What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-10-27 compared with 2021-07-28 · 108 added, 114 removed, 275 unchanged (45% of the section changed)

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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 six months ended June 30, 2021, revenues were $414.7 million.

In the six months ended June 30, 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 Wi-Fi and Broadband assets business.

In the nine months ended September 30, 2021, revenues were $644.5 million.

In the nine months ended September 30, 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 Wi-Fi 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 83% of net revenue during the three months ended June 30, 2021 and 2020, respectively, including 44% from products shipped to Hong Kong and 14% from products shipped to Vietnam during the three months ended June 30, 2021 and 42% from products shipped to Hong Kong and 11% from products shipped to mainland China during the three months ended June 30, 2020.

Products shipped to Asia accounted for 82% and 83% of net revenue during the six months ended June 30, 2021 and 2020, respectively, including 40% from products shipped to Hong Kong, 11% from products shipped to mainland China, and 13% from products shipped to Vietnam during the six months ended June 30, 2021 and 46% from products shipped to Hong Kong and 10% from products shipped to mainland China during the six months ended June 30, 2020.

Products shipped to Asia accounted for 83% and 82% of net revenue during the three months ended September 30, 2021 and 2020, respectively, including 40% from products shipped to Hong Kong, 12% from products shipped to mainland China, and 11% from products shipped to Vietnam during the three months ended September 30, 2021 and 44% from products shipped to Hong Kong and 21% from products shipped to mainland China during the three months ended September 30, 2020.

Products shipped to Asia accounted for 83% and 82% of net revenue during the nine months ended September 30, 2021 and 2020, respectively, including 40% from products shipped to Hong Kong, 12% from products shipped to Vietnam, and 11% from products shipped to mainland China during the nine months ended September 30, 2021 and 45% from products shipped to Hong Kong and 16% from products shipped to mainland China during the nine months ended September 30, 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 six months ended June 30, 2021 and 2020 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 nine months ended September 30, 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 June 30, 2021, our top two customers accounted for 26% of our net revenue, and our ten largest customers collectively accounted for 68% of our net revenue, of which distributor customers accounted for 27% of our net revenue.

In the six months ended June 30, 2021, our top two customers accounted for 27% of our net revenue, and our ten largest customers collectively accounted for 70% of our net revenue, of which distributor customers accounted for 28% of our net revenue.

In the three months ended September 30, 2021, our top two customers accounted for 27% of our net revenue, and our ten largest customers collectively accounted for 69% of our net revenue, of which distributor customers accounted for 26% of our net revenue.

In the nine months ended September 30, 2021, our top two customers accounted for 26% of our net revenue, and our ten largest customers collectively accounted for 69% of our net revenue, of which distributor customers accounted for 27% of our net revenue.

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

Our business depends on winning competitive bid selection processes, known as design wins, to develop semiconductors for use in our customers’ products.

Our business depends on winning competitive bid selection processes, known as design wins, to develop integrated circuits for use in our customers’ products.

These selection processes are typically lengthy, and as a result, our sales cycles will vary based on the specific market served, whether the design win is with an existing or a new customer and whether our product being designed in our customer’s device is a first generation or subsequent generation product.

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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 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.

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 June 30, 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.

As of September 30, 2021, much of our workforce has received COVID-19 vaccinations and subsequently, most of our employees have returned to the office at full or reduced capacity adhering to local health authority guidelines in the jurisdictions in which we operate.

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.

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

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

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

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

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

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

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

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

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

Acquisition of Home Gateway Platform Division of Intel Corporation

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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 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.

In addition, the NanoSemi stockholders received $35 million in deferred cash payments 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 16 of our unaudited consolidated financial statements.

Recent Developments

On June 23, 2021, the Company entered into a Credit Agreement (the “June 23, 2021 Credit Agreement”), by and among the Company, the lenders from time to time party thereto, and Wells Fargo Bank, National Association, as administrative agent and collateral agent, that provides for a senior secured term B loan facility, or the “Initial Term Loan under the June 23, 2021 Credit Agreement,” in an aggregate principal amount of $350.0 million and a senior secured revolving credit facility, or the “Revolving Facility,” in an aggregate principal amount of up to $100.0 million.

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The remaining proceeds of the Initial Term Loan under the June 23, 2021 Credit Agreement are available for general corporate purposes and the proceeds of the Revolving Facility may be used to finance the working capital needs and other general corporate purposes of the Company and its subsidiaries.

As of June 30, 2021, the Revolving Facility was undrawn.

As of September 30, 2021, the Revolving Facility was undrawn.

In connection with the settlement of the indebtedness under the May 12, 2017 Credit Agreement, the Company recognized an aggregate loss on debt extinguishment of $5.2 million consisting of unamortized debt issuance costs and discounts.

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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 six months ended June 30, 2021.

There have been no material changes to our critical accounting policies and estimates during the nine months ended September 30, 2021.

Recently Adopted Accounting Pronouncements

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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 our consolidated financial position and results of operations as of and for the six months ended June 30, 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.

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 nine months ended September 30, 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.

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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 six months ended June 30, 2021, and is also not expected to have a material impact on our financial disclosures for the year ending December 31, 2021.

The adoption of the amendments in this update did not have a material impact on our financial disclosures as of and for the nine months ended September 30, 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;

inventory fair value adjustments;

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 June 30, Six Months Ended June 30,

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

2021 2020 2021 2020

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Total other income (expense), net (1) (3) (3) (3)

Loss before income taxes (4) (38) — (37)

Income tax benefit (4) (5) (1) (8)

Income (loss) before income taxes 9 (25) 3 (30)

Income tax provision (benefit) 5 (1) 1 (4)

Net income (loss) 4 % (23) % 2 % (26) %

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

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

2021 2020 $ Change % Change 2021 2020 (1)

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_______________

(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.

(1) Our net revenues by market categories were revised in the fourth quarter of 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.

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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 $140.2 million to $205.4 million for the three months ended June 30, 2021, as compared to $65.2 million for the three months ended June 30, 2020.

The increase in broadband net revenue of $90.3 million was primarily the result of the 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 front-end and tuner shipments.

The increase in connectivity revenue of $24.7 million was primarily driven by the 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 $15.0 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 $10.1 million was primarily driven by an increase in wireless backhaul shipments and, to a lesser extent increased shipments of wireless access and high performance analog products in this category.

Net revenue increased $287.5 million to $414.7 million for the six months ended June 30, 2021, as compared to $127.2 million for the six months ended June 30, 2020.

The increase in broadband net revenue of $187.8 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 front-end shipments.

The 2020 amounts have been retroactively adjusted above to reflect the change in market categories.

Net revenue increased $73.1 million to $229.8 million for the three months ended September 30, 2021, as compared to $156.6 million for the three months ended September 30, 2020.

The increase in broadband net revenue of $44.1 million was primarily the result of the 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 tuner and satellite shipments.

The increase in connectivity revenue of $13.8 million was primarily driven by the contribution of Wi-Fi and ethernet revenues attributable to our Wi-Fi and Broadband assets business acquisition and an increase in MoCA and G.hn product shipments.

The increase in infrastructure revenues of $7.7 million was primarily driven by an increase in high-performance analog and wireless access product shipments and, to a lesser extent, increased shipments of G.hn and MoCA last-mile Access products in this category.

The increase in industrial and multi-market revenue of $7.6 million was related to increased shipments of high-performance analog products as well as component products attributable to our Wi-Fi and Broadband assets business acquisition.

Net revenue increased $360.6 million to $644.5 million for the nine months ended September 30, 2021, as compared to $283.9 million for the nine months ended September 30, 2020.

The increase in broadband net revenue of $231.9 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 front-end and tuner shipments.

The increase in connectivity revenue of $60.4 million was primarily driven by a partial-year contribution of Wi-Fi and ethernet revenues attributable to our Wi-Fi and Broadband assets business acquisition, further supplemented by an increase in MoCA and G.hn product shipments.

The increase in industrial and multi-market revenue of $39.3 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 $21.4 million was primarily driven by an increase in wireless backhaul deployments and increased shipments of high performance analog products in this category.

The increase in infrastructure revenues of $29.1 million was primarily driven by an increase in shipments of high-performance analog, wireless backhaul and wireless access deployments and to a lesser extent, increased MoCA and G.hn last-mile Access product shipments in this category.

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

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Cost of Net Revenue and Gross Profit

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

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

2021 2020 $ Change % Change 2021 2020 $ Change % Change

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% of net revenue 56 % 42 % 55 % 46 %

Cost of net revenue increased $60.4 million to $92.8 million for the three months ended June 30, 2021, as compared to $32.5 million for the three months ended June 30, 2020.

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

Gross profit percentage improved for the three months ended June 30, 2021, as compared to the three months ended June 30, 2020, due primarily to improved absorption of amortization of intangible costs.

Cost of net revenue increased $126.7 million to $190.5 million for the six months ended June 30, 2021, as compared to $63.7 million for the six months ended June 30, 2020.

Cost of net revenue increased $9.6 million to $100.0 million for the three months ended September 30, 2021, as compared to $90.4 million for the three months ended September 30, 2020.

The increase was primarily driven by higher sales and incremental expenses, primarily driven by our acquisition of the Wi-Fi and Broadband assets business on July 31, 2020, partially offset by a reduction in acquisition-related amortization of inventory fair value adjustments.

Gross profit percentage improved for the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, due primarily to a reduction in acquisition-related amortization of inventory fair value adjustments and improved absorption of amortization of intangible costs.

Cost of net revenue increased $136.3 million to $290.5 million for the nine months ended September 30, 2021, as compared to $154.2 million for the nine months ended September 30, 2020.

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

Gross profit percentage improved for the six months ended June 30, 2021, as compared to the six months ended June 30, 2020, due primarily to improved absorption of amortization of intangible costs.

Gross profit percentage improved for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, due primarily to a reduction in acquisition-related amortization of inventory fair value adjustments and 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.

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Research and Development

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

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

2021 2020 $ Change % Change 2021 2020 $ Change % Change

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% of net revenue 29 % 36 % 32 % 39 %

Research and development expense increased $46.4 million to $74.4 million for the three months ended June 30, 2021 from $28.0 million in the three months ended June 30, 2020.

Research and development expense increased $11.7 million to $67.5 million for the three months ended September 30, 2021 from $55.8 million in the three months ended September 30, 2020.

The increase was primarily due to our business acquisitions of the Wi-Fi 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 $29.4 million, of which $8.4 million is from performance-based bonus accruals and stock-based compensation expense, prototype expense of $5.5 million, outside services of $7.9 million which primarily includes consulting and computer aided design and engineering fees, depreciation expense of $1.7 million, and occupancy expenses of $1.4 million.

Research and development expense increased $83.9 million to $137.6 million for the six months ended June 30, 2021 from $53.7 million in the six months ended June 30, 2020.

There were increases in personnel-related expense of $7.4 million, of which $2.1 million is from performance-based bonus accruals and stock-based compensation expense, outside services of $2.4 million which primarily includes computer aided design expense, occupancy expenses of $1.1 million, and depreciation expense of $0.8 million.

Research and development expense increased $95.6 million to $205.1 million for the nine months ended September 30, 2021 from $109.5 million in the nine months ended September 30, 2020.

The increase was primarily due to our 2020 business acquisitions, 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 $55.2 million, of which $14.7 million is from performance-based bonus accruals and stock-based compensation expense, outside services of $15.3 million which primarily includes acquisition transition service costs, consulting and computer aided design and engineering fees, prototype expense of $6.6 million, depreciation expense of $3.3 million, and occupancy expenses of $2.7 million.

There were increases in personnel-related expense of $62.6 million, of which $16.8 million is from performance-based bonus accruals and stock-based compensation expense, outside services of $17.7 million which primarily includes consulting and computer aided design expense of $7.9 million and consulting expense of $7.8 million, prototype expense of $6.4 million, depreciation expense of $4.1 million, occupancy expenses of $3.8 million and miscellaneous small tools and equipment expenses totaling $0.9 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 June 30, Six Months Ended June 30,

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

2021 2020 $ Change % Change 2021 2020 $ Change % Change

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% of net revenue 17 % 27 % 17 % 33 %

Selling, general and administrative expense increased $8.4 million to $35.9 million for the three months ended June 30, 2021, as compared to $27.5 million for the three months ended June 30, 2020.

The increase was primarily due to our 2020 business acquisitions 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 $6.6 million, including $1.8 million from performance-based bonus accruals and stock-based compensation expenses, outside services of $1.8 million, occupancy expenses of $0.8 million, and depreciation expense of $0.7 million.

These increases were partially offset by a decrease in professional fees of $1.9 million related to 2020 acquisitions.

Selling, general and administrative expense increased $20.3 million to $72.4 million for the six months ended June 30, 2021, as compared to $52.1 million for the six months ended June 30, 2020.

The increase was primarily due to our 2020 business acquisitions, 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 $14.5 million, including $5.3 million from performance-based bonus accruals and stock-based compensation expenses, outside services of $3.6 million primarily consisting of acquisition transition service costs and consulting fees, occupancy expenses of $1.7 million, depreciation expense of $0.8 million, supplies and small tools expense of $0.7 million and amortization of intangibles of $0.6 million.

These increases were partially offset by a decrease in professional fees of $1.8 million related to 2020 acquisitions.

Selling, general and administrative expense decreased $3.2 million to $38.5 million for the three months ended September 30, 2021, as compared to $41.7 million for the three months ended September 30, 2020.

The decrease was primarily due to impacts from our 2020 business acquisitions, including a decrease in acquisition transaction and integration expenses of $7.6 million, partially offset by increases in personnel-related expense of $3.2 million due to incremental headcount, occupancy expense of $0.4 million, and other professional fees of $0.4 million.

Selling, general and administrative expense increased $17.0 million to $110.8 million for the nine months ended September 30, 2021, as compared to $93.8 million for the nine months ended September 30, 2020.

The increase was primarily due impacts from our 2020 business acquisitions, 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 $17.8 million, including $6.2 million from performance-based bonus accruals and stock-based compensation expenses, outside services of $3.9 million primarily consisting of acquisition transition service costs and consulting fees, occupancy expenses of $2.1 million, small tools expense of $0.8 million, and depreciation expense of $0.7 million.

These increases were partially offset by a decrease in acquisition transaction and integration expenses of $9.0 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 June 30, Six Months Ended June 30,

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

2021 2020 $ Change % Change 2021 2020 $ Change % Change

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% of net revenue — % — % — % — %

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

Impairment losses in the nine months ended September 30, 2020 related to abandonment of a license of intellectual property.

Restructuring Charges

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

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

2021 2020 $ Change % Change 2021 2020 $ Change % Change

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% of net revenue — % 2 % — % 1 %

Restructuring charges decreased $0.03 million to $0.04 million for the three months ended June 30, 2021, compared to $0.06 million for the three months ended June 30, 2020.

Restructuring charges for the three months ended June 30, 2021 primarily consisted of $0.02 million in employee severance-related charges.

Restructuring charges in the three months ended June 30, 2020 primarily consisted of employee separation expenses of approximately $0.05 million.

Restructuring charges increased $1.7 million to $2.2 million for the six months ended June 30, 2021, compared to $0.6 million for the six months ended June 30, 2020.

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

Restructuring charges decreased $3.3 million to $0 for the three months ended September 30, 2021, compared to $3.3 million for the three months ended September 30, 2020.

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 decreased $1.6 million to $2.2 million for the nine months ended September 30, 2021, compared to $3.8 million for the nine months ended September 30, 2020.

Restructuring charges for the nine months ended September 30, 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 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.

Loss on Extinguishment of Debt

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

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

2021 2020 $ Change % Change 2021 2020 $ Change % Change

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% of net revenue — % — % (1) % — %

Loss on extinguishment of debt in the 2021 periods consists of the charge-off of remaining unamortized debt discount and issuance costs on debt we repaid early with proceeds from a new term loan in June 2021.

Loss on extinguishment of debt in the nine months ended September 30, 2021 consists of the charge-off of remaining unamortized debt discount and issuance costs on debt we repaid early with proceeds from a new term loan in June 2021.

Interest and Other Income (Expense )

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

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

2021 2020 $ Change % Change 2021 2020 $ Change % Change

2 unchanged sentences

% of net revenue (1) % (3) % (2) % (3) %

Interest and other income (expense), net changed by $2.0 million from a net expense of $2.2 million in the three months ended June 30, 2020 to a net expense of $4.3 million for the three months ended June 30, 2021.

The change in interest and other income (expense), net was primarily due to the impact of a $1.6 million increase in interest expense on outstanding debt, mostly related to incremental term loan debt under the May 12, 2017 Credit Agreement which was primarily used to fund our

acquisition of the Wi-Fi and Broadband assets business in July 2020.

The remaining change included a $0.5 million change in other income (expense), net, from income of $0.08 million in the 2020 period to expense of $0.5 million primarily related to foreign currency fluctuations.

Interest and other income (expense), net changed by $4.3 million from a net expense of $4.3 million in the six months ended June 30, 2020 to a net expense of $8.6 million for the six months ended June 30, 2021.

The change in interest and other income (expense), net was primarily due to the impact of a $3.3 million increase in interest expense on outstanding debt, mostly related to an incremental term loan debt under the credit agreement dated May 12, 2017, as amended, which was primarily used to fund our acquisition of the Wi-Fi and Broadband assets business in July 2020.

The remaining change included a $0.7 million change in other income (expense), net, from income of $0.1 million in the 2020 period to expense of $0.6 million primarily related to foreign currency fluctuations.

Income Tax Benefit

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

Interest and other income (expense), net changed by $1.5 million from a net expense of $4.3 million in the three months ended September 30, 2020 to a net expense of $2.7 million for the three months ended September 30, 2021.

The change in

interest and other income (expense), net was primarily due to the impact of a $0.9 million decrease in interest expense on outstanding debt, mostly related to a lower average balance of term loan debt outstanding.

The remaining change included a $0.6 million decrease in other income (expense), net, from income of $0.7 million in the 2020 period to expense of $0.1 million primarily related to foreign currency fluctuations.

Interest and other income (expense), net changed by $2.7 million from a net expense of $8.6 million in the nine months ended September 30, 2020 to a net expense of $11.3 million for the nine months ended September 30, 2021.

The change in interest and other income (expense), net was primarily due to the impact of a $2.4 million increase in interest expense on outstanding debt, mostly related to a higher average balance of term loan debt outstanding.

Income Tax Provision (Benefit)

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

2021 2020 $ Change % Change 2021 2020 $ Change % Change

(dollars in thousands) (dollars in thousands)

Income tax benefit $ (8,010) $ (3,201) $ (4,809) 150 % $ (6,204) $ (9,937) $ 3,733 (38) %

The income tax benefit for the three months ended June 30, 2021 was $8.0 million compared to an income tax benefit of $3.2 million for the three months ended June 30, 2020.

The income tax benefit for the six months ended June 30, 2021 was $6.2 million compared to an income tax benefit of $9.9 million for the six months ended June 30, 2020.

The income tax benefit for the six months ended June 30, 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 uncertain tax positions under ASC 740-10.

Income tax provision (benefit) $ 11,802 $ (2,191) $ 13,993 (639) % $ 5,598 $ (12,128) $ 17,726 (146) %

The income tax provision for the three months ended September 30, 2021 was $11.8 million compared to an income tax benefit of $2.2 million for the three months ended September 30, 2020.

The income tax provision for the nine months ended September 30, 2021 was $5.6 million compared to an income tax benefit of $12.1 million for the nine months ended September 30, 2020.

The difference between our effective tax rate and the 21.0% U.S.

federal statutory rate for the three and nine months ended September 30, 2021, respectively, resulted primarily from foreign earnings taxed at rates other than the federal statutory rate, a tax on global intangible low-taxed income (“GILTI”), non-deductible foreign stock-based compensation, partially offset by a benefit related to release of uncertain tax positions under ASC 740-10.

The difference between our effective tax rate and the 21.0% U.S.

federal statutory rate for the three and nine months ended September 30, 2020, respectively, resulted primarily from foreign earnings taxed at rates other than the federal statutory rate, a benefit related to release of uncertain tax positions under ASC 740-10, and excess tax benefits related to stock-based compensation.

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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Liquidity and Capital Resources

As of June 30, 2021, we had cash and cash equivalents of $130.3 million, restricted cash of $1.1 million and net accounts receivable of $135.3 million.

Additionally, as of June 30, 2021, our working capital was $166.3 million.

As of September 30, 2021, we had cash and cash equivalents of $169.4 million, restricted cash of $1.1 million and net accounts receivable of $106.9 million.

Additionally, as of September 30, 2021, our working capital was $187.0 million.

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

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

In June 2021, the Company used a portion of funds from a new senior secured term B loan facility or the "Initial Term Loan under the June 23, 2021 Credit Agreement," in an aggregate principal amount of $350.0 million to repay in full all outstanding indebtedness under the May 12, 2017 Credit Agreement and related fees and expenses incurred.

In June 2021, the Company used a portion of funds from a

new senior secured term B loan facility or the “Initial Term Loan under the June 23, 2021 Credit Agreement,” in an aggregate principal amount of $350.0 million to repay in full all outstanding indebtedness under the May 12, 2017 Credit Agreement and related fees and expenses incurred.

The remaining proceeds of the Initial Term Loan under the June 23, 2021 Credit Agreement are available for general corporate purposes.

The Company also entered into a senior secured revolving credit facility, in an aggregate principal amount of up to $100.0 million which remained undrawn as of June 30, 2021.

The Company also entered into a senior secured revolving credit facility, in an aggregate principal amount of up to $100.0 million which remained undrawn as of September 30, 2021.

The proceeds of the revolving facility may be used to finance the working capital needs and other general corporate purposes of the Company and its subsidiaries.

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 an $175.0 million incremental term loan, which we repaid in full in June 2021.

In September 2020, we paid $10 million in cash to acquire NanoSemi and as of June 30, 2021, the NanoSemi stockholders have received $27.5 million of $35 million in deferred cash payments payable in 2021.

In September 2020, we paid $10.0 million in cash to acquire NanoSemi and in the nine months ended September 30, 2021, we paid an aggregate of $35.0 million in additional cash payments to stockholders of NanoSemi, which were previously deferred.

Commencing on September 30, 2021, the Initial Term Loan under the June 23, 2021 Credit Agreement will amortize in equal quarterly installments equal to 0.25% of the original principal amount of the Initial Term Loan under the June 23, 2021 Credit Agreement, with the balance payable on June 23, 2028.

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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.

Our future capital requirements will depend on many factors, including 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, stock-based compensation, and impairment of leased right-of-use assets and related leasehold improvements.

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 and leased right-of-use assets and property and equipment, inventory fair value adjustments, stock-based compensation, loss on extinguishment of debt 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.

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

June 30, December 31,

September 30, December 31,

(in thousands)

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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:

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

Net cash provided by operating activities $ 68,123 $ 15,908

Net cash provided by (used in) operating activities $ 152,200 $ (676)

Net cash used in investing activities (73,550) (170,520)

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Effect of exchange rate changes on cash, cash equivalents and restricted cash (1,233) 139

Increase (decrease) in cash, cash equivalents and restricted cash $ (18,600) $ 14,312

Increase in cash, cash equivalents and restricted cash $ 20,520 $ 3,625

Cash Flows from Operating Activities

Net cash provided by operating activities was $68.1 million for the six months ended June 30, 2021.

Net cash provided by operating activities consisted of positive impact of net income of $4.5 million and non-cash items of $80.0 million, offset by the negative impact of $6.3 million in changes in operating assets and liabilities and excess tax benefits and deferred income taxes totaling $10.1 million.

Non-cash items included in net income for the six months ended June 30, 2021 primarily consisted of depreciation and amortization of property, equipment, acquired intangible assets and leased right-of-use assets of $44.3 million, stock-based compensation of $26.9 million, loss on extinguishment of debt of $5.2 million, and amortization of debt issuance costs and discounts of $2.1 million.

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

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

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

Net cash provided by operating activities was $152.2 million for the nine months ended September 30, 2021.

Net cash provided by operating activities consisted of positive impact of net income of $13.8 million, non-cash items of $119.8 million, and changes in operating assets and liabilities of $22.6 million, partially offset by excess tax benefits and deferred income taxes totaling $4.0 million.

Non-cash items included in net income for the nine months ended September 30, 2021 primarily consisted of depreciation and amortization of property, equipment, acquired intangible assets and leased right-of-use assets of $67.4 million, stock-based compensation of $42.9 million, loss on extinguishment of debt of $5.2 million, and amortization of debt issuance costs and discounts of $2.6 million.

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

Net cash used in operating activities consisted of the 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 inventory fair value adjustments of $14.4 million.

Cash Flows from Investing Activities

Net cash used in investing activities was $50.9 million for the six months ended June 30, 2021 and consisted of $27.5 million in payments of purchase price that were previously deferred from our 2020 acquisition of NanoSemi, $17.3 million in purchases of property and equipment, $5.0 million in purchases of long-term investments, and $1.1 million in purchases of intangible assets.

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

Net cash used in investing activities was $73.6 million for the nine months ended September 30, 2021 and consisted of $35.0 million in payments of purchase price that were previously deferred from our 2020 acquisition of NanoSemi, $26.9 million in purchases of property and equipment, $6.6 million in purchases of intangible assets, and $5.0 million in purchases of long-term investments in a private entity.

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 $10.0 million in initial cash for NanoSemi, and $10.1 million in purchases of property and equipment.

Cash Flows from Financing Activities

Net cash used in financing activities was $35.1 million for the six months ended June 30, 2021.

Net cash used in financing activities was $56.9 million for the nine months ended September 30, 2021.

Net cash used in financing activities consisted primarily of $389.8 million in repayments of debt, $11.1 million in minimum tax withholding paid on behalf of employees for restricted stock units, $8.1 million in common stock repurchases, $4.1 million in debt issuance costs, partially offset by cash inflows from net proceeds from the issuance of debt of $350.0 million and from issuance of common stock upon exercise of stock options of $6.3 million.

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

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

We believe that our $130.3 million of cash and cash equivalents at June 30, 2021 will be sufficient to fund our projected operating requirements for at least the next twelve months.

As of June 30, 2021, our indebtedness totaled $350.0 million, which consists of outstanding principal under the Initial Term Loan under the June 23, 2021 Credit Agreement.

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 into 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.

We believe that our $169.4 million of cash and cash equivalents at September 30, 2021 will be sufficient to fund our projected operating requirements for at least the next twelve months.

As of September 30, 2021, our indebtedness totaled $330.0 million, which consists of outstanding principal under the Initial Term Loan under the June 23, 2021 Credit Agreement.

The June 23, 2021 Credit Agreement also provides the Company with the Revolving Facility in an aggregate principal amount of up to $100.0 million.

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The Company is required to pay commitment fees ranging from 0.175% to 0.25% per annum on the daily undrawn commitments under the Revolving Facility, depending on the Company’s secured net leverage ratio as of the most recently ended fiscal quarter.

Commencing on September 30, 2021, the Initial Term Loan under the June 23, 2021 Credit Agreement will amortize in equal quarterly installments equal to 0.25% of the original principal amount, with the balance payable at maturity on June 23, 2028.

Commencing on September 30, 2021, the Initial Term Loan under the June 23, 2021 Credit Agreement amortizes in equal quarterly installments equal to 0.25% of the original principal amount, with the balance payable at maturity on June 23, 2028.

The June 23, 2021 Credit Agreement contains customary provisions specifying alternative interest rate calculations to be employed at such time as LIBOR ceases to be available as a benchmark for establishing the interest rate on floating interest rate borrowings.

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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 June 30, 2021, we were not involved in any unconsolidated SPE transactions.

As of September 30, 2021, we were not involved in any unconsolidated SPE transactions.

Contractual Obligations

As of June 30, 2021, future minimum payments under long-term debt, non-cancelable operating leases, inventory purchase obligations and other obligations were as follows:

As of September 30, 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

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Other obligations consist of contractual payments due for software licenses.

Our consolidated balance sheet at June 30, 2021 included $5.7 million in other long-term liabilities for uncertain tax positions, some of which may result in cash payment.

Our consolidated balance sheet at September 30, 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 $56.0 million to $578.2 million as of June 30, 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.

Our contractual obligations including long-term debt, leases, inventory purchase obligations and other obligations, increased by $35.0 million to $557.2 million as of September 30, 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 supply 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