What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-11-05 compared with 2020-07-23 · 151 added, 146 removed, 261 unchanged (53% of the section changed)

5 unchanged sentences

Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this report.

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

We are a provider of radio-frequency, or RF, analog, digital, and mixed-signal communications systems-on-chip solutions for access and connectivity, wired and wireless infrastructure, and industrial and multi-market applications.

We are a fabless integrated circuit design company whose products integrate all or substantial portions of a broadband communication system.

13 unchanged sentences

Moreover, we are uniquely positioned to offer customers a combination of proprietary CMOS-based radio system architectures that provide the benefits of superior RF system performance, along with high-performance analog interface and power management solutions that enable shorter design cycles, significant design flexibility, and low system cost across a wide range of broadband communications, wired and wireless infrastructure, and industrial and multimarket applications.

In the six months ended June 30, 2020, revenues were $127.2 million.

In fiscal 2019 and in the six months ended June 30, 2020, our net revenue was derived primarily from sales of RF receivers and RF receiver systems-on-chip and connectivity solutions into broadband operator voice and data modems and gateways and connectivity adapters, global analog and digital RF receiver products, radio and modem solutions into wireless carrier access and backhaul infrastructure platforms, high-speed optical interconnect solutions sold into optical modules for data-center, metro and long-haul networks, and high-performance interface and power management solutions into a broad range of communications, industrial, automotive and multi-market applications.

In the nine months ended September 30, 2020, revenues were $283.9 million.

In the nine months ended September 30, 2020, our net revenue was derived in part from sales of RF receivers and RF receiver systems-on-chip and connectivity solutions into broadband operator voice and data modems and gateways and connectivity adapters, global analog and digital RF receiver products, radio and modem solutions into wireless carrier access and backhaul infrastructure platforms, high-speed optical interconnect solutions sold into optical modules for data-center, metro and long-haul networks, and high-performance interface and power management solutions into a broad range of communications, industrial, automotive and multi-market applications, and in part from the partial quarter contribution of revenues attributable to our acquisition of the WiFi and Broadband assets business.

Our ability to achieve revenue growth in the future will depend, among other factors, on our ability to further penetrate existing markets;

2 unchanged sentences

and our ability to obtain design wins with device manufacturers, in particular manufacturers of set-top boxes, data modems, and gateways for the broadband service provider, storage networking market, cable infrastructure market, industrial and automotive markets, and optical module and telecommunications infrastructure markets.

Products shipped to Asia accounted for 83% of net revenue during the three months ended June 30, 2020 and 2019, including 42% from products shipped to Hong Kong and 11% from products shipped to China during the three months ended June 30, 2020 and 46% from products shipped to Hong Kong and 14% to mainland China during the three months ended June 30, 2019.

Products shipped to Asia accounted for 83% and 84% of net revenue during the six months ended June 30, 2020 and 2019, respectively, including 46% from products shipped to Hong Kong and 10% from products shipped to China during the six months ended June 30, 2020 and 45% from products shipped to Hong Kong and 19% to mainland China during the six months ended June 30, 2019.

Products shipped to Asia accounted for 82% and 85% of net revenue during the three months ended September 30, 2020 and 2019, respectively, including 44% from products shipped to Hong Kong and 21% from products shipped to mainland China during the three months ended September 30, 2020 and 44% from products shipped to Hong Kong during the three months ended September 30, 2019.

Products shipped to Asia accounted for 82% and 84% of net revenue during the nine months ended September 30, 2020 and 2019, respectively, including 45% from products shipped to Hong Kong and 16% from products shipped to mainland China during the nine months ended September 30, 2020 and 45% from products shipped to Hong Kong and 15% to mainland China during the nine months ended September 30, 2019.

Although a large percentage of our products is shipped to Asia, we believe that a significant number of the systems designed by these customers and incorporating our semiconductor products are then sold outside Asia.

For example, revenue generated from sales of our cable modem products during the three and six months ended June 30, 2020 and 2019 related principally to sales to Asian ODMs and contract manufacturers delivering products into European and North American markets.

For example, revenue generated from sales of our products during the three and nine months ended September 30, 2020 and 2019 related principally to sales to Asian ODMs and contract manufacturers delivering products into European and North American markets.

To date, all of our sales have been denominated in United States dollars.

1 unchanged sentence

Sales to customers comprise both direct sales to customers and indirect sales through distributors.

In the three months ended June 30, 2020, one of our distributor customers accounted for 16% of our net revenue and one of our direct customers accounted for 10% of our net revenue, and our ten largest customers collectively accounted for 71% of our net revenue, of which distributor customers accounted for 50% of our net revenue.

In the six months ended June 30, 2020, one of our distributor customers accounted for 17% of our net revenue and one of our direct customers accounted for 10% of our net revenue, and our ten largest customers collectively accounted for 68% of our net revenue, of which distributor customers accounted for 48% of our net revenue.

In the three months ended September 30, 2020, our top two customers accounted for 29% of our net revenue, and our ten largest customers collectively accounted for 71% of our net revenue, of which distributor customers accounted for 31% of our net revenue.

In the nine months ended September 30, 2020, our top two customers accounted for 25% of our net revenue, of which a distributor customer accounted for 11% of our net revenue, and our ten largest customers collectively accounted for 65% of our net revenue, of which distributor customers accounted for 36% of our net revenue.

For certain customers, we sell multiple products into disparate end user applications such as cable modems, satellite set-top boxes and broadband gateways.

12 unchanged sentences

On March 11, 2020, the World Health Organization declared a global pandemic regarding COVID-19.

The COVID-19 pandemic has reached all of the countries and states in which we operate, including in California where our headquarters and central engineering team are located, as well as Spain, India, Singapore, Taiwan, Canada, France, Japan and South Korea, where additional engineering, sales, and administrative personnel are located.

The COVID-19 pandemic has reached all of the countries and states in which we operate, including in California where our headquarters and central engineering team are located, as well as Spain, India, Singapore, Taiwan, Canada, France, Japan, South Korea, Hong Kong, Israel, Germany, and Austria, where additional engineering, sales, and administrative personnel are located.

In many of these jurisdictions, local authorities have instituted stay-at-home or shelter-in-place orders.

To protect the health and safety of our employees, we adopted social distancing policies including suspending employee travel and implementing remote work arrangements for substantially all of our workforce worldwide, which currently remain in place including in California, where the rate of confirmed COVID-19 infections is currently on the rise.

In addition, we experienced some impact to our net revenue and gross profits in the first half of 2020 due to several industry-wide dynamics related to COVID-19, including the supply constraints described above, as well as certain customer order push-out requests.

Further, global financial markets reacted negatively to the COVID-19 pandemic’s impacts causing significant declines in the stock price and market capitalization of many companies across all industries, although some have recently recovered.

Heightened volatility and uncertainty in customer demand and the worldwide economy has continued as a result of the COVID-19 pandemic, and we may experience decreased sales and revenues in the near future.

We believe such impact may in particular affect our sales of high performance analog products in our industrial and multi-market business, and may impact the rest of our business to some degree.

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

As described below, on April 6, 2020, we announced that we had entered into a definitive agreement to acquire certain assets and assume certain liabilities from Intel Corporation related to its Home Gateway Platform Division.

This business also operates in jurisdictions that have been and continue to be materially affected by the COVID-19 pandemic.

In particular, the Intel division has major engineering, development, and other personnel whom we expect to become our employees in Germany, Austria, Israel, India, Singapore, Taiwan, Hong Kong, and China.

As of September 30, 2020, some of our workforce has returned to the office at a reduced capacity adhering to local health authority guidelines.

While we experienced some negative impact to our net revenue and gross profits in the first half of 2020 due to several industry-wide dynamics related to COVID-19, including the supply constraints described above, as well as certain customer order push-out requests, we are currently benefiting from the work-from-home environment that is driving an increase in demand for certain of our products.

Heightened volatility and uncertainty in customer demand and the worldwide economy has continued as a result of the COVID-19 pandemic, and we may experience increased volatility in our sales and revenues in the near future.

However, the magnitude of such volatility on our business and its duration is uncertain and cannot be reasonably estimated at this time.

As described below, on July 31, 2020, we consummated transactions contemplated by a definitive agreement to acquire certain assets and assume certain liabilities from Intel Corporation, or Intel, related to its Home Gateway Platform Division, which we refer to as the WiFi and Broadband assets business, and on September 9, 2020, we completed our acquisition of NanoSemi, Inc., or NanoSemi, pursuant to an Agreement and Plan of Merger with NanoSemi, dated September 9, 2020 (the “Merger Agreement”).

These businesses also operate in jurisdictions that have been and continue to be materially affected by the COVID-19 pandemic.

In particular, our WiFi and Broadband assets business has major engineering, development, and other personnel in Germany, Austria, Israel, India, Singapore, Taiwan, Hong Kong, and China and NanoSemi has engineering and development personnel in Boston, Massachusetts.

Attempting to complete and integrate an acquisition of assets and new personnel around the world has been and will continue to be substantially complicated by continuing restrictions on travel and social distancing.

In addition, engagement with and making offers to Intel employees that we are seeking to transfer to the Company in connection with the acquisition will be similarly complicated and presents potential employee retention risks.

We are taking various steps to mitigate these risks, but we cannot predict whether or to what extent the pandemic may adversely affect the timing of completion of the acquisition or our ability to retain employees and successfully integrate the

acquired business.

In addition, the operating results of the acquired business are subject to the same financial and operational risks posed to MaxLinear’s current businesses, including potential declines in revenues, supply constraints, and other factors generally affecting businesses worldwide.

In addition, engagement with newly integrated employees from the acquisitions has been and will continue to be similarly complicated and presents potential employee retention risks.

We are taking various steps to mitigate these risks, but

we cannot predict whether or to what extent the pandemic may adversely affect our ability to retain employees and successfully integrate the acquired businesses.

In addition, the operating results of the acquired businesses are subject to the same financial and operational risks posed to MaxLinear’s current businesses, including potential declines in revenues, supply constraints, and other factors generally affecting businesses worldwide.

For further discussion of potential risks arising from the acquisition, please see the discussion in Part II, Item 1A of this Quarterly Report on Form 10-Q captioned “Risk Factors.”

1 unchanged sentence

Acquisition of Home Gateway Platform Division of Intel Corporation

On April 5, 2020, we entered into an asset purchase agreement with Intel Corporation, or Intel, under which we and our wholly owned Singapore subsidiary agreed to acquire certain assets and assume certain liabilities of the Home Gateway Platform Division of Intel, which we refer 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 transaction is currently expected to close in the third quarter of 2020.

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

In connection with the asset purchase agreement, we 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.

On July 31, 2020, we completed our acquisition of the Home Gateway Platform Division, which we refer to as the WiFi and Broadband assets business, pursuant to an Asset Purchase Agreement with Intel, dated April 5, 2020, and related agreements.

We 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 proceeds from a secured incremental term loan with an aggregate principal amount of $175.0 million (Note 8).

Acquisition of NanoSemi, Inc.

On September 9, 2020, we completed our acquisition of NanoSemi pursuant to the Merger Agreement.

The initial closing transaction consideration consisted of $10 million in cash and 804,163 shares of our common stock.

In addition, the NanoSemi securityholders will receive $35 million in deferred cash payments payable in 2021, and certain NanoSemi securityholders may also receive up to an additional $35 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, we agreed to provide the NanoSemi stockholders with certain registration rights with respect to the shares of our common stock they received in the acquisition.

For more information, please refer to Note 3 of our unaudited consolidated financial statements.

8 unchanged sentences

For a summary of our critical accounting policies and estimates, refer to Management's Discussion and Analysis section of our Annual Report on Form 10-K for the year ended December 31, 2019, which we filed with the Securities and Exchange Commission, or SEC, on February 5, 2020, or our Annual Report.

There have been no material changes to our critical accounting policies and estimates during the six months ended June 30, 2020.

There have been no material changes to our critical accounting policies and estimates during the nine months ended September 30, 2020.

Recently Adopted Accounting Pronouncements

3 unchanged sentences

Also, in April 2019, the FASB issued ASU No.

2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, to clarify the inclusion

of recoveries of trade receivables previously written off when estimating an allowance for credit losses.

2019-04, Codification Improvements to Topic 326, Financial

Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, to clarify the inclusion of recoveries of trade receivables previously written off when estimating an allowance for credit losses.

The amendments in this update are effective for us beginning with fiscal year 2020, including interim periods.

31 unchanged sentences

Therefore, the adoption of the amendments in this update did not have a material impact on our accumulated other comprehensive loss or our 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 our consolidated financial position and results of operations as of and for the year ending December 31, 2020.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU No.

2019-12 Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes , to remove certain exceptions and improve consistency of application, including, among other things, requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date.

The amendments in this update will be effective for us beginning with fiscal year 2021, with early adoption permitted.

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 our 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.

4 unchanged sentences

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

We intend to early adopt the rule in our future filings related to the pending acquisition of the WiFi and Broadband assets business.

We have early adopted the rule in our filings related to the acquisition of the WiFi and Broadband assets business.

The adoption of the rule is not expected to have a material impact on our consolidated financial position and results of operations as of and for the year ending December 31, 2020.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU No.

The amendments in this update will be effective for us beginning with fiscal year 2021, with early adoption permitted.

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 our consolidated financial position and results of operations.

Results of Operations

The following describes the line items set forth in our unaudited consolidated statements of operations.

Net revenue is generated from sales of radio-frequency, analog and mixed signal integrated circuits for the connected home, wired and wireless infrastructure, and industrial and multi-market applications.

Net revenue is generated from sales of radio-frequency, analog, digital, and mixed-signal integrated circuits for access and connectivity, wired and wireless infrastructure, and industrial and multi-market applications.

A significant portion of our sales are to distributors, who then resell our products.

4 unchanged sentences

amortization of acquired developed technology intangible assets;

amortization of a step-up to fair value of acquired inventory;

amortization of certain production mask costs;

6 unchanged sentences

Selling, General and Administrative.

Selling, general and administrative expense includes personnel-related expenses, including stock-based compensation, amortization of certain acquired intangible assets, third-party sales commissions, field application engineering support, travel costs, professional and consulting fees, legal fees, depreciation expense and allocated occupancy costs.

Selling, general and administrative expense includes personnel-related expenses, including stock-based compensation, amortization of certain acquired intangible assets, merger, acquisition and integration costs, third-party sales commissions, field application engineering support, travel costs, professional and consulting fees, legal fees, depreciation expense and allocated occupancy costs.

Impairment Losses.

Impairment losses consist of charges resulting from the impairment of acquired intangible assets.

Impairment losses consist of charges resulting from the impairment of intangible assets.

Restructuring Charges .

9 unchanged sentences

The following table sets forth our consolidated statement of operations data as a percentage of net revenue for the periods indicated:

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

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

2020 2019 2020 2019

13 unchanged sentences

Net loss (23) % (6) % (26) % (5) %

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

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

2020 2019 $ Change % Change 2020 2019 $ Change % Change

2 unchanged sentences

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

Broadband and WiFi 82,274 — 82,274 N/A 82,274 — 82,274 N/A

% of net revenue 53 % — % 29 % — %

Infrastructure 21,526 20,184 1,342 7 % 58,306 64,857 (6,551) (10) %

3 unchanged sentences

Total net revenue $ 156,633 $ 80,020 $ 76,613 96 % $ 283,880 $ 247,162 $ 36,718 15 %

Net revenue decreased $17.3 million to $65.2 million for the three months ended June 30, 2020, as compared to $82.5 million for the three months ended June 30, 2019.

The decrease in connected home net revenue of $9.5 million was primarily driven by continued deterioration in satellite demand and a decline in MoCA shipments owing to a pause in a ramp up, or expected increase in revenue, related to a new program at a large telecommunications customer.

The decrease in infrastructure revenues of $3.3 million was primarily driven by a slowdown in wireless backhaul deployments, which is partly attributable to the impact of COVID-19.

Net revenue increased $76.6 million to $156.6 million for the three months ended September 30, 2020, as compared to $80.0 million for the three months ended September 30, 2019.

The increase in Broadband and WiFi revenue of $82.3 million reflects a partial quarter contribution of revenues attributable to our acquisition of the WiFi and Broadband assets business.

The decrease in connected home revenue of $2.6 million was primarily driven by continued deterioration in satellite demand and a decline in MoCA shipments following a surge in a new program at a large telecommunications customer in the year-ago quarter, partially offset by increases in cable data and G.hn shipments.

The increase in infrastructure revenues of $1.3 million was primarily driven by an increase in wireless infrastructure shipments.

The decrease in industrial and multi-market revenue of $4.4 million was related to decreased shipments of high performance analog products in this category, which we attribute primarily to the impact of COVID-19.

Net revenue decreased $39.9 million to $127.2 million for the six months ended June 30, 2020, as compared to $167.1 million for the six months ended June 30, 2019.

The decrease in connected home net revenue of $20.7 million was primarily driven by continued deterioration in satellite demand and, to a lesser extent, a slowdown in the cable market, which impacted both cable and related MoCA product shipments, owing to the market transition from DOCSIS 3.0 to DOCSIS 3.1 and related customer inventory reductions.

The decrease in infrastructure revenues of $7.9 million was primarily driven by a slowdown in wireless backhaul deployments, which is partly attributable to the impact of COVID-19, as well as reduced demand for high-speed interconnect products.

Net revenue increased $36.7 million to $283.9 million for the nine months ended September 30, 2020, as compared to $247.2 million for the nine months ended September 30, 2019.

The increase in Broadband and WiFi revenue of $82.3 million reflects a partial quarter contribution of revenues attributable to our acquisition of the WiFi and Broadband assets business.

The decrease in connected home net revenue of $23.3 million was primarily driven by continued deterioration in satellite demand and a slowdown in MoCA shipments following a surge in a new program at a large telecommunications customer in the year-ago period, partially offset by an increase in cable data shipments.

The decrease in infrastructure revenues of $6.6 million was primarily driven by a slowdown in wireless backhaul deployments, which is partly attributable to the impact of COVID-19 in the first half of the year, as well as reduced demand for high-speed interconnect products.

The decrease in industrial and multi-market revenue of $15.7 million was related to decreased shipments of high performance analog products in this category, which we attribute primarily to the impact of COVID-19.

We currently expect that revenue will fluctuate in the future, from period-to-period, based on evolving customer demand for existing products, the pace of adoption of newer products, and macroeconomic conditions.

Further, due to heightened volatility and uncertainty in customer demand resulting from the COVID-19 pandemic, we may experience decreased sales and revenues.

We believe such impact may in particular affect our sales of high performance analog products in our industrial and multi-market business, and potentially may also impact certain other markets, such as wireless backhaul.

Further, due to heightened volatility and uncertainty in customer demand resulting from the COVID-19 pandemic, we may experience increased volatility in our sales and revenues.

Cost of Net Revenue and Gross Profit

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

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

2020 2019 $ Change % Change 2020 2019 $ Change % Change

4 unchanged sentences

% of net revenue 42 % 52 % 46 % 53 %

Cost of net revenue decreased $6.0 million to $32.5 million for the three months ended June 30, 2020, as compared to $38.4 million for the three months ended June 30, 2019.

The decrease was primarily driven by lower sales.

Gross profit percentage declined for the three months ended June 30, 2020, as compared to the three months ended June 30, 2019, due primarily to lower absorption of amortization of intangible assets.

Cost of net revenue decreased $14.2 million to $63.7 million for the six months ended June 30, 2020, as compared to $78.0 million for the six months ended June 30, 2019.

The decrease was primarily driven by lower sales.

The decrease in gross profit percentage for the six months ended June 30, 2020, as compared to the six months ended June 30, 2019, was due primarily to lower absorption of amortization of intangible assets.

Cost of net revenue increased $52.3 million to $90.4 million for the three months ended September 30, 2020, as compared to $38.1 million for the three months ended September 30, 2019.

The increase was primarily driven by higher sales, an increase in amortization of intangibles and inventory step-up totaling $15.9 million, and incremental expenses, primarily driven by our acquisition of the WiFi and Broadband assets business on July 31, 2020.

Gross profit percentage declined for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019, due primarily to the impact of our acquisition of the WiFi and Broadband assets business.

Cost of net revenue increased $38.1 million to $154.2 million for the nine months ended September 30, 2020, as compared to $116.1 million for the nine months ended September 30, 2019.

The increase was primarily driven by higher sales, an increase in amortization of intangibles and inventory step-up totaling $16.1 million, and incremental expenses, primarily driven by our acquisition of the WiFi and Broadband assets business.

We currently expect that gross profit percentage will fluctuate in the future, from period-to-period, based on changes in product mix, average selling prices, and average manufacturing costs.

Further, due to heightened volatility and uncertainty in customer demand resulting from the COVID-19 pandemic, we may experience decreased cost of net revenues resulting from decreased sales and revenues.

We believe such impact may in particular affect our costs of sales on high performance analog products in our industrial and multi-market business.

Further, due to heightened volatility and uncertainty in customer demand resulting from the COVID-19 pandemic, we may experience increased volatility in our cost of net revenues as a result.

Research and Development

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

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

2020 2019 $ Change % Change 2020 2019 $ Change % Change

2 unchanged sentences

% of net revenue 36 % 29 % 39 % 30 %

Research and development expense increased $3.7 million to $28.0 million for the three months ended June 30, 2020 from $24.3 million in the three months ended June 30, 2019.

The increase was primarily due to increases in performance-based bonus accruals and stock-based compensation expenses totaling $2.8 million, design tools expenses of $0.6 million, consulting expenses of $0.3 million, and prototype expenses of $0.2 million.

These increases were partially offset by a decrease in travel expenses of $0.3 million as a result of suspension of travel to protect the health and safety of our employees during the COVID-19 pandemic.

Research and development expense increased $2.0 million to $53.7 million for the six months ended June 30, 2020 from $51.7 million in the six months ended June 30, 2019.

The increase was primarily due to increases in personnel related expense of $2.5 million mainly driven by higher performance-based bonus accruals and stock-based compensation expense, design tools expenses of $1.2 million, and consulting expenses of $0.7 million due to timing of projects.

These increases were partially offset by decreases in prototype expense of $1.8 million due to timing of expense, travel expense of $0.4 million, and occupancy expenses of $0.3 million as a result of remote work arrangements during the COVID-19 pandemic.

Research and development expense increased $32.6 million to $55.8 million for the three months ended September 30, 2020 from $23.2 million in the three months ended September 30, 2019.

The increase was primarily due to our acquisitions of the WiFi and Broadband assets business on July 31, 2020 and NanoSemi on September 9, 2020, respectively, which resulted in added engineering headcount, facilities and related expenses, as well as an increase in bonuses and performance stock-based compensation expenses.

There were increases in personnel-related expense of $22.2 million, of which $8.0 million is from performance-based bonus and stock-based compensation expense, consulting and other outside services of $4.7 million which

includes acquisition transition service costs, computer-aided design fees of $2.3 million, prototype expense of $1.4 million, depreciation expense of $1.1 million, and occupancy expense of $0.4 million.

Research and development expense increased $34.6 million to $109.5 million for the nine months ended September 30, 2020 from $74.9 million in the nine months ended September 30, 2019.

The increase was primarily due to our business acquisitions of the WiFi and Broadband assets business on July 31, 2020 and NanoSemi on September 9, 2020, which resulted in added engineering headcount, facilities, and related expenses, as well as an increase in bonuses and performance stock-based compensation expenses.

There were increases in personnel-related expense of $24.7 million, of which $11.3 million is from performance-based bonus accruals and stock-based compensation expense, consulting and other outside services of $5.7 million which includes acquisition transition service costs, computer aided design and engineering fees of $3.5 million, depreciation expense of $0.9 million, and small tools and maintenance expenses of $0.6 million.

These increases were partially offset by decreases in travel expense of $0.6 million and prototype expense of $0.3 million.

We expect our research and development expenses to increase in the future as we continue to focus on expanding our product portfolio and enhancing existing products.

Selling, General and Administrative

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

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

2020 2019 $ Change % Change 2020 2019 $ Change % Change

2 unchanged sentences

% of net revenue 27 % 27 % 33 % 27 %

Selling, general and administrative expense increased $5.1 million to $27.5 million for the three months ended June 30, 2020, as compared to $22.3 million for the three months ended June 30, 2019.

The increase was primarily due to an increase of $4.7 million in payroll-related expenses such as performance-based bonus accruals and stock-based compensation expenses, as well as an increase in professional fees of $1.3 million primarily related to transaction costs associated with our pending acquisition of the WiFi and Broadband assets business.

These increases were partially offset by decreases in travel expenses of $0.5 million and depreciation expenses of $0.3 million primarily due to the restructuring of certain leasehold improvement assets.

Selling, general and administrative expense increased $6.2 million to $52.1 million for the six months ended June 30, 2020, as compared to $45.9 million for the six months ended June 30, 2019.

The increase was primarily due to increases in payroll-related expense of $4.1 million from performance-based bonus accruals and stock-based compensation expenses and professional fees of $3.8 million primarily related to transaction costs associated with our pending acquisition of the WiFi and Broadband assets business.

These increases were partially offset by decreases in travel-related expense of $0.8 million, depreciation expense of $0.5 million primarily from restructuring of certain leasehold improvements, and amortization of intangible assets of $0.3 million.

Selling, general and administrative expense increased $19.8 million to $41.7 million for the three months ended September 30, 2020, as compared to $21.9 million for the three months ended September 30, 2019.

The increase was primarily due to our acquisitions of the WiFi and Broadband assets business on July 31, 2020 and NanoSemi on September 9, 2020, which resulted in added personnel, facilities, and related expenses and one-time transaction costs, as well as an increase in bonuses and performance stock-based compensation expenses.

There were increases of personnel-related expense of $9.1 million, including $6.0 million in performance-based bonus accruals and stock-based compensation expense, acquisition transaction costs of $7.8 million, outside services of $1.3 million which primarily includes acquisition transition service costs, depreciation expense of $0.8 million, amortization of intangible assets of $0.6 million, and occupancy expense of $0.5 million.

These increases were partially offset by a decrease in travel-related expenses of $0.4 million.

Selling, general and administrative expense increased $25.9 million to $93.8 million for the nine months ended September 30, 2020, as compared to $67.8 million for the nine months ended September 30, 2019.

Included in the 2020 period were one-time transaction costs of $13.1 million.

There were also increases in personnel expense of $13.1 million, including $10.0 million from performance-based bonus accruals and stock-based compensation expenses, outside services of $0.8 million primarily consisting of acquisition transition service costs, amortization of intangible assets of $0.9 million, and occupancy expenses of $0.7 million.

These increases were partially offset by decreases in professional fees of $1.5 million and travel-related expenses of $1.2 million.

We expect selling, general and administrative expenses to increase in the future as we grow our sales and marketing organization to expand into existing and new markets.

Impairment Losses

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

2020 2019 $ Change % Change 2020 2019 $ Change % Change

(dollars in thousands) (dollars in thousands)

Impairment losses $ — $ — $ — N/A $ 86 $ — $86 N/A

% of net revenue — % — % — % — %

Impairment losses of approximately $0.1 million in the six months ended June 30, 2020 related to abandonment of a license of intellectual property.

Impairment losses were $0 for the three months ended June 30, 2020 and the three and six months ended June 30, 2019.

Restructuring Charges

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

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

2020 2019 $ Change % Change 2020 2019 $ Change % Change

2 unchanged sentences

% of net revenue 2 % — % 1 % 1 %

Restructuring charges decreased $0.4 million to $0.1 million for the three months ended June 30, 2020, compared to $0.4 million for the three months ended June 30, 2019.

Restructuring charges in the three months ended June 30, 2020 primarily consisted of employee separation expenses of approximately $0.1 million.

Restructuring charges in the three months ended June 30, 2019 primarily consisted of severance-related charges of $0.4 million.

Restructuring charges decreased $1.8 million to $0.6 million for the six months ended June 30, 2020, compared to $2.3 million for the six months ended June 30, 2019.

Restructuring charges for the six months ended June 30, 2020 primarily consisted of lease restructuring charges of $0.3 million related to exiting certain redundant facilities and other charges of $0.2 million.

Restructuring charges in the six months ended June 30, 2019 primarily consisted of lease restructuring charges of $1.3 million related to exiting certain redundant facilities and severance-related charges of $0.9 million in connection with employee separation expenses.

Restructuring charges increased $3.1 million to $3.3 million for the three months ended September 30, 2020, compared to $0.1 million for the three months ended September 30, 2019.

Restructuring charges in the three months ended September 30, 2020 primarily consisted of $1.7 million of lease-related charges, which included impairment of leased right-of-use assets of $1.5 million related to a reduction in expected cash inflows from subleases, and $1.5 million in employee severance-related charges.

Restructuring charges in the three months ended September 30, 2019 primarily consisted of severance-related charges of $0.1 million.

Restructuring charges increased $1.4 million to $3.8 million for the nine months ended September 30, 2020, compared to $2.5 million for the nine months ended September 30, 2019.

Restructuring charges for the nine months ended September 30, 2020 primarily consisted of $2.0 million of lease-related charges, which included impairment of leased right-of-use assets of $1.5 million as described above, and $1.6 million in employee severance-related charges.

Restructuring charges in the nine months ended September 30, 2019 primarily consisted of lease restructuring charges of $1.3 million related to exiting certain redundant facilities and employee severance-related charges of $1.0 million.

Interest and Other Income (Expense )

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

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

2020 2019 $ Change % Change 2020 2019 $ Change % Change

2 unchanged sentences

% of net revenue (3) % (2) % (3) % (3) %

Interest and other income (expense), net changed by $0.4 million from a net expense of $2.7 million in the three months ended June 30, 2019 to a net expense of $2.2 million for the three months ended June 30, 2020.

The change in interest and other income (expense), net was primarily due to a decrease in interest expense of $0.7 million pertaining to a lower average balance of debt outstanding under our term loan facility during the period, partially offset by a decrease in interest income of $0.2 million as a result of decreasing interest rates.

Interest and other income (expense), net changed by $1.9 million from a net expense of $6.2 million in the six months ended June 30, 2019 to a net expense of $4.3 million for the six months ended June 30, 2020.

The change in interest and other income (expense), net was primarily due to a decrease in interest expense of $1.2 million related to interest charges on a lower average balance of debt outstanding under our term loan facility during the period and favorable impact of $0.8 million primarily from favorable foreign currency exchange.

Interest and other income (expense), net changed by $2.9 million from a net expense of $1.4 million in the three months ended September 30, 2019 to a net expense of $4.3 million for the three months ended September 30, 2020.

The change in interest and other income (expense), net was primarily due to the impacts of $1.8 million from a change in other income (expense), net from income of $1.1 million in the 2019 period to expense of $0.7 million related to foreign currency fluctuations and a $0.9 million increase in interest expense on outstanding debt, which included additional interest expense of $1.3 million related to an incremental term loan debt of $175.0 million, which was primarily used to fund our $150.0 million acquisition of the WiFi and Broadband assets business, partially offset by decreased interest expense of $0.4 million related to a lower average balance of outstanding initial term loan debt in the 2020 period compared to the 2019 period.

Interest and other income (expense), net changed by $1.0 million from a net expense of $7.6 million in the nine months ended September 30, 2019 to a net expense of $8.6 million for the nine months ended September 30, 2020.

The change in interest and other income (expense), net was primarily due to the impact of $1.0 million from a change in other income (expense), net, from income of $0.4 million in the 2019 period to expense of $0.6 million related to foreign currency fluctuations.

Income Tax Benefit

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

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

2020 2019 $ Change % Change 2020 2019 $ Change % Change

1 unchanged sentence

Income tax benefit $ (2,191) $ (26) $ (2,165) 8,327 % $ (12,128) $ (9,901) $ (2,227) 22 %

The income tax benefit for the three months ended June 30, 2020 was $3.2 million compared to an income tax benefit of $3.4 million for the three months ended June 30, 2019.

The income tax benefit for the six months ended June 30, 2020 was $9.9 million compared to an income tax benefit of $9.9 million for the six months ended June 30, 2019.

The income tax benefit for 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 as described below.

The income tax benefit for the three months ended September 30, 2020 was $2.2 million compared to an income tax benefit of $0.03 million for the three months ended September 30, 2019.

The income tax benefit for the nine months ended September 30, 2020 was $12.1 million compared to an income tax benefit of $9.9 million for the nine months ended September 30, 2019.

The income tax benefit for 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 as described below.

Such tax benefit relates to our ability to carry back our 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.

8 unchanged sentences

We currently believe that we will be able to satisfy these conditions without material risk.

Primarily because of our Singapore net

operating losses and our full valuation allowance in Singapore, we do not believe the incentives will have a material impact on our income tax position in the year ending December 31, 2020.

Primarily because of our Singapore net operating losses and our full valuation allowance in Singapore, we do not believe the incentives will have a material impact on our income tax position in the year ending December 31, 2020.

On March 27, 2020, the U.S.

5 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 we operate was not material to our income tax benefit for the six months ended June 30, 2020 and is not expected to have a material impact on our 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 we operate was not material to our income tax benefit for the nine months ended September 30, 2020 and is not expected to have a material impact on our 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 we considered in our tax provision for the six months ended June 30, 2020.

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

The announcement represented new information that we considered in our 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 our income tax benefit for the nine months ended September 30, 2020 and is not expected to have a material impact on our consolidated financial position and results of operations as of and for the year ending December 31, 2020.

Liquidity and Capital Resources

As of June 30, 2020, we had cash and cash equivalents of $107.4 million, restricted cash of $0.1 million and net accounts receivable of $41.4 million.

Additionally, as of June 30, 2020, our working capital was $120.6 million.

Our primary uses of cash are to fund operating expenses, purchases of inventory, property and equipment, intangible assets, and from time to time, the acquisition of businesses.

We also use cash to pay down outstanding debt.

We expect to fund our pending acquisition of the WiFi and Broadband assets business with approximately $140.0 million of new transaction debt and approximately $10.0 million in cash from our balance sheet.

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

As of September 30, 2020, we had cash and cash equivalents of $96.6 million, restricted cash of $0.2 million and net accounts receivable of $105.4 million.

Additionally, as of September 30, 2020, our working capital was $138.7 million.

Our primary uses of cash are to fund operating expenses and purchases of inventory, property and equipment, and from time to time, the acquisition of businesses.

We will also use cash to pay down outstanding debt.

In July 2020, we funded our $150.0 million acquisition of the WiFi and Broadband assets business with a portion of the net proceeds of our $175.0 million incremental term loan.

In September 2020, we paid $10 million in cash to acquire NanoSemi and the NanoSemi securityholders will receive $35 million in deferred cash payments payable in 2021.

In addition, certain NanoSemi stockholders may receive up to an additional $35 million in potential contingent consideration, subject to the acquired business satisfying certain financial objectives from July 1, 2020 through December 31, 2022.

Commencing on July 31, 2020, the incremental term loan of $175.0 million 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 also has an existing initial term loan with outstanding principal of $212.0 million due at maturity on May 12, 2024.

Heightened volatility and uncertainty in customer demand and the worldwide economy in general continues to impact business and financial markets as a result of the COVID-19 pandemic, and we may experience decreased sales and revenues in the near future.

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 we pursue additional acquisitions.

Our future capital requirements will depend on many factors, including the potential impact of the WiFi and Broadband assets business and our efforts to integrate that business, changes in revenue, the expansion of our engineering, sales and marketing activities, the timing and extent of our expansion into new territories, the timing of introductions of new products and enhancements to existing products, the continuing market acceptance of our products and potential material investments in, or acquisitions of, complementary businesses, services or technologies.

Our future capital requirements will depend on many factors, including impacts from the WiFi and Broadband assets business and NanoSemi and our efforts to integrate these businesses, changes in revenue, the expansion of our engineering, sales and marketing activities, the timing and extent of our expansion into new territories, the timing of introductions of new products and enhancements to existing products, the continuing market acceptance of our products and potential material investments in, or acquisitions of, complementary businesses, services or technologies.

Additional funds may not be available on terms favorable to us or at all.

1 unchanged sentence

Our cash and cash equivalents are impacted by the timing of when we pay expenses as reflected in the change in our outstanding accounts payable and accrued expenses.

Cash used to fund operating expenses in our consolidated statements of cash flows excludes the impact of non-cash items such as amortization and depreciation of acquired intangible assets, leased right-of-use assets and property and equipment, stock-based compensation, and impairment of leased right-of-use assets and related leasehold improvements.

Cash used to fund capital purchases is included in investing activities in our consolidated statements of cash flows.

Cash used to pay down outstanding debt is included in financing activities in our consolidated statements of cash flows.

Our primary sources of cash are cash receipts on accounts receivable from our shipment of products to distributors and direct customers.

Cash used to fund operating expenses in our consolidated statements of cash flows excludes the impact of non-cash items such as amortization and depreciation of acquired intangible assets, leased right-of-use assets and property and equipment, amortization of inventory step-up, stock-based compensation, and impairment of leased right-of-use assets and related leasehold improvements.

Cash used to fund capital purchases and acquisitions of businesses is included in investing activities in our consolidated statements of cash flows.

Cash proceeds from debt and cash used to pay down outstanding debt is included in financing activities in our consolidated statements of cash flows.

Our primary sources of cash are cash receipts on accounts receivable from our shipment of products to distributors and direct customers, and from billings made on our behalf to customers for products sold by Intel under a transition services agreement.

Aside from the amounts billed to our customers, net cash collections of accounts receivable are impacted by the efficiency of our cash collections process, which can vary from period to period depending on the payment cycles of our major distributor customers, and relative linearity of shipments period-to-period.

Our credit agreement, under which we entered into a term loan to partially fund our acquisition of Exar, permits us to request incremental loans in an aggregate principal amount not to exceed the sum of $160.0 million (subject to adjustments for any voluntary prepayments), plus an unlimited amount that is subject to pro forma compliance with certain secured leverage ratio and total leverage ratio tests.

We requested an incremental loan under this credit agreement with new initial lenders in connection with the pending acquisition transaction.

Our credit agreement, as amended, under which we entered into a term loan to partially fund our acquisition of Exar, permits us to request incremental loans in an aggregate principal amount not to exceed the sum of $160.0 million (subject to adjustments for any voluntary prepayments), plus an unlimited amount that is subject to pro forma compliance with certain secured leverage ratio and total leverage ratio tests.

We incurred an incremental loan of $175.0 million under this credit agreement with new initial lenders and used a portion of the net proceeds to fund our $150.0 million acquisition of the WiFi and Broadband assets business.

Following is a summary of our working capital, cash and cash equivalents, and restricted cash for the periods indicated:

June 30, December 31,

September 30, December 31,

(in thousands)

5 unchanged sentences

Following is a summary of our cash flows provided by (used in) operating activities, investing activities and financing activities for the periods indicated:

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

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

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

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

3 unchanged sentences

Cash Flows from Operating Activities

Net cash provided by operating activities was $15.9 million for the six months ended June 30, 2020.

Net cash provided by operating activities consisted of positive cash flow from $53.1 million in non-cash items and $9.6 million in changes in operating assets and liabilities, partially offset by net loss of $37.3 million and deferred income taxes and excess tax benefits totaling $9.5 million.

Non-cash items included in net loss for the six months ended June 30, 2020 primarily consisted of depreciation and amortization of property, equipment, acquired intangible assets and leased right-of-use assets of $33.3 million and stock-based compensation of $18.9 million.

Net cash provided by operating activities was $28.5 million for the six months ended June 30, 2019.

Net cash provided by operating activities consisted of positive cash flow from $51.6 million in non-cash expenses, partially offset by net loss of $7.1 million, deferred income taxes and excess tax benefits from stock-based compensation of $14.9 million, and $1.1 million in changes in operating assets and liabilities.

Non-cash items included in net loss for the six months ended June 30, 2019 primarily included depreciation and amortization of property, equipment, acquired intangible assets and leased right-of-use assets of $33.5 million and stock-based compensation of $16.0 million.

During the six months ended June 30, 2019, we also exited certain leased facilities, which resulted in impairments of leased right-of-use assets of $2.2 million and leasehold improvements of $1.4 million, which was partially offset by a gain on extinguishment of related lease liabilities of $2.9 million.

Net cash used in operating activities was $0.7 million for the nine months ended September 30, 2020.

Net cash used in operating activities consisted of negative impact of net loss of $73.9 million, $26.0 million in changes in operating assets and liabilities, and deferred income taxes and excess tax benefits totaling $5.8 million, partially offset by positive impact from $105.0 million in non-cash items.

Non-cash items included in net loss for the nine months ended September 30, 2020 primarily consisted of depreciation and amortization of property, equipment, acquired intangible assets and leased right-of-use assets of $53.8 million, stock-based compensation of $33.1 million, and amortization of inventory step-up of $14.4 million.

Net cash provided by operating activities was $50.2 million for the nine months ended September 30, 2019.

Net cash provided by operating activities consisted of positive cash flow from $76.5 million in non-cash items and $1.8 million in changes in operating assets and liabilities, partially offset by net loss of $11.8 million and deferred income taxes and excess tax benefits from stock-based compensation of $16.3 million.

Non-cash items included in net loss for the nine months ended September 30, 2019 primarily included depreciation and amortization of property, equipment, acquired intangible assets and leased right-of-use assets of $49.9 million and stock-based compensation of $24.3 million.

During the nine months ended September 30, 2019, we also exited certain leased facilities, which resulted in impairments of leased right-of-use assets of $2.2 million and leasehold improvements of $1.4 million, which was partially offset by a gain on extinguishment of related lease liabilities of $2.9 million.

Cash Flows from Investing Activities

Net cash used in investing activities was $4.9 million for the six months ended June 30, 2020 and consisted primarily of purchases of property and equipment.

Net cash used in investing activities was $2.7 million for the six months ended June 30, 2019 and consisted entirely of purchases of property and equipment.

Net cash used in investing activities was $170.5 million for the nine months ended September 30, 2020 and consisted primarily of $160.0 million in cash used in the acquisitions, comprising $150.0 million for the WiFi and Broadband assets business and $10 million in initial cash for NanoSemi, and $10.1 million in purchases of property and equipment.

Net cash used in investing activities was $4.0 million for the nine months ended September 30, 2019.

Net cash used in investing activities for this period consisted primarily of purchases of property and equipment.

Cash Flows from Financing Activities

Net cash provided by financing activities was $3.1 million for the six months ended June 30, 2020.

Net cash provided by financing activities consisted primarily of cash inflows from net proceeds from issuance of common stock upon exercise of stock options of $4.6 million, partially offset by minimum tax withholding paid on behalf of employees for restricted stock units of $1.5 million.

Net cash used in financing activities was $33.9 million for the six months ended June 30, 2019.

Net cash used in financing activities consisted primarily of cash outflows from aggregate principal prepayments of debt of $30.0 million and minimum tax withholding paid on behalf of employees for restricted stock units of $9.8 million, partially offset by cash inflows of $5.9 million in net proceeds from issuance of common stock upon exercise of stock options.

We believe that our $107.4 million of cash and cash equivalents at June 30, 2020 will be sufficient to fund our projected operating requirements for at least the next twelve months.

We have repaid $213.0 million of debt through June 30, 2020.

The credit agreement permits the Company to request incremental loans in an aggregate principal amount not to exceed the sum of $160.0 million (subject to adjustments for any voluntary prepayments), plus an unlimited amount that is subject to pro forma compliance with certain secured leverage ratio and total leverage ratio tests.

Net cash provided by financing activities was $174.7 million for the nine months ended September 30, 2020.

Net cash provided by financing activities consisted primarily of $175.0 million in proceeds from borrowings under an incremental term loan we entered in July 2020 in part in connection with the acquisition of the WiFi and Broadband assets business, and cash inflows from net proceeds from issuance of common stock upon exercise of stock options of $5.3 million, partially offset by payments of debt issuance costs of $2.7 million and minimum tax withholding paid on behalf of employees for restricted stock units of $2.9 million.

Net cash used in financing activities was $54.9 million for the nine months ended September 30, 2019.

Net cash used in financing activities consisted primarily of cash outflows from aggregate principal prepayments of debt of $50.0 million and $11.2 million in minimum tax withholding paid on behalf of employees for restricted stock units, partially offset by cash inflows of $6.2 million in net proceeds from issuance of common stock upon exercise of stock options.

We believe that our $96.6 million of cash and cash equivalents at September 30, 2020 will be sufficient to fund our projected operating requirements for at least the next twelve months.

As of September 30, 2020, our indebtedness totaled $387.0 million, which consists of $212.0 million outstanding principal under an initial term loan and $175.0 million under an incremental term loan.

We have repaid $213.0 million of debt through September 30, 2020.

The credit agreement, as amended, permits the Company to request incremental loans in an aggregate principal amount not to exceed the sum of $160.0 million (subject to adjustments for any voluntary prepayments), plus an unlimited amount that is subject to pro forma compliance with certain secured leverage ratio and total leverage ratio tests.

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 initial term loan facility has a seven-year term expiring in May 2024 and bears interest at either an Adjusted LIBOR or an Adjusted Base Rate, at our option, plus a fixed applicable margin.

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

The outstanding principal on the initial term loan is due at maturity on May 12, 2024.

The incremental term loan facility has a three-year term expiring in July 2023 and bears interest, at our option, 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.

The incremental term loan of $175.0 million 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 following the date of the incremental term loan, (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, 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.

Our cash and cash equivalents in recent years have been favorably affected by our implementation of an equity-based bonus program for our employees, including executives.

6 unchanged sentences

As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, or SPEs, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

As of June 30, 2020, we were not involved in any unconsolidated SPE transactions.

As of September 30, 2020, we were not involved in any unconsolidated SPE transactions.

Contractual Obligations

As of June 30, 2020, future minimum payments under long-term debt, non-cancelable operating leases, inventory purchase obligations and other obligations were as follows:

Total Less than 1 year 1-3 years 3-5 years

As of September 30, 2020, future minimum payments under long-term debt, non-cancelable operating leases, inventory purchase obligations and other obligations were as follows:

Total Less than 1 year 1-3 years 3-5 years More than 5 years

(in thousands)

5 unchanged sentences

Other obligations consist of contractual payments due for software licenses.

Our consolidated balance sheet at June 30, 2020 included $5.5 million in other long-term liabilities for uncertain tax positions, some of which may result in cash payment.

Our consolidated balance sheet at September 30, 2020 included $5.6 million in other long-term liabilities for uncertain tax positions, some of which may result in cash payment.

The future payments related to uncertain tax positions recorded as other long-term liabilities have not been presented in the table above due to the uncertainty of the amounts and timing of cash settlement with the taxing authorities.

Our contractual obligations including long-term debt, leases, inventory purchase obligations and other obligations, increased by $38.5 million to $288.4 million as of June 30, 2020, from $249.8 million as of December 31, 2019 primarily as a result of increased orders of software licenses during the period.

Our contractual obligations including long-term debt, leases, inventory purchase obligations and other obligations, increased by $251.7 million to $501.6 million as of September 30, 2020, from $249.8 million as of December 31, 2019 primarily as a result of an incremental term loan of $175.0 million, which we primarily used to fund our $150.0 million acquisition of the WiFi and Broadband assets business, as well as increased orders of inventory placed with our vendors and with Intel under the transition services agreement, and increased orders of software licenses during the period.

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 2. Management’s Discussion and Analysis