MAXLINEAR, INC 10-K

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. 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. Overview 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 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; 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. Our ability to achieve revenue growth in the future will depend, among other factors, on our ability to further penetrate existing markets; our ability to expand our target addressable markets by developing new and innovative products; 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 45 Table of Contents 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. For example, revenue generated from sales of our cable modem products during the years ended December 31, 2020, 2019 and 2018 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. A significant portion of our net revenue has historically been generated by a limited number of customers. 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. For certain customers, we sell multiple products into disparate end user applications such as cable modems, satellite set-top boxes and broadband gateways. Our business depends on winning competitive bid selection processes, known as design wins, to develop semiconductors for use in our customers’ products. These selection processes are typically lengthy, and as a result, our sales cycles will vary based on the specific market served, whether the design win is with an existing or a new customer and whether our product being designed in our customer’s device is a first generation or subsequent generation product. Our customers’ products can be complex and, if our engagement results in a design win, can require significant time to define, design and result in volume production. Because the sales cycle for our products is long, we can incur significant design and development expenditures in circumstances where we do not ultimately recognize any revenue. We do not have any long-term purchase commitments with any of our customers, all of whom purchase our products on a purchase order basis. Once one of our products is incorporated into a customer’s design, however, we believe that our product is likely to remain a component of the customer’s product for its life cycle because of the time and expense associated with redesigning the product or substituting an alternative chip. Product life cycles in our target markets will vary by application. For example, in the cable operator modem and gateway sectors, a design-in can have a product life cycle of 24 to 48 months. 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. 46 Table of Contents 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 Management’s discussion and analysis of our financial condition and results of operations is based upon our financial statements which are prepared in accordance with accounting principles that are generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, related disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We continually evaluate our estimates and judgments, the most critical of which are those related to revenue recognition, inventory valuation, income taxes and stock-based compensation. We base our estimates and judgments on historical experience and other factors that we believe to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known. We believe that the following accounting policies involve a greater degree of judgment and complexity than our other accounting policies. 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. Goodwill 47 Table of Contents 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 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. Transfer of control occurs either when products are shipped to or received by the distributor or direct customer, based on the terms of the specific agreement with the customer, if we have a present right to payment and transfer of legal title and the risks and rewards of ownership to the customer has occurred. For most of our product sales, transfer of control occurs upon shipment to our distributor or direct customer. In assessing whether collection of consideration from a customer is probable, we consider the customer's ability and intention to pay that amount of consideration when it is due. Payment of invoices is due as specified in the underlying customer agreement, typically 30 days from the invoice date, which occurs on the date of transfer of control of the products to the customer. Since payment terms are less than a year, we have elected the practical expedient and do not assess whether a customer contract has a significant financing component. A five-step approach is applied in the recognition of revenue under ASC 606: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when we satisfy a performance obligation. We applied ASC 606 to our customer contracts that were not completed before the January 1, 2018 adoption date. Customer purchase orders plus the underlying master sales agreements are considered to be contracts with the customer for purposes of applying the five-step approach under ASC 606. 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 48 Table of Contents 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. Stock rotation allowances are capped at a fixed percentage of our sales to a distributor for a period of time, up to six months, as specified in the individual distributor contract. If our current estimates of such credits and rights are materially inaccurate, it may result in adjustments that affect future revenues and gross profits. Returns under our general assurance warranty of products for a period of one to three years have not been material and warranty-related services are not considered a separate performance obligation under the customer contracts. Most of our customers resell our product as part of their product and thus are tax-exempt, however to the extent we collect and remit taxes on product sales from customers, we have elected to exclude from the measurement of transaction price such taxes. Each distinct promise to transfer products is considered to be an identified performance obligation for which revenue is recognized upon transfer of control of the products to the customer. Although customers may place orders for products to be delivered on multiple dates that may be in different quarterly reporting periods, all of the orders are scheduled within one year from the order date. We have opted to not disclose the portion of revenues allocated to partially unsatisfied performance obligations, which represent products to be shipped within 12 months under open customer purchase orders, at the end of the current reporting period as allowed under ASC 606. 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 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 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. We assess customer accounts receivable and contract assets for impairment in accordance with ASC 310-10-35. Inventory Valuation We assess the recoverability of our inventory based on assumptions about demand and market conditions. Forecasted demand is determined based on historical sales and expected future sales. Inventory is stated at the lower of cost or net realizable value. Cost is computed using standard cost, which approximates actual cost on a first-in, first-out basis and net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. We reduce our inventory to its lower of cost or net realizable value on a part-by-part basis to account for its obsolescence or lack of marketability. Reductions are calculated as the difference between the cost of inventory and its net realizable value based upon assumptions about future demand, market conditions and costs. Once established, these adjustments are considered permanent and are not revised until the related inventory is sold or disposed of. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required that may adversely affect our operating results. If actual market conditions are more favorable, we may have higher gross profits when products are sold. Production Masks Production masks with alternative future uses or discernible future benefits are capitalized and amortized over their estimated useful life of two years to five years. To determine if the production mask has alternative future uses or benefits, we evaluate risks associated with developing new technologies and capabilities, and the related risks associated with entering new markets. Production masks that do not meet the criteria for capitalization are expensed as research and development costs. 49 Table of Contents Goodwill and Intangible Assets Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations accounted for under the acquisition method. Intangible assets represent purchased intangible assets including developed technology and in-process research and development, or IPR&D, technologies acquired or licensed from other companies, customer relationships, noncompete covenants, backlog, and trademarks and tradenames. Purchased finite-lived intangible assets are capitalized and amortized over their estimated useful lives. Technologies acquired or licensed from other companies, customer relationships, noncompete covenants, backlog, and trademarks and tradenames are capitalized and amortized over the lesser of the terms of the agreement, or estimated useful life. We capitalize IPR&D projects acquired as part of a business combination. On completion of each project, IPR&D assets are reclassified to developed technology and amortized over their estimated useful lives. Impairment of Goodwill and Long-Lived Assets 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. During development, IPR&D is not subject to amortization and is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. We review indefinite-lived intangible assets each year for impairment using a qualitative assessment, followed by a quantitative assessment, as needed, each year as of October 31, the date of our annual goodwill impairment review, or whenever events or changes in circumstances indicate the carrying value may not be recoverable. Recoverability of indefinite-lived intangible assets is measured by comparing the carrying amount of the asset to its fair value. 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. 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. An impairment loss would be recognized when the sum of the expected future undiscounted net cash flows is less than the carrying amount of the asset. Should impairment exist, the impairment loss would be measured based on the excess of the carrying amount of the asset over the asset’s fair value. Income Taxes We provide for income taxes utilizing the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. Deferred taxes are presented net as noncurrent. The provision for income taxes generally represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from the differences between the financial and tax bases of our assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when a judgment is made that is considered more likely than not that a tax benefit will not be realized. A decision to record a valuation allowance results in an increase in income tax expense or a decrease in income tax benefit. If the valuation allowance is released in a future period, income tax expense will be reduced accordingly. The calculation of tax liabilities involves dealing with uncertainties in the application of complex global tax regulations. The impact of an uncertain income tax position is recognized at the largest amount that is “more likely than not” to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. If the estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense would result. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. 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 50 Table of Contents exist. 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. On December 22, 2017, the Tax Cuts and Jobs Act, or the Tax Act, was enacted into U.S. tax law. In 2018, we made an accounting policy election to treat Global Intangible Low Taxed Income in accordance with the Tax Act as a period cost. Stock-Based Compensation We measure the cost of employee services received in exchange for equity incentive awards, including restricted stock units and restricted stock awards, employee stock purchase rights and stock options, based on the grant date fair value of the award. We calculate the fair value of restricted stock units and performance-based restricted stock units based on the fair market value of our common stock on the grant date. Stock-based compensation expense is then determined based on the number of restricted stock units that are expected to vest; for performance-based restricted stock units, this is the number of units that are expected to vest during the performance period if it is probable that we will achieve the performance metrics specified in the underlying award agreement. We use the Black-Scholes valuation model to calculate the fair value of stock options and employee stock purchase rights granted to employees. Stock-based compensation expense is recognized over the period during which the employee is required to provide services in exchange for the award, which is usually the vesting period. We recognize compensation expense over the vesting period using the straight-line method and classify these amounts in the statements of operations based on the department to which the related employee reports. We calculate the weighted-average expected life of options using the simplified method as prescribed by guidance provided by the Securities and Exchange Commission. 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. Recently Adopted 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 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 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. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment , to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. An entity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if the reporting unit had been acquired in a business combination. 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 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. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework— Changes to the Disclosure Requirements for Fair Value Measurement , to improve the fair value measurement reporting of financial instruments. The amendments in this update require, among other things, added disclosure of the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. 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 were effective for us beginning with fiscal year 2020. Retrospective application 51 Table of Contents 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. 2018-15, Intangibles–Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract , to provide additional guidance on the accounting for costs of implementing cloud computing arrangements that are service contracts. The amendments in this update require the capitalization of implementation costs during the application development stage of such hosting arrangements and amortization of the expense over the term of the arrangement including any option to extend reasonably certain to be exercised or option to terminate reasonably certain not to be exercised. 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 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. 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. 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 52 Table of Contents 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 The following describes the line items set forth in our consolidated statements of operations. A discussion of changes in our results of operations during the year ended December 31, 2019 compared to the year ended December 31, 2018 has been omitted from this Annual Report on Form 10-K, but may be found in “Item 7. 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. 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. Cost of Net Revenue. Cost of net revenue includes the cost of finished silicon wafers processed by third-party foundries; costs associated with our outsourced packaging and assembly, test and shipping; costs of personnel, including stock-based compensation, and equipment associated with manufacturing support, logistics and quality assurance; amortization of acquired developed technology intangible assets; inventory fair value adjustments; amortization of certain production mask costs; cost of production load boards and sockets; and an allocated portion of our occupancy costs. Research and Development. Research and development expense includes personnel-related expenses, including stock-based compensation, new product engineering mask costs, prototype integrated circuit packaging and test costs, computer-aided design software license costs, intellectual property license costs, reference design development costs, development testing and evaluation costs, depreciation expense and allocated occupancy costs. Research and development activities include the design of new products, refinement of existing products and design of test methodologies to ensure compliance with required specifications. All research and development costs are expensed as incurred. Selling, General and Administrative. 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. Restructuring Charges. Restructuring charges consist of severance, lease and leasehold impairment charges, and other charges related to restructuring plans. Interest and Other Income (Expense), Net. Interest and other income (expense), net includes interest income, interest expense and other income (expense). Interest income consists of interest earned on our cash, cash equivalents and restricted cash balances. Interest expense consists of interest accrued on debt. Other income (expense) generally consists of income (expense) generated from non-operating transactions. Income Tax Provision (Benefit). We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expenses for tax and financial statement purposes and the realizability of assets in future years. 53 Table of Contents The following table sets forth our consolidated statement of operations data as a percentage of net revenue for the periods indicated: Years Ended December 31, 2020 2019 Net revenue 100 % 100 % Cost of net revenue 56 47 Gross profit 44 53 Operating expenses: Research and development 38 31 Selling, general and administrative 27 28 Impairment losses — — Restructuring charges 1 1 Total operating expenses 66 60 Loss from operations (21) (7) Total interest and other income (expense), net (3) (3) Loss before income taxes (24) (10) Income tax benefit (3) (4) Net loss (21) % (6) % Net Revenue Year Ended December 31, % Change 2020 (1) 2019 (1) 2020 (dollars in thousands) Broadband $ 244,424 $ 119,320 105 % % of net revenue 51 % 38 % Infrastructure 76,166 85,369 (11) % % of net revenue 16 % 27 % Industrial and multi-market 87,267 79,137 10 % % of net revenue 18 % 25 % Connectivity 70,739 33,354 112 % % of net revenue 15 % 10 % Total net revenue $ 478,596 $ 317,180 51 % _______________ (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. 54 Table of Contents 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, % Change 2020 2019 2020 (dollars in thousands) Cost of net revenue $ 265,798 $ 149,495 78 % % of net revenue 56 % 47 % Gross profit 212,798 167,685 27 % % of net revenue 44 % 53 % 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, % Change 2020 2019 2020 (dollars in thousands) Research and development $ 179,993 $ 98,344 83 % % of net revenue 38 % 31 % 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, % Change 2020 2019 2020 (dollars in thousands) Selling, general and administrative $ 130,025 $ 88,762 46 % % of net revenue 27 % 28 % 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. 55 Table of Contents Impairment Losses Year Ended December 31, % Change 2020 2019 2020 (dollars in thousands) Impairment losses $ 86 $ — n/a % of net revenue — % — % 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, % Change 2020 2019 2020 (dollars in thousands) Restructuring charges $ 3,833 $ 2,636 45% % of net revenue 1 % 1 % 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. Interest and Other Income (Expense) Year Ended December 31, % Change 2020 2019 2020 (dollars in thousands) Interest and other income (expense), net $ (13,713) $ (10,427) 32 % % of net revenue (3) % (3) % 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 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, % Change 2020 2019 2020 (dollars in thousands) Income tax benefit $ (16,259) $ (12,586) 29 % % of pre-tax loss 14 % 39 % 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. 56 Table of Contents 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. Liquidity and Capital Resources 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 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. 57 Table of Contents 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, 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: December 31, 2020 2019 (in thousands) Working capital $ 128,057 $ 115,208 Cash and cash equivalents $ 148,901 $ 92,708 Short-term restricted cash 115 349 Long-term restricted cash 1,018 60 Total cash and cash equivalents, restricted cash and investments $ 150,034 $ 93,117 Following is a summary of our cash flows provided by (used in) operating activities, investing activities and financing activities for the years ended December 31, 2020 and 2019. A discussion of cash flows for the year ended December 31, 2018 has been omitted from this Annual Report on Form 10-K, but may be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Liquidity and Capital Resources” 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. Years Ended December 31, 2020 2019 (in thousands) Net cash provided by operating activities $ 73,593 $ 78,348 Net cash used in investing activities (175,286) (6,973) 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 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 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. 58 Table of Contents 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 $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 $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 primarily of $6.9 million in purchases of property and equipment. Cash Flows from Financing Activities 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 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. 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 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 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. 59 Table of Contents Warranties and Indemnifications In connection with the sale of products in the ordinary course of business, we often make representations affirming, among other things, that our products do not infringe on the intellectual property rights of others, and agree to indemnify customers against third-party claims for such infringement. Further, our certificate of incorporation and bylaws require us to indemnify our officers and directors against any action that may arise out of their services in that capacity, and we have also entered into indemnification agreements with respect to all of our directors and certain controlling persons. Off-Balance Sheet Arrangements 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 December 31, 2020, we were not involved in any unconsolidated SPE transactions. Contractual Obligations 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: Payments due Total Less than 1 year 1-3 years 3-5 years More than 5 years (in thousands) Long-term debt obligations $ 369,812 $ — $ 157,812 $ 212,000 $ — Operating lease obligations 30,658 9,032 11,030 5,802 4,794 Inventory purchase obligations 71,211 71,211 — — — 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. Our consolidated balance sheet at December 31, 2020 included $5.9 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 $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.