MAXLINEAR, INC 10-Q

ITEM 1. FINANCIAL STATEMENTS MAXLINEAR, INC. CONSOLIDATED BALANCE SHEETS (unaudited; in thousands, except par value amounts) March 31, 2021 December 31, 2020 Assets Current assets: Cash and cash equivalents $ 148,095 $ 148,901 Short-term restricted cash 114 115 Accounts receivable, net 87,521 67,442 Inventory 92,154 97,839 Prepaid expenses and other current assets 17,096 47,421 Total current assets 344,980 361,718 Long-term restricted cash 984 1,018 Property and equipment, net 40,787 39,470 Leased right-of-use assets 24,403 21,886 Intangible assets, net 191,542 207,266 Goodwill 302,828 302,828 Deferred tax assets 85,524 86,065 Other long-term assets 7,551 2,191 Total assets $ 998,599 $ 1,022,442 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 39,061 $ 32,751 Accrued price protection liability 55,029 47,766 Accrued expenses and other current liabilities 77,755 105,842 Accrued compensation 25,792 47,302 Total current liabilities 197,637 233,661 Long-term lease liabilities 22,419 20,862 Long-term debt 344,116 363,592 Other long-term liabilities 13,649 13,210 Total liabilities 577,821 631,325 Commitments and contingencies Stockholders’ equity: Preferred stock, $ 0.0001 par value; 25,000 shares authorized, no shares issued or outstanding — — Common stock, $ 0.0001 par value; 550,000 shares authorized; 75,378 shares issued and outstanding at March 31, 2021 and 74,536 shares issued and outstanding December 31, 2020 8 7 Additional paid-in capital 628,911 602,064 Accumulated other comprehensive income 446 1,435 Accumulated deficit ( 208,587 ) ( 212,389 ) Total stockholders’ equity 420,778 391,117 Total liabilities and stockholders’ equity $ 998,599 $ 1,022,442 See accompanying notes. 4 Table of Contents MAXLINEAR, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited; in thousands, except per share data) Three Months Ended March 31, 2021 2020 Net revenue $ 209,359 $ 62,027 Cost of net revenue 97,640 31,265 Gross profit 111,719 30,762 Operating expenses: Research and development 63,166 25,689 Selling, general and administrative 36,469 24,632 Impairment losses — 86 Restructuring charges 2,166 489 Total operating expenses 101,801 50,896 Income (loss) from operations 9,918 ( 20,134 ) Interest income — 225 Interest expense ( 4,206 ) ( 2,476 ) Other income (expense), net ( 104 ) 180 Total interest and other income (expense), net ( 4,310 ) ( 2,071 ) Income (loss) before income taxes 5,608 ( 22,205 ) Income tax provision (benefit) 1,806 ( 6,736 ) Net income (loss) $ 3,802 $ ( 15,469 ) Net income (loss) per share: Basic $ 0.05 $ ( 0.21 ) Diluted $ 0.05 $ ( 0.21 ) Shares used to compute net income (loss) per share: Basic 74,852 72,039 Diluted 78,283 72,039 See accompanying notes. 5 Table of Contents MAXLINEAR, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited; in thousands) Three Months Ended March 31, 2021 2020 Net income (loss) $ 3,802 $ ( 15,469 ) Other comprehensive income (loss), net of tax: Foreign currency translation adjustments, net of tax expense of $ 376 and tax benefit of $ 9 for the three months ended March 31, 2021 and 2020, respectively ( 989 ) ( 580 ) Unrealized gain (loss) on interest rate swap, net of tax expense of $ — and tax benefit of $ 41 for the three months ended March 31, 2021 and 2020, respectively — ( 153 ) Other comprehensive income (loss) ( 989 ) ( 733 ) Total comprehensive income (loss) $ 2,813 $ ( 16,202 ) See accompanying notes. 6 Table of Contents MAXLINEAR, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY THREE MONTHS ENDED MARCH 31, 2021 (unaudited; in thousands) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance at December 31, 2020 74,536 $ 7 $ 602,064 $ 1,435 $ ( 212,389 ) $ 391,117 Common stock issued pursuant to equity awards, net 917 1 16,565 — — 16,566 Repurchase of common stock ( 75 ) — ( 2,673 ) — — ( 2,673 ) Stock-based compensation — — 12,955 — — 12,955 Other comprehensive loss — — — ( 989 ) — ( 989 ) Net income — — — — 3,802 3,802 Balance at March 31, 2021 75,378 $ 8 $ 628,911 $ 446 $ ( 208,587 ) $ 420,778 See accompanying notes. 7 Table of Contents MAXLINEAR, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY THREE MONTHS ENDED MARCH 31, 2020 (unaudited; in thousands) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance at December 31, 2019 71,931 $ 7 $ 529,596 $ ( 887 ) $ ( 113,796 ) $ 414,920 Common stock issued pursuant to equity awards, net 414 — 2,612 — — 2,612 Stock-based compensation — — 6,827 — — 6,827 Other comprehensive loss — — — ( 733 ) — ( 733 ) Net loss — — — — ( 15,469 ) ( 15,469 ) Balance at March 31, 2020 72,345 $ 7 $ 539,035 $ ( 1,620 ) $ ( 129,265 ) $ 408,157 See accompanying notes. 8 Table of Contents MAXLINEAR, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited; in thousands) Three Months Ended March 31, 2021 2020 Operating Activities Net income (loss) $ 3,802 $ ( 15,469 ) Adjustments to reconcile net income (loss) to cash provided by operating activities: Amortization and depreciation 22,325 16,733 Impairment losses — 86 Amortization of debt issuance costs and accretion of discount on debt and leases 844 410 Stock-based compensation 12,955 6,827 Deferred income taxes 541 ( 6,208 ) Loss on disposal of property and equipment 368 — Impairment of leasehold improvements 226 163 Impairment of leased right-of-use assets 429 44 (Gain) loss on foreign currency 21 ( 246 ) Excess tax (benefits) deficiencies on stock-based awards ( 1,809 ) 94 Changes in operating assets and liabilities, net of effects of acquisitions: Accounts receivable ( 20,079 ) 5,615 Inventory 5,658 353 Prepaid expenses and other assets 29,860 1,443 Leased right-of-use assets 36 640 Accounts payable, accrued expenses and other current liabilities ( 22,032 ) ( 785 ) Accrued compensation 1,376 3,361 Accrued price protection liability 7,299 ( 4,537 ) Lease liabilities ( 2,002 ) ( 1,430 ) Other long-term liabilities 454 ( 446 ) Net cash provided by operating activities 40,272 6,648 Investing Activities Purchases of property and equipment ( 6,152 ) ( 1,035 ) Purchases of intangible assets ( 1,112 ) — Purchases of long-term investments ( 5,000 ) — Net cash used in investing activities ( 12,264 ) ( 1,035 ) Financing Activities Repayment of debt ( 20,000 ) — Net proceeds from issuance of common stock 1,298 488 Minimum tax withholding paid on behalf of employees for restricted stock units ( 7,442 ) ( 475 ) Repurchase of common stock ( 2,673 ) — Net cash provided by (used in) financing activities ( 28,817 ) 13 Effect of exchange rate changes on cash and cash equivalents ( 32 ) ( 303 ) Increase (decrease) in cash, cash equivalents and restricted cash ( 841 ) 5,323 Cash, cash equivalents and restricted cash at beginning of period 150,034 93,117 Cash, cash equivalents and restricted cash at end of period $ 149,193 $ 98,440 Supplemental disclosures of cash flow information: Cash paid for interest $ 3,309 $ 2,246 Cash paid for income taxes $ 593 $ 557 Supplemental disclosures of non-cash activities: Issuance of shares for payment of bonuses $ 22,710 $ 2,599 See accompanying notes. 9 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Organization and Summary of Significant Accounting Policies Description of Business MaxLinear, Inc. was incorporated in Delaware in September 2003. MaxLinear, Inc., together with its wholly owned subsidiaries, collectively referred to as MaxLinear, or the Company, is a provider of communications systems-on-chip (SoC) solutions used in broadband, mobile and wireline infrastructure, data center, and industrial and multi-market applications. MaxLinear is 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. MaxLinear’s customers include electronics distributors, module makers, original equipment manufacturers, or OEMs, and original design manufacturers, or ODMs, who incorporate the Company’s products in a wide range of electronic devices, including cable 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. Basis of Presentation and Principles of Consolidation The accompanying unaudited consolidated financial statements include the accounts of MaxLinear, Inc. and its wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. All intercompany transactions and investments have been eliminated in consolidation. In the opinion of management, the Company’s unaudited consolidated interim financial statements contain adjustments, including normal recurring accruals necessary to present fairly the Company’s consolidated financial position, results of operations, comprehensive income (loss), stockholders’ equity, and cash flows. The consolidated balance sheet as of December 31, 2020 was derived from the Company’s audited consolidated financial statements at that date. The accompanying unaudited consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission, or the SEC, on February 11, 2021, or the Annual Report. Interim results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021. Use of Estimates and Significant Risks and Uncertainties The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. Last year, the Company’s revenues were impacted by the novel coronavirus disease, or COVID-19, pandemic. In particular, the Company experienced some negative impact to its revenue and gross profits in the first half of 2020 due to several industry-wide dynamics related to COVID-19 including supply constraints as well as customer requests to temporarily delay shipments. Although the Company has benefited from increased demand for certain of our products from the work-from-home environment in the second half of 2020 and the first quarter of 2021, 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 the Company’s 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 the Company is 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 the Company’s ability to meet increased demand on certain products and have a negative impact on its operating results beginning in the second quarter of 2021 which may continue into 2022. Heightened volatility, global supply shortages, and uncertainty in customer demand and the worldwide economy in general has continued, and the Company may experience increased volatility in its sales and revenues in the near future. However, the magnitude of such volatility on the Company’s business and its duration is uncertain and cannot be reasonably estimated at this time. 10 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The Company also believes that its $ 149.2 million of cash and cash equivalents at March 31, 2021 will be sufficient to fund its projected operating requirements for at least the next twelve months. 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 the Company pursues additional acquisitions. The Company’s future capital requirements will depend on many factors, including the Company’s efforts to complete the integration of the acquired WiFi and Broadband assets business and NanoSemi, Inc. (Note 3), changes in revenue, the expansion of engineering, sales and marketing activities, the timing and extent of expansion into new territories, the timing of introductions of new products and enhancements to existing products, the continuing market acceptance of the Company’s products and potential material investments in, or acquisitions of, complementary businesses, services or technologies. Additional funds may not be available on terms favorable to the Company or at all. If the Company is unable to raise additional funds when needed, it may not be able to sustain its operations or execute its strategic plans. The Company is not aware of any specific event or circumstance that would require an update to its estimates or adjustments to the carrying value of its assets and liabilities as of April 28, 2021, the issuance date of this Quarterly Report on Form 10-Q. Actual results could differ from those estimates, particularly if the Company experiences material impacts from COVID-19. Summary of Significant Accounting Policies Refer to the Company’s Annual Report for a summary of significant accounting policies. There have been no other significant changes to the Company’s significant accounting policies during the three months ended March 31, 2021. Recently Adopted 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 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 the Company 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 did not have a material impact on the Company’s 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 the Company’s financial position and results of operations as of and 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 the Company 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 the Company’s financial disclosures as of and for the three months ended March 31, 2021, and is also not expected to have a material impact on the Company's financial disclosures for the year ending December 31, 2021. 2. Net Income (Loss) Per Share Basic earnings per share, or EPS, is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted EPS is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period and the weighted-average number of dilutive common stock equivalents outstanding for the period determined using the treasury-stock method. For purposes of this calculation, common stock options, restricted stock units and restricted stock awards are considered to be common stock equivalents and are only included in the calculation of diluted EPS when their effect is dilutive. In periods in which the Company has a net loss, dilutive common stock equivalents are excluded from the calculation of diluted EPS. 11 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The table below presents the computation of basic and diluted EPS: Three Months Ended March 31, 2021 2020 (in thousands, except per share amounts) Numerator: Net income (loss) $ 3,802 $ ( 15,469 ) Denominator: Weighted average common shares outstanding—basic 74,852 72,039 Dilutive common stock equivalents 3,431 — Weighted average common shares outstanding—diluted 78,283 72,039 Net income (loss) per share: Basic $ 0.05 $ ( 0.21 ) Diluted $ 0.05 $ ( 0.21 ) For the three months ended March 31, 2021 and 2020, the Company excluded common stock equivalents for outstanding stock-based awards, which represented potentially dilutive securities of 0.1 million and 3.3 million, respectively, from the calculation of diluted net income (loss) per share due to their anti-dilutive nature. 3. Business Combinations Acquisition of the WiFi and Broadband assets business On July 31, 2020, the Company and certain of its designated subsidiaries completed their acquisition of the Home Gateway Platform Division, which the Company refers to as the Wi-Fi and Broadband assets business, pursuant to an Asset Purchase Agreement with Intel Corporation, or Intel, dated April 5, 2020 (the “Asset Purchase Agreement”), and related agreements. The Company paid cash consideration of $ 150.0 million for the purchase of certain assets of the Wi-Fi and Broadband assets business, and assumed certain liabilities related to specified employment matters. The transaction was funded with a portion of the net proceeds from a secured incremental term loan with an aggregate principal amount of $ 175.0 million (Note 8). The Wi-Fi and Broadband assets business develops a broad portfolio of connected home products, including WiFi, Ethernet and Broadband Gateway Processor SoCs, which enables the Company to strengthen its existing connected home portfolio by bringing together a complete, scalable, and complementary platform of connectivity and access solutions to address its customers’ needs across target end-markets. The acquired assets and assumed liabilities, together with the employees who joined the Company and its subsidiaries as a result of the transaction, represent a business as defined in ASC 805, Business Combinations. The Company is integrating the acquired assets and rehired employees into the Company’s existing business. The Asset Purchase Agreement also contains customary representations, warranties and covenants, including indemnification provisions set forth therein. Pursuant to the Purchase Agreement, Intel has retained, and will be obligated to indemnify MaxLinear for, certain liabilities, including but not limited to those relating to the Home Gateway Platform Division for pre-closing taxes and specified employment matters, and MaxLinear has assumed, and will indemnify Intel for, certain liabilities, including but not limited to those relating to the Home Gateway Platform Division and the Transferred Assets for certain pre-closing and post-closing actions, events and periods (including certain product-related liabilities for products sold prior to the Closing for up to a $ 25.0 million cap), and specified employment matters. 12 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) In connection with the transaction, the Company and Intel have entered into as of the closing certain other ancillary agreements, including (i) an intellectual property matters agreement, pursuant to which Intel will grant to the Company a license to certain intellectual property rights for use by the Company in connection with the acquired assets and the Company will grant back to Intel a license to the intellectual property rights in the acquired assets, (ii) a supply agreement, pursuant to which Intel will manufacture and fabricate certain products for the Company that are part of the acquired assets, (iii) an ethernet network controller services agreement, pursuant to which the Company will provide Intel with certain development services with respect to certain Intel ethernet network controller products, (iv) a transition services agreement, pursuant to which Intel will provide certain services on a transitional basis for up to a 12-month period after the closing, the scope of which includes services relating to real estate and facilities, information technology, and supply chain, procurement, sales operations, and engineering support, and (v) a side letter regarding the delayed transfer of certain inventory. Pursuant to the delayed inventory side letter, the Company has control and economic benefits of the inventory, but the title and possession of the inventory has been delayed until the last day that Intel provides services under the transition services agreement. Acquisition Consideration The following table summarizes the fair value of purchase price consideration to acquire the WiFi and Broadband assets business (in thousands): Description Amount Fair value of purchase consideration: Cash $ 150,000 Purchase Price Allocation The following is an allocation of purchase price as of the July 31, 2020 acquisition closing date based upon an estimate of the fair value of the assets acquired and the liabilities assumed by the Company in the acquisition (in thousands): Description Amount Fair value of consideration transferred: Cash $ 150,000 Purchase price allocation: Inventory $ 67,100 Property and equipment 17,641 Identifiable intangible assets 58,000 Deferred tax assets 457 Accrued expenses ( 68 ) Accrued price protection liability ( 413 ) Accrued compensation ( 7,916 ) Other long-term liabilities ( 8,197 ) Identifiable net assets acquired 126,604 Goodwill 23,396 Total purchase price $ 150,000 13 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The following is a summary of identifiable intangible assets acquired and the related expected lives for the finite-lived intangible assets (in thousands): Category Estimated Life in Years Fair Value Finite-lived intangible assets: Developed technology 7 $ 43,200 Customer-related intangible 5 6,800 Product backlog 0.58 800 50,800 Indefinite-lived intangible assets: IPR&D N/A 7,200 Total identifiable intangible assets acquired $ 58,000 Acquisition of NanoSemi, Inc. On September 9, 2020, the Company completed its acquisition of NanoSemi, Inc. or NanoSemi, pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) with NanoSemi, dated September 9, 2020. The initial closing transaction consideration consisted of $ 10.0 million in cash and 804,163 shares of MaxLinear’s common stock. In addition, the NanoSemi stockholders will receive $ 35.0 million in deferred cash payments payable in 2021, and certain NanoSemi stockholders may also receive up to an additional $ 35.0 million in potential contingent consideration, subject to the acquired business’s satisfying certain financial objectives from July 1, 2020 through December 31, 2022. As of March 31, 2021, the Company has made $ 20 million of $ 35.0 million in deferred cash payments. The stock consideration was issued in reliance on exemptions from the registration requirements of the Securities Act of 1933, as amended. In connection with the acquisition, MaxLinear agreed to provide the NanoSemi stockholders with certain registration rights with respect to the shares of MaxLinear common stock they received in the acquisition. NanoSemi is an industry-leading provider of intellectual property that utilizes patented machine learning techniques to improve signal integrity and power efficiency in systems-on-chip, or SoCs, application-specific integrated circuits, or ASICs, and field-programmable gate arrays, or FPGAs, used in next-generation communication and artificial intelligence systems. Its technology enables higher throughput connections for 5G, Wi-Fi, and WiGig smartphones and base stations while simultaneously reducing energy consumption. Acquisition Consideration The following table summarizes the fair value of purchase price consideration to acquire NanoSemi (in thousands): Description Amount Fair value of purchase consideration: Cash $ 10,000 Common stock issued (1) 17,080 Deferred payments (2) 34,100 Contingent consideration (3) — Total purchase price $ 61,180 _________________ (1) The fair value of common stock issued in the merger is based on 804,163 shares issued on the September 9, 2020 acquisition date at the closing price of the Company’s common stock of $ 21.24 per share. (2) The fair value of the deferred payments was determined by discounting to present value payments totaling $ 35.0 million expected to be made to NanoSemi stockholders throughout 2021. (3) The fair value of contingent consideration is zero as the applicable financial objectives from July 1, 2020 through December 31, 2022 are not expected to be met based on the Company’s forecast. 14 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Preliminary Purchase Price Allocation The following is an allocation of purchase price as of the September 9, 2020 acquisition closing date based upon a preliminary estimate of the fair value of the assets acquired and the liabilities assumed by the Company in the acquisition (in thousands): Description Amount Purchase price allocation: Accounts receivable $ 175 Prepaid expenses and other current assets 879 Property and equipment 177 Leased right-of-use assets 1,805 Identifiable intangible assets 19,900 Accounts payable ( 602 ) Accrued expenses and other current liabilities ( 323 ) Accrued compensation ( 223 ) Long-term lease liabilities ( 1,546 ) Other long-term liabilities ( 164 ) Identifiable net assets acquired 20,078 Goodwill 41,102 Total purchase price $ 61,180 The following is a summary of identifiable intangible assets acquired and the related expected lives for the finite-lived intangible assets (in thousands): Category Estimated Life in Years Fair Value Finite-lived intangible assets: Developed technology 7 $ 17,500 Trademarks and tradenames 7 1,000 Customer-related intangible 5 900 Product backlog 5.33 500 Total identifiable intangible assets acquired $ 19,900 Assumptions in the Allocations of Purchase Price Management prepared the purchase price allocations for the Wi-Fi and Broadband assets business and NanoSemi, and in doing so considered or relied in part upon reports of a third party valuation expert to calculate the fair value of certain acquired assets, which primarily included identifiable intangible assets, inventory, and property and equipment, and the portions of the purchase consideration for NanoSemi expected to be paid to NanoSemi stockholders in the future, as described above. Certain NanoSemi stockholders that are employees are not required to remain employed in order to receive the deferred payments and contingent consideration; accordingly, the fair value of the deferred payments and contingent consideration have been accounted for as a portion of the purchase consideration. Estimates of fair value require management to make significant estimates and assumptions which are preliminary and subject to change upon finalization of the valuation analysis. The goodwill recognized is attributable primarily to the acquired workforce, expected synergies, and other benefits that MaxLinear believes will result from integrating the operations of the Wi-Fi and Broadband assets business and NanoSemi with the operations of MaxLinear. Certain liabilities included in the purchase price allocations are based on management’s best estimates of the amounts to be paid or settled and based on information available at the time the purchase price allocations were prepared. There have been no adjustments between the preliminary purchase price allocations reflected as of December 31, 2020 and March 31, 2021. Updates to the valuations of certain assets acquired and liabilities assumed and our evaluation of certain income tax positions may result in changes to the recorded 15 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) amounts of assets and liabilities, with corresponding adjustments to goodwill amounts in subsequent periods. We expect to complete the purchase price allocations within 12 months of the respective acquisition dates. The fair value of the identified intangible assets acquired from the Wi-Fi and Broadband assets business and NanoSemi was estimated using an income approach. Under the income approach, an intangible asset’s fair value is equal to the present value of future economic benefits to be derived from ownership of the asset. Indications of value are developed by discounting future net cash flows to their present value at market-based rates of return. More specifically, the fair value of the developed technology, IPR&D and backlog assets was determined using the multi-period excess earnings method, or MPEEM. MPEEM is an income approach to fair value measurement attributable to a specific intangible asset being valued from the asset grouping’s overall cash-flow stream. MPEEM isolates the expected future discounted cash-flow stream to its net present value. Significant factors considered in the calculation of the developed technology and IPR&D intangible assets were the risks inherent in the development process, including the likelihood of achieving technological success and market acceptance. Each project was analyzed to determine the unique technological innovations, the existence and reliance on core technology, the existence of any alternative future use or current technological feasibility and the complexity, cost, and time to complete the remaining development. Future cash flows for each project were estimated based on forecasted revenue and costs, taking into account the expected product life cycles, market penetration, and growth rates. Developed technology will begin amortization immediately and IPR&D will begin amortization upon the completion of each project. If any of the projects are abandoned, the Company will be required to impair the related IPR&D asset. In connection with the acquisition of the Wi-Fi and Broadband assets business, the Company has assumed liabilities which primarily consist of accrued employee compensation and benefits in jurisdictions where such transfer is required either by law or by work council agreement. In connection with the acquisition of NanoSemi, the Company assumed certain operating liabilities. The liabilities assumed in these acquisitions are included in the respective purchase price allocations above. Goodwill recorded in connection with the Wi-Fi and Broadband assets business and NanoSemi was $ 23.4 million and $ 41.1 million, respectively. The Company does not expect to deduct any of the acquired goodwill for tax purposes. 4. Restructuring Activity From time to time, the Company approves and implements restructuring plans as a result of internal resource alignment and cost saving measures. Such restructuring plans include terminating employees, vacating certain leased facilities, and cancellation of contracts. The following table presents the activity related to the restructuring plans, which is included in restructuring charges in the consolidated statements of operations: Three Months Ended March 31, 2021 2020 (in thousands) Employee separation expenses $ 1,253 $ 44 Lease related charges 608 275 Other 305 170 $ 2,166 $ 489 Lease related charges for the three months ended March 31, 2021 included the impairment of leased right-of-use assets and leasehold improvements of $ 0.4 million and $ 0.2 million, respectively, related to exiting a redundant facility. 16 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The following table presents a roll-forward of the Company’s restructuring liability for the three months ended March 31, 2021. The restructuring liability is included in accrued expenses and other current liabilities and other long-term liabilities in the consolidated balance sheets. Employee Separation Expenses Lease Related Charges Other Total (in thousands) Liability as of December 31, 2020 $ 3,274 $ 720 $ 3 $ 3,997 Restructuring charges 1,253 608 305 2,166 Cash payments ( 1,659 ) ( 83 ) ( 7 ) ( 1,749 ) Reimbursement from Intel ( 2,337 ) — — ( 2,337 ) Non-cash charges and adjustments — ( 547 ) ( 301 ) ( 848 ) Liability as of March 31, 2021 531 698 — 1,229 Less: current portion as of March 31, 2021 ( 531 ) ( 379 ) — ( 910 ) Long-term portion as of March 31, 2021 $ — $ 319 $ — $ 319 As of March 31, 2021, the remaining lease related charges primarily consist of common area maintenance obligations. The Company does not expect to incur additional material costs related to current restructuring plans. 5. Goodwill and Intangible Assets Goodwill Goodwill arises from the acquisition method of accounting for business combinations and represents the excess of the purchase price over the fair value of the net assets and other identifiable intangible assets acquired. The fair values of net tangible assets and intangible assets acquired are based upon preliminary valuations and the Company’s estimates and assumptions are subject to change within the measurement period (potentially up to one year from the acquisition date). During the three months ended March 31, 2021, there were no changes in the carrying value of goodwill. The Company performs an annual goodwill impairment assessment on October 31st each year, using a quantitative assessment comparing the fair value of each reporting unit, which the Company has determined to be the entity itself, with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recorded. In addition to its annual review, the Company performs a test of impairment when indicators of impairment are present. During the three months ended March 31, 2021 and 2020, there were no indications of impairment of the Company’s goodwill balances. 17 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Acquired Intangibles Finite-lived Intangible Assets The following table sets forth the Company’s finite-lived intangible assets resulting from business acquisitions and other purchases, which are amortized over their estimated useful lives: March 31, 2021 December 31, 2020 Weighted Average Useful Life (in Years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Value Accumulated Amortization Net Carrying Amount (in thousands) Licensed technology 6.1 $ 5,981 $ ( 2,025 ) $ 3,956 $ 4,869 $ ( 2,006 ) $ 2,863 Developed technology 6.9 304,061 ( 156,999 ) 147,062 304,061 ( 146,252 ) 157,809 Trademarks and trade names 6.2 14,800 ( 9,419 ) 5,381 14,800 ( 8,818 ) 5,982 Customer relationships 4.6 128,800 ( 101,247 ) 27,553 128,800 ( 96,047 ) 32,753 Non-compete covenants 3.0 1,100 ( 1,100 ) — 1,100 ( 1,100 ) — Backlog 2.4 1,300 ( 910 ) 390 1,300 ( 641 ) 659 6.2 $ 456,042 $ ( 271,700 ) $ 184,342 $ 454,930 $ ( 254,864 ) $ 200,066 The following table sets forth amortization expense associated with finite-lived intangible assets, which is included in the consolidated statements of operations as follows: Three Months Ended March 31, 2021 2020 (in thousands) Cost of net revenue $ 10,765 $ 8,591 Research and development 1 1 Selling, general and administrative 6,070 5,723 $ 16,836 $ 14,315 Amortization of finite-lived intangible assets in cost of net revenue in the consolidated statements of operations results primarily from acquired developed technology. The following table sets forth the activity related to finite-lived intangible assets: Three Months Ended March 31, 2021 2020 (in thousands) Beginning balance $ 200,066 $ 187,971 Additions 1,112 — Amortization ( 16,836 ) ( 14,315 ) Impairment losses — ( 86 ) Ending balance $ 184,342 $ 173,570 The Company regularly reviews the carrying amount of its long-lived assets subject to depreciation and amortization, as well as the related useful lives, to determine whether indicators of impairment may exist that warrant adjustments to carrying values or estimated useful lives. An impairment loss is 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 is measured based on the excess of the carrying amount of the asset over the asset’s fair value. During the three months ended March 31, 2021 and 2020, the Company recognized impairment losses related to finite-lived intangible assets of $ 0 and $ 0.1 million, respectively. 18 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The following table presents future amortization of the Company’s finite-lived intangible assets at March 31, 2021: Amount (in thousands) 2021 (9 months) $ 49,939 2022 48,973 2023 36,876 2024 20,930 2025 10,832 Thereafter 16,792 Total $ 184,342 Indefinite-lived Intangible Assets Indefinite-lived intangible assets consisted entirely of acquired in-process research and development technology, or IPR&D. There was no activity related to the Company’s indefinite-lived intangible assets during the three months ended March 31, 2021 and 2020. The Company performs its annual assessment of indefinite-lived intangible assets on October 31 each year or more frequently if events or changes in circumstances indicate that the asset might be impaired utilizing a qualitative test as a precursor to the quantitative test comparing the fair value of the assets with their carrying amount. Based on the qualitative test, if it is more likely than not that indicators of impairment exists, the Company proceeds to perform a quantitative analysis. During three months ended March 31, 2021 and 2020, no indicators of impairment were identified and, as a result, no IPR&D impairment losses were recorded. 6. Financial Instruments Financial Instruments Not Recorded at Fair Value on a Recurring Basis The Company currently does not have any financial instruments measured at fair value on a recurring basis. Some of the Company’s financial instruments are recorded at amounts that approximate fair value due to their liquid or short-term nature or by election on investments in privately-held entities (Note 7). Such financial assets and financial liabilities include: cash and cash equivalents, restricted cash, net receivables, investments in privately-held entities, certain other assets, accounts payable, accrued price protection liability, accrued expenses, accrued compensation costs, and other current liabilities. The Company’s long-term debt is not recorded at fair value on a recurring basis, but is measured at fair value for disclosure purposes (Note 8). 7. Balance Sheet Details Cash, cash equivalents and restricted cash consist of the following: March 31, 2021 December 31, 2020 (in thousands) Cash and cash equivalents $ 148,095 $ 148,901 Short-term restricted cash 114 115 Long-term restricted cash 984 1,018 Total cash, cash equivalents and restricted cash $ 149,193 $ 150,034 As of March 31, 2021 and December 31, 2020, cash and cash equivalents included money market funds of approximately $ 20.4 million. As of March 31, 2021 and December 31, 2020, the Company has restricted cash of approximately $ 1.1 million. The cash is restricted in connection with guarantees for certain import duties and office leases. 19 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Inventory consists of the following: March 31, 2021 December 31, 2020 (in thousands) Work-in-process $ 46,901 $ 35,852 Finished goods 45,253 61,987 $ 92,154 $ 97,839 Prepaid and other current assets consist of the following: March 31, 2021 December 31, 2020 (in thousands) Prepaid expenses $ 7,864 $ 7,674 Other receivables 4,472 32,762 Other current assets 4,760 6,985 $ 17,096 $ 47,421 As of March 31, 2021, other receivables of $ 4.5 million consists primarily of amounts due from Intel for reimbursement of certain employee-related costs pursuant to the Asset Purchase Agreement (Note 3). As of December 31, 2020, other receivables of $ 32.8 million consist of amounts due from Intel of $ 28.4 million for amounts collected on the Company’s behalf from customers on sales of the Company’s products under the transition services agreement and of $ 4.4 million for reimbursement of certain severance-related costs pursuant to the Asset Purchase Agreement. Property and equipment, net consists of the following: Useful Life (in Years) March 31, 2021 December 31, 2020 (in thousands) Furniture and fixtures 5 $ 2,519 $ 2,524 Machinery and equipment 3 - 5 54,021 55,456 Masks and production equipment 2 - 5 21,601 19,205 Software 3 7,831 7,194 Leasehold improvements 1 - 5 16,628 16,871 Construction in progress N/A 9,261 8,050 111,861 109,300 Less: accumulated depreciation and amortization ( 71,074 ) ( 69,830 ) $ 40,787 $ 39,470 Depreciation expense for the three months ended March 31, 2021 and 2020 was $ 3.7 million and $ 1.6 million, respectively. 20 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Included in other long-term assets, long-term investments were $ 5.0 million as of March 31, 2021 and consist of an investment in a privately held entity. The Company does not have the ability to exercise significant influence or control over such entity and has accounted for the investment as a financial instrument. Given that there is not a readily determinable fair value, the Company is electing to measure such investment at cost, less any impairment, and adjust the carrying value to fair value if any observable price changes for similar investments in the same entity are identified. Accrued price protection liability consists of the following activity: Three Months Ended March 31, 2021 2020 (in thousands) Beginning balance $ 47,766 $ 12,557 Charged as a reduction of revenue 24,423 1,399 Payments ( 17,160 ) ( 5,932 ) Ending balance $ 55,029 $ 8,024 Accrued expenses and other current liabilities consist of the following: March 31, 2021 December 31, 2020 (in thousands) Deferred purchase price payments $ 14,794 $ 34,484 Payables under transition services agreement 1,662 $ 17,420 Accrued technology license payments 4,950 5,821 Accrued professional fees 5,075 2,620 Accrued engineering and production costs 2,019 3,448 Accrued restructuring 910 3,628 Accrued royalty 1,779 1,965 Short-term lease liabilities 9,456 8,144 Accrued customer credits 809 1,135 Income tax liability 4,855 1,193 Customer contract liabilities 1,818 29 Accrued obligations to customers for price adjustments 19,291 10,277 Accrued obligations to customers for stock rotation rights 2,601 2,036 Other 7,736 13,642 $ 77,755 $ 105,842 As of March 31, 2021, payables under transition services agreement of $ 1.7 million primarily consists of amounts due to Intel for expenses incurred under the transition services agreement (Note 3). As of December 31, 2020, payables under transition services agreement of $ 17.4 million consist of amounts due to Intel of approximately $ 9.1 million for purchases of inventory and $ 8.3 million for other operating expenses incurred under the transition services agreement. The following table summarizes the change in balances of accumulated other comprehensive income (loss) by component: Cumulative Translation Adjustments Pension and Other Defined Benefit Plan Obligation Total (in thousands) Balance at December 31, 2020 $ 263 $ 1,172 $ 1,435 Other comprehensive income (loss) before reclassifications, net of tax ( 989 ) — ( 989 ) Balance at March 31, 2021 $ ( 726 ) $ 1,172 $ 446 21 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 8. Debt and Interest Rate Swap Debt The carrying amount of the Company’s long-term debt consists of the following: March 31, 2021 December 31, 2020 (in thousands) Principal balance: Initial term loan $ 212,000 $ 212,000 Incremental term loan 137,812 157,812 Total principal balance 349,812 369,812 Less: Unamortized debt discount ( 1,615 ) ( 1,767 ) Unamortized debt issuance costs ( 4,081 ) ( 4,453 ) Net carrying amount of long-term debt 344,116 363,592 Less: current portion of long-term debt — — Long-term debt, non-current portion $ 344,116 $ 363,592 As of March 31, 2021 and December 31, 2020, the weighted average effective interest rate on aggregate debt was approximately 3.7 % and 4.4 %, respectively. During each of the three months ended March 31, 2021 and 2020, the Company recognized total amortization of debt discount and debt issuance costs of $ 0.5 million and $ 0.3 million, respectively, to interest expense. The approximate aggregate fair value of the term loans as of March 31, 2021 and December 31, 2020 was $ 351.8 million and $ 376.1 million, respectively, which was estimated on the basis of inputs that are observable in the market and which is considered a Level 2 measurement method in the fair value hierarchy. As of March 31, 2021, aggregate future payments of principal are as follows: Amount (in thousands) 2021 (9 months) $ — 2022 6,562 2023 131,250 2024 212,000 2025 — Total principal payments due 349,812 Less: current portion — Long-term debt principal, non-current portion $ 349,812 Initial Term Loan On May 12, 2017, the Company entered into a credit agreement with certain lenders and a collateral agent in connection with the acquisition of Exar Corporation. The credit agreement provided for an initial secured term B loan facility, or the “Initial Term Loan,” in an aggregate principal amount of $ 425.0 million. The credit agreement permits the Company to request incremental loans in an aggregate principal amount not to exceed the sum of $ 160.0 million (subject to adjustments for any voluntary prepayments), plus an unlimited amount that is subject to pro forma compliance with certain secured leverage ratio and total leverage ratio tests. Incremental loans are subject to certain additional conditions, including obtaining additional commitments from the lenders then party to the credit agreement or new lenders. 22 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Loans under the Initial Term Loan bear interest, at the Company’s option, at a rate equal to either (i) a base rate equal to the highest of (x) the federal funds rate, plus 0.50% , (y) the prime rate then in effect and (z) an adjusted LIBOR rate determined on the basis of a one- three- or six-month interest period, plus 1.0% or (ii) an adjusted LIBOR rate, subject to a floor of 0.75% , in each case, plus an applicable margin of 2.50 % in the case of LIBOR rate loans and 1.50 % in the case of base rate loans. Commencing on September 30, 2017, the Initial Term Loan amortizes in equal quarterly installments equal to 0.25 % of the original principal amount of the Initial Term Loan, with the balance payable on the maturity date. The Initial Term Loan has a term of seven years and will mature on May 12, 2024, at which time all outstanding principal and accrued and unpaid interest on the Initial Term Loan is due. The Company is also required to pay fees customary for a credit facility of this size and type. The Company is required to make mandatory prepayments of the outstanding principal amount of term loans under the credit agreement with the net cash proceeds from the disposition of certain assets and the receipt of insurance proceeds upon certain casualty and condemnation events, in each case, to the extent not reinvested within a specified time period, from excess cash flow beyond stated threshold amounts, and from the incurrence of certain indebtedness. The Company has the right to prepay its term loans under the credit agreement, in whole or in part, at any time without premium or penalty, subject to certain limitations and a 1.0% soft call premium applicable during the first six months of the loan term. The Company exercised its right to prepay and made aggregate prepayments of principal of $ 213.0 million from origination of the Initial Term Loan through March 31, 2021. The Company’s obligations under the credit agreement are required to be guaranteed by certain of its domestic subsidiaries meeting materiality thresholds set forth in the credit agreement. Such obligations, including the guaranties, are secured by substantially all of the assets of the Company and the subsidiary guarantors pursuant to a security agreement with the collateral agent. The credit agreement contains customary affirmative and negative covenants, including covenants limiting the ability of the Company and its restricted subsidiaries to, among other things, incur debt, grant liens, undergo certain fundamental changes, make investments, make certain restricted payments, and sell assets, in each case, subject to limitations and exceptions. As of March 31, 2021, the Company was in compliance with such covenants. The credit agreement also contains customary events of default that include, among other things, certain payment defaults, cross defaults to other indebtedness, covenant defaults, change in control defaults, judgment defaults, and bankruptcy and insolvency defaults. If an event of default exists, the lenders may require immediate payment of all obligations under the credit agreement, and may exercise certain other rights and remedies provided for under the credit agreement, the other loan documents and applicable law. The debt is carried at its principal amount, net of unamortized debt discount and issuance costs, and is not adjusted to fair value each period. The issuance date fair value of the liability component of the debt in the amount of $ 398.5 million was determined using a discounted cash flow analysis, in which the projected interest and principal payments were discounted back to the issuance date of the term loan at a market interest rate for nonconvertible debt of 4.6 %, which represents a Level 3 fair value measurement. The debt discount of $ 2.1 million and debt issuance costs of $ 6.0 million are being amortized to interest expense using the effective interest method from the issuance date through the contractual maturity date of the term loan of May 12, 2024. Incremental Term Loan In connection with the acquisition of the Wi-Fi and Broadband assets business, on July 31, 2020, the Company entered into an incremental term loan agreement with certain lenders that amends the credit agreement, dated as of May 12, 2017 and provides for a secured incremental term loan facility in an aggregate principal amount of $ 175.0 million (the “Incremental Term Loan”). The Incremental Term Loan bears interest, at the Company’s option, at an Adjusted LIBOR plus a fixed applicable margin of 4.25 % per annum or an Adjusted Base Rate plus a fixed applicable margin of 3.25 % per annum. The Incremental Term Loan is subject to a financial covenant of an initial maximum total net leverage ratio of 3.5 to 1 which decreases to 3.0 to 1 beginning with the sixth full fiscal quarter ending after July 31, 2020. During any period during which the Company (i) fails to maintain a public corporate rating from S&P that is equal to or higher than BB- and a public corporate rating from Moody's that is equal to or higher than Ba3 or (ii) fails to maintain a total leverage ratio of 3.0 to 1 or less, the applicable margin will increase to 4.75% in the case of LIBOR Rate loans and 3.75% in the case of Base Rate loans. As of March 31, 2021, the Company was in compliance with such covenants. Commencing on July 31, 2020, the Incremental Term Loan amortizes in quarterly installments of principal equal to (i) 1.25 % of the original aggregate principal amount of the Incremental Term Loan on the last day of each of the first through 23 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) fourth full fiscal quarters of the Company after July 31, 2020, (ii) 2.50 % of the original aggregate principal amount of the Incremental Term Loan on the last day of each of the fifth through eighth full fiscal quarters of the Company after July 31, 2020, and (iii) 3.75 % of the original aggregate principal amount of the Incremental Term Loan on the last day of each of the ninth through the eleventh full fiscal quarters of the Company after July 31, 2020. The Incremental Term Loan has a term of three years and will mature on July 31, 2023, at which time all outstanding principal and accrued and unpaid interest on the Incremental Term Loan is due. The Company is also required to pay fees customary for a credit facility of this size and type. The Company has made aggregate payments of principal of $ 37.2 million to date through March 31, 2021. The debt is carried at its principal amount, net of unamortized debt discount and issuance costs, and is not adjusted to fair value each period. The issuance date fair value of the liability component of the debt in the amount of $ 181.1 million was determined using a discounted cash flow analysis, in which the projected interest and principal payments were discounted back to the issuance date of the term loan at a market interest rate for nonconvertible debt of 3.2 %, which represents a Level 3 fair value measurement. The debt discount of $ 0.9 million and debt issuance costs of $ 1.8 million are being amortized to interest expense using the effective interest method from the issuance date through the contractual maturity date of the term loan of July 31, 2023. Interest Rate Swap In November 2017, the Company entered into a fixed-for-floating interest rate swap with an amortizing notional amount to swap a substantial portion of variable rate LIBOR interest payments under its initial term loan for fixed interest payments bearing an interest rate of 1.74685 % through the expiration of the swap in October 2020. The Company's outstanding initial term loan is still subject to a 2.5 % fixed applicable margin during the term of the loan. The interest rate swap was designated as a cash flow hedge of a portion of floating rate interest payments on the initial term loan and effectively fixed the interest rate on a substantial portion of the Company’s long-term debt at approximately 4.25 % until the expiration of the swap in October 2020. Accordingly, the Company applied cash flow hedge accounting to the interest rate swap and it was recorded at fair value as an asset or liability and the effective portion of changes in the fair value of the interest rate swap, as measured quarterly, were reported in other comprehensive income (loss) until expiration of the swap. The decrease in fair value related to the interest rate swap liability included in other comprehensive income (loss) for the three months ended March 31, 2020 was $ 0.2 million. 9. Stock-Based Compensation Employee Stock-Based Compensation Plans At March 31, 2021, the Company had stock-based compensation awards outstanding under the following plans: the 2010 Equity Incentive Plan, as amended, or 2010 Plan, and the 2010 Employee Stock Purchase Plan, or ESPP. Refer to the Company’s Annual Report for a summary of its stock-based compensation and equity plans as of December 31, 2020. There have been no material changes to the terms of the Company’s equity incentive plans during the three months ended March 31, 2021. As of March 31, 2021, the number of shares of common stock available for future issuance under the 2010 Plan was 16,575,503 shares. As of March 31, 2021, the number of shares of common stock available for future issuance under the ESPP was 4,297,394 shares. Employee Incentive Bonus The Company settles a majority of bonus awards for its employees, including executives, in shares of common stock under the 2010 Equity Incentive Plan. When bonus awards are settled in common stock issued under the 2010 Equity Incentive Plan, the number of shares issuable to plan participants is determined based on the closing price of the Company’s common stock as determined in trading on the New York Stock Exchange on a date approved by the Board of Directors. In connection with the Company’s bonus programs, in February 2021, the Company issued 0.5 million freely-tradable shares of the Company’s common stock in settlement of bonus awards to employees, including executives, for the 2020 performance period. At March 31, 2021, the Company has an accrual of $ 7.2 million for bonus awards for employees for year-to-date achievement in the 2021 performance period. The Company’s compensation committee retains discretion to effect payment in cash, stock, or a combination of cash and stock. 24 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Stock-Based Compensation The Company recognizes stock-based compensation in the consolidated statements of operations, based on the department to which the related employee reports, as follows: Three Months Ended March 31, 2021 2020 (in thousands) Cost of net revenue $ 169 $ 148 Research and development 7,162 3,746 Selling, general and administrative 5,624 2,933 $ 12,955 $ 6,827 The total unrecognized compensation cost related to unvested restricted stock units and restricted stock awards as of March 31, 2021 was $ 72.0 million, and the weighted average period over which these equity awards are expected to vest is 2.68 years. The total unrecognized compensation cost related to unvested performance-based restricted stock units as of March 31, 2021 was $ 9.4 million, and the weighted average period over which these equity awards are expected to vest is 1.40 years. The total unrecognized compensation cost related to unvested stock options as of March 31, 2021 was $ 0.9 million, and the weighted average period over which these equity awards are expected to vest is 1.26 years. Restricted Stock Units A summary of the Company’s restricted stock unit activity is as follows: Number of Shares (in thousands) Weighted-Average Grant-Date Fair Value per Share Outstanding at December 31, 2020 5,832 $ 20.05 Granted 722 39.27 Vested ( 722 ) 36.12 Canceled ( 139 ) 21.34 Outstanding at March 31, 2021 5,693 $ 20.42 Performance-Based Restricted Stock Units Performance-based restricted stock units are eligible to vest at the end of each fiscal year in a three-year performance period based on the Company’s annual growth rate in net sales and non-GAAP diluted earnings per share (subject to certain adjustments) over baseline results relative to the growth rates for a peer group of companies for the same metrics and periods. For the performance-based restricted stock units granted to date, 60 % of each performance-based award is subject to the net sales metric for the performance period and 40 % is subject to the non-GAAP diluted earnings per share metric for the performance period. The maximum percentage for a particular metric is 250 % of the target number of units subject to the award related to that metric, however, vesting of the performance stock units is capped at 30 % and 100 %, respectively, of the target number of units subject to the award in years one and two, respectively, of the three-year performance period. As of March 31, 2021, the Company believes that it is probable that it will achieve certain performance metrics specified in the respective award agreements based on its expected revenue and non-GAAP diluted EPS results over the performance periods and calculated growth rates relative to its peers’ expected results based on data available, as defined in the respective award agreements. A summary of the Company’s performance-based restricted stock unit activity is as follows: Number of Shares (in thousands) Weighted-Average Grant-Date Fair Value per Share Outstanding at December 31, 2020 1,722 $ 13.97 Vested ( 281 ) 16.74 Outstanding at March 31, 2021 1,441 $ 13.54 25 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Employee Stock Purchase Rights and Stock Options Employee Stock Purchase Rights During the three months ended March 31, 2021 and 2020, there were no shares of common stock purchased under the ESPP. The fair values of employee stock purchase rights were estimated using the Black-Scholes option pricing model at their respective grant date using the following assumptions: Three Months Ended March 31, 2021 2020 Weighted-average grant date fair value per share $ 8.66 $ 5.48 Risk-free interest rate 0.12 % 1.59 % Dividend yield — % — % Expected life (in years) 0.50 0.50 Volatility 59.72 % 43.14 % The risk-free interest rate assumption was based on rates for United States (U.S.) Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. The expected term is the duration of the offering period for each grant date. In addition, the estimated volatility incorporates the historical volatility over the expected term based on the Company’s daily closing stock prices. Stock Options A summary of the Company’s stock options activity is as follows: Number of Options (in thousands) Weighted-Average Exercise Price Weighted-Average Contractual Term (in years) Aggregate Intrinsic Value (in thousands) Outstanding at December 31, 2020 797 $ 14.67 Exercised ( 96 ) 13.56 Canceled — — Outstanding at March 31, 2021 701 $ 14.82 2.75 $ 13,509 Vested and expected to vest at March 31, 2021 701 $ 14.82 2.75 $ 13,509 Exercisable at March 31, 2021 589 $ 14.13 2.44 $ 11,758 No stock options were granted by the Company during the three months ended March 31, 2021. The intrinsic value of stock options exercised was $ 2.3 million and $ 0.3 million in the three months ended March 31, 2021 and 2020, respectively. Cash received from exercise of stock options was $ 1.3 million and $ 0.5 million during the three months ended March 31, 2021 and 2020, respectively. The tax benefit from stock options exercised was $ 2.7 million and $ 0.3 million during the three months ended March 31, 2021 and 2020, respectively. 10. Income Taxes The provision for income taxes primarily relates to projected federal, state, and foreign income taxes. To determine the quarterly provision for income taxes, the Company uses an estimated annual effective tax rate, which is generally based on expected annual income and statutory tax rates in the various jurisdictions in which the Company operates. In addition, the tax effects of certain significant or unusual items are recognized discretely in the quarter during which they occur and can be a source of variability in the effective tax rates from quarter to quarter. 26 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The Company utilizes the asset and liability method of accounting for income taxes, under which deferred taxes are determined based on temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the temporary differences reverse. The Company records a valuation allowance to reduce its deferred taxes to the amount it believes is more likely than not to be realized. In making such determination, the Company considers all available positive and negative evidence quarterly, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance. Forming a conclusion that a valuation allowance is not required is difficult when there is negative evidence such as cumulative losses in recent years. Based upon the Company’s review of all positive and negative evidence, the Company continues to have a valuation allowance on its state deferred tax assets, certain of its federal deferred tax assets, and certain foreign deferred tax assets in jurisdictions where the Company has cumulative losses or otherwise is not expected to utilize certain tax attributes. The Company does not incur expense or benefit in certain tax free jurisdictions in which it operates. The Company recorded an income tax provision of $ 1.8 million in the three months ended March 31, 2021 and an income tax benefit of $ 6.7 million in the three months ended March 31, 2020. The income tax provision in the three months ended March 31, 2021 and 2020, each primarily related to the mix of pre-tax income among jurisdictions, permanent tax items including the global minimum tax and stock based compensation, excess tax benefits related to stock-based compensation, and release of certain reserves for uncertain tax positions under ASC 740-10. Income tax positions must meet a more-likely-than-not threshold to be recognized. Income tax positions that previously failed to meet the more-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold are derecognized in the first financial reporting period in which that threshold is no longer met. The Company records potential penalties and interest accrued related to unrecognized tax benefits within the consolidated statements of operations as income tax expense. During the three months ended March 31, 2021, the Company’s unrecognized tax benefits increased by $ 0.3 million. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months. Accrued interest and penalties associated with uncertain tax positions as of March 31, 2021 were approximately $ 0.5 million and $ 0.04 million, respectively. The Company is subject to federal and state income tax in the United States and is also subject to income tax in certain other foreign tax jurisdictions. At March 31, 2021, the statutes of limitations for the assessment of federal, state, and foreign income taxes are closed for the years before 2017, 2016, and 2015, respectively. The Company’s subsidiary in Singapore operates under certain tax incentives in Singapore, which are generally effective through March 2022 and may be extended through March 2027, and are conditional upon meeting certain employment and investment thresholds in Singapore. Under the incentives, qualifying income derived from certain sales of the Company’s integrated circuits is taxed at a concessionary rate over the incentive period, and there are reduced Singapore withholding taxes on certain intercompany royalties during the incentive period. Primarily because of the Company’s Singapore net operating losses and a full valuation allowance in Singapore, the incentives did not have a material impact on the Company’s income tax provision in the three months ended March 31, 2021 and 2020. 11. Concentration of Credit Risk, Significant Customers and Geographic Information Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents and accounts receivable. Collateral is generally not required for customer receivables. The Company limits its exposure to credit loss by placing its cash with high credit quality financial institutions. At times, such deposits may be in excess of insured limits. The Company has not experienced any losses on its deposits of cash and cash equivalents. Significant Customers The Company markets its products and services to manufacturers of a wide range of electronic devices (Note 1). The Company sells its products both directly to customers and through third-party distributors, both of which are referred to as the Company’s customers (Note 12). The Company makes periodic evaluations of the credit worthiness of its customers. 27 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Customers comprising greater than 10% of net revenues for each of the periods presented are as follows: Three Months Ended March 31, 2021 2020 Percentage of total net revenue Customer A (direct) 15 % 10 % Customer B (direct) 12 % * Customer C (distributor) 11 % * Customer D (distributor) * 18 % ____________________________ * Represents less than 10% of total net revenue for the respective period. The following table presents balances that are 10% or greater of accounts receivable, based on the Company’s billings to its customers. March 31, December 31, 2021 2020 Percentage of gross accounts receivable Customer C (distributor) 11 % 13 % Customer E (direct) 10 % * Customer B (direct) * 17 % ____________________________ * Represents less than 10% of the gross accounts receivable as of the respective period end. Significant Suppliers Suppliers comprising greater than 10% of total inventory purchases are as follows: Three Months Ended March 31, 2021 2020 Vendor A 45 % * Vendor B 20 % 16 % Vendor C 11 % 17 % Vendor D * 18 % Vendor E * 19 % * Represents less than 10% of the inventory purchases for the respective period. Geographic Information The Company’s consolidated net revenues by geographic area based on ship-to location are as follows (in thousands): Three Months Ended March 31, 2021 2020 Amount % of total net revenue Amount % of total net revenue Asia $ 171,160 82 % $ 52,035 84 % United States 10,300 5 % 1,616 3 % Rest of world 27,899 13 % 8,376 13 % Total $ 209,359 100 % $ 62,027 100 % 28 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The products shipped to individual countries or territories representing greater than 10% of net revenue for each of the periods presented are as follows: Three Months Ended March 31, 2021 2020 Percentage of total net revenue Hong Kong 37 % 50 % China 14 % * Vietnam 12 % * ____________________________ * Represents less than 10% of total revenue for the respective period. The determination of which country a particular sale is allocated to is based on the destination of the product shipment. No other individual country accounted for more than 10% of net revenue during these periods. Although a large percentage of the Company’s products is shipped to Asia, and in particular, Hong Kong, China and Vietnam, the Company believes that a significant number of the systems designed by customers and incorporating the Company’s semiconductor products are subsequently sold outside Asia to Europe, Middle East, and Africa, or EMEA markets and North American markets. Long-lived assets, which consists of property and equipment, net, leased right-of-use assets, intangible assets, net, and goodwill by geographic area are as follows (in thousands): March 31, December 31, 2021 2020 Amount % of total Amount % of total United States $ 391,038 70 % $ 403,071 72 % Singapore 131,723 23 % 136,967 24 % Rest of world 36,799 7 % 31,412 5 % Total $ 559,560 100 % $ 571,450 100 % 12. Revenue from Contracts with Customers Revenue by Market The table below presents disaggregated net revenues by market (in thousands): Three Months Ended March 31, 2021 2020 (1) Broadband $ 124,190 $ 26,638 % of net revenue 59 % 43 % Connectivity 27,449 5,616 % of net revenue 13 % 9 % Infrastructure 28,792 17,542 % of net revenue 14 % 28 % Industrial and multi-market 28,928 12,231 % of net revenue 14 % 20 % Total net revenue $ 209,359 $ 62,027 _______________ (1) The Company’s net revenue by market categories were revised during the fourth quarter of 2020 to align with changing end-market conditions, the Company’s current business priorities, as well as spending requirements and growth opportunities in the 29 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) four categories. The broadband category includes the Company’s 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. The Company’s connectivity category includes primarily its MoCA/G.hn products and Wi-Fi and Ethernet revenues from the Wi-Fi and Broadband assets business. The 2020 amounts were adjusted to reflect the change in market categories. Revenues from sales through the Company’s distributors accounted for 44 % and 61 % of net revenue for the three months ended March 31, 2021 and 2020, respectively. Contract Liabilities As of March 31, 2021, customer contract liabilities consisted of advanced payments received for which performance obligations have not been completed and estimates of obligations to deliver rebates to customers in the form of units of products and were approximately $ 1.8 million. As of December 31, 2020, customer contract liabilities consisted of estimates of obligations to deliver rebates to customers in the form of units of products and were approximately $ 0.03 million. Revenue recognized in each of the three months ended March 31, 2021 and 2020 that was included in the contract liability balance as of the beginning of each of those respective periods was immaterial. There were no material changes in the contract liabilities balance during the three months ended March 31, 2021 and 2020. Obligations to Customers for Price Adjustments and Returns and Assets for Right-of-Returns As of March 31, 2021 and December 31, 2020, obligations to customers consisting of estimates of price protection rights offered to the Company’s end customers totaled $ 55.0 million and $ 47.8 million, respectively, and are included in accrued price protection liability in the consolidated balance sheets. For activity in this account, including amounts included in net revenue, refer to Note 7. Other obligations to customers representing estimates of price adjustments to be claimed by distributors upon sell-through of their inventory to their end customer and estimates of stock rotation returns to be claimed by distributors on products sold as of March 31, 2021 were $ 19.3 million and $ 2.6 million, respectively, and as of December 31, 2020 were $ 10.3 million and $ 2.0 million, respectively, and are included in accrued expenses and other current liabilities in the consolidated balance sheets (Note 7). The increase in revenue in the three months ended March 31, 2021 and 2020 from net changes in transaction prices for amounts included in obligations to customers for price adjustments as of the beginning of those respective periods was not material. As of March 31, 2021 and December 31, 2020, right of return assets under customer contracts representing the estimates of product inventory the Company expects to receive from customers in stock rotation returns were approximately $ 1.0 million and $ 0.6 million, respectively. Right of return assets are included in inventory in the consolidated balance sheets. As of March 31, 2021 and December 31, 2020, there were no impairment losses recorded on customer accounts receivable. 13. Leases Operating Leases Operating lease arrangements primarily consist of office leases expiring in various years through 2028. These leases have original terms of approximately 2 to 7 years and some contain options to extend the lease up to 5 years or terminate the lease, which are included in right-of-use assets and lease liabilities when the Company is reasonably certain it will renew the underlying leases. Since the implicit rate of such leases is unknown and the Company is not reasonably certain to renew its leases, the Company has elected to apply a collateralized incremental borrowing rate to facility leases on the original lease term in calculating the present value of future lease payments. As of March 31, 2021 and December 31, 2020, the weighted average discount rate for operating leases was 3.9 % and 4.0 %, respectively, and the weighted average remaining lease term for operating leases was 4.6 years as of the end of each of these periods. 30 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The table below presents aggregate future minimum payments due under leases, reconciled to total lease liabilities included in the consolidated balance sheet as of March 31, 2021: Operating Leases (in thousands) 2021 (9 months) $ 7,741 2022 8,744 2023 5,152 2024 4,013 2025 3,910 Thereafter 4,949 Total minimum payments 34,509 Less: imputed interest ( 2,759 ) Less: unrealized translation loss 125 Total lease liabilities 31,875 Less: short-term lease liabilities ( 9,456 ) Long-term lease liabilities $ 22,419 Operating lease cost was $ 2.5 million and $ 0.9 million for the three months ended March 31, 2021 and 2020, respectively. Short-term lease costs for the three months ended March 31, 2021 and 2020 were not material. There were $ 5.2 million right-of-use assets obtained in exchange for new lease liabilities for the three months ended March 31, 2021. There were no right-of-use assets obtained in exchange for new lease liabilities for the three months ended March 31, 2020. Subleases The Company has subleased a facility that it ceased using in connection with a restructuring plan (Note 4). Such sublease expires in 2021, and future minimum rental income under the sublease is $ 0.04 million. Total sublease income related to leased facilities the Company ceased using in connection with a restructuring plan for the three months ended March 31, 2021 and 2020 was approximately $ 0.04 million and $ 0.2 million, respectively (Note 4). 14. Employee Defined Benefit Retirement Plans Pension and Other Defined Benefit Retirement Obligations In connection with the July 31, 2020 acquisition of the Wi-Fi and Broadband assets business (Note 3), the Company assumed an obligation of $ 7.9 million of the Wi-Fi and Broadband assets business associated with certain defined benefit retirement plans, including a pension plan. As of March 31, 2021 and December 31, 2020, the defined benefit obligation was $ 6.2 million and $ 6.4 million, respectively. The benefit is based on a formula applied to eligible employee earnings. Net periodic benefit costs were $ 0.1 million for the three months ended March 31, 2021 and were recorded to research and development expenses in the consolidated statements of operations. 31 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 15. Commitments and Contingencies Inventory Purchase and Other Contractual Obligations As of March 31, 2021, future minimum payments under inventory purchase and other obligations are as follows: Inventory Purchase Obligations Other Obligations Total 2021 (9 months) $ 142,784 $ 15,143 $ 157,927 2022 662 18,640 19,302 2023 — 10,121 10,121 2024 — 447 447 Total minimum payments $ 143,446 $ 44,351 $ 187,797 Other obligations consist of deferred payments related to the NanoSemi merger (Note 3) and contractual payments due for software licenses. Our inventory purchase obligations and other obligations increased by $ 66.1 million to $ 187.8 million as of March 31, 2021, from $ 121.7 million as of December 31, 2020 primarily as a result of increased orders of software licenses and inventory placed with our vendors during the period (Note 3). Other Matters From time to time, the Company is subject to threats of litigation or actual litigation in the ordinary course of business, some of which may be material. The Company believes that there are no currently pending litigation matters that, if determined adversely to the Company’s interests, would have a material effect on the Company’s financial position, results of operations, or cash flows or that would not be covered by the Company’s existing liability insurance. 16. Stock Repurchases On February 23, 2021, the Company’s board of directors authorized a plan to repurchase up to $ 100 million of the Company’s 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 the Company to make any repurchases and may be modified, suspended, or terminated by the Company at any time without prior notice. During the three months ended March 31, 2021, the Company repurchased 75,000 shares of its common stock at a weighted average price of $ 35.6157 per share, an aggregate value of approximately $ 2.7 million, under the repurchase program. At March 31, 2021, the aggregate value of common stock repurchased under the program was approximately $ 2.7 million and approximately $ 97.3 million remained available for repurchase under the program.