mxl-20200930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From to

Commission file number: 001-34666

MaxLinear Inc.

(Exact name of Registrant as specified in its charter)

Delaware

14-1896129

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

5966 La Place Court, Suite 100,

Carlsbad

California

92008

(Address of principal executive offices)

(Zip Code)

(760) 692-0711

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock	MXL	New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Emerging growth company

☐

Non-accelerated filer

☐

Smaller reporting company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of October 29, 2020, the registrant had 74,168,486 shares of common stock, par value $0.0001, outstanding.

Table of Contents

MAXLINEAR, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


		Page
Part I	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (unaudited)	4
	Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	4
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019	5
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2020 and 2019	6
	Consolidated Statements of Stockholders' Equity for the Fiscal Quarters Ended September 30, 2020 and 2019	7
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019	9
	Notes to Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	52
Item 4.	Controls and Procedures	54
Part II	OTHER INFORMATION	55
Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	79
Item 3.	Defaults Upon Senior Securities	80
Item 4.	Mine Safety Disclosures	80
Item 5.	Other Information	80
Item 6.	Exhibits	81
	Signatures	82

Table of Contents

PART I — FINANCIAL INFORMATION

Table of Contents

ITEM 1. FINANCIAL STATEMENTS

MAXLINEAR, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited; in thousands, except par value amounts)


	September 30, 2020		December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	96,570	$	92,708
Short-term restricted cash	111		349

Accounts receivable, net	105,355		50,411
Inventory	104,471		31,510
Prepaid expenses and other current assets	43,546		6,792
Total current assets	350,053		181,770
Long-term restricted cash	61		60
Property and equipment, net	37,258		16,613
Leased right-of-use assets	11,876		10,978

Intangible assets, net	232,148		187,971
Goodwill	302,576		238,330
Deferred tax assets	72,537		67,284
Other long-term assets	1,270		2,785
Total assets	$	1,007,779	$	705,791
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	50,574	$	13,442

Accrued price protection liability	18,034		12,557
Accrued expenses and other current liabilities	104,723		31,171
Accrued compensation	38,043		9,392


Total current liabilities	211,374		66,562
Long-term lease liabilities	9,406		9,335
Long-term debt	372,457		206,909
Other long-term liabilities	17,734		8,065
Total liabilities	610,971		290,871

Commitments and contingencies

Stockholders’ equity:
Preferred stock, $0.0001 par value; 25,000 shares authorized, no shares issued or outstanding	—		—
Common stock, $0.0001 par value; 550,000 shares authorized; 74,153 shares issued and outstanding at September 30, 2020 and 71,931 shares issued and outstanding December 31, 2019	7		7


Additional paid-in capital	584,968		529,596
Accumulated other comprehensive loss	(450)		(887)
Accumulated deficit	(187,717)		(113,796)
Total stockholders’ equity	396,808		414,920
Total liabilities and stockholders’ equity	$	1,007,779	$	705,791

See accompanying notes.

Table of Contents

MAXLINEAR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited; in thousands, except per share data)



	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net revenue	$	156,633	$	80,020	$	283,880	$	247,162
Cost of net revenue	90,427		38,116		154,169		116,101
Gross profit	66,206		41,904		129,711		131,061
Operating expenses:
Research and development	55,816		23,174		109,489		74,877
Selling, general and administrative	41,685		21,920		93,787		67,838
Impairment losses	—		—		86		—
Restructuring charges	3,280		144		3,833		2,477
Total operating expenses	100,781		45,238		207,195		145,192
Loss from operations	(34,575)		(3,334)		(77,484)		(14,131)
Interest income	27		214		283		553
Interest expense	(3,569)		(2,718)		(8,228)		(8,546)
Other income (expense), net	(719)		1,098		(620)		429
Total interest and other income (expense), net	(4,261)		(1,406)		(8,565)		(7,564)
Loss before income taxes	(38,836)		(4,740)		(86,049)		(21,695)
Income tax benefit	(2,191)		(26)		(12,128)		(9,901)
Net loss	$	(36,645)	$	(4,714)	$	(73,921)	$	(11,794)
Net loss per share:
Basic	$	(0.50)	$	(0.07)	$	(1.02)	$	(0.17)
Diluted	$	(0.50)	$	(0.07)	$	(1.02)	$	(0.17)
Shares used to compute net loss per share:
Basic	73,402		71,366		72,729		70,755
Diluted	73,402		71,366		72,729		70,755

See accompanying notes.

Table of Contents

MAXLINEAR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited; in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net loss	$	(36,645)	$	(4,714)	$	(73,921)	$	(11,794)
Other comprehensive income (loss), net of tax:



Foreign currency translation adjustments, net of tax expense of $0 and $23 for the three and nine months ended September 30, 2020, respectively, and net of tax benefit of $26 and $41 for the three and nine months ended September 30, 2019, respectively	700		(600)		415		(167)


Unrealized gain (loss) on interest rate swap, net of tax expense of $17 and $6 for the three and nine months ended September 30, 2020, respectively, and net of tax benefit of $44 and $338 for the three and nine months ended September 30, 2019, respectively	60		(162)		22		(1,273)

Other comprehensive income (loss)	760		(762)		437		(1,440)
Total comprehensive loss	$	(35,885)	$	(5,476)	$	(73,484)	$	(13,234)

See accompanying notes.

Table of Contents

MAXLINEAR, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FISCAL QUARTERS ENDED SEPTEMBER 30, 2020

(unaudited; in thousands)


	Common Stock				Additional Paid-In Capital	Accumulated Other Comprehensive Loss	Accumulated Deficit	Total Stockholders’ Equity
		Shares	Amount
Balance at December 31, 2019		71,931	$	7				$	529,596	$	(887)	$	(113,796)	$	414,920



Common stock issued pursuant to equity awards, net		414	—					2,612		—		—		2,612


Stock-based compensation		—	—					6,827		—		—		6,827

Other comprehensive loss		—	—					—		(733)		—		(733)
Net loss		—	—					—		—		(15,469)		(15,469)
Balance at March 31, 2020		72,345	7					539,035		(1,620)		(129,265)		408,157



Common stock issued pursuant to equity awards, net		597	—					989		—		—		989

Employee stock purchase plan		161	—					2,141		—		—		2,141
Stock-based compensation		—	—					12,085		—		—		12,085

Other comprehensive income		—	—					—		410		—		410
Net loss		—	—					—		—		(21,807)		(21,807)
Balance at June 30, 2020		73,103	7					554,250		(1,210)		(151,072)		401,975



Common stock issued pursuant to equity awards, net		246	—					(507)		—		—		(507)
Common stock issued for merger, net		804	—					17,080		—		—		17,080

Stock-based compensation		—	—					14,145		—		—		14,145

Other comprehensive income		—	—					—		760		—		760
Net loss		—	—					—		—		(36,645)		(36,645)
Balance at September 30, 2020		74,153	$	7				$	584,968	$	(450)	$	(187,717)	$	396,808

See accompanying notes.

Table of Contents

MAXLINEAR, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FISCAL QUARTERS ENDED SEPTEMBER 30, 2019

(unaudited; in thousands)


	Common Stock				Additional Paid-In Capital	Accumulated Other Comprehensive Income (Loss)	Accumulated Deficit	Total Stockholders’ Equity
		Shares	Amount
Balance at December 31, 2018		69,551	$	7				$	493,287	$	272	$	(93,630)	$	399,936



Common stock issued pursuant to equity awards, net		981	—					5,615		—		—		5,615


Stock-based compensation		—	—					7,747		—		—		7,747
Cumulative effect of adoption of new accounting principle		—	—					—		—		(268)		(268)
Other comprehensive income		—	—					—		25		—		25
Net loss		—	—					—		—		(4,851)		(4,851)
Balance at March 31, 2019		70,532	7					506,649		297		(98,749)		408,204



Common stock issued pursuant to equity awards, net		544	—					(4,405)		—		—		(4,405)

Employee stock purchase plan		142	—					2,302		—		—		2,302
Stock-based compensation		—	—					8,207		—		—		8,207

Other comprehensive loss		—	—					—		(703)		—		(703)
Net loss		—	—					—		—		(2,229)		(2,229)
Balance at June 30, 2019		71,218	7					512,753		(406)		(100,978)		411,376



Common stock issued pursuant to equity awards, net		331	—					(908)		—		—		(908)


Stock-based compensation		—	—					8,359		—		—		8,359

Other comprehensive loss		—	—					—		(762)		—		(762)
Net loss		—	—					—		—		(4,714)		(4,714)
Balance at September 30, 2019		71,549	$	7				$	520,204	$	(1,168)	$	(105,692)	$	413,351

See accompanying notes.

Table of Contents

MAXLINEAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited; in thousands)



	Nine Months Ended September 30,
	2020		2019
Operating Activities
Net loss	$	(73,921)	$	(11,794)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Amortization and depreciation	53,819		49,928
Impairment losses	86		—



Amortization of inventory step-up	14,445		—
Amortization of debt issuance costs and accretion of discount on debt and leases	1,386		1,173
Stock-based compensation	33,057		24,313
Deferred income taxes	(5,253)		(12,455)
Loss on disposal of property and equipment	—		46

Impairment of leasehold improvements	319		1,442
Impairment of leased right-of-use assets	1,508		2,182
Gain on extinguishment of lease liabilities	—		(2,880)
Loss on foreign currency	375		330

Excess tax benefits on stock-based awards	(530)		(3,872)
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable	(54,592)		3,160
Inventory	(20,180)		3,971
Prepaid expenses and other assets	(34,357)		916
Leased right-of-use assets	405		2,935
Accounts payable, accrued expenses and other current liabilities	67,193		(1,431)
Accrued compensation	23,121		1,414

Accrued price protection liability	5,439		(2,869)
Lease liabilities	(4,275)		(6,487)
Other long-term liabilities	(8,721)		219
Net cash provided by (used in) operating activities	(676)		50,241

Investing Activities
Purchases of property and equipment	(10,132)		(3,898)

Purchase of intangibles	(388)		(86)
Cash used in acquisitions, net of cash acquired	(160,000)		—


Net cash used in investing activities	(170,520)		(3,984)

Financing Activities

Proceeds from the issuance of debt	175,000		—
Payment of debt issuance cost	(2,696)		—
Repayment of debt	—		(50,000)
Net proceeds from issuance of common stock	5,270		6,221
Minimum tax withholding paid on behalf of employees for restricted stock units	(2,892)		(11,166)


Net cash provided by (used in) financing activities	174,682		(54,945)
Effect of exchange rate changes on cash and cash equivalents	139		1,021
Increase (decrease) in cash, cash equivalents and restricted cash	3,625		(7,667)
Cash, cash equivalents and restricted cash at beginning of period	93,117		74,191
Cash, cash equivalents and restricted cash at end of period	$	96,742	$	66,524

Supplemental disclosures of cash flow information:
Cash paid for interest	$	7,067	$	8,901
Cash paid for income taxes	$	2,003	$	3,060

Supplemental disclosures of non-cash activities:

Issuance of shares for payment of bonuses	$	2,857	$	7,549

See accompanying notes.


Table of Contents			MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. Organization and Summary of Significant Accounting Policies

Description of Business

MaxLinear, Inc. was incorporated in Delaware in September 2003. MaxLinear, Inc., together with its wholly owned subsidiaries, collectively referred to as MaxLinear, or the Company, is a provider of radio-frequency, or RF, analog, digital, and mixed-signal communications system-on-chip solutions for access and connectivity, wired and wireless infrastructure, and industrial and multi-market applications. MaxLinear’s customers include electronics distributors, module makers, original equipment manufacturers, or OEMs, and original design manufacturers, or ODMs, who incorporate the Company’s products in a wide range of electronic devices, including cable DOCSIS broadband modems and gateways, wireline connectivity devices for in-home networking applications, RF transceivers and modems for wireless carrier access and backhaul infrastructure, fiber-optic modules for data center, metro, and long-haul transport networks, video set-top boxes and gateways, hybrid analog and digital televisions, direct broadcast satellite outdoor and indoor units, and power management and interface products used in these and a range of other markets. The Company is a fabless integrated circuit design company whose products integrate all or a substantial portion of a broadband communication system.

Basis of Presentation and Principles of Consolidation

The accompanying unaudited consolidated financial statements include the accounts of MaxLinear, Inc. and its wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. All intercompany transactions and investments have been eliminated in consolidation.

In the opinion of management, the Company’s unaudited consolidated interim financial statements contain adjustments, including normal recurring accruals necessary to present fairly the Company’s consolidated financial position, results of operations, comprehensive income (loss), stockholders’ equity, and cash flows.

The consolidated balance sheet as of December 31, 2019 was derived from the Company’s audited consolidated financial statements at that date. The accompanying unaudited consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission, or the SEC, on February 5, 2020, or the Annual Report. Interim results for the nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020.

Use of Estimates and Significant Risks and Uncertainties

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes to unaudited consolidated financial statements.

In the nine months ended September 30, 2020, the Company’s revenues were impacted by the novel coronavirus disease, or COVID-19, pandemic. In particular, the Company experienced some negative impact to its revenue and gross profits in the first half of 2020 due to several industry-wide dynamics related to COVID-19 including supply constraints as well as customer requests to temporarily delay shipments. Although we have benefited from increased demand for certain of our products from the work-from-home environment in the quarter ended September 30, 2020, heightened volatility and uncertainty in customer demand and the worldwide economy in general has continued, and the Company may experience increased volatility in its sales and revenues in the near future. However, the magnitude of such volatility on the Company’s business and its duration is uncertain and cannot be reasonably estimated at this time.

The Company also believes that its $96.7 million of cash and cash equivalents at September 30, 2020 will be sufficient to fund its projected operating requirements for at least the next twelve months. A material adverse impact from COVID-19 could result in a need to raise additional capital or incur additional indebtedness to fund strategic initiatives or operating activities, particularly if the Company pursues additional acquisitions. The Company’s future capital requirements will depend on many factors, including the Company’s efforts to integrate the acquired WiFi and Broadband assets business and NanoSemi (Note 3), changes in revenue, the expansion of engineering, sales and marketing activities, the timing and extent of expansion into new


Table of Contents			MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

territories, the timing of introductions of new products and enhancements to existing products, the continuing market acceptance of the Company’s products and potential material investments in, or acquisitions of, complementary businesses, services or technologies. Additional funds may not be available on terms favorable to the Company or at all. If the Company is unable to raise additional funds when needed, it may not be able to sustain its operations or execute its strategic plans.

The Company is not aware of any specific event or circumstance that would require an update to its estimates or adjustments to the carrying value of its assets and liabilities as of November 5, 2020, the issuance date of this Quarterly Report on Form 10-Q. Actual results could differ from those estimates, particularly if the Company experiences material impacts from COVID-19.

Summary of Significant Accounting Policies

Refer to the Company’s Annual Report for a summary of significant accounting policies. On January 1, 2020, the Company adopted ASC Topic 326, Measurement of Credit Losses on Financial Instruments, or ASC 326, and accordingly, modified its policy on accounting for allowance for doubtful accounts on trade accounts receivable as stated below. As described under “Recently Adopted Accounting Pronouncements,” section below, the impact of adopting ASC 326 for the Company was not material.

There have been no other significant changes to the Company’s significant accounting policies during the nine months ended September 30, 2020.

During the three months ended September 30, 2020, the Company acquired two businesses (Note 3) that are accounted for as business combinations. In connection with the July 31, 2020 acquisition of the WiFi and Broadband assets business (Note 3), the Company assumed an obligation of $7.9 million of the WiFi and Broadband assets business associated with certain defined benefit retirement plans, including a pension plan. Below are the Company’s accounting policies with respect to business combinations and pension and other defined benefit retirement obligations.

Accounts Receivable

The Company performs ongoing credit evaluations of its customers and assesses each customer’s credit worthiness. The Company monitors collections and payments from its customers and maintains an allowance for doubtful accounts based upon applying an expected credit loss rate to receivables based on the historical loss rate from similar high risk customers adjusted for current conditions, including any specific customer collection issues identified, and forecasts of economic conditions. Delinquent account balances are written off after management has determined that the likelihood of collection is remote. The allowance for credit losses as of September 30, 2020 and the activity in this account, including the current-period provision for expected credit losses for the nine months ended September 30, 2020, were not material.

Business Combinations

The Company applies the provisions of ASC 805, Business Combinations, in accounting for its acquisitions. It requires the Company to recognize separately from goodwill the assets acquired and the liabilities assumed, at the acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the acquisition date fair values of the net assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, its estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.

Costs to exit or restructure certain activities of an acquired company or the Company’s internal operations are accounted for as termination and exit costs pursuant to ASC 420, Exit or Disposal Cost Obligations, and are accounted for separately from the business combination. A liability for costs associated with an exit or disposal activity is recognized and measured at its fair value in the consolidated statements of operations in the period in which the liability is incurred. When estimating the fair value of facility restructuring activities, assumptions are applied regarding estimated sub-lease payments to be received, which can differ materially from actual results. This may require the Company to revise its initial estimates which may materially affect the results of operations and financial position in the period the revision is made.


Table of Contents			MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

For a given acquisition, the Company may identify certain pre-acquisition contingencies as of the acquisition date and may extend its review and evaluation of these pre-acquisition contingencies throughout the measurement period in order to obtain sufficient information to assess whether the Company includes these contingencies as a part of the fair value estimates of assets acquired and liabilities assumed and, if so, to determine their estimated amounts.

If the Company cannot reasonably determine the fair value of a pre-acquisition contingency (non-income tax related) by the end of the measurement period, which is generally the case given the nature of such matters, the Company will recognize an asset or a liability for such pre-acquisition contingency if: (i) it is probable that an asset existed or a liability had been incurred at the acquisition date and (ii) the amount of the asset or liability can be reasonably estimated. Subsequent to the measurement period, changes in estimates of such contingencies will affect earnings and could have a material effect on the Company's results of operations and financial position.

In addition, uncertain tax positions and tax-related valuation allowances assumed, if any, in connection with a business combination are initially estimated as of the acquisition date. The Company re-evaluates these items quarterly based upon facts and circumstances that existed as of the acquisition date with any adjustments to the preliminary estimates being recorded to goodwill if identified within the measurement period. Subsequent to the end of the measurement period or final determination of the estimated value of the tax allowance or contingency, whichever comes first, changes to these uncertain tax positions and tax related valuation allowances will affect the income tax provision (benefit) in the consolidated statements of operations and could have a material impact on the results of operations and financial position.

Pension and Other Defined Benefit Retirement Obligations

The costs of pension and certain other defined benefit employee retirement benefits are required to be recognized based upon actuarial valuations. The related net retirement benefit obligation is recognized as the excess of the projected benefit obligation over the fair value of the plan assets. In measuring the retirement benefit obligation, the discount rate and long-term rate of salary increase are the most significant assumptions. Retirement benefit costs primarily represent the increase in the actuarial present value of the retirement benefit obligation. The most significant assumptions in determining retirement benefit costs are the discount rate, expected long-term rate of return on plan assets, and long-term rate of salary increase.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, to replace the incurred loss methodology with an expected credit loss model that requires consideration of a broader range of information to estimate credit losses over the lifetime of the asset, including current conditions and reasonable and supportable forecasts in addition to historical loss information, to determine expected credit losses. Pooling of assets with similar risk characteristics and the use of a loss model are also required. Also, in April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, to clarify the inclusion of recoveries of trade receivables previously written off when estimating an allowance for credit losses. The amendments in this update are effective for the Company beginning with fiscal year 2020, including interim periods. The adoption of the amendments in this update as of January 1, 2020 did not have a material impact on the Company’s accounts receivable, net and accumulated deficit, as well as its results of operations for the three months ended March 31, 2020. The adoption is also not expected to have a material impact on the Company’s consolidated financial position and results of operations as of and for the year ending December 31, 2020.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. An entity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if the reporting unit had been acquired in a business combination. Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The Board also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. The amendments in this update are effective for the Company beginning with fiscal year 2020, including interim periods. The Company performs its annual goodwill testing as of October 31, or more frequently if there are indicators of impairment. The application of the amendments in this update is not expected to have a material impact on the Company’s consolidated financial position and results of operations as of and for the year ending December 31, 2020.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—


Table of Contents			MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Changes to the Disclosure Requirements for Fair Value Measurement, to improve the fair value measurement reporting of financial instruments. The amendments in this update require, among other things, added disclosure of the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this update eliminate, among other things, disclosure of the reasons for and amounts of transfers between Level 1 and Level 2 for assets and liabilities that are measured at fair value on a recurring basis and an entity's valuation processes for Level 3 fair value measurements. The amendments in this update are effective for the Company beginning with fiscal year 2020. Retrospective application is required for all amendments in this update except the added disclosures, which should be applied prospectively. The adoption of the amendments in this update in the quarter ended March 31, 2020 did not have a material impact on the Company’s consolidated financial position and results of operations as of and for the three months ended March 31, 2020 and is also not expected to have a material impact on the Company’s consolidated financial position and results of operations as of and for the year ending December 31, 2020.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles–Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, to provide additional guidance on the accounting for costs of implementing cloud computing arrangements that are service contracts. The amendments in this update require the capitalization of implementation costs during the application development stage of such hosting arrangements and amortization of the expense over the term of the arrangement including any option to extend reasonably certain to be exercised or option to terminate reasonably certain not to be exercised. Capitalized implementation costs and amortization thereof are also required to be classified in the same line item in the statements of financial position, operations and cash flows associated with the hosting service fees. The amendments in this update are effective for the Company beginning with fiscal year 2020. The Company selected prospective application to all implementation costs incurred after the adoption date. The adoption of the amendments in this update did not have a material impact on the Company’s property and equipment, net and results of operations as of and for the three months ended March 31, 2020 and is also not expected to have a material impact on the Company’s consolidated financial position and results of operations as of and for the year ending December 31, 2020.

In March 2020, the FASB issued ASU No. 2020-04 Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting, that provides optional relief to applying reference rate reform to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (LIBOR), which will be discontinued by the end of 2021. The amendments in this update are effective immediately and may be applied through December 31, 2022. The Company's LIBOR interest rate swap expires in October 2020 and will not be impacted by reference rate reform. Therefore, the adoption of the amendments in this update did not have a material impact on the Company’s accumulated other comprehensive loss or its results of operations as of and for the three months ended June 30, 2020, and is also not expected to have a material impact on the Company's consolidated financial position and results of operations as of and for the year ending December 31, 2020.

In May 2020, the SEC issued a final rule that amends the financial statement requirements for business acquisitions and related pro forma financial information. The rule modifies the significance tests to replace total assets with aggregate worldwide market value of common equity in the investment test and to include a revenue component in the income test while requiring the use of absolute value to calculate average net income for the last five fiscal years. The rule improves the presentation of pro forma financial information by replacing pro forma adjustments with transaction accounting adjustments and adds the optional disclosure of management’s adjustments related to synergies and dis-synergies. The rule also reduces the number of acquiree annual financial statement periods required to a maximum of the two most recent fiscal years. The final rule is effective for the Company beginning with fiscal year 2021, with early application permitted; all applicable aspects of the rule are required to be applied upon adoption. The Company has early adopted the rule in its filings related to the acquisition of the WiFi and Broadband assets business. The adoption of the rule is not expected to have an impact on the Company’s consolidated financial position and results of operations as of and for the year ending December 31, 2020.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12 Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes, to remove certain exceptions and improve consistency of application, including, among other things, requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The amendments in this update will be effective for the Company beginning with fiscal year 2021, with early adoption permitted. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The adoption of


Table of Contents			MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

the amendments in this update is not expected to have a material impact on the Company’s consolidated financial position and results of operations.

2. Net Income (Loss) Per Share

Basic earnings per share, or EPS, is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted EPS is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period and the weighted-average number of dilutive common stock equivalents outstanding for the period determined using the treasury-stock method. For purposes of this calculation, common stock options, restricted stock units and restricted stock awards are considered to be common stock equivalents and are only included in the calculation of diluted EPS when their effect is dilutive. In periods in which the Company has a net loss, dilutive common stock equivalents are excluded from the calculation of diluted EPS.

The table below presents the computation of basic and diluted EPS:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands, except per share amounts)
Numerator:
Net loss	$	(36,645)	$	(4,714)	$	(73,921)	$	(11,794)
Denominator:
Weighted average common shares outstanding—basic	73,402		71,366		72,729		70,755
Dilutive common stock equivalents	—		—		—		—
Weighted average common shares outstanding—diluted	73,402		71,366		72,729		70,755
Net loss per share:
Basic	$	(0.50)	$	(0.07)	$	(1.02)	$	(0.17)
Diluted	$	(0.50)	$	(0.07)	$	(1.02)	$	(0.17)

For the three and nine months ended September 30, 2020 and 2019, the Company incurred net losses and accordingly excluded common stock equivalents for outstanding stock-based awards, which represented all potentially dilutive securities, of 3.5 million and 3.1 million for the 2020 periods, respectively, and 2.4 million and 2.6 million for the 2019 periods, respectively, from the calculation of diluted net loss per share due to their anti-dilutive nature.

3. Business Combinations

Acquisition of the WiFi and Broadband assets business

On July 31, 2020, the Company and certain of its designated subsidiaries completed their acquisition of the Home Gateway Platform Division, which the Company refers to as the WiFi and Broadband assets business, pursuant to an Asset Purchase Agreement with Intel Corporation, or Intel, dated April 5, 2020 (the “Asset Purchase Agreement”), and related agreements. The Company paid cash consideration of $150.0 million for the purchase of certain assets of the WiFi and Broadband assets business, and assumed certain liabilities related to specified employment matters. The transaction was funded with a portion of the net proceeds from a secured incremental term loan with an aggregate principal amount of $175.0 million (Note 8).

The WiFi and Broadband assets business develops a broad portfolio of connected home products, including WiFi, Ethernet and Broadband Gateway Processor SoCs, which enables the Company to strengthen its existing connected home portfolio by bringing together a complete, scalable, and complementary platform of connectivity and access solutions to address its customers’ needs across target end-markets.

The acquired assets and assumed liabilities, together with the employees who joined the Company and its subsidiaries as a result of the transaction, represent a business as defined in ASC 805, Business Combinations. The Company is integrating the acquired assets and rehired employees into the Company’s existing business.


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The Asset Purchase Agreement also contains customary representations, warranties and covenants, including indemnification provisions set forth therein. Pursuant to the Purchase Agreement, Intel has retained, and will be obligated to indemnify MaxLinear for, certain liabilities, including but not limited to those relating to the Home Gateway Platform Division for pre-closing taxes and specified employment matters, and MaxLinear has assumed, and will indemnify Intel for, certain liabilities, including but not limited to those relating to the Home Gateway Platform Division and the Transferred Assets for certain pre-closing and post-closing actions, events and periods (including certain product-related liabilities for products sold prior to the Closing for up to a $25.0 million cap), and specified employment matters.

In connection with the transaction, the Company and Intel have entered into as of the closing certain other ancillary agreements, including (i) an intellectual property matters agreement, pursuant to which Intel will grant to the Company a license to certain intellectual property rights for use by the Company in connection with the acquired assets and the Company will grant back to Intel a license to the intellectual property rights in the acquired assets, (ii) a supply agreement, pursuant to which Intel will manufacture and fabricate certain products for the Company that are part of the acquired assets, (iii) an ethernet network controller services agreement, pursuant to which the Company will provide Intel with certain development services with respect to certain Intel ethernet network controller products, (iv) a transition services agreement, pursuant to which Intel will provide certain services on a transitional basis for up to a 12-month period after the closing, the scope of which includes services relating to real estate and facilities, information technology, and supply chain, procurement, sales operations, and engineering support, and (v) a side letter regarding the delayed transfer of certain inventory. Pursuant to the delayed inventory side letter, the Company has control and economic benefits of the inventory, but the title and possession of the inventory has been delayed until the last day that Intel provides services under the transition services agreement.

Acquisition Consideration

The following table summarizes the fair value of purchase price consideration to acquire the WiFi and Broadband assets business (in thousands):


Description	Amount
Fair value of purchase consideration:
Cash	$	150,000

Preliminary Purchase Price Allocation

The following is an allocation of purchase price as of the July 31, 2020 acquisition closing date based upon a preliminary estimate of the fair value of the assets acquired and the liabilities assumed by the Company in the acquisition (in thousands):


Description	Amount



Preliminary purchase price allocation:
Inventory	$	67,100
Property and equipment, net	17,641

Identifiable intangible assets	58,000
Accrued expenses	(68)
Accrued compensation	(7,916)

Other long-term liabilities	(8,197)
Identifiable net assets acquired	126,560
Goodwill	23,440
Total purchase price	$	150,000

The fair value of inventories acquired with the WiFi and Broadband assets business included an acquisition accounting fair market value step-up of $32.9 million. The Company recognized $14.4 million in amortization of inventory step-up in cost of sales in the consolidated statements of operations for the three and nine months ended September 30, 2020.

The following is a summary of identifiable intangible assets acquired and the related expected lives for the finite-lived intangible assets (in thousands):


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Category	Estimated Life in Years	Fair Value
Finite-lived intangible assets:
Developed technology	7	$	43,200

Customer-related intangible	5	6,800

Product backlog	0.58	800
		50,800
Indefinite-lived intangible assets:
IPR&D	N/A	7,200
Total identifiable intangible assets acquired		$	58,000

Acquisition of NanoSemi, Inc.

On September 9, 2020, the Company completed its acquisition of NanoSemi, Inc. or NanoSemi, pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) with NanoSemi, dated September 9, 2020. The initial closing transaction consideration consisted of $10.0 million in cash and 804,163 shares of MaxLinear’s common stock. In addition, the NanoSemi securityholders will receive $35.0 million in deferred cash payments payable in 2021, and certain NanoSemi securityholders may also receive up to an additional $35.0 million in potential contingent consideration, subject to the acquired business’s satisfying certain financial objectives from July 1, 2020 through December 31, 2022. The stock consideration was issued in reliance on exemptions from the registration requirements of the Securities Act of 1933, as amended. In connection with the acquisition, MaxLinear agreed to provide the NanoSemi stockholders with certain registration rights with respect to the shares of MaxLinear common stock they received in the acquisition.

NanoSemi is an industry-leading provider of intellectual property that utilizes patented machine learning techniques to improve signal integrity and power efficiency in systems-on-chip, or SoCs, application-specific integrated circuits, or ASICs, and field-programmable gate arrays, or FPGAs, used in next-generation communication and artificial intelligence systems. Its technology enables higher throughput connections for 5G, Wi-Fi, and WiGig smartphones and base stations while simultaneously reducing energy consumption.

Acquisition Consideration

The following table summarizes the fair value of purchase price consideration to acquire NanoSemi (in thousands):


Description	Amount
Fair value of purchase consideration:
Cash	$	10,000
Common stock issued(1)	17,080
Deferred payments(2)	34,100
Contingent consideration(3)	3,800




Total purchase price	$	64,980

_________________

(1) The fair value of common stock issued in the merger is based on 804,163 shares issued on the September 9, 2020 acquisition date at the closing price of the Company’s common stock of $21.24 per share.

(2) The fair value of the deferred payments was determined by discounting to present value payments totaling $35.0 million expected to be made to NanoSemi securityholders throughout 2021.

(3) The fair value of contingent consideration is based on applying the Monte Carlo simulation method to forecast achievement under various contingent consideration events which may result in up to $35.0 million in payments subject to the acquired business’s satisfying certain financial objectives from July 1, 2020 through December 31, 2022, under the Merger Agreement. Key inputs in the valuation include forecasted revenue, revenue volatility and discount rate. Underlying forecast mathematics were based on Geometric Brownian Motion in a risk-neutral framework and discounted back to the applicable period in which the accumulative thresholds were achieved at discount rates commensurate with the risk and expected payout term of the contingent consideration.


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Preliminary Purchase Price Allocation

The following is an allocation of purchase price as of the September 9, 2020 acquisition closing date based upon a preliminary estimate of the fair value of the assets acquired and the liabilities assumed by the Company in the acquisition (in thousands):


Description	Amount











Preliminary purchase price allocation:
Accounts receivable, net	$	175
Prepaid expenses and other current assets	774
Property and equipment, net	177
Leased right-of-use assets	1,805
Intangible assets, net	30,300
Accounts payable	(602)
Accrued expenses and other current liabilities	(323)
Accrued compensation	(223)
Long-term lease liabilities	(1,546)
Other long-term liabilities	(6,363)
Identifiable net assets acquired	24,174
Goodwill	40,806
Total purchase price	$	64,980

The following is a summary of identifiable intangible assets acquired and the related expected lives for the finite-lived intangible assets (in thousands):


Category	Estimated Life in Years	Fair Value
Finite-lived intangible assets:
Developed technology	7	$	24,400
Trademarks and tradenames	7	1,200
Customer-related intangible	5	3,000
Product backlog	5.33	1,700
Total identifiable intangible assets acquired		$	30,300

Assumptions in the Allocations of Purchase Price

Management prepared the purchase price allocations for the WiFi and Broadband assets business and NanoSemi, and in doing so considered or relied in part upon reports of a third party valuation expert to calculate the fair value of certain acquired assets, which primarily included identifiable intangible assets, inventory, and property and equipment, and the portions of the purchase consideration for NanoSemi expected to be paid to NanoSemi securityholders in the future, as described above. Certain NanoSemi securityholders that are employees are not required to remain employed in order to receive the deferred payments and contingent consideration; accordingly, the fair value of the deferred payments and contingent consideration have been accounted for as a portion of the purchase consideration.

Estimates of fair value require management to make significant estimates and assumptions which are preliminary and subject to change upon finalization of the valuation analysis. The goodwill recognized is attributable primarily to the acquired workforce, expected synergies, and other benefits that MaxLinear believes will result from integrating the operations of the WiFi and Broadband assets business and NanoSemi with the operations of MaxLinear. Certain liabilities included in the purchase price allocations are based on management’s best estimates of the amounts to be paid or settled and based on information available at the time the purchase price allocations were prepared. Updates to and/or completion of the valuations of certain assets acquired and liabilities assumed and our evaluation of certain income tax positions may result in changes to the recorded amounts of assets and liabilities, with corresponding adjustments to goodwill amounts in subsequent periods. We expect to complete the purchase price allocations within 12 months of the respective acquisition dates.


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The fair value of the identified intangible assets acquired from the WiFi and Broadband assets business and NanoSemi was estimated using an income approach. Under the income approach, an intangible asset’s fair value is equal to the present value of future economic benefits to be derived from ownership of the asset. Indications of value are developed by discounting future net cash flows to their present value at market-based rates of return. More specifically, the fair value of the developed technology, IPR&D and backlog assets was determined using the multi-period excess earnings method, or MPEEM. MPEEM is an income approach to fair value measurement attributable to a specific intangible asset being valued from the asset grouping’s overall cash-flow stream. MPEEM isolates the expected future discounted cash-flow stream to its net present value. Significant factors considered in the calculation of the developed technology and IPR&D intangible assets were the risks inherent in the development process, including the likelihood of achieving technological success and market acceptance. Each project was analyzed to determine the unique technological innovations, the existence and reliance on core technology, the existence of any alternative future use or current technological feasibility and the complexity, cost, and time to complete the remaining development. Future cash flows for each project were estimated based on forecasted revenue and costs, taking into account the expected product life cycles, market penetration, and growth rates. Developed technology will begin amortization immediately and IPR&D will begin amortization upon the completion of each project. If any of the projects are abandoned, the Company will be required to impair the related IPR&D asset.

In connection with the acquisition of the WiFi and Broadband assets business, the Company has assumed liabilities which primarily consist of accrued employee compensation and benefits in jurisdictions where such transfer is required either by law or by work council agreement. In connection with the acquisition of NanoSemi, the Company assumed certain operating liabilities. The liabilities assumed in these acquisitions are included in the respective purchase price allocations above.

Goodwill recorded in connection with the WiFi and Broadband assets business and NanoSemi was $23.4 million and $40.8 million, respectively. The Company does not expect to deduct any of the acquired goodwill for tax purposes.

Proforma Combined Financial Information

The following table presents unaudited pro forma combined financial information for each of the periods presented, as if the acquisitions of the WiFi and Broadband assets business and NanoSemi had occurred at the beginning of fiscal year 2019:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Net revenue – proforma combined	$	219,419	$	181,438	$	508,449	$	541,067
Net income (loss) – proforma combined	$	(17,324)	$	(23,470)	$	(103,108)	$	(126,340)

The following adjustments were included in the unaudited pro forma combined net revenues:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Net revenue	$	156,633	$	80,020	$	283,880	$	247,162
Add: Net revenue – acquired businesses	62,786		101,418		224,569		293,905
Net revenues – proforma combined	$	219,419	$	181,438	$	508,449	$	541,067


Table of Contents			MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The following adjustments were included in the unaudited pro forma combined net loss:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Net loss	$	(36,645)	$	(4,714)	$	(73,921)	$	(11,794)
Add: Results of operations – acquired businesses	(3,875)		(22,075)		(63,882)		(75,994)
Less: Proforma adjustments