MaxLinear, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Goodwill and Intangible Assets

Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

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).

The following table presents the changes in the carrying amount of goodwill for the periods indicated:


	Nine Months Ended September 30,
	2020		2019
	(in thousands)
Beginning balance	$	238,330	$	238,330

Acquisitions (Note 3)	64,246		—

Ending balance	$	302,576	$	238,330

The Company performs an annual goodwill impairment assessment on October 31st each year, which effective in 2020, compares 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 fair value of a reporting unit exceeds the carrying amount, the goodwill of the reporting unit is considered not impaired.

In addition to its annual review, the Company performs a test of impairment when indicators of impairment are present. During the three and nine months ended September 30, 2020 and 2019, no goodwill impairment was recognized.

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:


		September 30, 2020						December 31, 2019
	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	3.7	$	2,458	$	(1,890)	$	568	$	2,156	$	(1,583)	$	573
Developed technology	6.9	310,961		(135,585)		175,376		243,361		(108,522)		134,839
Trademarks and trade names	6.7	15,000		(8,220)		6,780		13,800		(6,511)		7,289
Customer relationships	4.6	130,900		(90,882)		40,018		121,100		(75,847)		45,253
Non-compete covenants	3.0	1,100		(1,100)		—		1,100		(1,083)		17
Backlog	3.8	2,500		(294)		2,206		—		—		—
	6.2	$	462,919	$	(237,971)	$	224,948	$	381,517	$	(193,546)	$	187,971

The following table sets forth amortization expense associated with finite-lived intangible assets, which is included in the consolidated statements of operations as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)				(in thousands)
Cost of net revenue	$	9,910	$	8,487	$	27,093	$	25,410
Research and development	2		1		4		47
Selling, general and administrative	6,056		5,723		17,328		17,312
	$	15,968	$	14,211	$	44,425	$	42,769

Amortization of finite-lived intangible assets in cost of net revenue in the consolidated statements of operations results primarily from acquired developed technology.

The following table sets forth the activity related to finite-lived intangible assets:


	Nine Months Ended September 30,
	2020		2019
	(in thousands)
Beginning balance	$	187,971	$	240,500
Acquisitions (Note 3)	81,100		—
Additions	388		86
Transfers to developed technology from IPR&D	—		1,500
Amortization	(44,425)		(42,769)
Impairment losses	(86)		—
Ending balance	$	224,948	$	199,317

The Company regularly reviews the carrying amount of its long-lived assets subject to depreciation and amortization, as well as the related useful lives, to determine whether indicators of impairment may exist that warrant adjustments to carrying values or estimated useful lives. An impairment loss is recognized when the sum of the expected future undiscounted net cash flows is less than the carrying amount of the asset. Should impairment exist, the impairment loss is measured based on the excess of the carrying amount of the asset over the asset’s fair value. During the three and nine months ended September 30, 2020, the Company recognized impairment losses related to finite-lived intangible assets of $0 and $0.1 million, respectively. During the three and nine months ended September 30, 2019, no impairment losses related to finite-lived intangible assets were recognized.

The following table presents future amortization of the Company’s finite-lived intangible assets at September 30, 2020:


	Amount
	(in thousands)
2020 (3 months)	$	17,596
2021	68,918
2022	50,322
2023	37,879
2024	21,900
Thereafter	28,333
Total	$	224,948

Indefinite-lived Intangible Assets

Indefinite-lived intangible assets consisted entirely of acquired in-process research and development technology, or IPR&D. The following table sets forth the Company’s activities related to the indefinite-lived intangible assets:


	Nine Months Ended September 30,
	2020		2019
	(in thousands)
Beginning balance	$	—	$	4,400
Acquisitions (Note 3)	7,200		—
Transfers to developed technology from IPR&D	—		(1,500)

Ending balance	$	7,200	$	2,900

The Company performs its annual assessment of indefinite-lived intangible assets on October 31 each year or more frequently if events or changes in circumstances indicate that the asset might be impaired utilizing a qualitative test as a precursor to the quantitative test comparing the fair value of the assets with their carrying amount. Based on the qualitative test, if it is more likely than not that indicators of impairment exists, the Company proceeds to perform a quantitative analysis. During the three and nine months ended September 30, 2020 and 2019, no indicators of impairment were identified and, as a result, no IPR&D impairment losses were recorded.