MaxLinear, Inc. Announces Second Quarter 2020 Financial Results

Use of Non-GAAP Financial Measures

To supplement our unaudited consolidated financial statements presented on a basis consistent with GAAP, we disclose certain non-GAAP financial measures, including non-GAAP gross margin, operating expenses, operating expenses as a percentage of revenue, income from operations as percentage of revenue, and diluted earnings per share. These supplemental measures exclude the effects of (i) stock-based compensation expense; (ii) accruals related to our performance based bonus plan for 2020, which we currently intend to settle in shares of our common stock; (iii) accruals related to our performance based bonus plan for 2019 which we settled in shares of common stock in 2020; (iv) amortization of purchased intangible assets; (v) depreciation of fixed assets step-up; (vi) acquisition costs related to our recently announced acquisition; (vii) professional fees and settlement costs related to IP and commercial litigation matters; (viii) severance and other restructuring charges; (ix) impairment losses on intangible assets; and (x) non-cash income tax benefits and expenses. These non-GAAP measures are not in accordance with and do not serve as an alternative for GAAP. We believe that these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our GAAP results of operations. These non-GAAP measures should only be viewed in conjunction with corresponding GAAP measures. We compensate for the limitations of non-GAAP financial measures by relying upon GAAP results to gain a complete picture of our performance.

We believe that non-GAAP financial measures can provide useful information to both management and investors by excluding certain non-cash and other one-time expenses that are not indicative of our core operating results. Among other uses, our management uses non-GAAP measures to compare our performance relative to forecasts and strategic plans and to benchmark our performance externally against competitors. In addition, management’s incentive compensation will be determined in part using these non-GAAP measures because we believe non-GAAP measures better reflect our core operating performance.

The following are explanations of each type of adjustment that we incorporate into non-GAAP financial measures:

Stock-based compensation expense relates to equity incentive awards granted to our employees, directors, and consultants. Our equity incentive plans are important components of our employee incentive compensation arrangements and are reflected as expenses in our GAAP results. Stock-based compensation expense has been and will continue to be a significant recurring expense for MaxLinear. While we include the dilutive impact of equity awards in weighted average shares outstanding, the expense associated with stock-based awards reflects a non-cash charge that we exclude from non-GAAP net income.

Bonuses under our executive and non-executive bonus programs have been excluded from our non-GAAP net income for all periods reported. Bonus payments for the 2019 performance periods were settled through the issuance of shares of common stock under our equity incentive plans in March 2020. We currently expect that bonus awards under our fiscal 2020 program will be settled in common stock in the first quarter of fiscal 2021.

Expenses incurred in relation to acquisitions include amortization of purchased intangible assets, depreciation of step-up of property and equipment to fair value, and acquisition costs primarily consisting of professional and consulting fees.

Impairment losses relate to certain intangible assets.

Restructuring charges incurred are related to our restructuring plans which eliminate redundancies and primarily include severance and restructuring costs related to exiting certain facilities.

Expenses incurred in relation to our intellectual property and commercial litigation include professional fees incurred.

Income tax benefits and expense adjustments are those that do not affect cash income taxes payable.

Reconciliations of non-GAAP measures for the historic periods disclosed in this press release appear below. Because of the inherent uncertainty associated with our ability to project future charges, particularly related to stock-based compensation and its related tax effects as well as potential impairments, we have not provided a reconciliation for non-GAAP guidance provided for the third quarter 2020.

About MaxLinear, Inc.

MaxLinear, Inc. (NYSE: MXL) is a leading provider of radio frequency (RF), analog and mixed-signal integrated circuits for the connected home, wired and wireless infrastructure, and industrial and multi-market applications. MaxLinear is headquartered in Carlsbad, California. For more information, please visit www.maxlinear.com.

MXL is MaxLinear’s registered trademark. Other trademarks appearing herein are the property of their respective owners.

MAXLINEAR, INC. UNAUDITED GAAP CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)

	Three Months Ended
	June 30, 2020			March 31, 2020			June 30, 2019
Net revenue	$	65,220		$	62,027		$	82,507
Cost of net revenue	32,477			31,265			38,427
Gross profit	32,743			30,762			44,080
Operating expenses:
Research and development	27,984			25,689			24,304
Selling, general and administrative	27,470			24,632			22,327
Impairment losses	—			86			—
Restructuring charges	64			489			416
Total operating expenses	55,518			50,896			47,047
Loss from operations	(22,775		)	(20,134		)	(2,967		)
Interest income	31			225			192
Interest expense	(2,183		)	(2,476		)	(2,853		)
Other income (expense), net	(81		)	180			(14		)
Total interest and other income (expense), net	(2,233		)	(2,071		)	(2,675		)
Loss before income taxes	(25,008		)	(22,205		)	(5,642		)
Income tax benefit	(3,201		)	(6,736		)	(3,413		)
Net loss	$	(21,807	)	$	(15,469	)	$	(2,229	)
Net loss per share:
Basic	$	(0.30	)	$	(0.21	)	$	(0.03	)
Diluted	$	(0.30	)	$	(0.21	)	$	(0.03	)
Shares used to compute net loss per share:
Basic	72,740			72,039			70,917
Diluted	72,740			72,039			70,917

MAXLINEAR, INC. UNAUDITED GAAP CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)

	Six Months Ended
	June 30, 2020			June 30, 2019
Net revenue	$	127,247		$	167,142
Cost of net revenue	63,742			77,985
Gross profit	63,505			89,157
Operating expenses:
Research and development	53,673			51,703
Selling, general and administrative	52,102			45,918
Impairment losses	86			—
Restructuring charges	553			2,333
Total operating expenses	106,414			99,954
Loss from operations	(42,909		)	(10,797		)
Interest income	256			339
Interest expense	(4,659		)	(5,828		)
Other income (expense), net	99			(669		)
Total interest and other income (expense), net	(4,304		)	(6,158		)
Loss before income taxes	(47,213		)	(16,955		)
Income tax benefit	(9,937		)	(9,875		)
Net loss	$	(37,276	)	$	(7,080	)
Net loss per share:
Basic	$	(0.51	)	$	(0.10	)
Diluted	$	(0.51	)	$	(0.10	)
Shares used to compute net loss per share:
Basic	72,389			70,445
Diluted	72,389			70,445

MAXLINEAR, INC. UNAUDITED GAAP CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)

	Three Months Ended
	June 30, 2020			March 31, 2020			June 30, 2019
Operating Activities
Net loss	$	(21,807	)	$	(15,469	)	$	(2,229	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization and depreciation	16,532			16,733			16,646
Impairment losses	—			86			—
Amortization of debt issuance costs and accretion of discount on debt and leases	397			410			391
Stock-based compensation	12,085			6,827			8,207
Deferred income taxes	(2,879		)	(6,208		)	(4,600		)
Loss on disposal of property and equipment	—			—			11
Impairment of leasehold improvements	—			163			—
Impairment of leased right-of-use assets	—			44			—
(Gain) loss on foreign currency	20			(246		)	(54		)
Excess tax deficiencies (benefits) on stock-based awards	(472		)	94			(2,074		)
Changes in operating assets and liabilities:
Accounts receivable	3,362			5,615			3,022
Inventory	(3,184		)	353			(122		)
Prepaid expenses and other assets	(669		)	1,443			(648		)
Leased right-of-use assets	(314		)	640			981
Accounts payable, accrued expenses and other current liabilities	6,020			(785		)	2,961
Accrued compensation	4,396			3,361			(209		)
Accrued price protection liability	(2,132		)	(4,537		)	(7,649		)
Lease liabilities	(1,279		)	(1,430		)	(2,179		)
Other long-term liabilities	(816		)	(446		)	(11		)
Net cash provided by operating activities	9,260			6,648			12,444
Investing Activities
Purchases of property and equipment	(3,901		)	(1,035		)	(524		)
Purchases of intangible assets	(13		)	—			—
Net cash used in investing activities	(3,914		)	(1,035		)	(524		)
Financing Activities
Repayment of debt	—			—			(15,000		)
Net proceeds from issuance of common stock	4,154			488			3,305
Minimum tax withholding paid on behalf of employees for restricted stock units	(1,024		)	(475		)	(5,408		)
Net cash provided by (used in) financing activities	3,130			13			(17,103		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	513			(303		)	354
Increase (decrease) in cash, cash equivalents and restricted cash	8,989			5,323			(4,829		)
Cash, cash equivalents and restricted cash at beginning of period	98,440			93,117			71,867
Cash, cash equivalents and restricted cash at end of period	$	107,429		$	98,440		$	67,038

MAXLINEAR, INC. UNAUDITED GAAP CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)

	Six months ended
	June 30, 2020			June 30, 2019
Operating Activities
Net loss	$	(37,276	)	$	(7,080	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization and depreciation	33,265			33,509
Impairment losses	86			—
Amortization of debt issuance costs and accretion of discount on debt and leases	807			793
Stock-based compensation	18,912			15,954
Deferred income taxes	(9,087		)	(11,076		)
Loss on disposal of property and equipment	—			46
Impairment of leasehold improvements	163			1,442
Impairment of leased right-of-use assets	44			2,182
Gain on extinguishment of lease liabilities	—			(2,880		)
(Gain) loss on foreign currency	(226		)	513
Excess tax benefits on stock-based awards	(378		)	(3,811		)
Changes in operating assets and liabilities:
Accounts receivable	8,977			2,880
Inventory	(2,831		)	(1,137		)
Prepaid expenses and other assets	774			(44		)
Leased right-of-use assets	326			1,626
Accounts payable, accrued expenses and other current liabilities	5,235			4,882
Accrued compensation	7,757			684
Accrued price protection liability	(6,669		)	(5,160		)
Lease liabilities	(2,709		)	(4,304		)
Other long-term liabilities	(1,262		)	(530		)
Net cash provided by operating activities	15,908			28,489
Investing Activities
Purchases of property and equipment	(4,936		)	(2,679		)
Purchases of intangible assets	(13		)	—
Net cash used in investing activities	(4,949		)	(2,679		)
Financing Activities
Repayment of debt	—			(30,000		)
Net proceeds from issuance of common stock	4,642			5,933
Minimum tax withholding paid on behalf of employees for restricted stock units	(1,499		)	(9,827		)
Net cash provided by (used in) financing activities	3,143			(33,894		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	210			931
Increase (decrease) in cash, cash equivalents and restricted cash	14,312			(7,153		)
Cash, cash equivalents and restricted cash at beginning of period	93,117			74,191
Cash, cash equivalents and restricted cash at end of period	$	107,429		$	67,038

MAXLINEAR, INC. UNAUDITED GAAP CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)

	June 30, 2020		March 31, 2020		June 30, 2019
Assets
Current assets:
Cash and cash equivalents	$	107,362	$	98,373	$	66,629
Short-term restricted cash	9		10		344
Accounts receivable, net	41,434		44,796		56,618
Inventory	34,284		31,088		42,875
Prepaid expenses and other current assets	7,489		6,342		6,184
Total current assets	190,578		180,609		172,650
Long-term restricted cash	58		57		65
Property and equipment, net	18,059		15,751		15,738
Leased right-of-use assets	8,942		9,864		20,624
Intangible assets, net	159,441		173,570		216,342
Goodwill	238,330		238,330		238,330
Deferred tax assets	76,371		73,492		62,667
Other long-term assets	1,281		1,752		2,744
Total assets	$	693,060	$	693,425	$	729,160

Liabilities and stockholders’ equity
Current liabilities	$	69,964	$	62,428	$	66,918
Long-term lease liabilities	6,833		8,029		16,515
Long-term debt	207,486		207,197		226,335
Other long-term liabilities	6,802		7,614		8,016
Stockholders’ equity	401,975		408,157		411,376
Total liabilities and stockholders’ equity	$	693,060	$	693,425	$	729,160

MAXLINEAR, INC. UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTMENTS (in thousands, except per share data)

	Three Months Ended
	June 30, 2020			March 31, 2020			June 30, 2019
GAAP gross profit	$	32,743		$	30,762		$	44,080
Stock-based compensation	126			148			147
Performance based equity	109			69			—
Amortization of purchased intangible assets	8,581			8,581			8,478
Non-GAAP gross profit	41,559			39,560			52,705

GAAP R&D expenses	27,984			25,689			24,304
Stock-based compensation	(5,040		)	(3,746		)	(4,222		)
Performance based equity	(2,054		)	(1,750		)	—
Non-GAAP R&D expenses	20,890			20,193			20,082

GAAP SG&A expenses	27,470			24,632			22,327
Stock-based compensation	(6,920		)	(2,933		)	(3,823		)
Performance based equity	(1,144		)	(1,136		)	—
Amortization of purchased intangible assets	(5,549		)	(5,723		)	(5,792		)
Acquisition costs	(2,090		)	(3,270		)	—
IP litigation costs, net	(54		)	(60		)	(13		)
Non-GAAP SG&A expenses	11,713			11,510			12,699

GAAP impairment losses	—			86			—
Impairment losses	—			(86		)	—
Non-GAAP impairment losses	—			—			—

GAAP restructuring expenses	64			489			416
Restructuring charges	(64		)	(489		)	(416		)
Non-GAAP restructuring expenses	—			—			—

GAAP loss from operations	(22,775		)	(20,134		)	(2,967		)
Total non-GAAP adjustments	31,731			27,991			22,891
Non-GAAP income from operations	8,956			7,857			19,924

GAAP and non-GAAP interest and other income (expense), net	(2,233		)	(2,071		)	(2,675		)

GAAP loss before income taxes	(25,008		)	(22,205		)	(5,642		)
Total non-GAAP adjustments	31,731			27,991			22,891
Non-GAAP income before income taxes	6,723			5,786			17,249

GAAP income tax benefit	(3,201		)	(6,736		)	(3,413		)
Adjustment for non-cash tax benefits/expenses	3,605			7,083			4,621
Non-GAAP income tax provision	404			347			1,208

GAAP net loss	(21,807		)	(15,469		)	(2,229		)
Total non-GAAP adjustments before income taxes	31,731			27,991			22,891
Less: total tax adjustments	3,605			7,083			4,621
Non-GAAP net income	$	6,319		$	5,439		$	16,041

Shares used in computing non-GAAP basic net income per share	72,740			72,039			70,917
Shares used in computing non-GAAP diluted net income per share	73,772			72,673			72,389
Non-GAAP basic net income per share	$	0.09		$	0.08		$	0.23
Non-GAAP diluted net income per share	$	0.09		$	0.07		$	0.22

MAXLINEAR, INC. UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTMENTS (in thousands, except per share data)

	Six Months Ended
	June 30, 2020			June 30, 2019
GAAP gross profit	$	63,505		$	89,157
Stock-based compensation	274			277
Performance based equity	178			73
Amortization of purchased intangible assets	17,162			16,902
Non-GAAP gross profit	81,119			106,409

GAAP R&D expenses	53,673			51,703
Stock-based compensation	(8,786		)	(8,435		)
Performance based equity	(3,804		)	(925		)
Depreciation of fixed asset step-up	—			(6		)
Non-GAAP R&D expenses	41,083			42,337

GAAP SG&A expenses	52,102			45,918
Stock-based compensation	(9,853		)	(7,227		)
Performance based equity	(2,280		)	(939		)
Amortization of purchased intangible assets	(11,272		)	(11,590		)
Acquisition costs	(5,360		)	—
IP litigation costs, net	(114		)	(13		)
Non-GAAP SG&A expenses	23,223			26,149

GAAP impairment losses	86			—
Impairment losses	(86		)	—
Non-GAAP impairment losses	—			—

GAAP restructuring expenses	553			2,333
Restructuring charges	(553		)	(2,333		)
Non-GAAP restructuring expenses	—			—

GAAP loss from operations	(42,909		)	(10,797		)
Total non-GAAP adjustments	59,722			48,720
Non-GAAP income from operations	16,813			37,923

GAAP and non-GAAP interest and other income (expense), net	(4,304		)	(6,158		)

GAAP loss before income taxes	(47,213		)	(16,955		)
Total non-GAAP adjustments	59,722			48,720
Non-GAAP income before income taxes	12,509			31,765

GAAP income tax benefit	(9,937		)	(9,875		)
Adjustment for non-cash tax benefits/expenses	10,688			12,099
Non-GAAP income tax provision	751			2,224

GAAP net loss	(37,276		)	(7,080		)
Total non-GAAP adjustments before income taxes	59,722			48,720
Less: total tax adjustments	10,688			12,099
Non-GAAP net income	$	11,758		$	29,541

Shares used in computing non-GAAP basic net income per share	72,389			70,445
Shares used in computing non-GAAP diluted net income per share	73,223			72,147
Non-GAAP basic net income per share	$	0.16		$	0.42
Non-GAAP diluted net income per share	$	0.16		$	0.41

MAXLINEAR, INC. UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

	Three Months Ended
	June 30, 2020		March 31, 2020		June 30, 2019
GAAP gross profit	50.2	%	49.6	%	53.4	%
Stock-based compensation	0.2	%	0.2	%	0.2	%
Performance based equity	0.2	%	0.1	%	—	%
Amortization of purchased intangible assets	13.2	%	13.8	%	10.3	%
Non-GAAP gross profit	63.7	%	63.8	%	63.9	%

GAAP R&D expenses	42.9	%	41.4	%	29.5	%
Stock-based compensation	(7.7	)%	(6.0	)%	(5.1	)%
Performance based equity	(3.1	)%	(2.8	)%	—	%
Non-GAAP R&D expenses	32.0	%	32.6	%	24.3	%

GAAP SG&A expenses	42.1	%	39.7	%	27.1	%
Stock-based compensation	(10.6	)%	(4.7	)%	(4.6	)%
Performance based equity	(1.8	)%	(1.8	)%	—	%
Amortization of purchased intangible assets	(8.5	)%	(9.2	)%	(7.0	)%
Acquisition costs	(3.2	)%	(5.3	)%	—	%
IP litigation costs, net	(0.1	)%	(0.1	)%	—	%
Non-GAAP SG&A expenses	18.0	%	18.6	%	15.4	%

GAAP impairment losses	—	%	0.1	%	—	%
Impairment losses	—	%	(0.1	)%	—	%
Non-GAAP impairment losses	—	%	—	%	—	%

GAAP restructuring expenses	0.1	%	0.8	%	0.5	%
Restructuring charges	(0.1	)%	(0.8	)%	(0.5	)%
Non-GAAP restructuring expenses	—	%	—	%	—	%

GAAP loss from operations	(34.9	)%	(32.5	)%	(3.6	)%
Total non-GAAP adjustments	48.7	%	45.1	%	27.7	%
Non-GAAP income from operations	13.7	%	12.7	%	24.1	%

GAAP interest and other income (expense), net	(3.4	)%	(3.3	)%	(3.2	)%

GAAP loss before income taxes	(38.3	)%	(35.8	)%	(6.8	)%
Total non-GAAP adjustments before income taxes	48.7	%	45.1	%	27.7	%
Non-GAAP income before income taxes	10.3	%	9.3	%	20.9	%

GAAP income tax benefit	(4.9	)%	(10.9	)%	(4.1	)%
Adjustment for non-cash tax benefits/expenses	5.5	%	11.4	%	5.6	%
Non-GAAP income tax provision	0.6	%	0.6	%	1.5	%

GAAP net loss	(33.4	)%	(24.9	)%	(2.7	)%
Total non-GAAP adjustments before income taxes	48.7	%	45.1	%	27.7	%
Less: total tax adjustments	5.5	%	11.4	%	5.6	%
Non-GAAP net income	9.7	%	8.8	%	19.4	%

MAXLINEAR, INC. UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

	Six Months Ended
	June 30, 2020		June 30, 2019
GAAP gross profit	49.9	%	53.3	%
Stock-based compensation	0.2	%	0.2	%
Performance based equity	0.1	%	0.0	%
Amortization of purchased intangible assets	13.5	%	10.1	%
Non-GAAP gross profit	63.7	%	63.7	%

GAAP R&D expenses	42.2	%	30.9	%
Stock-based compensation	(6.9	)%	(5.0	)%
Performance based equity	(3.0	)%	(0.6	)%
Depreciation of fixed asset step-up	—	%	—	%
Non-GAAP R&D expenses	32.3	%	25.3	%

GAAP SG&A expenses	40.9	%	27.5	%
Stock-based compensation	(7.7	)%	(4.3	)%
Performance based equity	(1.8	)%	(0.6	)%
Amortization of purchased intangible assets	(8.9	)%	(6.9	)%
Acquisition costs	(4.2	)%	—	%
IP litigation costs, net	(0.1	)%	—	%
Non-GAAP SG&A expenses	18.3	%	15.6	%

GAAP impairment losses	0.1	%	—	%
Impairment losses	(0.1	)%	—	%
Non-GAAP impairment losses	—	%	—	%

GAAP restructuring expenses	0.4	%	1.4	%
Restructuring charges	(0.4	)%	(1.4	)%
Non-GAAP restructuring expenses	—	%	—	%

GAAP loss from operations	(33.7	)%	(6.5	)%
Total non-GAAP adjustments	46.9	%	29.1	%
Non-GAAP income from operations	13.2	%	22.7	%

GAAP interest and other income (expense), net	(3.4	)%	(3.7	)%

GAAP loss before income taxes	(37.1	)%	(10.1	)%
Total non-GAAP adjustments before income taxes	46.9	%	29.1	%
Non-GAAP income before income taxes	9.8	%	19.0	%

GAAP income tax benefit	(7.8	)%	(5.9	)%
Adjustment for non-cash tax benefits/expenses	8.4	%	7.2	%
Non-GAAP income tax provision	0.6	%	1.3	%

GAAP net loss	(29.3	)%	(4.2	)%
Total non-GAAP adjustments before income taxes	46.9	%	29.1	%
Less: total tax adjustments	8.4	%	7.2	%
Non-GAAP net income	9.2	%	17.7	%

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