Last10K.com

Maxlinear Inc (MXL) SEC Filing 10-Q Quarterly report for the period ending Wednesday, September 30, 2020

SEC Filings

Maxlinear Inc

CIK: 1288469 Ticker: MXL

Exhibit 99.1
mxla01a01a421.jpg
FOR IMMEDIATE RELEASE

MaxLinear, Inc. Announces Third Quarter 2020 Financial Results

Record net revenue of $156.6 million, up 140% sequentially and up 96% year-on-year
Delivers strong results driven by infrastructure business improvements as well as continued strength from Broadband and WiFi product contributions

Carlsbad, Calif. – November 5, 2020
– MaxLinear, Inc. (NYSE: MXL), a leading provider of RF, analog, digital and mixed-signal integrated circuits, today announced financial results for the third quarter ended September 30, 2020.

Third Quarter Financial Highlights
GAAP basis:
Net revenue was $156.6 million, up 140% sequentially, and up 96% year-on-year.
GAAP gross margin was 42.3%, compared to 50.2% in the prior quarter, and 52.4% in the year-ago quarter.
GAAP operating expenses were $100.8 million in the third quarter 2020, or 64% of net revenue, compared to $55.5 million in the prior quarter, or 85% of net revenue, and $45.2 million in the year-ago quarter, or 57% of net revenue.
GAAP loss from operations was 22% of revenue, compared to loss from operations of 35% in the prior quarter, and loss from operations of 4% in the year-ago quarter.
Net cash flow used in operating activities was $16.6 million, compared to net cash flow provided by operating activities of $9.3 million in the prior quarter, and net cash flow provided by operating activities of $21.8 million in the year-ago quarter.
GAAP diluted loss per share was $0.50, compared to diluted loss per share of $0.30 in the prior quarter, and diluted loss per share of $0.07 in the year-ago quarter.
Non-GAAP basis:
Non-GAAP gross margin was 58.0%. This compares to 63.7% in the prior quarter, and 63.1% in the year-ago quarter.
Non-GAAP operating expenses were $61.1 million, or 39% of revenue, compared to $32.6 million or 50% of revenue in the prior quarter, and $30.8 million or 38% of revenue in the year-ago quarter.
Non-GAAP income from operations was 19% of revenue, compared to 14% in the prior quarter, and 25% in the year-ago quarter.
Non-GAAP diluted earnings per share was $0.32, compared to diluted earnings per share of $0.09 in the prior quarter, and diluted earnings per share of $0.23 in the year-ago quarter.

Recent Business Highlights

Completed acquisition of Intel’s Home Gateway Platform Division broadening its existing connected home portfolio by bringing together a complete, scalable, complementary platform of connectivity and access solutions
Completed acquisition of NanoSemi, Inc., strengthening its IP portfolio for its 5G and WiFi base station solutions

Management Commentary

“In the third quarter, we posted record revenue due to stronger-than-expected demand for broadband access and connectivity products, along with meaningful quarterly improvements in our infrastructure business. These results not only support our positive outlook for new revenues with our PAM4 DSP product for the 400G optical datacenter market and 5G wireless
1

The following information was filed by Maxlinear Inc (MXL) on Thursday, November 5, 2020 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From              to
Commission file number: 001-34666
MaxLinear Inc.
(Exact name of Registrant as specified in its charter)

Delaware14-1896129
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
5966 La Place Court, Suite 100,CarlsbadCalifornia92008
(Address of principal executive offices)(Zip Code)
(760) 692-0711
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stockMXLNew York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes     No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerEmerging growth company
Non-accelerated filerSmaller reporting company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No   
As of October 29, 2020, the registrant had 74,168,486 shares of common stock, par value $0.0001, outstanding.


MAXLINEAR, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS

Page
Part I
Item 1.
Item 2.
Item 3.
Item 4.
Part II
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


2

PART I — FINANCIAL INFORMATION

3

ITEM 1.    FINANCIAL STATEMENTS

MAXLINEAR, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited; in thousands, except par value amounts)
September 30,
2020
December 31,
2019
Assets
Current assets:
Cash and cash equivalents$96,570 $92,708 
Short-term restricted cash111 349 
Accounts receivable, net105,355 50,411 
Inventory104,471 31,510 
Prepaid expenses and other current assets43,546 6,792 
Total current assets350,053 181,770 
Long-term restricted cash61 60 
Property and equipment, net37,258 16,613 
Leased right-of-use assets11,876 10,978 
Intangible assets, net232,148 187,971 
Goodwill302,576 238,330 
Deferred tax assets72,537 67,284 
Other long-term assets1,270 2,785 
Total assets$1,007,779 $705,791 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$50,574 $13,442 
Accrued price protection liability18,034 12,557 
Accrued expenses and other current liabilities104,723 31,171 
Accrued compensation38,043 9,392 
Total current liabilities211,374 66,562 
Long-term lease liabilities9,406 9,335 
Long-term debt372,457 206,909 
Other long-term liabilities17,734 8,065 
Total liabilities610,971 290,871 
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; 74,153 shares issued and outstanding at September 30, 2020 and 71,931 shares issued and outstanding December 31, 2019
Additional paid-in capital
584,968 529,596 
Accumulated other comprehensive loss(450)(887)
Accumulated deficit
(187,717)(113,796)
Total stockholders’ equity396,808 414,920 
Total liabilities and stockholders’ equity$1,007,779 $705,791 
See accompanying notes.
4

MAXLINEAR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited; in thousands, except per share data)

Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Net revenue$156,633 $80,020 $283,880 $247,162 
Cost of net revenue90,427 38,116 154,169 116,101 
Gross profit66,206 41,904 129,711 131,061 
Operating expenses:
Research and development55,816 23,174 109,489 74,877 
Selling, general and administrative41,685 21,920 93,787 67,838 
Impairment losses— — 86 — 
Restructuring charges3,280 144 3,833 2,477 
Total operating expenses100,781 45,238 207,195 145,192 
Loss from operations(34,575)(3,334)(77,484)(14,131)
Interest income27 214 283 553 
Interest expense(3,569)(2,718)(8,228)(8,546)
Other income (expense), net(719)1,098 (620)429 
Total interest and other income (expense), net(4,261)(1,406)(8,565)(7,564)
Loss before income taxes(38,836)(4,740)(86,049)(21,695)
Income tax benefit(2,191)(26)(12,128)(9,901)
Net loss$(36,645)$(4,714)$(73,921)$(11,794)
Net loss per share:
Basic$(0.50)$(0.07)$(1.02)$(0.17)
Diluted$(0.50)$(0.07)$(1.02)$(0.17)
Shares used to compute net loss per share:
Basic73,402 71,366 72,729 70,755 
Diluted73,402 71,366 72,729 70,755 

See accompanying notes.
5

MAXLINEAR, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited; in thousands)


Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Net loss$(36,645)$(4,714)$(73,921)$(11,794)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net of tax expense of $0 and $23 for the three and nine months ended September 30, 2020, respectively, and net of tax benefit of $26 and $41 for the three and nine months ended September 30, 2019, respectively
700 (600)415 (167)
Unrealized gain (loss) on interest rate swap, net of tax expense of $17 and $6 for the three and nine months ended September 30, 2020, respectively, and net of tax benefit of $44 and $338 for the three and nine months ended September 30, 2019, respectively
60 (162)22 (1,273)
Other comprehensive income (loss)760 (762)437 (1,440)
Total comprehensive loss$(35,885)$(5,476)$(73,484)$(13,234)


See accompanying notes.
6

MAXLINEAR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FISCAL QUARTERS ENDED SEPTEMBER 30, 2020
(unaudited; in thousands)
    
Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance at December 31, 201971,931 $$529,596 $(887)$(113,796)$414,920 
Common stock issued pursuant to equity awards, net414 — 2,612 — — 2,612 
Stock-based compensation— — 6,827 — — 6,827 
Other comprehensive loss— — — (733)— (733)
Net loss— — — — (15,469)(15,469)
Balance at March 31, 202072,345 539,035 (1,620)(129,265)408,157 
Common stock issued pursuant to equity awards, net597 — 989 — — 989 
Employee stock purchase plan161 — 2,141 — — 2,141 
Stock-based compensation— — 12,085 — — 12,085 
Other comprehensive income— — — 410 — 410 
Net loss— — — — (21,807)(21,807)
Balance at June 30, 202073,103 554,250 (1,210)(151,072)401,975 
Common stock issued pursuant to equity awards, net246 — (507)— — (507)
Common stock issued for merger, net804 — 17,080 — — 17,080 
Stock-based compensation— — 14,145 — — 14,145 
Other comprehensive income— — — 760 — 760 
Net loss— — — — (36,645)(36,645)
Balance at September 30, 202074,153 $$584,968 $(450)$(187,717)$396,808 
See accompanying notes.

7

MAXLINEAR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FISCAL QUARTERS ENDED SEPTEMBER 30, 2019
(unaudited; in thousands)

Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance at December 31, 201869,551 $$493,287 $272 $(93,630)$399,936 
Common stock issued pursuant to equity awards, net981 — 5,615 — — 5,615 
Stock-based compensation— — 7,747 — — 7,747 
Cumulative effect of adoption of new accounting principle— — — — (268)(268)
Other comprehensive income— — — 25 — 25 
Net loss— — — — (4,851)(4,851)
Balance at March 31, 201970,532 506,649 297 (98,749)408,204 
Common stock issued pursuant to equity awards, net544 — (4,405)— — (4,405)
Employee stock purchase plan142 — 2,302 — — 2,302 
Stock-based compensation— — 8,207 — — 8,207 
Other comprehensive loss— — — (703)— (703)
Net loss— — — — (2,229)(2,229)
Balance at June 30, 201971,218 512,753 (406)(100,978)411,376 
Common stock issued pursuant to equity awards, net331 — (908)— — (908)
Stock-based compensation— — 8,359 — — 8,359 
Other comprehensive loss— — — (762)— (762)
Net loss— — — — (4,714)(4,714)
Balance at September 30, 201971,549 $$520,204 $(1,168)$(105,692)$413,351 
See accompanying notes.

8

MAXLINEAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in thousands)
Nine Months Ended September 30,
20202019
Operating Activities
Net loss$(73,921)$(11,794)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Amortization and depreciation53,819 49,928 
Impairment losses86 — 
Amortization of inventory step-up14,445 — 
Amortization of debt issuance costs and accretion of discount on debt and leases1,386 1,173 
Stock-based compensation33,057 24,313 
Deferred income taxes(5,253)(12,455)
Loss on disposal of property and equipment— 46 
Impairment of leasehold improvements319 1,442 
Impairment of leased right-of-use assets1,508 2,182 
Gain on extinguishment of lease liabilities— (2,880)
Loss on foreign currency375 330 
Excess tax benefits on stock-based awards(530)(3,872)
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable(54,592)3,160 
Inventory(20,180)3,971 
Prepaid expenses and other assets(34,357)916 
Leased right-of-use assets405 2,935 
Accounts payable, accrued expenses and other current liabilities67,193 (1,431)
Accrued compensation23,121 1,414 
Accrued price protection liability5,439 (2,869)
Lease liabilities(4,275)(6,487)
Other long-term liabilities(8,721)219 
Net cash provided by (used in) operating activities(676)50,241 
Investing Activities
Purchases of property and equipment(10,132)(3,898)
Purchase of intangibles(388)(86)
Cash used in acquisitions, net of cash acquired(160,000)— 
Net cash used in investing activities(170,520)(3,984)
Financing Activities
Proceeds from the issuance of debt175,000 — 
Payment of debt issuance cost(2,696)— 
Repayment of debt— (50,000)
Net proceeds from issuance of common stock5,270 6,221 
Minimum tax withholding paid on behalf of employees for restricted stock units(2,892)(11,166)
Net cash provided by (used in) financing activities174,682 (54,945)
Effect of exchange rate changes on cash and cash equivalents 139 1,021 
Increase (decrease) in cash, cash equivalents and restricted cash3,625 (7,667)
Cash, cash equivalents and restricted cash at beginning of period93,117 74,191 
Cash, cash equivalents and restricted cash at end of period$96,742 $66,524 
Supplemental disclosures of cash flow information:
Cash paid for interest$7,067 $8,901 
Cash paid for income taxes$2,003 $3,060 
Supplemental disclosures of non-cash activities:
Issuance of shares for payment of bonuses$2,857 $7,549 
See accompanying notes.
9

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 radio-frequency, or RF, analog, digital, and mixed-signal communications system-on-chip solutions for access and connectivity, wired and wireless infrastructure, and industrial and multi-market applications. 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 DOCSIS broadband modems and gateways, wireline connectivity devices for in-home networking applications, RF transceivers and modems for wireless carrier access and backhaul infrastructure, fiber-optic modules for data center, metro, and long-haul transport networks, video set-top boxes and gateways, hybrid analog and digital televisions, direct broadcast satellite outdoor and indoor units, and power management and interface products used in these and a range of other markets. The Company is a fabless integrated circuit design company whose products integrate all or a substantial portion of a broadband communication system.
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 (loss), stockholders’ equity, and cash flows.

The consolidated balance sheet as of December 31, 2019 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, 2019 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 5, 2020, or the Annual Report. Interim results for the nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020.
Use of Estimates and Significant Risks and Uncertainties
The preparation of 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 to unaudited consolidated financial statements.

In the nine months ended September 30, 2020, the Company’s revenues were impacted by the novel coronavirus disease, or COVID-19, pandemic. In particular, the Company experienced some negative impact to its revenue and gross profits in the first half of 2020 due to several industry-wide dynamics related to COVID-19 including supply constraints as well as customer requests to temporarily delay shipments. Although we have benefited from increased demand for certain of our products from the work-from-home environment in the quarter ended September 30, 2020, heightened volatility and uncertainty in customer demand and the worldwide economy in general has continued, and the Company may experience increased volatility in its sales and revenues in the near future. However, the magnitude of such volatility on the Company’s business and its duration is uncertain and cannot be reasonably estimated at this time.

The Company also believes that its $96.7 million of cash and cash equivalents at September 30, 2020 will be sufficient to fund its projected operating requirements for at least the next twelve months. A material adverse impact from COVID-19 could result in a need to raise additional capital or incur additional indebtedness to fund strategic initiatives or operating activities, particularly if the Company pursues additional acquisitions. The Company’s future capital requirements will depend on many factors, including the Company’s efforts to integrate the acquired WiFi and Broadband assets business and NanoSemi (Note 3), changes in revenue, the expansion of engineering, sales and marketing activities, the timing and extent of expansion into new
10

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
territories, the timing of introductions of new products and enhancements to existing products, the continuing market acceptance of the Company’s products and potential material investments in, or acquisitions of, complementary businesses, services or technologies. Additional funds may not be available on terms favorable to the Company or at all. If the Company is unable to raise additional funds when needed, it may not be able to sustain its operations or execute its strategic plans.

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 November 5, 2020, the issuance date of this Quarterly Report on Form 10-Q. Actual results could differ from those estimates, particularly if the Company experiences material impacts from COVID-19.
Summary of Significant Accounting Policies
Refer to the Company’s Annual Report for a summary of significant accounting policies. On January 1, 2020, the Company adopted ASC Topic 326, Measurement of Credit Losses on Financial Instruments, or ASC 326, and accordingly, modified its policy on accounting for allowance for doubtful accounts on trade accounts receivable as stated below. As described under “Recently Adopted Accounting Pronouncements,” section below, the impact of adopting ASC 326 for the Company was not material.
There have been no other significant changes to the Company’s significant accounting policies during the nine months ended September 30, 2020.
During the three months ended September 30, 2020, the Company acquired two businesses (Note 3) that are accounted for as business combinations. In connection with the July 31, 2020 acquisition of the WiFi and Broadband assets business (Note 3), the Company assumed an obligation of $7.9 million of the WiFi and Broadband assets business associated with certain defined benefit retirement plans, including a pension plan. Below are the Company’s accounting policies with respect to business combinations and pension and other defined benefit retirement obligations.
Accounts Receivable
The Company performs ongoing credit evaluations of its customers and assesses each customer’s credit worthiness. The Company monitors collections and payments from its customers and maintains an allowance for doubtful accounts based upon applying an expected credit loss rate to receivables based on the historical loss rate from similar high risk customers adjusted for current conditions, including any specific customer collection issues identified, and forecasts of economic conditions. Delinquent account balances are written off after management has determined that the likelihood of collection is remote. The allowance for credit losses as of September 30, 2020 and the activity in this account, including the current-period provision for expected credit losses for the nine months ended September 30, 2020, were not material.

Business Combinations
The Company applies the provisions of ASC 805, Business Combinations, in accounting for its acquisitions. It requires the Company to recognize separately from goodwill the assets acquired and the liabilities assumed, at the acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the acquisition date fair values of the net assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, its estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.

Costs to exit or restructure certain activities of an acquired company or the Company’s internal operations are accounted for as termination and exit costs pursuant to ASC 420, Exit or Disposal Cost Obligations, and are accounted for separately from the business combination. A liability for costs associated with an exit or disposal activity is recognized and measured at its fair value in the consolidated statements of operations in the period in which the liability is incurred. When estimating the fair value of facility restructuring activities, assumptions are applied regarding estimated sub-lease payments to be received, which can differ materially from actual results. This may require the Company to revise its initial estimates which may materially affect the results of operations and financial position in the period the revision is made.

11

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
For a given acquisition, the Company may identify certain pre-acquisition contingencies as of the acquisition date and may extend its review and evaluation of these pre-acquisition contingencies throughout the measurement period in order to obtain sufficient information to assess whether the Company includes these contingencies as a part of the fair value estimates of assets acquired and liabilities assumed and, if so, to determine their estimated amounts.

If the Company cannot reasonably determine the fair value of a pre-acquisition contingency (non-income tax related) by the end of the measurement period, which is generally the case given the nature of such matters, the Company will recognize an asset or a liability for such pre-acquisition contingency if: (i) it is probable that an asset existed or a liability had been incurred at the acquisition date and (ii) the amount of the asset or liability can be reasonably estimated. Subsequent to the measurement period, changes in estimates of such contingencies will affect earnings and could have a material effect on the Company's results of operations and financial position.

In addition, uncertain tax positions and tax-related valuation allowances assumed, if any, in connection with a business combination are initially estimated as of the acquisition date. The Company re-evaluates these items quarterly based upon facts and circumstances that existed as of the acquisition date with any adjustments to the preliminary estimates being recorded to goodwill if identified within the measurement period. Subsequent to the end of the measurement period or final determination of the estimated value of the tax allowance or contingency, whichever comes first, changes to these uncertain tax positions and tax related valuation allowances will affect the income tax provision (benefit) in the consolidated statements of operations and could have a material impact on the results of operations and financial position.

Pension and Other Defined Benefit Retirement Obligations
The costs of pension and certain other defined benefit employee retirement benefits are required to be recognized based upon actuarial valuations. The related net retirement benefit obligation is recognized as the excess of the projected benefit obligation over the fair value of the plan assets. In measuring the retirement benefit obligation, the discount rate and long-term rate of salary increase are the most significant assumptions. Retirement benefit costs primarily represent the increase in the actuarial present value of the retirement benefit obligation. The most significant assumptions in determining retirement benefit costs are the discount rate, expected long-term rate of return on plan assets, and long-term rate of salary increase.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, to replace the incurred loss methodology with an expected credit loss model that requires consideration of a broader range of information to estimate credit losses over the lifetime of the asset, including current conditions and reasonable and supportable forecasts in addition to historical loss information, to determine expected credit losses. Pooling of assets with similar risk characteristics and the use of a loss model are also required. Also, in April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, to clarify the inclusion of recoveries of trade receivables previously written off when estimating an allowance for credit losses. The amendments in this update are effective for the Company beginning with fiscal year 2020, including interim periods. The adoption of the amendments in this update as of January 1, 2020 did not have a material impact on the Company’s accounts receivable, net and accumulated deficit, as well as its results of operations for the three months ended March 31, 2020. The adoption is also not expected to have a material impact on the Company’s consolidated financial position and results of operations as of and for the year ending December 31, 2020.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. An entity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if the reporting unit had been acquired in a business combination. Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The Board also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. The amendments in this update are effective for the Company beginning with fiscal year 2020, including interim periods. The Company performs its annual goodwill testing as of October 31, or more frequently if there are indicators of impairment. The application of the amendments in this update is not expected to have a material impact on the Company’s consolidated financial position and results of operations as of and for the year ending December 31, 2020.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—
12

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Changes to the Disclosure Requirements for Fair Value Measurement, to improve the fair value measurement reporting of financial instruments. The amendments in this update require, among other things, added disclosure of the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this update eliminate, among other things, disclosure of the reasons for and amounts of transfers between Level 1 and Level 2 for assets and liabilities that are measured at fair value on a recurring basis and an entity's valuation processes for Level 3 fair value measurements. The amendments in this update are effective for the Company beginning with fiscal year 2020. Retrospective application is required for all amendments in this update except the added disclosures, which should be applied prospectively. The adoption of the amendments in this update in the quarter ended March 31, 2020 did not have a material impact on the Company’s consolidated financial position and results of operations as of and for the three months ended March 31, 2020 and is also not expected to have a material impact on the Company’s consolidated financial position and results of operations as of and for the year ending December 31, 2020.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles–Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, to provide additional guidance on the accounting for costs of implementing cloud computing arrangements that are service contracts. The amendments in this update require the capitalization of implementation costs during the application development stage of such hosting arrangements and amortization of the expense over the term of the arrangement including any option to extend reasonably certain to be exercised or option to terminate reasonably certain not to be exercised. Capitalized implementation costs and amortization thereof are also required to be classified in the same line item in the statements of financial position, operations and cash flows associated with the hosting service fees. The amendments in this update are effective for the Company beginning with fiscal year 2020. The Company selected prospective application to all implementation costs incurred after the adoption date. The adoption of the amendments in this update did not have a material impact on the Company’s property and equipment, net and results of operations as of and for the three months ended March 31, 2020 and is also not expected to have a material impact on the Company’s consolidated financial position and results of operations as of and for the year ending December 31, 2020.

In March 2020, the FASB issued ASU No. 2020-04 Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting, that provides optional relief to applying reference rate reform to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (LIBOR), which will be discontinued by the end of 2021. The amendments in this update are effective immediately and may be applied through December 31, 2022. The Company's LIBOR interest rate swap expires in October 2020 and will not be impacted by reference rate reform. Therefore, the adoption of the amendments in this update did not have a material impact on the Company’s accumulated other comprehensive loss or its results of operations as of and for the three months ended June 30, 2020, and is also not expected to have a material impact on the Company's consolidated financial position and results of operations as of and for the year ending December 31, 2020.

In May 2020, the SEC issued a final rule that amends the financial statement requirements for business acquisitions and related pro forma financial information. The rule modifies the significance tests to replace total assets with aggregate worldwide market value of common equity in the investment test and to include a revenue component in the income test while requiring the use of absolute value to calculate average net income for the last five fiscal years. The rule improves the presentation of pro forma financial information by replacing pro forma adjustments with transaction accounting adjustments and adds the optional disclosure of management’s adjustments related to synergies and dis-synergies. The rule also reduces the number of acquiree annual financial statement periods required to a maximum of the two most recent fiscal years. The final rule is effective for the Company beginning with fiscal year 2021, with early application permitted; all applicable aspects of the rule are required to be applied upon adoption. The Company has early adopted the rule in its filings related to the acquisition of the WiFi and Broadband assets business. The adoption of the rule is not expected to have an impact on the Company’s consolidated financial position and results of operations as of and for the year ending December 31, 2020.

Recently Issued Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12 Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes, to remove certain exceptions and improve consistency of application, including, among other things, requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The amendments in this update will be effective for the Company beginning with fiscal year 2021, with early adoption permitted. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The adoption of
13

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
the amendments in this update is not expected to have a material impact on the Company’s consolidated financial position and results of operations.
2. Net Income (Loss) 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,
2020201920202019
(in thousands, except per share amounts)
Numerator:
Net loss$(36,645)$(4,714)$(73,921)$(11,794)
Denominator:
Weighted average common shares outstanding—basic73,402 71,366 72,729 70,755 
Dilutive common stock equivalents— — — — 
Weighted average common shares outstanding—diluted73,402 71,366 72,729 70,755 
Net loss per share:
Basic$(0.50)$(0.07)$(1.02)$(0.17)
Diluted$(0.50)$(0.07)$(1.02)$(0.17)
For the three and nine months ended September 30, 2020 and 2019, the Company incurred net losses and accordingly excluded common stock equivalents for outstanding stock-based awards, which represented all potentially dilutive securities, of 3.5 million and 3.1 million for the 2020 periods, respectively, and 2.4 million and 2.6 million for the 2019 periods, respectively, from the calculation of diluted net loss per share due to their anti-dilutive nature.

3. Business Combinations
Acquisition of the WiFi and Broadband assets business
On July 31, 2020, the Company and certain of its designated subsidiaries completed their acquisition of the Home Gateway Platform Division, which the Company refers to as the WiFi and Broadband assets business, pursuant to an Asset Purchase Agreement with Intel Corporation, or Intel, dated April 5, 2020 (the “Asset Purchase Agreement”), and related agreements. The Company paid cash consideration of $150.0 million for the purchase of certain assets of the WiFi and Broadband assets business, and assumed certain liabilities related to specified employment matters. The transaction was funded with a portion of the net proceeds from a secured incremental term loan with an aggregate principal amount of $175.0 million (Note 8).
The WiFi and Broadband assets business develops a broad portfolio of connected home products, including WiFi, Ethernet and Broadband Gateway Processor SoCs, which enables the Company to strengthen its existing connected home portfolio by bringing together a complete, scalable, and complementary platform of connectivity and access solutions to address its customers’ needs across target end-markets.
The acquired assets and assumed liabilities, together with the employees who joined the Company and its subsidiaries as a result of the transaction, represent a business as defined in ASC 805, Business Combinations. The Company is integrating the acquired assets and rehired employees into the Company’s existing business.
14

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The Asset Purchase Agreement also contains customary representations, warranties and covenants, including indemnification provisions set forth therein. Pursuant to the Purchase Agreement, Intel has retained, and will be obligated to indemnify MaxLinear for, certain liabilities, including but not limited to those relating to the Home Gateway Platform Division for pre-closing taxes and specified employment matters, and MaxLinear has assumed, and will indemnify Intel for, certain liabilities, including but not limited to those relating to the Home Gateway Platform Division and the Transferred Assets for certain pre-closing and post-closing actions, events and periods (including certain product-related liabilities for products sold prior to the Closing for up to a $25.0 million cap), and specified employment matters.

In connection with the transaction, the Company and Intel have entered into as of the closing certain other ancillary agreements, including (i) an intellectual property matters agreement, pursuant to which Intel will grant to the Company a license to certain intellectual property rights for use by the Company in connection with the acquired assets and the Company will grant back to Intel a license to the intellectual property rights in the acquired assets, (ii) a supply agreement, pursuant to which Intel will manufacture and fabricate certain products for the Company that are part of the acquired assets, (iii) an ethernet network controller services agreement, pursuant to which the Company will provide Intel with certain development services with respect to certain Intel ethernet network controller products, (iv) a transition services agreement, pursuant to which Intel will provide certain services on a transitional basis for up to a 12-month period after the closing, the scope of which includes services relating to real estate and facilities, information technology, and supply chain, procurement, sales operations, and engineering support, and (v) a side letter regarding the delayed transfer of certain inventory. Pursuant to the delayed inventory side letter, the Company has control and economic benefits of the inventory, but the title and possession of the inventory has been delayed until the last day that Intel provides services under the transition services agreement.
Acquisition Consideration

The following table summarizes the fair value of purchase price consideration to acquire the WiFi and Broadband assets business (in thousands):

DescriptionAmount
Fair value of purchase consideration:
Cash$150,000 

Preliminary Purchase Price Allocation

The following is an allocation of purchase price as of the July 31, 2020 acquisition closing date based upon a preliminary estimate of the fair value of the assets acquired and the liabilities assumed by the Company in the acquisition (in thousands):
DescriptionAmount
Preliminary purchase price allocation:
Inventory$67,100 
Property and equipment, net17,641 
Identifiable intangible assets58,000 
Accrued expenses(68)
Accrued compensation(7,916)
Other long-term liabilities(8,197)
Identifiable net assets acquired126,560 
Goodwill23,440 
Total purchase price$150,000 
The fair value of inventories acquired with the WiFi and Broadband assets business included an acquisition accounting fair market value step-up of $32.9 million. The Company recognized $14.4 million in amortization of inventory step-up in cost of sales in the consolidated statements of operations for the three and nine months ended September 30, 2020.
The following is a summary of identifiable intangible assets acquired and the related expected lives for the finite-lived intangible assets (in thousands):
15

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
CategoryEstimated Life in YearsFair Value
Finite-lived intangible assets:
Developed technology7$43,200 
Customer-related intangible56,800 
Product backlog0.58800 
50,800 
Indefinite-lived intangible assets:
IPR&DN/A7,200 
Total identifiable intangible assets acquired$58,000 
Acquisition of NanoSemi, Inc.
On September 9, 2020, the Company completed its acquisition of NanoSemi, Inc. or NanoSemi, pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) with NanoSemi, dated September 9, 2020. The initial closing transaction consideration consisted of $10.0 million in cash and 804,163 shares of MaxLinear’s common stock. In addition, the NanoSemi securityholders will receive $35.0 million in deferred cash payments payable in 2021, and certain NanoSemi securityholders may also receive up to an additional $35.0 million in potential contingent consideration, subject to the acquired business’s satisfying certain financial objectives from July 1, 2020 through December 31, 2022. The stock consideration was issued in reliance on exemptions from the registration requirements of the Securities Act of 1933, as amended. In connection with the acquisition, MaxLinear agreed to provide the NanoSemi stockholders with certain registration rights with respect to the shares of MaxLinear common stock they received in the acquisition.
NanoSemi is an industry-leading provider of intellectual property that utilizes patented machine learning techniques to improve signal integrity and power efficiency in systems-on-chip, or SoCs, application-specific integrated circuits, or ASICs, and field-programmable gate arrays, or FPGAs, used in next-generation communication and artificial intelligence systems. Its technology enables higher throughput connections for 5G, Wi-Fi, and WiGig smartphones and base stations while simultaneously reducing energy consumption.
Acquisition Consideration
The following table summarizes the fair value of purchase price consideration to acquire NanoSemi (in thousands):
DescriptionAmount
Fair value of purchase consideration:
Cash$10,000 
Common stock issued(1)
17,080 
Deferred payments(2)
34,100 
Contingent consideration(3)
3,800 
Total purchase price$64,980 
_________________
(1) The fair value of common stock issued in the merger is based on 804,163 shares issued on the September 9, 2020 acquisition date at the closing price of the Company’s common stock of $21.24 per share.
(2) The fair value of the deferred payments was determined by discounting to present value payments totaling $35.0 million expected to be made to NanoSemi securityholders throughout 2021.
(3) 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 $35.0 million in payments subject to the acquired business’s satisfying certain financial objectives from July 1, 2020 through December 31, 2022, under the Merger Agreement. Key inputs in 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.

16

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Preliminary Purchase Price Allocation
The following is an allocation of purchase price as of the September 9, 2020 acquisition closing date based upon a preliminary estimate of the fair value of the assets acquired and the liabilities assumed by the Company in the acquisition (in thousands):
DescriptionAmount
Preliminary purchase price allocation:
Accounts receivable, net$175 
Prepaid expenses and other current assets774 
Property and equipment, net177 
Leased right-of-use assets1,805 
Intangible assets, net30,300 
Accounts payable(602)
Accrued expenses and other current liabilities(323)
Accrued compensation(223)
Long-term lease liabilities(1,546)
Other long-term liabilities(6,363)
Identifiable net assets acquired24,174 
Goodwill40,806 
Total purchase price$64,980 
The following is a summary of identifiable intangible assets acquired and the related expected lives for the finite-lived intangible assets (in thousands):
CategoryEstimated Life in YearsFair Value
Finite-lived intangible assets:
Developed technology7$24,400 
Trademarks and tradenames71,200 
Customer-related intangible53,000 
Product backlog5.331,700 
Total identifiable intangible assets acquired$30,300 
Assumptions in the Allocations of Purchase Price

Management prepared the purchase price allocations for the WiFi and Broadband assets business and NanoSemi, 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 identifiable intangible assets, inventory, and property and equipment, and the portions of the purchase consideration for NanoSemi expected to be paid to NanoSemi securityholders in the future, as described above. Certain NanoSemi securityholders that are employees are not required to remain employed in order to receive the deferred payments and contingent consideration; accordingly, the fair value of the deferred payments and contingent consideration have been accounted for as a portion of the purchase consideration.

Estimates of fair value require management to make significant estimates and assumptions which are preliminary and subject to change upon finalization of the valuation analysis. The goodwill recognized is attributable primarily to the acquired workforce, expected synergies, and other benefits that MaxLinear believes will result from integrating the operations of the WiFi and Broadband assets business and NanoSemi with the operations of MaxLinear. 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. Updates to and/or completion of the valuations of certain assets acquired and liabilities assumed and our evaluation of certain income tax positions may result in changes to the recorded amounts of assets and liabilities, with corresponding adjustments to goodwill amounts in subsequent periods. We expect to complete the purchase price allocations within 12 months of the respective acquisition dates.
17

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The fair value of the identified intangible assets acquired from the WiFi and Broadband assets business and NanoSemi was estimated using an income approach. Under the income approach, an intangible asset’s fair value is equal to the present value of future economic benefits to be derived from ownership of the asset. Indications of value are developed by discounting future net cash flows to their present value at market-based rates of return. More specifically, the fair value of the developed technology, IPR&D and backlog assets was determined using the multi-period excess earnings method, or MPEEM. MPEEM is an income approach to fair value measurement attributable to a specific intangible asset being valued from the asset grouping’s overall cash-flow stream. MPEEM isolates the expected future discounted cash-flow stream to its net present value. Significant factors considered in the calculation of the developed technology and IPR&D intangible assets were the risks inherent in the development process, including the likelihood of achieving technological success and market acceptance. Each project was analyzed to determine the unique technological innovations, the existence and reliance on core technology, the existence of any alternative future use or current technological feasibility and the complexity, cost, and time to complete the remaining development. Future cash flows for each project were estimated based on forecasted revenue and costs, taking into account the expected product life cycles, market penetration, and growth rates. Developed technology will begin amortization immediately and IPR&D will begin amortization upon the completion of each project. If any of the projects are abandoned, the Company will be required to impair the related IPR&D asset.

In connection with the acquisition of the WiFi and Broadband assets business, the Company has assumed liabilities which primarily consist of accrued employee compensation and benefits in jurisdictions where such transfer is required either by law or by work council agreement. In connection with the acquisition of NanoSemi, the Company assumed certain operating liabilities. The liabilities assumed in these acquisitions are included in the respective purchase price allocations above.

Goodwill recorded in connection with the WiFi and Broadband assets business and NanoSemi was $23.4 million and $40.8 million, respectively. The Company does not expect to deduct any of the acquired goodwill for tax purposes.

Proforma Combined Financial Information

The following table presents unaudited pro forma combined financial information for each of the periods presented, as if the acquisitions of the WiFi and Broadband assets business and NanoSemi had occurred at the beginning of fiscal year 2019:

Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
(in thousands)
Net revenue – proforma combined$219,419 $181,438 $508,449 $541,067 
Net income (loss) – proforma combined$(17,324)$(23,470)$(103,108)$(126,340)


    The following adjustments were included in the unaudited pro forma combined net revenues:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
(in thousands)
Net revenue$156,633 $80,020 $283,880 $247,162 
Add: Net revenue – acquired businesses62,786 101,418 224,569 293,905 
Net revenues – proforma combined$219,419 $181,438 $508,449 $541,067 


18

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
    The following adjustments were included in the unaudited pro forma combined net loss:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
(in thousands)
Net loss$(36,645)$(4,714)$(73,921)$(11,794)
Add: Results of operations – acquired businesses(3,875)(22,075)(63,882)(75,994)
Less: Proforma adjustments
Depreciation of property and equipment2,101 934 4,358 948 
Amortization of intangible assets1,615 3,923 10,119 11,369 
Amortization of inventory step-up14,445 — 14,445 (32,945)
Acquisition and integration expenses7,471 — 12,803 (12,803)
Interest expense(571)(2,120)(6,202)(6,488)
Other expense82 324 1,867 2,287 
Income taxes762 258 14 (920)
Net loss – proforma combined$(14,615)$(23,470)$(100,399)$(126,340)
Net loss per share – proforma combined:
Basic$(0.20)$(0.33)$(1.37)$(1.77)
Diluted$(0.20)$(0.33)$(1.37)$(1.77)
Shares used to compute net loss per share – proforma combined:
Basic74,023 72,170 73,472 71,557 
Diluted74,023 72,170 73,472 71,557 


    The pro forma combined financial information for the three months ended September 30, 2020 includes aggregate non-recurring adjustments of $0.4 million consisting of amortization of intangible assets for which the related assets have useful lives of less than one year. The pro forma combined financial information for the nine months ended September 30, 2020 includes aggregate non-recurring adjustments of $34.5 million consisting of amortization of inventory step-up and intangible assets of $32.9 million and $1.6 million, respectively, for which the related assets have useful lives of less than one year.

The pro forma combined financial information is presented for illustrative purposes only and is not necessarily indicative of the consolidated results of operations of the consolidated business had the acquisitions actually occurred at the beginning of fiscal year 2019 or of the results of future operations of the consolidated business. The unaudited pro forma financial information does not reflect any operating efficiencies and cost saving that may be realized from the integration of the acquisitions in the Company's unaudited consolidated statements of operations.

For the three and nine months ended September 30, 2020, $82.5 million of revenue and $41.8 million of gross profit, excluding $15.8 million of amortization of acquired intangible assets and the inventory fair-value step-up of the WiFi and Broadband assets business and NanoSemi since the acquisition date, are included in the Company's consolidated statements of operations.

Acquisition and integration-related costs of $7.5 million and $12.8 million related to the acquisitions of the WiFi and Broadband assets business and NanoSemi were included in selling, general, and administrative expenses in the Company's statements of operations for the three and nine months ended September 30, 2020, respectively.
4. Restructuring Activity

From time to time, the Company approves and implements restructuring plans as a result of internal resource alignment and cost saving measures. Such restructuring plans include vacating certain leased facilities, terminating employees, and cancellation of contracts.

19

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following table presents the activity related to the restructuring plans, which is included in restructuring charges in the consolidated statements of operations:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
(in thousands)
Employee separation expenses$1,523 $125 $1,620 $999 
Lease related charges1,723 — 1,998 1,301 
Other34 19 215 177 
$3,280 $144 $3,833 $2,477 

Lease related charges for the three and nine months ended September 30, 2020 included the impairment of leased right-of-use assets of $1.5 million related to a reduction in expected cash inflows from subleases.

Lease-related charges for the nine months ended September 30, 2019 related to exiting certain facilities and included the impairment of right-of-use assets of $2.2 million and leasehold improvements of $1.4 million, partially offset by a gain on the extinguishment of lease liabilities of $2.9 million following the release from such liability by the landlord.

The following table presents a roll-forward of the Company's restructuring liability for the nine months ended September 30, 2020. The restructuring liability is included in accrued expenses and other current liabilities and other long-term liabilities in the consolidated balance sheets.
Employee Separation ExpensesLease Related ChargesOtherTotal
(in thousands)
Liability as of December 31, 2019$— $818 $19 $837 
Restructuring charges1,620 1,998 215 3,833 
Cash payments(188)(238)(39)(465)
Non-cash charges and adjustments3,819 (1,807)(190)1,822 
Liability as of September 30, 20205,251 771 6,027 
Less: current portion as of September 30, 2020(5,251)(340)(5)(5,596)
Long-term portion as of September 30, 2020$— $431 $— $431 

As of September 30, 2020, the remaining employee separation balance primarily consists of reduction in force costs that will be reimbursed by Intel and other severance payments, and remaining lease related charges primarily consist of common area maintenance obligations. The Company does not expect to incur additional material costs related to current restructuring plans.
20

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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,
20202019
(in thousands)
Beginning balance$238,330 $238,330 
Acquisitions (Note 3)64,246 — 
Ending balance$302,576 $238,330 

The Company performs an annual goodwill impairment assessment on October 31st each year, which effective in 2020, compares 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 fair value of a reporting unit exceeds the carrying amount, the goodwill of the reporting unit is considered not impaired.

In addition to its annual review, the Company performs a test of impairment when indicators of impairment are present. During the three and nine months ended September 30, 2020 and 2019, no goodwill impairment was recognized.

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:
September 30, 2020December 31, 2019
Weighted
Average
Useful Life
(in Years)
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying ValueAccumulated AmortizationNet Carrying Amount
(in thousands)
Licensed technology3.7$2,458 $(1,890)$568 $2,156 $(1,583)$573 
Developed technology6.9310,961 (135,585)175,376 243,361 (108,522)134,839 
Trademarks and trade names6.715,000 (8,220)6,780 13,800 (6,511)7,289 
Customer relationships4.6130,900 (90,882)40,018 121,100 (75,847)45,253 
Non-compete covenants3.01,100 (1,100)— 1,100 (1,083)17 
Backlog3.82,500 (294)2,206 — — — 
6.2$462,919 $(237,971)$224,948 $381,517 $(193,546)$187,971 
21

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

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,
2020201920202019
(in thousands)(in thousands)
Cost of net revenue$9,910 $8,487 $27,093 $25,410 
Research and development47 
Selling, general and administrative6,056 5,723 17,328 17,312 
$15,968 $14,211 $44,425 $42,769 

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,
20202019
(in thousands)
Beginning balance$187,971 $240,500 
Acquisitions (Note 3)81,100 — 
Additions388 86 
Transfers to developed technology from IPR&D— 1,500 
Amortization(44,425)(42,769)
Impairment losses(86)— 
Ending balance$224,948 $199,317 

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 and nine months ended September 30, 2020, the Company recognized impairment losses related to finite-lived intangible assets of $0 and $0.1 million, respectively. During the three and nine months ended September 30, 2019, no impairment losses related to finite-lived intangible assets were recognized.

The following table presents future amortization of the Company’s finite-lived intangible assets at September 30, 2020:
Amount
(in thousands)
2020 (3 months)$17,596 
202168,918 
202250,322 
202337,879 
202421,900 
Thereafter28,333 
Total$224,948 
22

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Indefinite-lived Intangible Assets
Indefinite-lived intangible assets consisted entirely of acquired in-process research and development technology, or IPR&D. The following table sets forth the Company’s activities related to the indefinite-lived intangible assets:
Nine Months Ended September 30,
20202019
(in thousands)
Beginning balance$— $4,400 
Acquisitions (Note 3)7,200 — 
Transfers to developed technology from IPR&D— (1,500)
Ending balance$7,200 $2,900 

The Company performs its annual assessment of indefinite-lived intangible assets on October 31 each year or more frequently if events or changes in circumstances indicate that the asset might be impaired utilizing a qualitative test as a precursor to the quantitative test comparing the fair value of the assets with their carrying amount. Based on the qualitative test, if it is more likely than not that indicators of impairment exists, the Company proceeds to perform a quantitative analysis. During the three and nine months ended September 30, 2020 and 2019, no indicators of impairment were identified and, as a result, no IPR&D impairment losses were recorded.

6. Financial Instruments
    The composition of financial instruments is as follows:
September 30, 2020December 31, 2019
(in thousands)
Liabilities
Interest rate swap$$37 
The fair value 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 instrument within Level 2 of the fair value hierarchy on the basis of models utilizing market observable inputs. The interest rate swap has been valued on the basis of valuations provided by third-party pricing services, as derived from standard valuation or pricing models. Market-based observable inputs for the interest rate swap include one-month LIBOR-based yield curves over the term of the swap. The Company reviews third-party pricing provider models, key inputs and assumptions and understands the pricing processes at its third-party providers in determining the overall reasonableness of the fair value of its Level 2 financial instruments. The Company also considers the risk of nonperformance by assessing the swap counterparty’s credit risk in the estimate of fair value of the interest rate swap. As of September 30, 2020 and December 31, 2019, the Company has not made any adjustments to the valuations obtained from its third-party pricing providers. 
23

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following table presents a summary of the Company’s financial instruments that are measured on a recurring basis:
Fair Value Measurements
BalanceQuoted Prices
in Active Markets for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(in thousands)
Liabilities
Interest rate swap, September 30, 2020$$— $$— 
Interest rate swap, December 31, 2019$37 $— $37 $— 

The following table summarizes activity for the interest rate swap:
Nine Months Ended
September 30,
2020
September 30,
2019
(in thousands)
Interest rate swap asset (liability)
Beginning balance$(37)$1,623 
Unrealized gain (loss) recognized in other comprehensive income (loss)29 (1,611)
Ending balance$(8)$12 
There were no transfers between Level 1, Level 2 or Level 3 financial instruments in the nine months ended September 30, 2020 and 2019.
Financial Instruments Not Recorded at Fair Value on a Recurring Basis

Some of the Company’s financial instruments are not measured at fair value on a recurring basis but are recorded at amounts that approximate fair value due to their liquid or short-term nature. Such financial assets and financial liabilities include: cash and cash equivalents, restricted cash, net receivables, certain other assets, accounts payable, accrued price protection liability, accrued expenses, accrued compensation costs, and other current liabilities.

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).

7. Balance Sheet Details
Cash, cash equivalents and restricted cash consist of the following:
September 30, 2020December 31, 2019
(in thousands)
Cash and cash equivalents$96,570 $92,708 
Short-term restricted cash111 349 
Long-term restricted cash61 60 
Total cash, cash equivalents and restricted cash$96,742 $93,117 
As of September 30, 2020 and December 31, 2019, cash and cash equivalents included money market funds of approximately $21.4 million and $20.4 million, respectively. As of September 30, 2020 and December 31, 2019, the Company has restricted cash of approximately $0.2 million and $0.4 million, respectively. The cash is restricted in connection with guarantees for certain import duties and office leases.
24

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Inventory consists of the following:
September 30, 2020December 31, 2019
(in thousands)
Work-in-process$48,023 $14,525 
Finished goods56,448 16,985 
$104,471 $31,510 
Prepaid and other current assets consist of the following:
September 30, 2020December 31, 2019
(in thousands)
Prepaid expenses$4,898 $3,366 
Other receivables28,960 — 
Other current assets9,688 3,426 
$43,546 $6,792 
As of September 30, 2020, other receivables of $29.0 million consist of amounts due from Intel of $24.7 million for amounts collected on the Company’s behalf from customers on sales of the Company’s products under the transition services agreement and of $4.2 million for reimbursement of certain severance-related costs pursuant to the Asset Purchase Agreement (Note 3).
Property and equipment, net consists of the following:
Useful Life
(in Years)
September 30, 2020December 31, 2019
(in thousands)
Furniture and fixtures5$2,517 $2,199 
Machinery and equipment
3-5
54,194 35,660 
Masks and production equipment
2-5
19,228 15,209 
Software36,867 5,956 
Leasehold improvements
1-5
16,687 16,186 
Construction in progressN/A3,136 746 
102,629 75,956 
Less: accumulated depreciation and amortization(65,371)(59,343)
$37,258 $16,613 

Depreciation expense for the three months ended September 30, 2020 and 2019 was $3.6 million and $1.7 million, respectively. Depreciation expense for the nine months ended September 30, 2020 and 2019 was $6.9 million and $5.6 million, respectively.

Accrued price protection liability consists of the following activity:
Nine Months Ended September 30,
20202019
(in thousands)
Beginning balance$12,557 $16,454 
Charged as a reduction of revenue17,358 19,884 
Reversal of unclaimed rebates(159)(719)
Payments(11,722)(21,998)
Ending balance$18,034 $13,621 
25

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Accrued expenses and other current liabilities consist of the following:
September 30, 2020December 31, 2019
(in thousands)
Deferred purchase price payments$34,100 $— 
Accrued technology license payments5,969 4,500 
Accrued professional fees7,181 861 
Accrued engineering and production costs12,027 4,491 
Accrued restructuring5,596 294 
Accrued royalty1,003 923 
Short-term lease liabilities6,225 4,810 
Current portion of debt7,785 — 
Accrued customer credits2,590 832 
Income tax liability684 65 
Customer contract liabilities14 107 
Accrued obligations to customers for price adjustments12,137 8,382 
Accrued obligations to customers for stock rotation rights1,632 1,410 
Other7,780 4,496 
$104,723 $31,171 
The following table summarizes the change in balances of accumulated other comprehensive income (loss) by component:
Cumulative Translation AdjustmentsInterest Rate HedgeTotal
(in thousands)
Balance at December 31, 2019$(747)$(140)$(887)
Current period other comprehensive income (loss)415 22 437 
Balance at September 30, 2020$(332)$(118)$(450)

26

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
8. Debt and Interest Rate Swap

Debt

The carrying amount of the Company's long-term debt consists of the following:
September 30,
2020
December 31,
2019
(in thousands)
Principal balance:
Initial term loan$212,000 $212,000 
Incremental term loan175,000 — 
Total principal balance387,000 212,000 
Less:
     Unamortized debt discount(1,923)(1,328)
     Unamortized debt issuance costs(4,835)(3,763)
Net carrying amount of long-term debt380,242 206,909 
Less: current portion of long-term debt(7,785)— 
Long-term debt, non-current portion$372,457 $206,909 

As of September 30, 2020 and December 31, 2019, the weighted average effective interest rate on the total debt was approximately 4.3% and 4.9%, respectively.

During each of the three months ended September 30, 2020 and 2019, the Company recognized total amortization of debt discount and debt issuance costs of $0.5 million and $0.3 million, respectively, to interest expense. During each of the nine months ended September 30, 2020 and 2019, the Company recognized total amortization of debt discount and debt issuance costs of $1.0 million and $0.9 million, respectively, to interest expense.
The approximate fair value of the term loans as of September 30, 2020 and December 31, 2019 was $390.6 million and $214.6 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, 2020, future payments of principal are as follows:
Amount
(in thousands)
2020 (3 months)$2,188 
202110,937 
202219,688 
2023142,187 
2024212,000 
Total principal payments due387,000 
Less: current portion(8,750)
Long-term debt principal, non-current portion$378,250 
Initial Term Loan

On May 12, 2017, the Company entered into a credit agreement with certain lenders and a collateral agent in connection with the acquisition of Exar Corporation. The credit agreement provided for an initial secured term B loan facility, or the “Initial Term Loan,” in an aggregate principal amount of $425.0 million. The credit agreement permits the Company to request incremental loans in an aggregate principal amount not to exceed the sum of $160.0 million (subject to adjustments for any voluntary prepayments), plus an unlimited amount that is subject to pro forma compliance with certain secured leverage ratio
27

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
and total leverage ratio tests. Incremental loans are subject to certain additional conditions, including obtaining additional commitments from the lenders then party to the credit agreement or new lenders.
Loans under the Initial Term Loan bear interest, at the Company’s option, at a rate equal to either (i) a base rate equal to the highest of (x) the federal funds rate, plus 0.50%, (y) the prime rate then in effect and (z) an adjusted LIBOR rate determined on the basis of a one- three- or six-month interest period, plus 1.0% or (ii) an adjusted LIBOR rate, subject to a floor of 0.75%, in each case, plus an applicable margin of 2.50% in the case of LIBOR rate loans and 1.50% in the case of base rate loans. Commencing on September 30, 2017, the Initial Term Loan amortizes in equal quarterly installments equal to 0.25% of the original principal amount of the Initial Term Loan, with the balance payable on the maturity date. The Initial Term Loan has a term of seven years and will mature on May 12, 2024, at which time all outstanding principal and accrued and unpaid interest on the Initial Term Loan is due. The Company is also required to pay fees customary for a credit facility of this size and type.

The Company is required to make mandatory prepayments of the outstanding principal amount of term loans under the 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 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 of the loan term. The Company exercised its right to prepay and made aggregate prepayments of principal of $213.0 million from origination of the Initial Term Loan through September 30, 2020.

The Company’s obligations under the credit agreement are required to be guaranteed by certain of its domestic subsidiaries meeting materiality thresholds set forth in the 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 with the collateral agent.

The 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. As of September 30, 2020, the Company was in compliance with such covenants. The 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 credit agreement, and may exercise certain other rights and remedies provided for under the 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 $398.5 million was 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 4.6%, which represents a Level 3 fair value measurement. The debt discount of $2.1 million and debt issuance costs of $6.0 million are being amortized to interest expense using the effective interest method from the issuance date through the contractual maturity date of the term loan of May 12, 2024.
Incremental Term Loan

In connection with the acquisition of the Wi-Fi and Broadband assets business, on July 31, 2020, the Company entered into an incremental term loan agreement with certain lenders that amends the credit agreement, dated as of May 12, 2017 and provides for a secured incremental term loan facility in an aggregate principal amount of $175.0 million (the “Incremental Term Loan”).

The Incremental Term Loan bears interest, at the Company’s option, at an Adjusted LIBOR plus a fixed applicable margin of 4.25% per annum or an Adjusted Base Rate plus a fixed applicable margin of 3.25% per annum. The Incremental Term Loan is subject to a financial covenant of an initial maximum total net leverage ratio of 3.5 to 1 which decreases to 3.0 to 1 beginning with the sixth full fiscal quarter ending after July 31, 2020. During any period during which the Company (i) fails to maintain a public corporate rating from S&P that is equal to or higher than BB- and a public corporate rating from Moody's that is equal to or higher than Ba3 or (ii) fails to maintain a total leverage ratio of 3.0 to 1 or less, the applicable margin will
28

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
increase to 4.75% in the case of LIBOR Rate loans and 3.75% in the case of Base Rate loans. As of September 30, 2020, the Company was in compliance with such covenants.

Commencing on July 31, 2020, the Incremental Term Loan amortizes in quarterly installments of principal equal to (i) 1.25% of the original aggregate principal amount of the Incremental Term Loan on the last day of each of the first through fourth full fiscal quarters of the Company after July 31, 2020, (ii) 2.50% of the original aggregate principal amount of the Incremental Term Loan on the last day of each of the fifth through eighth full fiscal quarters of the Company after July 31, 2020, and (iii) 3.75% of the original aggregate principal amount of the Incremental Term Loan on the last day of each of the ninth through the eleventh full fiscal quarters of the Company after July 31, 2020. The Incremental Term Loan has a term of three years and will mature on July 31, 2023, at which time all outstanding principal and accrued and unpaid interest on the Incremental Term Loan is due. The Company is also required to pay fees customary for a credit facility of this size and type.

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 $181.1 million was 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 3.2%, which represents a Level 3 fair value measurement. The debt discount of $0.9 million and debt issuance costs of $1.8 million are being amortized to interest expense using the effective interest method from the issuance date through the contractual maturity date of the term loan of July 31, 2023.

Interest Rate Swap
In November 2017, the Company entered into a fixed-for-floating interest rate swap with an amortizing notional amount to swap a substantial portion of variable rate LIBOR interest payments under its initial term loan for fixed interest payments bearing an interest rate of 1.74685%. The Company's outstanding initial term loan is still subject to a 2.5% fixed applicable margin during the term of the loan. The interest rate swap is designated as a cash flow hedge of a portion of floating rate interest payments on the initial term loan and effectively fixed the interest rate on a substantial portion of the Company’s long-term debt at approximately 4.25% until the expiration of the swap in October 2020. Accordingly, the Company applied cash flow hedge accounting to the interest rate swap and it is recorded at fair value as an asset or liability and the effective portion of changes in the fair value of the interest rate swap, as measured quarterly, are reported in other comprehensive income (loss). As of September 30, 2020 and December 31, 2019, the fair value of the interest rate swap was a $0.01 million and $0.04 million liability (Note 6), respectively, and is included in other current liabilities in the consolidated balance sheets. The increase in fair value related to the interest rate swap liability included in other comprehensive income (loss) for the three and nine months ended September 30, 2020 was $0.1 million and $0.03 million, respectively. The decrease in fair value related to the interest rate swap liability included in other comprehensive income (loss) for the three and nine months ended September 30, 2019 was $0.2 million and $1.6 million, respectively. The interest rate swap expires in October 2020 and the total $0.01 million of unrealized loss before taxes recorded in accumulated other comprehensive income at September 30, 2020 is expected to be recorded against interest expense in the fourth quarter of 2020, upon expiration of the interest rate swap.

9. Stock-Based Compensation
Employee Stock-Based Benefit Plans
At September 30, 2020, 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 the Company's stock-based compensation and equity plans as of December 31, 2019. There have been no material changes to the terms of the Company's equity incentive plans during the nine months ended September 30, 2020.
As of September 30, 2020, the number of shares of common stock available for future issuance under the 2010 Plan was 15,096,411 shares. As of September 30, 2020, the number of shares of common stock available for future issuance under the ESPP was 3,490,155 shares.
29

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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,
2020201920202019
(in thousands)(in thousands)
Cost of net revenue$143 $151 $417 $428 
Research and development6,056 4,155 14,842 12,690 
Selling, general and administrative7,350 4,053 17,202 11,295 
Restructuring596 — 596 — 
$14,145 $8,359 $33,057 $24,413 
The total unrecognized compensation cost related to unvested restricted stock units and restricted stock awards as of September 30, 2020 was $86.0 million, and the weighted average period over which these equity awards are expected to vest is 2.96 years. The total unrecognized compensation cost related to unvested performance-based restricted stock units as of September 30, 2020 was $14.9 million, and the weighted average period over which these equity awards are expected to vest is 1.65 years. The total unrecognized compensation cost related to unvested stock options as of September 30, 2020 was $1.2 million, and the weighted average period over which these equity awards are expected to vest is 1.72 years.
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, 20192,924 $21.72 
  Granted4,350 18.50 
  Vested(1,005)20.09 
  Canceled(373)18.10 
Outstanding at September 30, 20205,896 $19.85 
Performance-Based Restricted Stock Units
Performance-based restricted stock units are eligible to vest at the end of each fiscal year 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, 2020, the Company believes that it is probable that the Company will achieve certain performance metrics specified in the respective award agreements 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.
30

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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, 2019445 $22.21 
  Granted(1)
1,416 11.67 
  Vested(21)22.21 
  Canceled(118)15.98 
Outstanding at September 30, 20201,722 $13.97 
________________
(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, 2020, there were 161,171 shares of common stock purchased under the ESPP at a weighted average price of $13.29.
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,
20202019
Weighted-average grant date fair value per share$6.41 $6.61 
Risk-free interest rate0.15 %2.43 %
Dividend yield— %— %
Expected life (in years)0.510.50
Volatility93.25 %40.47 %
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 PriceWeighted-Average Contractual Term (in years)Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 20191,337 $13.05 
Exercised(407)9.08 
Canceled(34)18.89 
Outstanding at September 30, 2020896 $14.64 2.78$7,811 
Vested and expected to vest at September 30, 2020896 $14.64 2.75$7,810 
Exercisable at September 30, 2020739 $13.82 2.34$7,064 
No stock options were granted by the Company during the nine months ended September 30, 2020.

31

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The intrinsic value of stock options exercised was $0.2 million and $1.4 million in the three months ended September 30, 2020 and 2019, respectively. The intrinsic value of stock options exercised was $3.4 million and $21.5 million in the nine months ended September 30, 2020 and 2019, respectively.

Cash received from exercise of stock options was $0.6 million and $0.3 million during the three months ended September 30, 2020 and 2019, respectively. Cash received from exercise of stock options was $3.3 million and $4.0 million during the nine months ended September 30, 2020 and 2019, respectively.

The tax benefit from stock options exercised was $0.4 million and $0.2 million during the three months ended September 30, 2020 and 2019, respectively. The tax benefit from stock options exercised was $3.6 million and $19.5 million during the nine months ended September 30, 2020 and 2019, respectively.
Employee Incentive Bonus
The Company settles a majority of 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 New York Stock Exchange on a date approved by the Board of Directors. In connection with the Company’s bonus programs, in March 2020, the Company issued 0.2 million freely-tradable shares of the Company’s common stock in settlement of bonus awards to employees, including executives, for the 2019 performance period. At September 30, 2020, the Company has an accrual of $16.5 million for bonus awards for employees for year-to-date achievement in the 2020 performance period. The Company’s compensation committee retains discretion to effect payment in cash, stock, or a combination of cash and stock.
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.
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 $2.2 million in the three months ended September 30, 2020 and an income tax benefit of $0.03 million in the three months ended September 30, 2019. The Company recorded an income tax benefit of $12.1 million in the nine months ended September 30, 2020 and an income tax benefit of $9.9 million in the nine months ended September 30, 2019.
The income tax benefit in the three and nine months ended September 30, 2020 and 2019, each primarily related to the mix of pre-tax income among jurisdictions, excess tax benefits related to stock-based compensation, and release of certain reserves for uncertain tax positions under ASC 740-10. Also included in income tax benefit for the nine months ended September 30, 2020 was a tax benefit related to the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, enacted effective March 27, 2020, and a tax provision related to a change in judgment regarding the final outcome of the Altera tax case discussed below. The CARES Act tax benefit relates to the Company’s ability to carry back its 2019 net operating loss, originally valued at a 21% federal tax rate, to offset income taxes paid in prior periods at the 35% federal tax rate in effect at that time.

32