MaxLinear, Inc. Announces First Quarter 2019 Financial Results

CARLSBAD, Calif.–(BUSINESS WIRE)–MaxLinear, Inc. (NYSE: MXL), a leading provider of RF, analog and
mixed-signal integrated circuits for the connected home, and industrial
and multi-market applications, today announced financial results for the
first quarter ended March 31, 2019.

First Quarter Financial Highlights

GAAP basis:

  • Net revenue was $84.6 million, down 3% sequentially, and down 24%
    year-on-year.
  • GAAP gross margin was 53.3%, compared to 52.4% in the prior quarter,
    and 56.5% in the year-ago quarter.
  • GAAP operating expenses were $52.9 million in the first quarter 2019,
    or 63% of net revenue, compared to $56.6 million in the prior quarter,
    or 65% of net revenue, and $58.2 million in the year-ago quarter, or
    53% of net revenue.
  • GAAP loss from operations was 9% of revenue, compared to loss from
    operations of 12% in the prior quarter, and income from operations of
    4% in the year-ago quarter.
  • Net cash flow provided by operating activities was $16.0 million,
    compared to cash flow provided by operations of $24.2 million in the
    prior quarter and cash flow provided by operating activities of $12.0
    million in the year-ago quarter.
  • GAAP income tax benefit was $6.5 million, compared to an income tax
    benefit of $14.0 million in the prior quarter, and income tax benefit
    of $1.9 million in the year-ago quarter.
  • GAAP net loss was $4.9 million, compared to net income of $0.3 million
    in the prior quarter, and net income of $1.8 million in the year-ago
    quarter.
  • GAAP diluted loss per share was $0.07, compared to diluted earnings
    per share of $0.00 in the prior quarter, and diluted earnings per
    share of $0.03 in the year-ago quarter.

Non-GAAP basis:

  • Non-GAAP gross margin was 63.5%. This compares to 62.7% in the prior
    quarter, and 64.9% in the year-ago quarter.
  • Non-GAAP operating expenses were $35.7 million, or 42% of revenue,
    compared to $36.7 million or 42% of revenue in the prior quarter, and
    $39.3 million or 35% of revenue in the year-ago quarter.
  • Non-GAAP income from operations was 21% of revenue, compared to 21% in
    the prior quarter, and 29% in the year-ago quarter.
  • Non-GAAP effective tax rate was 7% of non-GAAP pre-tax income,
    compared to 7% in the prior quarter, and 7% in the year-ago quarter.
  • Non-GAAP net income was $13.5 million, compared to $14.2 million in
    the prior quarter, and $26.2 million in the year-ago quarter.
  • Non-GAAP diluted earnings per share was $0.19, compared to diluted
    earnings per share of $0.20 in the prior quarter, and diluted earnings
    per share of $0.37 in the year-ago quarter.

Recent Business Highlights

  • Announced next-generation MxL1500 and MxL 1600 products, the
    industry’s first single-chip Quad RF transceiver solutions with 2G to
    5G support for Radio Access Networks (RAN).
  • Announced showcase of latest Wireless Access RF solutions aimed at
    enabling next generation 5G networks at the GSMA Mobile World Congress
    exhibition in Barcelona, Spain.
  • Announced with SWR Technology a new system solution to enable delivery
    of 1Gbps symmetrical data rate and up to 35W wireless power through
    triple-silver-coated low-emissivity (low-e) glass windows up to 35mm
    thick using MaxLinear’s MxL210x AirPHY transceiver.
  • Announced show case of optical interoperability of Telluride PAM4 DSP
    using 400Gbps QSFP-DD modules from early access customers at the
    Optical Fiber Communication Conference.
  • Telluride PAM4 DSP SoC demonstrated by Molex in new transceiver
    modules for data center interconnects.
  • Announced that Delta has selected Telluride PAM4 DSP to develop 400G
    optical module for hyperscale data centers.
  • Announced show case of latest power management products, including
    MXL7213 dual 13A or single 26A power module, a complete switch mode
    DC/DC power supply which includes a wide 4.5V to 18V input range and
    enhanced efficiency and thermal performance, at Applied Power
    Electronics Conference in Anaheim.
  • Introduced XR78021, its first Smart Power Stage (SPS) product with
    current and temperature monitoring that supports up to 20A output in a
    compact 4mm x 5mm QFN package.

Management Commentary

“In the first quarter, we continued to execute on our core 5G wireless,
optical fiber datacenter interconnect, and power management initiatives
that comprise our growing Infrastructure revenues and target addressable
market. We established further design-win traction in the hyperscale
datacenter end-market with our 400 gigabit PAM4 DSP SoC with integrated
laser drivers and companion quad-TIA system solution. We also achieved
significant engineering milestones in customer engagements for our
industry-leading 5G wireless 14nm CMOS 4×4 Quad RF transceiver
system-on-chip solution. This brings us closer to realizing production
revenues in the large and transforming high speed optical data center
interconnect and 5G wireless access infrastructure markets. At the same
time, we are effectively navigating interim weakness in our connected
home market owing to technology transition challenges of our end
customers, general demand softness, and the impact of U.S. government
import tariffs on our customer manufacturing supply chains,” commented
Kishore Seendripu, Ph.D., Chairman and CEO.

“In the quarter, solid revenue results in line with our guidance, gross
margin improvement, and lower operating expenses due to disciplined
execution, have yielded strong operating cash flows of approximately
$16.0 million. As a result, we pre-paid an additional $15.0 million
towards our outstanding term-loan debt during the first quarter of 2019,
which further reduces our leverage ratio. In the second half of the year
and longer term, we are excited about the operating leverage in our
business that will be enabled by improvements in our cost structure and
continued execution on our infrastructure growth initiatives,” continued
Dr. Seendripu.

Second Quarter 2019 Business Outlook

The company expects revenue in the second quarter 2019 to be
approximately $83 million to $88 million, and also estimates the
following:

  • GAAP gross margin of approximately 53.0% to 54.0%;
  • Non-GAAP gross margin of approximately 63.5% to 64.5%;
  • GAAP operating expenses of approximately $49.0 million to $49.5
    million; and
  • Non-GAAP operating expenses of approximately $33.0 million to $33.5
    million.

Webcast and Conference Call

MaxLinear will host its first quarter financial results conference call
today, May 1, 2019 at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time).
To access this call, dial US toll free: 1-877-407-3109 / International:
1-201-493-6798. A live webcast of the conference call will be accessible
from the investor relations section of the MaxLinear website at http://investors.maxlinear.com,
and will be archived and available after the call at http://investors.maxlinear.com
until May 14, 2019. A replay of the conference call will also be
available until May 14, 2019 by dialing US toll free: 1-877-660-6853 /
International: 1-201-612-7415 and Conference ID#: 13689640.

Cautionary Note Concerning Forward-Looking Statements

This press release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements include, among others, statements concerning
our future financial performance (including our current guidance for
second quarter 2019 revenue, gross margins, and operating expense and
statements concerning expectations of potential developments in our
target markets, including management’s views with respect to trends in
our DOCSIS, Connected Home and Infrastructure markets. These
forward-looking statements involve known and unknown risks,
uncertainties, and other factors that may cause actual results to be
materially different from any future results expressed or implied by the
forward-looking statements. Forward-looking statements are based on
management’s current, preliminary expectations and are subject to
various risks and uncertainties. Risks and uncertainties affecting our
business and future operating results include, without limitation,
intense competition in our industry; our dependence on a limited number
of customers for a substantial portion of our revenues; uncertainties
concerning how end user markets for our products will develop, including
in particular new markets we are entering but also existing markets such
as cable; potential uncertainties arising from continued consolidation
among cable television and satellite operators in our target markets and
continued consolidation among competitors within the semiconductor
industry generally; our ability to develop and introduce new and
enhanced products on a timely basis and achieve market acceptance of
those products, particularly as we seek to expand outside of our
historic markets; potential decreases in average selling prices for our
products; risks relating to intellectual property protection and the
prevalence of intellectual property litigation in our industry; the
impact on our financial condition of the indebtedness arising from the
Exar transaction; our reliance on a limited number of third party
manufacturers; and our lack of long-term supply contracts and dependence
on limited sources of supply.

In addition to these risks and uncertainties, investors should review
the risks and uncertainties contained in our filings with the Securities
and Exchange Commission (SEC), including our most recent Annual Report
on Form 10-K for the year ended December 31, 2018 filed with the SEC on
February 5, 2019 and our Current Reports on Form 8-K, as well as the
information to be set forth under the caption “Risk Factors” in
MaxLinear’s Quarterly Report on Form 10-Q for the quarter ended March
31, 2019, which we expect to file shortly. All forward-looking
statements are based on the estimates, projections and assumptions of
management as of May 1, 2019, and MaxLinear is under no obligation (and
expressly disclaims any such obligation) to update or revise any
forward-looking statements whether as a result of new information,
future events, or otherwise.

Use of Non-GAAP Financial Measures

To supplement our unaudited consolidated financial statements presented
on a basis consistent with GAAP, we disclose certain non-GAAP financial
measures, including non-GAAP gross margin, operating expenses, operating
expenses as a percentage of revenue, income from operations as
percentage of revenue, effective tax rate, net income and diluted
earnings per share. These supplemental measures exclude the effects of
(i) stock-based compensation expense; (ii) accruals related to our
performance based bonus plan for 2019, which we currently intend to
settle in shares of our common stock; (iii) accruals related to our
performance based bonus plan for 2018 which we settled in shares of
common stock in 2019; (iv) amortization of purchased intangible assets;
(v) depreciation of fixed assets step-up; (vi) professional fees and
settlement costs related to our previously disclosed IP and commercial
litigation matters; (vii) severance and other restructuring charges; and
(viii) non-cash income tax benefits and expenses and effects of the 2017
Tax Cuts and Jobs Act, or Tax Act, as applicable. These non-GAAP
measures are not in accordance with and do not serve as an alternative
for GAAP. We believe that these non-GAAP measures have limitations in
that they do not reflect all of the amounts associated with our GAAP
results of operations. These non-GAAP measures should only be viewed in
conjunction with corresponding GAAP measures. We compensate for the
limitations of non-GAAP financial measures by relying upon GAAP results
to gain a complete picture of our performance.

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

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

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

Bonuses under our executive and non-executive bonus programs have been
excluded from our non-GAAP net income for all periods reported. Bonus
payments for the 2018 performance periods were settled through the
issuance of shares of common stock under our equity incentive plans in
February 2019. We currently expect that bonus awards under our fiscal
2019 program will be settled in common stock in the first quarter of
fiscal 2020. While we include the dilutive impact of equity awards in
weighted average shares outstanding, the expense associated with
stock-based awards reflects a non-cash charge that we exclude from
non-GAAP net income.

Expenses incurred in relation to acquisitions include amortization of
purchased intangible assets and depreciation of step-up of property and
equipment to fair value.

Restructuring charges incurred are related to our restructuring plans
which eliminate redundancies and primarily include severance and
restructuring costs related to exiting certain facilities.

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

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

Reconciliations of non-GAAP measures for the historic periods disclosed
in this press release appear below. Because of the inherent uncertainty
associated with our ability to project future charges, particularly
related to stock-based compensation and its related tax effects as well
as potential impairments, we have not provided a reconciliation for
non-GAAP guidance provided for the second quarter 2019.

About MaxLinear, Inc.

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

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

 
MAXLINEAR, INC.
UNAUDITED GAAP CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 
  Three Months Ended
March 31,   December 31,   March 31,
2019 2018 2018
Net revenue $ 84,635 $ 87,627 $ 110,827
Cost of net revenue 39,558   41,727   48,159  
Gross profit 45,077 45,900 62,668
Operating expenses:
Research and development 27,399 29,667 31,121
Selling, general and administrative 23,591 25,208 27,117
Restructuring charges 1,917   1,737    
Total operating expenses 52,907   56,612   58,238  
Income (loss) from operations (7,830 ) (10,712 ) 4,430
Interest income 147 24 18
Interest expense (2,975 ) (3,194 ) (3,894 )
Other income (expense), net (655 ) 229   (571 )
Total interest and other expense, net (3,483 ) (2,941 ) (4,447 )
Loss before income taxes (11,313 ) (13,653 ) (17 )
Income tax benefit (6,462 ) (13,964 ) (1,864 )
Net income (loss) $ (4,851 ) $ 311   $ 1,847  
Net income (loss) per share:
Basic $ (0.07 ) $   $ 0.03  
Diluted $ (0.07 ) $   $ 0.03  
Shares used to compute net income (loss) per share:
Basic 69,968   69,186   67,674  
Diluted 69,968   71,267   70,440  
 
 
MAXLINEAR, INC.
UNAUDITED GAAP CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
  Three Months Ended
March 31,   December 31,   March 31,
2019 2018 2018
Operating Activities
Net income (loss) $ (4,851 ) $ 311 $ 1,847
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Amortization and depreciation 16,863 19,125 20,084
Amortization of debt issuance costs and accretion of discount on
debt and leases
402 287 287
Stock-based compensation 7,747 7,999 8,473
Deferred income taxes (6,476 ) (8,827 ) (2,332 )
Loss on disposal of property and equipment 35 430
Impairment of leasehold improvements 1,442 35
Impairment of long-lived assets 2,182
Gain on extinguishment of lease liabilities (2,880 )
(Gain) loss on foreign currency 567 (268 ) 471
Excess tax benefits on stock-based awards (1,737 ) (820 ) (797 )
Changes in operating assets and liabilities:
Accounts receivable (142 ) (867 ) (24,533 )
Inventory (1,015 ) 19 7,676
Prepaid expenses and other assets 604 1,905 1,003
Leased right-of-use assets 645
Accounts payable, accrued expenses and other current liabilities 1,921 648 (421 )
Accrued compensation 893 2,387 2,502
Deferred revenue and deferred profit (138 )
Accrued price protection liability 2,489 2,036 (1,359 )
Lease liabilities (2,125 )
Other long-term liabilities (519 ) (227 ) (792 )
Net cash provided by operating activities 16,045 24,173 11,971
Investing Activities
Purchases of property and equipment (2,155 ) (1,412 ) (2,381 )
Net cash used in investing activities (2,155 ) (1,412 ) (2,381 )
Financing Activities
Repayment of debt (15,000 ) (15,000 ) (25,000 )
Net proceeds from issuance of common stock 2,628 2,732 980
Minimum tax withholding paid on behalf of employees for restricted
stock units
(4,419 ) (2,606 ) (2,391 )
Net cash used in financing activities (16,791 ) (14,874 ) (26,411 )
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
577   (1,939 ) (258 )
Increase (decrease) in cash, cash equivalents and restricted cash (2,324 ) 5,948 (17,079 )
Cash, cash equivalents and restricted cash at beginning of period 74,191   68,243   74,412  
Cash, cash equivalents and restricted cash at end of period $ 71,867   $ 74,191   $ 57,333  
 
 
MAXLINEAR, INC.
UNAUDITED GAAP CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
  March 31,   December 31,   March 31,
2019

2018 (1)

2018 (1)

Assets
Current assets:
Cash and cash equivalents $ 71,102 $ 73,142 $ 55,645
Short-term restricted cash 347 645 617
Accounts receivable, net 59,639 59,491 90,632
Inventory 42,753 41,738 45,758
Prepaid expenses and other current assets 5,479   5,595   8,413  
Total current assets 179,320 180,611 201,065
Long-term restricted cash 418 404 1,071
Property and equipment, net 16,987 18,404 21,993
Leased right-of-use assets 21,543
Intangible assets, net 230,634 244,900 298,031
Goodwill 238,330 238,330 237,810
Deferred tax assets 58,067 51,518 41,426
Other long-term assets 3,583   4,664   7,318  
Total assets $ 748,882   $ 738,831   $ 808,714  
 
Liabilities and stockholders’ equity
Current liabilities $ 73,483 $ 70,567 $ 67,061
Long-term lease liabilities 18,132 4,097 4,718
Long-term debt 241,044 255,757 322,896
Other long-term liabilities 8,019 8,474 7,591
Stockholders’ equity 408,204   399,936   406,448  
Total liabilities and stockholders’ equity $ 748,882   $ 738,831   $ 808,714  

_____________

(1) Long-term lease liabilities have been reclassified from other
long-term liabilities to conform to current period presentation.

 
MAXLINEAR, INC.
UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTMENTS
(in thousands, except per share data)
 
  Three Months Ended
March 31,   December 31,   March 31,
2019 2018 2018
GAAP gross profit $ 45,077 $ 45,900 $ 62,668
Stock-based compensation 130 132 106
Performance based equity 73 56 78
Amortization of purchased intangible assets 8,424 8,875 8,969
Depreciation of fixed asset step-up     112  
Non-GAAP gross profit 53,704 54,963 71,933
 
GAAP R&D expenses 27,399 29,667 31,121
Stock-based compensation (4,213 ) (4,399 ) (4,374 )
Performance based equity (925 ) (1,254 ) (1,140 )
Depreciation of fixed asset step-up (6 ) (76 ) (329 )
Non-GAAP R&D expenses 22,255 23,938 25,278
 
GAAP SG&A expenses 23,591 25,208 27,117
Stock-based compensation (3,404 ) (3,481 ) (3,993 )
Performance based equity (939 ) (948 ) (1,049 )
Amortization of purchased intangible assets (5,798 ) (7,994 ) (7,994 )
Depreciation of fixed asset step-up (2 ) (10 )
IP litigation costs, net   (3 ) (42 )
Non-GAAP SG&A expenses 13,450 12,780 14,029
 
GAAP restructuring expenses 1,917 1,737
Restructuring charges (1,917 ) (1,737 )  
Non-GAAP restructuring expenses
 
GAAP income (loss) from operations (7,830 ) (10,712 ) 4,430
Total non-GAAP adjustments 25,829   28,957   28,196  
Non-GAAP income from operations 17,999 18,245 32,626
 
GAAP and non-GAAP interest and other income (expense), net (3,483 ) (2,941 ) (4,447 )
 
GAAP loss before income taxes (11,313 ) (13,653 ) (17 )
Total non-GAAP adjustments 25,829   28,957   28,196  
Non-GAAP income before income taxes 14,516 15,304 28,179
 
GAAP income tax benefit (6,462 ) (13,964 ) (1,864 )
Adjustment for non-cash tax benefits/expenses and effects of the Tax
Act
7,478   15,035   3,837  
Non-GAAP income tax provision 1,016 1,071 1,973
 
GAAP net income (loss) (4,851 ) 311 1,847
Total non-GAAP adjustments before income taxes 25,829 28,957 28,196
Less: total tax adjustments 7,478   15,035   3,837  
Non-GAAP net income $ 13,500   $ 14,233   $ 26,206  
 
Shares used in computing non-GAAP basic net income per share 69,968   69,186   67,674  
Shares used in computing non-GAAP diluted net income per share 71,900   71,267   70,440  
Non-GAAP basic net income per share $ 0.19   $ 0.21   $ 0.39  
Non-GAAP diluted net income per share $ 0.19   $ 0.20   $ 0.37  
 
 
MAXLINEAR, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
 
  Three Months Ended
March 31,   December 31,   March 31,
2019 2018 2018
GAAP gross profit 53.3 % 52.4 % 56.5 %
Stock-based compensation 0.2 % 0.2 % 0.1 %
Performance based equity 0.1 % 0.1 % 0.1 %
Amortization of purchased intangible assets 10.0 % 10.1 % 8.1 %
Depreciation of fixed asset step-up % % 0.1 %
Non-GAAP gross profit 63.5 % 62.7 % 64.9 %
 
GAAP R&D expenses 32.4 % 33.9 % 28.1 %
Stock-based compensation (5.0 )% (5.0 )% (3.9 )%
Performance based equity (1.1 )% (1.4 )% (1.0 )%
Depreciation of fixed asset step-up % (0.1 )% (0.4 )%
Non-GAAP R&D expenses 26.3 % 27.3 % 22.8 %
 
GAAP SG&A expenses 27.9 % 28.8 % 24.5 %
Stock-based compensation (4.0 )% (4.0 )% (3.6 )%
Performance based equity (1.1 )% (1.1 )% (0.9 )%
Amortization of purchased intangible assets (6.9 )% (9.1 )% (7.2 )%
Depreciation of fixed asset step-up % % (0.1 )%
IP litigation costs, net % % %
Non-GAAP SG&A expenses 15.9 % 14.6 % 12.7 %
 
GAAP restructuring expenses 2.3 % 2.0 % %
Restructuring charges (2.3 )% (2.0 )% %
Non-GAAP restructuring expenses % % %
 
GAAP income (loss) from operations (9.3 )% (12.2 )% 4.0 %
Total non-GAAP adjustments 30.5 % 33.0 % 25.4 %
Non-GAAP income from operations 21.3 % 20.8 % 29.4 %
 
GAAP and non-GAAP interest and other income (expense), net (4.1 )% (3.4 )% (4.0 )%
 
GAAP loss before income taxes (13.4 )% (15.6 )% %
Total non-GAAP adjustments before income taxes 30.5 % 33.0 % 25.4 %
Non-GAAP income before income taxes 17.2 % 17.5 % 25.4 %
 
GAAP income tax benefit (7.6 )% (15.9 )% (1.7 )%
Adjustment for non-cash tax benefits/expenses and the effects of the
Tax Act
8.8 % 17.2 % 3.5 %
Non-GAAP income tax provision 1.2 % 1.2 % 1.8 %
 
GAAP net income (loss) (5.7 )% 0.4 % 1.7 %
Total non-GAAP adjustments before income taxes 30.5 % 33.0 % 25.4 %
Less: total tax adjustments 8.8 % 17.2 % 3.5 %
Non-GAAP net income 16.0 % 16.2 % 23.6 %
 

Contacts

MaxLinear, Inc. Investor Relations Contact:
Steven Litchfield
Tel:
949-333-0080
slitchfield@maxlinear.com

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