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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 September 30, 2021
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 | 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 20, 2021, the registrant had 76,734,936 shares of common stock, par value $0.0001, outstanding.
MAXLINEAR, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
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Part I | | |
Item 1. | | |
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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. | | |
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PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAXLINEAR, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited; in thousands, except par value amounts) | | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 169,424 | | | $ | 148,901 | |
Short-term restricted cash | 107 | | | 115 | |
| | | |
Accounts receivable, net | 106,867 | | | 67,442 | |
Inventory | 127,347 | | | 97,839 | |
Prepaid expenses and other current assets | 14,535 | | | 47,421 | |
Total current assets | 418,280 | | | 361,718 | |
Long-term restricted cash | 1,023 | | | 1,018 | |
| | | |
Property and equipment, net | 53,022 | | | 39,470 | |
Leased right-of-use assets | 23,668 | | | 21,886 | |
Intangible assets, net | 163,894 | | | 207,266 | |
Goodwill | 302,828 | | | 302,828 | |
Deferred tax assets | 84,660 | | | 86,065 | |
Other long-term assets | 6,519 | | | 2,191 | |
Total assets | $ | 1,053,894 | | | $ | 1,022,442 | |
Liabilities and stockholders’ equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 63,635 | | | $ | 32,751 | |
| | | |
Accrued price protection liability | 49,411 | | | 47,766 | |
Accrued expenses and other current liabilities | 70,866 | | | 105,842 | |
Accrued compensation | 47,362 | | | 47,302 | |
| | | |
Current portion of long-term debt | — | | | — | |
Total current liabilities | 231,274 | | | 233,661 | |
Long-term lease liabilities | 21,400 | | | 20,862 | |
Long-term debt | 326,027 | | | 363,592 | |
Other long-term liabilities | 17,650 | | | 13,210 | |
Total liabilities | 596,351 | | | 631,325 | |
| | | |
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; 76,735 shares issued and outstanding at September 30, 2021 and 74,536 shares issued and outstanding December 31, 2020 | 8 | | | 7 | |
| | | |
| | | |
Additional paid-in capital | 655,620 | | | 602,064 | |
Accumulated other comprehensive income | 511 | | | 1,435 | |
Accumulated deficit | (198,596) | | | (212,389) | |
Total stockholders’ equity | 457,543 | | | 391,117 | |
Total liabilities and stockholders’ equity | $ | 1,053,894 | | | $ | 1,022,442 | |
See accompanying notes.
MAXLINEAR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited; in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Net revenue | $ | 229,774 | | | $ | 156,633 | | | $ | 644,509 | | | $ | 283,880 | |
Cost of net revenue | 99,981 | | | 90,427 | | | 290,454 | | | 154,169 | |
Gross profit | 129,793 | | | 66,206 | | | 354,055 | | | 129,711 | |
Operating expenses: | | | | | | | |
Research and development | 67,538 | | | 55,816 | | | 205,120 | | | 109,489 | |
Selling, general and administrative | 38,469 | | | 41,685 | | | 110,823 | | | 93,787 | |
Impairment losses | — | | | — | | | — | | | 86 | |
Restructuring charges | — | | | 3,280 | | | 2,204 | | | 3,833 | |
Total operating expenses | 106,007 | | | 100,781 | | | 318,147 | | | 207,195 | |
Income (loss) from operations | 23,786 | | | (34,575) | | | 35,908 | | | (77,484) | |
Interest income | 28 | | | 27 | | | 46 | | | 283 | |
Interest expense | (2,649) | | | (3,569) | | | (10,596) | | | (8,228) | |
Loss on extinguishment of debt | — | | | — | | | (5,221) | | | — | |
Other income (expense), net | (105) | | | (719) | | | (746) | | | (620) | |
Total other income (expense), net | (2,726) | | | (4,261) | | | (16,517) | | | (8,565) | |
Income (loss) before income taxes | 21,060 | | | (38,836) | | | 19,391 | | | (86,049) | |
Income tax provision (benefit) | 11,802 | | | (2,191) | | | 5,598 | | | (12,128) | |
Net income (loss) | $ | 9,258 | | | $ | (36,645) | | | $ | 13,793 | | | $ | (73,921) | |
Net income (loss) per share: | | | | | | | |
Basic | $ | 0.12 | | | $ | (0.50) | | | $ | 0.18 | | | $ | (1.02) | |
Diluted | $ | 0.12 | | | $ | (0.50) | | | $ | 0.17 | | | $ | (1.02) | |
Shares used to compute net income (loss) per share: | | | | | | | |
Basic | 76,582 | | | 73,402 | | | 75,795 | | | 72,729 | |
Diluted | 79,815 | | | 73,402 | | | 79,048 | | | 72,729 | |
See accompanying notes.
MAXLINEAR, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited; in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | | | | |
| 2021 | | 2020 | | 2021 | | 2020 | | | | | | |
Net income (loss) | $ | 9,258 | | | $ | (36,645) | | | $ | 13,793 | | | $ | (73,921) | | | | | | | |
Other comprehensive income (loss), net of tax: | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Foreign currency translation adjustments, net of tax expense of $196 and $427 for the three and nine months ended September 30, 2021, respectively, and net of tax expense of zero and $23 for the three and nine months ended September 30, 2020, respectively | (292) | | | 700 | | | (924) | | | 415 | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Unrealized gain on interest rate swap, net of tax expense of $17 and $6 for the three and nine months ended September 30, 2020, respectively | — | | | 60 | | | — | | | 22 | | | | | | | |
| | | | | | | | | | | | | |
Other comprehensive income (loss) | (292) | | | 760 | | | (924) | | | 437 | | | | | | | |
Total comprehensive income (loss) | $ | 8,966 | | | $ | (35,885) | | | $ | 12,869 | | | $ | (73,484) | | | | | | | |
See accompanying notes.
MAXLINEAR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FISCAL QUARTERS ENDED SEPTEMBER 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 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued pursuant to equity awards, net | | | | | | 290 | | | — | | | | | | | | | | | (104) | | | — | | | — | | | (104) | |
Repurchase of common stock | | | | | | (24) | | | — | | | | | | | | | | | (1,008) | | | — | | | — | | | (1,008) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation | | | | | | — | | | — | | | | | | | | | | | 16,022 | | | — | | | — | | | 16,022 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive loss | | | | | | — | | | — | | | | | | | | | | | — | | | (292) | | | — | | | (292) | |
Net income | | | | | | — | | | — | | | | | | | | | | | — | | | — | | | 9,258 | | | 9,258 | |
Balance at September 30, 2021 | | | | | | 76,735 | | | $ | 8 | | | | | | | | | | | $ | 655,620 | | | $ | 511 | | | $ | (198,596) | | | $ | 457,543 | |
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See accompanying notes.
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 | |
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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 | |
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See accompanying notes.
MAXLINEAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in thousands) | | | | | | | | | | | |
| | | |
| Nine Months Ended September 30, |
2021 | | 2020 |
Operating Activities | | | |
Net income (loss) | $ | 13,793 | | | $ | (73,921) | |
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: | | | |
Amortization and depreciation | 67,439 | | | 53,819 | |
Impairment losses | — | | | 86 | |
| | | |
| | | |
| | | |
Inventory fair value adjustments | — | | | 14,445 | |
Amortization of debt issuance costs and accretion of discounts | 2,584 | | | 1,386 | |
Stock-based compensation | 42,943 | | | 33,057 | |
Deferred income taxes | 1,405 | | | (5,253) | |
Loss on disposal of property and equipment | 533 | | | — | |
| | | |
Impairment of leasehold improvements | 226 | | | 319 | |
Impairment of leased right-of-use assets | 429 | | | 1,508 | |
Loss on extinguishment of debt | 5,221 | | | — | |
Loss on foreign currency | 384 | | | 375 | |
| | | |
Excess tax benefits on stock-based awards | (5,369) | | | (530) | |
Changes in operating assets and liabilities, net of effects of acquisitions: | | | |
Accounts receivable | (39,425) | | | (54,592) | |
Inventory | (29,440) | | | (20,180) | |
Prepaid expenses and other assets | 33,487 | | | (34,357) | |
Leased right-of-use assets | 72 | | | 405 | |
Accounts payable, accrued expenses and other current liabilities | 35,054 | | | 67,193 | |
Accrued compensation | 23,849 | | | 23,121 | |
| | | |
Accrued price protection liability | 1,636 | | | 5,439 | |
Lease liabilities | (7,070) | | | (4,275) | |
Other long-term liabilities | 4,449 | | | (8,721) | |
Net cash provided by (used in) operating activities | 152,200 | | | (676) | |
| | | |
Investing Activities | | | |
Purchases of property and equipment | (26,934) | | | (10,132) | |
| | | |
Purchases of intangible assets | (6,616) | | | (388) | |
Cash used in acquisitions, net of cash acquired | (35,000) | | | (160,000) | |
Purchases of long-term investments | (5,000) | | | — | |
| | | |
Net cash used in investing activities | (73,550) | | | (170,520) | |
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Financing Activities | | | |
| | | |
Proceeds from the issuance of debt | 350,000 | | | 175,000 | |
Payment of debt issuance cost | (4,144) | | | (2,696) | |
Repayment of debt | (389,813) | | | — | |
Net proceeds from issuance of common stock | 6,286 | | | 5,270 | |
Minimum tax withholding paid on behalf of employees for restricted stock units | (11,081) | | | (2,892) | |
Repurchase of common stock | (8,145) | | | — | |
| | | |
Net cash provided by (used in) financing activities | (56,897) | | | 174,682 | |
Effect of exchange rate changes on cash and cash equivalents | (1,233) | | | 139 | |
Increase in cash, cash equivalents and restricted cash | 20,520 | | | 3,625 | |
Cash, cash equivalents and restricted cash at beginning of period | 150,034 | | | 93,117 | |
Cash, cash equivalents and restricted cash at end of period | $ | 170,554 | | | $ | 96,742 | |
| | | |
Supplemental disclosures of cash flow information: | | | |
Cash paid for interest | $ | 8,798 | | | $ | 7,067 | |
Cash paid for income taxes | $ | 2,894 | | | $ | 2,003 | |
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Supplemental disclosures of non-cash activities: | | | |
| | | |
Issuance of shares for payment of bonuses | $ | 23,554 | | | $ | 2,857 | |
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See accompanying notes.
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| 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, 2020 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, 2020 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 11, 2021, or the Annual Report. Interim results for the nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021.
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.
Last year, 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 the Company has benefited from increased demand for certain of our products from the work-from-home environment in the second half of 2020 and the first three quarters of 2021, 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 chip 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 our 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. Heightened volatility, global supply shortages, 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.
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| MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) | |
The Company also believes that its $170.6 million of cash and cash equivalents at September 30, 2021 will be sufficient to fund its projected operating requirements for at least the next twelve months. A material adverse impact from COVID-19 and the global semiconductor chip shortage 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 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 October 27, 2021, 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. There have been no other significant changes to the Company’s significant accounting policies during the nine months ended September 30, 2021.
Recently Adopted 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 related to the approach for intraperiod tax allocation, recognition of deferred tax liabilities for outside basis differences and 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 are effective for the Company beginning with fiscal year 2021. 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 the amendments in this update did not have a material impact on the Company’s consolidated financial position and results of operations as of and for the nine months ended September 30, 2021, and is also not expected to have a material impact on the Company’s financial position and results of operations as of and for the year ending December 31, 2021.
In October 2020, the FASB issued ASU No. 2020-10 Codification Improvements, to make incremental improvements to GAAP and address stakeholder suggestions, including, among other things, clarifying that the requirement to provide comparative information in the financial statements extends to the corresponding disclosures section. The amendments in this update are effective for the Company beginning with fiscal year 2021. The amendments in this update should be applied retrospectively and at the beginning of the period that includes the adoption date. The adoption of the amendments in this update did not have a material impact on the Company’s financial disclosures as of and for the nine months ended September 30, 2021, and is also not expected to have a material impact on the Company’s financial disclosures for the year ending December 31, 2021.
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.
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| MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) | |
The table below presents the computation of basic and diluted EPS: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | | | | |
| 2021 | | 2020 | | 2021 | | 2020 | | | | | | |
| (in thousands, except per share amounts) | | | | | | |
Numerator: | | | | | | | | | | | | | |
Net income (loss) | $ | 9,258 | | | $ | (36,645) | | | $ | 13,793 | | | $ | (73,921) | | | | | | | |
Denominator: | | | | | | | | | | | | | |
Weighted average common shares outstanding—basic | 76,582 | | | 73,402 | | | 75,795 | | | 72,729 | | | | | | | |
Dilutive common stock equivalents | 3,233 | | | — | | | 3,253 | | | — | | | | | | | |
Weighted average common shares outstanding—diluted | 79,815 | | | 73,402 | | | 79,048 | | | 72,729 | | | | | | | |
Net income (loss) per share: | | | | | | | | | | | | | |
Basic | $ | 0.12 | | | $ | (0.50) | | | $ | 0.18 | | | $ | (1.02) | | | | | | | |
Diluted | $ | 0.12 | | | $ | (0.50) | | | $ | 0.17 | | | $ | (1.02) | | | | | | | |
For the three and nine months ended September 30, 2021 and 2020, the Company excluded common stock equivalents for outstanding stock-based awards, which represented potentially dilutive securities of 0.08 million and 0.07 million for the 2021 periods, respectively, and 3.5 million and 3.1 million for the 2020 periods, respectively, from the calculation of diluted net income (loss) per share due to their anti-dilutive nature.
3. Business Combinations
Acquisition of the Wi-Fi 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 Wi-Fi 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 Wi-Fi 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 Wi-Fi and Broadband assets business develops a broad portfolio of connected home products, including Wi-Fi, 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 has integrated the acquired assets and rehired employees into the Company’s existing business.
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. The Company believes it does not have a material indemnification obligation as of September 30, 2021; however, if the Company were required to make payments in satisfaction of these indemnification obligations related to breaches of representations and warranties of certain fundamental obligations which have not yet expired, it could have a material adverse effect on the Company’s business, financial condition, results of operations, and cash flows.
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| MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) | |
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 granted to the Company a license to certain intellectual property rights for use by the Company in connection with the acquired assets and the Company granted back to Intel a license to the intellectual property rights in the acquired assets, (ii) a supply agreement, pursuant to which Intel manufactures and fabricates certain products for the Company that are part of the acquired assets, (iii) an ethernet network controller services agreement, pursuant to which the Company provides Intel with certain development services with respect to certain Intel ethernet network controller products, (iv) a transition services agreement, pursuant to which Intel provided certain services on a transitional basis for up to a 12-month period after the closing, the scope of which included 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 had control and economic benefits of the inventory, but transfer of the title and possession of the inventory was delayed until the last day that Intel provided services under the transition services agreement in January 2021.
Acquisition Consideration
The following table summarizes the fair value of purchase price consideration to acquire the Wi-Fi and Broadband assets business (in thousands):
| | | | | |
Description | Amount |
Fair value of purchase consideration: | |
Cash | $ | 150,000 | |
Purchase Price Allocation
The following is the final allocation of purchase price as of the July 31, 2020 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 (in thousands): | | | | | |
Description | Amount |
Fair value of consideration transferred: | |
Cash | $ | 150,000 | |
| |
Purchase price allocation: | |
Inventory | $ | 67,100 | |
Property and equipment | 17,641 | |
| |
Identifiable intangible assets | 58,000 | |
Deferred tax assets | 457 | |
Accrued expenses | (68) | |
Accrued price protection liability | (413) | |
Accrued compensation | (7,916) | |
| |
Other long-term liabilities | (8,197) | |
Identifiable net assets acquired | 126,604 | |
Goodwill | 23,396 | |
Total purchase price | $ | 150,000 | |
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| MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) | |
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 | | $ | 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, in the nine months ended September 30, 2021, the NanoSemi stockholders received $35.0 million in cash payments that were deferred as of the acquisition date, and certain NanoSemi stockholders 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) | — | |
| |
| |
| |
| |
Total purchase price | $ | 61,180 | |
_________________
(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 stockholders throughout 2021.
(3) The fair value of contingent consideration is zero as the applicable financial objectives from July 1, 2020 through December 31, 2022 are not expected to be met based on the Company’s forecast.
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| MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) | |
Purchase Price Allocation
The following is the final allocation of purchase price as of the September 9, 2020 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 (in thousands): | | | | | |
Description | Amount |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Purchase price allocation: | |
Accounts receivable | $ | 175 | |
Prepaid expenses and other current assets | 879 | |
Property and equipment | 177 | |
Leased right-of-use assets | 1,805 | |
Identifiable intangible assets | 19,900 | |
Accounts payable | (602) | |
Accrued expenses and other current liabilities | (323) | |
Accrued compensation | (223) | |
Long-term lease liabilities | (1,546) | |
Other long-term liabilities | (164) | |
Identifiable net assets acquired | 20,078 | |
Goodwill | 41,102 | |
Total purchase price | $ | 61,180 | |
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 | | $ | 17,500 | |
Trademarks and tradenames | | 7 | | 1,000 | |
Customer-related intangible | | 5 | | 900 | |
Product backlog | | 5.33 | | 500 | |
Total identifiable intangible assets acquired | | | | $ | 19,900 | |
Assumptions in the Allocations of Purchase Price
Management prepared the purchase price allocations for the Wi-Fi 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 that were initially deferred and were subsequently paid to NanoSemi stockholders in the nine months ended September 30, 2021, as described above. Certain NanoSemi stockholders that are employees were 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 were 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 the Wi-Fi 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. There have been no adjustments between the preliminary purchase price allocations reflected as of December 31, 2020 and the final purchase price allocations reflected as of September 30, 2021.
The fair value of the identified intangible assets acquired from the Wi-Fi 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
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| MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) | |
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 began amortization immediately upon the closing of the transaction 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 Wi-Fi 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 Wi-Fi and Broadband assets business and NanoSemi was $23.4 million and $41.1 million, respectively. 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 operations: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | | |
| 2021 | | 2020 | | 2021 | | 2020 | | | | |
| (in thousands) | | | | |
Employee separation expenses | $ | — | | | $ | 1,523 | | | $ | 1,273 | | | $ | 1,620 | | | | | |
Lease related charges | — | | | 1,723 | | | 608 | | | 1,998 | | | | | |
Other | |