Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2018
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)
 
Delaware
 
14-1896129
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
5966 La Place Court, Suite 100
Carlsbad, California
 
92008
(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)
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  þ    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  þ    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 filer
 
þ 
 
Accelerated filer
 
¨ 
Non-accelerated filer
 
¨ 
 
Smaller reporting company
 
¨ 
 
 
 
 
Emerging growth 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  þ
As of October 24, 2018, the registrant had 68,964,765 shares of common stock, par value $0.0001, outstanding.


Table of Contents

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

Table of Contents

PART I — FINANCIAL INFORMATION


3

Table of Contents

ITEM 1.
FINANCIAL STATEMENTS

MAXLINEAR, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited; in thousands, except par value amounts)
 
September 30,
2018
 
December 31,
2017
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
67,185

 
$
71,872

Short-term restricted cash
349

 
1,476

Accounts receivable, net
58,633

 
66,099

Inventory
41,757

 
53,434

Prepaid expenses and other current assets
6,329

 
8,423

Total current assets
174,253

 
201,304

Long-term restricted cash
709

 
1,064

Property and equipment, net
19,413

 
22,658

Intangible assets, net
261,813

 
315,045

Goodwill
238,330

 
237,992

Deferred tax assets
42,691

 
39,878

Other long-term assets
4,935

 
6,921

Total assets
$
742,144

 
$
824,862

Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
11,906

 
$
16,939

Deferred revenue and deferred profit

 
4,362

Accrued price protection liability
14,418

 
21,571

Accrued expenses and other current liabilities
27,480

 
20,306

Accrued compensation
12,660

 
13,208

Total current liabilities
66,464

 
76,386

Deferred rent
4,539

 
4,885

Long-term debt
270,470

 
347,609

Other long-term liabilities
8,277

 
8,558

Total liabilities
349,750

 
437,438

 
 
 
 
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, 68,913 shares issued and outstanding at September 30, 2018 and 550,000 shares authorized, 67,400 shares issued and outstanding December 31, 2017, respectively
7

 
7

Additional paid-in capital
485,149

 
455,497

Accumulated other comprehensive income
1,179

 
1,039

Accumulated deficit
(93,941
)
 
(69,119
)
Total stockholders’ equity
392,394

 
387,424

Total liabilities and stockholders’ equity
$
742,144

 
$
824,862

See accompanying notes.

4

Table of Contents

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

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Net revenue
$
85,010

 
$
113,581

 
$
297,370

 
$
306,597

Cost of net revenue
41,134

 
61,739

 
134,496

 
150,727

Gross profit
43,876

 
51,842

 
162,874

 
155,870

Operating expenses:
 
 
 
 
 
 
 
Research and development
29,047

 
29,270

 
90,379

 
82,163

Selling, general and administrative
24,963

 
29,037

 
76,581

 
78,988

Impairment losses
2,198

 
2,000

 
2,198

 
2,000

Restructuring charges
236

 
2,178

 
2,101

 
8,724

Total operating expenses
56,444

 
62,485

 
171,259

 
171,875

Loss from operations
(12,568
)
 
(10,643
)
 
(8,385
)
 
(16,005
)
Interest income
17

 
1

 
54

 
260

Interest expense
(3,473
)
 
(4,133
)
 
(11,061
)
 
(6,334
)
Other income (expense), net
39

 
(668
)
 
193

 
(1,430
)
Total interest and other income (expense), net
(3,417
)
 
(4,800
)
 
(10,814
)
 
(7,504
)
Loss before income taxes
(15,985
)
 
(15,443
)
 
(19,199
)
 
(23,509
)
Income tax provision (benefit)
(2,050
)
 
(6,276
)
 
7,311

 
(33,770
)
Net income (loss)
$
(13,935
)
 
$
(9,167
)
 
$
(26,510
)
 
$
10,261

Net income (loss) per share:
 
 
 
 
 
 
 
Basic
$
(0.20
)
 
$
(0.14
)
 
$
(0.39
)
 
$
0.16

Diluted
$
(0.20
)
 
$
(0.14
)
 
$
(0.39
)
 
$
0.15

Shares used to compute net income (loss) per share:
 
 
 
 
 
 
 
Basic
68,742

 
66,712

 
68,256

 
65,950

Diluted
68,742

 
66,712

 
68,256

 
69,491


See accompanying notes.

5

Table of Contents

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


 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Net income (loss)
$
(13,935
)
 
$
(9,167
)
 
$
(26,510
)
 
$
10,261

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Unrealized gain (loss) on investments, net of tax of $0 for the three and nine months ended September 30, 2018 and 2017

 

 

 
(55
)
Less: Reclassification adjustments of unrealized gain (loss), net of tax of $0 for the three and nine months ended September 30, 2018 and 2017

 

 

 
55

Unrealized gain on investments, net of tax

 

 

 

Foreign currency translation adjustments, net of tax benefit of $46 and $203 for the three and nine months ended September 30, 2018 and $13 and $68 for the three and nine months ended September 30, 2017, respectively
(437
)
 
463

 
(1,217
)
 
1,387

Unrealized gain (loss) on interest rate swap, net of tax benefit of $2 and tax expense of $361 for the three months and nine months ended September 30, 2018, respectively and $0 for the three and nine months ended September 30, 2017
(8
)
 

 
1,357

 

Other comprehensive income (loss)
(445
)
 
463

 
140

 
1,387

Total comprehensive income (loss)
$
(14,380
)
 
$
(8,704
)
 
$
(26,370
)
 
$
11,648




See accompanying notes.

6

Table of Contents

MAXLINEAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in thousands)
 
Nine Months Ended September 30,
2018
 
2017
Operating Activities
 
 
 
Net income (loss)
$
(26,510
)
 
$
10,261

Adjustments to reconcile net income (loss) to cash provided by operating activities:
 
 
 
Amortization and depreciation
59,902

 
46,502

Impairment losses
2,198

 
2,000

Provision for losses on accounts receivable

 
133

Accretion of investment discount

 
(60
)
Amortization of inventory step-up

 
15,842

Amortization of debt issuance costs and discount
861

 
476

Stock-based compensation
23,722

 
24,898

Deferred income taxes
(3,317
)
 
(48,417
)
Loss on disposal of property and equipment

 
201

Loss on sale of available-for-sale securities

 
38

(Gain) loss on foreign currency
(541
)
 
1,415

Excess tax benefits on stock-based awards
(1,208
)
 
(6,598
)
Impairment of leasehold improvements
700

 

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
7,462

 
(13,869
)
Inventory
11,677

 
(2,331
)
Prepaid expenses and other assets
3,928

 
1,696

Accounts payable, accrued expenses and other current liabilities
513

 
576

Accrued compensation
6,574

 
216

Deferred revenue and deferred profit
(138
)
 
11,233

Accrued price protection liability
(7,153
)
 
13,053

Other long-term liabilities
(154
)
 
(3,944
)
Net cash provided by operating activities
78,516

 
53,321

 
 
 
 
Investing Activities
 
 
 
Purchases of property and equipment
(6,413
)
 
(4,398
)
Purchases of intangible assets

 
(5,378
)
Cash used in acquisitions, net of cash acquired

 
(473,304
)
Purchases of available-for-sale securities

 
(30,577
)
Maturities of available-for-sale securities

 
84,546

Net cash used in investing activities
(6,413
)
 
(429,111
)
 
 
 
 
Financing Activities
 
 
 
Net proceeds from the issuance of debt

 
416,846

Repayment of debt
(78,000
)
 
(50,000
)
Repurchases of common stock

 
(334
)
Net proceeds from issuance of common stock
4,107

 
9,092

Minimum tax withholding paid on behalf of employees for restricted stock units
(5,017
)
 
(9,825
)
Net cash provided by (used in) financing activities
(78,910
)
 
365,779

Effect of exchange rate changes on cash and cash equivalents
638

 
1,211

Decrease in cash, cash equivalents and restricted cash
(6,169
)
 
(8,800
)
Cash, cash equivalents and restricted cash at beginning of period
74,412

 
82,896

Cash, cash equivalents and restricted cash at end of period
$
68,243

 
$
74,096

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Cash paid for interest
$
10,716

 
$
5,221

Cash paid for income taxes
$
4,493

 
$
8,918

 
 
 
 
Supplemental disclosures of non-cash activities:
 
 
 
Issuance of restricted stock units to Physpeed continuing employees
$

 
$
818

Issuance of accrued share-based bonus plan
$
6,997

 
$
3,314

See accompanying notes.

7

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


1. Organization and Summary of Significant Accounting Policies
Description of Business
MaxLinear, Inc. was incorporated in Delaware in September 2003. MaxLinear, Inc., together with its wholly owned subsidiaries, collectively referred to as MaxLinear, or the Company, is a provider of radio-frequency, or RF, high-performance analog, and mixed-signal communications system-on-chip solutions for the connected home, wired and wireless infrastructure, and industrial and multi-market applications. MaxLinear's customers include electronics distributors, module makers, original equipment manufacturers, or OEMs, and original design manufacturers, or ODMs, who incorporate the Company’s products in a wide range of electronic devices, including cable DOCSIS broadband modems and gateways, wireline connectivity devices for in-home networking applications, RF transceivers and modems for wireless carrier access and backhaul infrastructure, fiber-optic modules for data center, metro, and long-haul transport networks, video set-top boxes and gateways, hybrid analog and digital televisions, direct broadcast satellite outdoor and indoor units, and power management and interface products used in these and a range of other markets. The Company is a fabless integrated circuit design company whose products integrate all or a substantial portion of a broadband communication system.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited consolidated financial statements include the accounts of MaxLinear, Inc. and its wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. All intercompany transactions and investments have been eliminated in consolidation. In the opinion of management, the Company’s unaudited consolidated interim financial statements contain adjustments, including normal recurring accruals necessary to present fairly the Company’s consolidated financial position, results of operations, comprehensive income (loss) and cash flows.

The consolidated balance sheet as of December 31, 2017 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, 2017 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 20, 2018, or the Annual Report. Interim results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2018.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes to unaudited consolidated financial statements. Actual results could differ from those estimates.
Summary of Significant Accounting Policies
Refer to the Company’s Annual Report for a summary of significant accounting policies. On January 1, 2018, the Company adopted Financial Accounting Standards Board, or FASB, Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, or ASC 606, and accordingly, modified its policy on revenue recognition as stated below. The primary impact of adopting ASC 606 for the Company was to accelerate the timing of the Company’s revenue and related cost recognition on products sold via some of its distributors, which changed from recognition upon the sale to the distributors' end customers, or the sell-through method, to recognition upon the Company's sale to the distributor, or the sell-in method. The Company is now also required to estimate the effects of pricing credits to its distributors from contractual price protection and unit rebate provisions, as well as stock rotation rights and record such estimated credits upon the Company's sale to the distributor.
There have been no other material changes to our significant accounting policies during the nine months ended September 30, 2018.

8

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

Revenue Recognition

Substantially all of the Company's revenue is generated from sales of the Company’s integrated circuits to electronics distributors, module makers, OEMs, and ODMs under individual customer purchase orders, some of which have underlying master sales agreements that specify terms governing the product sales. Effective January 1, 2018, the Company adopted ASC 606 and recognizes revenue at the point in time when control of the products is transferred to the customer at the estimated net consideration for which collection is probable, taking into account the customer's rights to price protection, other pricing credits, unit rebates, and rights to return unsold product. Transfer of control occurs either when products are shipped to or received by the distributor or direct customer, based on the terms of the specific agreement with the customer, if the Company has a present right to payment and transfer of legal title and the risks and rewards of ownership to the customer has occurred. For most of the Company's product sales, transfer of control occurs upon shipment to the distributor or direct customer. In assessing whether collection of consideration from a customer is probable, the Company considers the customer's ability and intention to pay that amount of consideration when it is due. Payment of invoices is due as specified in the underlying customer agreement, typically 30 days from the invoice date, which occurs on the date of transfer of control of the products to the customer. Since payment terms are less than a year, the Company has elected the practical expedient and does not assess whether a customer contract has a significant financing component.
A five-step approach is applied in the recognition of revenue under ASC 606: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when the Company satisfies a performance obligation. The Company applied ASC 606 to its customer contracts that were not completed before the January 1, 2018 adoption date. Customer purchase orders plus the underlying master sales agreements are considered to be contracts with the customer for purposes of applying the five-step approach under ASC 606.
Pricing adjustments and estimates of returns under contractual stock rotation rights are treated as variable consideration for purposes of determining the transaction price, and are estimated at the time control transfers using the expected value method based on the Company's analysis of actual price adjustment claims by distributors and historical product return rates, and then reassessed at the end of each reporting period. The Company also considers whether any variable consideration is constrained, since such amounts for which it is probable that a significant reversal will occur when the contingency is subsequently resolved are required to be excluded from revenues. Price adjustments are finalized at the time the products are sold through to the end customer and the distributor or end customer submits a claim to reduce the sale price to a pre-approved net price. Stock rotation allowances are capped at a fixed percentage of the Company's sales to a distributor for a period of time, up to six months, as specified in the individual distributor contract. If the Company's current estimates of such credits and rights are materially inaccurate, it may result in adjustments that affect future revenues and gross profits. Returns under the Company's general assurance warranty of products for a period of one to three years have not been material and warranty-related services are not considered a separate performance obligation under the customer contracts. Most of the Company's customers resell our product as part of their product and thus are tax-exempt; however, to the extent the Company collects and remits taxes on product sales from customers, it has elected to exclude from the measurement of transaction price such taxes.
Each distinct promise to transfer products is considered to be an identified performance obligation for which revenue is recognized upon transfer of control of the products to the customer. Although customers may place orders for products to be delivered on multiple dates that may be in different quarterly reporting periods, all of the orders are scheduled within 1 year from the order date. The Company has opted to not disclose the portion of revenues allocated to partially unsatisfied performance obligations, which represent products to be shipped within 12 months under open customer purchase orders, at the end of the current reporting period as allowed under ASC 606. The Company has also elected to record sales commissions when incurred, pursuant to the practical expedient under ASC 340, as the period over which the sales commission asset that would have been recognized is less than one year.
Customer contract liabilities consist of obligations to deliver rebates to customers in the form of units of products which are included in accrued expenses and other current liabilities in the consolidated balance sheets. Other obligations to customers consist of estimates of price protection rights offered to the Company's end customers, which are included in accrued price protection liability in the consolidated balance sheets, as well as price adjustments expected to be claimed by the distributor upon sell-through of the products to their customers, and amounts expected to be returned by distributors under stock rotation rights, which are included in accrued expenses and other current liabilities in the consolidated balance sheets. The Company also records a right of return asset, consisting of amounts representing the products the Company expects to receive from customers in returns, which is included in inventory in the consolidated balance sheets, and is typically settled within six months of transfer of control to the customer, or the period over which stock rotation rights are based. Upon lapse of the time

9

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

period for stock rotations, or the contractual end to price protection and rebate programs, which is approximately one to two years, and when the Company believes unclaimed amounts are no longer subject to payment and will not be paid, any remaining asset or liability is derecognized by an offsetting entry to cost of net revenue and net revenue. For additional disclosures regarding contract liabilities and other obligations to customers, see Note 12.
The Company assesses customer accounts receivable and contract assets for impairment in accordance with ASC 310-10-35.
The following tables present the amounts by which each financial statement line item was affected as a result of applying ASC 606:
 
 
Three Months Ended September 30, 2018
 
Nine Months Ended September 30, 2018
 
 
Amounts under Legacy GAAP
 
Impact of Adoption
 
As reported
 
Amounts under Legacy GAAP
 
Impact of Adoption
 
As reported
 
 
(in thousands, except per share amounts)
Consolidated statements of operations:
 
 
 
 
 
 
 
 
 
 
 
 
Net revenue
 
$
85,106

 
$
(96
)
 
$
85,010

 
$
286,475

 
$
10,895

 
$
297,370

Cost of net revenue
 
41,182

 
(48
)
 
41,134

 
130,782

 
3,714

 
134,496

Gross profit
 
43,924

 
(48
)
 
43,876

 
155,693

 
7,181

 
162,874

Loss from operations
 
(12,520
)
 
(48
)
 
(12,568
)
 
(15,566
)
 
7,181

 
(8,385
)
Loss before income taxes
 
(15,937
)
 
(48
)
 
(15,985
)
 
(26,380
)
 
7,181

 
(19,199
)
Income tax provision (benefit)
 
(2,040
)
 
(10
)
 
(2,050
)
 
5,803

 
1,508

 
7,311

Net loss
 
(13,897
)
 
(38
)
 
(13,935
)
 
(32,183
)
 
5,673

 
(26,510
)
Basic loss per share
 
(0.20
)
 

 
(0.20
)
 
(0.47
)
 
0.08

 
(0.39
)
Diluted loss per share
 
(0.20
)
 

 
(0.20
)
 
(0.47
)
 
0.08

 
(0.39
)
 
 
September 30, 2018
 
 
Amounts under Legacy GAAP
 
Impact of Adoption
 
As reported
 
 
(in thousands)
Consolidated balance sheet:
 
 
 
 
 
 
Accounts receivable
 
$
58,633

 
$

 
$
58,633

Inventory
 
41,561

 
196

 
41,757

Total current assets
 
174,057

 
196

 
174,253

Total assets
 
741,948

 
196

 
742,144

Deferred revenue and deferred profit
 
15,240

 
(15,240
)
 

Accrued expenses and other current liabilities
 
19,351

 
8,129

 
27,480

Total current liabilities
 
73,575

 
(7,111
)
 
66,464

Total liabilities
 
356,861

 
(7,111
)
 
349,750

Accumulated deficit
 
(101,248
)
 
7,307

 
(93,941
)
Total stockholders' equity
 
385,087

 
7,307

 
392,394

Total liabilities and stockholders' equity

741,948

 
196

 
742,144

The impacts of adopting ASC 606 as shown above were primarily related to the acceleration of the timing of the Company’s revenue and related cost recognition on products sold via some of its distributors, which changed from sale to the distributors' end customers, or the sell-through method, to recognition upon the Company's sale to the distributor, or the sell-in method.
Revenues from sales through the Company’s distributors accounted for 46% and 41% of net revenue for the three months ended September 30, 2018 and 2017, respectively. Revenues from sales through the Company’s distributors accounted for 41% and 31% of net revenue for the nine months ended September 30, 2018 and 2017, respectively.

10

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

Recently Adopted Accounting Pronouncements

In May 2014, the FASB, issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which provides for new accounting guidance related to revenue recognition. This new standard replaced all prior U.S. GAAP guidance on this topic and eliminated all industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. This guidance became effective for the Company on January 1, 2018 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company applied the guidance prospectively with an adjustment to accumulated deficit for the cumulative effect of adoption. Adoption of the amendments in this guidance accelerated the timing of the Company’s revenue and related cost recognition on products sold via some distributors, which changed from the sell-through method to the sell-in method under this guidance. The Company is also required to estimate the effects of pricing credits to its distributors from contractual price protection and unit rebate provisions, as well as stock rotation rights. The Company has performed an assessment of the impact of adopting this new accounting standard on its consolidated financial position and results of operations. The impact of adoption of this new accounting standard for the year ending December 31, 2018 will vary depending on the level of inventory remaining at December 31, 2018 at distributors for which the Company previously recognized revenue on a sell-through basis, and therefore could have a material impact on the Company's revenues for the year ending December 31, 2018. The impact to accumulated deficit as of January 1, 2018 was not material. As a result of applying the guidance prospectively with an adjustment to accumulated deficit in the Company's consolidated financial statements for the cumulative effect of adoption, revenues that would have been recognized on a sell-through basis for the amount of deferred revenue and profit remaining as of the adoption date will not be recognized in earnings for any period.

In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this update include, among other things, a requirement to (1) measure equity investments (except equity method investments) at fair value with changes in fair value recognized in net income, with an option to measure equity investments that do not have readily determinable fair values at cost minus any impairment plus or minus any changes resulting from observable price changes; previously changes in fair value were recognized in other comprehensive income, and (2) separately present financial assets and liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statement. The amendments in this update were effective for the Company beginning in the first quarter of fiscal year 2018. The adoption of the amendments in this update did not have a material impact on the Company's consolidated financial position and results of operations for the three and nine months ended September 30, 2018.

In March 2016, the FASB issued ASU No. 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net) to clarify the revenue recognition implementation guidance on principal versus agent considerations. The amendments in this update clarify that when another party is involved in providing goods or services to a customer, an entity that is the principal has obtained control of a good or service before it is transferred to a customer, and provides indicators to assist an entity in determining whether it controls a specified good or service prior to the transfer to the customer. An entity that is the principal recognizes revenue in the gross amount of consideration to which it expects to be entitled in exchange for the specified good or service transferred to the customer, whereas an agent recognizes revenue in the amount of any fee or commission to which it expects to be entitled in exchange for arranging for the specified good or service to be provided by the other party. The amendments in this update were effective for the Company beginning in the first quarter of fiscal year 2018, concurrent with and applied on the same basis as the new revenue recognition standard. The adoption of the amendments in this update did not have a material impact on the Company's consolidated financial position and results of operations for the three and nine months ended September 30, 2018.

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments to eliminate the diversity in practice regarding the presentation and classification of certain cash receipts and cash payments, including, among other things, contingent consideration payments made following a business combination, proceeds from the settlement of insurance claims in the statement of cash flows, and debt prepayment or debt extinguishment costs. Cash payments not made soon after the acquisition date up to the amount of the contingent consideration liability recognized at the acquisition date should be classified as financing activities and any excess payments should be classified as operating activities, whereas cash payments made soon after the acquisition date to settle the contingent consideration should be classified as investing activities and cash payments for debt prepayment or debt extinguishment costs should be classified as financing activities. Cash proceeds received from settlement of insurance claims should be classified on the basis of the nature of the related losses. The amendments in this update should be applied using a retrospective transition method to each period

11

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

presented, unless impracticable, and if impracticable, would be applied prospectively as of the earliest date practicable. The amendments in this update were effective for the Company beginning in the first quarter of fiscal year 2018. The adoption of the amendments in this update did not have a material impact on the Company's consolidated statements of cash flows for the three and nine months ended September 30, 2018.

In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in this update require the Company to account for the effects of a modification in a stock-based award unless the fair value, vesting conditions and classification of the modified award is the same as those of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification. The amendments in this update were effective for the Company for fiscal years beginning with fiscal year 2018, including interim periods within those years, with early adoption permitted in any interim period. The amendments in this update are applied prospectively to an award modified on or after the adoption date. Since the Company has not had any modifications to stock-based awards that do not affect the inputs into the Black Scholes fair value calculation, the adoption of this guidance did not have a material impact on the Company's consolidated financial position and results of operations for the three and nine months ended September 30, 2018.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act, or the Tax Act. The Tax Act makes broad and complex changes to the U.S. tax code. On December 22, 2017, the U.S. Securities and Exchange Commission Staff, or SEC Staff, issued guidance in Staff Accounting Bulletin No. 118, or SAB 118, to address certain fact patterns where the accounting for changes in tax laws or tax rates under ASC Topic 740 is incomplete upon issuance of an entity's financial statements for the reporting period in which the Tax Act is enacted. As permitted in SAB 118, in 2017, the Company took a measurement period approach and reported certain provisional amounts, based on reasonable estimates, for certain tax effects in which the accounting under ASC 740 is incomplete. Such provisional amounts are subject to adjustment during a limited measurement period, not to extend one year beyond the tax law enactment date, until the accounting under ASC 740 is complete. The Company also made required supplemental disclosures in the notes to the 2017 consolidated financial statements to accompany the provisional amounts, including the reasons for the incomplete accounting, the additional information or analysis that is needed, and other information relevant to why the Company was not able to complete the accounting required under ASC 740 in a timely manner. For adjustments to previously reported provisional amounts made in the three and nine months ended September 30, 2018, refer to Note 10. Additional adjustments to such reported provisional amounts could result in a material adverse impact to the Company's consolidated financial position and results of operations in 2018.

In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. The amendments in this update are effective for the Company beginning in fiscal 2019, including interim periods. Early adoption is permitted. The amendments should be applied either in the period of adoption or retrospectively to each period or periods in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized. The Company elected to early adopt this guidance in the three months ended March 31, 2018. The adoption of this guidance did not have a material impact on the Company's consolidated financial position and results of operations for the three and nine months ended September 30, 2018.

In March 2018, the FASB issued ASU No. 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. The amendments in this update amend the SEC paragraphs included in Topic 740 to be consistent with the guidance in SAB 118, which the Company adopted in the three months ended December 31, 2017, as described above.

In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, to expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. As a result, the accounting for share-based payment awards to nonemployees and employees will be substantially aligned by eliminating the need to measure nonemployee share-based awards at fair value on the earlier of performance commitment date or date performance is complete. Both employee and nonemployee share-based awards are now measured at grant-date fair value. The amendments in this update are effective for the Company beginning with fiscal year 2019, including interim periods, with early adoption permitted, but no earlier than the

12

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

Company's adoption of Topic 606. The Company elected to early adopt the amendments in this update as of July 1, 2018, with the cumulative effect of the change recorded against accumulated deficit as of July 1, 2018. As the Company's nonemployee share-based awards are not significant, such adoption did not have a material impact on the Company's consolidated accumulated deficit as of July 1, 2018.
Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments in this update require a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term for all leases with terms greater than twelve months. For leases less than twelve months, an entity is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. The Company intends to make this election. Also, in July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, to provide an additional transition method. An entity can now elect not to present comparative financial information under Topic 842 if it recognizes a cumulative-effect adjustment to retained earnings upon adoption. The Company also intends to make this election. The amendments in these update are effective for the Company for fiscal years beginning with fiscal year 2019, including interim periods within those years, with early adoption permitted. The Company has performed a preliminary assessment of the impact of the adoption of the amendments in these updates on the Company's consolidated financial position and results of operations for the Company's leases, which primarily consist of facility leases. Based on that assessment, the Company has determined that the right-of-use asset and lease liability, which is measured at the present value of future lease payments, are expected to have a material impact on the Company's consolidated financial position. In addition, through the adoption date, the Company will complete its inventory of its leases and finalize its assessment of the impact of the adoption of Topic 842.
 
In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. An entity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if the reporting unit had been acquired in a business combination. Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The Board also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. The amendments in this update are effective for the Company beginning with fiscal year 2020, including interim periods, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of the amendments in this update is not expected to have a material impact on the Company's consolidated financial position and results of operations.

In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements, to clarify the Codification and prevent unintended application of the guidance. An amendment to ASC 718-740, Compensation—Stock Compensation—Income Taxes, clarifies that excess tax benefits should be recognized in the period in which the amount of the deduction is determined. The transition and effective date guidance is based on the facts and circumstances of each amendment. The amendment identified above will be effective for the Company beginning with fiscal year 2019. The adoption of the amendments in this update is not expected to have a material impact on the Company's consolidated financial position and results of operations.

In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, to clarify on how to apply certain aspects of the new lease accounting standard. The amendments in this update, among other things, better articulates the requirement for a lessee's reassessment of lease classification as of the effective date of a modification, clarifies that a change to an index or rate for variable lease payments does not constitute a resolution of a contingency that would result in the remeasurement of lease payments, and requires entities that apply Topic 842 retrospectively to each reporting period and do not adopt the practical expedients to write off any prior unamortized initial direct costs that do not meet the definition under Topic 842 to equity. The amendments in this update have the same effective date and transition requirements as the new lease standard summarized above. The Company is currently in the process of evaluating the impact of adoption of Topic 842 on the Company’s consolidated financial position and results of operations as stated above.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework— Changes to the Disclosure Requirements for Fair Value Measurement, to improve the fair value measurement reporting of financial instruments. The amendments in this update require, among other things, added disclosure of the range and weighted

13

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

average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this update eliminate, among other things, disclosure of the reasons for and amounts of transfers between Level 1 and Level 2 for assets and liabilities that are measured at fair value on a recurring basis and an entity's valuation processes for Level 3 fair value measurements. The amendments in this update will be effective for the Company beginning with fiscal year 2020, with early adoption permitted. Retrospective application is required for all amendments in this update except the added disclosures, which should be applied prospectively. The adoption of the amendments in this update is not expected to have a material impact on the Company's consolidated financial position and results of operations.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles- Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, to provide additional guidance on the accounting for costs of implementing cloud computing arrangements that are service contracts. The amendments in this update require the capitalization of implementation costs during the application development stage of such hosting arrangements and amortization of the expense over the term of the arrangement including any option to extend reasonably certain to be exercised or option to terminate reasonably certain not to be exercised. Capitalized implementation costs and amortization thereof are also required to be classified in the same line item in the statements of financial position, operations and cash flows associated with the hosting service fees. The amendments in this update will be effective for the Company beginning with fiscal year 2020, with early adoption permitted. Entities may select retrospective or prospective application to all implementation costs incurred after the adoption date. The adoption of the amendments in this update is not expected to have a material impact on the Company's consolidated financial position and results of operations.
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 by the weighted-average number of common shares outstanding for the period and the weighted-average number of dilutive common stock equivalents outstanding for the period determined using the treasury-stock method. For purposes of this calculation, common stock options, restricted stock units and restricted stock awards are considered to be common stock equivalents and are only included in the calculation of diluted EPS when their effect is dilutive. In periods in which the Company has a net loss, dilutive common stock equivalents are excluded from the calculation of diluted EPS.
The table below presents the computation of basic and diluted EPS:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(in thousands, except per share amounts)
Numerator:
 
 
 
 
 
 
 
Net income (loss)
$
(13,935
)
 
$
(9,167
)
 
$
(26,510
)
 
$
10,261

Denominator:
 
 
 
 
 
 
 
Weighted average common shares outstanding—basic
68,742

 
66,712

 
68,256

 
65,950

Dilutive common stock equivalents

 

 

 
3,541

Weighted average common shares outstanding—diluted
68,742

 
66,712

 
68,256

 
69,491

Net income (loss) per share:
 
 
 
 
 
 
 
Basic
$
(0.20
)
 
$
(0.14
)
 
$
(0.39
)
 
$
0.16

Diluted
$
(0.20
)
 
$
(0.14
)
 
$
(0.39
)
 
$
0.15

For the three months ended September 30, 2018 and 2017, the Company incurred a net loss and accordingly excluded common stock equivalents for outstanding stock-based awards, which represented all potentially dilutive securities, of 3.8 million and 4.5 million, respectively, from the calculation of diluted net loss per share due to their anti-dilutive nature.
For the nine months ended September 30, 2018, the Company also incurred a net loss and accordingly excluded 3.7 million common stock equivalents for outstanding stock-based awards, which represented all potentially dilutive securities, from the calculation of diluted net loss per share as the impact was anti-dilutive. For the nine months ended September 30, 2017, the Company excluded 1.1 million of common stock equivalents for outstanding stock-based awards from the calculation of diluted net income per share due to their anti-dilutive nature.

14

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

3. Business Combinations
Acquisition of Exar Corporation

On May 12, 2017, pursuant to the March 28, 2017 Agreement and Plan of Merger, Eagle Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of MaxLinear, merged with and into Exar Corporation, or Exar, with Exar surviving as a wholly owned subsidiary of MaxLinear. Under this Agreement and Plan of Merger, the Company agreed to acquire all of Exar's outstanding common stock for $13.00 per share in cash. MaxLinear also assumed certain of Exar's stock-based awards in the merger. MaxLinear paid aggregate cash consideration of $688.1 million including $12.7 million of cash paid to settle certain stock-based awards that were not assumed by MaxLinear in the merger. The Company funded the transaction with cash from the balance sheet of the combined companies, including $235.8 million of cash from Exar, and the net proceeds of approximately $416.8 million from $425.0 million of new transaction debt (Note 8). The Company also assumed a purchase agreement that includes an indemnification obligation from Exar related to a November 9, 2016 business unit divestiture by Exar (Note 13).

In the nine months ended September 30, 2018, the Company made updates to estimates of certain tax-related assets acquired and liabilities assumed with a corresponding net increase to goodwill of $0.3 million related to this acquisition (Note 5). The Company has completed its purchase price allocation accounting associated with this acquisition.
Acquisition of Certain Assets and Assumption of Certain Liabilities of the G.hn business of Marvell Semiconductor, Inc.
On April 4, 2017, the Company consummated the transactions contemplated by a share and asset acquisition agreement with Marvell Semiconductor, Inc., or Marvell, to purchase certain assets and assume certain liabilities of Marvell’s G.hn business, including its Spain legal entity, for aggregate cash consideration of $21.0 million. The Company also hired certain employees of the G.hn business outside of Spain and assumed employment obligations of the Spanish entity acquired, which is now a subsidiary of MaxLinear. The acquired assets and assumed liabilities, together with the employees who joined MaxLinear and its subsidiaries as a result of the transaction, represent a business as defined in ASC 805, Business Combinations. The Company has integrated the acquired assets and employees into its existing business.
4. Restructuring Activity

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

The following table presents the activity related to the restructuring plans, which is included in restructuring charges in the consolidated statements of operations:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(in thousands)
Employee separation expenses
$
440

 
$
1,689

 
$
711

 
$
7,685

Lease related charges (credits)
(315
)
 
351

 
1,279

 
901

Other
111

 
138

 
111

 
138

 
$
236

 
$
2,178

 
$
2,101

 
$
8,724


Included in employee separation expenses for the three and nine months ended September 30, 2017 is $0.4 million and $4.9 million of incremental stock-based compensation from the acceleration of certain stock-based awards we assumed from Exar due to change in control provisions upon termination or diminution of authority of former Exar executives and other severance-related charges of $1.3 million and $2.8 million for the three and nine months ended September 30, 2017, respectively.

Lease related charges for the three months ended September 30, 2018 related to adjustments to the net present value of the remaining lease obligation on the cease-use date from exiting certain facilities. Lease related charges for the nine months ended September 30, 2018 primarily related to exiting certain facilities, including impairment of leasehold improvements of $0.7 million. Total sublease income related to leased facilities the Company ceased using was approximately $0.6 million and

15

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

$1.7 million for the three and nine months ended September 30, 2018, respectively. Sublease income for such facilities was approximately $0.5 million and $1.6 million for the three and nine months ended September 30, 2017, respectively.
The following table presents a roll-forward of the Company's restructuring liability for the nine months ended September 30, 2018. The restructuring liability is included in accrued expenses and other current liabilities in the consolidated balance sheets.
 
Employee Separation Expenses
 
Lease Related Charges
 
Other
 
Total
 
(in thousands)
Balance as of December 31, 2017
$
239

 
$
2,693

 
$
107

 
$
3,039

Restructuring charges
711

 
1,279

 
111

 
2,101

Cash payments
(720
)
 
(1,456
)
 
(6
)
 
(2,182
)
Non-cash items
(93
)
 
(855
)
 
(106
)
 
(1,054
)
Balance as of September 30, 2018
$
137

 
$
1,661

 
$
106

 
$
1,904


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 nine months ended September 30, 2018, the Company adjusted its allocation of purchase price for the acquisition of Exar related to updates to estimates of certain tax-related assets acquired and liabilities assumed with a corresponding net increase in goodwill of $0.3 million.

The following table presents the changes in the carrying amount of goodwill:
 
Carrying Amount
 
(in thousands)
Balance as of December 31, 2017
$
237,992

Adjustments
338

Balance as of September 30, 2018
$
238,330


The Company performs an annual goodwill impairment assessment on October 31st each year, using a two-step quantitative assessment. Step one is the identification of potential impairment. This involves 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 fair value of a reporting unit exceeds the carrying amount, the goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the impairment test is performed to measure the amount of impairment loss, if any.

In addition to its annual review, the Company performs a test of impairment when indicators of impairment are present. During the nine months ended September 30, 2018 and 2017, no indications of impairment of the Company's goodwill balances were identified and, as a result, no goodwill impairment was recognized.

16

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 continue to be amortized:
 
 
 
September 30, 2018
 
December 31, 2017
 
Weighted
Average
Useful Life
(in Years)
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
 
 
(in thousands)
Licensed technology
3.7
 
$
2,070

 
$
(995
)
 
$
1,075

 
$
2,070

 
$
(575
)
 
$
1,495

Developed technology
6.9
 
238,961

 
(65,755
)
 
173,206

 
241,561

 
(39,252
)
 
202,309

Trademarks and trade names
6.1
 
13,800

 
(3,687
)
 
10,113

 
13,800

 
(1,992
)
 
11,808

Customer relationships
4.6
 
121,100

 
(48,400
)
 
72,700

 
121,100

 
(26,661
)
 
94,439

Non-compete covenants
3.0
 
1,100

 
(781
)
 
319

 
1,100

 
(506
)
 
594

 
6.1
 
$
377,031

 
$
(119,618
)
 
$
257,413

 
$
379,631

 
$
(68,986
)
 
$
310,645

The following table sets forth amortization expense associated with finite-lived intangible assets, which is included in the consolidated statements of operations as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(in thousands)
 
(in thousands)
Cost of net revenue
$
8,979

 
$
7,907

 
$
26,935

 
$
16,851

Research and development
33

 
137

 
117

 
412

Selling, general and administrative
7,994

 
9,924

 
23,982

 
20,067

 
$
17,006

 
$
17,968


$
51,034


$
37,330


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

The following table sets forth the activity during the nine months ended September 30, 2018 related to finite-lived intangible assets resulting from amortization and impairment losses:
 
Carrying Amount
 
(in thousands)
Balance as of December 31, 2017
$
310,645

Amortization
(51,034
)
Impairment losses
(2,198
)
Balance as of September 30, 2018
$
257,413


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. Impairment losses related to finite-lived intangible assets for the three and nine months ended September 30, 2018 were $2.2 million and related to developed technology acquired from Exar.


17

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

The following table presents future amortization of the Company’s finite-lived intangible assets at September 30, 2018:
 
Amount
 
(in thousands)
2018 (3 months)
$
16,913

2019
56,819

2020
55,954

2021
55,171

2022
37,641

Thereafter
34,915

Total
$
257,413

Indefinite-lived Intangible Assets
As of September 30, 2018 and December 31, 2017, total indefinite-lived intangible assets, which consist of acquired in-process research and development, were $4.4 million.

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 nine months ended September 30, 2018, no indicators of impairment were identified and, as a result, no IPR&D impairment losses were recorded. In the nine months ended September 30, 2017, the Company recognized IPR&D impairment losses of $2.0 million related to a single IPR&D project of Exar, which was abandoned.

6. Financial Instruments
The composition of financial instruments is as follows:
 
September 30, 2018
 
December 31, 2017
 
(in thousands)
Assets
 
 
 
Interest rate swap
$
2,452

 
$
734

The fair value of the Company’s financial instrument is the amount that would be received in an asset sale or paid to transfer a liability in an orderly transaction between unaffiliated market participants and is recorded using a hierarchical disclosure framework based upon the level of subjectivity of the inputs used in measuring assets and liabilities. The levels are described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.
Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is available.

18

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

The Company classifies its financial instrument within Level 2 of the fair value hierarchy on the basis of models utilizing market observable inputs. The interest rate swap has been valued on the basis of valuations provided by third-party pricing services, as derived from standard valuation or pricing models. The pricing services may use market-based observable inputs for the interest rate swap over the term of the swap, including one month LIBOR-based yield curves and have been classified as Level 2. The Company reviews Level 2 inputs and fair value for reasonableness and the values may be further validated by comparison to independent pricing sources. In addition, the Company reviews third-party pricing provider models, key inputs and assumptions and understands the pricing processes at its third-party providers in determining the overall reasonableness of the fair value of its Level 2 financial instruments. The Company also considers the risk of nonperformance by assessing the swap counterparty's credit risk in the estimate of fair value of the interest rate swap. As of September 30, 2018 and December 31, 2017, the Company has not made any adjustments to the valuations obtained from its third-party pricing providers. 
The following table presents a summary of the Company’s financial instruments that were measured at fair value on a recurring basis and the related level of the fair value hierarchy:
 
 
 
Fair Value Measurements
 
Balance
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
(in thousands)
Interest rate swap, September 30, 2018
$
2,452

 
$

 
$
2,452

 
$

Interest rate swap, December 31, 2017
$
734

 
$

 
$
734

 
$


The following table summarizes activity for the interest rate swap:
 
Nine Months Ended
 
September 30,
2018
 
September 30,
2017
 
(in thousands)
Interest rate swap asset
 
 
 
Beginning balance
$
734

 
$

Unrealized gain included in other comprehensive income
1,718

 

Ending balance
$
2,452

 
$

There were no transfers between Level 1, Level 2 or Level 3 financial instruments in the nine months ended September 30, 2018 and 2017.
Financial Instruments Not Recorded at Fair Value on a Recurring Basis

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

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

19

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

7. Balance Sheet Details
Cash, cash equivalents and restricted cash consist of the following:
 
September 30, 2018
 
December 31, 2017
 
(in thousands)
Cash and cash equivalents
$
67,185

 
$
71,872

Short-term restricted cash
349

 
1,476

Long-term restricted cash
709

 
1,064

Total cash, cash equivalents and restricted cash
$
68,243

 
$
74,412

As of September 30, 2018 and December 31, 2017, the Company has restricted cash of $1.1 million and $2.5 million, respectively. The cash is restricted in connection with guarantees for certain import duties and office leases.
Inventory consists of the following:
 
September 30, 2018
 
December 31, 2017
 
(in thousands)
Work-in-process
$
20,992

 
$
21,823

Finished goods
20,765

 
31,611

 
$
41,757

 
$
53,434

Property and equipment, net consists of the following:
 
Useful Life
(in Years)
 
September 30, 2018
 
December 31, 2017
 
 
 
(in thousands)
Furniture and fixtures
5
 
$
2,085

 
$
2,105

Machinery and equipment
3-5
 
34,550

 
33,462

Masks and production equipment
2
 
12,631

 
11,470

Software
3
 
5,686

 
4,695

Leasehold improvements
1-5
 
16,096

 
14,340

Construction in progress
N/A
 
593

 
639

 
 
 
71,641

 
66,711

Less accumulated depreciation and amortization
 
 
(52,228
)
 
(44,053
)
 
 
 
$
19,413

 
$
22,658


Depreciation expense for the three months ended September 30, 2018 and 2017 was $2.8 million and $3.4 million, respectively. Depreciation expense for the nine months ended September 30, 2018 and 2017 was $8.9 million and $9.2 million, respectively.
Deferred revenue and deferred profit consist of the following:
 
September 30, 2018
 
December 31, 2017(1)
 
(in thousands)
Deferred revenue—rebates
$

 
$
156

Deferred revenue—distributor transactions

 
5,341

Deferred cost of net revenue—distributor transactions

 
(1,135
)
 
$

 
$
4,362

__________
(1) Due to the adoption of ASC 606 using the modified retrospective method, prior period amounts have not been adjusted to reflect the change to recognize certain distributor sales upon sale to the distributor, or the sell-in method, from recognition upon

20

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

the Company's sale to the distributors' end customers, or the sell-through method, which required the deferral of revenue and profit on such distributor sales.
Accrued price protection liability consists of the following activity:
 
Nine Months Ended September 30,
 
2018
 
2017
 
(in thousands)
Beginning balance
$
21,571

 
$
15,176

Charged as a reduction of revenue
25,848

 
36,256

Reversal of unclaimed rebates
(2,412
)
 
(70
)
Payments
(30,589
)
 
(23,133
)
Ending balance
$
14,418

 
$
28,229

Accrued expenses and other current liabilities consist of the following:
 
September 30, 2018
 
December 31, 2017(1)
 
(in thousands)
Accrued technology license payments
$
4,500

 
$
4,500

Accrued professional fees
1,342

 
1,497

Accrued engineering and production costs
696

 
2,378

Accrued restructuring
1,904

 
3,039

Accrued royalty
943

 
1,206

Accrued leases—other
1,178

 
1,105

Accrued customer credits
1,253

 
2,667

Income tax liability
6,828

 

Customer contract liabilities
151

 

Accrued obligations to customers for price adjustments
6,158

 

Accrued obligations to customers for stock rotation rights
1,020

 

Other
1,507

 
3,914

 
$
27,480

 
$
20,306

___________
(1) Due to the adoption of ASC 606 using the modified retrospective method, prior period amounts have not been adjusted to include customer contract liabilities and accrued obligations to customers for price adjustments and stock rotation rights, which are now required to be estimated and disclosed at the time of sale.


21

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

8. Debt and Interest Rate Swap

Debt
The carrying amount of the Company's long-term debt consists of the following:
 
September 30,
2018
 
December 31,
2017
 
(in thousands)
 
 
 
 
Principal
$
277,000

 
$
355,000

Less:
 
 
 
     Unamortized debt discount
(1,705
)
 
(1,930
)
     Unamortized debt issuance costs
(4,825
)
 
(5,461
)
Net carrying amount of long-term debt
270,470

 
347,609

Less: current portion of long-term debt

 

Long-term debt, non-current portion
$
270,470

 
$
347,609

On May 12, 2017, the Company entered into a credit agreement with certain lenders and a collateral agent in connection with the acquisition of Exar (Note 3). The credit agreement provides for an initial secured term B loan facility, or the “Initial Term Loan,” in an aggregate principal amount of $425.0 million. The credit agreement permits the Company to request incremental loans in an aggregate principal amount not to exceed the sum of $160.0 million (subject to adjustments for any voluntary prepayments), plus an unlimited amount that is subject to pro forma compliance with certain secured leverage ratio and total leverage ratio tests. Incremental loans are subject to certain additional conditions, including obtaining additional commitments from the lenders then party to the credit agreement or new lenders.

Loans under the credit agreement bear interest, at the Company’s option, at a rate equal to either (i) a base rate equal to the highest of (x) the federal funds rate, plus 0.50%, (y) the prime rate then in effect and (z) an adjusted LIBOR rate determined on the basis of a one- three- or six-month interest period, plus 1.0% or (ii) an adjusted LIBOR rate, subject to a floor of 0.75%, in each case, plus an applicable margin of 2.50% in the case of LIBOR rate loans and 1.50% in the case of base rate loans. Commencing on September 30, 2017, the Initial Term Loan will amortize in equal quarterly installments equal to 0.25% of the original principal amount of the Initial Term Loan, with the balance payable on the maturity date. The Initial Term Loan has a term of seven years and will mature on May 12, 2024, at which time all outstanding principal and accrued and unpaid interest on the Initial Term Loan must be repaid. The Company is also required to pay fees customary for a credit facility of this size and type.
The Company is required to make mandatory prepayments of the outstanding principal amount of term loans under the credit agreement with the net cash proceeds from the disposition of certain assets and the receipt of insurance proceeds upon certain casualty and condemnation events, in each case, to the extent not reinvested within a specified time period, from excess cash flow beyond stated threshold amounts, and from the incurrence of certain indebtedness. The Company has the right to prepay its term loans under the credit agreement, in whole or in part, at any time without premium or penalty, subject to certain limitations and a 1.0% soft call premium applicable during the first six months of the loan term. The Company exercised its right to prepay and made aggregate prepayments of principal of $148.0 million from origination through September 30, 2018.
The Company’s obligations under the credit agreement are required to be guaranteed by certain of its domestic subsidiaries meeting materiality thresholds set forth in the credit agreement. Such obligations, including the guaranties, are secured by substantially all of the assets of the Company and the subsidiary guarantors pursuant to a security agreement with the collateral agent.
The credit agreement contains customary affirmative and negative covenants, including covenants limiting the ability of the Company and its restricted subsidiaries to, among other things, incur debt, grant liens, undergo certain fundamental changes, make investments, make certain restricted payments, and sell assets, in each case, subject to limitations and exceptions. As of September 30, 2018, the Company was in compliance with such covenants. The credit agreement also contains customary events of default that include, among other things, certain payment defaults, cross defaults to other indebtedness, covenant defaults, change in control defaults, judgment defaults, and bankruptcy and insolvency defaults. If an event of default exists, the lenders may require immediate payment of all obligations under the credit agreement, and may

22

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

exercise certain other rights and remedies provided for under the credit agreement, the other loan documents and applicable law.
As of September 30, 2018 and December 31, 2017, the weighted average effective interest rate payable on the long-term debt was approximately 4.6% and 4.1%, respectively.
The debt is carried at its principal amount, net of unamortized debt discount and issuance costs, and is not adjusted to fair value each period. The issuance date fair value of the liability component of the debt in the amount of $398.5 million was determined using a discounted cash flow analysis, in which the projected interest and principal payments were discounted back to the issuance date of the term loan at a market interest rate for nonconvertible debt of 4.6%, which represents a Level 3 fair value measurement. The debt discount of $2.1 million and debt issuance costs of $6.0 million are being amortized to interest expense using the effective interest method from the issuance date through the contractual maturity date of the term loan of May 12, 2024.
During the three and nine months ended September 30, 2018, the Company recognized total amortization of debt discount and debt issuance costs of $0.3 million and $0.9 million, respectively, to interest expense. During the three and nine months ended September 30, 2017, the Company recognized total amortization of debt discount and debt issuance costs of $0.3 million and $0.5 million, respectively, to interest expense.
The approximate fair value of the term loan as of September 30, 2018 and December 31, 2017 was $265.8 million and $360.0 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 September 30, 2018 and December 31, 2017, the remaining principal balance on the term loan was $277.0 million and $355.0 million, respectively. The remaining principal balance is due on May 12, 2024 at the maturity date on the term loan.
Interest Rate Swap
In November 2017, the Company entered into a fixed-for-floating interest rate swap with an amortizing notional amount to swap a substantial portion of variable rate LIBOR interest payments under its term loans for fixed interest payments bearing an interest rate of 1.74685%. The Company's outstanding debt is still subject to a 2.5% fixed applicable margin during the term of the loan. The interest rate swap is designated as a cash flow hedge of a portion of floating rate interest payments on long-term debt and effectively fixes the interest rate on a substantial portion of the Company’s long-term debt at approximately 4.25%. Accordingly, the Company applies cash flow hedge accounting to the interest rate swap and it is recorded at fair value as an asset or liability and the effective portion of changes in the fair value of the interest rate swap, as measured quarterly, are reported in other comprehensive income (loss). As of September 30, 2018 and December 31, 2017, the fair value of the interest rate swap asset was $2.5 million and $0.7 million (Note 6), respectively, and is included in other long-term assets in the consolidated balance sheets. The increase in fair value related to the interest rate swap asset included in other comprehensive income for the nine months ended September 30, 2018 was $1.7 million. The decrease in fair value for the three months ended September 30, 2018 included in other comprehensive income was $0.01 million. The interest rate swap expires in October 2020 and the total $1.7 million of unrealized gain recorded in accumulated other comprehensive income at September 30, 2018 is not expected to be recorded against interest expense over the next twelve months.

9. Stock-Based Compensation and Employee Benefit Plans
Employee Stock-Based Benefit Plans
At September 30, 2018, the Company had stock-based compensation awards outstanding under the following plans: the 2004 Stock Plan, the 2010 Equity Incentive Plan, as amended, or 2010 Plan, the 2010 Employee Stock Purchase Plan, or ESPP, and plans under which equity incentive awards were assumed in connection with the acquisitions of Entropic in 2015 and Exar Corporation in 2017. Refer to the Company’s Annual Report for a summary of the Company's stock-based compensation and equity plans as of December 31, 2017. There have been no material changes to the terms of the Company's equity incentive plans during the nine months ended September 30, 2018. All current stock awards are issued under the 2010 Plan and ESPP.
As of September 30, 2018, the number of shares of common stock available for future issuance under the 2010 Plan was 13,287,501 shares. As of September 30, 2018, the number of shares of common stock available for future issuance under the ESPP was 2,254,806 shares.

23

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

Stock-Based Compensation
The Company recognizes stock-based compensation in the consolidated statements of operations, based on the department to which the related employee reports, as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(in thousands)
 
(in thousands)
Cost of net revenue
$
131

 
$
93

 
$
357

 
$
231

Research and development
4,726

 
4,337

 
13,554

 
11,841

Selling, general and administrative
3,070

 
2,965

 
9,798

 
7,911

Restructuring

 
401

 

 
4,915

 
$
7,927

 
$
7,796

 
$
23,709

 
$
24,898

The total unrecognized compensation cost related to unvested restricted stock units and restricted stock awards as of September 30, 2018 was $60.6 million, and the weighted average period over which these equity awards are expected to vest is 2.76 years. The total unrecognized compensation cost related to unvested stock options as of September 30, 2018 was $5.5 million, and the weighted average period over which these equity awards are expected to vest is 2.92 years.
Restricted Stock Units and Restricted Stock Awards
The Company calculates the fair value of restricted stock units based on the fair market value of the Company's common stock on the grant date. Stock based compensation is recognized over the vesting period using the straight-line method.
A summary of the Company’s restricted stock unit and restricted stock award activity is as follows:
 
Number of Shares
(in thousands)
 
Weighted-Average Grant-Date Fair Value per Share
Outstanding at December 31, 2017
3,183

 
$
20.13

Granted
2,362

 
19.42

Vested
(1,342
)
 
18.57

Canceled
(488
)
 
20.71

Outstanding at September 30, 2018
3,715

 
20.18

Employee Stock Purchase Rights and Stock Options
The Company uses the Black-Scholes valuation model to calculate the grant-date fair value of employee stock purchase rights and stock options. Stock based compensation expense is recognized over the vesting period using the straight-line method.
Employee Stock Purchase Rights
During the nine months ended September 30, 2018, there were 151,840 shares of common stock purchased under the ESPP at a weighted average price of $16.14.
The fair values of employee stock purchase rights were estimated using the Black-Scholes option pricing model at their respective grant date using the following assumptions:
 
Nine Months Ended
 
September 30, 2018
Weighted-average grant date fair value per share
$
5.37

Risk-free interest rate
2.09
%
Dividend yield
%
Expected life (in years)
0.50

Volatility
46.00
%

24

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

The risk-free interest rate assumption was based on the United States Treasury’s rates for 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 Price
 
Weighted-Average Contractual Term (in years)
 
Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2017
3,069

 
$
8.95

 
 
 
 
Granted
335

 
18.40

 
 
 
 
Exercised
(285
)
 
7.76

 
 
 
 
Canceled
(83
)
 
16.69

 
 
 
 
Outstanding at September 30, 2018
3,036

 
$
9.90

 
2.30
 
$
30,982

Vested and expected to vest at September 30, 2018
2,998

 
$
9.79

 
2.26
 
$
30,896

Exercisable at September 30, 2018
2,506

 
$
8.32

 
1.52
 
$
29,502

The fair values of stock options were estimated using the Black-Scholes option pricing model on the grant date using the following assumptions:
 
Nine Months Ended
 
September 30, 2018
Weighted-average grant date fair value per share
$
8.14

Risk-free interest rate
2.76
%
Dividend yield
%
Expected life (in years)
5.51

Volatility
44.30
%
The risk-free interest rate assumption was based on the United States Treasury’s rates for 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 weighted-average expected life of options was calculated using the simplified method as prescribed by guidance provided by the SEC. This decision was based on the lack of historical data due to the Company’s limited number of stock option exercises under the 2010 Equity Incentive Plan. In addition, the estimated volatility incorporates the historical volatility of the Company.

The intrinsic value of stock options exercised was $0.1 million and $0.9 million in the three months ended September 30, 2018 and 2017, respectively. The intrinsic value of stock options exercised was $4.0 million and $15.2 million in the nine months ended September 30, 2018 and 2017, respectively.

Cash received from exercise of stock options was $0.1 million and $1.1 million during the three months ended September 30, 2018 and 2017, respectively. Cash received from exercise of stock options was $1.3 million and $7.1 million during the nine months ended September 30, 2018 and 2017, respectively.

The tax benefit from stock options exercised was $1.2 million and $0.9 million during the three months ended September 30, 2018 and 2017, respectively. The tax benefit from stock options exercised was $3.7 million and $11.2 million during the nine months ended September 30, 2018 and 2017, respectively.

25

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 New York Stock Exchange on a date approved by the Board of Directors. In connection with the Company's bonus programs, in February 2018, the Company issued 0.3 million freely-tradable shares of the Company's common stock in settlement of bonus awards to employees, including executives, for the 2017 performance period. At September 30, 2018, the Company has an accrual of $6.5 million for bonus awards for employees for year-to-date achievement in the 2018 performance period. The Company's compensation committee retains discretion to effect payment in cash, stock, or a combination of cash and stock.
10. Income Taxes
The provision for income taxes primarily relates to projected federal, state, and foreign income taxes. To determine the quarterly provision for income taxes, the Company uses an estimated annual effective tax rate, which is generally based on expected annual income and statutory tax rates in the various jurisdictions in which the Company operates. In addition, the tax effects of certain significant or unusual items are recognized discretely in the quarter during which they occur and can be a source of variability in the effective tax rates from quarter to quarter.
The Company utilizes the asset and liability method of accounting for income taxes, under which deferred taxes are determined based on temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the temporary differences reverse. The Company records a valuation allowance to reduce its deferred taxes to the amount it believes is more likely than not to be realized. In making such determination, the Company considers all available positive and negative evidence quarterly, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance.  Forming a conclusion that a valuation allowance is not required is difficult when there is negative evidence such as cumulative losses in recent years. Based upon the Company's review of all positive and negative evidence, the Company released the valuation allowance against certain of its federal deferred tax assets during the three months ended June 30, 2017. The Company continues to have a valuation allowance on its state deferred taxes, certain of its federal deferred tax assets, and certain foreign deferred tax assets in jurisdictions where the Company has cumulative losses or otherwise is not expected to utilize certain tax attributes. The Company does not incur expense or benefit in certain tax free jurisdictions in which it operates.
The Company recorded an income tax benefit of $2.1 million in the three months ended September 30, 2018 and an income tax benefit of $6.3 million for the three months ended September 30, 2017. The Company recorded an income tax provision of $7.3 million for the nine months ended September 30, 2018 and an income tax benefit of $33.8 million for the nine months ended September 30, 2017.
The income tax provision in the nine months ended September 30, 2018 primarily relates to the mix of pre-tax income among jurisdictions (including the effects of certain intercompany royalty payments), excess tax benefits related to stock-based compensation, and release of uncertain tax positions under ASC 740-10.
The income tax benefit in the nine months ended September 30, 2017 primarily relates to the release of the federal valuation allowance during the three months ended June 30, 2017.

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 nine months ended September 30, 2018, the Company’s unrecognized tax benefits increased by $0.5 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 September 30, 2018 were approximately $0.8 million and $0.2 million, respectively.
The Company is subject to federal and state income tax in the United States and is also subject to income tax in various states and foreign tax jurisdictions. At September 30, 2018, the Company’s tax years for 2013, 2012, and 2009 and forward are

26

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

subject to examination by federal, state, and foreign tax authorities, respectively. The Company is under a routine compliance review by the Inland Revenue Authority of Singapore for its 2016 and 2017 tax years. In addition, the Company is currently under examination by the California Franchise Tax Board for the 2014 and 2015 tax years. The Company does not expect these examinations or reviews to have a material effect on the Company's consolidated financial position or results of operations.  However, certain of the Company's state tax attribute carryforwards, which currently have a full valuation allowance, could be reduced.
In April 2017, the Company's subsidiary in Singapore began operating under certain tax incentives in Singapore, which are generally effective through March 2022, 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. Primarily because of 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 in the nine months ended September 30, 2018.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act, or the Tax Act. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning in 2018, the transition of U.S international taxation from a worldwide tax system to a territorial system, which includes a new federal tax on global intangible low-taxed income (Global Minimum Tax or GMT), and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. In its 2017 consolidated financial statements, the Company calculated its best estimate of the impact of the Tax Act in its 2017 income tax benefit in accordance with its understanding of the Tax Act and guidance available as of the date of the filing of the Annual Report.
In addition, the SEC Staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.
The Company was able to make reasonable estimates of certain effects and, therefore, recorded certain provisional adjustments in the 2017 income tax benefit. Refer to Note 10 to the Company's consolidated financial statements included in the Annual Report for further details. During the nine months ended September 30, 2018, the Company recognized no adjustments to the provisional amounts recorded at December 31, 2017. Additionally, the Company has provided provisional amounts for the legislative provisions that are effective as of January 1, 2018, including, but not limited to, the creation of the base erosion anti-abuse tax (BEAT), a new global minimum tax, GMT, a new limitation on deductible interest expense, and limitations on the use of net operating losses.
At September 30, 2018, the Company's accounting for certain elements of the Tax Act is incomplete. The provisional amounts recorded are subject to revisions as the Company completes its analysis of the Tax Act, collects and prepares necessary data, and interprets any additional guidance issued by the U.S. Treasury Department, Internal Revenue Service, or IRS, FASB, and other standard-setting and regulatory bodies. Adjustments to the provisional amounts may materially impact the Company's consolidated income tax provision (benefit) and effective tax rates in the period(s) in which such adjustments are made. In all cases, the Company will continue to make and refine calculations as additional analysis is completed. The Company's accounting for the tax effects of the Tax Act will be completed during the one-year measurement period.
Under U.S. GAAP, the Company is allowed to make an accounting policy choice with respect to the GMT of either (1) treating taxes due on future U.S. inclusions in taxable income related to GMT as a current-period expense when incurred or (2) as a component of deferred income taxes. The Company will make its accounting policy election for this item when its analysis is complete, during the measurement period. At September 30, 2018, because the Company is still evaluating the GMT provisions and an analysis of future taxable income that is subject to GMT, the Company has included GMT related to current year operations only in the estimated annual effective tax rate and has not provided additional GMT on deferred items.


27

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

11. Concentration of Credit Risk, Significant Customers and Revenue by Geographic Region
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 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 September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Percentage of total net revenue
 
 
 
 
 
 
 
Customer A
*
 
26
%
 
21
%
 
27
%
Balances that are 10% or greater of accounts receivable, based on the Company's billings to the contract manufacturer customers, are as follows:
 
September 30,
 
December 31,
 
2018
 
2017
Percentage of gross accounts receivable
 
 
 
Customer A
*
 
17
%
Customer B
*
 
10
%
____________________________
*
Represents less than 10% of the gross accounts receivable as of the respective period end.

Suppliers comprising greater than 10% of total inventory purchases are as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Vendor A
12
%
 
21
%
 
19
%
 
21
%
Vendor B
24
%
 
11
%
 
19
%
 
15
%
Vendor C
13
%
 
16
%
 
15
%
 
14
%
Vendor D
11
%
 
11
%
 
12
%
 
12
%
Vendor E
*

 
*

 
*

 
15
%
____________________________
*
Represents less than 10% of the inventory purchases for the respective period.


28

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

Geographic Information

The Company's consolidated net revenues by geographic area based on ship-to location are as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
Amount
 
% of total net revenue
 
Amount
 
% of total net revenue
 
Amount
 
% of total net revenue
 
Amount
 
% of total net revenue
Asia
$
68,750

 
81
%
 
$
97,236

 
86
%
 
$
240,853

 
81
%
 
$
276,367

 
90
%
United States
4,474

 
5
%
 
3,714

 
3
%
 
14,305

 
5
%
 
5,954

 
2
%
Rest of world
11,786

 
14
%
 
12,631

 
11
%
 
42,212

 
14
%
 
24,276

 
8
%
Total
$
85,010

 
100
%
 
$
113,581

 
100
%
 
$
297,370

 
100
%
 
$
306,597

 
100
%

The products shipped to individual countries representing greater than 10% of net revenue for each of the periods presented are as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Percentage of total net revenue
 
 
 
 
 
 
 
China
61
%
 
68
%
 
62
%
 
72
%
The determination of which country a particular sale is allocated to is based on the destination of the product shipment. No other individual country in Asia Pacific, United States, or the rest of the world accounted for more than 10% of net revenue during these periods.
Long-lived assets, which consists of property and equipment, net, intangible assets, net, and goodwill by geographic area are as follows (in thousands):
 
September 30,
 
December 31,
 
2018
 
2017
 
Amount
 
% of total
 
Amount
 
% of total
United States
$
440,041

 
85
%
 
$
481,638

 
84
%
Singapore
76,853

 
14
%
 
92,414

 
16
%
Rest of world
2,662

 
1
%
 
1,643

 
%
Total
$
519,556

 
100
%
 
$
575,695

 
100
%


29

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
 
Nine months ended
 
September 30,
 
September 30,
 
2018
 
2017(1)
 
2018
 
2017(1)
 
 
 
Connected home
$
42,026

 
$
65,621

 
$
164,201

 
$
222,074

% of net revenue
49
%
 
58
%
 
55
%
 
72
%
Infrastructure
19,733

 
23,714

 
59,708

 
50,666

% of net revenue
23
%
 
21
%
 
20
%
 
17
%
Industrial and multi-market
23,251

 
24,246

 
73,461

 
33,857

% of net revenue
27
%
 
21
%
 
25
%
 
11
%
Total net revenue
$
85,010

 
$
113,581

 
$
297,370

 
$
306,597

___________
(1) Due to the adoption of ASC 606 using the modified retrospective method, prior period amounts have not been adjusted to reflect the change to recognize certain distributor sales upon sale to the distributor, or the sell-in method, from recognition upon the Company's sale to the distributors' end customers, or the sell-through method, which required the deferral of revenue and profit on such distributor sales.
Contract Liabilities
As of September 30, 2018, customer contract liabilities consist of estimates of obligations to deliver rebates to customers in the form of units of products and were approximately $0.2 million. Revenue recognized in the three and nine months ended September 30, 2018 that was included in the contract liability balance as of January 1, 2018 was immaterial.
There were no material changes in the contract liabilities balance during the three and nine months ended September 30, 2018.
Obligations to Customers for Price Adjustments and Returns and Assets for Right-of-Returns
As of September 30, 2018, obligations to customers consisting of estimates of price protection rights offered to the Company's end customers totaled $14.4 million 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 September 30, 2018 were $6.2 million and $1.0 million, respectively, and are included in accrued expenses and other current liabilities in the consolidated balance sheets (Note 7). The increase in revenue from net changes in transaction prices for amounts included in obligations to customers for price adjustments as of January 1, 2018 was not material. As of September 30, 2018, 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 $0.2 million. Right of return assets are included in inventory in the consolidated balance sheets (Note 7).
As of September 30, 2018, there were no impairment losses recorded on customer accounts receivable.


30

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

13. Commitments and Contingencies
Lease Commitments and Other Contractual Obligations
The Company leases facilities and certain equipment under operating lease arrangements expiring at various years through 2023. As of September 30, 2018, future minimum payments under non-cancelable operating leases, inventory purchase and other obligations are as follows:
 
Operating Leases
 
Inventory Purchase Obligations
 
Other Obligations
 
Total
 
(in thousands)
2018 (3 months)
$
2,288

 
$
38,462

 
$
1,875

 
$
42,625

2019
8,792

 

 
8,379

 
17,171

2020
8,989

 

 
4,417

 
13,406

2021
8,776

 

 
686

 
9,462

2022
4,173

 

 
425

 
4,598

Thereafter
798

 

 
447

 
1,245

Total minimum payments
$
33,816

 
$
38,462

 
$
16,229

 
$
88,507


Other obligations consist of contractual payments due for software licenses.

The total rental expense for operating leases was $1.2 million and $1.4 million for the three months ended September 30, 2018 and 2017, respectively. The total rental expense for operating leases was $3.5 million and $3.0 million for the nine months ended September 30, 2018 and 2017, respectively.

The Company has subleased certain facilities that it ceased using in connection with prior years' restructuring plans (Note 4). Such subleases expire at various years through fiscal 2023. As of September 30, 2018, future minimum rental income under non-cancelable subleases is as follows:
 
Amount
 
(in thousands)
2018 (3 months)
$
680

2019
3,566

2020
4,036

2021
4,057

2022
782

Thereafter
291

Total minimum rental income
$
13,412

Total sublease income related to leased facilities the Company ceased using in connection with a restructuring plan for the three months ended September 30, 2018 and 2017 was approximately $0.6 million and $0.5 million, respectively (Note 4). Total sublease income related to leased facilities the Company ceased using in connection with a restructuring plan for the nine months ended September 30, 2018 and 2017 was approximately $1.7 million and $1.6 million, respectively.

Exar iML Divestiture Indemnification

Under the terms of the purchase agreement relating to the November 9, 2016 divestiture of Integrated Memory Logic Limited, or iML, by Exar, Exar agreed to indemnify the purchaser of the business unit for breaches of representations and warranties and covenants and for certain other matters. Exar also agreed to place $5.0 million of the total purchase price into an escrow account for a period of 18 months to partially secure its indemnification obligations under the purchase agreement; of this amount, $0.8 million remains in escrow as of September 30, 2018; $1.3 million has been released to the purchaser of iML and $2.9 million has been released to Exar through September 30, 2018. Exar’s indemnification obligations for breaches of representations and warranties survived for 12 months from the closing of the sale transaction, except for breaches of representations and warranties covering intellectual property, which survived for 18 months, and breaches of representations

31

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

and warranties of certain fundamental representations, which survive until the expiration of the applicable statute of limitations. Exar’s maximum indemnification obligation for breaches of representations and warranties, other than intellectual property and fundamental representations, was $13.6 million, its maximum indemnification obligation for breaches of intellectual property representations was $34.0 million, and is maximum indemnity obligation for breaches of fundamental representations is the full purchase price amount (approximately $136.0 million). The aggregate amount recovered by the purchaser in accordance with the indemnification provisions with respect to matters that are subject to the intellectual property representations, together with the aggregate amount recovered by the Buyer in accordance with the indemnification provisions with respect to matters that are subject to the general representations and warranties (other than fundamental representations), will in no event exceed $34.0 million. The Company believes it does not have a material indemnification obligation as of September 30, 2018; however, if the Company were required to make payments in satisfaction of these indemnification obligations related to breaches of representations and warranties of certain fundamental obligations which have not yet expired, it could have a material adverse effect on the Company's business, financial condition, results of operations, and cash flows.
CrestaTech Litigation
On January 21, 2014, CrestaTech Technology Corporation, or CrestaTech, filed a complaint for patent infringement against the Company in the United States District Court of Delaware, or the District Court Litigation. In its complaint, CrestaTech alleged that the Company infringed U.S. Patent Nos. 7,075,585, or the ‘585 Patent and 7,265,792, or the ‘792 Patent. In addition to asking for compensatory damages, CrestaTech alleged willful infringement and sought a permanent injunction. CrestaTech also named Sharp Corporation, Sharp Electronics Corp. and VIZIO, Inc. as defendants based upon their alleged use of the Company's television tuners.
On January 28, 2014, CrestaTech filed a complaint with the U.S. International Trade Commission, or ITC, again naming, among others, MaxLinear, Sharp, Sharp Electronics, and VIZIO, or the ITC Investigation. On May 16, 2014, the ITC granted CrestaTech’s motion to file an amended complaint adding six OEM Respondents, namely, SIO International, Inc., Hon Hai Precision Industry Co., Ltd., Wistron Corp., Wistron Infocomm Technology (America) Corp., Top Victory Investments Ltd. and TPV International (USA), Inc. which are collectively referred to with MaxLinear, Sharp and VIZIO as the Company Respondents. CrestaTech’s ITC complaint alleged a violation of 19 U.S.C. § 1337 through the importation into the United States, the sale for importation, or the sale within the United States after importation of MaxLinear's accused products that CrestaTech alleged infringe the same two patents asserted in the Delaware action. Through its ITC complaint, CrestaTech sought an exclusion order preventing entry into the United States of certain of the Company's television tuners and televisions containing such tuners from Sharp, Sharp Electronics, and VIZIO. CrestaTech also sought a cease and desist order prohibiting the Company Respondents from engaging in the importation into, sale for importation into, the sale after importation of, or otherwise transferring within the United States certain of the Company's television tuners or televisions containing such tuners.
On March 10, 2014, the court stayed the District Court Litigation pending resolution of the ITC Investigation.
On December 15, 2014, the ITC held a trial in the ITC Investigation. On February 27, 2015, the Administrative Law Judge, or the ALJ, issued a written Initial Determination, or ID, ruling that the Company Respondents do not violate Section 1337 in connection with CrestaTech’s asserted patents because CrestaTech failed to satisfy the economic prong of the domestic industry requirement pursuant to Section 1337(a)(2). In addition, the ID stated that certain of the Company's television tuners and televisions incorporating those tuners manufactured and sold by certain customers infringe three claims of the ‘585 Patent (claims 10, 12 and 13), and these three claims were not determined to be invalid. On April 30, 2015, the ITC issued a notice indicating that it intended to review portions of the ID finding no violation of Section 1337, including the ID’s findings of infringement with respect to, and validity of, the ‘585 Patent, and the ID’s finding that CrestaTech failed to establish the existence of a domestic industry within the meaning of Section 1337.
The ITC subsequently issued its opinion, which terminated its investigation. The opinion affirmed the findings of the ALJ that no violation of Section 1337 had occurred because CrestaTech had failed to establish the economic prong of the domestic industry requirement. The ITC also affirmed the ALJ's finding of infringement with respect to the three claims of the '585 Patent that were not held to be invalid.
On November 30, 2015, CrestaTech filed an appeal of the ITC decision with the United States Court of Appeals for the Federal Circuit, or the Federal Circuit. On March 7, 2016, CrestaTech voluntarily dismissed its appeal, resulting in a final determination of the ITC Investigation in the Company's favor.
In addition, the Company has filed four petitions for inter partes review, or IPR, by the US Patent Office, two for each of the CrestaTech patents asserted against the Company. The Patent Trial and Appeal Board, or the PTAB, did not institute two of

32

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

these IPRs as being redundant to IPRs filed by another party that were already underway for the same CrestaTech patent.  The remaining two petitions were instituted or instituted-in-part meaning, together with the IPRs filed by third parties, there were currently six IPR proceedings instituted involving the two CrestaTech patents asserted against the Company. 
In October 2015, the PTAB issued final decisions in two of the six pending IPR proceedings (one for each of the two asserted patents), holding that all of the reviewed claims are unpatentable. Included in these decisions was one of the three claims of the ‘585 Patent (claim 10) mentioned above in connection with the ITC’s final decision. CrestaTech appealed the PTAB’s decisions at the Federal Circuit. On November 8, 2016, the Federal Circuit issued an opinion affirming the PTAB’s finding of unpatentability.
In August 2016, the PTAB issued final written decisions in the remaining four pending IPR proceedings (two for each of the asserted patents), holding that many of the reviewed claims - including the two remaining claims of the ‘585 Patent which the ITC held were infringed - are unpatentable. The parties have appealed the two decisions related to the ‘585 Patent; however, no appeals were filed as to the PTAB's rulings for the ‘792 Patent. The Federal Circuit heard oral argument on these appeals on December 4, 2017. On December 7, the Federal Circuit issued a Rule 36 affirmance in one of the '585 appeals, affirming that the two remaining claims that the ITC had ruled were valid and infringed (claims 12 and 13) are unpatentable. On January 25, 2018, the Federal Circuit issued its ruling in the other ‘585 appeal, vacating the PTAB's ruling that certain claims were not unpatentable and remanding to the PTAB for further analysis of whether CrestaTech is estopped from arguing and/or has waived the right to argue whether six dependent claims are patentable.

As a result of these IPR decisions, all 13 claims that CrestaTech asserted against the Company in the ITC Investigation have been found to be unpatentable by the PTAB and the Federal Circuit.
On March 18, 2016, CrestaTech filed a petition for Chapter 7 bankruptcy in the Northern District of California. As a result of this proceeding, all rights in the CrestaTech asserted patents, including the right to control the pending litigation, were assigned to CF Crespe LLC, or CF Crespe. CF Crespe became the named party in the then-pending IPRs, Federal Circuit appeal and District Court Litigation.
In April 2017, the Delaware court continued the stay of the District Court Litigation per the parties’ request, pending resolution of the Federal Circuit appeals in the IPRs. On April 3, 2018, the District Court dismissed the District Court Litigation. While Crespe has subsequently suggested that this dismissal may have been in error, Crespe has taken no action to date to re-instate the case. Indeed, in its bankruptcy proceeding Crespe has stated that it “no longer has any valid patent claims that it is asserting in any of the proceedings purchased through the Sale Agreement,” which includes the District Court Litigation against the Company. In re Cresta Technology Corporation, Case No. 16-50808 (N.D. Cal. Bank. 2016) at Dkt. No. 270.
The Company cannot predict the outcome of the District Court Litigation, or the IPRs. Any adverse determination in the District Court Litigation could have a material adverse effect on the Company's business, financial condition, results of operations and cash flows.
Trango Systems, Inc. Litigation
On or about August 2, 2016, Trango Systems, Inc., or Trango, filed a complaint in the Superior Court of California, County of San Diego, Central Division, against defendants Broadcom Corporation, Inc., or Broadcom, and the Company, collectively, Defendants. Trango is a purchaser that alleges various fraud, breach of contract, and interference with economic relations claims in connection with the discontinuance of a chip line the Company acquired from Broadcom in 2016. Trango seeks unspecified general and special damages, pre-judgment interest, expenses and costs, attorneys’ fees, punitive damages, and unspecified injunctive and equitable relief. On June 23, 2017, the Court sustained the Company's demurrer to each cause of action in the second amended complaint filed on or about December 6, 2016. Trango filed its third amended complaint on or about July 13, 2017. On February 23, 2018, the Court sustained, in part, the Company's demurrer, dismissing with prejudice the cause of action for breach of a written contract, and Trango voluntarily dismissed its cause of action for breach of an implied-in-fact contract. The remaining causes of action have been permitted to proceed. On March 15, 2018, Trango filed its fourth amended complaint. The Company filed its answer on April 17, 2018. Also, on April 17, Broadcom filed a cross-complaint against the Company, alleging causes of action for indemnity, contribution and apportionment, and declaratory relief. Broadcom voluntarily dismissed the cross-complaint on June 8, 2018. The trial date is set for May 10, 2019. The Company intends to vigorously defend against the lawsuit as it proceeds.

33

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

The Company cannot predict the outcome of the Trango Systems, Inc. litigation. Any adverse determination in the Trango Systems, Inc. litigation could have a material adverse effect on the Company's business, financial condition, results of operations and cash flows.
Other Matters
In addition, 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. Other than the CrestaTech and Trango litigation described above, the Company believes that there are no other currently pending litigation matters that, if determined adversely by the Company, would have a material effect on the Company's business or that would not be covered by the Company's existing liability insurance.
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 elsewhere in this report.
Overview
We are a provider of radio-frequency, or RF, high-performance analog, and mixed-signal communications systems-on-chip solutions for the connected home, wired and wireless infrastructure, and industrial and multi-market applications. We are a fabless integrated circuit design company whose products integrate all or substantial portions of a broadband communication system. In most cases, these products are designed on a single silicon-die, using standard digital CMOS processes and conventional packaging technologies. We believe this enables our solutions to achieve superior power, performance, and cost advantages 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 end market electronic devices incorporating our products include cable DOCSIS broadband modems and gateways; wireline connectivity devices for in-home networking applications; RF transceivers and modems for wireless carrier access and backhaul infrastructure; fiber-optic modules for data center, metro, and long-haul transport networks; video set-top boxes and gateways; hybrid analog and digital televisions, direct broadcast satellite outdoor and indoor units; and power management and interface products used in these and a range of other markets.

We combine our high-performance RF and mixed-signal semiconductor design skills with our expertise in digital communications systems, software, high-performance analog, and embedded systems to provide highly integrated semiconductor devices and platform-level solutions that are manufactured using a range of semiconductor manufacturing processes, including low-cost complementary metal oxide semiconductor, or CMOS, process technology, Silicon Germanium, Gallium Arsenide, BiCMOS and Indium Phosphide process technologies. Our ability to design analog and mixed-signal circuits in CMOS allows us to efficiently combine analog and digital signal processing functionality in the same integrated circuit. As a result, our solutions have high levels of functional integration and performance, small silicon die size, and low power consumption. Moreover, with our acquisition of Exar Corporation in 2017, we are uniquely positioned to offer customers a combination of proprietary CMOS-based radio system architectures that provide the benefits of superior RF system performance, along with high-performance analog interface and power management solutions that enable shorter design cycles, significant design flexibility, and low system cost across a wide range of broadband communications, wired and wireless infrastructure, and industrial and multimarket applications.
Our net revenue has grown from approximately $0.6 million in fiscal year 2006 to $420.3 million in fiscal year 2017. In the nine months ended September 30, 2018, revenues were $297.4 million. In fiscal year 2017 and in the three and nine months ended September 30, 2018, our net revenue was derived primarily 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 for analog