What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-25 compared with 2023-07-27 · 95 added, 118 removed, 227 unchanged (48% of the section changed)

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In addition, our proprietary CMOS-based radio and digital system architectures also enable shorter design cycles, significant design flexibility and low system-level cost across a wide range of broadband communications, wired and wireless infrastructure, and industrial and multi-market customer applications.

In the six months ended June 30, 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.

In the nine months ended September 30, 2023, revenues of $567.9 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 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.

Products shipped to Asia accounted for 73% and 82% of net revenue during the three months ended September 30, 2023 and 2022, respectively, including 41% from products shipped to Hong Kong and 10% from products shipped to Taiwan, ROC during the three months ended September 30, 2023 and 51% from products shipped to Hong Kong and 14% from products shipped to mainland China during three months ended September 30, 2022.

Products shipped to Asia accounted for 74% and 81% of net revenue during the nine months ended September 30, 2023 and 2022, respectively, including 34% from products shipped to Hong Kong and 12% from products shipped to mainland China during the nine months ended September 30, 2023 and 43% from products shipped to Hong Kong and 16% from products shipped to mainland China during the nine months ended September 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 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.

For example, revenue generated from sales of our products during the nine months ended September 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 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.

In the three months ended September 30, 2023, one single customer accounted for 10% or more of our net revenue, and our ten largest customers collectively accounted for 60% of our net revenue, of which distributor customers accounted for 11% of our net revenue.

In the nine months ended September 30, 2023, one single customer accounted for 11% of our net revenue, and our ten largest customers collectively accounted for 55% of our net revenue, of which distributor customers accounted for 11% of our net revenue.

For certain customers, we sell multiple products into disparate end user applications such as cable modems, PON ODUs, Wi-Fi routers, and broadband gateways.

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

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We do not have any long-term purchase commitments with any of our customers, all of whom purchase our products on a purchase order basis.

Once one of our products is incorporated into a customer’s design, however, we believe that our product is likely to remain a component of the customer’s product for its life cycle because of the time and expense associated with redesigning the product or substituting an alternative chip.

Once one of our products is incorporated into a customer’s design, we believe that our product is likely to remain a component of the customer’s product for its life cycle because of the time and expense associated with redesigning the product or substituting an alternative chip.

Product life cycles in our target markets will vary by application.

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In the industrial and wired and wireless infrastructure markets, a design-in can have a product life cycle of 24 to 60 months and beyond.

Impact of the Global Economic Downturn

Inflation, and uncertainty in customer demand and the worldwide economy has continued, and we expect to experience continued volatility in our sales and revenues in the near future.

In particular, we believe an economic downturn and inventory oversupply, in the channel, due to changes in customer demand will continue to add to volatility in managing the business.

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.

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

Impact of the Global Economic Uncertainty and Inventory Build

Inflation, and uncertainty in customer demand and the worldwide economy has continued, and we expect to experience continued volatility in our sales and revenues.

In particular, we believe an economic slowdown and inventory oversupply will continue to add to volatility in managing the business.

In addition, inventory oversupply could potentially lead to more inventory write-downs, including charges for any excess or obsolete inventory which could negatively impact our gross margins.

As customer lead times continue to improve, we have seen and expect to continue to see a more normalized demand-planning horizon.

While we expect inventory to remain elevated in the near term, we expect channel inventory will continue to decline over the coming quarters.

Terminated 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.

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.

On July 26, 2023, we terminated the Merger Agreement and notified Silicon Motion that we were relieved of our obligations to close because, among other reasons, (i) certain conditions to closing set forth in the Merger Agreement were not satisfied and were incapable of being satisfied, (ii) Silicon Motion had suffered a Material Adverse Effect that was continuing, (iii) Silicon Motion was in material breach of representations, warranties, covenants, and agreements in the Merger Agreement that gave rise to the right of the Company to terminate, and (iv) in any event, the First Extended Outside Date had 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 was not required to pay a break-up fee or other fee as a result of the termination of the Merger Agreement.

On August 16, 2023, Silicon Motion delivered a notice to us, which Silicon Motion publicly disclosed, that it was purporting to terminate the Merger Agreement and that Silicon Motion would be commencing an arbitration to seek damages from us arising from our alleged breaches 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 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.

On October 5, 2023, Silicon Motion filed a Notice of Arbitration with the Singapore International Arbitration Centre alleging that we breached the Merger Agreement.

See Part II, Item 1 (Legal Proceedings) of this report for more information on legal proceedings related to the termination of the Merger Agreement.

The second amended and restated commitment letter dated October 24, 2022 with Wells Fargo Bank, N.A., or Wells Fargo Bank, and other lenders, and related financing commitments for the previously pending (now terminated) merger were also terminated upon termination of the Merger Agreement.

As a result of the termination of the financing, the Company was required to pay to Wells Fargo Bank a ticking fee of $18.3 million, which is included in other income (expense), net in the three months ended September 30, 2023.

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 six months ended June 30, 2023.

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

Recently Issued Accounting Pronouncements

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Interest expense consists of interest accrued on debt and amortization of discounts on debt and other liabilities.

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.

Other income (expense) consists of income (expense) generated from non-operating transactions, including a ticking fee paid to lenders following the termination of the Silicon Motion merger and unrealized holding gains (losses) from certain investments required to be marked to market value.

Income Tax Provision (Benefit).

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

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

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

2023 2022 2023 2022

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Net income (loss) (29) % 10 % (6) % 11 %

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

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

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

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Total net revenue $ 135,530 $ 285,730 $ (150,200) (53 %) $ 567,910 $ 829,666 $ (261,756) (32) %

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.

Net revenue decreased $150.2 million to $135.5 million for the three months ended September 30, 2023, as compared to $285.7 million for the three months ended September 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 $85.7 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 decrease in connectivity revenue of $67.6 million was driven by declines in Wi-Fi, ethernet and MoCA revenues.

The increase in infrastructure revenues of $14.4 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 industrial and multi-market revenue of $11.3 million was related to decreased shipments of high-performance analog and component products.

Net revenue decreased $261.8 million to $567.9 million for the nine months ended September 30, 2023, as compared to $829.7 million for the nine months ended September 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 $224.2 million was primarily from gateway revenues, and to a lesser extent, cable, tuners and satellite.

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 decrease in connectivity revenue of $80.0 million was primarily driven by declines in Wi-Fi, MoCA and ethernet revenues.

The increase in infrastructure revenues of $40.9 million was primarily driven by an increase in wireless backhaul product shipments.

The increase in industrial and multi-market revenue of $1.5 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.

We currently expect that revenue will fluctuate in the future, from period-to-period, consistent with the cyclical nature of our industry, and we may experience further decline in revenue due to current macroeconomic conditions impacting customer demand for various products.

Cost of Net Revenue and Gross Profit

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

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

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

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% of net revenue 55 % 59 % 56 % 59 %

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.

Cost of net revenue decreased $56.7 million to $61.6 million for the three months ended September 30, 2023, as compared to $118.2 million for the three months ended September 30, 2022.

The decrease was primarily driven by lower sales and expenses.

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.

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

Cost of net revenue decreased $92.5 million to $250.8 million for the nine months ended September 30, 2023, as compared to $343.2 million for the nine months ended September 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.

Gross profit percentage declined for the nine months ended September 30, 2023, as compared to the nine months ended September 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 June 30, Six Months Ended June 30,

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

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

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% of net revenue 49 % 27 % 36 % 27 %

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.

Research and development expense decreased $10.1 million to $66.3 million for the three months ended September 30, 2023, as compared to $76.4 million for the three months ended September 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.

Research and development expense decreased $18.5 million to $204.3 million for the nine months ended September 30, 2023, as compared to $222.7 million for the nine months ended September 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;

however, we expect our research and development expenses to increase in future years when we expand our product portfolio and enhance existing products.

however, we expect our research and development expenses to increase in future years when we return to expanding our product portfolio and enhancing existing products.

Selling, General and Administrative

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

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

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

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% of net revenue 19 % 13 % 17 % 15 %

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.

Selling, general and administrative expense decreased $13.1 million to $25.4 million for the three months ended September 30, 2023, as compared to $38.5 million for the three months ended September 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.

Selling, general and administrative expense decreased $25.8 million to $97.8 million for the nine months ended September 30, 2023, as compared to $123.5 million for the nine months ended September 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;

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

however, we expect selling, general and administrative expenses to increase in future years when we return to growing our sales and marketing organization to expand into existing and new markets.

Impairment losses

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

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

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

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% of net revenue — % — % — % — %

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

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

Restructuring Charges

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

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

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

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% of net revenue — % — % 2 % — %

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.

Restructuring charges decreased $0.6 million to $0.1 million for the three months ended September 30, 2023, compared to $0.6 million for the three months ended September 30, 2022.

Restructuring charges increased $8.0 million to $9.1 million for the nine months ended September 30, 2023, compared to $1.1 million for the nine months ended September 30, 2022.

Restructuring charges in the nine months ended September 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 June 30, Six Months Ended June 30,

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

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

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% of net revenue (17) % (3) % (4) % (1) %

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.

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.

Interest and other income (expense), net changed by $16.3 million from expense of $7.4 million in the three months ended September 30, 2022 to expense of $23.7 million for the three months ended September 30, 2023.

The change in interest and other income (expense), net was primarily due to a loan ticking fee of approximately $18.3 million paid to lenders following the termination of the Silicon Motion merger, partially offset by an increase in interest income of $1.7 million on interest-bearing cash equivalents.

Interest and other income (expense), net changed by $19.1 million from expense of $5.6 million in the nine months ended September 30, 2022 to expense of $24.7 million for the nine months ended September 30, 2023.

The change in interest and other income (expense), net was primarily due to a $22.9 million change in other income (expense), net, from income of $1.7 million in the 2022 period to expense of $21.2 million in the 2023 period, partially offset by the impact of a $4.1 million increase in interest income.

The $22.9 million change in other income (expense), net primarily related to a loan ticking fee of approximately $18.3 million paid to lenders following the termination of the Silicon Motion merger, $2.5 million impact of change from $1.4 million in net unrealized holding loss in the 2022 period to net unrealized holding loss of $3.9 million recognized on equity securities that are marked to market value in other income (expense), net, and $3.4 million impact from foreign currency fluctuations, partially offset by a gain of $1.0 million related to partial curtailment of defined benefit pension obligations.

The $4.1 million increase in interest income is from interest-bearing cash equivalents.

Income Tax Provision (Benefit)

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

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

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

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Income tax provision (benefit) $ (1,689) $ 16,186 $ (17,875) (110) % $ 13,468 $ 39,525 $ (26,057) (66) %

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 income tax benefit for the three months ended September 30, 2023 was $1.7 million compared to an income tax provision of $16.2 million for the three months ended September 30, 2022.

The income tax provision for the nine months ended September 30, 2023 was $13.5 million compared to an income tax provision of $39.5 million for the nine months ended September 30, 2022.

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

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.

federal statutory rate for the nine months ended September 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 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 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

federal statutory rate for the nine months ended September 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 credits.

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 six months ended June 30, 2023 and 2022 at the incentive rate.

We recorded a tax provision in the nine months ended September 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 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.

As of September 30, 2023, we had cash and cash equivalents of $187.0 million, restricted cash of $1.1 million and net accounts receivable of $158.2 million.

Additionally, as of September 30, 2023, our working capital was $275.7 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.

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.

However, on July 26, 2023, we terminated the Merger Agreement and were relieved of our obligations to close.

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

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.

As of September 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 September 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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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.

Issuing additional shares of our common stock, if material, will result in dilution of existing shares outstanding.

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, 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.

Please refer to the Risk Factor entitled “ As of September 30, 2023, our aggregate indebtedness was $125.0 million, and we are subject to a variable amount of interest on the principal balance of our credit agreements and could continue to be adversely impacted by rising interest rates in the future.

Such indebtedness adversely affects our operating results and cash-flows as we satisfy our underlying interest and principal payment obligations and contains financial and operational covenants that could adversely affect our operational freedom or ability to pursue strategic transactions that we would otherwise consider to be in the best interest of stockholders, including obtaining additional indebtedness to finance such transactions.

In addition, rising interest rates may make it more difficult for us, our customers, and our distributors to obtain financing and service their interest and debt obligations, which in turn has an impact on customer demand for our products and our distributors' business ” 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, any damages from legal proceedings related to the termination of the Merger Agreement with Silicon Motion or any alleged breaches of the Merger Agreement that we are required to pay, or any amounts we agree to pay in any settlement 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 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:

As of September 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 $ 295,228 $ 32,445 $ 97,998 $ 160,739 $ 4,046

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.

Our planned capital expenditures as of September 30, 2023 were not material.

Our consolidated balance sheet at September 30, 2023 included $5.2 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:

June 30, 2023 December 31, 2022

September 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:

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

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Effect of exchange rate changes on cash, cash equivalents and restricted cash (1,861) (2,400)

Increase in cash, cash equivalents and restricted cash $ 37,286 $ 80,681

Increase (decrease) in cash, cash equivalents and restricted cash $ (205) $ 50,755

Cash Flows from Operating Activities

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 was $59.9 million for the nine months ended September 30, 2023.

Net cash provided by operating activities consisted of non-cash items of $103.1 million, and excess tax benefits and deferred income taxes totaling $6.0 million, partially offset by net loss of $34.6 million and changes in operating assets and liabilities of $14.5 million.

Non-cash items included in net loss for the nine months ended September 30, 2023 primarily consisted of depreciation and amortization of property, equipment, acquired intangible assets and leased right-of-use assets of $54.9 million, stock-based compensation of $38.8 million, unrealized holding loss on investments of $3.9 million, impairment losses of $2.4 million, and loss on disposal of property and equipment of $2.1 million.

Net cash provided by operating activities was $319.4 million for the nine months ended September 30, 2022.

Net cash provided by operating activities consisted of positive impact of net income of $94.0 million, non-cash items of $120.3 million, and changes in operating assets and liabilities of $91.5 million, partially offset by excess tax benefits and deferred income taxes totaling $13.6 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.

Non-cash items included in net income for the nine months ended September 30, 2022 primarily consisted of depreciation and amortization of property, equipment, acquired intangible assets and leased right-of-use assets of $61.9 million and stock-based compensation of $58.2 million.

Cash Flows from Investing Activities

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.

Net cash used in investing activities was $30.8 million for the nine months ended September 30, 2023 and consisted of 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), purchases of property and equipment of $12.2 million, and purchases of intangible assets of $6.2 million.

Net cash used in investing activities was $74.4 million for the nine months ended September 30, 2022 and consisted of purchases of long-term investments of $29.3 million, purchases of property and equipment of $24.6 million, purchases of intangible assets of $10.4 million, and proceeds loaned under notes receivable of $10.0 million.

Cash Flows from Financing Activities

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 was $27.5 million for the nine months ended September 30, 2023.

Net cash used in financing activities consisted primarily of payment of debt commitment, or ticking fees, of $18.3 million in connection with the termination of the merger with Silicon Motion and minimum tax withholding paid on behalf of employees for restricted stock units of $12.4 million, partially offset by net proceeds from issuance of our common stock upon exercise of stock options and purchases made under our ESPP of $3.2 million.

Net cash used in financing activities was $191.8 million for the nine months ended September 30, 2022.

Net cash used in financing activities consisted primarily of repayments of debt of $135.0 million, common stock repurchases of $31.5 million, and minimum tax withholding paid on behalf of employees for restricted stock units of $28.5 million, partially offset by $3.2 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.

We believe that our $187.0 million of cash and cash equivalents at September 30, 2023 will be sufficient to fund our projected operating requirements for at least the next twelve months.

As of September 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 September 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