What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-07-27 compared with 2022-04-27 · 140 added, 95 removed, 189 unchanged (55% of the section changed)

6 unchanged sentences

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

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

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

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

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

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

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

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

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

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

Wi-Fi and wireline routers for home networking;

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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 three months ended March 31, 2022, revenues were $263.9 million derived 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.

In the six months ended June 30, 2022, revenues of $543.9 million were derived 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.

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 80% and 82% of net revenue during the three months ended March 31, 2022 and 2021, respectively, including 38% from products shipped to Hong Kong, 11% from products shipped to mainland China, and 13% from products shipped to Vietnam during the three months ended March 31, 2022 and 37% from products shipped to Hong Kong, 14% from products shipped to mainland China, and 12% from products shipped to Vietnam during the three months ended March 31, 2021.

Products shipped to Asia accounted for 81% and 82% of net revenue during the three months ended June 30, 2022 and 2021, respectively, including 40% from products shipped to Hong Kong and 22% from products shipped to mainland China during the three months ended June 30, 2022 and 44% from products shipped to Hong Kong and 14% from products shipped to Vietnam during the three months ended June 30, 2021.

Products shipped to Asia accounted for 81% and 82% of net revenue during the six months ended June 30, 2022 and 2021, respectively, including 39% from products shipped to Hong Kong and 17% from products shipped to mainland China during the six months ended June 30, 2022 and 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.

Although a large percentage of our products is shipped to Asia, we believe that a significant number of the systems designed by these customers and incorporating our semiconductor products are then sold outside Asia.

For example, revenue generated from sales of our products during the three months ended March 31, 2022 and 2021 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 six months ended June 30, 2022 and 2021 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 March 31, 2022, our top three customers accounted for 37% of our net revenue, and our ten largest customers collectively accounted for 71% of our net revenue, of which distributor customers accounted for 32% of our net revenue.

In the three months ended June 30, 2022, our top two customers accounted for 29% of our net revenue, and our ten largest customers collectively accounted for 71% of our net revenue, of which distributor customers accounted for 29% of our net revenue.

In the six months ended June 30, 2022, our top two customers accounted for 28% of our net revenue, and our ten largest customers collectively accounted for 71% of our net revenue, of which distributor customers accounted for 30% of our net revenue.

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

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

Recent Developments

Silicon Motion Merger

On May 5, 2022, we entered into an agreement and plan of merger, or the Merger Agreement, with Silicon Motion Technology Corporation, or Silicon Motion, an exempted company with limited liability incorporated under the Law of the Cayman Islands, pursuant to which, subject to the terms and conditions thereof, we agreed to acquire Silicon Motion pursuant to a statutory merger of Shark Merger Sub, a wholly-owned subsidiary of MaxLinear, with and into Silicon Motion, with Silicon Motion surviving the merger as a wholly-owned subsidiary of MaxLinear.

Silicon Motion is a provider of NAND flash controllers for solid state drives and other solid state storage devices.

Under the terms of the Merger Agreement, the transaction consideration will consist of $93.54 in cash and 0.388 shares of our stock for each Silicon Motion American Depositary Share, or ADS, and $23.385 in cash and 0.097 shares of our common stock for each Silicon Motion ordinary share not represented by an ADS.

Upon closing of the transaction, our current stockholders will own approximately 86% of the combined company and former Silicon Motion securityholders will own approximately 14% of the combined company.

Based on the closing price of our common shares on May 4, 2022, the implied value of the total transaction consideration for Silicon Motion is approximately $4.3 billion.

We may fund up to $3.5 billion of cash consideration with cash on hand and fully committed debt financing from Wells Fargo Bank, N.A., or Wells Fargo Bank, and other lenders as described below.

We will also assume Silicon Motion’s vested and unvested employee stock-based compensation awards.

The merger is not subject to any financing conditions but is pending satisfaction of customary closing conditions, including Silicon Motion shareholders’ approval and regulatory approval in the People’s Republic of China, or China.

On June 27, 2022, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, or HSR, waiting period expired with respect to the pending merger.

On July 13, 2022, the Form S-4 was declared effective by the SEC.

On June 17, 2022, we entered into an amended and restated commitment letter with Wells Fargo Bank and other lenders pursuant to which, subject to the terms and conditions set forth therein, the lenders have committed to provide (i) a senior secured term B loan facility in an aggregate principal amount of up to $2.7375 billion (ii) a senior secured term A loan facility in an aggregate principal amount of up to $512.5 million and (iii) a senior secured revolving credit facility in an aggregate principal amount of up to $250.0 million, which we collectively refer to as the Senior Secured Credit Facilities.

The funding of the Senior Secured Credit Facilities is contingent on the satisfaction of customary conditions, including (i) the execution and delivery of definitive documentation with respect to credit facilities in accordance with the terms in the amended and restated commitment letter, and (ii) the consummation of the acquisition by us of Silicon Motion in accordance with the Merger Agreement.

A portion of the proceeds from the Senior Secured Credit Facilities will be used to repay existing debt in full.

Critical Accounting Policies and Estimates

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

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, 2021, which we filed with the Securities and Exchange

Commission, or SEC, on February 2, 2022, or our Annual Report.

There have been no material changes to our critical accounting policies and estimates during the three months ended March 31, 2022.

There have been no material changes to our critical accounting policies and estimates during the six months ended June 30, 2022.

Recently Issued Accounting Pronouncements

In October 2021, the FASB issued ASU No.

2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilties from Contracts with Customers , to provide specific guidance to eliminate diversity in practice on how to recognize and measure acquired contract assets and contract liabilities from revenue contracts from customers in a business combination consistent with revenue contracts with customers not acquired in an acquisition.

The amendments in this update provide that the acquirer should consider the terms of the acquired contracts, such as timing of payment, identify each performance obligation in the contracts, and allocate the total transaction price to each identified performance obligation on a relative standalone selling price basis as of contract inception (that is, the date the acquiree entered into the contracts) or contract modification to determine what should be recorded at the acquisition date.

These amendments are effective for us beginning with fiscal year 2023.

The impact of the adoption of the amendments in this update will depend on the magnitude of any customer contracts assumed in a business combination in 2023 and beyond.

See Note 1 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for recently issued accounting pronouncements not yet adopted as of the date of this report.

Results of Operations

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Research and Development.

Research and development expense includes personnel-related expenses, including stock-based compensation, new product engineering mask costs, prototype integrated circuit packaging and test costs, computer-aided design software license costs, intellectual property license costs, reference design development costs, development testing and evaluation costs, depreciation expense and allocated occupancy costs.

Research and development expense includes personnel-related expenses, including salaries and benefits, stock-based compensation, new product engineering mask costs, prototype integrated circuit packaging and test costs, computer-aided design software license costs, intellectual property license costs, reference design development costs, development testing and evaluation costs, depreciation expense and allocated occupancy costs.

Research and development activities include the design of new products, refinement of existing products and design of test methodologies to ensure compliance with required specifications.

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Selling, General and Administrative.

Selling, general and administrative expense includes personnel-related expenses, including stock-based compensation, amortization of certain acquired intangible assets, merger, acquisition and integration costs, third-party sales commissions, field application engineering support, travel costs, professional and consulting fees, legal fees, depreciation expense and allocated occupancy costs.

Selling, general and administrative expense includes personnel-related expenses, including salaries and benefits, stock-based compensation, amortization of certain acquired intangible assets, merger, acquisition and integration costs, third-party sales commissions, field application engineering support, travel costs, professional and consulting fees, legal fees, depreciation expense and allocated occupancy costs.

Restructuring Charges .

Restructuring charges consist of severance, lease and leasehold impairment charges, and other charges related to restructuring plans.

Loss on Extinguishment of Debt.

Loss on extinguishment of debt consists of the charge-off of remaining unamortized debt discount and issuance cost on debt we repaid early with a majority of the proceeds from a new term loan.

Interest and Other Income (Expense), Net.

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Other income (expense) generally consists of income (expense) generated from non-operating transactions and unrealized holding gains (losses) from certain investments required to be marked to market value.

Income Tax Provision.

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 income data as a percentage of net revenue for the periods indicated:

Three Months Ended March 31,

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

2022 2021 2022 2021

Net revenue 100 % 100 % 100 % 100 %

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Interest expense (1) (2) (1) (2)

Loss on extinguishment of debt — (3) — (1)

Other income (expense), net 3 — — —

Total other income (expense), net 2 (5) — (3)

Income before income taxes 17 3

Income tax provision 4 1

Income (loss) before income taxes 16 (4) 16 —

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

Net income 11 % — % 12 % 1 %

Three Months Ended March 31,

2022 2021 $ Change % Change

(dollars in thousands)

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

2022 2021 $ Change % Change 2022 2021 $ Change % Change

(dollars in thousands) (dollars in thousands)

Broadband $ 139,098 $ 112,765 $ 26,333 23 % $ 273,654 $ 236,955 $ 36,699 15 %

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Total net revenue $ 280,009 $ 205,376 $ 74,633 36 % $ 543,936 $ 414,735 $ 129,201 31 %

Net revenue increased $54.6 million to $263.9 million for the three months ended March 31, 2022, as compared to $209.4 million for the three months ended March 31, 2021, due to improvement in supply and market strength attributed to the work-from-home environment.

The increase in broadband net revenue of $10.4 million was primarily from gateway revenues and, to a lesser extent, improvements in satellite and tuner shipments.

Net revenue increased $74.6 million to $280.0 million for the three months ended June 30, 2022, as compared to $205.4 million for the three months ended June 30, 2021, due to improvement in supply and market strength attributed to the work-from-home environment.

The increase in broadband net revenue of $26.3 million was primarily from gateway revenues.

The increase in connectivity revenue of $25.1 million was primarily driven by higher Wi-Fi and ethernet revenues as our supply improved and an increase in MoCA product shipments.

The increase in infrastructure revenues of $4.4 million was primarily driven by an increase in 5G wireless access product shipments and, to a lesser extent, increased shipments of wireless backhaul, high-performance analog, and G.hn and MoCA last-mile access products in this category.

The increase in infrastructure revenues of $6.5 million was primarily driven by increased shipments of high-performance analog, MoCA last-mile access, and wireless access products in this category.

The increase in industrial and multi-market revenue of $16.7 million was related to increased shipments of component and high-performance analog products.

Net revenue increased $129.2 million to $543.9 million for the six months ended June 30, 2022, as compared to $414.7 million for the six months ended June 30, 2021, due to improvement in supply and market strength attributed to the work-from-home environment.

The increase in broadband net revenue of $36.7 million was primarily from gateway revenues and, to a lesser extent, improvements in satellite shipments.

The increase in connectivity revenue of $57.8 million was primarily driven by higher Wi-Fi and ethernet revenues as our supply improved and an increase in MoCA product shipments.

The increase in infrastructure revenues of $10.9 million was primarily driven by an increase in 5G wireless access and high-performance analog product shipments.

The increase in industrial and multi-market revenue of $23.8 million was related to increased shipments of component and high-performance analog products.

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 March 31,

2022 2021 $ Change % Change

(dollars in thousands)

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

2022 2021 $ Change % Change 2022 2021 $ Change % Change

(dollars in thousands) (dollars in thousands)

Cost of net revenue $ 115,658 $ 92,833 $ 22,825 25 % $ 224,995 190,473 34,522 18 %

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% of net revenue 59 % 55 % 59 % 54 %

Cost of net revenue increased $11.7 million to $109.3 million for the three months ended March 31, 2022, as compared to $97.6 million for the three months ended March 31, 2021.

Cost of net revenue increased $22.8 million to $115.7 million for the three months ended June 30, 2022, as compared to $92.8 million for the three months ended June 30, 2021.

The increase was primarily driven by higher sales and incremental expenses.

Gross profit percentage improved for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, due primarily to improved absorption of amortization of intangible assets.

Gross profit percentage improved for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, due primarily to revenue mix and improved absorption of amortization of intangible assets.

Cost of net revenue increased $34.5 million to $225.0 million for the six months ended June 30, 2022, as compared to $190.5 million for the six months ended June 30, 2021.

The increase was primarily driven by higher sales and incremental expenses.

Gross profit percentage improved for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, due primarily to revenue mix and improved absorption of amortization of intangible assets.

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 March 31,

2022 2021 $ Change % Change

(dollars in thousands)

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

2022 2021 $ Change % Change 2022 2021 $ Change % Change

(dollars in thousands) (dollars in thousands)

Research and development $ 80,395 $ 74,416 $ 5,979 8 % $ 146,281 $ 137,582 $ 8,699 6 %

% of net revenue 29 % 36 % 27 % 33 %

Research and development expense increased $2.7 million to $65.9 million for the three months ended March 31, 2022 from $63.2 million in the three months ended March 31, 2021.There were increases in computer aided design expense of $0.9 million, equipment and tools expense of $0.8 million, and occupancy expense of $0.4 million.

Research and development expense increased $6.0 million to $80.4 million for the three months ended June 30, 2022 from $74.4 million in the three months ended June 30, 2021.

The increase was primarily driven by increased headcount.

Research and development expense increased $8.7 million to $146.3 million for the six months ended June 30, 2022 from $137.6 million in the six months ended June 30, 2021.

The increase was primarily driven by increased headcount.

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 March 31,

2022 2021 $ Change % Change

(dollars in thousands)

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

2022 2021 $ Change % Change 2022 2021 $ Change % Change

(dollars in thousands) (dollars in thousands)

Selling, general and administrative $ 44,487 $ 35,885 $ 8,602 24 % $ 85,064 $ 72,354 $ 12,710 18 %

% of net revenue 16 % 17 % 16 % 17 %

Selling, general and administrative expense increased $4.1 million to $40.6 million for the three months ended March 31, 2022, as compared to $36.5 million for the three months ended March 31, 2021.

The increase was primarily due to increases in headcount.

There were increases in personnel expense of $4.6 million, including $3.3 million from performance-based bonus accruals and stock-based compensation.

Selling, general and administrative expense increased $8.6 million to $44.5 million for the three months ended June 30, 2022, as compared to $35.9 million for the three months ended June 30, 2021.

The increase was primarily due to merger costs of approximately $6.4 million, as well as increased headcount.

Selling, general and administrative expense increased $12.7 million to $85.1 million for the six months ended June 30, 2022, as compared to $72.4 million for the six months ended June 30, 2021.

The increase was primarily due to increased headcount as well as increased acquisition and integration costs of $4.8 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.

Restructuring Charges

Three Months Ended March 31,

2022 2021 $ Change % Change

(dollars in thousands)

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

2022 2021 $ Change % Change 2022 2021 $ Change % Change

(dollars in thousands) (dollars in thousands)

Restructuring charges $ 462 $ 38 $ 424 1,116 % $ 462 $ 2,204 $(1,742) (79)%

% of net revenue — % — % — % 1 %

Restructuring charges decreased $2.2 million to $0 for the three months ended March 31, 2022, compared to $2.2 million for the three months ended March 31, 2021.

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

Restructuring charges increased $0.4 million to $0.5 million for the three months ended June 30, 2022, compared to $0.04 million for the three months ended June 30, 2021.

Restructuring charges in the three months ended June 30, 2022 primarily consisted of $0.5 million of lease-related charges, which consisted of impairment of leased right-of-use assets from partial abandonment of a facility.

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

Restructuring charges decreased $1.7 million to $0.5 million for the six months ended June 30, 2022, compared to $2.2 million for the six months ended June 30, 2021.

Restructuring charges in the six months ended June 30, 2022 primarily consisted of $0.5 million of lease-related charges, which consisted of impairment of leased right-of-use assets from partial abandonment of a facility.

Restructuring charges in the six months ended June 30, 2021 included $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.

Loss on Extinguishment of Debt

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

2022 2021 $ Change % Change 2022 2021 $ Change % Change

(dollars in thousands) (dollars in thousands)

Loss on extinguishment of debt $ — $ (5,221) $ 5,221 (100) % $ — $ (5,221) $5,221 (100)%

% of net revenue — % (3) % — % (1) %

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

Interest and Other Income (Expense )

Three Months Ended March 31,

2022 2021 $ Change % Change

(dollars in thousands)

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

2022 2021 $ Change % Change 2022 2021 $ Change % Change

(dollars in thousands) (dollars in thousands)

Interest and other income (expense), net $ 4,845 $ (4,260) $ 9,105 (214) % $ 1,757 $ (8,570) $ 10,327 (121) %

% of net revenue 2 % (2) % — % (2) %

Interest and other income (expense), net changed by $1.2 million from a net expense of $4.3 million in the three months ended March 31, 2021 to a net expense of $3.1 million for the three months ended March 31, 2022.

The change in interest and other income (expense), net was primarily due to the impact of a $1.6 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 $0.7 million increase in other income (expense), net, from expense of $0.1 million in the 2021 period to expense of $0.8 million in the 2022 period primarily related to $1.0 million in unrealized holding losses on equity securities that are marked to market value on the balance sheet, partially offset by the impact of foreign currency fluctuations.

Income Tax Provision

Three Months Ended March 31,

2022 2021 $ Change % Change

(dollars in thousands)

Income tax provision $ 11,453 $ 1,806 $ 9,647 534 %

The income tax provision for the three months ended March 31, 2022 was $11.5 million compared to an income tax provision of $1.8 million for the three months ended March 31, 2021.

Interest and other income (expense), net changed by $9.1 million from a net expense of $4.3 million in the three months ended June 30, 2021 to a net income of $4.8 million for the three months ended June 30, 2022.

The change in interest and other income (expense), net was primarily due to the impact of a $7.7 million change in other income (expense), net, from expense of $0.5 million in the 2021 period to income of $7.2 million in the 2022 period, and a $1.3 million decrease in interest expense.

The $7.7 million change in other income (expense), net primarily related to $4.8 million in unrealized holding gain on equity securities that are marked to market value on the balance sheet and $2.7 million impact from foreign currency fluctuations.

The $1.3 million decrease in interest expense primarily relates to a decrease in interest expense on outstanding debt, mostly related to a lower average balance of term loan debt outstanding.

Interest and other income (expense), net changed by $10.3 million from a net expense of $8.6 million in the six months ended June 30, 2021 to a net income of $1.8 million for the six months ended June 30, 2022.

The change in interest and other income (expense), net was primarily due to the impact of a $7.1 million decrease in other income (expense), net, from expense of $0.6 million in the 2021 period to income of $6.4 million in the 2022 period and a $3.2 million decrease in interest expense.

The $7.1 million change in other income (expense), net primarily related to $3.9 million in net unrealized holding gain on equity securities that are marked to market value on the balance sheet and $3.1 million impact from foreign currency fluctuations.

The $3.2 million decrease in interest expense primarily relates to a decrease in interest expense on outstanding debt, mostly related to a lower average balance of term loan debt outstanding.

Income Tax Provision (Benefit)

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

2022 2021 $ Change % Change 2022 2021 $ Change % Change

(dollars in thousands) (dollars in thousands)

Income tax provision (benefit) $ 11,886 $ (8,010) $ 19,896 (248) % $ 23,339 $ (6,204) $ 29,543 (476) %

The income tax provision for the three months ended June 30, 2022 was $11.9 million compared to an income tax benefit of $8.0 million for the three months ended June 30, 2021.

The income tax provision for the six months ended June 30, 2022 was $23.3 million compared to an income tax benefit of $6.2 million for the six months ended June 30, 2021.

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

federal statutory rate for the three months ended March 31, 2022 primarily related to the mix of pre-tax income among jurisdictions, permanent tax items including a tax on global intangible low-taxed income, stock based compensation, excess tax benefits related to stock-based compensation, release of uncertain tax positions under ASC 740-10, and release of the valuation allowance on certain federal R&D credits.

federal statutory rate for the six months ended June 30, 2022 primarily related to the mix of pre-tax income among jurisdictions, permanent tax items including a tax on global intangible low-taxed income, stock based compensation, excess tax benefits related to stock-based compensation, release of uncertain tax positions under ASC 740-10, and release of the valuation allowance on certain federal research and development credits.

The permanent tax item related to global intangible low-taxed income also reflects recent legislative changes requiring the capitalization of research and experimentation costs, as well as limitations on the creditability of certain foreign income taxes.

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

federal statutory rate for the three months ended March 31, 2021 primarily related to the mix of pre-tax income among jurisdictions, permanent tax items including the tax on global intangible low-taxed income, stock based compensation, excess tax benefits related to stock-based compensation, and release of certain reserves for uncertain tax positions under ASC 740-10.

federal statutory rate for the six months ended June 30, 2021 primarily related to the mix of pre-tax income among jurisdictions, permanent tax items including the tax on global intangible low-taxed income, stock based compensation, excess tax benefits related to stock-based compensation, and release of certain reserves for uncertain tax positions under ASC 740-10.

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

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We also receive a reduced withholding tax rate on certain intercompany royalty payments made by our Singapore subsidiary during the incentive period.

We recorded a tax provision in the three months ended March 31, 2022 at the incentive rate.

In the three months ended March 31, 2021, due to our Singapore net operating losses and a full valuation allowance in Singapore, the incentives did not have a material impact on our income tax provision.

We recorded a tax provision in the six months ended June 30, 2022 at the incentive rate.

In the six months ended June 30, 2021, due to our Singapore net operating losses and a full valuation allowance in Singapore, the incentives did not have a material impact on our income tax provision.

The incentives are conditional upon our meeting certain minimum employment and investment thresholds within Singapore over time, and we may be required to return certain tax benefits in the event we do not achieve compliance related to that incentive period.

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Liquidity and Capital Resources

As of March 31, 2022, we had cash and cash equivalents of $151.1 million, restricted cash of $1.1 million and net accounts receivable of $125.7 million.

Additionally, as of March 31, 2022, our working capital was $219.8 million.

As of June 30, 2022, we had cash and cash equivalents of $211.4 million, restricted cash of $1.1 million and net accounts receivable of $137.1 million.

Additionally, as of June 30, 2022, our working capital was $222.5 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.

In May 2022, we entered into the Merger Agreement to acquire Silicon Motion.

As described in Note 3 to our unaudited consolidated financial statements, the implied value of the total transaction consideration for Silicon Motion is approximately $4.3 billion.

MaxLinear may fund up to $3.5 billion of cash consideration with cash on hand and fully committed debt financing from Wells Fargo Bank and other lenders.

In June 2022, we entered into an amended and restated commitment letter with Wells Fargo Bank and other lenders pursuant to which, subject to the terms and conditions set forth therein, the lenders have committed to provide (i) a senior secured term B loan facility in an aggregate principal amount of up to $2.7375 billion (ii) a senior secured term A loan facility in an aggregate principal amount of up to $512.5 million and (iii) a senior secured revolving credit facility in an aggregate principal amount of up to $250.0 million.

Funding of the Senior Secured Credit Facilities is contingent on customary conditions, including, but not limited to the consummation of the merger and execution of definitive loan agreements.

A portion of the proceeds from the Senior Secured Credit Facilities will be used to repay our existing debt in full.

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.

As of March 31, 2022, $290.0 million of principal was outstanding under a senior secured term B loan facility or the “Initial Term Loan under the June 23, 2021 Credit Agreement.” The Company also has available a senior secured revolving credit facility, in an aggregate principal amount of up to $100.0 million which remained undrawn as of March 31, 2022.

As of June 30, 2022, $250.0 million of principal was outstanding under a senior secured term B loan facility or the “Initial Term Loan under the June 23, 2021 Credit Agreement.” The Company also has available a senior secured revolving credit facility, in an aggregate principal amount of up to $100.0 million which remained undrawn as of June 30, 2022.

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.

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A material adverse impact from COVID-19 and the global semiconductor supply 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 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, our pending merger with Silicon Motion, and any other 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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Cash used to fund capital purchases and acquisitions of businesses and investments are included in investing activities in our consolidated statements of cash flows.

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

As of March 31, 2022, our material cash requirements include long-term debt, non-cancelable operating leases, inventory purchase obligations and other obligations, which primarily consist of contractual payments due for computer-aided design software, as follows:

Cash proceeds from issuance of common stock and debt and cash used to pay down outstanding debt or repurchase common stock are included in financing activities in our consolidated statements of cash flows.

As of June 30, 2022, our material cash requirements include long-term debt, non-cancelable operating leases, inventory purchase obligations and other obligations, which primarily consist of contractual payments due for computer-aided design software, as follows:

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

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Total $ 529,528 $ 214,307 $ 48,595 $ 12,572 $ 254,054

Our planned capital expenditures as of March 31, 2022 were not material.

Our consolidated balance sheet at March 31, 2022 included $7.7 million in other long-term liabilities for uncertain tax positions, some of which may result in cash payment.

Our planned capital expenditures as of June 30, 2022 were not material.

Our consolidated balance sheet at June 30, 2022 included $9.4 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.

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

March 31, December 31,

June 30, 2022 December 31, 2021

(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:

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands)

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Cash Flows from Operating Activities

Net cash provided by operating activities was $134.2 million for the three months ended March 31, 2022.

Net cash provided by operating activities was $257.6 million for the six months ended June 30, 2022.

Net cash provided by operating activities consisted of positive impact of net income of $65.6 million, non-cash items of $76.5 million, and changes in operating assets and liabilities of $117.6 million, partially offset by excess tax benefits and deferred income taxes totaling $2.1 million.

Non-cash items included in net income for the three months ended March 31, 2022 primarily consisted of depreciation and amortization of property, equipment, acquired intangible assets and leased right-of-use assets of $23.9 million and stock-based compensation of $18.6 million.

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

Net cash used in operating activities consisted of the positive impact of non-cash items of $37.2 million and net income of $3.8 million, partially offset by the negative impact of deferred income taxes and excess tax benefits totaling $1.3 million and changes in operating assets and liabilities of $0.6 million.

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

Non-cash items included in net income for the six months ended June 30, 2022 primarily consisted of depreciation and amortization of property, equipment, acquired intangible assets and leased right-of-use assets of $43.4 million and stock-based compensation of $38.0 million, partially offset by $3.9 million in unrealized holding gain on investments that are marked to market on the balance sheet.

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 the positive impact of net income of $4.5 million and non-cash items of $80.0 million, partially offset by the negative impact of deferred income taxes and excess tax benefits totaling $10.1 million and changes in operating assets and liabilities of $6.3 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 and stock-based compensation of $26.9 million, loss on extinguishment of debt of $5.2 million and amortization of issuance costs and discounts on debt and leases of $2.1 million.

Cash Flows from Investing Activities

Net cash used in investing activities was $42.8 million for the three months ended March 31, 2022 and consisted of purchases of investments of $23.3 million, proceeds loaned under notes receivable of $10.0 million, purchases of property and equipment of $4.8 million and purchases of intangible assets of $4.6 million.

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

Net cash used in investing activities was $59.0 million for the six months ended June 30, 2022 and consisted of purchases of investments of $28.3 million, purchases of property and equipment of $15.5 million, proceeds loaned under notes receivable of $10.0 million, and purchases of intangible assets of $5.2 million.

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

Cash Flows from Financing Activities

Net cash used in financing activities was $70.7 million for the three months ended March 31, 2022.

Net cash used in financing activities consisted primarily of common stock repurchases of $26.3 million, minimum tax withholding paid on behalf of employees for restricted stock units of $24.4 million, and repayments of debt of $20.0 million.

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

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

We believe that our $151.1 million of cash and cash equivalents at March 31, 2022 will be sufficient to fund our projected operating requirements for at least the next twelve months.

As of March 31, 2022, our indebtedness totaled $290.0 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.

Net cash used in financing activities was $116.5 million for the six months ended June 30, 2022.

Net cash used in financing activities consisted primarily of repayments of debt of $60.0 million, common stock repurchases of $31.5 million, and minimum tax withholding paid on behalf of employees for restricted stock units of $28.1 million, partially offset by $3.1 million in net proceeds from issuance of our common stock upon exercise of stock options and purchases made under our ESPP.

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

Net cash used in financing activities consisted primarily of repayments of debt of $369.8 million, minimum tax withholding paid on behalf of employees for restricted stock units of $10.1 million, common stock repurchases of $7.1 million, and debt issuance costs of $4.1 million, partially offset by cash inflows from net proceeds from the issuance of debt of $350.0 million and from net proceeds from issuance of common stock upon exercise of stock options and purchases made under our ESPP of $6.1 million.

We believe that our $211.4 million of cash and cash equivalents at June 30, 2022 will be sufficient to fund our projected operating requirements for at least the next twelve months, excluding the pending merger and related integration costs.

As of June 30, 2022, our indebtedness totaled $250.0 million, which consists of outstanding principal under the Initial Term Loan under the June 23, 2021 Credit Agreement.

Upon consummation of our merger with Silicon Motion and execution of related merger financing agreements, we expect that a portion of the proceeds from the Senior Secured Credit Facilities associated with the merger, described in more detail above, will be used to repay our existing indebtedness in full, and our indebtedness may increase up to $3.5 billion under the Senior Secured Credit Facilities.

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, which remained undrawn as of June 30, 2022.

The Initial Term Loan under the June 23, 2021 Credit Agreement has a seven-year term expiring in June 2028 and bears interest, at the Company’s option, at a per annum 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-month interest period plus 1.00%, in each case, plus an applicable margin of 1.25% or (ii) an adjusted LIBOR rate, subject to a floor of 0.50%, plus an applicable margin of 2.25%.

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We expect to implement a similar equity-based plan for fiscal 2022, but our compensation committee retains discretion to effect payment in cash, stock, or a combination of cash and stock.

Warranties and Indemnifications

In connection with the sale of products in the ordinary course of business, we often make representations affirming, among other things, that our products do not infringe on the intellectual property rights of others, and agree to indemnify customers against third-party claims for such infringement.

Further, our certificate of incorporation and bylaws require us to indemnify our officers and directors against any action that may arise out of their services in that capacity, and we have also entered into indemnification agreements with respect to all of our directors and certain controlling persons.

Off-Balance Sheet Arrangements

As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, or SPEs, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

As of March 31, 2022, we were not involved in any unconsolidated SPE transactions.

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