What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-11-05 compared with 2020-07-23 · 465 added, 218 removed, 635 unchanged (52% of the section changed)

3 unchanged sentences

in thousands, except par value amounts)

September 30,

2020 December 31,

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550,000 shares authorized;

73,103 shares issued and outstanding at June 30, 2020 and 71,931 shares issued and outstanding December 31, 2019

74,153 shares issued and outstanding at September 30, 2020 and 71,931 shares issued and outstanding December 31, 2019

Additional paid-in capital

9 unchanged sentences

in thousands, except per share data)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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in thousands)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments, net of tax expense of $ 33 and $ 24 for the three and six months ended June 30, 2020, respectively, and net of tax benefit of $ 14 and $ 15 for the three and six months ended June 30, 2019, respectively

Foreign currency translation adjustments, net of tax expense of $ 0 and $ 23 for the three and nine months ended September 30, 2020, respectively, and net of tax benefit of $ 26 and $ 41 for the three and nine months ended September 30, 2019, respectively

700 ( 600 ) 415 ( 167 )

Unrealized gain (loss) on interest rate swap, net of tax expense of $ 30 and tax benefit of $ 11 for the three and six months ended June 30, 2020, respectively, and net of tax benefit of $ 164 and $ 294 for the three and six months ended June 30, 2019, respectively

Unrealized gain (loss) on interest rate swap, net of tax expense of $ 17 and $ 6 for the three and nine months ended September 30, 2020, respectively, and net of tax benefit of $ 44 and $ 338 for the three and nine months ended September 30, 2019, respectively

60 ( 162 ) 22 ( 1,273 )

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

THREE AND SIX MONTHS ENDED JUNE 30, 2020

FISCAL QUARTERS ENDED SEPTEMBER 30, 2020

in thousands)

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Balance at June 30, 2020 73,103 7 554,250 ( 1,210 ) ( 151,072 ) 401,975

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

See accompanying notes.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

THREE AND SIX MONTHS ENDED JUNE 30, 2019

FISCAL QUARTERS ENDED SEPTEMBER 30, 2019

in thousands)

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Balance at June 30, 2019 71,218 7 512,753 ( 406 ) ( 100,978 ) 411,376

Common stock issued pursuant to equity awards, net 331 — ( 908 ) — — ( 908 )

Stock-based compensation — — 8,359 — — 8,359

Other comprehensive loss — — — ( 762 ) — ( 762 )

Net loss — — — — ( 4,714 ) ( 4,714 )

Balance at September 30, 2019 71,549 $ 7 $ 520,204 $ ( 1,168 ) $ ( 105,692 ) $ 413,351

See accompanying notes.

2 unchanged sentences

in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Operating Activities

Net loss $ ( 73,921 ) $ ( 11,794 )

Adjustments to reconcile net loss to cash provided by operating activities:

Adjustments to reconcile net loss to cash provided by (used in) operating activities:

Amortization and depreciation 53,819 49,928

Impairment losses 86 —

Amortization of inventory step-up 14,445 —

Amortization of debt issuance costs and accretion of discount on debt and leases 1,386 1,173

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Gain on extinguishment of lease liabilities — ( 2,880 )

(Gain) loss on foreign currency ( 226 ) 513

Loss on foreign currency 375 330

Excess tax benefits on stock-based awards ( 530 ) ( 3,872 )

Changes in operating assets and liabilities:

Changes in operating assets and liabilities, net of effects of acquisitions:

Accounts receivable ( 54,592 ) 3,160

7 unchanged sentences

Other long-term liabilities ( 8,721 ) 219

Net cash provided by operating activities 15,908 28,489

Net cash provided by (used in) operating activities ( 676 ) 50,241

Investing Activities

1 unchanged sentence

Purchase of intangibles ( 388 ) ( 86 )

Cash used in acquisitions, net of cash acquired ( 160,000 ) —

Net cash used in investing activities ( 170,520 ) ( 3,984 )

Financing Activities

Proceeds from the issuance of debt 175,000 —

Payment of debt issuance cost ( 2,696 ) —

Repayment of debt — ( 50,000 )

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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 radio-frequency, or RF, high-performance analog, and mixed-signal communications system-on-chip solutions for the connected home, wired and wireless infrastructure, and industrial and multi-market applications.

MaxLinear, Inc., together with its wholly owned subsidiaries, collectively referred to as MaxLinear, or the Company, is a provider of radio-frequency, or RF, analog, digital, and mixed-signal communications system-on-chip solutions for access and connectivity, wired and wireless infrastructure, and industrial and multi-market applications.

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 DOCSIS broadband modems and gateways, wireline connectivity devices for in-home networking applications, RF transceivers and modems for wireless carrier access and backhaul infrastructure, fiber-optic modules for data center, metro, and long-haul transport networks, video set-top boxes and gateways, hybrid analog and digital televisions, direct broadcast satellite outdoor and indoor units, and power management and interface products used in these and a range of other markets.

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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, 2019 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 5, 2020, or the Annual Report.

Interim results for the six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020.

Interim results for the nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020.

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 to unaudited consolidated financial statements.

In the six months ended June 30, 2020, the Company’s revenues were impacted by the novel coronavirus disease, or COVID-19, pandemic.

In particular, the Company's revenues in the first quarter 2020 declined relative to its prior expectations, and the Company experienced customer requests to temporarily delay shipments and supply constraints attributable to the COVID-19 pandemic.

Heightened volatility and uncertainty in customer demand and the worldwide economy in general has continued, and the Company may experience decreased sales and revenues in the near future.

The Company’s management believes such impact may in particular affect the Company’s sales of high performance analog products in its industrial and multi-market business and potentially may also impact certain other markets, such as wireless backhaul and the rest of its business to some degree.

However, the magnitude of such impact on the Company’s business and its duration is uncertain and cannot be reasonably estimated at this time.

The Company also believes that its $ 107.4 million of cash and cash equivalents at June 30, 2020 will be sufficient to fund its projected operating requirements for at least the next twelve months.

In the nine months ended September 30, 2020, 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 we have benefited from increased demand for certain of our products from the work-from-home environment in the quarter ended September 30, 2020, heightened volatility 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.

The Company also believes that its $ 96.7 million of cash and cash equivalents at September 30, 2020 will be sufficient to fund its projected operating requirements for at least the next twelve months.

A material adverse impact from COVID-19 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 the potential impact of the purchase of the WiFi and Broadband assets business and related planned issuance

The Company’s future capital requirements will depend on many factors, including the Company’s efforts to integrate the acquired WiFi and Broadband assets business and NanoSemi (Note 3), changes in revenue, the expansion of engineering, sales and marketing activities, the timing and extent of expansion into new

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

of debt (Note 14) and the Company’s efforts to integrate that business, 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.

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 23, 2020, the issuance date of this Quarterly Report on Form 10-Q.

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 November 5, 2020, 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.

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As described under “Recently Adopted Accounting Pronouncements,” section below, the impact of adopting ASC 326 for the Company was not material.

There have been no other significant changes to the Company’s significant accounting policies during the six months ended June 30, 2020.

There have been no other significant changes to the Company’s significant accounting policies during the nine months ended September 30, 2020.

During the three months ended September 30, 2020, the Company acquired two businesses (Note 3) that are accounted for as business combinations.

In connection with the July 31, 2020 acquisition of the WiFi and Broadband assets business (Note 3), the Company assumed an obligation of $ 7.9 million of the WiFi and Broadband assets business associated with certain defined benefit retirement plans, including a pension plan.

Below are the Company’s accounting policies with respect to business combinations and pension and other defined benefit retirement obligations.

Accounts Receivable

2 unchanged sentences

Delinquent account balances are written off after management has determined that the likelihood of collection is remote.

The allowance for credit losses as of June 30, 2020 and the activity in this account, including the current-period provision for expected credit losses for the six months ended June 30, 2020, were not material.

The allowance for credit losses as of September 30, 2020 and the activity in this account, including the current-period provision for expected credit losses for the nine months ended September 30, 2020, were not material.

Business Combinations

The Company applies the provisions of ASC 805, Business Combinations , in accounting for its acquisitions.

It requires the Company to recognize separately from goodwill the assets acquired and the liabilities assumed, at the acquisition date fair values.

Goodwill as of the acquisition date is measured as the excess of consideration transferred over the acquisition date fair values of the net assets acquired and the liabilities assumed.

While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, its estimates are inherently uncertain and subject to refinement.

As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.

Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.

Costs to exit or restructure certain activities of an acquired company or the Company’s internal operations are accounted for as termination and exit costs pursuant to ASC 420, Exit or Disposal Cost Obligations , and are accounted for separately from the business combination.

A liability for costs associated with an exit or disposal activity is recognized and measured at its fair value in the consolidated statements of operations in the period in which the liability is incurred.

When estimating the fair value of facility restructuring activities, assumptions are applied regarding estimated sub-lease payments to be received, which can differ materially from actual results.

This may require the Company to revise its initial estimates which may materially affect the results of operations and financial position in the period the revision is made.

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For a given acquisition, the Company may identify certain pre-acquisition contingencies as of the acquisition date and may extend its review and evaluation of these pre-acquisition contingencies throughout the measurement period in order to obtain sufficient information to assess whether the Company includes these contingencies as a part of the fair value estimates of assets acquired and liabilities assumed and, if so, to determine their estimated amounts.

If the Company cannot reasonably determine the fair value of a pre-acquisition contingency (non-income tax related) by the end of the measurement period, which is generally the case given the nature of such matters, the Company will recognize an asset or a liability for such pre-acquisition contingency if:

(i) it is probable that an asset existed or a liability had been incurred at the acquisition date and (ii) the amount of the asset or liability can be reasonably estimated.

Subsequent to the measurement period, changes in estimates of such contingencies will affect earnings and could have a material effect on the Company's results of operations and financial position.

In addition, uncertain tax positions and tax-related valuation allowances assumed, if any, in connection with a business combination are initially estimated as of the acquisition date.

The Company re-evaluates these items quarterly based upon facts and circumstances that existed as of the acquisition date with any adjustments to the preliminary estimates being recorded to goodwill if identified within the measurement period.

Subsequent to the end of the measurement period or final determination of the estimated value of the tax allowance or contingency, whichever comes first, changes to these uncertain tax positions and tax related valuation allowances will affect the income tax provision (benefit) in the consolidated statements of operations and could have a material impact on the results of operations and financial position.

Pension and Other Defined Benefit Retirement Obligations

The costs of pension and certain other defined benefit employee retirement benefits are required to be recognized based upon actuarial valuations.

The related net retirement benefit obligation is recognized as the excess of the projected benefit obligation over the fair value of the plan assets.

In measuring the retirement benefit obligation, the discount rate and long-term rate of salary increase are the most significant assumptions.

Retirement benefit costs primarily represent the increase in the actuarial present value of the retirement benefit obligation.

The most significant assumptions in determining retirement benefit costs are the discount rate, expected long-term rate of return on plan assets, and long-term rate of salary increase.

Recently Adopted Accounting Pronouncements

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The Company performs its annual goodwill testing as of October 31, or more frequently if there are indicators of impairment.

The application of the amendments in this update is not

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

expected to have a material impact on the Company’s consolidated financial position and results of operations as of and for the year ending December 31, 2020.

The application of the amendments in this update is not expected to have a material impact on the Company’s consolidated financial position and results of operations as of and for the year ending December 31, 2020.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework— Changes to the Disclosure Requirements for Fair Value Measurement , to improve the fair value measurement reporting of financial instruments.

Disclosure Framework—

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Changes to the Disclosure Requirements for Fair Value Measurement , to improve the fair value measurement reporting of financial instruments.

The amendments in this update require, among other things, added disclosure of the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

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Therefore, the adoption of the amendments in this update did not have a material impact on the Company’s accumulated other comprehensive loss or its results of operations as of and for the three months ended June 30, 2020, and is also not expected to have a material impact on the Company's consolidated financial position and results of operations as of and for the year ending December 31, 2020.

In May 2020, the SEC issued a final rule that amends the financial statement requirements for business acquisitions and related pro forma financial information.

The rule modifies the significance tests to replace total assets with aggregate worldwide market value of common equity in the investment test and to include a revenue component in the income test while requiring the use of absolute value to calculate average net income for the last five fiscal years.

The rule improves the presentation of pro forma financial information by replacing pro forma adjustments with transaction accounting adjustments and adds the optional disclosure of management’s adjustments related to synergies and dis-synergies.

The rule also reduces the number of acquiree annual financial statement periods required to a maximum of the two most recent fiscal years.

The final rule is effective for the Company beginning with fiscal year 2021, with early application permitted;

all applicable aspects of the rule are required to be applied upon adoption.

The Company has early adopted the rule in its filings related to the acquisition of the WiFi and Broadband assets business.

The adoption of the rule is not expected to have an impact on the Company’s consolidated financial position and results of operations as of and for the year ending December 31, 2020.

Recently Issued Accounting Pronouncements

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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 is not expected to have a material impact on the Company’s consolidated financial position and results of operations.

In May 2020, the SEC issued a final rule that amends the financial statement requirements for business acquisitions and related pro forma financial information.

The rule also reduces the number of acquiree

The adoption of

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

annual financial statement periods required to a maximum of the two most recent fiscal years.

The final rule is effective for the Company beginning with fiscal year 2021, with early application permitted;

all applicable aspects of the rule are required to be applied upon adoption.

The Company intends to early adopt the rule in its future filings related to the pending acquisition of the WiFi and Broadband assets business (Note 14).

The adoption of the rule is not expected to have an impact on the Company’s consolidated financial position and results of operations as of and for the year ending December 31, 2020.

the amendments in this update is not expected to have a material impact on the Company’s consolidated financial position and results of operations.

Net Income (Loss) Per Share

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The table below presents the computation of basic and diluted EPS:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Diluted $ ( 0.50 ) $ ( 0.07 ) $ ( 1.02 ) $ ( 0.17 )

For the three and six months ended June 30, 2020 and 2019, the Company incurred net losses and accordingly excluded common stock equivalents for outstanding stock-based awards, which represented all potentially dilutive securities, of 2.5 million and 2.9 million for the 2020 periods, respectively, and 2.5 million and 2.7 million for the 2019 periods, respectively, from the calculation of diluted net loss per share due to their anti-dilutive nature.

For the three and nine months ended September 30, 2020 and 2019, the Company incurred net losses and accordingly excluded common stock equivalents for outstanding stock-based awards, which represented all potentially dilutive securities, of 3.5 million and 3.1 million for the 2020 periods, respectively, and 2.4 million and 2.6 million for the 2019 periods, respectively, from the calculation of diluted net loss per share due to their anti-dilutive nature.

Business Combinations

Acquisition of the WiFi 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 WiFi 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 WiFi 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 WiFi and Broadband assets business develops a broad portfolio of connected home products, including WiFi, 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 is integrating the acquired assets and rehired employees into the Company’s existing business.

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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 will grant to the Company a license to certain intellectual property rights for use by the Company in connection with the acquired assets and the Company will grant back to Intel a license to the intellectual property rights in the acquired assets, (ii) a supply agreement, pursuant to which Intel will manufacture and fabricate certain products for the Company that are part of the acquired assets, (iii) an ethernet network controller services agreement, pursuant to which the Company will provide Intel with certain development services with respect to certain Intel ethernet network controller products, (iv) a transition services agreement, pursuant to which Intel will provide certain services on a transitional basis for up to a 12-month period after the closing, the scope of which includes 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 has control and economic benefits of the inventory, but the title and possession of the inventory has been delayed until the last day that Intel provides services under the transition services agreement.

Acquisition Consideration

The following table summarizes the fair value of purchase price consideration to acquire the WiFi and Broadband assets business (in thousands):

Description Amount

Fair value of purchase consideration:

Cash $ 150,000

Preliminary Purchase Price Allocation

The following is an allocation of purchase price as of the July 31, 2020 acquisition closing date based upon a preliminary estimate of the fair value of the assets acquired and the liabilities assumed by the Company in the acquisition (in thousands):

Description Amount

Preliminary purchase price allocation:

Inventory $ 67,100

Property and equipment, net 17,641

Identifiable intangible assets 58,000

Accrued expenses ( 68 )

Accrued compensation ( 7,916 )

Other long-term liabilities ( 8,197 )

Identifiable net assets acquired 126,560

Goodwill 23,440

Total purchase price $ 150,000

The fair value of inventories acquired with the WiFi and Broadband assets business included an acquisition accounting fair market value step-up of $ 32.9 million.

The Company recognized $ 14.4 million in amortization of inventory step-up in cost of sales in the consolidated statements of operations for the three and nine months ended September 30, 2020.

The following is a summary of identifiable intangible assets acquired and the related expected lives for the finite-lived intangible assets (in thousands):

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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, the NanoSemi securityholders will receive $ 35.0 million in deferred cash payments payable in 2021, and certain NanoSemi securityholders 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)

Deferred payments (2)

Contingent consideration (3)

Total purchase price $ 64,980

_________________

(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 securityholders throughout 2021.

(3) 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 $ 35.0 million in payments subject to the acquired business’s satisfying certain financial objectives from July 1, 2020 through December 31, 2022, under the Merger 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.

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Preliminary Purchase Price Allocation

The following is an allocation of purchase price as of the September 9, 2020 acquisition closing date based upon a preliminary estimate of the fair value of the assets acquired and the liabilities assumed by the Company in the acquisition (in thousands):

Description Amount

Preliminary purchase price allocation:

Accounts receivable, net $ 175

Prepaid expenses and other current assets 774

Property and equipment, net 177

Leased right-of-use assets 1,805

Intangible assets, net 30,300

Accounts payable ( 602 )

Accrued expenses and other current liabilities ( 323 )

Accrued compensation ( 223 )

Long-term lease liabilities ( 1,546 )

Other long-term liabilities ( 6,363 )

Identifiable net assets acquired 24,174

Goodwill 40,806

Total purchase price $ 64,980

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 $ 24,400

Trademarks and tradenames 7 1,200

Customer-related intangible 5 3,000

Product backlog 5.33 1,700

Total identifiable intangible assets acquired $ 30,300

Assumptions in the Allocations of Purchase Price

Management prepared the purchase price allocations for the WiFi 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 expected to be paid to NanoSemi securityholders in the future, as described above.

Certain NanoSemi securityholders that are employees are 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 have been accounted for as a portion of the purchase consideration.

Estimates of fair value require management to make significant estimates and assumptions which are preliminary and subject to change upon finalization of the valuation analysis.

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 WiFi 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.

Updates to and/or completion of the valuations of certain assets acquired and liabilities assumed and our evaluation of certain income tax positions may result in changes to the recorded amounts of assets and liabilities, with corresponding adjustments to goodwill amounts in subsequent periods.

We expect to complete the purchase price allocations within 12 months of the respective acquisition dates.

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair value of the identified intangible assets acquired from the WiFi 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 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 will begin amortization immediately 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 WiFi 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 WiFi and Broadband assets business and NanoSemi was $ 23.4 million and $ 40.8 million, respectively.

The Company does not expect to deduct any of the acquired goodwill for tax purposes.

Proforma Combined Financial Information

The following table presents unaudited pro forma combined financial information for each of the periods presented, as if the acquisitions of the WiFi and Broadband assets business and NanoSemi had occurred at the beginning of fiscal year 2019:

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

(in thousands)

Net revenue – proforma combined $ 219,419 $ 181,438 $ 508,449 $ 541,067

Net income (loss) – proforma combined $ ( 17,324 ) $ ( 23,470 ) $ ( 103,108 ) $ ( 126,340 )

The following adjustments were included in the unaudited pro forma combined net revenues:

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

(in thousands)

Net revenue $ 156,633 $ 80,020 $ 283,880 $ 247,162

Net revenue – acquired businesses 62,786 101,418 224,569 293,905

Net revenues – proforma combined $ 219,419 $ 181,438 $ 508,449 $ 541,067

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following adjustments were included in the unaudited pro forma combined net loss:

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

(in thousands)

Net loss $ ( 36,645 ) $ ( 4,714 ) $ ( 73,921 ) $ ( 11,794 )

Results of operations – acquired businesses ( 3,875 ) ( 22,075 ) ( 63,882 ) ( 75,994 )

Proforma adjustments

Depreciation of property and equipment 2,101 934 4,358 948

Amortization of intangible assets 1,615 3,923 10,119 11,369

Amortization of inventory step-up 14,445 — 14,445 ( 32,945 )

Acquisition and integration expenses 7,471 — 12,803 ( 12,803 )

Interest expense ( 571 ) ( 2,120 ) ( 6,202 ) ( 6,488 )

Other expense 82 324 1,867 2,287

Income taxes 762 258 14 ( 920 )

Net loss – proforma combined $ ( 14,615 ) $ ( 23,470 ) $ ( 100,399 ) $ ( 126,340 )

Net loss per share – proforma combined:

Basic $ ( 0.20 ) $ ( 0.33 ) $ ( 1.37 ) $ ( 1.77 )

Diluted $ ( 0.20 ) $ ( 0.33 ) $ ( 1.37 ) $ ( 1.77 )

Shares used to compute net loss per share – proforma combined:

Basic 74,023 72,170 73,472 71,557

Diluted 74,023 72,170 73,472 71,557

The pro forma combined financial information for the three months ended September 30, 2020 includes aggregate non-recurring adjustments of $ 0.4 million consisting of amortization of intangible assets for which the related assets have useful lives of less than one year.

The pro forma combined financial information for the nine months ended September 30, 2020 includes aggregate non-recurring adjustments of $ 34.5 million consisting of amortization of inventory step-up and intangible assets of $ 32.9 million and $ 1.6 million, respectively, for which the related assets have useful lives of less than one year.

The pro forma combined financial information is presented for illustrative purposes only and is not necessarily indicative of the consolidated results of operations of the consolidated business had the acquisitions actually occurred at the beginning of fiscal year 2019 or of the results of future operations of the consolidated business.

The unaudited pro forma financial information does not reflect any operating efficiencies and cost saving that may be realized from the integration of the acquisitions in the Company's unaudited consolidated statements of operations.

For the three and nine months ended September 30, 2020, $ 82.5 million of revenue and $ 41.8 million of gross profit, excluding $ 15.8 million of amortization of acquired intangible assets and the inventory fair-value step-up of the WiFi and Broadband assets business and NanoSemi since the acquisition date, are included in the Company's consolidated statements of operations.

Acquisition and integration-related costs of $ 7.5 million and $ 12.8 million related to the acquisitions of the WiFi and Broadband assets business and NanoSemi were included in selling, general, and administrative expenses in the Company's statements of operations for the three and nine months ended September 30, 2020, respectively.

Restructuring Activity

1 unchanged sentence

Such restructuring plans include vacating certain leased facilities, terminating employees, and cancellation of contracts.

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

4 unchanged sentences

$ 3,280 $ 144 $ 3,833 $ 2,477

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Lease related charges were related to exiting certain facilities.

Lease-related charges for the six months ended June 30, 2019 included the impairment of right-of-use assets of $ 2.2 million and leasehold improvements of $ 1.4 million, partially offset by a gain on the extinguishment of lease liabilities of $ 2.9 million following the release from such liability by the landlord.

The Company does not expect to incur additional material costs related to current restructuring plans.

The following table presents a roll-forward of the Company's restructuring liability for the six months ended June 30, 2020.

Lease related charges for the three and nine months ended September 30, 2020 included the impairment of leased right-of-use assets of $ 1.5 million related to a reduction in expected cash inflows from subleases.

Lease-related charges for the nine months ended September 30, 2019 related to exiting certain facilities and included the impairment of right-of-use assets of $ 2.2 million and leasehold improvements of $ 1.4 million, partially offset by a gain on the extinguishment of lease liabilities of $ 2.9 million following the release from such liability by the landlord.

The following table presents a roll-forward of the Company's restructuring liability for the nine months ended September 30, 2020.

The restructuring liability is included in accrued expenses and other current liabilities and other long-term liabilities in the consolidated balance sheets.

5 unchanged sentences

Non-cash charges and adjustments 3,819 ( 1,807 ) ( 190 ) 1,822

Liability as of June 30, 2020 53 740 9 802

current portion as of June 30, 2020 ( 53 ) ( 296 ) ( 9 ) ( 358 )

Long-term portion as of June 30, 2020 $ — $ 444 $ — $ 444

Remaining lease related charges as of June 30, 2020 primarily consist of common area maintenance obligations.

Liability as of September 30, 2020 5,251 771 5 6,027

current portion as of September 30, 2020 ( 5,251 ) ( 340 ) ( 5 ) ( 5,596 )

Long-term portion as of September 30, 2020 $ — $ 431 $ — $ 431

As of September 30, 2020, the remaining employee separation balance primarily consists of reduction in force costs that will be reimbursed by Intel and other severance payments, and remaining lease related charges primarily consist of common area maintenance obligations.

The Company does not expect to incur additional material costs related to current restructuring plans.

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Goodwill and Intangible Assets

1 unchanged sentence

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 three and six months ended June 30, 2020, there were no changes in the carrying amount of goodwill.

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

Nine Months Ended September 30,

(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.

1 unchanged sentence

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, 2020 and 2019, no goodwill impairment was recognized.

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the three and nine months ended September 30, 2020 and 2019, no goodwill impairment was recognized.

Acquired Intangibles

1 unchanged sentence

The following table sets forth the Company’s finite-lived intangible assets resulting from business acquisitions and other purchases:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

(in Years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Value Accumulated Amortization Net Carrying Amount

5 unchanged sentences

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

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

6 unchanged sentences

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

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

Beginning balance $ 187,971 $ 240,500

Acquisitions (Note 3) 81,100 —

Additions 388 86

6 unchanged sentences

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 six months ended June 30, 2020, the Company recognized impairment losses related to finite-lived intangible assets of $ 0 and $ 0.1 million, respectively.

During the three and six months ended June 30, 2019, no impairment losses related to finite-lived intangible assets were recognized.

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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:

(in thousands)

2 unchanged sentences

Total $ 224,948

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Indefinite-lived Intangible Assets

1 unchanged sentence

The following table sets forth the Company’s activities related to the indefinite-lived intangible assets:

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

Beginning balance $ — $ 4,400

Acquisitions (Note 3) 7,200 —

Transfers to developed technology from IPR&D — ( 1,500 )

2 unchanged sentences

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 six months ended June 30, 2020 and 2019, no indicators of impairment were identified and, as a result, no IPR&D impairment losses were recorded.

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.

Financial Instruments

The composition of financial instruments is as follows:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

(in thousands)

5 unchanged sentences

Unobservable inputs are used when little or no market data is available.

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company classifies its financial instrument within Level 2 of the fair value hierarchy on the basis of models utilizing market observable inputs.

3 unchanged sentences

The Company also considers the risk of nonperformance by assessing the swap counterparty’s credit risk in the estimate of fair value of the interest rate swap.

As of June 30, 2020 and December 31, 2019, the Company has not made any adjustments to the valuations obtained from its third-party pricing providers.

As of September 30, 2020 and December 31, 2019, the Company has not made any adjustments to the valuations obtained from its third-party pricing providers.

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents a summary of the Company’s financial instruments that are measured on a recurring basis:

6 unchanged sentences

(in thousands)

Interest rate swap, June 30, 2020 $ 85 $ — $ 85 $ —

Interest rate swap, September 30, 2020 $ 8 $ — $ 8 $ —

Interest rate swap, December 31, 2019 $ 37 $ — $ 37 $ —

The following table summarizes activity for the interest rate swap:

Six Months Ended

2020 June 30,

Nine Months Ended

September 30,

2020 September 30,

(in thousands)

1 unchanged sentence

Beginning balance $ ( 37 ) $ 1,623

Unrealized loss recognized in other comprehensive income (loss) ( 48 ) ( 1,405 )

Unrealized gain (loss) recognized in other comprehensive income (loss) 29 ( 1,611 )

Ending balance $ ( 8 ) $ 12

There were no transfers between Level 1, Level 2 or Level 3 financial instruments in the six months ended June 30, 2020 and 2019.

There were no transfers between Level 1, Level 2 or Level 3 financial instruments in the nine months ended September 30, 2020 and 2019.

Financial Instruments Not Recorded at Fair Value on a Recurring Basis

5 unchanged sentences

Cash, cash equivalents and restricted cash consist of the following:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

(in thousands)

3 unchanged sentences

Total cash, cash equivalents and restricted cash $ 96,742 $ 93,117

As of September 30, 2020 and December 31, 2019, cash and cash equivalents included money market funds of approximately $ 21.4 million and $ 20.4 million, respectively.

As of September 30, 2020 and December 31, 2019, the Company has restricted cash of approximately $ 0.2 million and $ 0.4 million, respectively.

The cash is restricted in connection with guarantees for certain import duties and office leases.

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of June 30, 2020 and December 31, 2019, cash and cash equivalents included money market funds of approximately $ 20.4 million.

As of June 30, 2020 and December 31, 2019, the Company has restricted cash of approximately $ 0.1 million and $ 0.4 million, respectively.

The cash is restricted in connection with guarantees for certain import duties and office leases.

Inventory consists of the following:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

(in thousands)

2 unchanged sentences

$ 104,471 $ 31,510

Prepaid and other current assets consist of the following:

September 30, 2020 December 31, 2019

(in thousands)

Prepaid expenses $ 4,898 $ 3,366

Other receivables 28,960 —

Other current assets 9,688 3,426

$ 43,546 $ 6,792

As of September 30, 2020, other receivables of $ 29.0 million consist of amounts due from Intel of $ 24.7 million for amounts collected on the Company’s behalf from customers on sales of the Company’s products under the transition services agreement and of $ 4.2 million for reimbursement of certain severance-related costs pursuant to the Asset Purchase Agreement (Note 3).

Property and equipment, net consists of the following:

(in Years) June 30, 2020 December 31, 2019

(in Years) September 30, 2020 December 31, 2019

(in thousands)

11 unchanged sentences

$ 37,258 $ 16,613

Depreciation expense for the three months ended June 30, 2020 and 2019 was $ 1.6 million and $ 1.9 million, respectively.

Depreciation expense for the six months ended June 30, 2020 and 2019 was $ 3.3 million and $ 4.0 million, respectively.

Depreciation expense for the three months ended September 30, 2020 and 2019 was $ 3.6 million and $ 1.7 million, respectively.

Depreciation expense for the nine months ended September 30, 2020 and 2019 was $ 6.9 million and $ 5.6 million, respectively.

Accrued price protection liability consists of the following activity:

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

7 unchanged sentences

Accrued expenses and other current liabilities consist of the following:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

(in thousands)

Deferred purchase price payments $ 34,100 $ —

Accrued technology license payments 5,969 4,500

4 unchanged sentences

Short-term lease liabilities 6,225 4,810

Current portion of debt 7,785 —

Accrued customer credits 2,590 832

10 unchanged sentences

Current period other comprehensive income (loss) 415 22 437

Balance at June 30, 2020 $ ( 1,033 ) $ ( 177 ) $ ( 1,210 )

Balance at September 30, 2020 $ ( 332 ) $ ( 118 ) $ ( 450 )

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Debt and Interest Rate Swap

The carrying amount of the Company's long-term debt consists of the following:

September 30,

2020 December 31,

(in thousands)

Principal $ 212,000 $ 212,000

Principal balance:

Initial term loan $ 212,000 $ 212,000

Incremental term loan 175,000 —

Total principal balance 387,000 212,000

Unamortized debt discount ( 1,923 ) ( 1,328 )

3 unchanged sentences

Long-term debt, non-current portion $ 372,457 $ 206,909

As of September 30, 2020 and December 31, 2019, the weighted average effective interest rate on the total debt was approximately 4.3 % and 4.9 %, respectively.

During each of the three months ended September 30, 2020 and 2019, the Company recognized total amortization of debt discount and debt issuance costs of $ 0.5 million and $ 0.3 million, respectively, to interest expense.

During each of the nine months ended September 30, 2020 and 2019, the Company recognized total amortization of debt discount and debt issuance costs of $ 1.0 million and $ 0.9 million, respectively, to interest expense.

The approximate fair value of the term loans as of September 30, 2020 and December 31, 2019 was $ 390.6 million and $ 214.6 million, respectively, which was estimated on the basis of inputs that are observable in the market and which is considered a Level 2 measurement method in the fair value hierarchy.

As of September 30, 2020, future payments of principal are as follows:

(in thousands)

2020 (3 months) $ 2,188

Total principal payments due 387,000

current portion ( 8,750 )

Long-term debt principal, non-current portion $ 378,250

Initial Term Loan

On May 12, 2017, the Company entered into a credit agreement with certain lenders and a collateral agent in connection with the acquisition of Exar Corporation.

5 unchanged sentences

Incremental loans are subject to certain additional conditions, including obtaining additional commitments from the lenders then party to the credit agreement or new lenders.

The Company has requested an incremental loan under the agreement with new lenders to fund the pending acquisition of the Home Gateway Platform Division of Intel Corporation (Note 14).

Loans under the Initial Term Loan bear interest, at the Company’s option, at a rate equal to either (i) a base rate equal to the highest of (x) the federal funds rate, plus 0.50% , (y) the prime rate then in effect and (z) an adjusted LIBOR rate determined on the basis of a one- three- or six-month interest period, plus 1.0% or (ii) an adjusted LIBOR rate, subject to a floor of 0.75% , in each case, plus an applicable margin of 2.50 % in the case of LIBOR rate loans and 1.50 % in the case of base rate loans.

4 unchanged sentences

The Company has the right to prepay its term loans under the credit agreement, in whole or in part, at any time without premium or penalty, subject to certain limitations and a 1.0% soft call premium applicable during the first six months of the loan term.

The Company exercised its right to prepay and made aggregate prepayments of principal of $ 213.0 million from origination of the Initial Term Loan through June 30, 2020.

The Company exercised its right to prepay and made aggregate prepayments of principal of $ 213.0 million from origination of the Initial Term Loan through September 30, 2020.

The Company’s obligations under the credit agreement are required to be guaranteed by certain of its domestic subsidiaries meeting materiality thresholds set forth in the credit agreement.

1 unchanged sentence

The credit agreement contains customary affirmative and negative covenants, including covenants limiting the ability of the Company and its restricted subsidiaries to, among other things, incur debt, grant liens, undergo certain fundamental changes, make investments, make certain restricted payments, and sell assets, in each case, subject to limitations and exceptions.

As of June 30, 2020, the Company was in compliance with such covenants.

As of September 30, 2020, the Company was in compliance with such covenants.

The credit agreement also contains customary events of default that include, among other things, certain payment defaults, cross defaults to other indebtedness, covenant defaults, change in control defaults, judgment defaults, and bankruptcy and insolvency defaults.

If an event of default exists, the lenders may require immediate payment of all obligations under the credit agreement, and may exercise certain other rights and remedies provided for under the credit agreement, the other loan documents and applicable law.

As of June 30, 2020 and December 31, 2019, the weighted average effective interest rate on the long-term debt was approximately 4.4 % and 4.9 %, respectively.

The debt is carried at its principal amount, net of unamortized debt discount and issuance costs, and is not adjusted to fair value each period.

1 unchanged sentence

The debt discount of $ 2.1 million and debt issuance costs of $ 6.0 million are being amortized to interest expense using the effective interest method from the issuance date through the contractual maturity date of the term loan of May 12, 2024.

During each of the three months ended June 30, 2020 and 2019, the Company recognized total amortization of debt discount and debt issuance costs of $ 0.3 million to interest expense.

During each of the six months ended June 30, 2020 and 2019, the Company recognized total amortization of debt discount and debt issuance costs of $ 0.6 million to interest expense.

The approximate fair value of the term loan as of June 30, 2020 and December 31, 2019 was $ 209.1 million and $ 214.6 million, respectively, which was estimated on the basis of inputs that are observable in the market and which is considered a Level 2 measurement method in the fair value hierarchy.

As of June 30, 2020 and December 31, 2019, the remaining principal balance on the term loan was $ 212.0 million.

The remaining principal balance is due on May 12, 2024 at the maturity date on the term loan.

Incremental Term Loan

In connection with the acquisition of the Wi-Fi and Broadband assets business, on July 31, 2020, the Company entered into an incremental term loan agreement with certain lenders that amends the credit agreement, dated as of May 12, 2017 and provides for a secured incremental term loan facility in an aggregate principal amount of $ 175.0 million (the “Incremental Term Loan”).

The Incremental Term Loan bears interest, at the Company’s option, at an Adjusted LIBOR plus a fixed applicable margin of 4.25 % per annum or an Adjusted Base Rate plus a fixed applicable margin of 3.25 % per annum.

The Incremental Term Loan is subject to a financial covenant of an initial maximum total net leverage ratio of 3.5 to 1 which decreases to 3.0 to 1 beginning with the sixth full fiscal quarter ending after July 31, 2020.

During any period during which the Company (i) fails to maintain a public corporate rating from S&P that is equal to or higher than BB- and a public corporate rating from Moody's that is equal to or higher than Ba3 or (ii) fails to maintain a total leverage ratio of 3.0 to 1 or less, the applicable margin will

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

increase to 4.75% in the case of LIBOR Rate loans and 3.75% in the case of Base Rate loans.

As of September 30, 2020, the Company was in compliance with such covenants.

Commencing on July 31, 2020, the Incremental Term Loan amortizes in quarterly installments of principal equal to (i) 1.25 % of the original aggregate principal amount of the Incremental Term Loan on the last day of each of the first through fourth full fiscal quarters of the Company after July 31, 2020, (ii) 2.50 % of the original aggregate principal amount of the Incremental Term Loan on the last day of each of the fifth through eighth full fiscal quarters of the Company after July 31, 2020, and (iii) 3.75 % of the original aggregate principal amount of the Incremental Term Loan on the last day of each of the ninth through the eleventh full fiscal quarters of the Company after July 31, 2020.

The Incremental Term Loan has a term of three years and will mature on July 31, 2023, at which time all outstanding principal and accrued and unpaid interest on the Incremental Term Loan is due.

The Company is also required to pay fees customary for a credit facility of this size and type.

The debt is carried at its principal amount, net of unamortized debt discount and issuance costs, and is not adjusted to fair value each period.

The issuance date fair value of the liability component of the debt in the amount of $ 181.1 million was determined using a discounted cash flow analysis, in which the projected interest and principal payments were discounted back to the issuance date of the term loan at a market interest rate for nonconvertible debt of 3.2 %, which represents a Level 3 fair value measurement.

The debt discount of $ 0.9 million and debt issuance costs of $ 1.8 million are being amortized to interest expense using the effective interest method from the issuance date through the contractual maturity date of the term loan of July 31, 2023.

Interest Rate Swap

In November 2017, the Company entered into a fixed-for-floating interest rate swap with an amortizing notional amount to swap a substantial portion of variable rate LIBOR interest payments under its term loans for fixed interest payments bearing an interest rate of 1.74685 %.

The Company's outstanding debt is still subject to a 2.5 % fixed applicable margin during the term of the loan.

The interest rate swap is designated as a cash flow hedge of a portion of floating rate interest payments on long-term debt and effectively fixes the interest rate on a substantial portion of the Company’s long-term debt at approximately 4.25 %.

Accordingly, the Company applies cash flow hedge accounting to the interest rate swap and it is recorded at fair value as an asset or liability and the effective portion of changes in the fair value of the interest rate swap, as measured quarterly, are reported in other comprehensive income (loss).

As of June 30, 2020 and December 31, 2019, the fair value of the interest rate swap was a $ 0.1 million and $ 0.04 million liability (Note 5), respectively, and is included in other current liabilities in the consolidated balance sheets.

The decrease in fair value related to the interest rate swap liability included in other comprehensive income (loss) for the three and six months ended June 30, 2020 was $ 0.1 million and $ 0.05 million, respectively.

The decrease in fair value related to the interest rate swap liability included in other comprehensive income (loss) for the three and six months ended June 30, 2019 was $ 0.8 million and $ 1.4 million, respectively.

The interest rate swap expires in October 2020 and the total $ 1.6 million of unrealized loss before taxes recorded in accumulated other comprehensive income at June 30, 2020 is expected to be recorded against interest expense in the fourth quarter of 2020, upon expiration of the interest rate swap.

Stock-Based Compensation and Employee Benefit Plans

In November 2017, the Company entered into a fixed-for-floating interest rate swap with an amortizing notional amount to swap a substantial portion of variable rate LIBOR interest payments under its initial term loan for fixed interest payments bearing an interest rate of 1.74685 %.

The Company's outstanding initial term loan is still subject to a 2.5 % fixed applicable margin during the term of the loan.

The interest rate swap is designated as a cash flow hedge of a portion of floating rate interest payments on the initial term loan and effectively fixed the interest rate on a substantial portion of the Company’s long-term debt at approximately 4.25 % until the expiration of the swap in October 2020.

Accordingly, the Company applied cash flow hedge accounting to the interest rate swap and it is recorded at fair value as an asset or liability and the effective portion of changes in the fair value of the interest rate swap, as measured quarterly, are reported in other comprehensive income (loss).

As of September 30, 2020 and December 31, 2019, the fair value of the interest rate swap was a $ 0.01 million and $ 0.04 million liability (Note 6), respectively, and is included in other current liabilities in the consolidated balance sheets.

The increase in fair value related to the interest rate swap liability included in other comprehensive income (loss) for the three and nine months ended September 30, 2020 was $ 0.1 million and $ 0.03 million, respectively.

The decrease in fair value related to the interest rate swap liability included in other comprehensive income (loss) for the three and nine months ended September 30, 2019 was $ 0.2 million and $ 1.6 million, respectively.

The interest rate swap expires in October 2020 and the total $ 0.01 million of unrealized loss before taxes recorded in accumulated other comprehensive income at September 30, 2020 is expected to be recorded against interest expense in the fourth quarter of 2020, upon expiration of the interest rate swap.

Stock-Based Compensation

Employee Stock-Based Benefit Plans

At June 30, 2020, the Company had stock-based compensation awards outstanding under the following plans:

At September 30, 2020, the Company had stock-based compensation awards outstanding under the following plans:

the 2010 Equity Incentive Plan, as amended, or 2010 Plan, and the 2010 Employee Stock Purchase Plan, or ESPP.

Refer to the Company’s Annual Report for a summary of the Company's stock-based compensation and equity plans as of December 31, 2019.

There have been no material changes to the terms of the Company's equity incentive plans during the six months ended June 30, 2020.

As of June 30, 2020, the number of shares of common stock available for future issuance under the 2010 Plan was 15,310,191 shares.

As of June 30, 2020, the number of shares of common stock available for future issuance under the ESPP was 3,490,155 shares.

There have been no material changes to the terms of the Company's equity incentive plans during the nine months ended September 30, 2020.

As of September 30, 2020, the number of shares of common stock available for future issuance under the 2010 Plan was 15,096,411 shares.

As of September 30, 2020, the number of shares of common stock available for future issuance under the ESPP was 3,490,155 shares.

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock-Based Compensation

The Company recognizes stock-based compensation in the consolidated statements of operations, based on the department to which the related employee reports, as follows:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

3 unchanged sentences

Selling, general and administrative 7,350 4,053 17,202 11,295

Restructuring 596 — 596 —

$ 14,145 $ 8,359 $ 33,057 $ 24,413

The total unrecognized compensation cost related to unvested restricted stock units and restricted stock awards as of June 30, 2020 was $ 55.5 million, and the weighted average period over which these equity awards are expected to vest is 2.93 years.

The total unrecognized compensation cost related to unvested performance-based restricted stock units as of June 30, 2020 was $ 19.0 million, and the weighted average period over which these equity awards are expected to vest is 1.90 years.

The total unrecognized compensation cost related to unvested stock options as of June 30, 2020 was $ 1.5 million, and the weighted average period over which these equity awards are expected to vest is 1.96 years.

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The total unrecognized compensation cost related to unvested restricted stock units and restricted stock awards as of September 30, 2020 was $ 86.0 million, and the weighted average period over which these equity awards are expected to vest is 2.96 years.

The total unrecognized compensation cost related to unvested performance-based restricted stock units as of September 30, 2020 was $ 14.9 million, and the weighted average period over which these equity awards are expected to vest is 1.65 years.

The total unrecognized compensation cost related to unvested stock options as of September 30, 2020 was $ 1.2 million, and the weighted average period over which these equity awards are expected to vest is 1.72 years.

Restricted Stock Units

6 unchanged sentences

Canceled ( 373 ) 18.10

Outstanding at June 30, 2020 4,280 $ 17.31

Outstanding at September 30, 2020 5,896 $ 19.85

Performance-Based Restricted Stock Units

2 unchanged sentences

The maximum percentage for a particular metric is 250 % of the target number of units subject to the award related to that metric, however, vesting of the performance stock units is capped at 30 % and 100 %, respectively, of the target number of units subject to the award in years one and two, respectively, of the three-year performance period.

As of June 30, 2020, the Company believes that it is probable that the Company will achieve certain performance metrics specified in the respective award agreements based on its expected revenue and non-GAAP diluted EPS results over the performance periods and calculated growth rates relative to its peers’ expected results based on data available, as defined in the respective award agreements.

As of September 30, 2020, the Company believes that it is probable that the Company will achieve certain performance metrics specified in the respective award agreements based on its expected revenue and non-GAAP diluted EPS results over the performance periods and calculated growth rates relative to its peers’ expected results based on data available, as defined in the respective award agreements.

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of the Company’s performance-based restricted stock unit activity is as follows:

4 unchanged sentences

Canceled ( 118 ) 15.98

Outstanding at June 30, 2020 1,808 $ 13.95

Outstanding at September 30, 2020 1,722 $ 13.97

________________

2 unchanged sentences

Employee Stock Purchase Rights

During the six months ended June 30, 2020, there were 161,171 shares of common stock purchased under the ESPP at a weighted average price of $ 13.29 .

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the nine months ended September 30, 2020, there were 161,171 shares of common stock purchased under the ESPP at a weighted average price of $ 13.29 .

The fair values of employee stock purchase rights were estimated using the Black-Scholes option pricing model at their respective grant date using the following assumptions:

Six Months Ended June 30,

Nine Months Ended September 30,

Weighted-average grant date fair value per share $ 6.41 $ 6.61

14 unchanged sentences

Canceled ( 34 ) 18.89

Outstanding at June 30, 2020 957 $ 15.14 2.90 $ 6,366

Vested and expected to vest at June 30, 2020 957 $ 15.13 2.90 $ 6,366

Exercisable at June 30, 2020 776 $ 14.34 2.40 $ 5,829

No stock options were granted by the Company during the six months ended June 30, 2020.

The intrinsic value of stock options exercised was $ 2.8 million and $ 10.3 million in the three months ended June 30, 2020 and 2019, respectively.

The intrinsic value of stock options exercised was $ 3.2 million and $ 20.2 million in the six months ended June 30, 2020 and 2019, respectively.

Cash received from exercise of stock options was $ 2.2 million and $ 1.0 million during the three months ended June 30, 2020 and 2019, respectively.

Cash received from exercise of stock options was $ 2.6 million and $ 3.6 million during the six months ended June 30, 2020 and 2019, respectively.

The tax benefit from stock options exercised was $ 2.9 million and $ 10.3 million during the three months ended June 30, 2020 and 2019, respectively.

The tax benefit from stock options exercised was $ 3.2 million and $ 19.3 million during the six months ended June 30, 2020 and 2019, respectively.

Outstanding at September 30, 2020 896 $ 14.64 2.78 $ 7,811

Vested and expected to vest at September 30, 2020 896 $ 14.64 2.75 $ 7,810

Exercisable at September 30, 2020 739 $ 13.82 2.34 $ 7,064

No stock options were granted by the Company during the nine months ended September 30, 2020.

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The intrinsic value of stock options exercised was $ 0.2 million and $ 1.4 million in the three months ended September 30, 2020 and 2019, respectively.

The intrinsic value of stock options exercised was $ 3.4 million and $ 21.5 million in the nine months ended September 30, 2020 and 2019, respectively.

Cash received from exercise of stock options was $ 0.6 million and $ 0.3 million during the three months ended September 30, 2020 and 2019, respectively.

Cash received from exercise of stock options was $ 3.3 million and $ 4.0 million during the nine months ended September 30, 2020 and 2019, respectively.

The tax benefit from stock options exercised was $ 0.4 million and $ 0.2 million during the three months ended September 30, 2020 and 2019, respectively.

The tax benefit from stock options exercised was $ 3.6 million and $ 19.5 million during the nine months ended September 30, 2020 and 2019, respectively.

Employee Incentive Bonus

2 unchanged sentences

In connection with the Company’s bonus programs, in March 2020, the Company issued 0.2 million freely-tradable shares of the Company’s common stock in settlement of bonus awards to employees, including executives, for the 2019 performance period.

At June 30, 2020, the Company has an accrual of $ 6.4 million for bonus awards for employees for year-to-date achievement in the 2020 performance period.

At September 30, 2020, the Company has an accrual of $ 16.5 million for bonus awards for employees for year-to-date achievement in the 2020 performance period.

The Company’s compensation committee retains discretion to effect payment in cash, stock, or a combination of cash and stock.

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The provision for income taxes primarily relates to projected federal, state, and foreign income taxes.

7 unchanged sentences

The Company does not incur expense or benefit in certain tax free jurisdictions in which it operates.

The Company recorded an income tax benefit of $ 3.2 million in the three months ended June 30, 2020 and an income tax benefit of $ 3.4 million in the three months ended June 30, 2019.

The Company recorded an income tax benefit of $ 9.9 million in the six months ended June 30, 2020 and an income tax benefit of $ 9.9 million in the six months ended June 30, 2019.

The income tax benefit in the three and six months ended June 30, 2020 and 2019, each primarily related to the mix of pre-tax income among jurisdictions, excess tax benefits related to stock-based compensation, and release of certain reserves for uncertain tax positions under ASC 740-10.

Also included in income tax benefit for the six months ended June 30, 2020 was a tax benefit related to the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, enacted effective March 27, 2020, and a tax provision related to a change in judgment regarding the final outcome of the Altera tax case discussed below.

The Company recorded an income tax benefit of $ 2.2 million in the three months ended September 30, 2020 and an income tax benefit of $ 0.03 million in the three months ended September 30, 2019.

The Company recorded an income tax benefit of $ 12.1 million in the nine months ended September 30, 2020 and an income tax benefit of $ 9.9 million in the nine months ended September 30, 2019.

The income tax benefit in the three and nine months ended September 30, 2020 and 2019, each primarily related to the mix of pre-tax income among jurisdictions, excess tax benefits related to stock-based compensation, and release of certain reserves for uncertain tax positions under ASC 740-10.

Also included in income tax benefit for the nine months ended September 30, 2020 was a tax benefit related to the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, enacted effective March 27, 2020, and a tax provision related to a change in judgment regarding the final outcome of the Altera tax case discussed below.

The CARES Act tax benefit relates to the Company’s ability to carry back its 2019 net operating loss, originally valued at a 21 % federal tax rate, to offset income taxes paid in prior periods at the 35 % federal tax rate in effect at that time.

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income tax positions must meet a more-likely-than-not threshold to be recognized.

2 unchanged sentences

The Company records potential penalties and interest accrued related to unrecognized tax benefits within the consolidated statements of operations as income tax expense.

During the six months ended June 30, 2020, the Company’s unrecognized tax benefits decreased by $ 0.3 million.

During the nine months ended September 30, 2020, the Company’s unrecognized tax benefits increased by $ 0.1 million.

The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months.

Accrued interest and penalties associated with uncertain tax positions as of June 30, 2020 were approximately $ 0.5 million and $ 0.1 million, respectively.

Accrued interest and penalties associated with uncertain tax positions as of September 30, 2020 were approximately $ 0.6 million and $ 0.1 million, respectively.

The Company is subject to federal and state income tax in the United States and is also subject to income tax in certain other foreign tax jurisdictions.

At June 30, 2020, the statutes of limitations for the assessment of federal, state, and foreign income taxes are closed for the years before 2016, 2015, and 2014, respectively.

At September 30, 2020, the statutes of limitations for the assessment of federal, state, and foreign income taxes are closed for the years before 2016, 2015, and 2014, respectively.

The Company’s subsidiary in Singapore operates under certain tax incentives in Singapore, which are generally effective through March 2022 and may be extended through March 2027, and are conditional upon meeting certain employment and investment thresholds in Singapore.

Under the incentives, qualifying income derived from certain sales of the Company’s integrated circuits is taxed at a concessionary rate over the incentive period, and there are reduced Singapore withholding taxes on certain intercompany royalties during the incentive period.

Primarily because of the Company's Singapore net operating losses and a full valuation allowance in Singapore, the incentives did not have a material impact on the Company's income tax benefit in the six months ended June 30, 2020 and 2019.

On March 27, 2020, the U.S.

government enacted the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, a $2 trillion relief package comprising a combination of tax provisions and other stimulus measures.

The CARES Act broadly provides entities tax payment relief and significant business incentives and makes certain technical corrections to

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

the 2017 Tax Cuts and Jobs Act, or the Tax Act.

The CARES Act broadly provides entities tax payment relief and significant business incentives and makes certain technical corrections to the 2017 Tax Cuts and Jobs Act, or the Tax Act.

The tax relief measures for entities include a five-year net operating loss carry back, increases interest expense deduction limits, acceleration of alternative minimum tax credit refunds, payroll tax relief, and a technical correction to allow accelerated deductions for qualified improvement property.

2 unchanged sentences

ASC Topic 740, Income Taxes , requires the effect of changes in tax rates and laws on deferred tax balances to be recognized in the period in which new legislation is enacted.

The enactment of the CARES Act and similar legislation in other jurisdictions in which the Company operates was not material to the Company’s income tax benefit for the six months ended June 30, 2020 and is not expected to have a material impact on its consolidated financial position and results of operations as of and for the full year ending December 31, 2020.

The enactment of the CARES Act and similar legislation in other jurisdictions in which the Company operates was not material to the Company’s income tax benefit for the nine months ended September 30, 2020 and is not expected to have a material impact on its consolidated financial position and results of operations as of and for the full year ending December 31, 2020.

On July 27, 2015, the US Tax Court decided on behalf of Altera Corporation, or Altera US, that certain 2003 Internal Revenue Service, or IRS regulations underpinning the transfer pricing between related parties for shared costs were invalid.

8 unchanged sentences

Commissioner (Altera v.

The announcement represents new information that the Company considered in its tax provision for the six months ended June 30, 2020.

The evaluation of this ruling for all open tax periods was not material to the Company’s income tax benefit for the six months ended June 30, 2020 and is not expected to have a material impact on its consolidated financial position and results of operations as of and for the year ending December 31, 2020.

The announcement represented new information that the Company considered in its second quarter tax provision for the six months ended June 30, 2020.

The evaluation of this ruling for all open tax periods was not material to the Company’s income tax benefit for the nine months ended September 30, 2020 and is not expected to have a material impact on its consolidated financial position and results of operations as of and for the year ending December 31, 2020.

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Concentration of Credit Risk, Significant Customers and Revenue by Geographic Region

9 unchanged sentences

Customers comprising greater than 10% of net revenues for each of the periods presented are as follows:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Percentage of total net revenue

Customer A (distributor) 16 % * 17 % *

Customer A (direct) 19 % 15 % 15 % 13 %

Customer B (direct) 11 % * * *

Customer C (distributor) * * 11 % *

Customer D (distributor) * 18 % * *

____________________________

* Represents less than 10% of total net revenue for the respective period.

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Balances that are 10% or greater of accounts receivable, based on the Company’s billings to its customers, are as follows:

June 30, December 31,

The following table presents balances that are 10% or greater of accounts receivable, based on the Company’s billings to its customers.

September 30, December 31,

Percentage of gross accounts receivable

Customer A (distributor) 15 % *

Customer C (distributor) 16 % 10 %

Customer E (distributor) 13 % *

Customer F (direct) 13 % *

Customer G (distributor) * 10 %

____________________________

2 unchanged sentences

Suppliers comprising greater than 10% of total inventory purchases are as follows:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

4 unchanged sentences

Vendor E * 16 % * 18 %

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Geographic Information

The Company’s consolidated net revenues by geographic area based on ship-to location are as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

5 unchanged sentences

The products shipped to individual countries or territories representing greater than 10% of net revenue for each of the periods presented are as follows:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

2 unchanged sentences

China 21 % * 16 % 15 %

Taiwan * 17 % * *

____________________________

3 unchanged sentences

Although a large percentage of the Company’s products is shipped to Asia, and in particular, Hong Kong and China, the Company believes that a significant number of the systems designed by customers and incorporating the Company’s semiconductor products are subsequently sold outside Asia to Europe, Middle East, and Africa, or EMEA markets and North American markets.

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Long-lived assets, which consists of property and equipment, net, leased right-of-use assets, intangible assets, net, and goodwill by geographic area are as follows (in thousands):

June 30, December 31,

September 30, December 31,

Amount % of total Amount % of total

3 unchanged sentences

Total $ 583,858 100 % $ 453,892 100 %

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenue from Contracts with Customers

1 unchanged sentence

The table below presents disaggregated net revenues by market (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

1 unchanged sentence

% of net revenue 24 % 51 % 35 % 50 %

Broadband and WiFi 82,274 — 82,274 —

% of net revenue 53 % — % 29 % — %

Infrastructure 21,526 20,184 58,306 64,857

3 unchanged sentences

Total net revenue $ 156,633 $ 80,020 $ 283,880 $ 247,162

Revenues from sales through the Company’s distributors accounted for 64 % and 49 % of net revenue for the three months ended June 30, 2020 and 2019, respectively.

Revenues from sales through the Company’s distributors accounted for 63 % and 45 % of net revenue for the six months ended June 30, 2020 and 2019, respectively.

Revenues from sales through the Company’s distributors accounted for 46 % and 60 % of net revenue for the three months ended September 30, 2020 and 2019, respectively.

Revenues from sales through the Company’s distributors accounted for 54 % and 50 % of net revenue for the nine months ended September 30, 2020 and 2019, respectively.

Contract Liabilities

As of June 30, 2020 and December 31, 2019, customer contract liabilities consist of estimates of obligations to deliver rebates to customers in the form of units of products and were approximately $ 0.01 million and $ 0.1 million.

Revenue recognized in each of the three and six months ended June 30, 2020 and 2019 that was included in the contract liability balance as of the beginning of each of those respective periods was immaterial.

There were no material changes in the contract liabilities balance during the three and six months ended June 30, 2020 and 2019.

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2020 and December 31, 2019, customer contract liabilities consist of estimates of obligations to deliver rebates to customers in the form of units of products and were approximately $ 0.01 million and $ 0.1 million.

Revenue recognized in each of the three and nine months ended September 30, 2020 and 2019 that was included in the contract liability balance as of the beginning of each of those respective periods was immaterial.

There were no material changes in the contract liabilities balance during the three and nine months ended September 30, 2020 and 2019.

Obligations to Customers for Price Adjustments and Returns and Assets for Right-of-Returns

As of June 30, 2020 and December 31, 2019, obligations to customers consisting of estimates of price protection rights offered to the Company’s end customers totaled $ 5.9 million and $ 12.6 million, respectively, and are included in accrued price protection liability in the consolidated balance sheets.

As of September 30, 2020 and December 31, 2019, obligations to customers consisting of estimates of price protection rights offered to the Company’s end customers totaled $ 18.0 million and $ 12.6 million, respectively, and are included in accrued price protection liability in the consolidated balance sheets.

For activity in this account, including amounts included in net revenue, refer to Note 7.

Other obligations to customers representing estimates of price adjustments to be claimed by distributors upon sell-through of their inventory to their end customer and estimates of stock rotation returns to be claimed by distributors on products sold as of June 30, 2020 were $ 8.0 million and $ 1.1 million, respectively, and as of December 31, 2019 were $ 8.4 million and $ 1.4 million, respectively, and are included in accrued expenses and other current liabilities in the consolidated balance sheets (Note 6).

The increase in revenue in the three and six months ended June 30, 2020 and 2019 from net changes in transaction prices for amounts included in obligations to customers for price adjustments as of the beginning of those respective periods was not material.

As of June 30, 2020 and December 31, 2019, right of return assets under customer contracts representing the estimates of product inventory the Company expects to receive from customers in stock rotation returns were approximately $ 0.2 million and $ 0.3 million, respectively.

Other obligations to customers representing estimates of price adjustments to be claimed by distributors upon sell-through of their inventory to their end customer and estimates of stock rotation returns to be claimed by distributors on products sold as of September 30, 2020 were $ 12.1 million and $ 1.6 million, respectively, and as of December 31, 2019 were $ 8.4 million and $ 1.4 million, respectively, and are included in accrued expenses and other current liabilities in the consolidated balance sheets (Note 7).

The increase in revenue in the three and nine months ended September 30, 2020 and 2019 from net changes in transaction prices for amounts included in obligations to customers for price adjustments as of the beginning of those respective periods was not material.

As of September 30, 2020 and December 31, 2019, right of return assets under customer contracts representing the estimates of product inventory the Company expects to receive from customers in stock rotation returns were approximately $ 0.7 million and $ 0.3 million, respectively.

Right of return assets are included in inventory in the consolidated balance sheets.

As of June 30, 2020 and December 31, 2019, there were no impairment losses recorded on customer accounts receivable.

As of September 30, 2020 and December 31, 2019, there were no impairment losses recorded on customer accounts receivable.

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Operating Leases

Operating lease arrangements primarily consist of office leases expiring at various years through 2023.

These leases often have original terms of 3 to 5 years and contain options to extend the lease up to 5 years or terminate the lease, which are included in right-of-use assets and lease liabilities when the Company is reasonably certain it will renew the underlying leases.

Operating lease arrangements primarily consist of office leases expiring in various years through 2027.

These leases have original terms of approximately 2 to 7 years and some contain options to extend the lease up to 5 years or terminate the lease, which are included in right-of-use assets and lease liabilities when the Company is reasonably certain it will renew the underlying leases.

Since the implicit rate of such leases is unknown and the Company is not reasonably certain to renew its leases, the Company has elected to apply a collateralized incremental borrowing rate to facility leases on the original lease term in calculating the present value of future lease payments.

As of June 30, 2020 and December 31, 2019, the weighted average discount rate for operating leases was 5.0 % and the weighted average remaining lease term for operating leases was 2.4 years and 2.9 years, respectively.

The table below presents aggregate future minimum payments due under leases, reconciled to total lease liabilities included in the consolidated balance sheet as of June 30, 2020:

As of September 30, 2020 and December 31, 2019, the weighted average discount rate for operating leases was 4.5 % and 5.0 %, respectively, and the weighted average remaining lease term for operating leases was 3.1 years and 2.9 years, respectively.

The table below presents aggregate future minimum payments due under leases, reconciled to total lease liabilities included in the consolidated balance sheet as of September 30, 2020:

Operating Leases

1 unchanged sentence

2020 (3 months) $ 1,668

Thereafter 1,622

Total minimum payments 16,863

4 unchanged sentences

Long-term lease liabilities $ 9,406

Operating lease cost was $ 0.9 million and $ 0.8 million for the three months ended June 30, 2020 and 2019, respectively.

Operating lease cost was $ 1.8 million and $ 1.7 million for the six months ended June 30, 2020 and 2019, respectively.

Short-term lease costs for the three and six months ended June 30, 2020 and 2019 were not material.

There were no right-of-use assets obtained in exchange for new lease liabilities for the three and six months ended June 30, 2020.

There were $ 0.5 million right-of-use assets obtained in exchange for new lease liabilities for the three and six months ended June 30, 2019.

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company has subleased certain facilities that it ceased using in connection with a restructuring plan (Note 3).

Such subleases expire at various years through fiscal 2023.

As of June 30, 2020, future minimum rental income under non-cancelable subleases is as follows:

Operating lease cost was $ 1.4 million and $ 0.8 million for the three months ended September 30, 2020 and 2019, respectively.

Operating lease cost was $ 3.2 million and $ 2.6 million for the nine months ended September 30, 2020 and 2019, respectively.

Short-term lease costs for the three and nine months ended September 30, 2020 and 2019 were not material.

There were $ 5.2 million right-of-use assets obtained in exchange for new lease liabilities for each of the three and nine months ended September 30, 2020.

There were $ 0 and $ 0.5 million right-of-use assets obtained in exchange for new lease liabilities for the three and nine months ended September 30, 2019, respectively.

The Company has subleased a facility that it ceased using in connection with a restructuring plan (Note 4).

Such sublease expires in 2021.

As of September 30, 2020, future minimum rental income under non-cancelable subleases is as follows:

(in thousands)

1 unchanged sentence

Total minimum rental income $ 108

Total sublease income related to leased facilities the Company ceased using in connection with a restructuring plan for the three months ended June 30, 2020 and 2019 was approximately $ 0.2 million and $ 1.0 million, respectively.

Total sublease income related to leased facilities the Company ceased using in connection with a restructuring plan for the six months ended June 30, 2020 and 2019 was approximately $ 0.3 million and $ 1.6 million, respectively (Note 3).

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Total sublease income related to leased facilities the Company ceased using in connection with a restructuring plan for the three months ended September 30, 2020 and 2019 was approximately $ 0.1 million and $ 1.1 million, respectively.

Total sublease income related to leased facilities the Company ceased using in connection with a restructuring plan for the nine months ended September 30, 2020 and 2019 was approximately $ 0.4 million and $ 2.4 million, respectively (Note 4).

Employee Defined Benefit Retirement Plans

Pension and Other Defined Benefit Retirement Obligations

The benefit is based on a formula applied to eligible employee earnings.

Net periodic benefit costs were $ 0.1 million for the three and nine months ended September 30, 2020 and were recorded to research and development expenses in the consolidated statements of operations.

Commitments and Contingencies

Inventory Purchase and Other Contractual Obligations

As of June 30, 2020, future minimum payments under inventory purchase and other obligations are as follows:

As of September 30, 2020, future minimum payments under inventory purchase and other obligations are as follows:

Inventory Purchase Obligations Other Obligations Total

3 unchanged sentences

2023 — 6,830 6,830

Thereafter — — —

Total minimum payments $ 56,204 $ 41,517 $ 97,721

Other obligations consist of contractual payments due for software licenses.

Our inventory purchase obligations and other obligations increased by $ 41.4 million to $ 64.0 million as of June 30, 2020, from $ 22.6 million as of December 31, 2019 primarily as a result of increased orders of software licenses and inventory placed with our vendors during the period.

Other obligations consist of deferred payments related to the NanoSemi merger (Note 3) and contractual payments due for software licenses.

Our inventory purchase obligations and other obligations increased by $ 75.1 million to $ 97.7 million as of September 30, 2020, from $ 22.6 million as of December 31, 2019 primarily as a result of increased orders of software licenses and inventory placed with our vendors during the period, which is due in part to our 2020 acquisitions (Note 3).

Other Matters

1 unchanged sentence

The Company believes that there are no currently pending litigation matters that, if determined adversely to the Company’s interests, would have a material effect on the Company’s financial position, results of operations, or cash flows or that would not be covered by the Company’s existing liability insurance.

MAXLINEAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Subsequent Event

Acquisition of Home Gateway Platform Division of Intel Corporation

On April 5, 2020, the Company entered into an asset purchase agreement with Intel Corporation, or Intel, under which the Company and its wholly owned Singapore subsidiary agreed to acquire certain assets and assume certain liabilities of the Home Gateway Platform Division of Intel Corporation, which the Company refers to as the WiFi and Broadband assets business, for a purchase price of $ 150.0 million in cash payable upon closing of the transaction.

The Company intends to fund the transaction primarily with approximately $ 140.0 million of new transaction debt and approximately $ 10.0 million in cash from the Company’s balance sheet.

The transaction is currently expected to close in the third quarter of 2020.

The Company’s board of directors has unanimously approved the asset purchase agreement and the transactions contemplated thereby.

During the six months ended June 30, 2020, the Company incurred $ 5.4 million in costs associated with the acquisition.

In connection with the asset purchase agreement, the Company entered into a debt commitment letter effective April 5, 2020 with certain initial lenders who have committed to provide a secured term loan facility in an aggregate principal amount of up to $ 140.0 million, subject to the satisfaction of certain customary closing conditions.

The facilities are available to finance the acquisition and to pay fees and expenses incurred in connection therewith.

The commitment letter provides that the term loan facility will have a three -year term and that term loans will bear interest at either an Adjusted LIBOR plus a fixed applicable margin of 4.25 % per annum or an Adjusted Base Rate plus a fixed applicable margin of 3.25 % per annum, at our option.

The incremental term loan facility will be subject to a financial covenant of an initial maximum total net leverage ratio of 3.5 to 1 which decreases to 3.0 to 1 beginning with the sixth full fiscal quarter ending after the close of the transaction.

The definitive documentation governing the debt financing has not been finalized, and, accordingly, the actual terms may differ from the description of such terms in the commitment letter.

The consummation of the closing is not subject to a financing condition but is subject to customary conditions to closing, including the receipt of approval (or expiration of the waiting period) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, or HSR.

On April 21, 2020, the U.S.

Federal Trade Commission (FTC) granted early termination of the waiting period with respect to the pending acquisition.

In addition, as required by local law in certain jurisdictions, Intel has initiated consultations on the proposed transaction with its relevant works councils, trade unions and other employee organizations.

Either party may terminate the Purchase Agreement, subject to certain exceptions, (i) if the closing has not occurred by December 5, 2020 or (ii) if a legal restraint would prevent the consummation of the closing.

In connection with the transaction, MaxLinear and Intel have agreed to enter into, as of the closing, certain other ancillary agreements, including (i) an intellectual property matters agreement, pursuant to which Intel will grant to MaxLinear a license to certain intellectual property rights for use by MaxLinear in connection with the acquired assets and MaxLinear will grant back to Intel a license to the intellectual property rights in the acquired assets, (ii) a supply agreement, pursuant to which Intel will manufacture and fabricate certain products for MaxLinear that are part of the acquired assets, (iii) an ethernet network controller services agreement, pursuant to which MaxLinear will provide Intel with certain development services with respect to certain Intel ethernet network controller products, (iv) a transition services agreement, pursuant to which Intel will provide certain services on a transitional basis for up to a 12-month period after the closing, the scope of which includes 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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements