MaxLinear, Inc. Announces First Quarter 2020 Financial Results

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, 2019 filed with the SEC on February 5, 2020 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, 2020, which we expect to file shortly. All forward-looking statements are based on the estimates, projections and assumptions of management as of April 29, 2020, 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 percentage of revenue, and diluted earnings per share. These supplemental measures exclude the effects of (i) stock-based compensation expense; (ii) accruals related to our performance based bonus plan for 2020, which we currently intend to settle in shares of our common stock; (iii) accruals related to our performance based bonus plan for 2019 which we settled in shares of common stock in 2020; (iv) amortization of purchased intangible assets; (v) depreciation of fixed assets step-up; (vi) acquisition costs related to our recently announced acquisition; (vii) professional fees and settlement costs related to IP and commercial litigation matters; (viii) severance and other restructuring charges; (ix) impairment losses on intangible assets; and (x) non-cash income tax benefits and expenses. 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. 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.

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 2019 performance periods were settled through the issuance of shares of common stock under our equity incentive plans in March 2020. We currently expect that bonus awards under our fiscal 2020 program will be settled in common stock in the first quarter of fiscal 2021.

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

Impairment losses relate to certain intangible assets.

Restructuring charges incurred are related to our restructuring plans which eliminate redundancies 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.

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 2020.

About MaxLinear, Inc.

MaxLinear, Inc. (NYSE: MXL) is a leading provider of radio frequency (RF), analog and mixed-signal 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. UNAUDITED GAAP CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)

	Three Months Ended
	March 31, 2020			December 31, 2019			March 31, 2019
Net revenue	$	62,027		$	70,018		$	84,635
Cost of net revenue		31,265			33,394			39,558
Gross profit		30,762			36,624			45,077
Operating expenses:
Research and development		25,689			23,467			27,399
Selling, general and administrative		24,632			20,924			23,591
Impairment losses		86			—			—
Restructuring charges		489			159			1,917
Total operating expenses		50,896			44,550			52,907
Loss from operations		(20,134	)		(7,926	)		(7,830	)
Interest income		225			222			147
Interest expense		(2,476	)		(2,587	)		(2,975	)
Other income (expense), net		180			(498	)		(655	)
Total interest and other income (expense), net		(2,071	)		(2,863	)		(3,483	)
Loss before income taxes		(22,205	)		(10,789	)		(11,313	)
Income tax benefit		(6,736	)		(2,685	)		(6,462	)
Net loss	$	(15,469	)	$	(8,104	)	$	(4,851	)
Net loss per share:
Basic	$	(0.21	)	$	(0.11	)	$	(0.07	)
Diluted	$	(0.21	)	$	(0.11	)	$	(0.07	)
Shares used to compute net loss per share:
Basic		72,039			71,746			69,968
Diluted		72,039			71,746			69,968

MAXLINEAR, INC. UNAUDITED GAAP CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)

	Three Months Ended
	March 31, 2020			December 31, 2019			March 31, 2019
Operating Activities
Net loss	$	(15,469	)	$	(8,104	)	$	(4,851	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization and depreciation		16,733			16,473			16,863
Impairment losses		86		—			—
Amortization of debt issuance costs and accretion of discount on debt and leases		410			404			402
Stock-based compensation		6,827			7,747			7,747
Deferred income taxes		(6,208	)		(3,238	)		(6,476	)
Loss on disposal of property and equipment	—			—				35
Impairment of leasehold improvements		163		—				1,442
Impairment of leased right-of-use assets		44			7,058			2,182
Gain on extinguishment of lease liabilities	—				(7,557	)		(2,880	)
(Gain) loss on foreign currency		(246	)		430			567
Excess tax deficiencies (benefits) on stock-based awards		94			(192	)		(1,737	)
Changes in operating assets and liabilities:
Accounts receivable		5,615			5,930			(142	)
Inventory		353			6,224			(1,015	)
Prepaid expenses and other assets		1,443			2,889			604
Leased right-of-use assets		640			109			645
Accounts payable, accrued expenses and other current liabilities		(785	)		2,692			1,921
Accrued compensation		3,361			607			893
Accrued price protection liability		(4,537	)		(1,097	)		2,489
Lease liabilities		(1,430	)		(1,655	)		(2,125	)
Other long-term liabilities		(446	)		(613	)		(519	)
Net cash provided by operating activities		6,648			28,107			16,045
Investing Activities
Purchases of property and equipment		(1,035	)		(2,989	)		(2,155	)
Net cash used in investing activities		(1,035	)		(2,989	)		(2,155	)
Financing Activities
Repayment of debt	—			—				(15,000	)
Net proceeds from issuance of common stock		488			2,382			2,628
Minimum tax withholding paid on behalf of employees for restricted stock units		(475	)		(820	)		(4,419	)
Net cash provided by (used in) financing activities		13			1,562			(16,791	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(303	)		(87	)		577
Increase (decrease) in cash, cash equivalents and restricted cash		5,323			26,593			(2,324	)
Cash, cash equivalents and restricted cash at beginning of period		93,117			66,524			74,191
Cash, cash equivalents and restricted cash at end of period	$	98,440		$	93,117		$	71,867

MAXLINEAR, INC. UNAUDITED GAAP CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)

	March 31, 2020		December 31, 2019		March 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	98,373	$	92,708	$	71,102
Short-term restricted cash	10		349		347
Accounts receivable, net	44,796		50,411		59,639
Inventory	31,088		31,510		42,753
Prepaid expenses and other current assets	6,342		6,792		5,479
Total current assets	180,609		181,770		179,320
Long-term restricted cash	57		60		418
Property and equipment, net	15,751		16,613		16,987
Leased right-of-use assets	9,864		10,978		21,543
Intangible assets, net	173,570		187,971		230,634
Goodwill	238,330		238,330		238,330
Deferred tax assets	73,492		67,284		58,067
Other long-term assets	1,752		2,785		3,583
Total assets	$	693,425	$	705,791	$	748,882

Liabilities and stockholders’ equity
Current liabilities	$	62,428	$	66,562	$	73,483
Long-term lease liabilities	8,029		9,335		18,132
Long-term debt	207,197		206,909		241,044
Other long-term liabilities	7,614		8,065		8,019
Stockholders’ equity	408,157		414,920		408,204
Total liabilities and stockholders’ equity	$	693,425	$	705,791	$	748,882

MAXLINEAR, INC. UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTMENTS (in thousands, except per share data)

	Three Months Ended
	March 31, 2020			December 31, 2019			March 31, 2019
GAAP gross profit	$	30,762		$	36,624		$	45,077
Stock-based compensation		148			149			130
Performance based equity		69			(21	)		73
Amortization of purchased intangible assets		8,581			8,513			8,424
Non-GAAP gross profit		39,560			45,265			53,704

GAAP R&D expenses		25,689			23,467			27,399
Stock-based compensation		(3,746	)		(3,955	)		(4,213	)
Performance based equity		(1,750	)		(421	)		(925	)
Depreciation of fixed asset step-up		—			—			(6	)
Non-GAAP R&D expenses		20,193			19,091			22,255

GAAP SG&A expenses		24,632			20,924			23,591
Stock-based compensation		(2,933	)		(3,643	)		(3,404	)
Performance based equity		(1,136	)		(604	)		(939	)
Amortization of purchased intangible assets		(5,723	)		(5,723	)		(5,798	)
Acquisition costs		(3,270	)	—			—
IP litigation costs, net		(60	)		3		—
Non-GAAP SG&A expenses		11,510			10,957			13,450

GAAP impairment losses		86		—			—
Impairment losses		(86	)	—			—
Non-GAAP impairment losses	—			—			—

GAAP restructuring expenses		489			159			1,917
Restructuring charges		(489	)		(159	)		(1,917	)
Non-GAAP restructuring expenses	—			—			—

GAAP loss from operations		(20,134	)		(7,926	)		(7,830	)
Total non-GAAP adjustments		27,991			23,143			25,829
Non-GAAP income from operations		7,857			15,217			17,999

GAAP and non-GAAP interest and other income (expense), net		(2,071	)		(2,863	)		(3,483	)

GAAP loss before income taxes		(22,205	)		(10,789	)		(11,313	)
Total non-GAAP adjustments		27,991			23,143			25,829
Non-GAAP income before income taxes		5,786			12,354			14,516

GAAP income tax benefit		(6,736	)		(2,685	)		(6,462	)
Adjustment for non-cash tax benefits/expenses		7,083			3,303			7,478
Non-GAAP income tax provision		347			618			1,016

GAAP net loss		(15,469	)		(8,104	)		(4,851	)
Total non-GAAP adjustments before income taxes		27,991			23,143			25,829
Less: total tax adjustments		7,083			3,303			7,478
Non-GAAP net income	$	5,439		$	11,736		$	13,500

Shares used in computing non-GAAP basic net income per share		72,039			71,746			69,968
Shares used in computing non-GAAP diluted net income per share		72,673			72,707			71,900
Non-GAAP basic net income per share	$	0.08		$	0.16		$	0.19
Non-GAAP diluted net income per share	$	0.07		$	0.16		$	0.19

MAXLINEAR, INC. UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

	Three Months Ended
	March 31, 2020		December 31, 2019		March 31, 2019
GAAP gross profit	49.6	%	52.3	%	53.3	%
Stock-based compensation	0.2	%	0.2	%	0.2	%
Performance based equity	0.1	%	—	%	0.1	%
Amortization of purchased intangible assets	13.8	%	12.2	%	10.0	%
Non-GAAP gross profit	63.8	%	64.6	%	63.5	%

GAAP R&D expenses	41.4	%	33.5	%	32.4	%
Stock-based compensation	(6.0	)%	(5.6	)%	(5.0	)%
Performance based equity	(2.8	)%	(0.6	)%	(1.1	)%
Depreciation of fixed asset step-up	—	%	—	%	—	%
Non-GAAP R&D expenses	32.6	%	27.3	%	26.3	%

GAAP SG&A expenses	39.7	%	29.9	%	27.9	%
Stock-based compensation	(4.7	)%	(5.2	)%	(4.0	)%
Performance based equity	(1.8	)%	(0.9	)%	(1.1	)%
Amortization of purchased intangible assets	(9.2	)%	(8.2	)%	(6.9	)%
Acquisition costs	(5.3	)%	—	%	—	%
IP litigation costs, net	(0.1	)%	—	%	—	%
Non-GAAP SG&A expenses	18.6	%	15.6	%	15.9	%

GAAP impairment losses	0.1	%	—	%	—	%
Impairment losses	(0.1	)%	—	%	—	%
Non-GAAP impairment losses	—	%	—	%	—	%

GAAP restructuring expenses	0.8	%	0.2	%	2.3	%
Restructuring charges	(0.8	)%	(0.2	)%	(2.3	)%
Non-GAAP restructuring expenses	—	%	—	%	—	%

GAAP loss from operations	(32.5	)%	(11.3	)%	(9.3	)%
Total non-GAAP adjustments	45.1	%	33.1	%	30.5	%
Non-GAAP income from operations	12.7	%	21.7	%	21.3	%

GAAP interest and other income (expense), net	(3.3	)%	(4.1	)%	(4.1	)%

GAAP loss before income taxes	(35.8	)%	(15.4	)%	(13.4	)%
Total non-GAAP adjustments before income taxes	45.1	%	33.1	%	30.5	%
Non-GAAP income before income taxes	9.3	%	17.6	%	17.2	%

GAAP income tax benefit	(10.9	)%	(3.8	)%	(7.6	)%
Adjustment for non-cash tax benefits/expenses	11.4	%	4.7	%	8.8	%
Non-GAAP income tax provision	0.6	%	0.9	%	1.2	%

GAAP net loss	(24.9	)%	(11.6	)%	(5.7	)%
Total non-GAAP adjustments before income taxes	45.1	%	33.1	%	30.5	%
Less: total tax adjustments	11.4	%	4.7	%	8.8	%
Non-GAAP net income	8.8	%	16.8	%	16.0	%

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