Last10K.com

Maxlinear Inc (MXL) SEC Filing 10-Q Quarterly Report for the period ending Thursday, March 31, 2022

SEC Filings

MXL Quarterly Reports

Maxlinear Inc

CIK: 1288469 Ticker: MXL

Exhibit 99.1
mxla01a01a42a.jpg
FOR IMMEDIATE RELEASE

MaxLinear, Inc. Announces Fourth Quarter 2021 Financial Results

Record net revenue of $247.9 million, up 8% sequentially and up 27% year-over-year
GAAP gross margin 57.2% and non-GAAP gross margin 61.7%, up 70 bps and 40 bps from previous quarter, respectively

Carlsbad, Calif. – February 2, 2022
– MaxLinear, Inc. (NASDAQ: MXL), a leading provider of RF, analog, digital and mixed-signal integrated circuits, today announced financial results for the fourth quarter ended December 31, 2021.

Fourth Quarter Financial Highlights
GAAP basis:
Net revenue was $247.9 million, up 8% sequentially and up 27% year-over-year.
GAAP gross margin was 57.2%, compared to 56.5% in the prior quarter, and 42.7% in the year-ago quarter.
GAAP operating expenses were $112.4 million in the fourth quarter 2021, or 45% of net revenue, compared to $106.0 million in the prior quarter, or 46% of net revenue, and $106.7 million in the year-ago quarter, or 55% of net revenue.
GAAP income from operations was 12% of revenue, compared to income from operations of 10% in the prior quarter, and loss from operations of 12% in the year-ago quarter.
Net cash flow provided by operating activities was $16.0 million, compared to net cash flow provided by operating activities of $84.1 million in the prior quarter, and net cash flow provided by operating activities of $74.3 million in the year-ago quarter.
GAAP diluted earnings per share was $0.35, compared to diluted earnings per share of $0.12 in the prior quarter, and diluted loss per share of $0.33 in the year-ago quarter.
Non-GAAP basis:
Non-GAAP gross margin was 61.7%. This compares to 61.3% in the prior quarter, and 57.8% in the year-ago quarter.
Non-GAAP operating expenses were $75.9 million, or 31% of revenue, compared to $74.4 million or 32% of revenue in the prior quarter, and $75.8 million or 39% of revenue in the year-ago quarter.
Non-GAAP income from operations was 31% of revenue, compared to 29% in the prior quarter, and 19% in the year-ago quarter.
Non-GAAP diluted earnings per share was $0.86, compared to diluted earnings per share of $0.75 in the prior quarter, and diluted earnings per share of $0.39 in the year-ago quarter.

Management Commentary

“In the fourth quarter, revenue was up 8% sequentially and up 27% year-over-year, driven by strong growth across our connectivity, broadband and infrastructure markets. Wi-Fi grew 40% sequentially and we exited Q4 on a $100 million annualized revenue run rate which we expect to build upon through 2022. Non-GAAP gross margin for Q4 improved to 61.7% driven by product mix shift towards higher value products. We are excited about our prospects for continued future growth driven by our comprehensive product portfolio, and the accelerating pace of new product launches particularly in connectivity, fiber-to-the home broadband, optical, and wireless infrastructure markets,” commented Kishore Seendripu, Ph.D., Chairman and CEO.
1

The following information was filed by Maxlinear Inc (MXL) on Wednesday, February 2, 2022 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 March 31, 2022
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 stockMXLThe Nasdaq Stock Market LLC
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 April 20, 2022, the registrant had 77,355,084 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)
March 31,
2022
December 31,
2021
Assets
Current assets:
Cash and cash equivalents$151,111 $130,572 
Short-term restricted cash105 105 
Short-term investments19,051 — 
Accounts receivable, net125,693 119,724 
Inventory139,041 131,703 
Prepaid expenses and other current assets19,575 22,000 
Total current assets454,576 404,104 
Long-term restricted cash1,037 1,061 
Property and equipment, net60,022 60,924 
Leased right-of-use assets32,919 27,269 
Intangible assets, net140,153 152,540 
Goodwill306,713 306,668 
Deferred tax assets82,326 89,168 
Other long-term assets21,381 8,650 
Total assets$1,099,127 $1,050,384 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$60,214 $52,976 
Accrued price protection liability68,349 40,509 
Accrued expenses and other current liabilities75,553 57,268 
Accrued compensation30,679 56,642 
Total current liabilities234,795 207,395 
Long-term lease liabilities30,208 24,640 
Long-term debt286,298 306,153 
Other long-term liabilities19,980 22,998 
Total liabilities571,281 561,186 
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; 77,375 shares issued and outstanding at March 31, 2022 and 76,778 shares issued and outstanding December 31, 2021
Additional paid-in capital663,622 657,485 
Accumulated other comprehensive income1,050 2,125 
Accumulated deficit(136,834)(170,420)
Total stockholders’ equity527,846 489,198 
Total liabilities and stockholders’ equity$1,099,127 $1,050,384 

See accompanying notes.
4

MAXLINEAR, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited; in thousands, except per share data)
Three Months Ended March 31,
20222021
Net revenue$263,927 $209,359 
Cost of net revenue109,337 97,640 
Gross profit154,590 111,719 
Operating expenses:
Research and development65,886 63,166 
Selling, general and administrative40,577 36,469 
Restructuring charges— 2,166 
Total operating expenses106,463 101,801 
Income from operations48,127 9,918 
Interest income31 — 
Interest expense(2,349)(4,206)
Other income (expense), net(770)(104)
Total other income (expense), net(3,088)(4,310)
Income before income taxes45,039 5,608 
Income tax provision11,453 1,806 
Net income$33,586 $3,802 
Net income per share:
Basic$0.44 $0.05 
Diluted$0.42 $0.05 
Shares used to compute net income per share:
Basic77,192 74,852 
Diluted80,641 78,283 

See accompanying notes.
5

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

Three Months Ended March 31,
20222021
Net income$33,586 $3,802 
Other comprehensive loss, net of tax:
Foreign currency translation adjustments, net of tax expense of $2 and $376 for the three months ended March 31, 2022 and 2021, respectively
(1,075)(989)
Other comprehensive loss(1,075)(989)
Total comprehensive income$32,511 $2,813 


See accompanying notes.
6

MAXLINEAR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FISCAL QUARTER ENDED MARCH 31, 2022
(unaudited; in thousands)
Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance at December 31, 202176,778 $$657,485 $2,125 $(170,420)$489,198 
Common stock issued pursuant to equity awards, net1,037 13,835 — — 13,835 
Repurchase of common stock(440)— (26,297)— — (26,297)
Stock-based compensation— — 18,599 — — 18,599 
Other comprehensive loss— — — (1,075)— (1,075)
Net income— — — — 33,586 33,586 
Balance at March 31, 202277,375 $$663,622 $1,050 $(136,834)$527,846 
See accompanying notes.
7

MAXLINEAR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FISCAL QUARTER ENDED MARCH 31, 2021
(unaudited; in thousands)
Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance at December 31, 202074,536 $$602,064 $1,435 $(212,389)$391,117 
Common stock issued pursuant to equity awards, net917 16,565 — — 16,566 
Repurchase of common stock(75)— (2,673)— — (2,673)
Stock-based compensation— — 12,955 — — 12,955 
Other comprehensive loss— — — (989)— (989)
Net income— — — — 3,802 3,802 
Balance at March 31, 202175,378 $$628,911 $446 $(208,587)$420,778 
See accompanying notes.
8

MAXLINEAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in thousands)
Three Months Ended March 31,
20222021
Operating Activities
Net income$33,586 $3,802 
Adjustments to reconcile net income to cash provided by operating activities:
Amortization and depreciation23,880 22,325 
Amortization of debt issuance costs and accretion of discounts486 844 
Stock-based compensation18,554 12,955 
Deferred income taxes6,842 541 
Loss on disposal of property and equipment159 368 
Unrealized holding loss on investments954 — 
Impairment of leasehold improvements— 226 
Impairment of leased right-of-use assets— 429 
(Gain) loss on foreign currency(316)21 
Excess tax benefits on stock-based awards(7,120)(1,809)
Changes in operating assets and liabilities:
Accounts receivable(5,969)(20,079)
Inventory(7,338)5,658 
Prepaid expenses and other assets3,503 29,860 
Leased right-of-use assets— 36 
Accounts payable, accrued expenses and other current liabilities32,952 (22,032)
Accrued compensation12,237 1,376 
Accrued price protection liability27,975 7,299 
Lease liabilities(3,301)(2,002)
Other long-term liabilities(2,918)454 
Net cash provided by operating activities134,166 40,272 
Investing Activities
Purchases of property and equipment(4,800)(6,152)
Purchases of intangible assets(4,637)(1,112)
Proceeds loaned under notes receivable(10,000)— 
Purchases of investments(23,325)(5,000)
Net cash used in investing activities(42,762)(12,264)
Financing Activities
Repayment of debt(20,000)(20,000)
Net proceeds from issuance of common stock87 1,298 
Minimum tax withholding paid on behalf of employees for restricted stock units(24,449)(7,442)
Repurchase of common stock(26,297)(2,673)
Net cash used in financing activities(70,659)(28,817)
Effect of exchange rate changes on cash and cash equivalents (230)(32)
Increase (decrease) in cash, cash equivalents and restricted cash20,515 (841)
Cash, cash equivalents and restricted cash at beginning of period131,738 150,034 
Cash, cash equivalents and restricted cash at end of period$152,253 $149,193 
Supplemental disclosures of cash flow information:
Cash paid for interest$2,053 $3,309 
Cash paid for income taxes$1,698 $593 
Supplemental disclosures of non-cash activities:
Issuance of shares for payment of bonuses$38,197 $22,710 
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 communications systems-on-chip (SoC) solutions used in broadband, mobile and wireline infrastructure, data center, and industrial and multi-market applications. MaxLinear is a fabless integrated circuit design company whose products integrate all or substantial portions of a high-speed communication system, including radio frequency (RF), high-performance analog, mixed-signal, digital signal processing, security engines, data compression and networking layers, and power management. MaxLinear’s customers include electronics distributors, module makers, original equipment manufacturers, or OEMs, and original design manufacturers, or ODMs, who incorporate the Company’s products in a wide range of electronic devices, including cable Data Over Cable Service Interface Specifications (DOCSIS), fiber and DSL broadband modems and gateways; Wi-Fi and wireline routers for home networking; radio transceivers and modems for 4G/5G base-station and backhaul infrastructure; fiber-optic modules for data center, metro, and long-haul transport networks; as well as power management and interface products used in these and many other markets.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited consolidated financial statements include the accounts of MaxLinear, Inc. and its wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. All intercompany transactions and investments have been eliminated in consolidation.
In the opinion of management, the Company’s unaudited consolidated interim financial statements contain adjustments, including normal recurring accruals necessary to present fairly the Company’s consolidated financial position, results of operations, comprehensive income (loss), stockholders’ equity, and cash flows.
The consolidated balance sheet as of December 31, 2021 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, 2021 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 2, 2022, or the Annual Report. Interim results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022.
The functional currency of certain foreign subsidiaries is the local currency. Accordingly, assets and liabilities of these foreign subsidiaries are translated at the current exchange rate at the balance sheet date and historical rates for equity. Revenue and expense components are translated at weighted average exchange rates in effect during the period. Gains and losses resulting from foreign currency translation are included as a component of stockholders’ equity. Foreign currency transaction gains and losses are included in the results of operations, and to date, have not been material.
Use of Estimates and Significant Risks and Uncertainties
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes of the consolidated financial statements. Actual results could differ from those estimates.
During the COVID-19 global pandemic, which is still ongoing, various restrictions were put in place causing a temporary decline in demand for certain items such as automobiles. As restrictions began easing across the world, a sudden increase in demand for electronics containing semiconductor chips and stockpiling of chips by certain firms in China blacklisted by the U.S. has exacerbated bottlenecks in the supply chain, resulting in a global semiconductor supply shortage impacting the Company’s industry. Some chip manufacturers are estimating this supply shortage may continue into 2023. While these chip manufacturers are working to increase capacity in the future, and the Company is continuing to work closely with its suppliers and customers to minimize the potential adverse impacts of the supply shortage, such shortage may have a near-term impact on the Company’s ability to meet increased demand on certain products and have a negative impact on its operating results which may continue into 2023. Global supply shortages, and uncertainty in customer demand and the worldwide economy in general
10

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
has continued as a result of the COVID-19 pandemic, and may be further exacerbated by the impacts of high inflation, 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 $152.3 million of cash and cash equivalents at March 31, 2022 will be sufficient to fund its projected operating requirements for at least the next twelve months. A material adverse impact from the global semiconductor supply shortage 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 changes in revenue, the expansion of engineering, sales and marketing activities, the timing and extent of expansion into new 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 April 27, 2022, 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 the global supply shortage.
Summary of Significant Accounting Policies
Refer to the Company’s Annual Report for a summary of significant accounting policies. There have been no other significant changes to the Company’s significant accounting policies during the three months ended March 31, 2022.
Recently Issued Accounting Pronouncements
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, to provide specific guidance to eliminate diversity in practice on how to recognize and measure acquired contract assets and contract liabilities from revenue contracts from customers in a business combination consistent with revenue contracts with customers not acquired in an acquisition. The amendments in this update provide that the acquirer should consider the terms of the acquired contracts, such as timing of payment, identify each performance obligation in the contracts, and allocate the total transaction price to each identified performance obligation on a relative standalone selling price basis as of contract inception (that is, the date the acquiree entered into the contracts) or contract modification to determine what should be recorded at the acquisition date. These amendments are effective for the Company beginning with fiscal year 2023. The impact of the adoption of the amendments in this update will depend on the magnitude of any customer contracts assumed in a business combination in 2023 and beyond.
2. Net Income (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.
11

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The table below presents the computation of basic and diluted EPS:
Three Months Ended March 31,
20222021
(in thousands, except per share amounts)
Numerator:
Net income$33,586 $3,802 
Denominator:
Weighted average common shares outstanding—basic77,192 74,852 
Dilutive common stock equivalents3,449 3,431 
Weighted average common shares outstanding—diluted80,641 78,283 
Net income per share:
Basic$0.44 $0.05 
Diluted$0.42 $0.05 
For the three months ended March 31, 2022 and 2021, the Company excluded common stock equivalents for outstanding stock-based awards, which represented potentially dilutive securities of 0.9 million and 0.1 million, respectively, from the calculation of diluted net income per share due to their anti-dilutive nature.
3. Business Combinations
Acquisition of Company X
On December 8, 2021, the Company completed its acquisition of a business, or Company X, pursuant to a Purchase and Sale Agreement (the “Purchase Agreement”). The initial closing transaction consideration consisted of $5.0 million in cash. In addition, their stockholders may receive up to an additional $3.0 million in potential contingent consideration, subject to the acquired business satisfying certain financial and personnel objectives by March 31, 2023.
Company X is headquartered in Chennai, India and operates as a Wi-Fi solutions and service provider.
Acquisition Consideration
The following table summarizes the fair value of purchase price consideration to acquire Company X (in thousands):
DescriptionAmount
Fair value of purchase consideration:
Cash$5,000 
Contingent consideration(1)
2,700 
Total purchase price7,700 
_________________
(1) The fair value of contingent consideration is based on applying the Monte Carlo simulation method to forecast achievement under various contingent consideration events which may result in up to $3.0 million in payments subject to the acquired business’s satisfying certain financial and personnel objectives by March 31, 2023 under the Purchase 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.
12

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Purchase Price Allocation
An allocation of purchase price as of the December 8, 2021 acquisition closing date based upon an estimate of the fair value of the assets acquired and the liabilities assumed by the Company in the acquisition primarily includes $4.4 million in identifiable intangible assets and $0.6 million in net operating liabilities, with $3.9 million in goodwill.
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:
Licensed technology3$4,400 
Total identifiable intangible assets acquired$4,400 
Assumptions in the Allocations of Purchase Price

Management prepared the purchase price allocations for Company X 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 and contingent consideration. Certain stockholders that are employees of Company X were not required to remain employed in order to receive the contingent consideration; accordingly, the fair value of the contingent consideration was accounted for as a portion of the purchase consideration.
Estimates of fair value require management to make significant estimates and assumptions. The goodwill recognized is attributable primarily to the acquired workforce, expected synergies, and other benefits that MaxLinear believes will result from integrating the operations of Company X 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. There were minor adjustments to amounts of property and equipment that resulted in a change in the preliminary purchase price allocation reflected as of March 31, 2022 compared to the preliminary purchase price allocation as of December 31, 2021 for Company X. These adjustments resulted in a decrease of $0.05 million in net operating liabilities and corresponding increase in goodwill.
The fair value of the identified intangible assets acquired from Company X 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 licensed technology 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. Future cash flows were estimated based on forecasted revenue and costs, taking into account expected future contracts and remaining contract terms. The licensed technology began amortization immediately upon the closing of the transaction.

In connection with the acquisition of Company X, 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 Company X was $3.9 million as of March 31, 2022. The Company does not expect to deduct any of the acquired goodwill for tax purposes.
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 terminating employees, vacating certain leased facilities, and cancellation of contracts.

13

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 income:
Three Months Ended March 31,
20222021
(in thousands)
Employee separation expenses$— $1,253 
Lease related charges— 608 
Other— 305 
$— $2,166 
Lease related charges for the three months ended March 31, 2021 included the impairment of leased right-of-use assets and leasehold improvements of $0.4 million and $0.2 million, respectively, related to exiting a redundant facility.
The following table presents a roll-forward of the Company’s restructuring liability for the three months ended March 31, 2022. The restructuring liability is included in accrued expenses and other current liabilities and other long-term liabilities in the consolidated balance sheets.
Employee Separation ExpensesLease Related ChargesOtherTotal
(in thousands)
Liability as of December 31, 2021$— $444 $— $444 
Cash payments— (78)— (78)
Liability as of March 31, 2022— 366 — 366 
Less: current portion as of March 31, 2022— (295)— (295)
Long-term portion as of March 31, 2022$— $71 $— $71 
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).

During the three months ended March 31, 2022, there was an increase in the carrying value of goodwill of $0.05 million related to minor adjustments to amounts of property and equipment in the purchase price allocation for Company X.

The Company performs an annual goodwill impairment assessment on October 31st each year, using a quantitative assessment comparing the fair value of each reporting unit, which the Company has determined to be the entity itself, with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recorded.
In addition to its annual review, the Company performs a test of impairment when indicators of impairment are present. During the three months ended March 31, 2022 and 2021, there were no indications of impairment of the Company’s goodwill balances.
14

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Acquired Intangibles
Finite-lived Intangible Assets
The following table sets forth the Company’s finite-lived intangible assets resulting from business acquisitions and other purchases, which are amortized over their estimated useful lives:
March 31, 2022December 31, 2021
Weighted
Average
Useful Life
(in Years)
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying ValueAccumulated AmortizationNet Carrying Amount
(in thousands)
Licensed technology6.2$21,487 $(2,623)$18,864 $16,850 $(2,218)$14,632 
Developed technology7.0308,661 (200,055)108,606 308,661 (189,244)119,417 
Trademarks and trade names6.214,800 (11,821)2,979 14,800 (11,221)3,579 
Customer relationships5.0128,800 (122,047)6,753 128,800 (116,847)11,953 
Backlog2.41,300 (949)351 1,300 (941)359 
6.2$475,048 $(337,495)$137,553 $470,411 $(320,471)$149,940 

The following table sets forth amortization expense associated with finite-lived intangible assets, which is included in the consolidated statements of income as follows:
Three Months Ended March 31,
20222021
(in thousands)
Cost of net revenue$10,847 $10,765 
Research and development
Selling, general and administrative6,176 6,070 
$17,024 $16,836 

Amortization of finite-lived intangible assets in cost of net revenue in the consolidated statements of income results primarily from acquired developed technology.

The following table sets forth the activity related to finite-lived intangible assets:
Three Months Ended March 31,
20222021
(in thousands)
Beginning balance$149,940 $200,066 
Additions4,637 1,112 
Amortization(17,024)(16,836)
Ending balance$137,553 $184,342 
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 each of the three months ended March 31, 2022 and 2021, no impairment losses related to finite-lived intangible assets were recognized.
15

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following table presents future amortization of the Company’s finite-lived intangible assets at March 31, 2022:
Amount
(in thousands)
2022 (9 months)$34,480 
202339,934 
202424,655 
202513,320 
202612,209 
Thereafter12,955 
Total$137,553 
Indefinite-lived Intangible Assets
Indefinite-lived intangible assets consisted entirely of acquired in-process research and development technology, or IPR&D. As of each of March 31, 2022 and December 31, 2021, IPR&D was $2.6 million. There were no changes in the balance of indefinite-lived intangible assets in the three months ended March 31, 2022 and 2021.
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 months ended March 31, 2022 and 2021, 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:
March 31, 2022
Gross Unrealized
CostGainsLossesFair Value
(in thousands)
Assets
Marketable equity investments$20,005 $— $(954)$19,051 
March 31, 2022
Fair Value
(in thousands)
Liabilities
Contingent consideration (Note 3)$2,768 
December 31, 2021
Fair Value
(in thousands)
Liabilities
Contingent consideration (Note 3)2,700 
At March 31, 2022, the Company held marketable equity investments with an aggregate fair value of $19.1 million that were in an unrealized loss position for less than 12 months. The gross unrealized losses of $1.0 million as of March 31, 2022 represents stock price fluctuations in the underlying securities held, and were recorded to other income (expense), net in the consolidated statement of income.
16

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The Company evaluates securities for other-than-temporary impairment on a quarterly basis. Impairment is evaluated considering numerous factors, and their relative significance varies depending on the situation. Factors considered include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the issuer; including changes in the financial condition of any underlying collateral of the security; any downgrades of the security by analysts or rating agencies; nonpayment of any scheduled interest, or the reduction or elimination of dividends; as well as our intent and ability to hold the security in order to allow for an anticipated recovery in fair value.
The fair values of the Company’s financial instrument is the amount that would be received in an asset sale or paid to transfer a liability in an orderly transaction between unaffiliated market participants and is recorded using a hierarchical disclosure framework based upon the level of subjectivity of the inputs used in measuring assets and liabilities. The levels are described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.
Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is available.
The Company classifies its financial instruments within Level 1 or Level 2 of the fair value hierarchy on the basis of valuations using quoted market prices or alternate pricing sources and models utilizing market observable inputs, respectively The marketable equity investment held by the Company has been valued on the basis of quoted market prices and is therefore classified as Level 1. The contingent consideration liability is associated with the Company’s acquisition of Company X (Note 3) and is classified as a Level 3 financial instrument that is subject to the acquired business’s satisfaction of certain financial and personnel objectives by March 31, 2023, under the Purchase Agreement. The fair value of the contingent consideration is based on (1) applying the Monte Carlo simulation method, with underlying forecast mathematics based on Geometric Brownian motion in a risk-neutral framework, to forecast achievement of the acquired business’ financial objectives under various possible contingent consideration events and (2) a probability based methodology using management’s inputs and assumptions to forecast achievement of the acquired business’ personnel objectives which combined may result in up to $3.0 million in total payments to the acquired business. Key inputs in the valuation include forecasted revenue, revenue volatility, discount rate and discount term as it relates to the financial objectives and probability of achievement, discount term and discount rate as it relates to the personnel objectives.
Fair Value Measurements at March 31, 2022
Balance at March 31, 2022Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(in thousands)
Assets
Marketable equity securities$19,051 $19,051 $— $— 
Liabilities
Contingent consideration$2,768 $— $— $2,768 
Fair Value Measurements at December 31, 2021
Balance at December 31, 2021Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(in thousands)
Liabilities
Contingent consideration2,700 — — 2,700 
$2,700 $— $— $2,700 
17

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

The following summarizes the activity in Level 3 financial instruments:
Three Months Ended March 31,
20222021
Contingent Consideration
Beginning balance
$2,700 $— 
Accretion of discount (1)
68 — 
Ending balance
$2,768 $— 
_____________________
(1) Changes to the balance associated with the estimated fair value of contingent consideration for the three months ended March 31, 2022 were primarily due to accretion of the related discount.

For the three months ended March 31, 2022, there were no transfers between Level 1, Level 2, or Level 3 financial instruments.

Financial Instruments Not Recorded at Fair Value on a Recurring Basis

Some of the Company’s financial instruments are recorded at amounts that approximate fair value due to their liquid or short-term nature or by election on investments in privately-held entities as described below. Such financial assets and financial liabilities include: cash and cash equivalents, restricted cash, net receivables, investments in privately-held entities, certain other assets, accounts payable, accrued price protection liability, accrued expenses, accrued compensation costs, and other current liabilities.

The Company’s long-term debt is not recorded at fair value on a recurring basis, but is measured at fair value for disclosure purposes (Note 8).

Included in other long-term assets are investments in privately held entities of $8.3 million and $5.0 million as of March 31, 2022 and December 31, 2021, respectively. The Company does not have the ability to exercise significant influence or control over such entity and has accounted for the investments as financial instruments. Given that fair values for such investments are not readily determinable, the Company is electing to measure these investments at cost, less any impairment, and adjust the carrying value to fair value if any observable price changes for similar investments in the same entity are identified.
18

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

Debt

The carrying amount of the Company’s long-term debt consists of the following:
March 31,
2022
December 31,
2021
(in thousands)
Principal balance:
Initial term loan under June 23, 2021 credit agreement$290,000 $310,000 
Total principal balance290,000 310,000 
Less:
     Unamortized debt discount(787)(816)
     Unamortized debt issuance costs(2,915)(3,031)
Net carrying amount of long-term debt286,298 306,153 
Less: current portion of long-term debt— — 
Long-term debt, non-current portion$286,298 $306,153 
As of March 31, 2022 and December 31, 2021, the weighted average effective interest rate on debt was approximately 2.8% and 3.2%, respectively.

During each of the three months ended March 31, 2022 and 2021, the Company recognized total amortization of debt discount and debt issuance costs of $0.1 million and $0.5 million, respectively, to interest expense.

The approximate aggregate fair value of the term loans outstanding as of March 31, 2022 and December 31, 2021 was $291.4 million and $311.0 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 March 31, 2022, the outstanding principal balance of $290.0 million is due in full on June 23, 2028, upon maturity of the loan.
Initial Term Loan and Revolving Facility under June 23, 2021 Credit Agreement
On June 23, 2021, the Company entered into a Credit Agreement (the “June 23, 2021 Credit Agreement”), by and among the Company, the lenders from time to time party thereto, and Wells Fargo Bank, National Association, as administrative agent and collateral agent, that provides for a senior secured term B loan facility, or the “Initial Term Loan under the June 23, 2021 Credit Agreement,” in an aggregate principal amount of $350.0 million and a senior secured revolving credit facility, or the “Revolving Facility,” in an aggregate principal amount of up to $100.0 million. The proceeds of the Initial Term Loan under the June 23, 2021 Credit Agreement were used (i) to repay in full all outstanding indebtedness under that certain Credit Agreement dated May 12, 2017, by and among the Company, MUFG Bank Ltd., as administrative agent and MUFG Union Bank, N.A., as collateral agent and the lenders from time to time party thereto (as amended by Amendment No. 1, dated July 31, 2020 and as further amended, amended and restated, waived, supplemented or otherwise modified from time to time, the “May 12, 2017 Credit Agreement”) and (ii) to pay fees and expenses incurred in connection therewith. The remaining proceeds of the Initial Term Loan under the June 23, 2021 Credit Agreement are available for general corporate purposes and the proceeds of the Revolving Facility may be used to finance the working capital needs and other general corporate purposes of the Company and its subsidiaries. As of March 31, 2022, the Revolving Facility was undrawn.

The June 23, 2021 Credit Agreement permits the Company to request incremental loans in an aggregate principal amount not to exceed the sum of an amount equal to the greater of (x) $175.0 million and (y) 100% of consolidated EBITDA, plus the amount of certain voluntary prepayments, plus an unlimited amount that is subject to pro forma compliance with certain first lien net leverage ratio, secured net leverage ratio and total net leverage ratio tests. Incremental loans are subject to certain additional conditions, including obtaining additional commitments from the lenders then party to the June 23, 2021 Credit Agreement or new lenders.

Under the June 23, 2021 Credit Agreement, the Initial Term Loan bears interest, at the Company’s option, at a per annum rate equal to either (i) a base rate equal to the highest of (x) the federal funds rate, plus 0.50%, (y) the prime rate then in
19

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
effect and (z) an adjusted LIBOR rate determined on the basis of a one-month interest period plus 1.00%, in each case, plus an applicable margin of 1.25% or (ii) an adjusted LIBOR rate, subject to a floor of 0.50%, plus an applicable margin of 2.25%. Loans under the Revolving Facility initially bear interest, at a per annum rate equal to either (i) a base rate (as calculated above) plus an applicable margin of 0.00%, or (ii) an adjusted LIBOR rate (as calculated above) plus an applicable margin of 1.00%. Following delivery of financial statements for the Company’s fiscal quarter ending June 30, 2021, the applicable margin for loans under the Revolving Facility will range from 0.00% to 0.75% in the case of base rate loans and 1.00% to 1.75% in the case of LIBOR rate loans, in each case, depending on the Company’s secured net leverage ratio as of the most recently ended fiscal quarter. The Company is required to pay commitment fees ranging from 0.175% to 0.25% per annum on the daily undrawn commitments under the Revolving Facility, depending on the Company’s secured net leverage ratio as of the most recently ended fiscal quarter. Commencing on September 30, 2021, the Initial Term Loan under the June 23, 2021 Credit Agreement will amortize in equal quarterly installments equal to 0.25% of the original principal amount of the Initial Term Loan under the June 23, 2021 Credit Agreement, with the balance payable on the maturity date. The June 23, 2021 Credit Agreement contains customary provisions specifying alternative interest rate calculations to be employed at such time as LIBOR ceases to be available as a benchmark for establishing the interest rate on floating interest rate borrowings.

The Company is required to make mandatory prepayments of the outstanding principal amount of term loans under the June 23, 2021 Credit Agreement with the net cash proceeds from the disposition of certain assets and the receipt of insurance proceeds upon certain casualty and condemnation events, in each case, to the extent not reinvested within a specified time period, from excess cash flow beyond stated threshold amounts, and from the incurrence of certain indebtedness. The Company has the right to prepay its term loans under the June 23, 2021 Credit Agreement, in whole or in part, at any time without premium or penalty, subject to certain limitations and a 1.0% soft call premium applicable during the first six months following the closing date of the June 23, 2021 Credit Agreement. The Initial Term Loan under the June 23, 2021 Credit Agreement will mature on June 23, 2028, at which time all outstanding principal and accrued and unpaid interest on the Initial Term Loan under the June 23, 2021 Credit Agreement must be repaid. The Revolving Facility will mature on June 23, 2026, at which time all outstanding principal and accrued and unpaid interest under the Revolving Facility must be repaid. The Company is also obligated to pay fees customary for a credit facility of this size and type.

The Company’s obligations under the June 23, 2021 Credit Agreement are required to be guaranteed by certain of its domestic subsidiaries meeting materiality thresholds set forth in the June 23, 2021 Credit Agreement. Such obligations, including the guaranties, are secured by substantially all of the assets of the Company and the subsidiary guarantors pursuant to a Security Agreement, dated as of June 23, 2021, by and among the Company, the subsidiary guarantors from time to time party thereto, and Wells Fargo Bank, National Association, as collateral agent.

The June 23, 2021 Credit Agreement contains customary affirmative and negative covenants, including covenants limiting the ability of the Company and its restricted subsidiaries to, among other things, incur debt, grant liens, undergo certain fundamental changes, make investments, make certain restricted payments, and sell assets, in each case, subject to limitations and exceptions set forth in the June 23, 2021 Credit Agreement. The Revolving Facility also prohibits the Company from having a secured net leverage ratio in excess of 3.50:1.00 (subject to a temporary increase to 3.75:1.00 following the consummation of certain material permitted acquisitions) as of the last day of any fiscal quarter of the Company (commencing with the fiscal quarter ending September 30, 2021) if the aggregate borrowings under the Revolving Facility exceed 1% of the aggregate commitments thereunder (subject to certain exceptions set forth in the June 23, 2021 Credit Agreement) as of such date. As of March 31, 2022, the Company was in compliance with such covenants. The June 23, 2021 Credit Agreement also contains customary events of default that include, among other things, certain payment defaults, cross defaults to other indebtedness, covenant defaults, change in control defaults, judgment defaults, and bankruptcy and insolvency defaults. If an event of default exists, the lenders may require immediate payment of all obligations under the June 23, 2021 Credit Agreement and may exercise certain other rights and remedies provided for under the June 23, 2021 Credit Agreement, the other loan documents and applicable law.

The debt is carried at its principal amount, net of unamortized debt discount and issuance costs, and is not adjusted to fair value each period. The issuance date fair value of the liability component of the debt in the amount of $350.2 million was determined using a discounted cash flow analysis, in which the projected interest and principal payments were discounted back to the issuance date of the term loan at a market interest rate for nonconvertible debt of 3.4%, which represents a Level 2 fair value measurement. The debt discount of $0.9 million and debt issuance costs of $2.9 million associated with the Initial Term Loan under the June 23, 2021 Credit Agreement are being amortized to interest expense using the effective interest method over its seven-year term. Debt issuance costs of $0.4 million associated with the Revolving Facility are being amortized to interest expense over its five-year term.
20

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
7. Balance Sheet Details
Cash, cash equivalents and restricted cash consist of the following:
March 31, 2022December 31, 2021
(in thousands)
Cash and cash equivalents$151,111 $130,572 
Short-term restricted cash105 105 
Long-term restricted cash1,037 1,061 
Total cash, cash equivalents and restricted cash$152,253 $131,738 
As of March 31, 2022 and December 31, 2021, cash and cash equivalents included money market funds of approximately $0 and $20.4 million, respectively. As of March 31, 2022 and December 31, 2021, the Company had restricted cash of approximately $1.1 million and $1.2 million, respectively. The cash is restricted in connection with guarantees for certain import duties and office leases.
Inventory consists of the following:
March 31, 2022December 31, 2021
(in thousands)
Work-in-process$74,191 $72,369 
Finished goods64,850 59,334 
$139,041 $131,703 
Property and equipment, net consists of the following:
Useful Life
(in Years)
March 31, 2022December 31, 2021
(in thousands)
Furniture and fixtures5$3,956 $3,917 
Machinery and equipment
3-5
66,524 65,004 
Masks and production equipment
2-5
32,284 32,099 
Software38,921 8,763 
Leasehold improvements
1-5
31,239 30,889 
Construction in progressN/A5,891 4,647 
148,815 145,319 
Less: accumulated depreciation and amortization(88,793)(84,395)
$60,022 $60,924 

Depreciation expense for the three months ended March 31, 2022 and 2021 was $4.8 million and $3.7 million, respectively.

In March 2022, the Company entered into a note receivable with a supplier for $10.0 million, which is included in other long-term assets on the consolidated balance sheet. Repayments of $2.0 million per year is due annually by March 31, in years 2024 through 2027; provided that certain production utilization targets for the prior year are met.
21

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Accrued price protection liability consists of the following activity:
Three Months Ended March 31,
20222021
(in thousands)
Beginning balance$40,509 $47,766 
Charged as a reduction of revenue41,473 24,423 
Payments(13,633)(17,160)
Ending balance$68,349 $55,029 
Accrued expenses and other current liabilities consist of the following:
March 31, 2022December 31, 2021
(in thousands)
Accrued technology license payments$5,988 $7,337 
Accrued professional fees3,565 3,651 
Accrued engineering and production costs4,076 2,934 
Accrued restructuring295 320 
Accrued royalty1,911 2,080 
Short-term lease liabilities8,588 8,888 
Accrued customer credits1,932 5,136 
Income tax liability7,931 7,105 
Customer contract liabilities1,089 1,044 
Accrued obligations to customers for price adjustments29,226 6,721 
Accrued obligations to customers for stock rotation rights2,498 2,847 
Other8,454 9,205 
$75,553 $57,268 
The following table summarizes the change in balances of accumulated other comprehensive income (loss) by component:
Cumulative Translation AdjustmentsPension and Other Defined Benefit Plan ObligationTotal
(in thousands)
Balance at December 31, 2021$21 $2,104 $2,125 
Other comprehensive income (loss) before reclassifications, net of tax(1,075)— (1,075)
Balance at March 31, 2022$(1,054)$2,104 $1,050 
9. Stock-Based Compensation
Employee Stock-Based Compensation Plans
At March 31, 2022, the Company had stock-based compensation awards outstanding under the following plans: the 2010 Equity Incentive Plan, as amended, or 2010 Plan, and the 2010 Employee Stock Purchase Plan, or ESPP. Refer to the Company’s Annual Report for a summary of its stock-based compensation and equity plans as of December 31, 2021. There have been no material changes to the terms of the Company’s equity incentive plans during the three months ended March 31, 2022.
As of March 31, 2022, the number of shares of common stock available for future issuance under the 2010 Plan was 16,641,362 shares. As of March 31, 2022, the number of shares of common stock available for future issuance under the ESPP was 5,061,372 shares.
22

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 applicable stock exchange, on a date approved by the Board of Directors. In connection with the Company’s bonus programs, in February 2022, the Company issued 0.5 million freely-tradable shares of the Company’s common stock in settlement of bonus awards to employees, including executives, for the 2021 performance period. At March 31, 2022, the Company has an accrual of $9.0 million for bonus awards for employees for year-to-date achievement in the 2022 performance period. The Company’s compensation committee retains discretion to effect payment in cash, stock, or a combination of cash and stock.
Stock-Based Compensation
The Company recognizes stock-based compensation in the consolidated statements of income, based on the department to which the related employee reports, as follows:
Three Months Ended March 31,
20222021
(in thousands)
Cost of net revenue$163 $169 
Research and development9,676 7,162 
Selling, general and administrative8,715 5,624 
$18,554 $12,955 
The total unrecognized compensation cost related to unvested restricted stock units as of March 31, 2022 was $117.0 million, and the weighted average period over which these equity awards are expected to vest is 2.50 years.
The total unrecognized compensation cost related to unvested performance-based restricted stock units as of March 31, 2022 was $32.4 million, and the weighted average period over which these equity awards are expected to vest is 1.37 years.
The total unrecognized compensation cost related to unvested stock options as of March 31, 2022 was $0.2 million, and the weighted average period over which these equity awards are expected to vest is 0.26 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, 20215,233 $25.14 
  Granted1,502 63.44 
  Vested(730)56.13 
  Canceled(108)25.66 
Outstanding at March 31, 20225,897 $31.05 
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.
23

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
As of March 31, 2022, the Company believes that it is probable that it 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.
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, 20212,005 $19.80 
  Granted(1)
376 75.40 
  Vested(701)17.85 
  Canceled(1)35.57 
Outstanding at March 31, 20221,679 $33.05 
________________
(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 three months ended March 31, 2022 and 2021 there were no shares of common stock purchased under the ESPP.
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:
Three Months Ended March 31,
20222021
Weighted-average grant date fair value per share$18.82 $8.66 
Risk-free interest rate0.06 %0.12 %
Dividend yield— %— %
Expected life (in years)0.500.50
Volatility43.83 %59.72 %
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, 2021417 $17.05 
Exercised(6)13.42 
Outstanding at March 31, 2022411 $17.10 3.07$16,947 
Vested and expected to vest at March 31, 2022411 $17.10 3.07$16,947 
Exercisable at March 31, 2022383 $17.00 3.04$15,831 
No stock options were granted by the Company during the three months ended March 31, 2022.
24

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

The intrinsic value of stock options exercised was $0.3 million and $2.3 million in the three months ended March 31, 2022 and 2021, respectively.

Cash received from exercise of stock options was $0.1 million and $1.3 million during the three months ended March 31, 2022 and 2021, respectively.

The tax benefit from stock options exercised was $0.4 million and $2.7 million during the three months ended March 31, 2022 and 2021, respectively.
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 provision of $11.5 million in the three months ended March 31, 2022 and an income tax provision of $1.8 million in the three months ended March 31, 2021.
The difference between the Company’s effective tax rate and the 21.0% U.S. federal statutory rate for the three months ended March 31, 2022 primarily related to the mix of pre-tax income among jurisdictions, permanent tax items including a tax on global intangible low-taxed income, stock based compensation, excess tax benefits related to stock-based compensation, release of uncertain tax positions under ASC 740-10, and release of the valuation allowance on certain federal R&D credits. The permanent tax item related to global intangible low-taxed income also reflects recent legislative changes requiring the capitalization of research and experimentation costs, as well as limitations on the creditability of certain foreign income taxes.
The difference between the Company’s effective tax rate and the 21.0% U.S. federal statutory rate for the three months ended March 31, 2021 primarily related to the mix of pre-tax income among jurisdictions, permanent tax items including the tax on global intangible low-taxed income, stock based compensation, excess tax benefits related to stock-based compensation, and release of certain reserves for uncertain tax positions under ASC 740-10.
Income tax positions must meet a more-likely-than-not threshold to be recognized. Income tax positions that previously failed to meet the more-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold are derecognized in the first financial reporting period in which that threshold is no longer met. The Company records potential penalties and interest accrued related to unrecognized tax benefits within the consolidated statements of income as income tax expense.
During the three months ended March 31, 2022, the Company’s unrecognized tax benefits increased by $2.2 million. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months. Accrued interest and penalties associated with uncertain tax positions as of March 31, 2022 were approximately $0.5 million and $0.03 million, respectively.
The Company is subject to federal and state income tax in the United States and is also subject to income tax in certain other foreign tax jurisdictions. At March 31, 2022, the statutes of limitations for the assessment of federal, state, and foreign income taxes are closed for the years before 2018, 2017, and 2016, respectively.
25

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The Company’s subsidiary in Singapore operates under certain tax incentives in Singapore, which are generally effective through March 2027, and are conditional upon meeting certain employment and investment thresholds in Singapore. Under the incentives, qualifying income derived from certain sales of the Company’s integrated circuits is taxed at a concessionary rate over the incentive period, and there are reduced Singapore withholding taxes on certain intercompany royalties during the incentive period. The Company recorded a tax provision in the three months ended March 31, 2022 at the incentive rate. In the three months ended March 31, 2021, due to the Company’s Singapore net operating losses and a full valuation allowance in Singapore, the incentives did not have a material impact on the Company’s income tax provision.

11. Concentration of Credit Risk, Significant Customers and Geographic Information
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents and accounts receivable. Collateral is generally not required for customer receivables. The Company limits its exposure to credit loss by placing its cash with high credit quality financial institutions. At times, such deposits may be in excess of insured limits. The Company has not experienced any losses on its deposits of cash and cash equivalents.

Significant Customers

The Company markets its products and services to manufacturers of a wide range of electronic devices (Note 1). The Company sells its products both directly to end-customers and through third-party distributors, both of which are referred to as the Company’s customers (Note 12). The Company makes periodic evaluations of the credit worthiness of its customers.

Customers comprising greater than 10% of net revenues for each of the periods presented are as follows:
Three Months Ended March 31,
20222021
Percentage of total net revenue
Customer A (direct)16 %15 %
Customer B (direct)11 %12 %
Customer C (distributor)10 %11 %

The following table presents balances that are 10% or greater of accounts receivable, based on the Company’s billings to its customers.
March 31,December 31,
20222021
Percentage of gross accounts receivable
Customer B (direct)12 %14 %
Customer C (distributor)16 %*
Customer D (direct)10 %17 %
____________________________
*    Represents less than 10% of the gross accounts receivable as of the respective period end.

26

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

Suppliers comprising greater than 10% of total inventory purchases are as follows:
Three Months Ended March 31,
20222021
Vendor A27 %45 %
Vendor B26 %20 %
Vendor C12 %11 %

Geographic Information

The Company’s consolidated net revenues by geographic area based on ship-to location are as follows (in thousands):
Three Months Ended March 31,
20222021
Amount% of total net revenueAmount% of total net revenue
Asia $211,665 80 %$171,160 82 %
United States8,868 %10,300 %
Rest of world43,394 17 %27,899 13 %
Total$263,927 100 %$209,359 100 %

The products shipped to individual countries or territories representing greater than 10% of net revenue for each of the periods presented are as follows:
Three Months Ended March 31,
20222021
Percentage of total net revenue
Hong Kong38 %37 %
China11 %14 %
Vietnam13 %12 %
The determination of which country a particular sale is allocated to is based on the destination of the product shipment. No other individual country accounted for more than 10% of net revenue during these periods. Although a large percentage of the Company’s products is shipped to Asia, and in particular, Hong Kong, China and Vietnam, the Company believes that a significant number of the systems designed by customers and incorporating the Company’s semiconductor products are subsequently sold outside Asia to Europe, Middle East, and Africa, or EMEA markets and North American markets.
Long-lived assets, which consists of property and equipment, net, leased right-of-use assets, intangible assets, net, and goodwill by geographic area are as follows (in thousands):
March 31,December 31,
20222021
Amount% of totalAmount% of total
United States$372,671 69 %$382,650 70 %
Singapore121,117 22 %122,474 22 %
Rest of world46,019 %42,277 %
Total$539,807 100 %$547,401 100 %


27

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
12. Revenue from Contracts with Customers

Revenue by Market
The table below presents disaggregated net revenues by market (in thousands):
Three Months Ended March 31,
20222021
Broadband$134,556 $124,190 
% of net revenue51 %59 %
Connectivity60,179 27,449 
% of net revenue23 %13 %
Infrastructure33,181 28,792 
% of net revenue12 %14 %
Industrial and multi-market36,011 28,928 
% of net revenue14 %14 %
Total net revenue$263,927 $209,359 
Revenues from sales through the Company’s distributors accounted for 47% and 44% of net revenue for the three months ended March 31, 2022 and 2021, respectively.
Contract Liabilities
As of March 31, 2022 and December 31, 2021, customer contract liabilities were approximately $1.1 million and $1.0 million, respectively, and consisted primarily of advanced payments received for which performance obligations have not been completed. Revenue recognized in each of the three months ended March 31, 2022 and 2021 that was included in the contract liability balance as of the beginning of each of those respective periods was immaterial.
There were no material changes in the contract liabilities balance during the three months ended March 31, 2022 and 2021.
Obligations to Customers for Price Adjustments and Returns and Assets for Right-of-Returns
As of March 31, 2022 and December 31, 2021, obligations to customers consisting of estimates of price protection rights offered to the Company’s end customers totaled $68.3 million and $40.5 million, respectively, and are included in accrued price protection liability in the consolidated balance sheets. For activity in this account, including amounts included in net revenue, refer to Note 7. Other obligations to customers representing estimates of price adjustments to be claimed by distributors upon sell-through of their inventory to their end customer and estimates of stock rotation returns to be claimed by distributors on products sold as of March 31, 2022 were $29.2 million and $2.5 million, respectively, and as of December 31, 2021 were $6.7 million and $2.8 million, respectively, and are included in accrued expenses and other current liabilities in the consolidated balance sheets (Note 7). The increase in revenue in the three months ended March 31, 2022 and 2021 from net changes in transaction prices for amounts included in obligations to customers for price adjustments as of the beginning of those respective periods was not material.
As of March 31, 2022 and December 31, 2021, right of return assets under customer contracts representing the estimates of product inventory the Company expects to receive from customers in stock rotation returns were approximately $0.9 million and $1.1 million, respectively. Right of return assets are included in inventory in the consolidated balance sheets.
As of March 31, 2022 and December 31, 2021, there were no impairment losses recorded on customer accounts receivable.

28

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

Operating Leases

Operating lease arrangements primarily consist of office leases expiring in various years through 2028. These leases have original terms of approximately 2 to 8 years and some contain options to extend the lease up to 5 years or terminate the lease, which are included in right-of-use assets and lease liabilities when the Company is reasonably certain it will renew the underlying leases. Since the implicit rate of such leases is unknown and the Company is not reasonably certain to renew its leases, the Company has elected to apply a collateralized incremental borrowing rate to facility leases on the original lease term in calculating the present value of future lease payments. As of March 31, 2022 and December 31, 2021, the weighted average discount rate for operating leases was 3.5% and 3.6%, respectively, and the weighted average remaining lease term for operating leases was 4.5 years and 4.6 years, respectively, as of the end of each of these periods.
The table below presents aggregate future minimum payments due under leases, reconciled to total lease liabilities included in the consolidated balance sheet as of March 31, 2022:
Operating Leases
(in thousands)
2022 (9 months)$7,243 
20239,416 
20248,415 
20257,550 
20265,434 
Thereafter4,330 
Total minimum payments42,388 
Less: imputed interest(3,207)
Less: unrealized translation loss(385)
Total lease liabilities38,796 
Less: short-term lease liabilities(8,588)
Long-term lease liabilities$30,208 

Operating lease cost was $2.5 million for each of the three months ended March 31, 2022 and 2021, respectively.

Short-term lease costs for the three months ended March 31, 2022 and 2021 were not material. There were $8.0 million right-of-use assets obtained in exchange for new lease liabilities for the three months ended March 31, 2022. There were $5.2 million right-of-use assets obtained in exchange for new lease liabilities for the three months ended March 31, 2021.
14. Employee Defined Benefit Retirement Plans
Pension and Other Defined Benefit Retirement Obligations

In connection with a 2020 acquisition, the Company assumed an obligation of $7.9 million associated with certain defined benefit retirement plans, including a pension plan. As of March 31, 2022 and December 31, 2021, the defined benefit obligation was $4.5 million and $4.5 million, respectively. The benefit is based on a formula applied to eligible employee earnings. Net periodic benefit costs were $0.1 million and $0.1 million for the three months ended March 31, 2022 and 2021 and were recorded to research and development expenses in the consolidated statements of income.
29

MAXLINEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
15. Commitments and Contingencies
Inventory Purchase and Other Contractual Obligations
As of March 31, 2022, future minimum payments under inventory purchase and other obligations are as follows:
Inventory Purchase ObligationsOther ObligationsTotal
2022 (9 months)$176,447 $17,858 $194,305 
20236,853 15,410 22,263 
2024— 705 705 
2025— 111 111 
Total minimum payments$183,300 $34,084 $217,384 

Other obligations consist of contractual payments due for software licenses.

Jointly Funded Research and Development

From time to time, the Company enters into contracts for jointly funded research and development projects to develop technology that may be commercialized into a product in the future. As the Company may be required to repay all or a portion of the funds provided by the other parties under certain conditions, certain funds received from the other parties of $3.0 million have been deferred in other long-term liabilities. Additional amounts under the contracts are tied to certain milestones and will also be recorded as a long-term liability as payment due under such milestones are received. The Company de-recognizes the liabilities when the contingencies associated with the repayment conditions have been resolved. During the three months ended March 31, 2022, the Company recognized $3.8 million in previously deferred amounts from other parties due to resolution of such repayment conditions.
Other Matters
From time to time, the Company is subject to threats of litigation or actual litigation in the ordinary course of business, some of which may be material. The Company believes that there are no currently pending litigation matters that, if determined adversely to the Company’s interests, would have a material effect on the Company’s financial position, results of operations, or cash flows or that would not be covered by the Company’s existing liability insurance.

16. Stock Repurchases
On February 23, 2021, the Company’s board of directors authorized a plan to repurchase up to $100 million of the Company’s common stock over a period ending February 16, 2024. The amount and timing of repurchases are subject to a variety of factors including liquidity, share price, market conditions, and legal requirements. Any purchases will be funded from available working capital and may be effected through open market purchases, block transactions, and privately negotiated transactions. The share repurchase program does not obligate the Company to make any repurchases and may be modified, suspended, or terminated by the Company at any time without prior notice.
During the three months ended March 31, 2022, the Company repurchased 440,449 shares of its common stock at a weighted average price of $59.6755 per share at an aggregate value of approximately $26.3 million under the repurchase program. At March 31, 2022, the aggregate value of common stock repurchased under the program was approximately $49.8 million and approximately $50.2 million remained available for repurchase under the program.


30

ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements
The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in Part II, Item1A in this report.
Overview
We are a provider of communications systems-on-chip solutions used in broadband, mobile and wireline infrastructure, data center, and industrial and multi-market applications. We are a fabless integrated circuit design company whose products integrate all or substantial portions of a high-speed communication system, including radio frequency (RF), high-performance analog, mixed-signal, digital signal processing, security engines, data compression and networking layers, and power management. In most cases, these products are designed on a single silicon-die, using standard digital complementary metal oxide semiconductor (CMOS) processes and conventional packaging technologies. We believe this approach enables our solutions to achieve superior power, performance, and cost relative to our industry competition. Our customers include electronics distributors, module makers, original equipment manufacturers (OEMs), and original design manufacturers (ODMs), who incorporate our products in a wide range of electronic devices. Examples of such devices include cable Data Over Cable Service Interface Specifications (DOCSIS), fiber and DSL broadband modems and gateways; Wi-Fi and wireline routers for home networking; radio transceivers and modems for 4G/5G base-station and backhaul infrastructure; fiber-optic modules for data center, metro, and long-haul transport networks; as well as power management and interface products used in these and many other markets.
Our highly integrated semiconductor devices and platform-level solutions are primarily manufactured using low-cost CMOS process technology. CMOS processes are ideally suited for large digital logic implementations targeting high-volume and low-cost consumer applications. Importantly, our ability to design analog and mixed-signal circuits in CMOS allows us to efficiently combine analog functionality and complex digital signal processing logic in the same integrated circuit. As a result, our solutions have exceptional levels of functional integration and performance, low manufacturing cost, and reduced power consumption. In addition, our proprietary CMOS-based radio and digital system architectures also enable shorter design cycles, significant design flexibility and low system-level cost across a wide range of broadband communications, wired and wireless infrastructure, and industrial and multi-market customer applications.
In the three months ended March 31, 2022, revenues were $263.9 million derived from sales of RF receivers and RF receiver systems-on-chip and connectivity solutions into broadband operator voice and data modems and gateways and connectivity adapters, global analog and digital RF receiver products, radio and modem solutions into wireless carrier access and backhaul infrastructure platforms, high-speed optical interconnect solutions sold into optical modules for data-center, metro and long-haul networks, and high-performance interface and power management solutions into a broad range of communications, industrial, automotive and multi-market applications. Our ability to achieve revenue growth in the future will depend, among other factors, on our ability to further penetrate existing markets; our ability to expand our target addressable markets by developing new and innovative products; changes in government trade policies; and our ability to obtain design wins with device manufacturers, in particular manufacturers of set-top boxes, data modems, and gateways for the broadband service provider, storage networking market, cable infrastructure market, industrial and automotive markets, and optical module and telecommunications infrastructure markets.
Products shipped to Asia accounted for 80% and 82% of net revenue during the three months ended March 31, 2022 and 2021, respectively, including 38% from products shipped to Hong Kong, 11% from products shipped to mainland China, and 13% from products shipped to Vietnam during the three months ended March 31, 2022 and 37% from products shipped to Hong Kong, 14% from products shipped to mainland China, and 12% from products shipped to Vietnam during the three months ended March 31, 2021. Although a large percentage of our products is shipped to Asia, we believe that a significant number of the systems designed by these customers and incorporating our semiconductor products are then sold outside Asia. For example, revenue generated from sales of our products during the three months ended March 31, 2022 and 2021 related principally to sales to Asian ODMs and contract manufacturers delivering products into European and North American markets. To date, all of our sales have been denominated in United States dollars.
31

A significant portion of our net revenue has historically been generated by a limited number of customers. Sales to customers comprise both direct sales to customers and indirect sales through distributors. In the three months ended March 31, 2022, our top three customers accounted for 37% of our net revenue, and our ten largest customers collectively accounted for 71% of our net revenue, of which distributor customers accounted for 32% of our net revenue. For certain customers, we sell multiple products into disparate end user applications such as cable modems, satellite set-top boxes and broadband gateways.
Our business depends on winning competitive bid selection processes, known as design wins, to develop integrated circuits for use in our customers’ products. These selection processes are typically lengthy, and as a result, our sales cycles will vary based on the specific market served, whether the design win is with an existing or a new customer and whether our product being designed in our customer’s device is a first generation or subsequent generation product. Our customers’ products can be complex and, if our engagement results in a design win, can require significant time to define, design and result in volume production. Because the sales cycle for our products is long, we can incur significant design and development expenditures in circumstances where we do not ultimately recognize any revenue. We do not have any long-term purchase commitments with any of our customers, all of whom purchase our products on a purchase order basis. Once one of our products is incorporated into a customer’s design, however, we believe that our product is likely to remain a component of the customer’s product for its life cycle because of the time and expense associated with redesigning the product or substituting an alternative chip. Product life cycles in our target markets will vary by application. For example, in the cable operator modem and gateway sectors, a design-in can have a product life cycle of 24 to 48 months. In the industrial and wired and wireless infrastructure markets, a design-in can have a product life cycle of 24 to 60 months and beyond.

Impact of COVID-19 and the Global Semiconductor Supply Shortage

During the COVID-19 global pandemic, which is still ongoing, various restrictions were put in place causing a temporary decline in demand for certain items such as automobiles. As restrictions began easing across the world, a sudden increase in demand for electronics containing semiconductor chips and stockpiling of chips by certain firms in China blacklisted by the U.S. has exacerbated bottlenecks in the supply chain, resulting in a global semiconductor supply shortage impacting our industry. Some chip manufacturers are estimating this supply shortage may continue into 2023. While these chip manufacturers are working to increase capacity in the future, and we are continuing to work closely with our suppliers and customers to minimize the potential adverse impacts of the supply shortage, such shortage may have a near-term impact on our ability to meet increased demand on certain products which may continue into 2023.

Global supply shortages, and uncertainty in customer demand and the worldwide economy has continued as a result of the COVID-19 pandemic and may be further exacerbated by the impacts of high inflation, and we may experience increased volatility in our sales and revenues in the near future. However, the magnitude of such volatility on our business and its duration is uncertain and cannot be reasonably estimated at this time.

Critical Accounting Policies and Estimates
Management’s discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements which are prepared in accordance with accounting principles that are generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, related disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. We continually evaluate our estimates and judgments, the most critical of which are those related to business combinations, revenue recognition, inventory valuation, production masks, goodwill and other intangible assets valuation, and income taxes. We base our estimates and judgments on historical experience and other factors that we believe to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known.
We believe that accounting policies we have identified as critical involve a greater degree of judgment and complexity than our other accounting policies. Accordingly, those are the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations.
For a summary of our critical accounting policies and estimates, refer to Management’s Discussion and Analysis section of our Annual Report on Form 10-K for the year ended December 31, 2021, which we filed with the Securities and Exchange
32

Commission, or SEC, on February 2, 2022, or our Annual Report. There have been no material changes to our critical accounting policies and estimates during the three months ended March 31, 2022.


Recently Issued Accounting Pronouncements
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilties from Contracts with Customers, to provide specific guidance to eliminate diversity in practice on how to recognize and measure acquired contract assets and contract liabilities from revenue contracts from customers in a business combination consistent with revenue contracts with customers not acquired in an acquisition. The amendments in this update provide that the acquirer should consider the terms of the acquired contracts, such as timing of payment, identify each performance obligation in the contracts, and allocate the total transaction price to each identified performance obligation on a relative standalone selling price basis as of contract inception (that is, the date the acquiree entered into the contracts) or contract modification to determine what should be recorded at the acquisition date. These amendments are effective for us beginning with fiscal year 2023. The impact of the adoption of the amendments in this update will depend on the magnitude of any customer contracts assumed in a business combination in 2023 and beyond.
Results of Operations
The following describes the line items set forth in our unaudited consolidated statements of income.
Net Revenue. Net revenue is generated from sales of radio-frequency, analog, digital, and mixed-signal integrated circuits for access and connectivity, wired and wireless infrastructure, and industrial and multi-market applications. A significant portion of our sales are to distributors, who then resell our products.
Cost of Net Revenue. Cost of net revenue includes the cost of finished silicon wafers processed by third-party foundries; costs associated with our outsourced packaging and assembly, test and shipping; costs of personnel, including stock-based compensation, and equipment associated with manufacturing support, logistics and quality assurance; amortization of acquired developed technology intangible assets; amortization of certain production mask costs; cost of production load boards and sockets; and an allocated portion of our occupancy costs.
Research and Development. Research and development expense includes personnel-related expenses, including stock-based compensation, new product engineering mask costs, prototype integrated circuit packaging and test costs, computer-aided design software license costs, intellectual property license costs, reference design development costs, development testing and evaluation costs, depreciation expense and allocated occupancy costs. Research and development activities include the design of new products, refinement of existing products and design of test methodologies to ensure compliance with required specifications. All research and development costs are expensed as incurred.
Selling, General and Administrative. Selling, general and administrative expense includes personnel-related expenses, including stock-based compensation, amortization of certain acquired intangible assets, merger, acquisition and integration costs, third-party sales commissions, field application engineering support, travel costs, professional and consulting fees, legal fees, depreciation expense and allocated occupancy costs.
Restructuring Charges. Restructuring charges consist of severance, lease and leasehold impairment charges, and other charges related to restructuring plans.
Interest and Other Income (Expense), Net. Interest and other income (expense), net includes interest income, interest expense and other income (expense). Interest income consists of interest earned on our cash, cash equivalents and restricted cash balances. Interest expense consists of interest accrued on debt and amortization of discounts on debt and other liabilities. Other income (expense) generally consists of income (expense) generated from non-operating transactions and unrealized holding gains (losses) from certain investments required to be marked to market value.
Income Tax Provision. We make certain estimates and judgments in determining income taxes for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expenses for tax and financial statement purposes and the realizability of assets in future years.
33

The following table sets forth our consolidated statement of income data as a percentage of net revenue for the periods indicated:
Three Months Ended March 31,
20222021
Net revenue100 %100 %
Cost of net revenue41 47 
Gross profit59 53 
Operating expenses:
Research and development25 30 
Selling, general and administrative15 17 
Restructuring charges— 
Total operating expenses40 49 
Income from operations18 
Interest income— — 
Interest expense(1)(3)
Other income (expense), net— — 
Total other income (expense), net(1)(2)
Income before income taxes17 
Income tax provision
Net income13 %%
Net Revenue
Three Months Ended March 31,
20222021$ Change% Change
(dollars in thousands) 
Broadband$134,556 $124,190 $10,366 %
% of net revenue51 %59 %
Connectivity60,179 27,449 32,730 119 %
% of net revenue23 %13 %
Infrastructure33,181 28,792 4,389 15 %
% of net revenue12 %14 %
Industrial and multi-market36,011 28,928 7,083 24 %
% of net revenue14 %14 %
Total net revenue$263,927 $209,359 $54,568 26 %

Net revenue increased $54.6 million to $263.9 million for the three months ended March 31, 2022, as compared to $209.4 million for the three months ended March 31, 2021, due to improvement in supply and market strength attributed to the work-from-home environment. The increase in broadband net revenue of $10.4 million was primarily from gateway revenues and, to a lesser extent, improvements in satellite and tuner shipments. The increase in connectivity revenue of $32.7 million was primarily driven by higher Wi-Fi and ethernet revenues as our supply improved and an increase in MoCA product shipments. The increase in infrastructure revenues of $4.4 million was primarily driven by an increase in 5G wireless access product shipments and, to a lesser extent, increased shipments of wireless backhaul, high-performance analog, and G.hn and MoCA last-mile access products in this category. The increase in industrial and multi-market revenue of $7.1 million was related to increased shipments of component and high-performance analog products.

We currently expect that revenue will fluctuate in the future, from period-to-period, based on evolving customer demand for existing products, the pace of adoption of newer products, and macroeconomic conditions. Further, due to heightened volatility and uncertainty in customer demand resulting from the COVID-19 pandemic, as well as uncertainty in supply from the global semiconductor chip shortage, we may experience increased volatility in our sales and revenues.
34

Cost of Net Revenue and Gross Profit
Three Months Ended March 31,
20222021$ Change% Change
(dollars in thousands) 
Cost of net revenue$109,337 $97,640 $11,697 12 %
% of net revenue41 %47 %
Gross profit 154,590 111,719 42,871 38 %
% of net revenue59 %53 %

Cost of net revenue increased $11.7 million to $109.3 million for the three months ended March 31, 2022, as compared to $97.6 million for the three months ended March 31, 2021. The increase was primarily driven by higher sales and incremental expenses. Gross profit percentage improved for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, due primarily to improved absorption of amortization of intangible assets.

We currently expect that gross profit percentage will fluctuate in the future, from period-to-period, based on changes in product mix, average selling prices, and average manufacturing costs. Further, due to heightened volatility and uncertainty in customer demand resulting from the COVID-19 pandemic and global semiconductor supply shortages, we may experience increased volatility in our cost of net revenues as a result.
Research and Development