MAXLINEAR, INC 10-Q

ITEM 1. FINANCIAL STATEMENTS MAXLINEAR, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except par value amounts) September 30, 2023 December 31, 2022 Assets (unaudited) Current assets: Cash and cash equivalents $ 187,028 $ 187,353 Short-term restricted cash 1,105 982 Short-term investments 14,612 18,529 Accounts receivable, net 158,232 170,971 Inventory 114,942 160,544 Prepaid expenses and other current assets 32,688 24,745 Total current assets 508,607 563,124 Long-term restricted cash 19 22 Property and equipment, net 69,484 79,018 Leased right-of-use assets 32,647 28,515 Intangible assets, net 82,643 109,316 Goodwill 318,456 306,739 Deferred tax assets 59,121 66,491 Other long-term assets 32,810 26,800 Total assets $ 1,103,787 $ 1,180,025 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 45,203 $ 68,576 Accrued price protection liability 71,643 113,274 Accrued expenses and other current liabilities 86,276 100,155 Accrued compensation 29,788 59,081 Total current liabilities 232,910 341,086 Long-term lease liabilities 28,017 23,353 Long-term debt 122,219 121,757 Other long-term liabilities 17,964 17,444 Total liabilities 401,110 503,640 Commitments and contingencies Stockholders’ equity: Preferred stock, $ 0.0001 par value; 25,000 shares authorized, no shares issued or outstanding — — Common stock, $ 0.0001 par value; 550,000 shares authorized; 81,561 shares issued and outstanding at September 30, 2023 and 78,745 shares issued and outstanding December 31, 2022 8 8 Additional paid-in capital 790,634 722,778 Accumulated other comprehensive loss ( 7,938 ) ( 1,021 ) Accumulated deficit ( 80,027 ) ( 45,380 ) Total stockholders’ equity 702,677 676,385 Total liabilities and stockholders’ equity $ 1,103,787 $ 1,180,025 See accompanying notes. 4 Table of Contents MAXLINEAR, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited; in thousands, except per share data) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net revenue $ 135,530 $ 285,730 $ 567,910 $ 829,666 Cost of net revenue 61,586 118,242 250,786 343,237 Gross profit 73,944 167,488 317,124 486,429 Operating expenses: Research and development 66,306 76,437 204,254 222,718 Selling, general and administrative 25,402 38,472 97,772 123,536 Impairment losses — — 2,438 — Restructuring charges 54 631 9,138 1,093 Total operating expenses 91,762 115,540 313,602 347,347 Income (loss) from operations ( 17,818 ) 51,948 3,522 139,082 Interest income 1,736 62 4,272 175 Interest expense ( 2,715 ) ( 2,711 ) ( 7,793 ) ( 7,476 ) Other income (expense), net ( 22,721 ) ( 4,705 ) ( 21,180 ) 1,704 Total other income (expense), net ( 23,700 ) ( 7,354 ) ( 24,701 ) ( 5,597 ) Income (loss) before income taxes ( 41,518 ) 44,594 ( 21,179 ) 133,485 Income tax provision (benefit) ( 1,689 ) 16,186 13,468 39,525 Net income (loss) $ ( 39,829 ) $ 28,408 $ ( 34,647 ) $ 93,960 Net income (loss) per share: Basic $ ( 0.49 ) $ 0.36 $ ( 0.43 ) $ 1.21 Diluted $ ( 0.49 ) $ 0.35 $ ( 0.43 ) $ 1.17 Shares used to compute net income (loss) per share: Basic 81,249 78,436 80,395 77,833 Diluted 81,249 80,060 80,395 80,331 See accompanying notes. 5 Table of Contents MAXLINEAR, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited; in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net income (loss) $ ( 39,829 ) $ 28,408 $ ( 34,647 ) $ 93,960 Other comprehensive loss, net of tax: Foreign currency translation adjustments, net of tax benefit of $ 64 and $ 229 for the three and nine months ended September 30, 2023, respectively, and net of tax benefit of $ 187 and $ 184 for the three and nine months ended September 30, 2022, respectively ( 1,855 ) ( 2,378 ) ( 3,125 ) ( 7,441 ) Reclassification adjustments of unrealized gain (loss) on pension and other defined benefit plans ( 3,792 ) — ( 3,792 ) — Total comprehensive income (loss) $ ( 45,476 ) $ 26,030 $ ( 41,564 ) $ 86,519 See accompanying notes. 6 Table of Contents MAXLINEAR, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY FISCAL QUARTERS ENDED SEPTEMBER 30, 2023 (unaudited; in thousands) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance at December 31, 2022 78,745 $ 8 $ 722,778 $ ( 1,021 ) $ ( 45,380 ) $ 676,385 Common stock issued pursuant to equity awards, net 1,236 — 31,926 — — 31,926 Stock-based compensation — — 16,460 — — 16,460 Other comprehensive loss — — — ( 192 ) — ( 192 ) Net income — — — — 9,533 9,533 Balance at March 31, 2023 79,981 8 771,164 ( 1,213 ) ( 35,847 ) 734,112 Common stock issued pursuant to equity awards, net 808 — ( 2,752 ) — — ( 2,752 ) Employee stock purchase plan 141 — 2,989 — — 2,989 Stock-based compensation — — 17,127 — — 17,127 Other comprehensive loss — — — ( 1,078 ) — ( 1,078 ) Net loss — — — — ( 4,351 ) ( 4,351 ) Balance at June 30, 2023 80,930 8 788,528 ( 2,291 ) ( 40,198 ) 746,047 Common stock issued pursuant to equity awards, net 631 — ( 3,017 ) — — ( 3,017 ) Stock-based compensation — — 5,123 — — 5,123 Other comprehensive loss — — — ( 5,647 ) — ( 5,647 ) Net loss — — — — ( 39,829 ) ( 39,829 ) Balance at September 30, 2023 81,561 $ 8 $ 790,634 $ ( 7,938 ) $ ( 80,027 ) $ 702,677 7 Table of Contents MAXLINEAR, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY FISCAL QUARTERS ENDED SEPTEMBER 30, 2022 (unaudited; in thousands) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance at December 31, 2021 76,778 $ 8 $ 657,485 $ 2,125 $ ( 170,420 ) $ 489,198 Common stock issued pursuant to equity awards, net 1,037 13,835 — — 13,835 Repurchase of common stock ( 440 ) — ( 26,297 ) — — ( 26,297 ) Stock-based compensation — — 18,599 — — 18,599 Other comprehensive loss — — — ( 1,075 ) — ( 1,075 ) Net income — — — — 33,586 33,586 Balance at March 31, 2022 77,375 8 663,622 1,050 ( 136,834 ) 527,846 Common stock issued pursuant to equity awards, net 999 — 310 — — 310 Minimum tax withholding on common stock issued — — ( 3,698 ) — — ( 3,698 ) Repurchase of common stock ( 124 ) — ( 5,214 ) — — ( 5,214 ) Employee stock purchase plan 83 — 2,911 — — 2,911 Stock-based compensation — — 19,464 — — 19,464 Other comprehensive loss — — — ( 3,988 ) — ( 3,988 ) Net income — — — — 31,966 31,966 Balance at June 30, 2022 78,333 8 677,395 ( 2,938 ) ( 104,868 ) 569,597 Common stock issued pursuant to equity awards, net 232 — ( 56 ) — — ( 56 ) Stock-based compensation — — 20,310 — — 20,310 Other comprehensive loss — — — ( 2,378 ) — ( 2,378 ) Net income — — — — 28,408 28,408 Balance at September 30, 2022 78,565 $ 8 $ 697,649 $ ( 5,316 ) $ ( 76,460 ) $ 615,881 See accompanying notes. 8 Table of Contents MAXLINEAR, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited; in thousands) Nine Months Ended September 30, 2023 2022 Operating Activities Net income (loss) $ ( 34,647 ) $ 93,960 Adjustments to reconcile net income (loss) to cash provided by operating activities: Amortization and depreciation 54,923 61,906 Impairment losses 2,438 — Amortization of debt issuance costs and accretion of discounts 1,858 1,462 Stock-based compensation 38,763 58,154 Deferred income taxes 6,502 23,321 Loss on disposal of property and equipment 2,057 167 Unrealized holding loss on investments 3,917 1,418 Impairment of leased right-of-use assets — 462 (Gain) loss on settlement of pension ( 1,008 ) — (Gain) loss on foreign currency 140 ( 3,245 ) Excess tax benefits on stock-based awards ( 529 ) ( 9,702 ) Changes in operating assets and liabilities: Accounts receivable 13,769 ( 57,976 ) Inventory 45,602 ( 34,267 ) Prepaid expenses and other assets ( 10,215 ) 3,957 Accounts payable, accrued expenses and other current liabilities ( 17,917 ) 82,389 Accrued compensation 8,776 32,187 Accrued price protection liability ( 45,036 ) 76,968 Lease liabilities ( 8,891 ) ( 8,485 ) Other long-term liabilities ( 557 ) ( 3,307 ) Net cash provided by operating activities 59,945 319,369 Investing Activities Purchases of property and equipment ( 12,180 ) ( 24,625 ) Purchases of intangible assets ( 6,198 ) ( 10,440 ) Cash used in acquisitions, net of cash acquired ( 12,384 ) — Proceeds loaned under notes receivable — ( 10,000 ) Purchases of investments — ( 29,325 ) Net cash used in investing activities ( 30,762 ) ( 74,390 ) Financing Activities Payment of debt commitment fees ( 18,325 ) — Repayment of debt — ( 135,000 ) Net proceeds from issuance of common stock 3,168 3,214 Minimum tax withholding paid on behalf of employees for restricted stock units ( 12,370 ) ( 28,527 ) Repurchase of common stock — ( 31,511 ) Net cash used in financing activities ( 27,527 ) ( 191,824 ) Effect of exchange rate changes on cash and cash equivalents ( 1,861 ) ( 2,400 ) Increase (decrease) in cash, cash equivalents and restricted cash ( 205 ) 50,755 Cash, cash equivalents and restricted cash at beginning of period 188,357 131,738 Cash, cash equivalents and restricted cash at end of period $ 188,152 $ 182,493 Supplemental disclosures of cash flow information: Cash paid for interest $ 6,978 $ 6,917 Cash paid for income taxes $ 25,336 $ 14,076 Supplemental disclosures of non-cash activities: Issuance of shares for payment of bonuses $ 38,348 $ 38,615 See accompanying notes. 9 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Organization and Summary of Significant Accounting Policies Description of Business MaxLinear, Inc. was incorporated in Delaware in September 2003. MaxLinear, Inc., together with its wholly owned subsidiaries, collectively referred to as MaxLinear, or the Company, is a provider of communications systems-on-chip (SoC) solutions used in broadband, mobile and wireline infrastructure, data center, and industrial and multi-market applications. MaxLinear is a fabless integrated circuit design company whose products integrate all or substantial portions of a high-speed communication system, including radio frequency (RF), high-performance analog, mixed-signal, digital signal processing, security engines, data compression and networking layers, and power management. MaxLinear’s customers include electronics distributors, module makers, original equipment manufacturers, or OEMs, and original design manufacturers, or ODMs, who incorporate the Company’s products in a wide range of electronic devices, including cable Data Over Cable Service Interface Specifications (DOCSIS), fiber and DSL broadband modems and gateways; Wi-Fi and wireline routers for home networking; radio transceivers and modems for 4G/5G base-station and backhaul infrastructure; fiber-optic modules for data center, metro, and long-haul transport networks; as well as power management and interface products used in these and many other markets. Basis of Presentation and Principles of Consolidation The accompanying unaudited consolidated financial statements include the accounts of MaxLinear, Inc. and its wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. All intercompany transactions and investments have been eliminated in consolidation. In the opinion of management, the Company’s unaudited consolidated interim financial statements contain adjustments, including normal recurring accruals necessary to present fairly the Company’s consolidated financial position, results of operations, comprehensive income, stockholders’ equity, and cash flows. The consolidated balance sheet as of December 31, 2022 was derived from the Company’s audited consolidated financial statements at that date. The accompanying unaudited consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission, or the SEC, on February 1, 2023, or the Annual Report. Interim results for the nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2023. The functional currency of certain foreign subsidiaries is the local currency. Accordingly, assets and liabilities of these foreign subsidiaries are translated at the current exchange rate at the balance sheet date and historical rates for equity. Revenue and expense components are translated at weighted average exchange rates in effect during the period. Gains and losses resulting from foreign currency translation are included as a component of stockholders’ equity. Foreign currency transaction gains and losses are included in the results of operations, and to date, have not been material. Use of Estimates and Significant Risks and Uncertainties The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes of the consolidated financial statements. Actual results could differ from those estimates. The Company is not aware of any specific event or circumstance that would require an update to its estimates or adjustments to the carrying value of its assets and liabilities as of October 25, 2023, the issuance date of this Quarterly Report on Form 10-Q. Actual results could differ from those estimates. Summary of Significant Accounting Policies Refer to the Company’s Annual Report for a summary of significant accounting policies. There have been no significant changes to the Company’s significant accounting policies during the nine months ended September 30, 2023. 10 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Recently Issued Accounting Pronouncements In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , to provide specific guidance to eliminate diversity in practice on how to recognize and measure acquired contract assets and contract liabilities from revenue contracts from customers in a business combination consistent with revenue contracts with customers not acquired in an acquisition. The amendments in this update provide that the acquirer should consider the terms of the acquired contracts, such as timing of payment, identify each performance obligation in the contracts, and allocate the total transaction price to each identified performance obligation on a relative standalone selling price basis as of contract inception (that is, the date the acquiree entered into the contracts) or contract modification to determine what should be recorded at the acquisition date. These amendments are effective for the Company beginning with fiscal year 2023. The impact of the adoption of the amendments in this update will depend on the magnitude of any customer contracts assumed in a business combination in 2023 and beyond. 2. Net Income Per Share Basic earnings per share, or EPS, is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted EPS is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period and the weighted-average number of dilutive common stock equivalents outstanding for the period determined using the treasury-stock method. For purposes of this calculation, common stock options, restricted stock units and restricted stock awards are considered to be common stock equivalents and are only included in the calculation of diluted EPS when their effect is dilutive. In periods in which the Company has a net loss, dilutive common stock equivalents are excluded from the calculation of diluted EPS. The table below presents the computation of basic and diluted EPS: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (in thousands, except per share amounts) Numerator: Net income (loss) $ ( 39,829 ) $ 28,408 $ ( 34,647 ) $ 93,960 Denominator: Weighted average common shares outstanding—basic 81,249 78,436 80,395 77,833 Dilutive common stock equivalents — 1,624 — 2,498 Weighted average common shares outstanding—diluted 81,249 80,060 80,395 80,331 Net income (loss) per share: Basic $ ( 0.49 ) $ 0.36 $ ( 0.43 ) $ 1.21 Diluted $ ( 0.49 ) $ 0.35 $ ( 0.43 ) $ 1.17 For the three months ended September 30, 2023 and 2022, the Company excluded common stock equivalents for outstanding stock-based awards, which represented potentially dilutive securities of 4.9 million and 2.5 million, respectively, from the calculation of diluted net income (loss) per share due to their anti-dilutive nature. For the nine months ended September 30, 2023 and 2022, the Company excluded common stock equivalents for outstanding stock-based awards, which represented potentially dilutive securities of 4.8 million and 1.5 million, respectively, from the calculation of diluted net income (loss) per share due to their anti-dilutive nature. 11 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 3. Business Combinations Terminated Silicon Motion Merger On May 5, 2022, MaxLinear 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 laws of the Cayman Islands, pursuant to which, among other things and subject to the terms and conditions thereof, MaxLinear agreed to acquire Silicon Motion pursuant to a statutory merger, under the laws of the Cayman Islands, 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, or SSDs, and other solid state storage devices. On July 26, 2023, MaxLinear terminated the Merger Agreement and notified Silicon Motion that MaxLinear was relieved of its 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. For these same reasons, under the terms of the Merger Agreement, MaxLinear was not required to pay a break-up fee or other fee to Silicon Motion 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. On August 16, 2023, Silicon Motion delivered to MaxLinear a notice, 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 MaxLinear arising from MaxLinear's alleged breaches of the Merger Agreement. On October 5, 2023, Silicon Motion filed a Notice of Arbitration with the Singapore International Arbitration Centre alleging that MaxLinear breached the Merger Agreement. See Note 15 for more information on legal matters 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 On January 17, 2023, the Company completed its acquisition of a business, or Company Y, pursuant to a Purchase and Sale Agreement, or the Purchase Agreement. The transaction consideration included $ 9.7 million in cash. In addition, Company Y stockholders may receive up to an additional $ 2.6 million in potential contingent consideration, subject to the acquired business satisfying certain personnel objectives by June 17, 2024. Company Y is headquartered in Bangalore, India and operates as a provider of engineering design services. Acquisition Consideration The following table summarizes the fair value of purchase price consideration to acquire Company Y (in thousands): Description Amount Fair value of purchase consideration: Cash $ 9,684 Contingent consideration (1) 2,200 Total purchase price $ 11,884 _________________ (1) The fair value of contingent consideration is based on applying the Monte Carlo simulation method to forecast achievement under various contingent consideration events which may result in up to $ 2.6 million in payments subject to the acquired business’s satisfying certain financial and personnel objectives by June 17, 2024 under the Purchase Agreement. Key inputs in 12 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) the valuation include forecasted revenue, revenue volatility and discount rate. Underlying forecast mathematics were based on Geometric Brownian Motion in a risk-neutral framework and discounted back to the applicable period in which the accumulative thresholds were achieved at discount rates commensurate with the risk and expected payout term of the contingent consideration. Purchase Price Allocation An allocation of purchase price as of the January 17, 2023 acquisition closing date based upon an estimate of the fair value of the assets acquired and the liabilities assumed by the Company in the acquisition primarily includes $ 0.2 million in net operating assets, with $ 11.7 million in goodwill. Assumptions in the Allocations of Purchase Price Management prepared the purchase price allocations for Company Y and in doing so considered or relied in part upon reports of a third party valuation expert to calculate the fair value of certain acquired assets, which primarily included an acquired workforce and contingent consideration. Certain stockholders that are employees of Company Y were not required to remain employed in order to receive the contingent consideration; accordingly, the fair value of the contingent consideration was accounted for as a portion of the purchase consideration. Estimates of fair value require management to make significant estimates and assumptions. The goodwill recognized is attributable primarily to the acquired workforce. Certain liabilities included in the purchase price allocations are based on management’s best estimates of the amounts to be paid or settled and based on information available at the time the purchase price allocations were prepared. Goodwill recorded in connection with Company Y was $ 11.7 million as of September 30, 2023. The Company does not expect to deduct any of the acquired goodwill for tax purposes. 4. Restructuring Activity During the three months ended March 31, 2023, the Company entered into a plan of restructuring to reduce its workforce as a result of internal resource alignment and cost saving measures. Costs associated with this plan of restructuring for the nine months ended September 30, 2023 are included in the table below. The following table presents the activity related to restructuring plans, which is included in restructuring charges in the consolidated statements of operations: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (in thousands) Employee separation expenses $ ( 13 ) $ 631 $ 8,863 $ 631 Lease related charges — — 42 462 Other 67 — 233 — $ 54 $ 631 $ 9,138 $ 1,093 13 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The following table presents a roll-forward of the Company’s restructuring liability for the nine months ended September 30, 2023. The restructuring liability is included in accrued expenses and other current liabilities and other long-term liabilities in the consolidated balance sheets. Employee Separation Expenses Lease Related Charges Other Total (in thousands) Liability as of December 31, 2022 $ 971 $ 103 $ 8 $ 1,082 Restructuring charges 8,863 42 233 9,138 Cash payments ( 8,100 ) ( 142 ) ( 219 ) ( 8,461 ) Non-cash charges and adjustments ( 9 ) 29 ( 47 ) ( 27 ) Liability as of September 30, 2023 1,725 32 ( 25 ) 1,732 Less: current portion as of September 30, 2023 ( 1,725 ) ( 32 ) 25 ( 1,732 ) Long-term portion as of September 30, 2023 $ — $ — $ — $ — 5. Goodwill and Intangible Assets Goodwill Goodwill arises from the acquisition method of accounting for business combinations and represents the excess of the purchase price over the fair value of the net assets and other identifiable intangible assets acquired. The fair values of net tangible assets and intangible assets acquired are based upon preliminary valuations and the Company’s estimates and assumptions are subject to change within the measurement period (potentially up to one year from the acquisition date). The following table presents the changes in the carrying amount of goodwill for the periods indicated: Nine Months Ended September 30, 2023 2022 (in thousands) Beginning balance $ 306,739 $ 306,668 Acquisitions (Note 3) 11,717 — Adjustments — 71 Ending balance $ 318,456 $ 306,739 The Company performs an annual goodwill impairment assessment on October 31st each year, using a quantitative assessment comparing the fair value of each reporting unit, which the Company has determined to be the entity itself, with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recorded. In addition to its annual review, the Company performs a test of impairment when indicators of impairment are present. During the nine months ended September 30, 2023 and 2022, there were no indications of impairment of the Company’s goodwill balances. 14 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Acquired Intangibles Finite-lived Intangible Assets The following table sets forth the Company’s finite-lived intangible assets resulting from business acquisitions and other purchases, which are amortized over their estimated useful lives: September 30, 2023 December 31, 2022 Weighted Average Useful Life (in Years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Value Accumulated Amortization Net Carrying Amount (in thousands) Licensed technology 6.9 $ 19,974 $ ( 1,184 ) $ 18,790 $ 21,764 $ ( 580 ) $ 21,184 Developed technology 6.9 311,261 ( 255,303 ) 55,958 311,261 ( 228,532 ) 82,729 Trademarks and trade names 6.2 14,800 ( 14,240 ) 560 14,800 ( 13,461 ) 1,339 Customer relationships 5.0 128,800 ( 125,962 ) 2,838 128,800 ( 124,807 ) 3,993 Backlog 5.3 500 ( 500 ) — 500 ( 429 ) 71 Patents 7.0 4,781 ( 284 ) 4,497 — — — 6.1 $ 480,116 $ ( 397,473 ) $ 82,643 $ 477,125 $ ( 367,809 ) $ 109,316 The following table sets forth amortization expense associated with finite-lived intangible assets, which is included in the consolidated statements of operations as follows: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (in thousands) (in thousands) Cost of net revenue $ 8,581 $ 9,480 $ 27,372 $ 30,192 Research and development — 1 2 3 Selling, general and administrative 653 1,541 2,290 10,643 $ 9,234 $ 11,022 $ 29,664 $ 40,838 Amortization of finite-lived intangible assets in cost of net revenue in the consolidated statements of operations results primarily from acquired developed technology. The following table sets forth the activity related to finite-lived intangible assets: Nine Months Ended September 30, 2023 2022 (in thousands) Beginning balance $ 109,316 $ 149,940 Additions 6,198 10,440 Other disposals ( 769 ) — Transfers to developed technology from IPR&D — 2,600 Amortization ( 29,664 ) ( 40,838 ) Impairment losses ( 2,438 ) — Ending balance $ 82,643 $ 122,142 The Company regularly reviews the carrying amount of its long-lived assets subject to depreciation and amortization, as well as the related useful lives, to determine whether indicators of impairment may exist that warrant adjustments to carrying values or estimated useful lives. An impairment loss is recognized when the sum of the expected future undiscounted net cash flows is less than the carrying amount of the asset. Should impairment exist, the impairment loss is measured based on the excess of the carrying amount of the asset over the asset’s fair value. During the three months ended September 30, 2023 and 2022, no impairment losses related to finite-lived intangible assets were recognized. During the nine months ended September 15 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 30, 2023 and 2022, impairment losses related to finite-lived intangible assets of $ 2.4 million and $ 0 , respectively, were recognized. The impairment loss was attributable to certain purchased licensed technology. The following table presents future amortization of the Company’s finite-lived intangible assets at September 30, 2023: Amount (in thousands) 2023 (3 months) $ 9,292 2024 24,524 2025 14,839 2026 13,730 2027 9,882 Thereafter 10,376 Total $ 82,643 6. Financial Instruments The composition of financial instruments is as follows: September 30, 2023 Net Unrealized Cost Gains Losses Fair Value (in thousands) Assets Marketable equity investments $ 20,005 $ — $ ( 5,393 ) $ 14,612 December 31, 2022 Net Unrealized Cost Gains Losses Fair Value Assets (in thousands) Marketable equity investments $ 20,005 $ — $ ( 1,476 ) $ 18,529 September 30, 2023 December 31, 2022 Fair Value Fair Value (in thousands) Liabilities Contingent consideration (Note 3) $ 2,690 2,941 16 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) At September 30, 2023, the Company held marketable equity investments with an aggregate fair value of $ 14.6 million that were in an unrealized loss position. The net unrealized loss of $ 5.4 million as of September 30, 2023 represents stock price fluctuations in the underlying securities held. Unrealized gains and losses on such investments are recorded to other income (expense), net in the consolidated statement of operations. The Company evaluates securities for other-than-temporary impairment on a quarterly basis. Impairment is evaluated considering numerous factors, and their relative significance varies depending on the situation. Factors considered include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the issuer; including changes in the financial condition of any underlying collateral of the security; any downgrades of the security by analysts or rating agencies; nonpayment of any scheduled interest, or the reduction or elimination of dividends; as well as our intent and ability to hold the security in order to allow for an anticipated recovery in fair value. The fair values of the Company’s financial instrument is the amount that would be received in an asset sale or paid to transfer a liability in an orderly transaction between unaffiliated market participants and is recorded using a hierarchical disclosure framework based upon the level of subjectivity of the inputs used in measuring assets and liabilities. The levels are described below: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data. Level 3: Unobservable inputs are used when little or no market data is available. The Company classifies its financial instruments that are categorized within Level 1 or Level 2 of the fair value hierarchy on the basis of valuations using quoted market prices or alternate pricing sources and models utilizing market observable inputs, respectively. The marketable equity investments held by the Company have been valued on the basis of quoted market prices and is therefore classified as Level 1. The contingent consideration liability as of September 30, 2023 is associated with the Company’s acquisitions of Company X in December 2021 and Company Y in January 2023 (Note 3) and the contingent consideration liability as of December 31, 2022 is associated with the Company’s acquisition of Company X. The contingent consideration liability is classified as a Level 3 financial instrument. The contingent consideration as it relates to Company X was subject to the acquired business’s satisfaction of certain financial and personnel objectives by March 31, 2023, while the contingent consideration as it relates to Company Y is subject to the acquired business’s satisfaction of certain personnel objectives by June 17, 2024. The financial and personnel objectives of Company X were achieved by March 31, 2023 and contingent consideration for Company X of $ 2.7 million was paid in April 2023 with the remaining $ 0.3 million to be paid in December 2023. The fair value of contingent consideration is based on (1) applying the Monte Carlo simulation method, with underlying forecast mathematics based on Geometric Brownian motion in a risk-neutral framework, to forecast achievement of the acquired business’ financial objectives, if applicable, under various possible contingent consideration events and (2) a probability based methodology using management’s inputs and assumptions to forecast achievement of the acquired business’ personnel objectives which included an assumption of total payments up to $ 3.0 million to Company X and an assumption of total payments up to $ 2.6 million to Company Y. Key inputs in the valuation include forecasted revenue, revenue volatility, discount rate and discount term as it relates to the financial objectives and probability of achievement, discount term and discount rate as it relates to the personnel objectives. 17 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Fair Value Measurements at September 30, 2023 Balance at September 30, 2023 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (in thousands) Assets Marketable equity securities $ 14,612 $ 14,612 $ — $ — Liabilities Contingent consideration $ 2,690 $ — $ — $ 2,690 Fair Value Measurements at December 31, 2022 Balance at December 31, 2022 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (in thousands) Assets Marketable equity securities $ 18,529 $ 18,529 $ — $ — Liabilities Contingent consideration $ 2,941 $ — $ — $ 2,941 The following summarizes the activity in Level 3 financial instruments: Nine Months Ended September 30, 2023 2022 Contingent Consideration Beginning balance $ 2,941 $ 2,700 Acquisitions (1) 2,200 — Payments ( 2,700 ) — Accretion of discount (1) 249 182 Ending balance $ 2,690 $ 2,882 _____________________ (1) These changes to the balance associated with the estimated fair value of contingent consideration for the nine months ended September 30, 2023 were due to the addition of contingent consideration associated with the acquisition of Company Y and accretion of discounts on contingent consideration. For the nine months ended September 30, 2023, there were no transfers between Level 1, Level 2, or Level 3 financial instruments. Financial Instruments Not Recorded at Fair Value on a Recurring Basis Some of the Company’s financial instruments are recorded at amounts that approximate fair value due to their liquid or short-term nature or by election on investments in privately-held entities as described below. Such financial assets and financial liabilities include: cash and cash equivalents, restricted cash, net receivables, investments in privately-held entities, certain other assets, accounts payable, accrued price protection liability, accrued expenses, accrued compensation costs, and other current liabilities. 18 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The Company’s long-term debt is not recorded at fair value on a recurring basis, but is measured at fair value for disclosure purposes (Note 8). Included in other long-term assets are investments in privately held entities of $ 11.8 million as of September 30, 2023 and December 31, 2022. The Company does not have the ability to exercise significant influence or control over such entity and has accounted for the investments as financial instruments. Given that fair values for such investments are not readily determinable, the Company is electing to measure these investments at cost, less any impairment, and adjust the carrying value to fair value if any observable price changes for similar investments in the same entity are identified. 7. Balance Sheet Details Cash, cash equivalents and restricted cash consist of the following: September 30, 2023 December 31, 2022 (in thousands) Cash and cash equivalents $ 187,028 $ 187,353 Short-term restricted cash 1,105 982 Long-term restricted cash 19 22 Total cash, cash equivalents and restricted cash $ 188,152 $ 188,357 As of September 30, 2023 and December 31, 2022, cash and cash equivalents included money market funds of approximately $ 77.1 million and $ 0.4 million, respectively. As of September 30, 2023 and December 31, 2022, the Company had restricted cash of approximately $ 1.1 million and $ 1.0 million, respectively. The cash is restricted in connection with guarantees for certain import duties and office leases. Inventory consists of the following: September 30, 2023 December 31, 2022 (in thousands) Work-in-process $ 63,827 $ 97,840 Finished goods 51,115 62,704 $ 114,942 $ 160,544 Property and equipment, net consists of the following: Useful Life (in Years) September 30, 2023 December 31, 2022 (in thousands) Furniture and fixtures 5 $ 3,902 $ 3,924 Machinery and equipment 3 - 5 74,126 74,258 Masks and production equipment 2 - 5 54,240 50,970 Software 3 11,367 10,111 Leasehold improvements 1 - 5 34,851 34,236 Construction in progress N/A 1,168 7,602 179,654 181,101 Less: accumulated depreciation and amortization ( 110,170 ) ( 102,083 ) $ 69,484 $ 79,018 Depreciation expense for the three months ended September 30, 2023 and 2022 was $ 5.6 million and $ 5.1 million, respectively. Depreciation expense for the nine months ended September 30, 2023 and 2022 was $ 18.5 million and $ 14.7 million, respectively. 19 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) In March 2022, the Company entered into a note receivable with a supplier for $ 10.0 million which is included in other long-term assets as of September 30, 2023 and December 31, 2022, respectively. In September 2023, the terms of this note receivable were renegotiated, and the first initial repayment of $ 1.5 million is now due by March 31, 2025, and annual repayments of $ 1.7 million per year are due annually thereafter by March 31, from 2026 through 2030, provided that certain production utilization targets for the prior year are met. Previously, repayments of $ 2.0 million were due annually by March 31, 2024 through 2027. Accrued price protection liability consists of the following activity: Nine Months Ended September 30, 2023 2022 (in thousands) Beginning balance $ 113,274 $ 40,509 Charged as a reduction of revenue 50,092 142,473 Payments ( 91,723 ) ( 66,391 ) Ending balance $ 71,643 $ 116,591 Accrued expenses and other current liabilities consist of the following: September 30, 2023 December 31, 2022 (in thousands) Accrued technology license payments $ 4,682 $ 7,402 Accrued professional fees 5,366 4,072 Accrued engineering and production costs 6,304 2,560 Accrued restructuring 1,732 1,082 Accrued royalty 620 1,662 Short-term lease liabilities 8,749 10,489 Accrued customer credits 2,059 304 Income tax liability 802 8,895 Customer contract liabilities 1,397 1,072 Accrued obligations to customers for price adjustments 45,303 52,392 Accrued obligations to customers for stock rotation rights 755 605 Contingent consideration - current portion 2,689 2,941 Other 5,818 6,679 $ 86,276 $ 100,155 The following table summarizes the change in balances of accumulated other comprehensive income (loss) by component: Cumulative Translation Adjustments Pension and Other Defined Benefit Plan Obligation Total (in thousands) Balance at December 31, 2022 $ ( 5,180 ) $ 4,159 $ ( 1,021 ) Other comprehensive loss before reclassifications, net of tax ( 3,125 ) ( 3,792 ) ( 6,917 ) Balance at September 30, 2023 $ ( 8,305 ) $ 367 $ ( 7,938 ) 20 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 8. Debt Debt The carrying amount of the Company’s long-term debt consists of the following: September 30, 2023 December 31, 2022 (in thousands) Principal balance: Initial term loan under the June 23, 2021 credit agreement $ 125,000 $ 125,000 Total principal balance 125,000 125,000 Less: Unamortized debt discount ( 602 ) ( 695 ) Unamortized debt issuance costs ( 2,179 ) ( 2,548 ) Net carrying amount of long-term debt 122,219 121,757 Less: current portion of long-term debt — — Long-term debt, non-current portion $ 122,219 $ 121,757 As of September 30, 2023 and December 31, 2022, the weighted average effective interest rate on debt was approximately 7.4 % and 3.8 %, respectively. During the three months ended September 30, 2023 and 2022, the Company recognized total amortization of debt discount and debt issuance costs of $ 0.2 million and $ 0.2 million, respectively, to interest expense. During the nine months ended September 30, 2023 and 2022, the Company recognized total amortization of debt discount and debt issuance costs of $ 0.5 million and $ 0.4 million The approximate aggregate fair value of the term loans outstanding as of September 30, 2023 and December 31, 2022 was $ 136.7 million and $ 137.4 million, respectively, which was estimated on the basis of inputs that are observable in the market and which is considered a Level 2 measurement method in the fair value hierarchy. As of September 30, 2023, the outstanding principal balance of $ 125.0 million is due in full on June 23, 2028, upon maturity of the loan. Initial Term Loan and Revolving Facility under the June 23, 2021 Credit Agreement On June 23, 2021, the Company entered into a Credit Agreement, or the June 23, 2021 Credit Agreement, by and among the Company, the lenders from time to time party thereto, and Wells Fargo Bank, National Association, as administrative agent and collateral agent, that provides for a senior secured term B loan facility, or the “Initial Term Loan under the June 23, 2021 Credit Agreement,” in an aggregate principal amount of $ 350.0 million and a senior secured revolving credit facility, or the “Revolving Facility,” in an aggregate principal amount of up to $ 100.0 million. The proceeds of the Initial Term Loan under the June 23, 2021 Credit Agreement were used (i) to repay in full all outstanding indebtedness under that certain Credit Agreement dated May 12, 2017, by and among the Company, MUFG Bank Ltd., as administrative agent and MUFG Union Bank, N.A., as collateral agent and the lenders from time to time party thereto (as amended by Amendment No. 1, dated July 31, 2020) and (ii) to pay fees and expenses incurred in connection therewith. The remaining proceeds of the Initial Term Loan under the June 23, 2021 Credit Agreement are available for general corporate purposes and the proceeds of the Revolving Facility may be used to finance the working capital needs and other general corporate purposes of the Company and its subsidiaries. As of September 30, 2023, the Revolving Facility was undrawn. Under the terminated amended and restated commitment letter with Wells Fargo Bank and other lenders entered into in connection with the previously pending (now terminated) merger with Silicon Motion (Note 3), the Company had expected to repay the remaining outstanding term loans under this agreement upon closing of the merger. 21 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The June 23, 2021 Credit Agreement permits the Company 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, 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. Incremental loans are subject to certain additional conditions, including obtaining additional commitments from the lenders then party to the June 23, 2021 Credit Agreement or new lenders. Under the June 23, 2021 Credit Agreement, the Initial Term Loan 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 Term SOFR 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 Term SOFR rate, subject to a floor of 0.50 %, plus an applicable margin of 2.25 %. Loans under the Revolving Facility initially bear interest, at a per annum rate equal to either (i) a base rate (as calculated above) plus an applicable margin of 0.00 %, or (ii) an adjusted Term SOFR rate (as calculated above) plus an applicable margin of 1.00 %. Following delivery of financial statements for the Company’s fiscal quarter ending June 30, 2021, the applicable margin for loans under the Revolving Facility will range from 0.00 % to 0.75 % in the case of base rate loans and 1.00 % to 1.75 % in the case of Term SOFR rate loans, in each case, depending on the Company’s secured net leverage ratio as of the most recently ended fiscal quarter. The Company is required to pay commitment fees ranging from 0.175 % to 0.25 % per annum on the daily undrawn commitments under the Revolving Facility, depending on the Company’s secured net leverage ratio as of the most recently ended fiscal quarter. Commencing on September 30, 2021, the Initial Term Loan under the June 23, 2021 Credit Agreement will amortize in equal quarterly installments equal to 0.25 % of the original principal amount of the Initial Term Loan under the June 23, 2021 Credit Agreement, with the balance payable on the maturity date. The June 23, 2021 Credit Agreement was amended on June 29, 2023 to implement a benchmark replacement. The Company is required to make mandatory prepayments of the outstanding principal amount of term loans under the June 23, 2021 Credit Agreement with the net cash proceeds from the disposition of certain assets and the receipt of insurance proceeds upon certain casualty and condemnation events, in each case, to the extent not reinvested within a specified time period, from excess cash flow beyond stated threshold amounts, and from the incurrence of certain indebtedness. The Company has the right to prepay its term loans under the June 23, 2021 Credit Agreement, in whole or in part, at any time without premium or penalty, subject to certain limitations and a 1.0 % soft call premium applicable during the first six months following the closing date of the June 23, 2021 Credit Agreement. The Initial Term Loan under the June 23, 2021 Credit Agreement will mature on June 23, 2028, at which time all outstanding principal and accrued and unpaid interest on the Initial Term Loan under the June 23, 2021 Credit Agreement must be repaid. The Revolving Facility will mature on June 23, 2026, at which time all outstanding principal and accrued and unpaid interest under the Revolving Facility must be repaid. The Company is also obligated to pay fees customary for a credit facility of this size and type. The Company’s obligations under the June 23, 2021 Credit Agreement are required to be guaranteed by certain of its domestic subsidiaries meeting materiality thresholds set forth in the June 23, 2021 Credit Agreement. Such obligations, including the guaranties, are secured by substantially all of the assets of the Company and the subsidiary guarantors pursuant to a Security Agreement, dated as of June 23, 2021, by and among the Company, the subsidiary guarantors from time to time party thereto, and Wells Fargo Bank, National Association, as collateral agent. The June 23, 2021 Credit Agreement contains customary affirmative and negative covenants, including covenants limiting the ability of the Company and its restricted subsidiaries to, among other things, incur debt, grant liens, undergo certain fundamental changes, make investments, make certain restricted payments, and sell assets, in each case, subject to limitations and exceptions set forth in the June 23, 2021 Credit Agreement. The Revolving Facility also prohibits the Company from having a secured net leverage ratio in excess of 3.50 :1.00 (subject to a temporary increase to 3.75 :1.00 following the consummation of certain material permitted acquisitions) as of the last day of any fiscal quarter of the Company (commencing with the fiscal quarter ending September 30, 2021) if the aggregate borrowings under the Revolving Facility exceed 1 % of the aggregate commitments thereunder (subject to certain exceptions set forth in the June 23, 2021 Credit Agreement) as of such date. As of September 30, 2023, the Company was in compliance with such covenants. The June 23, 2021 Credit Agreement also contains customary events of default that include, among other things, certain payment defaults, cross defaults to other indebtedness, covenant defaults, change in control defaults, judgment defaults, and bankruptcy and insolvency defaults. If an event of default exists, the lenders may require immediate payment of all obligations under the June 23, 2021 Credit Agreement and may exercise certain other rights and remedies provided for under the June 23, 2021 Credit Agreement , the other loan documents and applicable law. The debt is carried at its principal amount, net of unamortized debt discount and issuance costs, and is not adjusted to fair value each period. The issuance date fair value of the liability component of the debt in the amount of $ 350.2 million was 22 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) determined using a discounted cash flow analysis, in which the projected interest and principal payments were discounted back to the issuance date of the term loan at a market interest rate for nonconvertible debt of 3.4 %, which represents a Level 2 fair value measurement. The debt discount of $ 0.9 million and debt issuance costs of $ 2.9 million associated with the Initial Term Loan under the June 23, 2021 Credit Agreement are being amortized to interest expense using the effective interest method over its seven-year term. Debt issuance costs of $ 0.4 million associated with the Revolving Facility are being amortized to interest expense over its five-year term. 9. Stock-Based Compensation Employee Stock-Based Compensation Plans At September 30, 2023, the Company had stock-based compensation awards outstanding under the following plans: the 2010 Equity Incentive Plan, as amended, or 2010 Plan, and the 2010 Employee Stock Purchase Plan, or ESPP. Refer to the Company’s Annual Report for a summary of its stock-based compensation and equity plans as of December 31, 2022. There have been no material changes to the terms of the Company’s equity incentive plans during the nine months ended September 30, 2023. As of September 30, 2023, the number of shares of common stock available for future issuance under the 2010 Plan was 15,250,925 shares. As of September 30, 2023, the number of shares of common stock available for future issuance under the ESPP was 5,749,724 shares. Employee Incentive Bonus The Company mostly settles bonus awards for its employees, including executives, in shares of common stock under the 2010 Equity Incentive Plan. When bonus awards are settled in common stock issued under the 2010 Equity Incentive Plan, the number of shares issuable to plan participants is determined based on the closing price of the Company’s common stock as determined in trading on the applicable stock exchange, on a date approved by the Board of Directors. In connection with the Company’s bonus programs, in February 2023, the Company issued 0.9 million freely-tradable (subject to certain restrictions for affiliates) shares of the Company’s common stock in settlement of bonus awards to employees, including executives, for the 2022 performance period. At September 30, 2023, the Company has an accrual of $ 8.4 million for bonus awards for employees for year-to-date achievement in the 2023 performance period. The Company’s compensation committee retains discretion to effect payment in cash, stock, or a combination of cash and stock. Stock-Based Compensation The Company recognizes stock-based compensation in the consolidated statements of operations, based on the department to which the related employee reports, as follows: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (in thousands) (in thousands) Cost of net revenue $ 170 $ 188 $ 626 $ 513 Research and development 9,436 10,635 33,128 30,294 Selling, general and administrative ( 4,488 ) 9,308 5,009 27,347 $ 5,118 $ 20,131 $ 38,763 $ 58,154 The total unrecognized compensation cost related to unvested restricted stock units as of September 30, 2023 was $ 152.4 million, and the weighted average period over which these equity awards are expected to vest is 2.54 years. The total unrecognized compensation cost related to unvested performance-based restricted stock units as of September 30, 2023 was $ 0.1 million, and the weighted average period over which these equity awards are expected to vest is 1.39 years. There was no unrecognized compensation cost related to unvested stock options as of September 30, 2023. 23 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Restricted Stock Units A summary of the Company’s restricted stock unit activity is as follows: Number of Shares (in thousands) Weighted-Average Grant-Date Fair Value per Share Outstanding at December 31, 2022 6,080 $ 35.01 Granted 3,045 38.51 Vested ( 2,779 ) 34.24 Canceled ( 470 ) 38.44 Outstanding at September 30, 2023 5,876 $ 36.91 Performance-Based Restricted Stock Units Performance-based restricted stock units are eligible to vest at the end of each year-long performance period, as defined in the underlying agreement, in a three-year performance period based on the Company’s annual growth rate in net sales and non-GAAP diluted earnings per share (subject to certain adjustments) over baseline results relative to the growth rates for a peer group of companies for the same metrics and periods. For the performance-based restricted stock units granted to date, 60 % of each performance-based award is subject to the net sales metric for the performance period and 40 % is subject to the non-GAAP diluted earnings per share metric for the performance period. The maximum percentage for a particular metric is 250 % of the target number of units subject to the award related to that metric, however, vesting of the performance stock units is capped at 30 % and 100 %, respectively, of the target number of units subject to the award in years one and two, respectively, of the three-year performance period. As of September 30, 2023, achievement to date under the performance metrics specified in the respective award agreements are based on its expected revenue and non-GAAP diluted EPS results over the performance periods and calculated growth rates relative to its peers’ expected results based on data available, as defined in the respective award agreements. To the extent any prior achievement levels are no longer probable, any compensation expense recorded is adjusted to the revised achievement levels. A summary of the Company’s performance-based restricted stock unit activity is as follows: Number of Shares (in thousands) Weighted-Average Grant-Date Fair Value per Share Outstanding at December 31, 2022 1,950 $ 34.07 Granted (1) 1,039 32.66 Vested ( 248 ) 22.03 Canceled ( 88 ) 41.75 Outstanding at September 30, 2023 2,653 $ 34.38 ________________ (1) Number of shares granted is based on the maximum percentage achievable in the performance-based restricted stock unit award. Employee Stock Purchase Rights and Stock Options Employee Stock Purchase Rights During the nine months ended September 30, 2023 and 2022, there were 140,631 and 83,404 shares of common stock purchased under the ESPP at a weighted average price of $ 21.25 and $ 34.92 , respectively. 24 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The fair values of employee stock purchase rights were estimated using the Black-Scholes option pricing model at their respective grant date using the following assumptions: Nine Months Ended September 30, 2023 2022 Weighted-average grant date fair value per share $ 7.56 - $ 11.97 $ 14.25 - $ 18.82 Risk-free interest rate 4.54 % - 5.24 % 0.06 % - 1.54 % Dividend yield — % — % Expected life (in years) 0.50 0.50 Volatility 51.73 % - 59.78 % 43.83 % - 69.74 % The risk-free interest rate assumption was based on rates for United States (U.S.) Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. The expected term is the duration of the offering period for each grant date. In addition, the estimated volatility incorporates the historical volatility over the expected term based on the Company’s daily closing stock prices. Stock Options A summary of the Company’s stock options activity is as follows: Number of Options (in thousands) Weighted-Average Exercise Price Weighted-Average Contractual Term (in years) Aggregate Intrinsic Value (in thousands) Outstanding at December 31, 2022 393 $ 17.22 Exercised ( 15 ) 15.30 Outstanding at September 30, 2023 378 $ 17.30 1.76 $ 1,781 Vested and expected to vest at September 30, 2023 378 $ 17.30 1.76 $ 1,781 Exercisable at September 30, 2023 378 $ 17.30 1.76 $ 1,781 No stock options were granted by the Company during the nine months ended September 30, 2023. The intrinsic value of stock options exercised was $ 47.0 thousand and $ 0.1 million in the three months ended September 30, 2023 and 2022, respectively. The intrinsic value of stock options exercised was $ 0.2 million and $ 0.9 million in the nine months ended September 30, 2023 and 2022, respectively. Cash received from exercise of stock options was $ 0.1 million and $ 0.1 million during the three months ended September 30, 2023 and 2022, respectively. Cash received from exercise of stock options was $ 0.2 million and $ 0.3 million during the nine months ended September 30, 2023 and 2022, respectively. The tax benefit from stock options exercised was $ 0.1 million and $ 0.2 million during the three months ended September 30, 2023 and 2022, respectively. The tax benefit from stock options exercised was $ 0.4 million and $ 1.2 million during the nine months ended September 30, 2023 and 2022, respectively. 25 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 10. Income Taxes The provision for income taxes primarily relates to projected federal, state, and foreign income taxes. To determine the quarterly provision for income taxes, the Company uses an estimated annual effective tax rate, which is generally based on expected annual income and statutory tax rates in the various jurisdictions in which the Company operates. In addition, the tax effects of certain significant or unusual items are recognized discretely in the quarter during which they occur and can be a source of variability in the effective tax rates from quarter to quarter. For the nine months ended September 30, 2023, the Company’s annual effective tax rate results in significant variation in the customary relationship between income tax expense and pre-tax income in interim periods. The Company is using the actual effective tax rate for the nine months ended September 30, 2023 as the best estimate of the annual effective tax rate. The Company utilizes the asset and liability method of accounting for income taxes, under which deferred taxes are determined based on temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the temporary differences reverse. The Company records a valuation allowance to reduce its deferred taxes to the amount it believes is more likely than not to be realized. In making such determination, the Company considers all available positive and negative evidence quarterly, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance. Forming a conclusion that a valuation allowance is not required is difficult when there is negative evidence such as cumulative losses in recent years. Based upon the Company’s review of all positive and negative evidence, the Company continues to have a valuation allowance on its state deferred tax assets, certain of its federal deferred tax assets, and certain foreign deferred tax assets in jurisdictions where the Company has cumulative losses or otherwise is not expected to utilize certain tax attributes. The Company does not incur expense or benefit in certain tax-free jurisdictions in which it operates. The Company recorded an income tax benefit of $ 1.7 million in the three months ended September 30, 2023 and an income tax provision of $ 16.2 million in the three months ended September 30, 2022. The Company recorded an income tax provision of $ 13.5 million in the nine months ended September 30, 2023 and an income tax provision of $ 39.5 million in the nine months ended September 30, 2022. The difference between the Company’s effective tax rate and the 21.0% U.S. 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, and release of uncertain tax positions under ASC 740-10. 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 the Company’s effective tax rate and the 21.0% U.S. 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 a tax on global intangible low-taxed income, stock based compensation, excess tax benefits related to stock-based compensation, release of uncertain tax positions under ASC 740-10, and release of the valuation allowance on certain federal research and development credits. The permanent tax item related to global intangible low-taxed income also reflects recent legislative changes requiring the capitalization of research and experimentation costs, as well as limitations on the creditability of certain foreign income taxes. Income tax positions must meet a more-likely-than-not threshold to be recognized. Income tax positions that previously failed to meet the more-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold are derecognized in the first financial reporting period in which that threshold is no longer met. The Company records potential penalties and interest accrued related to unrecognized tax benefits within the consolidated statements of operations as income tax expense. During the nine months ended September 30, 2023, the Company’s unrecognized tax benefits increased by $ 1.2 million. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months. Accrued interest and penalties associated with uncertain tax positions as of September 30, 2023 were approximately $ 0.3 million and $ 0.01 million, respectively. The Company is subject to federal and state income tax in the United States and is also subject to income tax in certain other foreign tax jurisdictions. At September 30, 2023, the statutes of limitations for the assessment of federal, state, and foreign income taxes are closed for the years before 2019, 2018, and 2017, respectively. 26 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The Company’s subsidiary in Singapore operates under certain tax incentives in Singapore, which are generally effective through March 2027, and are conditional upon meeting certain employment and investment thresholds in Singapore. Under the incentives, qualifying income derived from certain sales of the Company’s integrated circuits is taxed at a concessionary rate over the incentive period, and there are reduced Singapore withholding taxes on certain intercompany royalties during the incentive period. The Company recorded a tax provision in the nine months ended September 30, 2023 and 2022 at the incentive rate. 11. Concentration of Credit Risk, Significant Customers and Geographic Information Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents and accounts receivable. Collateral is generally not required for customer receivables. The Company limits its exposure to credit loss by placing its cash with high credit quality financial institutions. At times, such deposits may be in excess of insured limits. The Company has not experienced any losses on its deposits of cash and cash equivalents. Significant Customers The Company markets its products and services to manufacturers of a wide range of electronic devices (Note 1). The Company sells its products both directly to end-customers and through third-party distributors, both of which are referred to as the Company’s customers (Note 12). The Company makes periodic evaluations of the credit worthiness of its customers. Customers comprising 10% or greater of net revenues for each of the periods presented are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Percentage of total net revenue Customer A * 31 % * 22 % Customer B 11 % * 11 % * ____________________________ * Represents less than 10% of net revenues for the period presented. The following table presents balances that are 10% or greater of accounts receivable, based on the Company’s billings to its customers. September 30, December 31, 2023 2022 Percentage of gross accounts receivable Customer C * 11 % Customer D 26 % 12 % Customer E 13 % 28 % Customer F 17 % * ____________________________ * Represents less than 10% of the gross accounts receivable as of the respective period end. 27 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Significant Suppliers Suppliers comprising 10% or greater of total inventory purchases are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Vendor A 28 % 24 % 21 % 27 % Vendor B 17 % 26 % 24 % 25 % Vendor C 14 % 13 % 10 % 13 % Vendor D * * 10 % * ____________________________ * Represents less than 10% of total inventory purchases for the period presented. Geographic Information The Company’s consolidated net revenues by geographic area based on ship-to location are as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Amount % of total net revenue Amount % of total net revenue Amount % of total net revenue Amount % of total net revenue Asia $ 98,647 73 % $ 235,032 82 % $ 419,478 74 % $ 674,352 81 % Europe 24,886 18 % 36,818 13 % 110,058 19 % 113,792 14 % United States 8,757 7 % 10,991 4 % 29,847 5 % 29,543 4 % Rest of world 3,240 2 % 2,889 1 % 8,527 2 % 11,979 1 % Total $ 135,530 100 % $ 285,730 100 % $ 567,910 100 % $ 829,666 100 % The products shipped to individual countries or territories representing 10% or greater of net revenue for each of the periods presented are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Percentage of total net revenue Hong Kong 41 % 51 % 34 % 43 % China * 14 % 12 % 16 % Taiwan, ROC 10 % * * * ____________________________ * Represents less than 10% of net revenues for the period presented. The determination of which country a particular sale is allocated to is based on the destination of the product shipment. No other individual country accounted for 10% or greater of net revenue during these periods. Although a large percentage of the Company’s products is shipped to Asia, and in particular, Hong Kong, mainland China, and Taiwan, the Company believes that a significant number of the systems designed by customers and incorporating the Company’s semiconductor products are subsequently sold outside Asia to Europe, Middle East, and Africa markets and North American markets. Long-lived assets, which consists of property and equipment, net, leased right-of-use assets, intangible assets, net, and goodwill by geographic area are as follows (in thousands): September 30, December 31, 2023 2022 Amount % of total Amount % of total United States $ 365,607 73 % $ 368,882 70 % Singapore 97,926 19 % 109,613 21 % Rest of world 39,697 8 % 45,093 9 % Total $ 503,230 100 % $ 523,588 100 % 28 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 12. Revenue from Contracts with Customers Revenue by Market The table below presents disaggregated net revenues by market (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Broadband $ 34,416 $ 120,165 $ 169,646 $ 393,819 % of net revenue 25 % 42 % 30 % 47 % Connectivity 15,025 82,603 119,232 199,182 % of net revenue 11 % 29 % 21 % 24 % Infrastructure 49,985 35,580 145,549 104,650 % of net revenue 37 % 12 % 26 % 13 % Industrial and multi-market 36,104 47,382 133,483 132,015 % of net revenue 27 % 17 % 23 % 16 % Total net revenue $ 135,530 $ 285,730 $ 567,910 $ 829,666 Revenues from sales through the Company’s distributors accounted for 46 % and 41 % of net revenue for the three months ended September 30, 2023 and 2022, respectively. Revenues from sales through the Company’s distributors accounted for 47 % and 44 % of net revenue for the nine months ended September 30, 2023 and 2022, respectively. Contract Liabilities As of September 30, 2023 and December 31, 2022, customer contract liabilities were approximately $ 1.4 million and $ 1.1 million, respectively, and consisted primarily of advanced payments received for which performance obligations have not been completed. Revenue recognized in each of the nine months ended September 30, 2023 and 2022 that was included in the contract liability balance as of the beginning of each of those respective periods was immaterial. There were no material changes in the contract liabilities balance during the nine months ended September 30, 2023 and 2022. Obligations to Customers for Price Adjustments and Returns and Assets for Right-of-Returns As of September 30, 2023 and December 31, 2022, obligations to customers consisting of estimates of price protection rights offered to the Company’s end customers totaled $ 71.6 million and $ 113.3 million, respectively, and are included in accrued price protection liability in the consolidated balance sheets. For activity in this account, including amounts included in net revenue, refer to Note 7. Other obligations to customers representing estimates of price adjustments to be claimed by distributors upon sell-through of their inventory to their end customer and estimates of stock rotation returns to be claimed by distributors on products sold as of September 30, 2023 were $ 45.3 million and $ 0.8 million, respectively, and as of December 31, 2022 were $ 52.4 million and $ 0.6 million, respectively, and are included in accrued expenses and other current liabilities in the consolidated balance sheets (Note 7). The increase in revenue in each of the nine months ended September 30, 2023 and 2022 from net changes in transaction prices for amounts included in obligations to customers for price adjustments as of the beginning of those respective periods was not material. As of September 30, 2023 and December 31, 2022, right of return assets under customer contracts representing the estimates of product inventory the Company expects to receive from customers in stock rotation returns were approximately $ 0.2 million and $ 0.2 million, respectively. Right of return assets are included in inventory in the consolidated balance sheets. As of September 30, 2023 and December 31, 2022, there were no impairment losses recorded on customer accounts receivable. 29 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 13. Leases Operating Leases Operating lease arrangements primarily consist of office leases expiring in various years through 2029. These leases have original terms of approximately 2 to 8 years and some contain options to extend the lease up to 5 years or terminate the lease, which are included in right-of-use assets and lease liabilities when the Company is reasonably certain it will renew the underlying leases. Since the implicit rate of such leases is unknown and the Company is not reasonably certain to renew its leases, the Company has elected to apply a collateralized incremental borrowing rate to facility leases on the original lease term in calculating the present value of future lease payments. As of September 30, 2023 and December 31, 2022, the weighted average discount rate for operating leases was 4.6 % and 3.4 %, respectively, and the weighted average remaining lease term for operating leases was 4.1 years and 3.9 years, respectively, as of the end of each of these periods. The table below presents aggregate future minimum payments due under leases, reconciled to total lease liabilities included in the consolidated balance sheet as of September 30, 2023: Operating Leases (in thousands) 2023 (3 months) $ 2,791 2024 10,446 2025 10,436 2026 7,882 2027 5,617 Thereafter 4,046 Total minimum payments 41,218 Less: imputed interest ( 4,452 ) Less: unrealized translation loss — Total lease liabilities 36,766 Less: short-term lease liabilities ( 8,749 ) Long-term lease liabilities $ 28,017 Operating lease cost was $ 2.7 million and $ 2.9 million for the three months ended September 30, 2023 and 2022, respectively. Operating lease cost was $ 8.0 million and $ 7.7 million for the nine months ended September 30, 2023 and 2022, respectively. Short-term lease costs for the three and nine months ended September 30, 2023 and 2022 were not material. There were $ 0 and $ 0.1 million of right-of-use assets obtained in exchange for new lease liabilities for the three months ended September 30, 2023 and 2022, respectively. There were $ 12.2 million and $ 11.7 million of right-of-use assets obtained in exchange for new lease liabilities for the nine months ended September 30, 2023 and 2022, respectively. 14. Employee Retirement Plans Defined Contribution Plan The Company has a 401(k) defined contribution retirement plan (the 401(k) Plan) covering all eligible employees. Participants may voluntarily contribute on a pre-tax basis an amount not to exceed a maximum contribution amount pursuant to Section 401(k) of the Internal Revenue Code. The Company is not required to contribute, nor has it contributed, to the 401(k) Plan for any of the periods presented. 30 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Pension and Other Defined Benefit Retirement Obligations The Company maintains defined benefit retirement plans, including a pension plan, in certain foreign jurisdictions. During the three months ended September 30, 2023, the Company paid approximately $ 3.2 million to a third party life insurance and pension provider to fund and administer future benefit payments for substantially all of the employees in one of the Company’s defined benefit retirement plans and recorded a gain on partial settlement of such pension plan of approximately $ 1.0 million. As of September 30, 2023, the net defined benefit obligation, primarily related to other defined benefit plans, was $ 0.9 million. As of December 31, 2022, the net defined benefit obligation was $ 1.7 million. The benefit is based on a formula applied to eligible employee earnings. Net periodic benefit costs were $ 0.1 million and $ 0.1 million for the three months ended September 30, 2023 and 2022, respectively, and were recorded to research and development expenses in the consolidated statements of operations. Net periodic benefit costs were $ 0.2 million and $ 0.2 million for the nine months ended September 30, 2023 and 2022, respectively, and were recorded to research and development expenses in the consolidated statements of operations. 15. Commitments and Contingencies Inventory Purchase and Other Contractual Obligations As of September 30, 2023, future minimum payments under inventory purchase and other obligations are as follows: Inventory Purchase Obligations Other Obligations Total 2023 (3 months) $ 23,603 $ 6,051 $ 29,654 2024 7,330 30,601 37,931 2025 10,231 28,954 39,185 2026 — 18,567 18,567 2027 — 3,673 3,673 Total minimum payments $ 41,164 $ 87,846 $ 129,010 Other obligations consist primarily of contractual payments due for software licenses. Jointly Funded Research and Development From time to time, the Company enters into contracts for jointly funded research and development projects to develop technology that may be commercialized into a product in the future. As the Company may be required to repay all or a portion of the funds provided by the other parties under certain conditions, funds of $ 10.0 million received from the other parties as of September 30, 2023 have been deferred in other long-term liabilities. Additional amounts under the contracts are tied to certain milestones and will also be recorded as a long-term liability as payment due under such milestones are received. The Company de-recognizes the liabilities when the contingencies associated with the repayment conditions have been resolved. During the nine months ended September 30, 2023 and 2022, the Company recognized $ 0 and $ 3.8 million, respectively, in previously deferred amounts from other parties due to resolution of such repayment conditions. Dispute with Silicon Motion As disclosed in Note 3, on July 26, 2023, MaxLinear terminated the Merger Agreement on multiple grounds. On August 16, 2023, Silicon Motion delivered to MaxLinear a notice, which Silicon Motion publicly disclosed, that it was purporting to terminate the Merger Agreement and that Silicon Motion would be commencing an arbitration before the Singapore International Arbitration Centre to seek damages from MaxLinear arising from MaxLinear’s alleged breaches of the Merger Agreement. Silicon Motion’s position is that MaxLinear’s Willful and Material Breaches (as such term is defined in the Merger Agreement) of the Merger Agreement prevented the Merger from being completed by August 7, 2023 and that MaxLinear is consequently liable for substantial monetary damages in excess of the termination fee as provided in the Merger Agreement. On October 5, 2023, Silicon Motion filed a Notice of Arbitration with the Singapore International Arbitration Centre alleging that MaxLinear breached the Merger Agreement. Silicon Motion seeks payment of the termination fee, additional damages, fees, and costs. The arbitration will be confidential. 31 Table of Contents MAXLINEAR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) MaxLinear believes that it properly terminated the Merger Agreement and that Silicon Motion’s claims to the contrary are without merit. MaxLinear remains confident in its decision and will vigorously defend its right to terminate the Silicon Motion transaction without penalty. Class Action Complaint On August 31, 2023, a Silicon Motion stockholder filed a putative class action complaint in the United States District Court for the Southern District of California captioned Water Island Event-Driven Fund v. MaxLinear, Inc. , No. 23-cv-01607 (S.D. Cal.), against MaxLinear and certain of its current officers. The complaint includes two claims: (1) an alleged violation of Section 10(b) of the Securities Exchange Act of 1934, or the “Exchange Act”, and Rule 10b-5 promulgated thereunder; and (2) an alleged violation of Section 20(a) of the Exchange Act. The complaint alleges that the defendants made false and misleading statements and/or omitted material facts that MaxLinear had a duty to disclose, concerning the Company’s ability and intention to timely close the merger with Silicon Motion, including that: (i) MaxLinear had allegedly decided it would not consummate the merger because the economic circumstances surrounding the merger had materially changed, including a material downturn in the semiconductor industry and rising interest rates; (ii) MaxLinear had allegedly determined to unilaterally terminate the merger in the event the merger was approved by SAMR; (iii) MaxLinear had allegedly intended to argue that certain conditions in Article 6 of the Merger Agreement had not been satisfied as required by May 5, 2023 as a basis to terminate the merger; and (iv) as a result, MaxLinear had allegedly materially misrepresented the viability of the merger, the purported benefits of the merger, and the likelihood that the merger would be consummated. The complaint seeks compensatory damages, including interest, costs and expenses and such other equitable or injunctive relief that the court deems appropriate. MaxLinear believes that complaint’s claims are without merit and will vigorously defend its position. Other Matters From time to time, the Company is subject to threats of litigation or actual litigation in the ordinary course of business as described above and in “ Part II. — Other Information, Item 1. — Legal Proceedings ,” some of which may be material. The results of any litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have a material adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors. However, as of September 30, 2023, no material loss contingencies have been accrued for such matters in the Company’s financial statements. 16. Stock Repurchases On February 23, 2021, the Company’s board of directors authorized a plan to repurchase up to $ 100 million of the Company’s common stock over a period ending on February 16, 2024. The amount and timing of repurchases are subject to a variety of factors including liquidity, share price, market conditions, and legal requirements. Any purchases will be funded from available working capital and may be effected through open market purchases, block transactions, and privately negotiated transactions. The share repurchase program does not obligate the Company to make any repurchases and may be modified, suspended, or terminated by the Company at any time without prior notice. The share repurchase program has been temporarily suspended since July 2022 due to the Company’s previously pending (now terminated) merger with Silicon Motion (Note 3). During the nine months ended September 30, 2023, the Company did no t repurchase any shares of its common stock under the repurchase program. At September 30, 2023, the aggregate value of common stock repurchased under the program was approximately $ 55.0 million and approximately $ 45.0 million remained available for repurchase under the program. 17. Subsequent Events In October 2023, the Company initiated a reduction of its workforce to align its operational needs with the changes in macroeconomic conditions and the demand environment, while continuing to support its long-term business strategy by reducing its operating expenses. The Company’s management is currently evaluating the timing and full impact of the workforce reduction on the Company’s business, financial condition and results of operations for the year ending December 31, 2023. 32 Table of Contents