What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-04-28 compared with 2020-11-05 · 155 added, 226 removed, 186 unchanged (67% 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, analog, digital, and mixed-signal communications systems-on-chip solutions for access and connectivity, wired and wireless infrastructure, and industrial and multi-market applications.

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

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 complementary 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 multimarket applications.

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

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

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 the three months ended March 31, 2021, revenues were $209.4 million.

In the three months ended March 31, 2021, our net revenue was derived in part from sales of RF receivers and RF receiver systems-on-chip and connectivity solutions into broadband operator voice and data modems and gateways and connectivity adapters, global analog and digital RF receiver products, radio and modem solutions into wireless carrier access and backhaul infrastructure platforms, high-speed optical interconnect solutions sold into optical modules for data-center, metro and long-haul networks, and high-performance interface and power management solutions into a broad range of communications, industrial, automotive and multi-market applications, and in part from revenues attributable to our acquisition of the WiFi and Broadband assets business.

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

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

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

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

Products shipped to Asia accounted for 82% and 84% of net revenue during the three months ended March 31, 2021 and 2020, respectively, including 37% from products shipped to Hong Kong, 14% from products shipped to mainland China, and 12% from products shipped to Vietnam during the three months ended March 31, 2021 and 50% from products shipped to Hong Kong during the three months ended March 31, 2020.

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

For example, revenue generated from sales of our products during the three months ended March 31, 2021 and 2020 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.

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

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

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

In the three months ended March 31, 2021, our top three customers accounted for 37% of our net revenue, and our ten largest customers collectively accounted for 72% of our net revenue, of which distributor customers accounted for 39% 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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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.

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.

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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

Impact of COVID-19 and the Global Semiconductor Chip Shortage

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.

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

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

The COVID-19 pandemic has reached all of the countries and states in which we operate, including in California where our headquarters and central engineering team are located, as well as 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 September 30, 2020, some of our workforce has returned to the office at a reduced capacity adhering to local health authority guidelines.

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

As of March 31, 2021, some of our workforce has returned to the office at a reduced capacity adhering to local health authority guidelines and we are encouraging our employees to get COVID-19 vaccines as they become available.

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, since then, we have been benefiting from the work-from-home environment that is driving an increase in demand for certain of our products.

However, a sudden increase in demand for electronics containing semiconductor chips and stockpiling of chips by certain firms in China blacklisted by the U.S.

has exacerbated bottlenecks in the supply chain, resulting in a global semiconductor chip shortage impacting our industry.

Some chip manufacturers are estimating this supply shortage may continue into 2022.

While these chip manufacturers are working to increase capacity in the future, and we are continuing to work closely with our suppliers and customers to minimize the potential adverse impacts of the supply shortage, such shortage may have a near-term impact on our ability to meet increased demand on certain products and have a negative impact on our operating results beginning in the second quarter of 2021 which may continue into 2022.

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.

Heightened volatility, global supply shortages, 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.

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

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

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.

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

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

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

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 WiFi and Broadband assets business, pursuant to an Asset Purchase Agreement with Intel, dated April 5, 2020, and related agreements.

We paid cash consideration of $150.0 million for the purchase of certain assets of the WiFi and Broadband assets business, and assumed certain liabilities related to specified employment matters.

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 (Note 8).

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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.

In addition, the NanoSemi stockholders will receive $35 million in deferred cash payments payable in 2021, and certain NanoSemi stockholders 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.

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

Recent Developments

On February 23, 2021, our board of directors authorized a plan to repurchase up to $100 million of our common stock over a period ending February 16, 2024.

The amount and timing of repurchases are subject to a variety of factors including liquidity, share price, market conditions, and legal requirements.

Any purchases will be funded from available working capital and may be effected through open market purchases, block transactions, and privately negotiated transactions.

The share repurchase program does not obligate us to make any repurchases and may be modified, suspended, or terminated by us at any time without prior notice.

For more information, please refer to Note 16 of our unaudited consolidated financial statements.

Critical Accounting Policies and Estimates

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The preparation of these consolidated 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 consolidated 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, allowance for doubtful accounts, inventory valuation, goodwill and other intangible assets valuation, income taxes and stock-based compensation.

We continually evaluate our estimates and judgments, the most critical of which are those related to business combinations, revenue recognition, inventory valuation, production masks, goodwill and other intangible assets 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.

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For a summary of our critical accounting policies and estimates, refer to Management’s Discussion and Analysis section of our Annual Report on Form 10-K for the year ended December 31, 2020, which we filed with the Securities and Exchange Commission, or SEC, on February 11, 2021, or our Annual Report.

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

There have been no material changes to our critical accounting policies and estimates during the three months ended March 31, 2021.

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.

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 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 three months ended March 31, 2020.

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

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 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.

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

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

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 are 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 three months ended March 31, 2020 and is also not expected to have a material impact on our consolidated financial position and results of operations as of and for the year ending December 31, 2020.

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 are effective for us beginning with fiscal year 2020.

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 three months ended March 31, 2020 and is also not expected to have a material impact on our consolidated financial position and results of operations as of and for the year ending December 31, 2020.

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.

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

Our LIBOR interest rate swap expires in October 2020 and will not be 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 three months ended June 30, 2020, and is also not expected to have a material impact on our consolidated financial position and results of operations as of and for the year ending December 31, 2020.

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 WiFi and Broadband assets business.

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

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU No.

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.

2019-12 Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes , to remove certain exceptions related to the approach for intraperiod tax allocation, recognition of deferred tax liabilities for outside basis differences and 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 are effective for us beginning with fiscal year 2021.

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.

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 three months ended March 31, 2021, and is also not expected to have a material impact on our financial position and results of operations for the year ending December 31, 2021.

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 are effective for us beginning with fiscal year 2021.

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 did not have a material impact on our financial disclosures as of and for the three months ended March 31, 2021, and is also not expected to have a material impact on our financial disclosures for the year ending December 31, 2021.

Results of Operations

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amortization of acquired developed technology intangible assets;

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

amortization of certain production mask costs;

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Other income (expense) generally consists of income (expense) generated from non-operating transactions.

Income Tax Benefit.

Income Tax Provision (Benefit).

We make certain estimates and judgments in determining income taxes for financial statement purposes.

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

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

2020 2019 2020 2019

Three Months Ended March 31,

Net revenue 100 % 100 %

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Total operating expenses 49 82

Loss from operations (22) (4) (27) (6)

Income (loss) from operations 5 (32)

Total interest and other income (expense), net (2) (3)

Loss before income taxes (25) (6) (30) (9)

Income tax benefit (1) — (4) (4)

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

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

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

(dollars in thousands) (dollars in thousands)

Connected home $ 37,816 $ 40,443 $ (2,627) (6) % $ 99,138 $ 122,468 $ (23,330) (19) %

Income (loss) before income taxes 3 (36)

Income tax provision (benefit) 1 (11)

Net income (loss) 2 % (25) %

Three Months Ended March 31,

2021 2020 (1)

$ Change % Change

(dollars in thousands)

Broadband $ 124,190 $ 26,638 $ 97,552 366 %

% of net revenue 59 % 43 %

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

Connectivity 27,449 5,616 21,833 389 %

% of net revenue 13 % 9 %

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Total net revenue $ 209,359 $ 62,027 $ 147,332 238 %

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

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

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

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

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

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

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

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

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

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

_______________

(1) Our net revenues by market categories were revised during 2020 to align with changing end-market conditions, our current business priorities, as well as spending requirements and 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 $147.3 million to $209.4 million for the three months ended March 31, 2021, as compared to $62.0 million for the three months ended March 31, 2020.

The increase in broadband net revenue of $97.6 million was primarily the result of 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 $21.8 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, further supplemented by an increase in MoCA and G.hn product shipments.

The increase in industrial and multi-market revenue of $16.7 million was related to increased shipments of component products attributable to our Wi-Fi and Broadband assets business acquisition, further aided by an increase in shipments of high performance analog products in this category.

The increase in infrastructure revenues of $11.3 million was primarily driven by an increase in wireless backhaul deployments and increased shipments of high performance analog products 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.

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Cost of Net Revenue and Gross Profit

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

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

(dollars in thousands) (dollars in thousands)

Three Months Ended March 31,

2021 2020 $ Change % Change

(dollars in thousands)

Cost of net revenue $ 97,640 $ 31,265 $ 66,375 212 %

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% of net revenue 53 % 50 %

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

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

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

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

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

Cost of net revenue increased $66.4 million to $97.6 million for the three months ended March 31, 2021, as compared to $31.3 million for the three months ended March 31, 2020.

The increase was primarily driven by higher sales and incremental expenses, primarily driven by our acquisition of the WiFi and Broadband assets business.

Gross profit percentage improved for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020, due primarily to improved absorption of amortization of intangible costs.

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

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

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

Research and Development

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

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

(dollars in thousands) (dollars in thousands)

Three Months Ended March 31,

2021 2020 $ Change % Change

(dollars in thousands)

Research and development $ 63,166 $ 25,689 $ 37,477 146 %

% of net revenue 30 % 41 %

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

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

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

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

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

Research and development expense increased $37.5 million to $63.2 million for the three months ended March 31, 2021 from $25.7 million in the three months ended March 31, 2020.

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

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

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

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

There were increases in personnel-related expense of $25.8 million, of which $6.3 million is from performance-based bonus accruals and stock-based compensation expense, outside services of $7.4 million which includes acquisition transition service costs and computer aided design and engineering fees of $6.8 million, depreciation expense of $1.7 million, occupancy expenses of $1.4 million, and prototype expense of $1.1 million.

We expect our research and development expenses to increase in future years as we continue to expand our product portfolio and enhance existing products.

Selling, General and Administrative

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

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

(dollars in thousands) (dollars in thousands)

Three Months Ended March 31,

2021 2020 $ Change % Change

(dollars in thousands)

Selling, general and administrative $ 36,469 $ 24,632 $ 11,837 48 %

% of net revenue 17 % 40 %

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

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

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

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

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

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

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

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

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

Selling, general and administrative expense increased $11.8 million to $36.5 million for the three months ended March 31, 2021, as compared to $24.6 million for the three months ended March 31, 2020.

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

There were increases in personnel expense of $7.9 million, including $3.4 million from performance-based bonus accruals and stock-based compensation expenses, outside services of $2.4 million primarily consisting of acquisition transition service costs, occupancy expenses of $0.9 million, and supplies and small tools expense of $0.5 million.

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

Impairment Losses

Three Months Ended March 31,

2021 2020 $ Change % Change

(dollars in thousands)

Impairment losses $ — $ 86 $ (86) (100) %

% of net revenue — % — %

Impairment losses in the 2020 period related to abandonment of a license of intellectual property.

Restructuring Charges

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

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

(dollars in thousands) (dollars in thousands)

Three Months Ended March 31,

2021 2020 $ Change % Change

(dollars in thousands)

Restructuring charges $ 2,166 $ 489 $ 1,677 343%

% of net revenue 1 % 1 %

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

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

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

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

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

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

Restructuring charges increased $1.7 million to $2.2 million for the three months ended March 31, 2021, compared to $0.5 million for the three months ended March 31, 2020.

Restructuring charges for the three months ended March 31, 2021 primarily consisted of $1.3 million in employee severance-related charges and $0.6 million of lease-related charges, which primarily consisted of impairment of leased right-of-use assets and leasehold improvements.

Restructuring charges in the three months ended March 31, 2020 primarily consisted of lease restructuring charges of $0.3 million.

Interest and Other Income (Expense )

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

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

(dollars in thousands) (dollars in thousands)

Three Months Ended March 31,

2021 2020 $ Change % Change

(dollars in thousands)

Interest and other income (expense), net $ (4,310) $ (2,071) $ (2,239) 108 %

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

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

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

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

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

Income Tax Benefit

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

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

(dollars in thousands) (dollars in thousands)

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

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

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

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

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

Such tax benefit relates to our ability to carry back our 2019 net operating loss, originally valued at a 21% federal tax rate, to offset income taxes paid in prior periods at the 35% federal tax rate in effect at that time.

Interest and other income (expense), net changed by $2.2 million from a net expense of $2.1 million in the three months ended March 31, 2020 to a net expense of $4.3 million for the three months ended March 31, 2021.

The change in interest and other income (expense), net was primarily due to the impact of a $1.7 million increase in interest expense on outstanding debt, mostly related to an incremental term loan debt of $137.8 million, which was primarily used to fund our acquisition of the WiFi and Broadband assets business in July 2020.

The remaining change included a $0.3 million change in other income (expense), net, from income of $0.2 million in the 2020 period to expense of $0.1 million primarily related to foreign currency fluctuations and a change in interest income from $0.2 million in the 2020 period to nil.

Income Tax Provision (Benefit)

Three Months Ended March 31,

2021 2020 $ Change % Change

(dollars in thousands)

Income tax provision (benefit) $ 1,806 $ (6,736) $ 8,542 (127) %

The income tax provision for the three months ended March 31, 2021 was $1.8 million compared to an income tax benefit of $6.7 million for the three months ended March 31, 2020.

The income tax provision for the three months ended March 31, 2021 and 2020 each primarily related to the mix of pre-tax income among jurisdictions, excess tax benefits related to stock-based compensation, and release of certain reserves for uncertain tax positions under ASC 740-10.

We continue to maintain a valuation allowance to offset state and certain federal and foreign deferred tax assets, as realization of such assets does not meet the more-likely-than-not threshold required under accounting guidelines.

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Primarily because of our Singapore net operating losses and our full valuation allowance in Singapore, we do not believe the incentives will have a material impact on our income tax position in the year ending December 31, 2021.

On March 27, 2020, the U.S.

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

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

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

The Act also provides other non-income tax benefits, including federal funding for a range of stabilization measures and emergency funding to assist those impacted by the COVID-19 pandemic.

Similar legislation is being enacted in other jurisdictions in which the Company operates.

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

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

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

The case involved the cost-sharing arrangement, or CSA entered into by Altera US with an international subsidiary.

Pursuant to the terms of the CSA, the parties agreed to share the risks and costs of research and development, or R&D activities, including granted stock options and other stock-based compensation, or SBC, to certain of its employees responsible for conducting the R&D activities.

In allocating the costs to be shared pursuant to that CSA, Altera US included the cash compensation of its employees engaged in R&D in the shared cost pool but excluded their SBC.

The IRS had imposed transfer pricing adjustments in each of the tax years 2004 through 2007 on the basis of Altera US’ failure to include SBC costs in its CSA cost pool.

On June 7, 2019, in a 2-1 ruling, a panel of the Ninth Circuit Court of Appeals reversed the Tax Court’s holding and upheld a 2003 IRS regulation that requires participants in a CSA to share SBC costs.

After the Ninth Circuit Court’s reversal, Altera filed a petition for en banc review of the decision by Ninth Circuit judges.

The petition was denied, and the taxpayer decided to appeal to the Supreme Court.

On June 22, 2020, the Supreme Court of the United States announced that it was denying the petition for certiorari and will not review an appeals court decision in the case of Altera Corporation & Subsidiaries v.

Commissioner (Altera v.

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

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

Liquidity and Capital Resources

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

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

As of March 31, 2021, we had cash and cash equivalents of $148.1 million, restricted cash of $1.1 million and net accounts receivable of $87.5 million.

Additionally, as of March 31, 2021, our working capital was $147.3 million.

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

We will also use cash to pay down outstanding debt.

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

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

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

We also use cash to pay down outstanding debt, repurchase our common stock under our stock repurchase plan, and from time to time, make investments.

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.

In September 2020, we paid $10 million in cash to acquire NanoSemi and as of March 31, 2021, the NanoSemi stockholders have received $20 million of $35 million in deferred cash payments payable in 2021.

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.

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The Company also has an existing initial term loan with outstanding principal of $212.0 million due at maturity on May 12, 2024.

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

A material adverse impact from COVID-19 could result in a need to raise additional capital or incur additional indebtedness to fund strategic initiatives or operating activities, particularly if we pursue additional acquisitions.

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

Heightened volatility, global semiconductor chip shortages, 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 and the global semiconductor chip shortage 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 complete the integration of 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.

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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, amortization of inventory step-up, stock-based compensation, and impairment of leased right-of-use assets and related leasehold improvements.

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

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

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

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

Cash proceeds from debt and issuance of common stock and cash used to pay down outstanding debt or repurchase common stock 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.

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

September 30, December 31,

March 31, December 31,

(in thousands)

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

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

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

Net cash provided by operating activities $ 40,272 $ 6,648

Net cash used in investing activities (12,264) (1,035)

3 unchanged sentences

Cash Flows from Operating Activities

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

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

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

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

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

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

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

Net cash provided by operating activities was $40.3 million for the three months ended March 31, 2021.

Net cash provided by operating activities consisted of positive impact of net income of $3.8 million and non-cash items of $37.7 million, offset by the negative impact of $0.6 million in changes in operating assets and liabilities and excess tax benefits totaling $1.3 million.

Non-cash items included in net income for the three months ended March 31, 2021 primarily consisted of depreciation and amortization of property, equipment, acquired intangible assets and leased right-of-use assets of $22.3 million and stock-based compensation of $13.0 million.

Net cash provided by operating activities was $6.6 million for the three months ended March 31, 2020.

Net cash provided by operating activities consisted of positive cash flow from $17.8 million in non-cash items and $4.2 million in changes in operating assets and liabilities, partially offset by net loss of $15.5 million and excess tax benefits from stock-based compensation of $0.1 million.

Non-cash items included in net loss for the three months ended March 31, 2020 primarily included depreciation and amortization of property, equipment, acquired intangible assets and leased right-of-use assets of $16.7 million and stock-based compensation of $6.8 million.

Cash Flows from Investing Activities

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

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

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

Net cash used in investing activities was $12.3 million for the three months ended March 31, 2021 and consisted primarily of $6.2 million in purchases of property and equipment, $5.0 million in purchases of long-term investments (Note 7), and $1.1 million in purchases of intangible assets.

Net cash used in investing activities was $1.0 million for the three months ended March 31, 2020 and consisted entirely of purchases of property and equipment.

Cash Flows from Financing Activities

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

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

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

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

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

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

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

Net cash used in financing activities was $28.8 million for the three months ended March 31, 2021.

Net cash used in financing activities consisted primarily of $20.0 million in repayments of debt, $7.4 million in minimum tax withholding paid on behalf of employees for restricted stock units, and $2.7 million in common stock repurchases, offset by cash inflows from net proceeds from issuance of common stock upon exercise of stock options of $1.3 million.

Net cash provided by financing activities was $0.01 million for the three months ended March 31, 2020.

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

We believe that our $148.1 million of cash and cash equivalents at March 31, 2021 will be sufficient to fund our projected operating requirements for at least the next twelve months.

As of March 31, 2021, our indebtedness totaled $349.8 million, which consists of $212.0 million outstanding principal under an initial term loan and $137.8 million under an incremental term loan.

We have repaid $250.2 million of debt through March 31, 2021.

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.

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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.

In connection with that bonus program, in February 2021, we issued 0.5 million freely-tradable shares of our common stock in settlement of bonus awards for the 2020 performance period.

We expect to implement a similar equity-based plan for fiscal 2021, but our compensation committee retains discretion to effect payment in cash, stock, or a combination of cash and stock.

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

As of March 31, 2021, we were not involved in any unconsolidated SPE transactions.

Contractual Obligations

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

As of March 31, 2021, future minimum payments under long-term debt, non-cancelable operating leases, inventory purchase obligations and other obligations were as follows:

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

6 unchanged sentences

Other obligations consist of contractual payments due for software licenses.

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

Our consolidated balance sheet at March 31, 2021 included $5.6 million in other long-term liabilities for uncertain tax positions, some of which may result in cash payment.

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

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

Our contractual obligations including long-term debt, leases, inventory purchase obligations and other obligations, increased by $49.9 million to $572.1 million as of March 31, 2021, from $522.2 million as of December 31, 2020.

The increase was primarily due to increased orders of inventory placed with our vendors and with Intel under the transition services agreement during the period.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis