically related to the abandonment of certain intellectual property licenses | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | % Change (YoY) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | % Change (YoY) | | :-------------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Impairment losses | $— | $— | N/A | $2,438 | $— | N/A | - Impairment losses of $2.4 million were recognized in the six months ended June 30, 2023, related to the abandonment of certain intellectual property licenses200 Restructuring Charges This section details the significant increase in MaxLinear's restructuring charges, primarily driven by employee severance expenses resulting from a workforce reduction | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | % Change (YoY) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | % Change (YoY) | | :-------------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Restructuring charges | $4,436 | $462 | 860% | $9,084 | $462 | 1,866% | - Restructuring charges increased significantly by $4.0 million (860%) for Q2 2023 and $8.6 million (1,866%) for H1 2023, primarily due to $4.3 million and $8.9 million, respectively, in employee severance-related charges from a reduction in force201202 Interest and Other Income (Expense) This section analyzes the changes in MaxLinear's net interest and other income (expense), highlighting the impact of decreased unrealized gains on equity securities, foreign currency fluctuations, and increased interest income | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | % Change (YoY) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | % Change (YoY) | | :-------------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Interest and other income (expense), net | $1,177 | $4,845 | (76)% | $(1,001) | $1,757 | (157)% | - Interest and other income (expense), net, decreased by $3.7 million (76%) for Q2 2023 and shifted to an expense of $1.0 million for H1 2023, compared to income of $1.8 million in H1 2022204206 - This change was primarily driven by a $5.3 million decrease in other income (expense), net, for Q2 2023, mainly due to a $3.0 million decrease in unrealized holding gain on equity securities and a $2.1 million impact from foreign currency fluctuations, partially offset by a $1.8 million increase in interest income due to higher interest rates205207 Income Tax Provision (Benefit) This section details the changes in MaxLinear's income tax provision (benefit), explaining the factors contributing to the difference between the effective tax rate and the U.S. federal statutory rate | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | % Change (YoY) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | % Change (YoY) | | :-------------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Income tax provision (benefit) | $(409) | $11,886 | (103)% | $15,157 | $23,339 | (35)% | - The company recorded an income tax benefit of $0.4 million for Q2 2023, a significant shift from a $11.9 million provision in Q2 2022. For H1 2023, the income tax provision decreased by 35% to $15.2 million208209 - The effective tax rate differs from the 21.0% U.S. federal statutory rate due to the mix of pre-tax income among jurisdictions, permanent tax items (including global intangible low-taxed income), stock-based compensation, and the capitalization of research and experimentation costs210211 Liquidity and Capital Resources This section assesses MaxLinear's ability to meet its financial obligations, detailing changes in cash, working capital, and cash flows from operating, investing, and financing activities Liquidity Metrics | Metric (in thousands) | June 30, 2023 | December 31, 2022 | | :-------------------- | :------------ | :---------------- | | Cash and cash equivalents | $224,579 | $187,353 | | Working capital | $312,762 | $222,038 | | Total cash, cash equivalents, and restricted cash | $225,643 | $188,357 | - MaxLinear's cash and cash equivalents increased to $224.6 million at June 30, 2023, from $187.4 million at December 31, 2022, and working capital improved to $312.8 million from $222.0 million215226 Cash Flow Activities | Cash Flow Activity (in thousands) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------------------- | :--------------------------- | :--------------------------- | | Net cash provided by operating activities | $72,737 | $257,603 | | Net cash used in investing activities | $(28,161) | $(59,035) | | Net cash used in financing activities | $(6,062) | $(116,525) | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK MaxLinear's market risk exposure primarily stems from foreign currency exchange rates and interest rates. The company has limited foreign currency exposure as most agreements are USD-denominated and does not hedge. It is subject to variable interest rates on its debt, but believes operating cash is sufficient to cover obligations, with a 10% LIBOR rate increase having an immaterial impact - MaxLinear's market risk exposure is primarily due to fluctuations in foreign currency exchange rates and interest rates235 - The company has limited exposure to foreign currency risk as international customer and vendor agreements are mostly USD-denominated, and it does not enter into foreign currency hedging transactions237 - MaxLinear is subject to variable interest rates on its credit agreements; however, a hypothetical 10% increase in LIBOR interest rates during H1 2023 would have resulted in an immaterial increase to interest expense238 ITEM 4. CONTROLS AND PROCEDURES MaxLinear's management, including its principal executive and financial officers, concluded that the company's disclosure controls and procedures were effective as of June 30, 2023, providing reasonable assurance for timely and accurate financial reporting. No material changes in internal control over financial reporting were identified during the quarter - MaxLinear maintains disclosure controls and procedures designed to ensure timely and accurate reporting of information required by the SEC239 - As of June 30, 2023, the principal executive officer and principal financial officer concluded that the disclosure controls and procedures were effective to provide reasonable assurance240 - No changes in internal control over financial reporting were identified during the fiscal quarter ended June 30, 2023, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting241 PART II — OTHER INFORMATION This section covers MaxLinear's legal proceedings, comprehensive risk factors, equity security sales, defaults, mine safety disclosures, other information, and exhibits ITEM 1. LEGAL PROCEEDINGS MaxLinear settled multiple patent infringement lawsuits with Bell Semiconductor in March 2023 through a Settlement and Patent License Agreement. The company is subject to other litigation in the ordinary course of business but has not accrued material loss contingencies for such matters as of June 30, 2023 - MaxLinear was involved in multiple patent infringement lawsuits filed by Bell Semiconductor LLC in the Southern District of California and before the U.S. International Trade Commission243244245 - On March 10, 2023, MaxLinear and Bell Semiconductor entered into a Settlement and Patent License Agreement, resolving all claims and granting MaxLinear a license to certain listed patents246 - As of June 30, 2023, no material loss contingencies have been accrued for legal proceedings in the company's financial statements247 ITEM 1A. RISK FACTORS This section outlines material risks and uncertainties that could adversely affect MaxLinear's business, financial condition, and results of operations. Key risks include those related to the terminated Silicon Motion merger, intense competition, global economic conditions, supply chain dependencies, intellectual property, and the volatility of the company's stock price Risks Relating to the Previously Pending Merger with Silicon Motion This section details the risks associated with the terminated merger agreement with Silicon Motion, including potential challenges to termination, financing difficulties, and negative market reactions - Despite termination, Silicon Motion could challenge the validity of MaxLinear's termination, potentially requiring MaxLinear to consummate the merger or pay substantial costs257258 - If the merger were required to be consummated, MaxLinear would need to secure new debt and/or equity financing, which may not be available given the termination of prior commitments, leading to increased indebtedness and potential dilution270271 - The termination of the merger could lead to negative reactions from financial markets, suppliers, customers, and employees, and any future litigation related to the merger could incur substantial costs and divert management's attention260274 Risks Related to Our Business This section addresses various business-specific risks, including intense competition, global economic downturns, and the impact of declining revenue and excess channel inventory on financial results - MaxLinear faces intense and increasing competition in the semiconductor market, which could adversely affect revenue growth, market share, and profitability due to industry consolidation and aggressive pricing289290 - Global economic conditions, including high inflation and recession, have caused and are expected to continue causing volatility in sales and revenues, impacting customer demand and potentially leading to inventory write-downs293294 - The company's net revenue declined by 34% in Q2 2023 and 21% in H1 2023, and continued uncertainty in customer demand and excess channel inventory could lead to further volatility and impact financial results297298 Risks Relating to Intellectual Property This section outlines risks concerning MaxLinear's intellectual property, including potential infringement claims, challenges in protecting proprietary technology, and risks associated with open source software usage - MaxLinear has faced and may continue to face intellectual property infringement claims, which are costly to defend, divert management attention, and could result in substantial damages or licensing fees392393394 - The company's success depends on its ability to protect its intellectual property (patents, copyrights, trademarks, trade secrets), but there is no guarantee that these protections will be effective or enforceable in all jurisdictions396397 - The use of open source software in products may expose MaxLinear to risks, including requirements to publicly disclose proprietary source code, which could harm its intellectual property position407409 Risks Relating to Reliance on Third Parties This section details the risks associated with MaxLinear's dependence on a limited number of third-party manufacturers and distributors, including supply chain disruptions, quality issues, and inventory management challenges - MaxLinear relies on a limited number of third-party foundries (e.g., ASE, TSMC, UMC) and assembly/test contractors, primarily in the Pacific Rim, for manufacturing, posing risks of capacity shortages, quality issues, and supply disruptions from natural disasters or geopolitical events410411413 - The company's dependence on distributors for a large portion of sales (47% in H1 2023) exposes it to risks if distributors fail to sell inventory or reduce purchases, potentially impacting revenue and requiring adjustments to reserve estimates414415 - Lack of long-term supply contracts with most third-party vendors means MaxLinear makes purchases on a purchase order basis, risking inadequate or costly capacity if demand forecasts are inaccurate417 Risks Relating to Our Common Stock This section outlines risks pertinent to MaxLinear's common stock, including management's discretion over capital, anti-takeover provisions, and the inherent volatility of the stock's trading price - MaxLinear's management has considerable discretion in using cash and cash equivalents, which may not always align with stockholder interests or yield a return421422 - Anti-takeover provisions in the company's charter documents and Delaware law could make an acquisition more difficult and limit stockholders' ability to replace management423426 - The trading price of MaxLinear's common stock is highly volatile, influenced by factors such as financial results, market conditions, geopolitical changes, and analyst reports, potentially leading to significant fluctuations427429 General Risk Factors This section covers broad risks that could impact MaxLinear's operations, including catastrophic events, potential impairment of goodwill and intangible assets, and changes in tax laws or obligations - Catastrophic losses to facilities or distribution systems due to natural disasters (e.g., earthquakes, typhoons in the Pacific Rim) or man-made events could seriously harm operations, delay production, and result in significant expenses439 - Goodwill and other acquired intangible assets, totaling $318.5 million and $91.2 million respectively at June 30, 2023, could become impaired, leading to material charges and adversely affecting future operating results and stock price440 - Unanticipated changes in tax rates or obligations, including new laws like the Tax Cuts and Jobs Act's R&D capitalization requirement, could affect future results and lead to volatility in tax expenses and liabilities441442 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS MaxLinear reported no unregistered sales of equity securities and no recent repurchases of equity securities during the period covered by this report - There were no unregistered sales of equity securities during the period450 - There were no recent repurchases of equity securities during the period451 ITEM 3. DEFAULTS UPON SENIOR SECURITIES MaxLinear reported no defaults upon senior securities during the period - There were no defaults upon senior securities during the period452 ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to MaxLinear - Mine Safety Disclosures are not applicable to MaxLinear453 ITEM 5. OTHER INFORMATION MaxLinear reported that no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the last fiscal quarter - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the last fiscal quarter454 ITEM 6. EXHIBITS This section lists all exhibits filed with the Form 10-Q, including amendments to the certificate of incorporation, credit agreement amendments, officer certifications (302 and 906), and Inline XBRL documents - The exhibits include a Certificate of Amendment to the Fifth Amended and Restated Certificate of Incorporation and Amendment No. 1 to the Credit Agreement455 - Officer certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are included455 - Inline XBRL Instance Document and Taxonomy Extension Documents are provided for interactive data filing455 Signatures The report is duly signed on behalf of MaxLinear, Inc. by Steven G. Litchfield, Chief Financial Officer and Chief Corporate Strategy Officer, on July 26, 2023 - The report was signed by Steven G. Litchfield, Chief Financial Officer and Chief Corporate Strategy Officer, on behalf of MaxLinear, Inc. on July 26, 2023459
MaxLinear(MXL) - 2023 Q2 - Quarterly Report