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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 June 30, 2022
OR | | | | | |
☐ | 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 | The Nasdaq Stock Market LLC |
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 July 20, 2022, the registrant had 78,333,530 shares of common stock, par value $0.0001, outstanding.
MAXLINEAR, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
| | | | | | | | |
| | Page |
Part I | | |
Item 1. | | |
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| | |
| | |
| | |
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| | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Part II | | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
| | |
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAXLINEAR, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited; in thousands, except par value amounts) | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 211,363 | | | $ | 130,572 | |
Short-term restricted cash | 162 | | | 105 | |
Short-term investments | 23,864 | | | — | |
Accounts receivable, net | 137,065 | | | 119,724 | |
Inventory | 146,431 | | | 131,703 | |
Prepaid expenses and other current assets | 19,739 | | | 22,000 | |
Total current assets | 538,624 | | | 404,104 | |
Long-term restricted cash | 894 | | | 1,061 | |
| | | |
Property and equipment, net | 64,136 | | | 60,924 | |
Leased right-of-use assets | 33,154 | | | 27,269 | |
Intangible assets, net | 127,928 | | | 152,540 | |
Goodwill | 306,739 | | | 306,668 | |
Deferred tax assets | 81,762 | | | 89,168 | |
Other long-term assets | 27,456 | | | 8,650 | |
Total assets | $ | 1,180,693 | | | $ | 1,050,384 | |
Liabilities and stockholders’ equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 73,140 | | | $ | 52,976 | |
| | | |
Accrued price protection liability | 110,553 | | | 40,509 | |
Accrued expenses and other current liabilities | 93,507 | | | 57,268 | |
Accrued compensation | 38,881 | | | 56,642 | |
| | | |
| | | |
Total current liabilities | 316,081 | | | 207,395 | |
Long-term lease liabilities | 27,838 | | | 24,640 | |
Long-term debt | 246,450 | | | 306,153 | |
Other long-term liabilities | 20,727 | | | 22,998 | |
Total liabilities | 611,096 | | | 561,186 | |
| | | |
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; 78,333 shares issued and outstanding at June 30, 2022 and 76,778 shares issued and outstanding December 31, 2021 | 8 | | | 8 | |
| | | |
| | | |
Additional paid-in capital | 677,395 | | | 657,485 | |
Accumulated other comprehensive income (loss) | (2,938) | | | 2,125 | |
Accumulated deficit | (104,868) | | | (170,420) | |
Total stockholders’ equity | 569,597 | | | 489,198 | |
Total liabilities and stockholders’ equity | $ | 1,180,693 | | | $ | 1,050,384 | |
See accompanying notes.
MAXLINEAR, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited; in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net revenue | $ | 280,009 | | | $ | 205,376 | | | $ | 543,936 | | | $ | 414,735 | |
Cost of net revenue | 115,658 | | | 92,833 | | | 224,995 | | | 190,473 | |
Gross profit | 164,351 | | | 112,543 | | | 318,941 | | | 224,262 | |
Operating expenses: | | | | | | | |
Research and development | 80,395 | | | 74,416 | | | 146,281 | | | 137,582 | |
Selling, general and administrative | 44,487 | | | 35,885 | | | 85,064 | | | 72,354 | |
| | | | | | | |
Restructuring charges | 462 | | | 38 | | | 462 | | | 2,204 | |
Total operating expenses | 125,344 | | | 110,339 | | | 231,807 | | | 212,140 | |
Income from operations | 39,007 | | | 2,204 | | | 87,134 | | | 12,122 | |
Interest income | 82 | | | 18 | | | 113 | | | 18 | |
Interest expense | (2,416) | | | (3,741) | | | (4,765) | | | (7,947) | |
Loss on extinguishment of debt | — | | | (5,221) | | | — | | | (5,221) | |
Other income (expense), net | 7,179 | | | (537) | | | 6,409 | | | (641) | |
Total other income (expense), net | 4,845 | | | (9,481) | | | 1,757 | | | (13,791) | |
Income (loss) before income taxes | 43,852 | | | (7,277) | | | 88,891 | | | (1,669) | |
Income tax provision (benefit) | 11,886 | | | (8,010) | | | 23,339 | | | (6,204) | |
Net income | $ | 31,966 | | | $ | 733 | | | $ | 65,552 | | | $ | 4,535 | |
Net income per share: | | | | | | | |
Basic | $ | 0.41 | | | $ | 0.01 | | | $ | 0.85 | | | $ | 0.06 | |
Diluted | $ | 0.40 | | | $ | 0.01 | | | $ | 0.81 | | | $ | 0.06 | |
Shares used to compute net income per share: | | | | | | | |
Basic | 77,858 | | | 75,930 | | | 77,527 | | | 75,394 | |
Diluted | 80,279 | | | 79,026 | | | 80,462 | | | 78,657 | |
See accompanying notes.
MAXLINEAR, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited; in thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net income | $ | 31,966 | | | $ | 733 | | | $ | 65,552 | | | $ | 4,535 | |
Other comprehensive income (loss), net of tax: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Foreign currency translation adjustments, net of tax benefit of $61 and $59 for the three and six months ended June 30, 2022, respectively, and net of tax expense of $607 and $231 for the three and six months ended June 30, 2021, respectively | (3,988) | | | 357 | | | (5,063) | | | (632) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Other comprehensive income (loss) | (3,988) | | | 357 | | | (5,063) | | | (632) | |
Total comprehensive income | $ | 27,978 | | | $ | 1,090 | | | $ | 60,489 | | | $ | 3,903 | |
See accompanying notes.
MAXLINEAR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FISCAL QUARTERS ENDED JUNE 30, 2022
(unaudited; in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Common Stock | | | | | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income | | Accumulated Deficit | | Total Stockholders’ Equity |
| | | | | | Shares | | Amount | | | | | | | | | | | | |
Balance at December 31, 2021 | | | | | | 76,778 | | | $ | 8 | | | | | | | | | | | $ | 657,485 | | | $ | 2,125 | | | $ | (170,420) | | | $ | 489,198 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued pursuant to equity awards, net | | | | | | 1,037 | | | | | | | | | | | | | 13,835 | | | — | | | — | | | 13,835 | |
Repurchase of common stock | | | | | | (440) | | | — | | | | | | | | | | | (26,297) | | | — | | | — | | | (26,297) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation | | | | | | — | | | — | | | | | | | | | | | 18,599 | | | — | | | — | | | 18,599 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive loss | | | | | | — | | | — | | | | | | | | | | | — | | | (1,075) | | | — | | | (1,075) | |
Net income | | | | | | — | | | — | | | | | | | | | | | — | | | — | | | 33,586 | | | 33,586 | |
Balance at March 31, 2022 | | | | | | 77,375 | | | 8 | | | | | | | | | | | 663,622 | | | 1,050 | | | (136,834) | | | 527,846 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued pursuant to equity awards, net | | | | | | 999 | | | — | | | | | | | | | | | 310 | | | — | | | — | | | 310 | |
Minimum tax withholding on common stock issued | | | | | | — | | | — | | | | | | | | | | | (3,698) | | | — | | | — | | | (3,698) | |
Repurchase of common stock | | | | | | (124) | | | — | | | | | | | | | | | (5,214) | | | — | | | — | | | (5,214) | |
Employee stock purchase plan | | | | | | 83 | | | — | | | | | | | | | | | 2,911 | | | — | | | — | | | 2,911 | |
Stock-based compensation | | | | | | — | | | — | | | | | | | | | | | 19,464 | | | — | | | — | | | 19,464 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive loss | | | | | | — | | | — | | | | | | | | | | | — | | | (3,988) | | | — | | | (3,988) | |
Net income | | | | | | — | | | — | | | | | | | | | | | — | | | — | | | 31,966 | | | 31,966 | |
Balance at June 30, 2022 | | | | | | 78,333 | | | $ | 8 | | | | | | | | | | | $ | 677,395 | | | $ | (2,938) | | | $ | (104,868) | | | $ | 569,597 | |
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See accompanying notes.
MAXLINEAR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FISCAL QUARTERS ENDED JUNE 30, 2021
(unaudited; in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Common Stock | | | | | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income | | Accumulated Deficit | | Total Stockholders’ Equity |
| | | | | | Shares | | Amount | | | | | | | | | | | | |
Balance at December 31, 2020 | | | | | | 74,536 | | | $ | 7 | | | | | | | | | | | $ | 602,064 | | | $ | 1,435 | | | $ | (212,389) | | | $ | 391,117 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued pursuant to equity awards, net | | | | | | 917 | | | 1 | | | | | | | | | | | 16,565 | | | — | | | — | | | 16,566 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Repurchase of common stock | | | | | | (75) | | | — | | | | | | | | | | | (2,673) | | | — | | | — | | | (2,673) | |
Stock-based compensation | | | | | | — | | | — | | | | | | | | | | | 12,955 | | | — | | | — | | | 12,955 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive loss | | | | | | — | | | — | | | | | | | | | | | — | | | (989) | | | — | | | (989) | |
Net income | | | | | | — | | | — | | | | | | | | | | | — | | | — | | | 3,802 | | | 3,802 | |
Balance at March 31, 2021 | | | | | | 75,378 | | | 8 | | | | | | | | | | | 628,911 | | | 446 | | | (208,587) | | | 420,778 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued pursuant to equity awards, net | | | | | | 1,098 | | | — | | | | | | | | | | | (338) | | | — | | | — | | | (338) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Repurchase of common stock | | | | | | (120) | | | — | | | | | | | | | | | (4,464) | | | — | | | — | | | (4,464) | |
Employee stock purchase plan | | | | | | 113 | | | — | | | | | | | | | | | 2,635 | | | — | | | — | | | 2,635 | |
Stock-based compensation | | | | | | — | | | — | | | | | | | | | | | 13,966 | | | — | | | — | | | 13,966 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income | | | | | | — | | | — | | | | | | | | | | | — | | | 357 | | | — | | | 357 | |
Net income | | | | | | — | | | — | | | | | | | | | | | — | | | — | | | 733 | | | 733 | |
Balance at June 30, 2021 | | | | | | 76,469 | | | $ | 8 | | | | | | | | | | | $ | 640,710 | | | $ | 803 | | | $ | (207,854) | | | $ | 433,667 | |
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See accompanying notes.
MAXLINEAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in thousands) | | | | | | | | | | | |
| | | |
| Six Months Ended June 30, |
2022 | | 2021 |
Operating Activities | | | |
Net income | $ | 65,552 | | | $ | 4,535 | |
Adjustments to reconcile net income to cash provided by operating activities: | | | |
Amortization and depreciation | 43,449 | | | 44,322 | |
| | | |
| | | |
| | | |
| | | |
| | | |
Amortization of debt issuance costs and accretion of discounts | 957 | | | 2,071 | |
Stock-based compensation | 38,023 | | | 26,921 | |
Deferred income taxes | 7,359 | | | (5,461) | |
Loss on disposal of property and equipment | 164 | | | 388 | |
| | | |
Unrealized holding gain on investments | (3,859) | | | — | |
Impairment of leasehold improvements | — | | | 226 | |
Impairment of leased right-of-use assets | 462 | | | 429 | |
Loss on extinguishment of debt | — | | | 5,221 | |
| | | |
(Gain) loss on foreign currency | (2,675) | | | 408 | |
| | | |
Excess tax benefits on stock-based awards | (9,429) | | | (4,631) | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | (16,969) | | | (67,879) | |
Inventory | (14,728) | | | (596) | |
Prepaid expenses and other assets | 1,828 | | | 33,448 | |
Leased right-of-use assets | — | | | 72 | |
Accounts payable, accrued expenses and other current liabilities | 62,621 | | | 6,311 | |
Accrued compensation | 21,355 | | | 15,233 | |
| | | |
Accrued price protection liability | 70,797 | | | 6,955 | |
Lease liabilities | (5,511) | | | (4,347) | |
Other long-term liabilities | (1,793) | | | 4,497 | |
Net cash provided by operating activities | 257,603 | | | 68,123 | |
| | | |
Investing Activities | | | |
Purchases of property and equipment | (15,506) | | | (17,310) | |
| | | |
Purchases of intangible assets | (5,204) | | | (1,112) | |
Cash used in acquisitions, net of cash acquired | — | | | (27,500) | |
Proceeds loaned under notes receivable | (10,000) | | | — | |
Purchases of investments | (28,325) | | | (5,000) | |
| | | |
Net cash used in investing activities | (59,035) | | | (50,922) | |
| | | |
Financing Activities | | | |
| | | |
Proceeds from the issuance of debt | — | | | 350,000 | |
Payment of debt issuance cost | — | | | (4,127) | |
Repayment of debt | (60,000) | | | (369,813) | |
Net proceeds from issuance of common stock | 3,133 | | | 6,094 | |
Minimum tax withholding paid on behalf of employees for restricted stock units | (28,147) | | | (10,105) | |
Repurchase of common stock | (31,511) | | | (7,137) | |
| | | |
Net cash used in financing activities | (116,525) | | | (35,088) | |
Effect of exchange rate changes on cash and cash equivalents | (1,362) | | | (713) | |
Increase (decrease) in cash, cash equivalents and restricted cash | 80,681 | | | (18,600) | |
Cash, cash equivalents and restricted cash at beginning of period | 131,738 | | | 150,034 | |
Cash, cash equivalents and restricted cash at end of period | $ | 212,419 | | | $ | 131,434 | |
| | | |
Supplemental disclosures of cash flow information: | | | |
Cash paid for interest | $ | 4,277 | | | $ | 6,402 | |
Cash paid for income taxes | $ | 9,470 | | | $ | 1,671 | |
| | | |
Supplemental disclosures of non-cash activities: | | | |
| | | |
Issuance of shares for payment of bonuses | $ | 38,373 | | | $ | 22,874 | |
| | | |
| | | |
See accompanying notes.
| | | | | | | | |
| 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 communications systems-on-chip (SoC) solutions used in broadband, mobile and wireline infrastructure, data center, and industrial and multi-market applications. MaxLinear is a fabless integrated circuit design company whose products integrate all or substantial portions of a high-speed communication system, including radio frequency (RF), high-performance analog, mixed-signal, digital signal processing, security engines, data compression and networking layers, and power management. 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 Data Over Cable Service Interface Specifications (DOCSIS), fiber and DSL broadband modems and gateways; Wi-Fi and wireline routers for home networking; radio transceivers and modems for 4G/5G base-station and backhaul infrastructure; fiber-optic modules for data center, metro, and long-haul transport networks; as well as power management and interface products used in these and many other markets.
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, 2021 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, 2021 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 2, 2022, or the Annual Report. Interim results for the six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022.
The functional currency of certain foreign subsidiaries is the local currency. Accordingly, assets and liabilities of these foreign subsidiaries are translated at the current exchange rate at the balance sheet date and historical rates for equity. Revenue and expense components are translated at weighted average exchange rates in effect during the period. Gains and losses resulting from foreign currency translation are included as a component of stockholders’ equity. Foreign currency transaction gains and losses are included in the results of operations, and to date, have not been material.
Use of Estimates and Significant Risks and Uncertainties
The preparation of consolidated 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 of the consolidated financial statements. Actual results could differ from those estimates.
During the COVID-19 global pandemic, which is still ongoing, various restrictions were put in place causing a temporary decline in demand for certain items such as automobiles. As restrictions began easing across the world, a sudden increase in demand for electronics containing semiconductor chips and stockpiling of chips by certain firms in China blacklisted by the U.S. has exacerbated bottlenecks in the supply chain, resulting in a global semiconductor supply shortage impacting the Company’s industry. Some chip manufacturers are estimating this supply shortage may continue into 2023. While these chip manufacturers are working to increase capacity in the future, and the Company is continuing to work closely with its suppliers and customers to minimize the potential adverse impacts of the supply shortage, such shortage may have a near-term impact on the Company’s ability to meet increased demand on certain products and have a negative impact on its operating results which may continue into 2023. Global supply shortages, and uncertainty in customer demand and the worldwide economy in general has continued as a result of the COVID-19 pandemic, and may be further exacerbated by the impacts of high inflation, and the
| | | | | | | | |
| MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) | |
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 $212.4 million of cash and cash equivalents at June 30, 2022 will be sufficient to fund its projected operating requirements for at least the next twelve months. A material adverse impact from the global semiconductor supply shortage could result in a need to raise additional capital or incur additional indebtedness to fund strategic initiatives or operating activities, particularly as the Company pursues additional acquisitions (Note 3). The Company’s future capital requirements will depend on many factors, including changes in revenue, the expansion of engineering, sales and marketing activities, the timing and extent of expansion into new 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 July 27, 2022, 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 the global supply shortage.
Summary of Significant Accounting Policies
Refer to the Company’s Annual Report for a summary of significant accounting policies. There have been no other significant changes to the Company’s significant accounting policies during the six months ended June 30, 2022.
Recently Issued Accounting Pronouncements
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, to provide specific guidance to eliminate diversity in practice on how to recognize and measure acquired contract assets and contract liabilities from revenue contracts from customers in a business combination consistent with revenue contracts with customers not acquired in an acquisition. The amendments in this update provide that the acquirer should consider the terms of the acquired contracts, such as timing of payment, identify each performance obligation in the contracts, and allocate the total transaction price to each identified performance obligation on a relative standalone selling price basis as of contract inception (that is, the date the acquiree entered into the contracts) or contract modification to determine what should be recorded at the acquisition date. These amendments are effective for the Company beginning with fiscal year 2023. The impact of the adoption of the amendments in this update will depend on the magnitude of any customer contracts assumed in a business combination in 2023 and beyond.
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.
| | | | | | | | |
| MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) | |
The table below presents the computation of basic and diluted EPS: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | | | |
| 2022 | | 2021 | | 2022 | | 2021 | | | | | | |
| (in thousands, except per share amounts) | | | | | | |
Numerator: | | | | | | | | | | | | | |
Net income | $ | 31,966 | | | $ | 733 | | | $ | 65,552 | | | $ | 4,535 | | | | | | | |
Denominator: | | | | | | | | | | | | | |
Weighted average common shares outstanding—basic | 77,858 | | | 75,930 | | | 77,527 | | | 75,394 | | | | | | | |
Dilutive common stock equivalents | 2,421 | | | 3,096 | | | 2,935 | | | 3,263 | | | | | | | |
Weighted average common shares outstanding—diluted | 80,279 | | | 79,026 | | | 80,462 | | | 78,657 | | | | | | | |
Net income per share: | | | | | | | | | | | | | |
Basic | $ | 0.41 | | | $ | 0.01 | | | $ | 0.85 | | | $ | 0.06 | | | | | | | |
Diluted | $ | 0.40 | | | $ | 0.01 | | | $ | 0.81 | | | $ | 0.06 | | | | | | | |
For the three months ended June 30, 2022 and 2021, the Company excluded common stock equivalents for outstanding stock-based awards, which represented potentially dilutive securities of 1.0 million and 0.04 million, respectively, from the calculation of diluted net income per share due to their anti-dilutive nature.
For the six months ended June 30, 2022 and 2021, the Company excluded common stock equivalents for outstanding stock-based awards, which represented potentially dilutive securities of 1.0 million and 0.1 million, respectively, from the calculation of diluted net income per share due to their anti-dilutive nature.
3. Business Combinations
Silicon Motion Merger
On May 5, 2022, MaxLinear entered into an agreement and plan of merger, or the Merger Agreement, with Silicon Motion Technology Corporation, or Silicon Motion, an exempted company with limited liability incorporated under the Law of the Cayman Islands, pursuant to which, subject to the terms and conditions thereof, MaxLinear agreed to acquire Silicon Motion pursuant to a statutory merger of Shark Merger Sub, a wholly-owned subsidiary of MaxLinear, with and into Silicon Motion, with Silicon Motion surviving the merger as a wholly-owned subsidiary of MaxLinear. Silicon Motion is a provider of NAND flash controllers for solid state drives, or SSDs, and other solid state storage devices.
Under the terms of the Merger Agreement, the transaction consideration will consist of $93.54 in cash and 0.388 shares of MaxLinear stock for each Silicon Motion American Depositary Share, or ADS, and $23.385 in cash and 0.097 shares of MaxLinear common stock for each Silicon Motion ordinary share not represented by an ADS. Upon closing of the transaction, the current MaxLinear stockholders will own approximately 86% of the combined company and former Silicon Motion securityholders will own approximately 14% of the combined company. Based on the closing price of MaxLinear shares on May 4, 2022, the implied value of the total transaction consideration for Silicon Motion is approximately $4.3 billion. MaxLinear may fund up to $3.5 billion of cash consideration with cash on hand and fully committed debt financing from Wells Fargo Bank, N.A., or Wells Fargo Bank, and other lenders as described below. MaxLinear will also assume Silicon Motion’s vested and unvested employee stock-based compensation awards.
The merger is not subject to any financing conditions but is pending satisfaction of customary closing conditions, including Silicon Motion shareholders’ approval and regulatory approval in the People’s Republic of China, or China. On June 27, 2022, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, or HSR, waiting period expired with respect to the pending merger. On July 13, 2022, the registration statement on Form S-4 was declared effective by the SEC.
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| MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) | |
On June 17, 2022, MaxLinear entered into an amended and restated commitment letter with Wells Fargo Bank and other lenders pursuant to which, subject to the terms and conditions set forth therein, the lenders have committed to provide (i) a senior secured term B loan facility in an aggregate principal amount of up to $2.7375 billion (ii) a senior secured term A loan facility in an aggregate principal amount of up to $512.5 million and (iii) a senior secured revolving credit facility in an aggregate principal amount of up to $250.0 million, which we collectively refer to as the Senior Secured Credit Facilities. The funding of the Senior Secured Credit Facilities is contingent on the satisfaction of customary conditions, including (i) the execution and delivery of definitive documentation with respect to credit facilities in accordance with the terms in the amended and restated commitment letter, and (ii) the consummation of the acquisition by MaxLinear of Silicon Motion in accordance with the Merger Agreement. A portion of the proceeds from the Senior Secured Credit Facilities will be used to repay existing debt (Note 8) in full.
Acquisition of Company X
On December 8, 2021, the Company completed its acquisition of a business, or Company X, pursuant to a Purchase and Sale Agreement, or the Purchase Agreement. The initial closing transaction consideration consisted of $5.0 million in cash. In addition, their stockholders may receive up to an additional $3.0 million in potential contingent consideration, subject to the acquired business satisfying certain financial and personnel objectives by March 31, 2023.
Company X is headquartered in Chennai, India and operates as a Wi-Fi solutions and service provider.
Acquisition Consideration
The following table summarizes the fair value of purchase price consideration to acquire Company X (in thousands):
| | | | | |
Description | Amount |
Fair value of purchase consideration: | |
Cash | $ | 5,000 | |
| |
| |
Contingent consideration(1) | 2,700 | |
| |
| |
| |
| |
Total purchase price | $ | 7,700 | |
_________________(1) 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 $3.0 million in payments subject to the acquired business’s satisfying certain financial and personnel objectives by March 31, 2023 under the Purchase 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.
Purchase Price Allocation
An allocation of purchase price as of the December 8, 2021 acquisition closing date based upon an estimate of the fair value of the assets acquired and the liabilities assumed by the Company in the acquisition primarily includes $4.4 million in identifiable intangible assets and $0.6 million in net operating liabilities, with $3.9 million in goodwill.
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: | | | | |
Licensed technology | | 3 | | $ | 4,400 | |
Total identifiable intangible assets acquired | | | | $ | 4,400 | |
Assumptions in the Allocations of Purchase Price
Management prepared the purchase price allocations for Company X 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
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| MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) | |
identifiable intangible assets and contingent consideration. Certain stockholders that are employees of Company X were not required to remain employed in order to receive the contingent consideration; accordingly, the fair value of the contingent consideration was accounted for as a portion of the purchase consideration.
Estimates of fair value require management to make significant estimates and assumptions. 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 Company X 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. There were minor adjustments to various assets and liabilities that resulted in a change in the purchase price allocation reflected as of June 30, 2022 compared to the preliminary purchase price allocation as of December 31, 2021 for Company X. These adjustments resulted in a decrease of $0.07 million in net operating assets and corresponding increase in goodwill.
The fair value of the identified intangible assets acquired from Company X 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 licensed technology 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. Future cash flows were estimated based on forecasted revenue and costs, taking into account expected future contracts and remaining contract terms. The licensed technology began amortization immediately upon the closing of the transaction.
In connection with the acquisition of Company X, 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 Company X was $3.9 million as of June 30, 2022. The Company does not expect to deduct any of the acquired goodwill for tax purposes.
4. Restructuring Activity
From time to time, the Company approves and implements restructuring plans as a result of internal resource alignment and cost saving measures. Such restructuring plans include terminating employees, vacating certain leased facilities, and cancellation of contracts.
The following table presents the activity related to the restructuring plans, which is included in restructuring charges in the consolidated statements of income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | |
| 2022 | | 2021 | | 2022 | | 2021 | | | | |
| (in thousands) | | | | |
Employee separation expenses | $ | — | | | $ | 20 | | | $ | — | | | $ | 1,273 | | | | | |
Lease related charges | 462 | | | — | | | 462 | | | 608 | | | | | |
Other | — | | | 18 | | | — | | | 323 | | | | | |
| $ | 462 | | | $ | 38 | | | $ | 462 | | | $ | 2,204 | | | | | |
Lease related charges for the six months ended June 30, 2022 included the impairment of leased right-of-use assets of approximately $0.5 million related to exiting a redundant facility.
Lease related charges for the six months ended June 30, 2021 included the impairment of leased right-of-use assets and leasehold improvements of approximately $0.4 million and $0.2 million, respectively, related to exiting a redundant facility.
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| MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) | |
The following table presents a roll-forward of the Company’s restructuring liability for the six months ended June 30, 2022. The restructuring liability is included in accrued expenses and other current liabilities and other long-term liabilities in the consolidated balance sheets. | | | | | | | | | | | | | | | | | | | | | | | |
| Employee Separation Expenses | | Lease Related Charges | | Other | | Total |
| (in thousands) |
Liability as of December 31, 2021 | $ | — | | | $ | 444 | | | $ | — | | | $ | 444 | |
Restructuring charges | — | | | 462 | | | — | | | 462 | |
Cash payments | — | | | (170) | | | — | | | (170) | |
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Non-cash charges and adjustments | — | | | (462) | | | — | | | (462) | |
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Liability as of June 30, 2022 | — | | | 274 | | | — | | | 274 | |
Less: current portion as of June 30, 2022 | — | | | (256) | | | — | | | (256) | |
Long-term portion as of June 30, 2022 | $ | — | | | $ | 18 | | | $ | — | | | $ | 18 | |
5. Goodwill and Intangible Assets
Goodwill
Goodwill arises from the acquisition method of accounting for business combinations and represents the excess of the purchase price over the fair value of the net assets and other identifiable intangible assets acquired. The fair values of net tangible assets and intangible assets acquired are based upon preliminary valuations and the Company’s estimates and assumptions are subject to change within the measurement period (potentially up to one year from the acquisition date).
During the six months ended June 30, 2022, there was an increase in the carrying value of goodwill of $0.07 million related to minor adjustments to assets and liabilities in the purchase price allocation for Company X.
The Company performs an annual goodwill impairment assessment on October 31st each year, using a quantitative assessment comparing the fair value of each reporting unit, which the Company has determined to be the entity itself, with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recorded.
In addition to its annual review, the Company performs a test of impairment when indicators of impairment are present. During the three and six months ended June 30, 2022 and 2021, there were no indications of impairment of the Company’s goodwill balances.
Acquired Intangibles
Finite-lived Intangible Assets
The following table sets forth the Company’s finite-lived intangible assets resulting from business acquisitions and other purchases, which are amortized over their estimated useful lives: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2022 | | December 31, 2021 |
| Weighted Average Useful Life (in Years) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Amount |
| | | (in thousands) |
Licensed technology | 6.3 | | $ | 22,054 | | | $ | (3,034) | | | $ | 19,020 | | | $ | 16,850 | | | $ | (2,218) | | | $ | 14,632 | |
Developed technology | 7.0 | | 311,261 | | | (209,876) | | | 101,385 | | | 308,661 | | | (189,244) | | | 119,417 | |
Trademarks and trade names | 6.2 | | 14,800 | | | (12,381) | | | 2,419 | | | 14,800 | | | (11,221) | | | 3,579 | |
Customer relationships | 5.0 | | 128,800 | | | (124,037) | | | 4,763 | | | 128,800 | | | (116,847) | | | 11,953 | |
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Backlog | 2.4 | | 1,300 | | | (959) | | | 341 | | | 1,300 | | | (941) | | | 359 | |
| 6.2 | | $ | 478,215 | | | $ | (350,287) | | | $ | 127,928 | | | $ | 470,411 | | | $ | (320,471) | | | $ | 149,940 | |
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| MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) | |
The following table sets forth amortization expense associated with finite-lived intangible assets, which is included in the consolidated statements of income as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | |
| 2022 | | 2021 | | 2022 | | 2021 | | |
| (in thousands) | | (in thousands) |
Cost of net revenue | $ | 9,865 | | | $ | 10,762 | | | $ | 20,712 | | | $ | 21,527 | | | |
Research and development | 1 | | | 1 | | | 2 | | | 2 | | | |
Selling, general and administrative | 2,926 | | | 5,815 | | | 9,102 | | | 11,885 | | | |
| $ | 12,792 | | | $ | 16,578 | | | $ | 29,816 | | | $ | 33,414 | | | |
Amortization of finite-lived intangible assets in cost of net revenue in the consolidated statements of income results primarily from acquired developed technology.
The following table sets forth the activity related to finite-lived intangible assets: | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 |
| (in thousands) |
Beginning balance | $ | 149,940 | | | $ | 200,066 | |
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Additions | 5,204 | | | 1,112 | |
Transfers to developed technology from IPR&D | |