What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-11 compared with 2020-02-05 · 227 added, 160 removed, 273 unchanged (59% of the section changed)

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

In most cases, these products are designed on a single silicon-die, using standard digital CMOS processes and conventional packaging technologies.

We believe this enables our solutions to achieve superior power, performance, and cost advantages relative to our industry competition.

We are a provider of communications systems-on-chip solutions used in broadband, mobile and wireline infrastructure, data center, and industrial and multi-market applications.

We are a fabless integrated circuit design company whose products integrate all or substantial portions of a high-speed communication system, including radio frequency (RF), high-performance analog, mixed-signal, digital signal processing, security engines, data compression and networking layers, and power management.

In most cases, these products are designed on a single silicon-die, using standard digital complimentary metal oxide semiconductor (CMOS) processes and conventional packaging technologies.

We believe this approach enables our solutions to achieve superior power, performance, and cost relative to our industry competition.

Our customers include electronics distributors, module makers, original equipment manufacturers (OEMs), and original design manufacturers (ODMs), who incorporate our products in a wide range of electronic devices.

Examples of such end market electronic devices incorporating our products include 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;

Examples of such devices include cable Data Over Cable Service Interface Specifications (DOCSIS), fiber and DSL broadband modems and gateways;

Wi-Fi and wireline routers for home networking;

radio transceivers and modems for 4G/5G base-station and backhaul infrastructure;

fiber-optic modules for data center, metro, and long-haul transport networks;

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.

We combine our high-performance RF and mixed-signal semiconductor design skills with our expertise in digital communications systems, software, high-performance analog, and embedded systems to provide highly integrated semiconductor devices and platform-level solutions that are manufactured using a range of semiconductor manufacturing processes, including low-cost complementary metal oxide semiconductor, or CMOS, process technology, Silicon Germanium, Gallium Arsenide, BiCMOS and Indium Phosphide process technologies.

Our ability to design analog and mixed-signal circuits in CMOS allows us to efficiently combine analog and digital signal processing functionality in the same integrated circuit.

As a result, our solutions have high levels of functional integration and performance, small silicon die size, and low power consumption.

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 multi-market applications.

as well as power management and interface products used in these and many other markets.

Our highly integrated semiconductor devices and platform-level solutions are primarily manufactured using low-cost CMOS process technology.

CMOS processes are ideally suited for large digital logic implementations targeting high-volume and low-cost consumer applications.

Importantly, our ability to design analog and mixed-signal circuits in CMOS allows us to efficiently combine analog functionality and complex digital signal processing logic in the same integrated circuit.

As a result, our solutions have exceptional levels of functional integration and performance, low manufacturing cost, and reduced power consumption.

In addition, our proprietary CMOS-based radio and digital system architectures also enable shorter design cycles, significant design flexibility and low system-level cost across a wide range of broadband communications, wired and wireless infrastructure, and industrial and multi-market customer applications.

In fiscal 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 for analog and digital Pay-TV applications, 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.

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changes in government trade policies;

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 and Pay-TV industries, manufacturers selling into the smartphone market, storage networking market, cable infrastructure market, industrial and automotive markets, and optical module and telecommunications infrastructure markets.

Products shipped to Asia accounted for 84% , 81% and 89% of net revenue during the years ended December 31, 2019 , 2018 and 2017 , respectively, including 60% , 63% and 71% , respectively, from products shipped to China.

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 and Pay-TV industries, manufacturers selling into the smartphone market, storage networking market, cable infrastructure market, industrial and automotive markets, and optical module and telecommunications infrastructure markets.

Products shipped to Asia accounted for 82%, 84% and 81% of net revenue during the years ended December 31, 2020, 2019 and 2018, respectively, including for 42%, 46%, and 43%, respectively, from products shipped to Hong Kong and 17%, 14% and 19%, respectively, from products shipped to China.

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.

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

In the year ended December 31, 2020, two of our direct customers accounted for 28% of our net revenue, and our ten largest customers collectively accounted for 68% of our net revenue, of which distributor customers comprised 41% of our net revenue.

In the year ended December 31, 2019, one of our direct customers, Commscope, accounted for 14% of our net revenue, and our ten largest customers collectively accounted for 63% of our net revenue, of which distributor customers comprised 38% of our net revenue.

In the year ended December 31, 2018, Commscope accounted for 18% of our net revenue, and our ten largest customers collectively accounted for 61% of our net revenue, of which distributor customers comprised 29% of our net revenue.

In the year ended December 31, 2017 , Commscope accounted for 25% of our net revenue, and our ten largest customers collectively accounted for 58% of our net revenue, of which distributor customers comprised 9% 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.

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In the industrial and wired and wireless infrastructure markets, a design-in can have a product life cycle of 24 to 60 months and beyond.

Impact of COVID-19

In late January 2020 and early February 2020, in response to a severe outbreak of the novel coronavirus disease, or COVID-19, the government of China instituted mandatory quarantines in Wuhan, China, extended lunar new year holiday closures, and restricted shipments out of the country.

This resulted in a temporary delay in our product shipments in the first quarter of 2020.

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 Massachusetts, 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.

As of December 31, 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.

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 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 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 Wi-Fi 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, or 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 Wi-Fi 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 the integration of 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 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 I, Item 1A of this Annual Report on Form 10-K captioned “Risk Factors.”

Recent Developments

Acquisition of Home Gateway Platform Division of Intel Corporation

On July 31, 2020, we completed our acquisition of the Home Gateway Platform Division, which we refer to as the Wi-Fi 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 Wi-Fi 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.

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 consolidated financial statements.

Critical Accounting Policies and Estimates

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Accordingly, these are the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations.

Business Combinations

We apply the provisions of ASC 805, Business Combinations , in accounting for our acquisitions.

ASC 805 requires us to recognize separately from goodwill the assets acquired and the liabilities assumed, at the acquisition date fair values.

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 we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, our 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, we record 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 our 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 statement of operations in the period in which the liability is incurred.

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

A pre-acquisition contingency (non-income tax related) is only recognized as an asset or a liability 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 results of operations and financial position.

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

We reevaluate 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 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 taxes provision (benefit) in the consolidated statement of operations and could have a material impact on the results of operations and financial position.

Revenue Recognition

On January 1, 2018, we adopted Financial Accounting Standards Board, or FASB, Accounting Standards Codification Topic 606, Revenue from Contracts with Customers , or ASC 606, using the modified retrospective method and accordingly, modified our policy on revenue recognition as stated below.

The primary impact of adopting ASC 606 for MaxLinear was to accelerate the timing of our revenue and related cost recognition on products sold via some of our distributors, which changed from recognition upon the sale to our distributors' end customers, or the sell-through method, to recognition upon our sale to the distributor, or the sell-in method.

We are also required to estimate the effects of pricing credits to our distributors from

contractual price protection and unit rebate provisions, as well as stock rotation rights and record such estimated credits upon our sale to the distributor.

As a result of the adoption of ASC 606 as of January 1, 2018 using the modified retrospective method, prior period amounts were not adjusted to reflect the change in revenue recognition for such distributor sales.

Substantially all of our revenue is generated from sales of our integrated circuits to electronics distributors, module makers, OEMs, and ODMs under individual customer purchase orders, some of which have underlying master sales agreements that specify terms governing the product sales.

Our revenue is primarily generated from sales of our integrated circuits to electronics distributors, module makers, OEMs, and ODMs under individual customer purchase orders, some of which have underlying master sales agreements that specify terms governing the product sales.

Effective January 1, 2018, we adopted ASC 606 and recognize revenue at the point in time when control of the products is transferred to the customer at the estimated net consideration for which collection is probable, taking into account our customer's rights to price protection, other pricing credits, unit rebates, and rights to return unsold product.

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Pricing adjustments and estimates of returns under contractual stock rotation rights are treated as variable consideration for purposes of determining the transaction price, and are estimated at the time control transfers using the expected value method based on our analysis of actual price adjustment claims by distributors and product and historical return rates, and then reassessed at the end of each reporting period.

We also consider whether any variable consideration is constrained, since such amounts for which it is probable that a significant reversal will occur when the contingency is subsequently resolved are required to be excluded from revenues.

required to be excluded from revenues.

Price adjustments are finalized at the time the products are sold through to the end customer and the distributor or end customer submits a claim to reduce the sale price to a pre-approved net price.

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We have also elected to record sales commissions when incurred, pursuant to the practical expedient under ASC 340, as the period over which the sales commission asset that would have been recognized is less than one year.

Customer contract liabilities consist of obligations to deliver rebates to customers in the form of units of products, which are included in accrued expenses and other current liabilities in the consolidated balance sheets.

Customer contract liabilities consist primarily of obligations to deliver rebates to customers in the form of units of products, which are included in accrued expenses and other current liabilities in the consolidated balance sheets.

Other obligations to customers consist of estimates of price protection rights offered to our end customers, which are included in accrued price protection liability in the consolidated balance sheets, as well as price adjustments expected to be claimed by the distributor upon sell-through of the products to their customers, and amounts expected to be returned by distributors under stock rotation rights, which are included in accrued expenses and other current liabilities in the consolidated balance sheets.

We also record a right of return asset consist of amounts representing the products we expect to receive from customers in returns, which is included in inventory in the consolidated balance sheets, and is typically settled within six months of transfer of control to the customer, or the period over which stock rotation rights are based.

Upon lapse of the time period for stock rotations, or the contractual end

to price protection and rebate programs, which is approximately one to two years, and when we believe unclaimed amounts are no longer subject to payment and will not be paid, any remaining asset or liability is derecognized by an offsetting entry to cost of net revenue and net revenue.

We also record a right of return asset consisting of amounts representing the products we expect to receive from customers in returns, which is included in inventory in the consolidated balance sheets, and is typically settled within six months of transfer of control to the customer, or the period over which stock rotation rights are based.

Upon lapse of the time period for stock rotations, or the contractual end to price protection and rebate programs, which is approximately one to two years, and when we believe unclaimed amounts are no longer subject to payment and will not be paid, any remaining asset or liability is derecognized by an offsetting entry to cost of net revenue and net revenue.

For additional disclosures regarding contract liabilities and other obligations to customers, see Note 15 to our consolidated financial statements.

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Impairment of Goodwill and Long-Lived Assets

Goodwill is not amortized but is tested for impairment using either a qualitative assessment, and/or the two-step method as needed.

Step one is the identification of potential impairment.

This involves comparing the fair value of each reporting unit, which we have determined to be the entity itself, with its carrying amount, including goodwill.

If the fair value of a reporting unit exceeds the carrying amount, the goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary.

If the carrying amount of a reporting unit exceeds its fair value, the second step of the impairment test is performed to measure the amount of impairment loss, if any.

Goodwill is not amortized but is tested for impairment using either a qualitative assessment, and/or quantitative assessment, which effective with our October 31, 2020 impairment test, is based on comparing the fair value of a reporting unit with its carrying amount.

If the carrying amount of a reporting unit exceeds its fair value, a goodwill impairment loss is recorded.

We test by reporting unit, goodwill and other indefinite-lived intangible assets for impairment at October 31 each year or more frequently if we believe indicators of impairment exist.

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In certain cases, we utilize the relief-from-royalty method when appropriate, and a fair value will be obtained based on analysis over the costs saved by owning the right instead of leasing it.

Once an IPR&D

project is complete, it becomes a finite-lived intangible asset and is evaluated for impairment both immediately prior to its change in classification and thereafter in accordance with our policy for long-lived assets.

Once an IPR&D project is complete, it becomes a finite-lived intangible asset and is evaluated for impairment both immediately prior to its change in classification and thereafter in accordance with our policy for long-lived assets.

We regularly review the carrying amount of our long-lived assets subject to depreciation and amortization, as well as the useful lives, to determine whether indicators of impairment may exist which warrant adjustments to carrying values or estimated useful lives.

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The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

We continue to assess the need for a valuation allowance on the deferred tax asset by evaluating both positive and negative evidence that may exist.

We continue to assess the need for a valuation allowance on the deferred tax asset by evaluating both positive and negative evidence that may

Any adjustment to the net deferred tax asset valuation allowance would be recorded in the income statement for the period that the adjustment is determined to be required.

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This decision was based on the lack of historical data due to our limited number of stock option exercises under the 2010 Equity Incentive Plan.

We will continue to assess the appropriateness of the use of the simplified method as we develop a history of option exercises.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842) .

The amendments in this update require a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-

use asset representing its right to use the underlying asset.

For leases less than twelve months, an entity is permitted to make an accounting policy election by class of underlying asset not to recognize right-of-use assets and lease liabilities.

If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term.

We have made this election.

Also, in July 2018, the FASB issued ASU No.

2018-11, Leases (Topic 842):

Targeted Improvements , to provide an additional transition method.

An entity can elect not to present comparative financial information under Topic 842 if it recognizes a cumulative-effect adjustment to retained earnings upon adoption.

We have also made this election.

Further, in January 2019, the FASB issued ASU 2019-01, Leases (Topic 842):

Codification Improvements , which clarified that post-adoption interim transition disclosures normally required in the year of adoption for the effect of a change in accounting principle on an entity’s financial statements are not required for the adoption of ASC 842.

The amendments in these updates are effective for us for fiscal years beginning with 2019, including interim periods within those years, with early adoption permitted.

We have completed our assessment of the impact of the adoption of ASC 842.

Upon adoption, we recognized approximately $24.8 million of right-of-use assets and a net increase of $25.1 million in lease-related liabilities at January 1, 2019.

Also, the impact of the adoption of ASC 842 on our accumulated deficit and deferred tax assets at January 1, 2019 was not material.

Lastly, the impact of the adoption of ASC 842 on our consolidated results of operations for the year ended December 31, 2019 was not material.

In July 2018, the FASB issued ASU No.

2018-10, Codification Improvements to Topic 842, Leases , to clarify how to apply certain aspects of the new lease accounting standard.

The amendments in this update, among other things, better articulates the requirement for a lessee's reassessment of lease classification as of the effective date of a modification, clarifies that a change to an index or rate for variable lease payments does not constitute a resolution of a contingency that would result in the remeasurement of lease payments, and requires entities that apply Topic 842 retrospectively to each reporting period and do not adopt the practical expedients to write off any prior unamortized initial direct costs that do not meet the definition under Topic 842 to equity.

The amendments in this update have the same effective date and transition requirements as the new lease standard summarized above.

We have disclosed the impact of adoption of Topic 842 on our consolidated financial position and results of operations as stated above.

In July 2018, the FASB issued ASU No.

2018-09, Codification Improvements , to clarify the Codification and prevent unintended application of the guidance.

An amendment to ASC 718-740, Compensation—Stock Compensation—Income Taxes , clarifies that excess tax benefits should be recognized in the period in which the amount of the deduction is determined.

The transition and effective date guidance is based on the facts and circumstances of each amendment.

The amendment identified above will be effective for us beginning with fiscal year 2019.

The adoption of the amendments in this update in year ended December 31, 2019 did not have a material impact on our consolidated financial position and results of operations.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815) , which is intended to improve accounting for hedging activities by expanding and refining hedge accounting for both nonfinancial and financial risk components and aligning the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements.

The amendments in this update became effective for us beginning with fiscal year 2019.

The amendments in this update were required to be applied prospectively.

The adoption of the amendments in this update did not have a material impact on our consolidated financial statements for the year ended December 31, 2019.

In July 2019, the FASB issued ASU No.

2019-07, Codification Updates to SEC Sections—Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No.

33-10532, Disclosure Update and Simplification, and Nos.

33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates, to align the FASB's Accounting Standards Codification with requirements of certain already effective SEC final rules, which included requiring interim presentation of changes in stockholders’ equity and eliminating certain other disclosures.

The amendments in ASU No.

2019-07 were effective for us immediately in the third quarter 2019.

We previously adopted the related SEC final rules in our 2018 Annual Report and Form 10-Q for the three months ended March 31, 2019.

The adoption of the amendments in these updates did not have a material impact on our consolidated financial position, results of operations, and disclosures.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , to require the use of an expected credit loss model that requires consideration of a broader range of information to estimate credit losses over the lifetime of the asset, replacing the current incurred loss methodology of recognizing credit losses that delays recognition until it is probable a loss has been incurred.

An entity with trade receivables will be required to use historical loss information, current conditions, and reasonable and supportable forecasts to determine expected lifetime credit losses.

Pooling of assets with similar risk characteristics is also required.

April 2019, the FASB issued ASU No.

Measurement of Credit Losses on Financial Instruments , to replace the incurred loss methodology with an expected credit loss model that requires consideration of a broader range of information to estimate credit losses over the lifetime of the asset, including current conditions and reasonable and supportable forecasts in addition to historical loss information, to determine expected credit losses.

Pooling of assets with similar risk characteristics and the use of a loss model are also required.

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.

The amendments in this update are required to be applied using the modified retrospective method with an adjustment to accumulated deficit and are effective for us beginning with fiscal year 2020, including interim periods.

We have performed an assessment of the impact of adoption of the amendments in these updates on our consolidated financial position and results of operations.

Based on that assessment, the adoption of the amendments in this update will not have a material impact on our accounts receivable, net and accumulated deficit as of January 1, 2020 and is also not expected to have a material impact on our results of operations for the year ending December 31, 2020.

The amendments in this update were required to be applied using the modified retrospective method with an adjustment to accumulated deficit and were effective for us beginning with fiscal year 2020, including interim periods.

The adoption of the amendments in this update as of January 1, 2020 did not have a material impact on our accounts receivable, net and accumulated deficit, as well as our results of operations for the year ended December 31, 2020.

In January 2017, the FASB issued ASU No.

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Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.

The Board also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test.

The amendments in this update are effective for us beginning with fiscal year 2020, including interim periods, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

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.

The FASB also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test.

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

We perform our annual goodwill testing as of October 31, or more frequently if there are indicators of impairment.

The adoption of the amendments in this update as of the Company's October 31, 2020 goodwill impairment test did not have a material impact on our consolidated financial position and results of operations as of and for the year ended December 31, 2020.

In August 2018, the FASB issued ASU No.

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The amendments in this update eliminate, among other things, disclosure of the reasons for and amounts of transfers between Level 1 and Level 2 for assets and liabilities that are measured at fair value on a recurring basis and an entity’s valuation processes for Level 3 fair value measurements.

The amendments in this update will be effective for us beginning with fiscal year 2020, with early adoption permitted.

Retrospective application is required for all amendments in this update except the added disclosures, which should be applied prospectively.

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.

The amendments in this update were effective for us beginning with fiscal year 2020.

Retrospective application

is required for all amendments in this update except the added disclosures, which should be applied prospectively.

The adoption of the amendments in this update did not have a material impact on our consolidated financial position and results of operations as of and for the year ended December 31, 2020.

In August 2018, the FASB issued ASU No.

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Capitalized implementation costs and amortization thereof are also required to be classified in the same line item in the statements of financial position, operations and cash flows associated with the hosting service fees.

The amendments in this update will be effective for us beginning with fiscal year 2020, with early adoption permitted.

The amendments in this update were effective for us beginning with fiscal year 2020.

Entities may select retrospective or prospective application to all implementation costs incurred after the adoption date.

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.

We selected prospective application to all implementation costs incurred after the adoption date.

The adoption of the amendments in this update did not have a material impact on our property and equipment, net and results of operations as of and for the year ended December 31, 2020.

In August 2018, the FASB issued ASU No.

2018-14 Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20) , to clarify disclosure requirements related to defined benefit pension plans.

The amendment adds a narrative description on the reasons for significant gains and losses affecting the benefit obligation and an explanation of any other significant changes in the benefit obligation or plan assets not otherwise apparent in other disclosures.

The amendment removes the disclosure of amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit costs over the next year.

The amendments in this update are effective for us beginning with fiscal year 2021.

Entities are required to apply the amendments on a retrospective basis with early adoption permitted.

We selected to early adopt this update.

The adoption of the amendments in this update did not have a material impact on our defined benefit plan disclosures and our consolidated financial position and results of operations as of and for the year ended December 31, 2020.

In March 2020, the FASB issued ASU No.

2020-04 Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting , that provides optional relief to applying reference rate reform to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (LIBOR), which will be discontinued by the end of 2021.

Also, in January 2021, the FASB issued ASU No.

2021-01 Reference Rate Reform (Topic 848)—Scope , to clarify that cash flow hedges are eligible for certain optional expedients and exceptions for the application of subsequent assessment methods to assume perfect effectiveness as previously presented in ASU 2020-04.

The amendments in this update are effective for us immediately and may be applied through December 31, 2022.

Our LIBOR interest rate swap expired in October 2020 and was not impacted by reference rate reform.

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 year ended 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 us beginning with fiscal year 2021, with early application permitted;

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

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

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

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU No.

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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.

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 October 2020, the FASB issued ASU No.

2020-10 Codification Improvements , to make incremental improvements to GAAP and address stakeholder suggestions, including, among other things, clarifying that the requirement to provide comparative information in the financial statements extends to the corresponding disclosures section.

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

The amendments in this update should be applied retrospectively and at the beginning of the period that includes the adoption date.

The adoption of the amendments in this update is not expected to have a material impact on our consolidated financial position and results of operations.

Results of Operations

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Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 5, 2020, which discussion is incorporated herein by reference and which is available free of charge on the SEC’s website at www.sec.gov.

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

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

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costs of personnel, including stock-based compensation, and equipment associated with manufacturing support, logistics and quality assurance;

amortization of acquired developed technology intangible assets and inventory step-ups to fair value;

amortization of acquired developed technology intangible assets;

inventory fair value adjustments;

amortization of certain production mask costs;

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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.

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Years Ended December 31,

Net revenue 100 % 100 %

Cost of net revenue 56 47

Gross profit 44 53

Operating expenses:

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Income tax benefit (3) (4)

Year Ended December 31,

Net loss (21) % (6) %

Year Ended December 31, % Change

(dollars in thousands)

Connected home

Broadband $ 244,424 $ 119,320 105 %

% of net revenue 51 % 38 %

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% of net revenue 18 % 25 %

Connectivity 70,739 33,354 112 %

% of net revenue 15 % 10 %

Total net revenue $ 478,596 $ 317,180 51 %

Net revenue decreased $67.8 million to $317.2 million for the year ended December 31, 2019 , as compared to $385.0 million for the year ended December 31, 2018 .

The decrease in connected home net revenue of $54.7 million was primarily driven by a slowdown in the cable market, which impacted both cable and related MoCA product shipments, owing to reduced operator spending, the market transition from DOCSIS 3.0 to DOCSIS 3.1 and related customer inventory reductions, and, to a lesser extent, reductions in satellite, tuner, and other connectivity product shipments.

The increase in infrastructure revenues of $3.0 million was primarily driven by increased high performance analog and high-speed interconnect shipments in this category.

The decrease in industrial and multi-market revenue of $16.1 million was related to decreased shipments of high performance analog products in this category.

_______________

(1) Our net revenues by market were revised during 2020 to align with changing end-market conditions, our current business priorities, as well as growth opportunities in the four categories.

The broadband category includes our prior connected home category plus the SoC business from the Wi-Fi and Broadband assets business, but excludes wired connectivity.

The infrastructure category remains unchanged.

Industrial and multi-market includes the previously reported revenue plus component revenues from the Wi-Fi and Broadband assets business.

Our connectivity category includes primarily our MoCA/G.hn products and Wi-Fi and Ethernet revenues from the Wi-Fi and Broadband assets business.

Net revenue increased $161.4 million to $478.6 million for the year ended December 31, 2020, as compared to $317.2 million for the year ended December 31, 2019.

The increase in broadband net revenue of $125.1 million primarily was the result of a partial-year contribution of gateway revenues attributable to our acquisition of the Wi-Fi and Broadband assets business on July 31, 2020 and, to a lesser extent, improvements in cable product shipments, partially offset by reductions in satellite product shipments.

The increase in connectivity revenue of $37.4 million was primarily driven by a partial-year contribution of Wi-Fi and ethernet revenues attributable to our Wi-Fi and Broadband assets business acquisition, partially offset by a decline in MoCA product shipments.

The increase in industrial and multi-market revenue of $8.1 million was related to increased shipments of component products attributable to our Wi-Fi and Broadband assets business acquisition, partially offset by decreased shipments of high performance analog products in this category.

The decrease in infrastructure revenues of $9.2 million was primarily driven by decreased wireless backhaul and high performance analog shipments in this category.

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.

Cost of Net Revenue and Gross Profit

Year Ended December 31,

Year Ended December 31, % Change

2020 2019 2020

(dollars in thousands)

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% of net revenue 56 % 47 %

Gross profit 212,798 167,685 27 %

% of net revenue 44 % 53 %

Cost of net revenue decreased $26.7 million to $149.5 million for the year ended December 31, 2019 , as compared to $176.2 million for the year ended December 31, 2018 .

The decrease was primarily driven by lower sales.

The decrease in gross profit percentage for the year ended December 31, 2019 , as compared to the year ended December 31, 2018 , was due to lower revenue and product mix.

Cost of net revenue increased $116.3 million to $265.8 million for the year ended December 31, 2020, as compared to $149.5 million for the year ended December 31, 2019.

The increase was primarily driven by higher sales and a non-recurring inventory fair value adjustments of $32.9M related to our acquisition of the Wi-Fi and Broadband assets business on July 31, 2020.

The decrease in gross profit percentage for the year ended December 31, 2020, as compared to the year ended December 31, 2019, was due primarily to the aforementioned non-recurring inventory fair value adjustments, as well as product mix.

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.

Research and Development

Year Ended December 31,

Year Ended December 31, % Change

2020 2019 2020

(dollars in thousands)

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% of net revenue 38 % 31 %

Research and development expense decreased $21.7 million to $98.3 million for the year ended December 31, 2019 from $120.0 million in the year ended December 31, 2018 .

The decrease was primarily due to decreases in payroll-related expenses of $11.8 million due to lower headcount, prototype expenses of $3.9 million due to timing of projects, depreciation expense of $2.6 million as a result of certain machinery and equipment reaching the end of their useful lives, occupancy expenses of $2.1 million from terminated leases, outside services of $0.6 million, and travel-related expenses of $0.4 million.

Research and development expense increased $81.6 million to $180.0 million for the year ended December 31, 2020 from $98.3 million in the year ended December 31, 2019.

The increase was primarily due to our acquisitions of the Wi-Fi and Broadband assets business and NanoSemi during the third quarter 2020, which resulted in increased engineering headcount, facilities, transition costs, and related expenses, as well as an increase in performance-based bonuses and stock-based compensation expenses.

There were increases in payroll-related expenses of $54.2 million, of which $21.9 million was from performance-based bonus and stock-based compensation expenses;

consulting and other outside services of $21.6 million, which includes acquisition-related transition service costs, design tools, and software license expenses;

depreciation expense of $2.6 million;

and occupancy expense of $1.4 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

Year Ended December 31,

Year Ended December 31, % Change

2020 2019 2020

(dollars in thousands)

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% of net revenue 27 % 28 %

Selling, general and administrative expense decreased $13.0 million to $88.8 million for the year ended December 31, 2019 , as compared to $101.8 million for the year ended December 31, 2018 .

The decrease was primarily due to a decrease in intangible asset amortization of $8.9 million as certain assets reached the end of their useful lives, as well as decreases in payroll-related expense of $1.7 million due to lower headcount, professional fees of $1.3 million, outside services of $0.5 million, and travel-related expenses of $0.3 million.

We expect selling, general and administrative expenses to remain relatively flat in the near-term;

however, our expenses may increase in the future as we expand our sales and marketing organization to enable market expansion.

Selling, general and administrative expense increased $41.3 million to $130.0 million for the year ended December 31, 2020, as compared to $88.8 million for the year ended December 31, 2019.

The increase was primarily due to our acquisitions of the Wi-Fi and Broadband assets business and NanoSemi during the third quarter 2020, which resulted in increased personnel, facilities, transaction costs and bonuses and performance stock-based compensation expenses.

Non-recurring transaction costs were $14.3 million in the year ended December 31, 2020.

There were also increases in personnel-related expenses of $22.7 million, of which $16.0 million is from performance-based bonuses and stock-based compensation expenses;

consulting and other outside services of $3.5 million;

and occupancy expense of $1.6 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

Year Ended December 31,

Year Ended December 31, % Change

2020 2019 2020

(dollars in thousands)

Impairment losses

Impairment losses $ 86 $ — n/a

% of net revenue — % — %

Impairment losses decreased $2.2 million to $0 for the year ended December 31, 2019 , compared to $2.2 million for the year ended December 31, 2018 .

Impairment losses in 2018 related to acquired developed technology of Exar.

Impairment losses increased $0.1 million to $0.1 million for the year ended December 31, 2020, compared to $0 for the year ended December 31, 2019.

Impairment losses for 2020 were related to the abandonment of an intellectual property license.

Restructuring charges

Year Ended December 31,

Year Ended December 31, % Change

2020 2019 2020

(dollars in thousands)

1 unchanged sentence

% of net revenue 1 % 1 %

Restructuring charges decreased $1.2 million to $2.6 million for the year ended December 31, 2019 , compared to $3.8 million for the year ended December 31, 2018 .

Restructuring charges increased $1.2 million to $3.8 million for the year ended December 31, 2020, compared to $2.6 million for the year ended December 31, 2019.

Restructuring charges in 2020 primarily consisted of lease restructuring charges of $2.0 million, including $1.5 million related to reduction in expected cash inflows from subleases, and severance-related charges of $1.6 million in connection with employee separation expenses.

Restructuring charges in 2019 primarily consisted of lease restructuring charges of $1.3 million related to exiting certain redundant facilities and severance-related charges of $1.2 million in connection with employee separation expenses.

Restructuring charges in 2018 primarily consisted of severance-related charges of $2.1 million in connection with employee separation expenses and lease restructuring charges of $1.6 million related to exiting certain redundant facilities.

Interest and Other Income (Expense)

Year Ended December 31,

Year Ended December 31, % Change

2020 2019 2020

(dollars in thousands)

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Interest and other income (expense), net changed by $3.3 million from a net expense of $10.4 million in the year ended December 31, 2019 to a net expense of $13.7 million for the year ended December 31, 2020.

The change in interest and other income (expense), net was primarily due to a decrease in interest expense pertaining to a lower average balance of debt outstanding under our term loan facility during the year.

The change in interest and other income (expense), net was primarily due to an increase of $1.8 million in interest expense on outstanding debt and an increase of $1.1 million in other income (expenses) resulting from non-recurring gain on reversal of liability for an assumed indemnification obligation recognized in 2019.

The increase in interest expense on outstanding debt includes the impact of an additional $3.3 million in interest expense from the incremental term loan used to fund our 2020 acquisitions, partially offset by a decrease in interest expense on the initial term loan of $1.9 million pertaining to a lower average balance of such debt outstanding.

Income Tax Provision (Benefit)

Year Ended December 31,

Year Ended December 31, % Change

2020 2019 2020

(dollars in thousands)

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The income tax benefit for the year ended December 31, 2020 was $16.3 million or approximately 14% of pre-tax loss compared to an income tax benefit of $12.6 million or approximately 39% of pre-tax loss for the year ended December 31, 2019.

The income tax benefit for the year ended December 31, 2020 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 year ended December 31, 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.

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.

The income tax benefit for the year ended December 31, 2019 primarily related to the mix of pre-tax income among jurisdictions, discrete tax benefits related to stock-based compensation, and release of certain reserves for uncertain tax positions under ASC 740-10.

The income tax benefit for the year ended December 31, 2018 primarily related to a partial release of our valuation allowance and the mix of pre-tax income among jurisdictions, excess tax benefits related to stock-based compensation, and release of uncertain tax positions under ASC 740-10.

Liquidity and Capital Resources

As of December 31, 2019 , we had cash and cash equivalents of $92.7 million , restricted cash of $0.4 million , and net accounts receivable of $50.4 million .

Additionally, as of December 31, 2019 , our working capital was $115.2 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.

As of December 31, 2020, we had cash and cash equivalents of $148.9 million, restricted cash of $1.1 million, and net accounts receivable of $67.4 million and our working capital was $128.1 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 also use cash to pay down outstanding debt.

In July 2020, we funded our $150.0 million acquisition of the Wi-Fi and Broadband assets business with a portion of the net proceeds of our $175.0 million incremental term loan, of which $157.8 million remained outstanding as of December 31, 2020.

In September 2020, we paid $10 million in cash and issued 804,163 shares of common stock 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.

As of December 31, 2020, the aggregate outstanding principal balance on the initial and incremental term loans was $369.8 million.

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 impacts from the Wi-Fi 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.

If we are unable to raise additional funds when needed, we may not be able to sustain our operations or execute our strategic plans.

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 stock-based compensation, amortization and depreciation of acquired intangible assets, leased right-of-use assets and property and equipment, and impairment of intangible assets and long-lived assets.

Cash used to fund acquisitions of businesses and other 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, inventory fair value adjustments, 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 have not requested any incremental loans to date.

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 Wi-Fi and Broadband assets business.

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

12 unchanged sentences

Net cash used in investing activities (175,286) (6,973)

Net cash used in financing activities

Net cash provided by (used in) financing activities 159,649 (53,383)

Effect of exchange rate changes on cash, cash equivalents and restricted cash (1,039) 934

Increase (decrease) in cash, cash equivalents and restricted cash

Increase in cash, cash equivalents and restricted cash $ 56,917 $ 18,926

Cash Flows from Operating Activities

Net cash provided by operating activities was $73.6 million for the year ended December 31, 2020.

Net cash provided by operating activities consisted of positive cash flow from operations including $101.1 million in non-cash expenses and $16.9 million in changes in operating assets and liabilities, partially offset by net loss of $19.9 million and deferred income taxes and excess tax benefits from stock-based compensation of $19.8 million .

Non-cash items included in net loss for the year ended December 31, 2019 primarily included depreciation and amortization of property, equipment, intangible assets and leased right-of-use assets of $66.4 million and stock-based compensation of $32.1 million .

During the year ended December 31, 2019 , we also exited certain leased facilities, which resulted in impairment of leased right-of-use assets of $9.2 million and leasehold improvements of $1.4 million , which was partially offset by a gain on extinguishment of related lease liabilities of $10.4 million , all of which are non-cash items that did not affect cash flows.

Net cash provided by operating activities primarily consisted of the positive impact from $162.5 million in non-cash items and $28.9 million in changes in operating assets and liabilities, partially offset by the negative impact of net loss of $98.6 million and deferred income taxes and excess tax benefits totaling $19.2 million.

Non-cash items included in net loss for the year ended December 31, 2020 primarily consisted of depreciation and amortization of property, equipment, acquired intangible assets and leased right-of-use assets of $76.5 million, stock-based compensation of $47.6 million, and inventory fair value adjustments of $32.9 million.

Net cash provided by operating activities was $78.3 million for the year ended December 31, 2019.

Net cash provided by operating activities consisted of positive cash flow from operations including $100.3 million in non-cash operating expenses and $28.6 million in changes in operating assets and liabilities, partially offset by net loss of $26.2 million .

Non-cash items included in net loss for the year ended December 31, 2018 primarily included depreciation and amortization of property, equipment and intangible assets of $79.0 million , stock-based compensation of $31.7 million , and impairment of intangible assets of $2.2 million , partially offset by deferred income taxes of $12.1 million and excess tax benefits on stock-based awards of $2.0 million .

Net cash provided by operating activities consisted of positive cash flow from operations including $101.1 million in non-cash operating expenses and $16.9 million in changes in operating assets and liabilities, partially offset by net loss of $19.9 million and deferred income taxes and excess tax benefits from stock-based compensation of $19.8 million.

Non-cash items included in net loss for the year ended December 31, 2019 primarily included depreciation and amortization of property, equipment and intangible assets and leased right-of-use assets of $66.4 million, stock-based compensation of $32.1 million.

During the year ended December 31, 2019, we also exited certain leased facilities, which resulted in impairment of leased right-of-use assets of $9.2 million and leasehold impairments of $1.4 million, which was partially offset by a gain on extinguishment of related lease liabilities of $10.4 million, all of which are non-cash items that did not affect cash flows.

Cash Flows from Investing Activities

Net cash used in investing activities was $7.0 million for the year ended December 31, 2019 .

Net cash used in investing activities primarily consisted of $ 6.9 million in purchases of property and equipment.

Net cash used in investing activities was $175.3 million for the year ended December 31, 2020 and consisted of $160.0 million in cash used in the acquisitions, comprising $150.0 million for the Wi-Fi and Broadband assets business and $10 million in initial cash for NanoSemi, $12.5 million in purchases of property and equipment, and $2.8 million in purchase of intangible assets.

Net cash used in investing activities was $7.0 million for the year ended December 31, 2019.

Net cash used in investing activities consisted entirely of $7.8 million in purchases of property and equipment.

Net cash used in investing activities consisted primarily of $6.9 million in purchases of property and equipment.

Cash Flows from Financing Activities

Net cash used in financing activities was $53.4 million for the year ended December 31, 2019 .

Net cash used in financing activities consisted primarily of cash outflows from aggregate prepayments of principal of $50.0 million and $12.0 million in minimum tax withholding paid on behalf of employees for restricted stock units, partially offset by cash inflows of $8.6 million in net proceeds from issuance of common stock upon exercise of stock options.

Net cash provided by financing activities was $159.6 million for the year ended December 31, 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 Wi-Fi and Broadband assets business, and cash inflows from net proceeds from issuance of common stock upon exercise of stock options of $8.1 million, partially offset by aggregate repayments of principal on outstanding debt of $17.2 million, minimum tax withholding paid on behalf of employees for restricted stock units of $3.5 million, and payments of debt issuance costs of $2.7 million.

Net cash used in financing activities was $53.4 million for the year ended December 31, 2019.

Net cash used in financing activities primarily consisted of cash outflows from $93.0 million in aggregate prepayments of principal on outstanding debt and $7.6 million in minimum tax withholding paid on behalf of employees for restricted stock units, partially offset by cash inflows of $6.8 million in net proceeds from issuance of common stock upon exercise of stock options.

Net cash used in financing activities primarily consisted of cash outflows from aggregate prepayments of principal on outstanding debt of $50.0 million and $12.0 million in minimum tax withholding paid on behalf of employees for restricted stock units, partially offset by cash inflows of $8.6 million in net proceeds from issuance of common stock upon exercise of stock options.

We believe that our $148.9 million of cash and cash equivalents at December 31, 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 to date.

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.

As of December 31, 2020, our indebtedness totaled $369.8 million, which consists of $212.0 million outstanding principal under an initial term loan and $157.8 million under an incremental term loan.

We have repaid $230.2 million of debt through December 31, 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 term loan facility has a seven-year term and bears interest at either an Adjusted LIBOR or an Adjusted Base Rate, at our option, plus a fixed applicable margin.

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.

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.

In connection with that bonus program, in February 2019 , we issued 0.3 million freely-tradable shares of our common stock in settlement of bonus awards for the 2018 performance period.

In connection with that bonus program, in March 2020, we issued 0.2 million freely-tradable shares of our common stock in settlement of bonus awards for the 2019 performance period.

We expect to implement a similar equity-based plan for fiscal 2020, but our compensation committee retains discretion to effect payment in cash, stock, or a combination of cash and stock.

Notwithstanding the foregoing, we may need to raise additional capital or incur additional indebtedness to fund strategic initiatives or operating activities, particularly if we continue to pursue acquisitions.

Our future capital requirements will depend on many factors, including our rate of revenue growth, 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.

If we are unable to raise additional funds when needed, we may not be able to sustain our operations or execute our strategic plans.

Warranties and Indemnifications

6 unchanged sentences

As of December 31, 2020, future minimum payments under long-term debt, non-cancelable operating leases, inventory purchase obligations and other obligations were as follows:

Less than 1 year

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

(in thousands)

3 unchanged sentences

Other obligations 50,523 21,315 28,761 447 —

Total $ 522,204 $ 101,558 $ 197,603 $ 218,249 $ 4,794

Other obligations consist of contractual payments due for software licenses.

1 unchanged sentence

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 $272.4 million to $522.2 million as of December 31, 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 Wi-Fi 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-K

Item 7. Management’s Discussion and Analysis