What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-07-27 compared with 2023-04-26 · 138 added, 109 removed, 207 unchanged (54% 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 three months ended March 31, 2023, revenues of $248.4 million were 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.

In the six months ended June 30, 2023, revenues of $432.4 million were 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.

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 77% and 80% of net revenue during the three months ended March 31, 2023 and 2022, respectively, including 31% from products shipped to Hong Kong and 16% from products shipped to mainland China during the three months ended March 31, 2023 and 38% from products shipped to Hong Kong, 13% from products shipped to Vietnam, and 11% from products shipped to mainland China during the three months ended March 31, 2022.

Products shipped to Asia accounted for 74% and 81% of net revenue during the six months ended June 30, 2023 and 2022, respectively, including 31% from products shipped to Hong Kong and 14% from products shipped to mainland China during the six months ended June 30, 2023 and 39% from products shipped to Hong Kong and 17% from products shipped to mainland China during the six months ended June 30, 2022.

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, 2023 and 2022 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, 2023 and 2022 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 is comprised of both direct sales to customers and indirect sales through distributors.

In the three months ended March 31, 2023, one customer accounted for 15% of our net revenue, and our ten largest customers collectively accounted for 62% of our net revenue, of which distributor customers accounted for 16% of our net revenue.

In the three months ended June 30, 2023, no single customer accounted for 10% or more of our net revenue, and our ten largest customers collectively accounted for 61% of our net revenue, of which distributor customers accounted for 16% of our net revenue.

In the six months ended June 30, 2023, one customer accounted for 11% of our net revenue, and our ten largest customers collectively accounted for 58% of our net revenue, of which distributor customers accounted for 10% 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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In addition, inventory oversupply could also lead to inventory write-downs, including charges for any excess or obsolete inventory which, if material, could negatively impact our gross margins.

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

As customer lead times improve more broadly, we have seen and expect to continue to see a commensurate reduction in visibility to customer demand and a gradual return to a somewhat shorter demand-planning horizon.

While inventory and working capital levels may continue to increase and remain elevated in the near term, we expect that purchase commitments will continue to decline as supplier lead times begin to shorten, and we are closely monitoring our inventory in channel.

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

Silicon Motion Merger

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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 antitrust 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;

however, if the merger is not consummated by June 27, 2023, the parties will need to re-file under the HSR Act.

On July 26, 2023, we provided notice to Silicon Motion that we have terminated the Merger Agreement and we are relieved of our obligations to close because, among other reasons, (i) certain conditions to closing set forth in the Merger Agreement are not satisfied and are incapable of being satisfied, (ii) Silicon Motion has suffered a Material Adverse Effect that is continuing, (iii) Silicon Motion is in material breach of representations, warranties, covenants, and agreements in the Merger Agreement that give rise to our right to terminate, and (iv) in any event, the First Extended Outside Date has passed and was not automatically extended because certain conditions in Article 6 of the Merger Agreement were not satisfied or waived as of May 5, 2023.

Under the terms of the Merger Agreement, MaxLinear is not required to pay a break-up fee or other fee as a result of the termination of the Merger Agreement.

Undefined capitalized terms in this paragraph have the same meaning as in the Merger Agreement.

Under the terms of the Merger Agreement, the transaction consideration consisted 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 were expected to own approximately 86% of the combined company and former Silicon Motion securityholders were expected to 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 was approximately $3.8 billion.

We could have funded up to $3.1 billion of cash consideration with cash on hand and fully committed debt financing of up to $3.5 billion from Wells Fargo Bank, N.A., or Wells Fargo Bank, and other lenders as described below, which includes up to an additional $0.4 million to repay existing outstanding debt.

Under the terms of the Merger Agreement, we were required to assume Silicon Motion’s vested and unvested employee stock-based compensation awards.

The merger was not subject to any financing conditions but was pending satisfaction of customary closing conditions, including the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

On July 26, 2023, regulatory approval was received from the State Administration for Market Regulations, or SAMR, in China.

On June 27, 2022, the HSR Act waiting period expired with respect to the previously pending merger;

however, since the merger was not consummated by June 27, 2023, the parties re-filed under the HSR Act on June 28, 2023.

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

On August 31, 2022, the Silicon Motion securityholders approved the merger at the extraordinary general meeting.

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.

On October 24, 2022, MaxLinear entered into a second amended and restated commitment letter with Wells Fargo Bank and other lenders, which allows for additional commitments in respect of the Term A Loan Facility to be effected by way of the joinder of additional commitment parties to the second amended and restated commitment letter, and allows for an increase in the Term Loan A Loan Facility on a dollar-for-dollar basis by a corresponding decrease in the amount of the Term Loan B facility.

Recent Developments

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 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 was 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 could have been used to repay existing debt in full.

On October 24, 2022, MaxLinear entered into a second amended and restated commitment letter with Wells Fargo Bank and other lenders, which allowed for additional commitments in respect of the Term A Loan Facility to be effected by way of the joinder of additional commitment parties to the second amended and restated commitment letter, and allowed for an increase in the Term Loan A Loan Facility on a dollar-for-dollar basis by a corresponding decrease in the amount of the Term Loan B facility.

In connection with the termination of the merger agreement, the commitments under the second amended and restated commitment letter with Wells Fargo Bank and other lenders was terminated.

Acquisition of Company Y

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

We base our estimates and judgments on historical experience and other factors that we believe to be reasonable under the circumstances.

We base our estimates and judgments on historical experience and other factors that we believe to be reasonable under the

circumstances.

Materially different results can occur as circumstances change and additional information becomes known.

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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, 2022, which we filed with the Securities and Exchange Commission, or SEC, on February 1, 2023, or our Annual Report.

There have been no material changes to our critical accounting policies and estimates during the three months ended March 31, 2023.

There have been no material changes to our critical accounting policies and estimates during the six months ended June 30, 2023.

Recently Issued Accounting Pronouncements

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Results of Operations

The following describes the line items set forth in our unaudited consolidated statements of income.

The following describes the line items set forth in our unaudited consolidated statements of operations.

Net revenue is generated from sales of radio-frequency, analog, digital, and mixed-signal integrated circuits for access and connectivity, wired and wireless infrastructure, and industrial and multi-market applications.

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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.

These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expenses for tax and financial statement purposes and the realizability of assets in future years.

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,

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,

2023 2022 2023 2022

Net revenue 100 % 100 % 100 % 100 %

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Total operating expenses 59 45 51 43

Income from operations 11 18

Income (loss) from operations (3) 14 5 16

Interest income 1 — 1 —

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Total other income (expense), net 1 2 — —

Income before income taxes 10 17

Income tax provision 6 4

Net income 4 % 13 %

Three Months Ended March 31,

2023 2022 $ Change % Change

(dollars in thousands)

Income (loss) before income taxes (3) 16 5 16

Income tax provision (benefit) — 4 4 4

Net income (loss) (2) % 11 % 1 % 12 %

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

2023 2022 $ Change % Change 2023 2022 $ Change % Change

(dollars in thousands) (dollars in thousands)

Broadband $ 53,549 $ 139,098 $ (85,549) (62) % $ 135,230 $ 273,654 $ (138,424) (51) %

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Total net revenue $ 183,938 $ 280,009 $ (96,071) (34 %) $ 432,380 $ 543,936 $ (111,556) (21) %

Net revenue decreased $15.5 million to $248.4 million for the three months ended March 31, 2023, as compared to $263.9 million for the three months ended March 31, 2022, due primarily to a decrease in broadband products, as a result of macroeconomic conditions impacting customer demand for such products.

Net revenue decreased $96.1 million to $183.9 million for the three months ended June 30, 2023, as compared to $280.0 million for the three months ended June 30, 2022, primarily as a result of macroeconomic conditions impacting customer demand, including excess inventory in the channel built up following the supply shortages in the prior year.

The decrease in broadband net revenue of $85.5 million was primarily from gateway revenues, and to a lesser extent, cable.

The decrease in connectivity revenue of $18.5 million was driven by declines in MoCA, ethernet and Wi-Fi revenues.

The increase in infrastructure revenues of $13.4 million was primarily driven by an increase in wireless backhaul product shipments.

The decrease in industrial and multi-market revenue of $5.4 million was related to decreased shipments of high-performance analog products, partially offset by improved component shipments.

Net revenue decreased $111.6 million to $432.4 million for the six months ended June 30, 2023, as compared to $543.9 million for the six months ended June 30, 2022, primarily as a result of macroeconomic conditions impacting customer demand, including excess inventory in the channel built up following the supply shortages in the prior year.

The decrease in broadband net revenue of $138.4 million was primarily from gateway revenues, and to a lesser extent, cable, tuners and satellite.

The increase in connectivity revenue of $6.1 million was primarily driven by higher Wi-Fi revenues.

The increase in infrastructure revenues of $13.1 million was primarily driven by an increase in wireless backhaul and high-performance analog product shipments.

The increase in industrial and multi-market revenue of $18.2 million was related to increased shipments of component and high-performance analog products.

The decrease in connectivity revenue of $12.4 million was primarily driven by MoCA and ethernet revenues, partially offset by higher Wi-Fi revenues.

The increase in infrastructure revenues of $26.5 million was primarily driven by an increase in wireless backhaul product shipments.

The increase in industrial and multi-market revenue of $12.7 million was related to increased shipments of component products, partially offset by decreased shipments of high-performance analog products.

We currently expect that revenue will fluctuate in the future, from period-to-period, due to macroeconomic conditions impacting customer demand for certain products that is consistent with the cyclical nature of our industry.

Cost of Net Revenue and Gross Profit

Three Months Ended March 31,

2023 2022 $ Change % Change

(dollars in thousands)

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

2023 2022 $ Change % Change 2023 2022 $ Change % Change

(dollars in thousands) (dollars in thousands)

Cost of net revenue $ 81,065 $ 115,658 $ (34,593) (30) % $ 189,200 224,995 (35,795) (16) %

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% of net revenue 56 % 59 % 56 % 59 %

Cost of net revenue decreased $1.2 million to $108.1 million for the three months ended March 31, 2023, as compared to $109.3 million for the three months ended March 31, 2022.

Cost of net revenue decreased $34.6 million to $81.1 million for the three months ended June 30, 2023, as compared to $115.7 million for the three months ended June 30, 2022.

The decrease was primarily driven by lower sales and expenses.

Gross profit percentage declined for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, due primarily to revenue mix and decreased absorption of amortization of intangible assets.

Gross profit percentage declined for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022, due primarily to revenue mix and decreased absorption of amortization of intangible assets.

Cost of net revenue decreased $35.8 million to $189.2 million for the six months ended June 30, 2023, as compared to $225.0 million for the six months ended June 30, 2022.

The decrease was primarily driven by lower sales and expenses.

Gross profit percentage declined for the six months ended June 30, 2023, as compared to the six months ended June 30, 2022, due primarily to revenue mix and decreased 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.

Research and Development

Three Months Ended March 31,

2023 2022 $ Change % Change

(dollars in thousands)

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

2023 2022 $ Change % Change 2023 2022 $ Change % Change

(dollars in thousands) (dollars in thousands)

Research and development $ 70,657 $ 80,395 $ (9,738) (12) % $ 137,948 $ 146,281 $ (8,333) (6) %

% of net revenue 38 % 29 % 32 % 27 %

Research and development expense increased $1.4 million to $67.3 million for the three months ended March 31, 2023, as compared to $65.9 million for the three months ended March 31, 2022.

The increase was primarily driven by increased design tools expenses, partially offset by the impact from the decrease in headcount from a reduction in force.

Research and development expense decreased $9.7 million to $70.7 million for the three months ended June 30, 2023, as compared to $80.4 million for the three months ended June 30, 2022.

The decrease was primarily driven by the impact from the decrease in headcount from a reduction in force.

Research and development expense decreased $8.3 million to $137.9 million for the six months ended June 30, 2023, as compared to $146.3 million for the six months ended June 30, 2022.

The decrease was primarily driven by the impact from the decrease in headcount from a reduction in force.

We are closely managing our research and development expenses to meet evolving demand;

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Selling, General and Administrative

Three Months Ended March 31,

2023 2022 $ Change % Change

(dollars in thousands)

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

2023 2022 $ Change % Change 2023 2022 $ Change % Change

(dollars in thousands) (dollars in thousands)

Selling, general and administrative $ 33,717 $ 44,487 $ (10,770) (24) % $ 72,370 $ 85,064 $ (12,694) (15) %

% of net revenue 18 % 16 % 17 % 16 %

Selling, general and administrative expense decreased $1.9 million to $38.7 million for the three months ended March 31, 2023, as compared to $40.6 million for the three months ended March 31, 2022.

The decrease was primarily due to decreased amortization of intangibles and stock based-compensation expenses, partially offset by increased professional services and acquisition and integration costs.

Selling, general and administrative expense decreased $10.8 million to $33.7 million for the three months ended June 30, 2023, as compared to $44.5 million for the three months ended June 30, 2022.

The decrease was primarily due to decreased amortization of intangibles and stock based-compensation expenses.

Selling, general and administrative expense decreased $12.7 million to $72.4 million for the six months ended June 30, 2023, as compared to $85.1 million for the six months ended June 30, 2022.

The decrease was primarily due to decreased amortization of intangibles and stock based-compensation expenses.

We are closely managing our selling, general and administrative expenses;

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Impairment losses

Three Months Ended March 31,

2023 2022 $ Change % Change

(dollars in thousands)

Impairment losses $ 2,438 $ — $ 2,438 N/A

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

2023 2022 $ Change % Change 2023 2022 $ Change % Change

(dollars in thousands) (dollars in thousands)

Impairment losses $ — $ — $ — N/A $ 2,438 $ — $ 2,438 N/A

% of net revenue — % — % 1 % — %

Impairment losses in the three months ended March 31, 2023 related to abandonment of certain intellectual property licenses.

Impairment losses in the six months ended June 30, 2023 related to abandonment of certain intellectual property licenses.

Restructuring Charges

Three Months Ended March 31,

2023 2022 $ Change % Change

(dollars in thousands)

Restructuring charges $ 4,648 $ — $4,648 N/A

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

2023 2022 $ Change % Change 2023 2022 $ Change % Change

(dollars in thousands) (dollars in thousands)

Restructuring charges $ 4,436 $ 462 $ 3,974 860 % $ 9,084 $ 462 $8,622 1,866 %

% of net revenue 2 % — % 2 % — %

Restructuring charges increased $4.6 million to $4.6 million for the three months ended March 31, 2023, compared to $0 for the three months ended March 31, 2022.

Restructuring charges in the three months ended March 31, 2023 consisted primarily of $4.6 million of employee severance-related charges from a reduction in force.

Restructuring charges increased $4.0 million to $4.4 million for the three months ended June 30, 2023, compared to $0.5 million for the three months ended June 30, 2022.

Restructuring charges in the three months ended June 30, 2023 consisted primarily of $4.3 million of employee severance-related charges from a reduction in force.

Restructuring charges increased $8.6 million to $9.1 million for the six months ended June 30, 2023, compared to $0.5 million for the six months ended June 30, 2022.

Restructuring charges in the six months ended June 30, 2023 consisted primarily of $8.9 million of employee severance-related charges from a reduction in force.

Interest and Other Income (Expense)

Three Months Ended March 31,

2023 2022 $ Change % Change

(dollars in thousands)

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

2023 2022 $ Change % Change 2023 2022 $ Change % Change

(dollars in thousands) (dollars in thousands)

Interest and other income (expense), net $ 1,177 $ 4,845 $ (3,668) (76) % $ (1,001) $ 1,757 $ (2,758) (157) %

% of net revenue 1 % 2 % — % — %

Interest and other income (expense), net changed by $0.9 million from a net expense of $3.1 million in the three months ended March 31, 2022 to a net expense of $2.2 million for the three months ended March 31, 2023.

The change in interest and other income (expense), net was primarily due to the impact of a $0.6 million increase in interest income plus a $0.4 million change in other income (expense), net, from expense of $0.8 million in the 2022 period to expense of $0.3 million in the 2023 period.

Interest and other income (expense), net changed by $3.7 million from income of $4.8 million in the three months ended June 30, 2022 to income of $1.2 million for the three months ended June 30, 2023.

The change in interest and other income (expense), net was primarily due to the impact of a $5.3 million decrease in other income (expense), net from income of $7.2 million in the 2022 period to income of $1.9 million in the 2023 period, partially offset by an increase in interest income of $1.8 million.

The $5.3 million decrease in other income (expense), net primarily related to impact of decrease in unrealized holding gain of $3.0 million from $4.8 million in the 2022 period to $1.8 million recognized on equity securities that are marked to market value in other income (expense), net, and $2.1 million impact from foreign currency fluctuations.

The $1.8 million increase in interest income is due to higher interest rates on a higher balance of interest bearing cash equivalents.

The $0.4 million change in other income (expense), net primarily related to $0.7 million impact from foreign currency fluctuations, partially offset by $1.1 million impact of change from $1.0 million in net unrealized holding gain in the 2022 period to net unrealized holding loss of $0.2 million recognized on equity securities that are marked to market value in other income (expense), net.

Income Tax Provision

Three Months Ended March 31,

2023 2022 $ Change % Change

(dollars in thousands)

Income tax provision $ 15,566 $ 11,453 $ 4,113 36 %

The income tax provision for the three months ended March 31, 2023 was $15.6 million compared to an income tax provision of $11.5 million for the three months ended March 31, 2022.

Interest and other income (expense), net changed by $2.8 million from income of $1.8 million in the six months ended June 30, 2022 to expense of $1.0 million for the six months ended June 30, 2023.

The change in interest and other income (expense), net was primarily due to a $4.9 million change in other income (expense), net, from income of $6.4 million in the 2022 period to income of $1.5 million in the 2023 period, partially offset by the impact of a $2.4 million increase in interest income.

The $4.9 million change in other income (expense), net primarily related to $1.9 million impact of change from $3.9 million in net unrealized holding gain in the 2022 period to net unrealized holding gain of $2.0 million recognized on equity securities that are marked to market value in other income (expense), net and $2.8 million impact from foreign currency fluctuations.

The $2.4 million increase in interest income is due to higher interest rates on a higher balance of interest bearing cash equivalents.

Income Tax Provision (Benefit)

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

2023 2022 $ Change % Change 2023 2022 $ Change % Change

(dollars in thousands) (dollars in thousands)

Income tax provision (benefit) $ (409) $ 11,886 $ (12,295) (103) % $ 15,157 $ 23,339 $ (8,182) (35) %

The income tax benefit for the three months ended June 30, 2023 was $0.4 million compared to an income tax provision of $11.9 million for the three months ended June 30, 2022.

The income tax provision for the six months ended June 30, 2023 was $15.2 million compared to an income tax provision of $23.3 million for the six months ended June 30, 2022.

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

federal statutory rate for the three months ended March 31, 2023 primarily related to the mix of pre-tax income among jurisdictions, permanent tax items including a tax on global intangible low-taxed income, research and development credits, stock based compensation, excess tax benefits related to stock-based compensation, and the release of uncertain tax positions under ASC 740-10.

federal statutory rate for the six months ended June 30, 2023 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.

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, 2022 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, release of certain reserves for 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 the tax on global intangible low-taxed income, stock based compensation, excess tax benefits related to stock-based compensation, release of certain reserves for uncertain tax positions under ASC 740-10, and release of the valuation allowance on certain federal R&D

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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, 2023 and 2022 at the incentive rate.

We recorded a tax provision in the six months ended June 30, 2023 and 2022 at the incentive rate.

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, 2023, we had cash and cash equivalents of $207.9 million, restricted cash of $1.0 million and net accounts receivable of $188.7 million.

Additionally, as of March 31, 2023, our working capital was $293.4 million.

As of June 30, 2023, we had cash and cash equivalents of $224.6 million, restricted cash of $1.1 million and net accounts receivable of $155.8 million.

Additionally, as of June 30, 2023, our working capital was $312.8 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 and October 2022, we amended and restated the 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.

However, on July 26, 2023, we provided notice to Silicon Motion that we have terminated the Merger Agreement and we are relieved of our obligations to close.

As described in Note 3 to our unaudited consolidated financial statements, the implied value of the total transaction consideration for Silicon Motion was approximately $3.8 billion.

MaxLinear could have funded up to $3.1 billion of cash consideration with cash on hand and fully committed debt financing from Wells Fargo Bank and other lenders.

In June 2022 and October 2022, we amended and restated the commitment letter with Wells Fargo Bank and other lenders pursuant to which, subject to the terms and conditions set forth therein, the lenders 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 was 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 could have been used to repay our existing debt in full.

In connection with the termination of the merger agreement, the second amended and restated commitment letter with Wells Fargo Bank and other lenders was terminated.

We also use cash to pay down outstanding debt, and from time to time, make investments.

As of March 31, 2023, $125.0 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, 2023.

As of June 30, 2023, $125.0 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, 2023.

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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We could be subject to substantial variable interest rate risk because our interest rate under term loans typically vary based on a fixed margin over an indexed rate or an adjusted base rate.

While we are mitigating the impact of rising interest rates with large amounts of prepayments on our outstanding debt, if interest rates were to further increase substantially, particularly with respect to our anticipated debt associated with the Silicon Motion merger, it would have a material adverse effect our operating results and could affect our ability to service the indebtedness.

Please refer to the Risk Factor entitled “ In order to consummate the merger and distribute the cash consideration payable to Silicon Motion securityholders, we will incur material indebtedness of up to $3.5 billion and we may also use a portion of Silicon Motion’s and our cash resources, and we may decide to issue additional shares of our common stock to reduce our overall leverage ratio.

While we had been mitigating the impact of rising interest rates with large amounts of prepayments on our outstanding debt, if interest rates were to further increase substantially, it would have a material adverse effect our operating results and could affect our ability to service the indebtedness.

Please refer to the Risk Factor entitled “ If we are required to consummate the merger and distribute the cash consideration payable to Silicon Motion securityholders, we will incur material indebtedness of up to $3.5 billion and we may also use a portion of Silicon Motion’s and our cash resources, and we may decide to issue additional shares of our common stock to reduce our overall leverage ratio.

This material increase in our indebtedness will adversely affect our operating results and cash-flows as we satisfy our underlying interest and principal payment obligations.

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The loan agreement is also expected to contain financial and operational covenants that would adversely affect our operational freedom or ability to pursue strategic transactions that we would otherwise consider to be in the best interests of stockholders, including obtaining additional indebtedness to finance such transactions ” for a discussion for a discussion of how our indebtedness could have a material adverse effect on our liquidity and capital resources.

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.

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, any requirement to consummate the previously 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 proceeds from issuance of common stock and debt and cash used to pay down outstanding debt are included in financing activities in our consolidated statements of cash flows.

As of March 31, 2023, 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:

As of June 30, 2023, 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 2-3 years 4-5 years More than 5 years

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Total $ 291,173 $ 52,393 $ 84,351 $ 150,365 $ 4,064

Our planned capital expenditures as of March 31, 2023 were not material.

Our consolidated balance sheet at March 31, 2023 included $6.4 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, 2023 were not material.

Our consolidated balance sheet at June 30, 2023 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.

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Aside from the amounts billed to our customers, net cash collections of accounts receivable are impacted by the efficiency of our cash collections process, which can vary from period to period depending on the payment cycles of our major distributor customers, and relative linearity of shipments period-to-period.

The June 23, 2021 Credit Agreement, under which we entered into a senior secured term B loan facility and a revolving credit facility, permits us to request incremental loans in an aggregate principal amount not to exceed the sum of an amount equal to the greater of (x) $175.0 million and (y) 100% of “Consolidated EBITDA” (as defined in such agreement), plus the amount of certain voluntary prepayments, plus an unlimited amount that is subject to pro forma compliance with certain first lien net leverage ratio, secured net leverage ratio and total net leverage ratio tests.

The June 23, 2021 Credit Agreement, under

which we entered into a senior secured term B loan facility and a revolving credit facility, permits us to request incremental loans in an aggregate principal amount not to exceed the sum of an amount equal to the greater of (x) $175.0 million and (y) 100% of “Consolidated EBITDA” (as defined in such agreement), plus the amount of certain voluntary prepayments, plus an unlimited amount that is subject to pro forma compliance with certain first lien net leverage ratio, secured net leverage ratio and total net leverage ratio tests.

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

(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 $42.2 million for the three months ended March 31, 2023.

Net cash provided by operating activities consisted of positive impact of net income of $9.5 million, non-cash items of $38.9 million, and changes in operating assets and liabilities of $13.9 million and excess tax benefits and deferred income taxes totaling $7.6 million.

Non-cash items included in net income for the three months ended March 31, 2023 primarily consisted of depreciation and amortization of property, equipment, acquired intangible assets and leased right-of-use assets of $19.2 million, stock-based compensation of $16.4 million, and impairment losses of $2.4 million.

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 $72.7 million for the six months ended June 30, 2023.

Net cash provided by operating activities consisted of positive impact of net income of $5.2 million, non-cash items of $75.4 million, and excess tax benefits and deferred income taxes totaling $7.6 million, partially offset by changes in operating assets and liabilities of $15.4 million .

Non-cash items included in net income for the six months ended June 30, 2023 primarily consisted of depreciation and amortization of property, equipment, acquired intangible assets and leased right-of-use assets of $37.9 million, stock-based compensation of $33.6 million, impairment losses of $2.4 million, and loss on disposal of property and equipment of $2.0 million.

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.

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.

Cash Flows from Investing Activities

Net cash used in investing activities was $15.5 million for the three months ended March 31, 2023 and consisted of cash used in acquisition of Company Y of $9.7 million and purchases of property and equipment of $5.2 million.

Net cash used in investing activities was $42.8 million for the three months ended March 31, 2022 and consisted of purchases of long-term investments in a private entity 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 $28.2 million for the six months ended June 30, 2023 and consisted of purchases of property and equipment of $10.3 million, cash used in acquisitions of Company X and Y of $12.4 million (including $2.7 million contingent consideration paid to shareholders of Company X), and purchases of intangible assets of $5.5 million.

Net cash used in investing activities was $59.0 million for the six months ended June 30, 2022 and consisted of purchases of long-term investments in a private entity 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.

Cash Flows from Financing Activities

Net cash used in financing activities was $6.2 million for the three months ended March 31, 2023.

Net cash used in financing activities consisted primarily of minimum tax withholding paid on behalf of employees for restricted stock units of $6.2 million.

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.

We believe that our $207.9 million of cash and cash equivalents at March 31, 2023 will be sufficient to fund our projected operating requirements for at least the next twelve months, excluding anticipated cash expenditures for the pending merger and related integration costs which will be financed primarily through additional debt under the Senior Secured Credit Facilities.

As of March 31, 2023, our indebtedness totaled $125.0 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 March 31, 2023.

Net cash used in financing activities was $6.1 million for the six months ended June 30, 2023.

Net cash used in financing activities consisted primarily of minimum tax withholding paid on behalf of employees for restricted stock units of $9.1 million, partially offset by net proceeds from issuance of our common stock upon exercise of stock options and purchases made under our ESPP of $3.1 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.

We believe that our $224.6 million of cash and cash equivalents at June 30, 2023 will be sufficient to fund our projected operating requirements for at least the next twelve months.

As of June 30, 2023, our indebtedness totaled $125.0 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, which remained undrawn as of June 30, 2023.

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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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