MaxLinear, Inc. Announces Second Quarter 2017 Financial Results

Second Quarter 2017 GAAP Revenue of $104.2 million, net of a $5.2 million revenue elimination under purchase accounting
GAAP Diluted Earnings per Share of $0.16
and Non-GAAP Diluted Earnings per Share of $0.35

CARLSBAD, Calif., Aug. 08, 2017 (GLOBE NEWSWIRE) -- MaxLinear, Inc. (NYSE:MXL), a leading provider of radio-frequency, mixed-signal and high-performance analog integrated circuits for the connected home, wired and wireless infrastructure, and industrial and multi-market applications, today announced financial results for the second quarter ended June 30, 2017.

Management Commentary

“We are pleased to announce the financial results of a very exciting second quarter in 2017. In the second quarter, we delivered record GAAP revenue of $104.2 million, even after a $5.2 million revenue elimination under acquisition-related purchase price accounting. Our strong revenue results were driven by sequential growth in both our network infrastructure and connected home applications, and included initial contributions from our recent acquisitions of Marvell's G.hn wireless connectivity business, and Exar Corporation, or Exar. With the addition of the G.hn wireline connectivity assets acquired from Marvell, we are better positioned to address the needs of our connected home partners, while significantly expanding our served addressable market for connectivity solutions beyond MoCA. Exar's high-performance analog product portfolio, consisting of power management and interface solutions, is highly complementary to MaxLinear's organically developed broadband RF and mixed-signal digital SoC platform capabilities. As a result, we are uniquely positioned to address the analog and mixed-signal needs of an increasingly diverse tier-1 customer base with technology platforms spanning consumer, broadband, industrial, automotive, and network infrastructure markets. We are also pleased to have made our first prepayment of $30.0 million against our term loan of $425.0 million in July 2017,” commented Kishore Seendripu, Ph.D., Chairman and CEO.

Second Quarter Financial Highlights

GAAP basis:

The second quarter 2017 results were uniquely influenced by the acquisitions and related purchase price accounting impacts of Marvell’s G.hn business in April 2017 and Exar in May 2017, the $425.0 million term loan issuance to fund the Exar transaction, and a large non-cash income tax benefit resulting from release of the valuation allowance against our U.S. federal deferred tax assets during the three months ended June 30, 2017.

Net revenue increased to $104.2 million, which was impacted by elimination of Exar's deferred revenue of $5.2 million under acquisition accounting, and which was up 17% sequentially and 2% year-on-year.
GAAP gross margin was 49.1%, which was impacted by elimination of Exar's deferred profit of $3.9 million under acquisition accounting as well as amortization of inventory step-ups to fair value and acquired intangibles totaling $11.9 million, compared to 59.6% in the prior quarter, and 61.9% in the year ago quarter.
GAAP operating expenses, inclusive of partial quarter contributions from the Marvell G.hn and Exar acquisitions and related purchase price accounting impacts, were $66.9 million in the second quarter 2017, or 64% of revenue, compared to $42.5 million in the prior quarter, and $40.5 million in the year ago quarter.
GAAP pre-tax losses were 17.8% of revenue, compared to income that was 11.8% of revenue in the prior quarter, and income that was 22.3% of revenue in the year ago quarter.
GAAP tax benefit was $29.5 million or 159.1% of pre-tax loss, and was impacted by $50.1 million of reversal of a valuation allowance against certain of our deferred tax assets (with $45.3 million of discrete benefit in the quarter).
GAAP net income was $11.0 million, compared to $8.5 million in the prior quarter, and $22.6 million in the year ago quarter.
GAAP diluted earnings per share were $0.16, compared to $0.12 in the prior quarter, and $0.33 in the year ago quarter.

Non-GAAP basis:

Non-GAAP gross margin was 64.4%, when calculated on GAAP revenue of $104.2 million, or 61.3% when calculated to adjust for the $5.2 million of deferred revenue eliminated under Exar acquisition accounting, which was the basis for prior guidance. This compares to 62.7% in the prior quarter, and 63.8% in the year ago quarter.
Non-GAAP operating expenses were $36.9 million, or 35.4% of revenue, compared to $30.1 million or 33.8% of revenue in the prior quarter, and $30.6 million and 30.1% of revenue in the year ago quarter.
Non-GAAP pre-tax margin was 26.4% of revenue, compared to 28.9% in the prior quarter, and 34.1% in the year ago quarter.
Non-GAAP effective tax rate was 10.1% of non-GAAP pre-tax income and reflects the tax rate on expected cash taxes, compared to 9.9% in the prior quarter, and 2.2% in the year ago quarter
Non-GAAP net income was $24.7 million, compared to $23.2 million in the prior quarter, and $33.9 million in the year ago quarter.
Non-GAAP diluted earnings per share were $0.35, compared to $0.33 in the prior quarter, and $0.50 in the year ago quarter.

Second Quarter 2017 Business Highlights

Completed the acquisition of G.hn Business from Marvell in April 2017 for $21.0 million cash, expanding portfolio of connected home wireline backbone solutions.
Completed the acquisition of Exar Corporation in May 2017 for $452.3 million, net of Exar's $235.8 million of cash at close, plus $4.6 million in assumed vested stock-based awards for total consideration of $692.7 million, funded with a $425.0 million term loan facility.
Wave-2 G.hn Technology chosen by Comtrend for new powerline adapter with data rates up to 2 Gbps.
Commenced production shipments of our technology leading highly integrated 28nm CMOS Microwave backhaul RF solution addressing 5 to 45Ghz frequencies.
Commenced production shipments of EXAR force-touch solution into HTC's flagship u11 smartphone.
Commenced production shipments of EXAR's point-of-load ("POL") power management solutions into tier-1 server platforms.
Commenced shipments of technology leading MOCA 2.5 products with data rates up to 3 Gbps.
Commenced production ramp of 1st DOCSIS 3.1 platform for major US cable operator.
Commenced production ramp of G.Now solution with a major Asian telco.
Achieved milestone of shipping 7M digital channel stacking components.
Initial sampling of industry’s first integrated tuner + ATSC demod for the US, Mexican, and South Korean markets.
Commenced volume shipments of mmWave backhaul modem solution to a tier-1 Chinese OEM customer.

Third Quarter 2017 Business Outlook
The company expects revenue in the third quarter to be in the range of $114 million to $118 million, and also estimates the following:

GAAP and non-GAAP gross margin of approximately 45% and 61%, respectively.
GAAP and non-GAAP operating expenses of approximately $62 million and $41 million, respectively.
GAAP and non-GAAP cash tax rates of approximately 36.5% and 10%, respectively.

Webcast and Conference Call
MaxLinear will host its second quarter financial results conference call today, August 8, 2017 at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time). To access this call, dial US toll free: 1-877-407-3109 / International: 1-201-493-6798. A live webcast of the conference call will be accessible from the investor relations section of the MaxLinear website at http://investors.maxlinear.com, and will be archived and available after the call at http://investors.maxlinear.com until August 22, 2017. A replay of the conference call will also be available until August 22, 2017 by dialing US toll free: 1-877-660-6853 / International: 1-201-612-7415 and Conference ID#: 13653123.

Cautionary Note Concerning Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include, among others, statements concerning our future financial performance (including our current guidance for third quarter 2017 revenue and gross margin). These forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to be materially different from any future results expressed or implied by the forward-looking statements. Forward-looking statements are based on management’s current, preliminary expectations and are subject to various risks and uncertainties. In particular, our future operating results are substantially dependent on our assumptions about market trends and conditions and our expectations with respect to recently completed acquisitions. With respect to recently completed acquisitions, we face particular risks associated with our ability to integrate the acquired businesses and maintain relationships with employees, customers, and vendors. Exar’s target markets and business operations differ substantially from those of MaxLinear, and we may be unable to realize anticipated strategic, financial, and operating synergies to the same relative extent as we were able to achieve in other recent acquisitions. In addition, our decisions with respect to all our acquisitions were based on management’s current expectations with respect to the size of the available markets and growth opportunities presented by these acquisitions, all of which are subject to material risks and uncertainties. In connection with the acquisition of Exar, we incurred substantial acquisition-related indebtedness, which materially changed our financial profile and presents specific risks relating to our ability to service interest and principal payments and limitations on our operating flexibility based on operating covenants in the applicable term loan agreements, including (without limitation) debt covenant restrictions that limit our ability to obtain additional financing, issue guarantees, create liens, make certain restricted payments or repay certain obligations or to pursue future acquisitions. Additional risks and uncertainties arising from our operations generally and our recently completed acquisitions include intense competition in our industry; our dependence on a limited number of customers for a substantial portion of our revenues; uncertainties concerning how end user markets for our products will develop; potential uncertainties arising from continued consolidation among cable television and satellite operators in our target markets and continued consolidation among competitors within the semiconductor industry generally; our ability to develop and introduce new and enhanced products on a timely basis and achieve market acceptance of those products, particularly as we seek to expand outside of our historic markets; potential decreases in average selling prices for our products; risks relating to intellectual property protection and the prevalence of intellectual property litigation in our industry; indemnification obligations of Exar arising from a recent divestiture; the impact on our financial condition of the incurred acquisition indebtedness and cash usage arising from the Exar transaction; our reliance on a limited number of third party manufacturers; and our lack of long-term supply contracts and dependence on limited sources of supply. In addition to these risks and uncertainties, investors should review the risks and uncertainties contained in our filings with the Securities and Exchange Commission (SEC), including our most recent Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on February 9, 2017, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, and our Current Reports on Form 8-K, as well as the information to be set forth under the caption “Risk Factors” in MaxLinear’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, which we expect to file shortly. All forward-looking statements are based on the estimates, projections and assumptions of management as of August 8, 2017, and MaxLinear is under no obligation (and expressly disclaims any such obligation) to update or revise any forward-looking statements whether as a result of new information, future events, or otherwise.

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