MaxLinear, Inc. Announces First Quarter 2018 Financial Results
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MaxLinear, Inc. Announces First Quarter 2018 Financial Results

First Quarter 2018 GAAP Revenue of $110.8 million;
GAAP Diluted Earnings per Share of $0.03 
and Non-GAAP Diluted Earnings per Share of $0.37

CARLSBAD, Calif., May 08, 2018 (GLOBE NEWSWIRE) -- MaxLinear, Inc. (NYSE:MXL), a leading provider of radio-frequency, mixed-signal and high-performance analog integrated circuits for the connected home, wired and wireless infrastructure, and industrial and multi-market applications, today announced financial results for the first quarter ended March 31, 2018.

Management Commentary

“We are pleased to announce the financial results of first quarter 2018, in which we delivered GAAP net revenue of $110.8 million.  We realized strong GAAP and non-GAAP gross margins of 56.5% and 64.9%, and GAAP and non-GAAP income from operations of 4% and 29%. We are proud to have been able to expand our margins even as we continued to invest aggressively in our network infrastructure platform initiatives to drive long-term growth and value for MaxLinear shareholders.

More specifically, in the first quarter, we witnessed a seasonal step-up in DOCSIS cable revenues, increases in shipments of wired connectivity solutions across a variety of end markets, and strong tier-1 customer traction and engagement for our wireless backhaul infrastructure products.  In the first quarter, we also saw a slight seasonal pause in industrial and multi-market revenues. Like many of our peers, we continue to experience weakness in our optical products addressing China long-haul and metro telecom markets. As we aggressively pursue our revenue diversification strategy into the cloud datacenter, 5G wireless access and backhaul, high performance analog industrial and multi-market applications, our core connected home business has continued to provide a strong base of revenue support. We are currently anticipating and preparing for the ramp of several new customer design-win platforms across a range of our infrastructure growth initiatives starting in the second half of 2018.

In Q1 2018, at the Optical Fiber Conference (OFC), we demonstrated the industry’s first 400G PAM4 data center transceiver chipset integrated inside three of the largest OEM optical module suppliers' offerings. During the quarter, we also started sampling the industry's first Full-Duplex (FDX) DOCSIS 3.1 cable fiber node infrastructure remote PHY system-on-chip device, which enables 10-Gigabit cable data services to subscriber homes. Additionally, we entered into a formal partnership agreement with the world’s largest wireless networking equipment maker for wireless backhaul products. These three achievements testify to our continued progress towards becoming a diversified analog mixed-signal supplier across the network communication industry,” commented Kishore Seendripu, Ph.D., Chairman and CEO.

First Quarter 2018 Business Highlights

First Quarter Financial Highlights

GAAP basis:

The first quarter 2018 results continue to be influenced by the acquisitions and related purchase price accounting impacts of Marvell’s G.hn business in April 2017 and Exar in May 2017, and interest on the term loan related to the Exar transaction. Additionally, on January 1, 2018, we adopted new revenue accounting guidance that accelerated recognition of revenue and costs on certain distributor sales to be recorded upon sale to the distributor, or the sell-in method, from sale to the distributor’s end customer, or the sell-through method. The impact of adopting the new revenue accounting guidance resulted in an incremental $13.3 million of revenue, and GAAP and non-GAAP gross profits of $8.2 million in the first quarter of 2018 as we replenished and returned distributor inventory to normal levels. Due to the prospective method of adoption, our results for the periods prior to first quarter 2018 have not been adjusted to reflect the change in timing of revenue recognition on such distributor sales.

Non-GAAP basis:

Second Quarter 2018 Business Outlook
The company expects revenue in the second quarter to be in the range of $100 million to $110 million, and also estimates the following:

Webcast and Conference Call
MaxLinear will host its first quarter financial results conference call today, May 8, 2018 at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time). To access this call, dial US toll free: 1-877-407-3109 / International: 1-201-493-6798. A live webcast of the conference call will be accessible from the investor relations section of the MaxLinear website at http://investors.maxlinear.com, and will be archived and available after the call at investors.maxlinear.com until May 22, 2018. A replay of the conference call will also be available until May 22, 2018 by dialing US toll free: 1-877-660-6853 / International: 1-201-612-7415 and Conference ID#: 13653123.

Cautionary Note Concerning Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include, among others, statements concerning our future financial performance (including our current guidance for second quarter 2018 revenue, gross margins, operating expenses, interest expenses, and tax rates). These forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to be materially different from any future results expressed or implied by the forward-looking statements. Forward-looking statements are based on management’s current, preliminary expectations and are subject to various risks and uncertainties. In particular, our future operating results are substantially dependent on our assumptions about market trends and conditions and our expectations with respect to recently completed acquisitions. With respect to recently completed acquisitions, Exar’s target markets and business operations differ substantially from those of MaxLinear, and we may be unable to realize anticipated strategic, financial, and operating synergies to the same relative extent as we were able to achieve in other recent acquisitions.  In addition, our decisions with respect to all our acquisitions were based on management’s current expectations with respect to the size of the available markets and growth opportunities presented by these acquisitions, all of which are subject to material risks and uncertainties. In connection with the acquisition of Exar, we incurred substantial acquisition-related indebtedness, which materially changed our financial profile and presents specific risks relating to our ability to service interest and principal payments and limitations on our operating flexibility based on operating covenants in the applicable term loan agreements, including (without limitation) debt covenant restrictions that limit our ability to obtain additional financing, issue guarantees, create liens, make certain restricted payments or repay certain obligations or to pursue future acquisitions. Additional risks and uncertainties arising from our operations generally and our recently completed acquisitions include intense competition in our industry; our dependence on a limited number of customers for a substantial portion of our revenues; uncertainties concerning how end user markets for our products will develop; potential uncertainties arising from continued consolidation among cable television and satellite operators in our target markets and continued consolidation among competitors within the semiconductor industry generally; our ability to develop and introduce new and enhanced products on a timely basis and achieve market acceptance of those products, particularly as we seek to expand outside of our historic markets; potential decreases in average selling prices for our products; risks relating to intellectual property protection and the prevalence of intellectual property litigation in our industry; indemnification obligations of Exar arising from a recent divestiture; the impact on our financial condition of the incurred acquisition indebtedness and cash usage arising from the Exar transaction; our reliance on a limited number of third party manufacturers; and our lack of long-term supply contracts and dependence on limited sources of supply. Our forward-looking GAAP income tax rate includes preliminary assumptions regarding the Tax Act, whereas our forward-looking non-GAAP income tax rate excludes impacts of the Tax Act. The final impact of the Tax Act on our income taxes may differ from our estimates, possibly materially, due to, among other things, changes in interpretations and assumptions made, additional guidance that may be issued, and actions taken by MaxLinear as a result of the Tax Act. In addition to these risks and uncertainties, investors should review the risks and uncertainties contained in our filings with the Securities and Exchange Commission (SEC), including our most recent Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on February 20, 2018 and our Current Reports on Form 8-K, as well as the information to be set forth under the caption “Risk Factors” in MaxLinear’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, which we expect to file shortly. All forward-looking statements are based on the estimates, projections and assumptions of management as of May 8, 2018, and MaxLinear is under no obligation (and expressly disclaims any such obligation) to update or revise any forward-looking statements whether as a result of new information, future events, or otherwise.

Use of Non-GAAP Financial Measures

To supplement our unaudited consolidated financial statements presented on a basis consistent with GAAP, we disclose certain non-GAAP financial measures, including non-GAAP gross margin, operating expenses, operating expenses as a percentage of revenue, income from operations as a percentage of revenue, pre-tax margins, effective tax rate, net income and diluted earnings per share. These supplemental measures exclude the effects of (i) stock-based compensation expense; (ii) an accrual related to our performance based bonus plan for 2018, which we currently intend to settle in shares of our common stock; (iii) accruals related to our performance based bonus plan for 2017, which we settled in shares of our common stock in 2018; (iv) amortization of purchased intangible assets and inventory step up; (v) depreciation of fixed assets step-up; (vi) acquisition and integration costs related to our recently completed acquisitions; (vii) professional fees and settlement costs related to our previously disclosed IP and commercial litigation matters; (viii) severance and other restructuring charges; and (ix) non-cash income tax benefits and expenses and effects of the Tax Act. These non-GAAP measures are not in accordance with and do not serve as an alternative for GAAP. We believe that these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our GAAP results of operations. These non-GAAP measures should only be viewed in conjunction with corresponding GAAP measures. We compensate for the limitations of non-GAAP financial measures by relying upon GAAP results to gain a complete picture of our performance.

We believe that non-GAAP financial measures can provide useful information to both management and investors by excluding certain non-cash and other one-time expenses that are not indicative of our core operating results. Among other uses, our management uses non-GAAP measures to compare our performance relative to forecasts and strategic plans and to benchmark our performance externally against competitors. In addition, management’s incentive compensation will be determined in part using these non-GAAP measures because we believe non-GAAP measures better reflect our core operating performance.

The following are explanations of each type of adjustment that we incorporate into non-GAAP financial measures:

Stock-based compensation expense relates to equity incentive awards granted to our employees, directors, and consultants. Our equity incentive plans are important components of our employee incentive compensation arrangements and are reflected as expenses in our GAAP results. Stock-based compensation expense has been and will continue to be a significant recurring expense for MaxLinear.

Bonuses under our executive and non-executive bonus programs have been excluded from our non-GAAP net income for all periods reported. Bonus payments for the 2017 performance periods were settled through the issuance of shares of common stock under our equity incentive plans in February 2018. We currently expect that bonus awards under our fiscal 2018 program will be settled in common stock in the first quarter of fiscal 2019. While we include the dilutive impact of equity awards in weighted average shares outstanding, the expense associated with stock-based awards reflects a non-cash charge that we exclude from non-GAAP net income.

Expenses incurred in relation to acquisitions include amortization of purchased intangible assets and step-up of inventory to fair value, depreciation of step-up of property and equipment to fair value, and acquisition and integration costs primarily consisting of professional and consulting fees.

Restructuring charges incurred are related to our restructuring plans which address issues primarily relating to the integration of the Company and acquired businesses or internal operations and primarily include severance and restructuring costs related to exiting certain facilities.

Expenses incurred in relation to our intellectual property and commercial litigation include professional fees incurred.

Income tax benefits and expense adjustments are those that do not affect cash income taxes payable. Effects of the Tax Act were excluded from Non-GAAP effective tax rate.

Reconciliations of non-GAAP measures for the historic periods disclosed in this press release appear below. Because of the inherent uncertainty associated with our ability to project future charges, particularly related to stock-based compensation and its related tax effects as well as potential impairments, we have not provided a reconciliation for non-GAAP guidance provided for the second quarter 2018.

About MaxLinear, Inc.

MaxLinear, Inc. (NYSE:MXL) is a leading provider of radio frequency (RF) and mixed-signal and high-performance analog integrated circuits for the connected home, wired and wireless infrastructure, and industrial and multi-market applications.  MaxLinear is headquartered in Carlsbad, California. For more information, please visit www.maxlinear.com.

MXL is MaxLinear’s registered trademark. Other trademarks appearing herein are the property of their respective owners.

MaxLinear, Inc. Investor Relations Contact:
Gideon Massey
Investor Relations Specialist
Tel: 949-333-0056
gmassey@maxlinear.com

 
MAXLINEAR, INC.
UNAUDITED GAAP CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 
 Three Months Ended
 March 31, 2018 December 31, 2017 March 31, 2017
 
Net revenue$ 110,827  $ 113,721  $ 88,841
Cost of net revenue48,159  61,628  35,917 
Gross profit62,668  52,093  52,924 
Operating expenses:     
Research and development31,121  30,116  23,878 
Selling, general and administrative27,117  26,843  18,613 
Restructuring charges—  800  — 
Total operating expenses58,238  57,759  42,491 
Income (loss) from operations4,430  (5,666) 10,433 
Interest income18  14  195 
Interest expense(3,894) (4,044) (1)
Other expense, net(571) (793) (143)
Total interest and other income (expense), net(4,447) (4,823) 51 
Income (loss) before income taxes(17) (10,489) 10,484 
Income tax provision (benefit)(1,864) 8,959  2,021 
Net income (loss)$1,847  $(19,448) $8,463 
Net income (loss) per share:     
Basic$0.03  $(0.29) $0.13 
Diluted$0.03  $(0.29) $0.12 
Shares used to compute net income (loss) per share:     
Basic67,674  67,147  65,238 
Diluted70,440  67,147  69,149 


 
MAXLINEAR, INC.
UNAUDITED GAAP CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
 Three Months Ended
 March 31, 2018 December 31, 2017 March 31, 2017
Operating Activities
     
Net income (loss)$1,847  $(19,448) $8,463 
Adjustments to reconcile net income (loss) to cash provided by operating activities:     
Amortization and depreciation20,084  20,236  6,899 
Provision for losses on accounts receivable—  —  87 
Amortization of investment premiums—  —  47 
Amortization of inventory step-up—  9,715  — 
Amortization of debt issuance costs287  287  — 
Stock-based compensation8,473  7,770  5,474 
Deferred income taxes(2,332) 16,650  155 
Gain on disposal of property and equipment—  (33) (88)
(Gain) loss on foreign currency471  738  (216)
Excess tax benefits on stock-based awards(797) (1,961) (914)
Changes in operating assets and liabilities:     
Accounts receivable(24,533) 9,492  (7,436)
Inventory7,676  543  (5,102)
Prepaid expenses and other assets1,003  (424) 825 
Accounts payable, accrued expenses and other current liabilities(421) (2,494) 7,952 
Accrued compensation2,502  1,351  382 
Deferred revenue and deferred profit(138) (12,862) (307)
Accrued price protection liability(1,359) (6,658) 6,771 
Other long-term liabilities(792) (1,159) (320)
Net cash provided by operating activities11,971  21,743  22,672 
      
Investing Activities     
Purchases of property and equipment(2,381) (3,070) (743)
Proceeds from sale of property and equipment—  30  — 
Purchases of intangible assets—  —  (120)
Purchases of available-for-sale securities—  —  (30,577)
Maturities of available-for-sale securities—  —  20,785 
Net cash used in investing activities(2,381) (3,040) (10,655)
      
Financing Activities     
Repayment of debt(25,000) (20,000) — 
Repurchases of common stock—  —  (334)
Net proceeds from issuance of common stock980  2,960  361 
Minimum tax withholding paid on behalf of employees for restricted stock units(2,391) (1,718) (4,903)
Net cash used in financing activities(26,411) (18,758) (4,876)
Effect of exchange rate changes on cash and cash equivalents(258) 371  1,201 
Increase (decrease) in cash, cash equivalents and restricted cash(17,079) 316  8,342 
Cash, cash equivalents and restricted cash at beginning of period74,412  74,096  82,896 
Cash, cash equivalents and restricted cash at end of period$57,333  $74,412  $91,238 


 
MAXLINEAR, INC.
UNAUDITED GAAP CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
                  
 March 31, 2018 December 31, 2017 March 31, 2017
Assets
     
Current assets:     
Cash and cash equivalents$55,645  $71,872  $89,121 
Short-term restricted cash617  1,476  615 
Short-term investments, available-for-sale—  —  63,637 
Accounts receivable, net90,632  66,099  57,836 
Inventory45,758  53,434  31,685 
Prepaid expenses and other current assets8,413  8,423  5,535 
Total current assets201,065  201,304  248,429 
Long-term restricted cash1,071  1,064  1,502 
Property and equipment, net21,993  22,658  19,162 
Intangible assets, net298,031  315,045  99,679 
Goodwill237,810  237,992  75,673 
Deferred tax assets41,426  39,878  — 
Other long-term assets7,318  6,921  1,652 
Total assets$808,714  $824,862  $446,097 
      
Liabilities and stockholders’ equity     
Current liabilities$67,061  $76,386  $64,555 
Long-term debt322,896  347,609  — 
Other long-term liabilities12,309  13,443  15,529 
Total stockholders’ equity406,448  387,424  366,013 
Total liabilities and stockholders’ equity$808,714  $824,862  $446,097 


 
MAXLINEAR, INC.
UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTMENTS
(in thousands, except per share data)
 
 Three Months Ended
 March 31, 2018 December 31, 2017 March 31, 2017
 
GAAP gross profit$ 62,668  $ 52,093  $ 52,924
Stock-based compensation106  101  59 
Performance based equity78  35  42 
Amortization of inventory step-up—  9,715  — 
Amortization of purchased intangible assets8,969  8,465  2,684 
Depreciation of fixed asset step-up112  112  — 
Non-GAAP gross profit71,933  70,521  55,709 
      
GAAP R&D expenses31,121  30,116  23,878 
Stock-based compensation(4,374) (4,349) (3,493)
Performance based equity(1,140) (1,031) (954)
Amortization of purchased intangible assets—  (97) (96)
Depreciation of fixed asset step-up(329) (297) — 
Non-GAAP R&D expenses25,278  24,342  19,335 
      
GAAP SG&A expenses27,117  26,843  18,613 
Stock-based compensation(3,993) (3,105) (1,922)
Performance based equity(1,049) (937) (578)
Amortization of purchased intangible assets(7,994) (8,760) (1,881)
Depreciation of fixed asset step-up(10) (20) — 
Acquisition and integration costs—  (54) (3,394)
IP litigation costs, net(42) (38) (105)
Non-GAAP SG&A expenses14,029  13,929  10,733 
      
GAAP restructuring expenses—  800  — 
Restructuring charges—  (800) — 
Non-GAAP restructuring expenses—  —  — 
      
GAAP income (loss) from operations4,430  (5,666) 10,433 
Total non-GAAP adjustments28,196  37,916  15,208 
Non-GAAP income from operations32,626  32,250  25,641 
      
GAAP and non-GAAP interest and other income (expense), net(4,447) (4,823) 51 
      
GAAP income (loss) before income taxes(17) (10,489) 10,484 
Total non-GAAP adjustments28,196  37,916  15,208 
Non-GAAP income before income taxes28,179  27,427  25,692 
      
GAAP income tax provision (benefit)(1,864) 8,959  2,021 
Adjustment for non-cash tax benefits/expenses3,837  (7,853) 510 
Non-GAAP income tax provision1,973  1,106  2,531 
      
GAAP net income (loss)1,847  (19,448) 8,463 
Total non-GAAP adjustments before income taxes28,196  37,916  15,208 
Less: total tax adjustments3,837  (7,853) 510 
Non-GAAP net income$26,206  $26,321  $23,161 
      
Shares used in computing non-GAAP basic net income per share67,674  67,147  65,238 
Shares used in computing non-GAAP diluted net income per share70,440  70,175  69,149 
Non-GAAP basic net income per share$0.39  $0.39  $0.36 
Non-GAAP diluted net income per share$0.37  $0.38  $0.33 


 
MAXLINEAR, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
 
 Three Months Ended
 March 31, 2018 December 31, 2017 March 31, 2017
GAAP gross profit56.5% 45.8% 59.6%
Stock-based compensation0.1% 0.1% 0.1%
Performance based equity0.1% —% —%
Amortization of inventory step-up—% 8.5% —%
Amortization of purchased intangible assets8.1% 7.4% 3.0%
Depreciation of fixed asset step-up0.1% 0.2% —%
Non-GAAP gross profit64.9% 62.0% 62.7%
      
GAAP R&D expenses28.1% 26.5% 26.9%
Stock-based compensation(3.9)% (3.8)% (3.9)%
Performance based equity(1.0)% (1.0)% (1.1)%
Amortization of purchased intangible assets—% (0.1)% (0.1)%
Depreciation of fixed asset step-up(0.4)% (0.2)% —%
Non-GAAP R&D expenses22.8% 21.4% 21.8%
      
GAAP SG&A expenses24.5% 23.6% 21.0%
Stock-based compensation(3.6)% (2.7)% (2.2)%
Performance based equity(0.9)% (1.0)% (0.7)%
Amortization of purchased intangible assets(7.2)% (7.7)% (2.1)%
Depreciation of fixed asset step-up(0.1)% —% —%
Acquisition and integration costs—% —% (3.8)%
IP litigation costs, net—% —% (0.1)%
Non-GAAP SG&A expenses12.7% 12.2% 12.1%
      
GAAP restructuring expenses—% 0.7% —%
Restructuring charges—% (0.7)% —%
Non-GAAP restructuring expenses—% —% —%
      
GAAP income (loss) from operations4.0% (5.0)% 11.8%
Total non-GAAP adjustments25.4% 33.3% 17.1%
Non-GAAP income from operations29.4% 28.3% 28.9%
      
GAAP and non-GAAP interest and other income (expense), net(4.0)% (4.2)% 0.1%
      
GAAP income (loss) before income taxes—% (9.2)% 11.8%
Total non-GAAP adjustments before income taxes25.4% 33.3% 17.1%
Non-GAAP income before income taxes25.4% 24.1% 28.9%
      
GAAP income tax provision (benefit)(1.7)% 7.9% 2.3%
Adjustment for non-cash tax benefits/expenses3.5% (7.0)% 0.5%
Non-GAAP income tax provision1.8% 0.9% 2.8%
      
GAAP net income (loss)1.7% (17.1)% 9.5%
Total non-GAAP adjustments before income taxes25.4% 33.3% 17.1%
Less: total tax adjustments3.5% (7.0)% 0.5%
Non-GAAP net income23.6% 23.1% 26.1%

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