Edgar Filing: MAXLINEAR INC

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

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 June 30, 2017



¨	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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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.

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 August 2, 2017, the registrant had 66,542,818 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	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (unaudited)	4
	Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016	4
	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2017 and 2016	5
	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2017 and 2016	6
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	53
Item 4.	Controls and Procedures	54
Part II	OTHER INFORMATION	55
Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	58
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	85
Item 3.	Defaults Upon Senior Securities	85
Item 4.	Mine Safety Disclosures	86
Item 5.	Other Information	86
Item 6.	Exhibits	87

Table of Contents

PART I — FINANCIAL INFORMATION

Table of Contents


ITEM 1.	FINANCIAL STATEMENTS

MAXLINEAR, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited; in thousands, except par value amounts)



	June 30, 2017			December 31, 2016
Assets
Current assets:
Cash and cash equivalents	$	87,568		$	81,086
Short-term restricted cash	615			614
Short-term investments, available-for-sale	—			47,918
Accounts receivable, net	82,695			50,487
Inventory	77,559			26,583
Prepaid expenses and other current assets	9,732			6,159
Total current assets	258,169			212,847
Long-term restricted cash	1,908			1,196
Property and equipment, net	24,469			20,549
Long-term investments, available-for-sale	—			5,991
Intangible assets, net	353,524			104,261
Goodwill	238,838			76,015
Deferred tax assets	53,878			116
Other long-term assets	6,841			1,677
Total assets	$	937,627		$	422,652
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	21,359		$	6,757
Deferred revenue and deferred profit	13,317			5,991
Accrued price protection liability	24,623			15,176
Accrued expenses and other current liabilities	38,605			16,358
Accrued compensation	10,304			10,261
Current portion of long-term debt	1,989			—
Total current liabilities	110,197			54,543
Deferred rent	5,082			9,656
Long-term debt	415,032			—
Other long-term liabilities	9,409			6,029
Total liabilities	539,720			70,228

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, 66,534 shares issued and outstanding at June 30, 2017 and 550,000 shares authorized, no shares issued or outstanding December 31, 2016, respectively	7			—
Class A common stock, $0.0001 par value; 441,124 shares authorized, no shares issued and outstanding at June 30, 2017 and 500,000 shares authorized, 58,363 shares issued and outstanding at December 31, 2016, respectively	—			6
Class B common stock, $0.0001 par value; 493,430 shares authorized, no shares issued and outstanding at June 30, 2017 and 500,000 shares authorized, 6,668 shares issued and outstanding at December 31, 2016, respectively	—			1
Additional paid-in capital	439,040			413,909
Accumulated other comprehensive loss	(636		)	(1,560		)
Accumulated deficit	(40,504		)	(59,932		)
Total stockholders’ equity	397,907			352,424
Total liabilities and stockholders’ equity	$	937,627		$	422,652

See accompanying notes.

Table of Contents

MAXLINEAR, INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited; in thousands, except per share data)



	Three Months Ended June 30,					Six Months Ended June 30,
	2017			2016		2017			2016
Net revenue	$	104,175		$	101,687	$	193,016		$	204,372
Cost of net revenue	53,071			38,774		88,988			80,289
Gross profit	51,104			62,913		104,028			124,083
Operating expenses:
Research and development	29,015			24,037		52,893			47,789
Selling, general and administrative	31,338			16,505		49,951			30,115
Restructuring charges	6,546			—		6,546			2,106
Total operating expenses	66,899			40,542		109,390			80,010
Income (loss) from operations	(15,795		)	22,371		(5,362		)	44,073
Interest income	64			167		259			337
Interest expense	(2,201		)	—		(2,201		)	—
Other income (expense), net	(618		)	124		(762		)	(74		)
Total interest and other income (expense), net	(2,755		)	291		(2,704		)	263
Income (loss) before income taxes	(18,550		)	22,662		(8,066		)	44,336
Income tax provision (benefit)	(29,515		)	78		(27,494		)	1,071
Net income	$	10,965		$	22,584	$	19,428		$	43,265
Net income per share:
Basic	$	0.17		$	0.36	$	0.30		$	0.69
Diluted	$	0.16		$	0.33	$	0.28		$	0.64
Shares used to compute net income per share:
Basic	65,889			63,470		65,564			63,056
Diluted	69,645			67,520		69,398			67,110

See accompanying notes.

Table of Contents

MAXLINEAR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited; in thousands)



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Net income	$	10,965		$	22,584		$	19,428		$	43,265
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on investments, net of tax of $0 for the three and six months ended June 30, 2017 and 2016	(38		)	48			(55		)	174
Less: Reclassifications to realized loss (gain) on sales and maturities of investments, net of tax of $0 for the three and six months ended June 30, 2017 and 2016	55			(50		)	55			(50		)
Unrealized gain (loss) on investments, net of tax	17			(2		)	—			124
Foreign currency translation adjustments, net of tax benefit of $55 for the three and six months ended June 30, 2017 and $0 for the three and six months ended June 30, 2016 ⁽¹⁾	554			(363		)	924			(255		)
Foreign currency translation adjustments, net of tax	554			(363		)	924			(255		)
Other comprehensive income (loss)	571			(365		)	924			(131		)
Total comprehensive income	$	11,536		$	22,219		$	20,352		$	43,134

____________________________


⁽¹⁾	Tax amount recognized in Other Long-Term Liabilities on the Consolidated Balance Sheets as part of long-term deferred tax liabilities.

See accompanying notes.

Table of Contents

MAXLINEAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited; in thousands)



	Six Months Ended June 30,
	2017			2016
Operating Activities
Net income	$	19,428		$	43,265
Adjustments to reconcile net income to cash provided by operating activities:
Amortization and depreciation	25,160			9,935
Provision for losses on accounts receivable	87			—
Amortization (accretion) of investment premiums (discount), net	(60		)	83
Amortization of inventory step-up	5,635			336
Amortization of debt issuance costs	175			—
Stock-based compensation	17,102			10,211
Deferred income taxes	(53,142		)	133
(Gain) loss on disposal of property and equipment	(85		)	48
(Gain) loss on sale of available-for-sale securities	38			(50		)
(Gain) loss on foreign currency	682			(46		)
Change in fair value of contingent consideration	—			110
Excess tax benefits on stock-based awards	(3,290		)	(5,114		)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	(20,932		)	(1,941		)
Inventory	(7,391		)	7,418
Prepaid expenses and other assets	5,210			(805		)
Accounts payable, accrued expenses and other current liabilities	15,562			4,967
Accrued compensation	(1,282		)	3,540
Deferred revenue and deferred profit	7,326			1,732
Accrued price protection liability	9,447			(1,756		)
Other long-term liabilities	(4,088		)	(767		)
Net cash provided by operating activities	15,582			71,299
Investing Activities
Purchases of property and equipment	(1,898		)	(4,710		)
Purchases of intangible assets	(5,325		)	(390		)
Cash used in acquisitions, net of cash acquired	(473,304		)	(21,000		)
Purchases of available-for-sale securities	(30,577		)	(47,277		)
Maturities of available-for-sale securities	84,546			81,011
Net cash provided by (used in) investing activities	(426,558		)	7,634
Financing Activities
Repurchases of common stock	(334		)	(3		)
Net proceeds from issuance of common stock	8,018			4,285
Minimum tax withholding paid on behalf of employees for restricted stock units	(8,399		)	(3,593		)
Net proceeds from the issuance of debt	416,846			—
Net cash provided by financing activities	416,131			689
Effect of exchange rate changes on cash and cash equivalents	2,040			4
Increase in cash, cash equivalents and restricted cash	7,195			79,626
Cash, cash equivalents and restricted cash at beginning of period	82,896			67,956
Cash, cash equivalents and restricted cash at end of period	$	90,091		$	147,582
Supplemental disclosures of cash flow information:
Cash paid for interest	1,277			—
Cash paid for income taxes	$	4,452		$	1,263
Supplemental disclosures of non-cash activities:
Issuance of restricted stock units to Physpeed continuing employees	$	818		$	578
Issuance of accrued share-based bonus plan	$	3,314		$	3,652

See accompanying notes.



Table of Contents	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, mixed-signal and high-performance analog integrated circuits 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, terrestrial, and satellite video set-top boxes and gateways, cable DOCSIS data and voice gateways, hybrid analog and digital televisions, smartphones, direct broadcast satellite outdoor units, optical modules for data center, metro, and long-haul transport network applications, RF transceivers and modem solutions for wireless carrier infrastructure applications, wireline connectivity devices for in-home networking applications and last-mile broadband access, and power management and interface products for enterprise networking, infrastructure, industrial, and multi-market applications. The Company is a fabless semiconductor company focusing its resources on the design, sale and marketing of its products.

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 and cash flows.

The consolidated balance sheet as of December 31, 2016 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, 2016 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 9, 2017, or the Annual Report. Certain prior period amounts have been reclassified to conform with the current period presentation. Interim results for the three and six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2017.

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. There have been no material changes to our significant accounting policies during the six months ended June 30, 2017.

Restricted Cash

As of June 30, 2017 and December 31, 2016, the Company has restricted cash of $2.5 million and $1.8 million, respectively. The restricted cash is on deposit in connection with guarantees for certain office leases.

Recently Adopted Accounting Pronouncements

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, which requires inventory to be subsequently measured using the lower of cost and net realizable value. Net realizable value is the estimated selling prices



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

in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. ASU 2015-11 is effective for the Company beginning in the first quarter of fiscal year 2017 and has been applied prospectively. The adoption of ASU No. 2015-11 by the Company in the first quarter of fiscal year 2017 did not have a material impact on the Company's consolidated financial position and results of operations.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Share-Based Compensation to simplify certain aspects of accounting for share-based payment transactions associated with income taxes, classification as equity or liabilities, and classification on the statement of cash flows. The amendments in this update are effective for the Company for fiscal years beginning with fiscal year 2017, including interim periods within those years, with early adoption permitted. Early adoption, if elected, must be completed for all of the amendments in the same period. The new guidance requires, among other things, excess tax benefits and tax deficiencies to be recorded on a prospective basis in the income statement in the provision for income taxes when awards vest or are settled. On the statement of cash flows, excess tax benefits must be classified along with other income tax cash flows as an operating activity on either a prospective transition method or a retrospective transition method. Also, because excess tax benefits are no longer recognized in additional paid-in capital, the assumed proceeds from applying the treasury stock method when computing earnings per share is amended to exclude the amount of excess tax benefits that would be recognized in additional paid-in capital. The Company adopted ASU No. 2016-09 during the quarter ended June 30, 2016, as previously described in the Company's Form 10-Q for the period ended June 30, 2016 filed with the Securities Exchange Commission on August 8, 2016. There was no cumulative effect on retained earnings in the consolidated balance sheet upon adoption since the Company had a full valuation allowance against U.S. deferred tax assets at the time of adoption. The Company elected to continue to estimate forfeitures of share-based awards resulting in no impact to stock-based compensation expense, and is also continuing to classify cash paid by the Company when directly withholding shares for tax withholding purposes in cash flows from financing activities. On the statement of cash flows, excess tax benefits were classified along with other income tax cash flows as an operating activity upon adoption on a prospective basis.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740) to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. The FASB decided that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments in this update should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The amendments in this update are effective for the Company beginning in the first quarter of fiscal 2018, including interim reporting periods. Early adoption is permitted as of the first quarter of fiscal 2017, or the beginning of the annual reporting period only. The Company elected to early adopt the amendments in this update beginning in the three months ended March 31, 2017. Due to a full valuation allowance on U.S. and certain foreign deferred tax assets at the time of adoption, 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 six months ended June 30, 2017.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The amendments in this update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. When cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents are presented in more than one line item within the statement of financial position, an entity shall, for each period that a statement of financial position is presented, disclose the line items and amounts of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents disaggregated by the line item in which they appear within the statement of financial position, with a sum to the total amount of cash, cash equivalents, restricted cash and restricted cash equivalents. The amendments in this update are effective for the Company beginning in fiscal 2018, including interim periods within that year and should be applied using a retrospective transition method to each period presented. Early adoption is permitted, including adoption in an interim period. If an entity early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes the interim period. The Company elected to early adopt the amendments in this update beginning in the three months ended March 31, 2017. The adoption did not have a material impact on the Company’s consolidated cash flows for the three and six months ended June 30, 2017.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The amendments in this update clarify the definition of a business with the objective of adding guidance to assist



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

entities with evaluating whether transactions should be accounted for as acquisitions of assets or businesses and provides a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. If the screen is not met, the amendments in this update (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The amendments in this update are effective for the Company beginning in the first quarter of 2018 and are required to be applied prospectively on or after the effective date. No disclosures are required at transition. Early application is allowed for transactions for which the acquisition date occurs before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance. The Company has elected to early adopt the amendments in this update for 2017 acquisitions. Such adoption did not have a material impact on the Company’s consolidated financial position and results of operations.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which provides for new accounting guidance related to revenue recognition. This new standard will replace all current U.S. GAAP guidance on this topic and eliminate 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 will be effective for the Company beginning in the first quarter of fiscal year 2018 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. Adoption of the amendments in this guidance is expected to accelerate the timing of the Company’s revenue recognition on products sold via distributors which will change from the sell-through method to the sell-in method. The Company is in the process of updating its preliminary assessment of the impact of adopting this new accounting standard on its consolidated financial position and results of operations following the acquisition of Exar Corporation (Note 3), which has a significant amount of sales through distributors. The adoption of this new accounting standard is not expected to have a material impact on the Company's revenues for the year ending December 31, 2018 and comparative periods expected to be presented, based on the current volume and amount of distributor transactions. The Company plans to apply the guidance prospectively with an adjustment to retained earnings for the cumulative effect of adoption.

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 a requirement to measure equity investments (except equity method investments) at fair value with changes in fair value recognized in net income; previously changes in fair value were recognized in other comprehensive income. The amendments in this update are effective for the Company beginning in the first quarter of fiscal year 2018. The adoption of the amendments in this update are not expected to have a material impact on the Company's consolidated financial position and results of operations.

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 amendments in this 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 is currently in the process of evaluating the impact of adoption of the amendments in this update on the Company’s consolidated financial position and results of operations; however, adoption of the amendments in this update is expected to have a material impact on the Company's consolidated financial position.

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



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

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 are effective for the Company beginning in the first quarter of fiscal year 2018, concurrent with the new revenue recognition standard. 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 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 and proceeds from the settlement of insurance claims in the statement of cash flows. 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, with any excess payments classified as operating activities, whereas cash payments made soon after the acquisition date to settle the contingent consideration should be classified as investing 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 are effective for fiscal years beginning with fiscal year 2018, including interim periods within those years, with early adoption permitted. The adoption of this guidance is not expected have a material impact on the Company's consolidated statement of cash flows.

In December 2016, the FASB issued ASU No. 2016-19, Technical Corrections and Improvements. The new standard is intended to provide clarity to the Accounting Standards Codification, or ASC, or correct unintended application of the guidance that is not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. ASU No. 2016-19 is effective for annual and interim fiscal reporting periods beginning after December 15, 2017 with respect to the amendments that require transition guidance, and early adoption is permitted. All other amendments were effective on issuance. The Company is currently evaluating the expected impact of the amendments that require transition guidance, but does not expect these to have a material impact on its consolidated financial statements upon adoption.

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 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 are 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 should be applied prospectively to an award modified on or after the adoption date. The adoption of this guidance is not expected have a material impact on the Company's consolidated financial position and results of operations.



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

2. Net Income Per Share

Net income per share is computed as required by the accounting standard for earnings per share, or EPS. Basic EPS is calculated by dividing net income 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.



	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
	(in thousands, except per share amounts)
Numerator:
Net income	$	10,965	$	22,584	$	19,428	$	43,265
Denominator:
Weighted average common shares outstanding—basic	65,889		63,470		65,564		63,056
Dilutive common stock equivalents	3,756		4,050		3,834		4,054
Weighted average common shares outstanding—diluted	69,645		67,520		69,398		67,110
Net income per share:
Basic	$	0.17	$	0.36	$	0.30	$	0.69
Diluted	$	0.16	$	0.33	$	0.28	$	0.64

The Company excluded 1.3 million and 0.9 million common stock equivalents for outstanding stock-based awards for the three and six months ended June 30, 2017 and 1.2 million and 0.7 million for the three and six months ended June 30, 2016, respectively, from the calculation of diluted net income per share due to their anti-dilutive nature.

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 and the net proceeds of approximately $416.8 million from $425.0 million of new transaction debt.

Exar is a designer and developer of high-performance analog mixed-signal integrated circuits and sub-system solutions. The merger significantly furthers the Company's strategic goals of increasing revenue scale, diversifying revenues by end customers and addressable markets, and expanding its analog and mixed-signal footprint on existing tier-one customer platforms. Exar adds a diverse portfolio of high performance analog and mixed-signal products constituting power management and interface technologies that are ubiquitous functions in wireless and wireline communications infrastructure, broadband access, industrial, enterprise networking, and automotive platforms. The Company intends to leverage combined technological expertise, cross-selling opportunities and distribution channels to significantly expand its serviceable addressable market.



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

The following table summarizes the fair value of purchase price consideration to acquire Exar (in thousands):



Acquisition Consideration	Amount

Cash ⁽¹⁾	$	688,114
Fair value of vested stock-based awards assumed ⁽²⁾	4,613
Total	$	692,727

__________________


⁽¹⁾	Cash consideration paid includes 51,953,635 shares ultimately tendered at $13.00 per share, or an aggregate total of $675.4 million, plus $12.7 million of cash paid to settle certain outstanding stock-based awards which were not assumed by MaxLinear in the merger.

⁽²⁾

MaxLinear assumed certain of Exar's outstanding stock-based awards as part of the merger, and estimated the fair value of such assumed stock-based awards. The portion allocated to purchase price consideration represents the vested assumed stock-based awards. The fair value of the MaxLinear equivalent stock options included in stock-based awards assumed was estimated using the Black-Scholes valuation model utilizing the assumptions noted below. The expected volatility of the MaxLinear stock price is based on the average historical volatility over the expected term based on daily closing stock prices. The expected term of the option is based on the remaining vesting period and contractual term of the options, using the simplified method of determining expected term as used by MaxLinear. The stock price volatility and expected term are based on MaxLinear’s best estimates at this time, both of which impact the fair value of the option calculated under the Black-Scholes methodology and, ultimately, the total consideration recorded for the acquisition.

The following is an allocation of purchase price as of the May 12, 2017 closing date under the acquisition method of accounting. The purchase price allocation is based upon a preliminary estimate of the fair value of the assets acquired and the liabilities assumed by MaxLinear in the acquisition (in thousands):



Description	Amount
Preliminary purchase price allocation:
Cash	$	235,810
Accounts receivable	11,363
Inventory	47,136
Prepaid and other current assets	2,372
Property and equipment	4,358
Identifiable intangible assets	250,700
Deferred tax assets	5,888
Other assets	5,424
Accounts payable	(12,385		)
Accrued expenses and other current liabilities	(10,367		)
Accrued compensation	(5,258		)
Other long-term liabilities	(3,030		)
Identifiable net assets acquired	532,011
Goodwill	160,716
Total purchase price	$	692,727

The fair value of inventories acquired from Exar included an acquisition accounting fair market value step-up of $21.8 million. The Company recognized $4.4 million amortization of inventory step-up in cost of sales in the consolidated statements of income for the three and six months ended June 30, 2017. Included in other assets in the Exar purchase price allocation is $5.0 million held in escrow pertaining to indemnification obligations under the purchase agreement associated with the November 9, 2016 divestiture of a business unit by Exar (Note 12).



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

The following table presents details of the identified intangible assets acquired of Exar:



	Estimated Useful Life (in years)	Fair Value (in thousands)
Developed technology	7.0	$	120,400
Trademarks and tradenames	6.0	12,100
Customer-related intangible	5.0	97,200
Product backlog	0.5	4,100
Finite-lived intangible assets		233,800
In-process research and development	N/A	16,900
Total intangible assets		$	250,700

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 assets acquired include, among other things, patents and other intellectual property, a workforce-in-place and other intangible assets, as well as tangible assets that include but are not limited to production masks and other production related assets, inventory and other property and equipment. The liabilities assumed include, among other things, product warranty obligations and accrued vacation and severance obligations for employees of Marvell that were acquired or hired by the Company upon close of the acquisition. 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 is integrating the acquired assets and employees into the Company's existing business. The acquisition of the G.hn business expands the Company's footprint in existing connected-home markets including the wired whole-home broadband connectivity market.



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

The following table summarizes the fair value of purchase price consideration to acquire the G.hn business (in thousands):



Acquisition Consideration	Amount

Cash	$	21,000
Total	$	21,000

The following is an allocation of purchase price as of the April 4, 2017 closing date under the acquisition method of accounting. The purchase price allocation is based upon a preliminary estimate of the fair value of the assets acquired and the liabilities assumed by MaxLinear in the acquisition (in thousands):



Description	Amount
Preliminary purchase price allocation:
Inventory	$	2,084
Prepaid and other current assets	147
Property and equipment	3,277
Identifiable intangible assets	12,600
Deferred tax assets	875
Other assets	28
Accounts payable	(1		)
Accrued expenses	(358		)
Accrued compensation	(2		)
Other long-term liabilities	(99		)
Identifiable net assets acquired	18,551
Goodwill	2,449
Total purchase price	$	21,000

The fair value of inventories acquired included an acquisition accounting fair market value step-up of $1.2 million. The Company recognized $1.2 million amortization of inventory step-up in cost of sales in the consolidated statements of operations for the three and six months ended June 30, 2017.

The following table presents details of the identified intangible assets acquired of the G.hn business:



	Estimated Useful Life (in years)	Fair Value (in thousands)
Developed technology	7.0	$	7,100
Customer-related intangibles	1.8	4,800
Covenant not-to-compete	3.0	200
Product backlog	0.8	500
Total identifiable intangible assets		$	12,600

Assumptions in the Allocations of Purchase Price

Management prepared the purchase price allocations for Exar and the G.hn businesses, and in doing so considered or relied in part upon a report of a third party valuation expert to calculate the fair value of certain acquired assets, which primarily included identifiable intangible assets, inventory, and property and equipment. Estimates of fair value require management to make significant estimates and assumptions which are preliminary and subject to change upon finalization of the valuation analysis. The goodwill recognized is attributable primarily to the acquired workforce, expected synergies, and other benefits that MaxLinear believes will result from integrating the operations of Exar and the G.hn business with the operations of MaxLinear. Certain liabilities and deferred taxes included in the purchase price allocations are based on management's best estimates of the amounts to be paid or settled and based on information available at the time the purchase price allocations were



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

prepared. Updates to and/or completion of the valuations of certain assets acquired and liabilities assumed and our evaluation of certain income tax positions may result in changes to the recorded amounts of assets and liabilities, with corresponding adjustments to goodwill amounts in subsequent periods. We expect to complete these valuations and evaluations and finalize the purchase price allocations within 12 months of the applicable acquisition date.

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

In connection with the acquisitions of Exar and the G.hn business, the Company has assumed liabilities related to product quality issues, warranty claims and contract obligations which are included in accrued expenses and other current liabilities in the purchase price allocations above. The Company has also assumed a purchase agreement that includes an indemnification clause from Exar related to a November 9, 2016 business unit divestiture by Exar. The amount of the indemnification could be up to the full purchase price received for breaches of representations and warranties, covenants and other matters under the applicable purchase agreement (Note 12).

Goodwill recorded in connection with the acquisitions of Exar and the G.hn business was $160.7 million and $2.4 million, respectively. The Company does not expect to deduct any of the acquired goodwill for tax purposes.

Proforma Combined Financial Information

The following table presents unaudited pro forma combined financial information for each of the periods presented, as if the acquisitions of Exar and the G.hn business had occurred at the beginning of fiscal year 2016:



	Three Months Ended June 30,					Six Months Ended June 30,
	2017		2016			2017		2016
	(in thousands)
Net revenues – proforma combined	$	111,832	$	129,449		$	229,520	$	259,160
Net income (loss) – proforma combined	$	15,594	$	(1,332	)	$	10,714	$	(19,537	)



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

The following adjustments were included in the unaudited pro forma combined net income (loss):



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
	(in thousands)
Net income	$	10,965		$	22,584		$	19,428		$	43,265
Add: Results of operations – acquired business	(9,048		)	4,151			(8,916		)	1,642
Less: Proforma adjustments
Depreciation of property, plant and equipment	476			1,179			(37		)	724
Amortization of intangible assets	(3,470		)	(12,114		)	(15,434		)	(24,220		)
Amortization of inventory step-up	6,018			(9,543		)	6,018			(20,332		)
Impairment of intangible assets	—			1,519			—			1,519
Acquisition and integration expenses	11,692			(5,289		)	14,484			(14,484		)
Interest expense	(1,598		)	(3,819		)	(5,388		)	(7,651		)
Income tax benefit	559			—			559			—
Net income (loss) – proforma combined	$	15,594		$	(1,332	)	$	10,714		$	(19,537	)

Net income (loss) per share - proforma combined:
Basic	$	0.24		$	(0.02	)	$	0.16		$	(0.31	)
Diluted	$	0.22		$	(0.02	)	$	0.15		$	(0.31	)
Shares used to compute net income (loss) per share - proforma combined
Basic	65,889			63,470			65,564			63,056
Diluted	69,645			63,470			69,398			63,056

The pro forma combined financial information for the three months ended June 30, 2016 includes aggregate non-recurring adjustments of $12.2 million consisting of aggregate amortization of inventory step-up of $10.0 million and amortization of intangible assets of $2.2 million from the Exar and G.hn businesses, for which the related assets have useful lives of less than one year, and excludes impairment of intangible assets of $1.5 million included in Exar's historical results of operations. The pro forma combined financial information for the six months ended June 30, 2016 includes aggregate non-recurring adjustments of $23.1 million consisting of aggregate amortization of inventory step-up of $18.7 million and amortization of intangible assets of $4.4 million from the Exar and G.hn businesses, for which the related assets have useful lives of less than one year, and excludes impairment of intangible assets of $1.5 million included in Exar's historical results of operations.

The pro forma combined financial information is presented for illustrative purposes only and is not necessarily indicative of the consolidated results of operations of the consolidated business had the acquisitions of Exar and the G.hn business actually occurred at the beginning of fiscal year 2016 or of the results of future operations of the consolidated business. The unaudited pro forma financial information does not reflect any operating efficiencies and cost saving that may be realized from the integration of the acquisitions in the Company's unaudited consolidated statements of income.

For the three and six months ended June 30, 2017, $13.9 million of revenue and $8.0 million of gross profit, excluding $8.7 million of amortization of acquired intangible assets and the inventory fair-value step-up of Exar and the G.hn business since the acquisition date, are included in the Company's consolidated statements of income. Such amounts exclude revenue of $5.2 million and gross profit of $3.9 million that would have been recorded by Exar on a sell-through basis had deferred revenue and deferred profit as of the May 12, 2017 acquisition date not been eliminated in the purchase price allocation for Exar as a result of acquisition accounting.

Acquisition and integration-related costs of $5.5 million and $9.0 million related to the acquisitions of Exar and the G.hn business were included in selling, general, and administrative expenses in the Company's statements of income for the three and six months ended June 30, 2017, respectively.



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

Acquisition of Certain Assets and Assumption of Certain Liabilities of the Wireless Infrastructure Backhaul Business of Broadcom Corporation

On July 1, 2016, the Company consummated the transactions contemplated by an asset purchase agreement entered into with Broadcom Corporation. The Company paid cash consideration of $80.0 million for the purchase of certain assets of Broadcom's wireless infrastructure backhaul business, and the assumption of certain liabilities. The acquired assets and assumed liabilities, together with 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 the Company's existing business. In the six months ended June 30, 2017, the Company recorded an adjustment to decrease certain assumed liabilities and a corresponding decrease to goodwill of $0.3 million (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 Wireless Infrastructure Access Business of Microsemi Storage Solutions, Inc. (formerly known as PMC-Sierra, Inc.)

On April 28, 2016, the Company entered into an asset purchase agreement with Microsemi Storage Solutions, Inc., formerly known as PMC-Sierra, Inc., or Microsemi, and consummated the transactions contemplated by the asset purchase agreement. The Company paid cash consideration of $21.0 million for the purchase of certain wireless access assets of Microsemi's wireless infrastructure access business, and assumed certain liabilities. The acquired assets and assumed liabilities, together with 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 the Company's existing business.

Acquisition of Entropic Communications, Inc.

On April 30, 2015, the Company completed its acquisition of Entropic Communications, Inc., or Entropic, for aggregate consideration of $289.4 million, which was comprised of the equity value of shares of the Company's common stock that were issued in the transaction of $173.8 million, the portion of outstanding equity awards deemed to have been earned as of April 30, 2015 of $4.5 million and cash of $111.1 million.

Refer to Note 4 for disclosures following this acquisition for the six months ended June 30, 2017 and 2016.

Acquisition of Physpeed, Co., Ltd.

On October 31, 2014, the Company acquired 100% of the outstanding common shares of Physpeed Co., Ltd., or Physpeed, a privately held developer of high-speed physical layer interconnect products addressing enterprise and telecommunications infrastructure market applications. The Company paid $9.3 million in cash in exchange for all outstanding shares of capital stock and equity of Physpeed.

The following disclosures regarding this acquisition are for the six months ended June 30, 2017 and 2016.

Earn-Out

The definitive merger agreement also provided for potential earn-out consideration of up to $0.75 million to the former shareholders of Physpeed for the achievement of certain 2015 and 2016 revenue milestones. The contingent earn-out consideration had an estimated fair value of $0.3 million at the date of acquisition. The 2015 earn-out amount was determined by multiplying $0.375 million by a 2015 revenue percentage that was defined in the definitive merger agreement. The 2016 earn-out amount was determined by multiplying $0.375 million by a 2016 revenue percentage that was defined in the definitive merger agreement and was fully earned as of December 31, 2016. During the six months ended June 30, 2017, the Company paid $0.375 million for the 2016 earn-out (Note 6).

Restricted Stock Units

The Company agreed to grant restricted stock units, or RSUs, under its equity incentive plan to Physpeed continuing employees if certain 2016 revenue targets were met contingent upon continued employment. Qualifying revenues were the net revenues recognized directly attributable to sales of Physpeed products or the Company’s provision of non-recurring engineering services exclusively with respect to the Physpeed products. In February 2017, the Company settled the remaining obligations of $1.6 million related to the 2016 revenue period by issuing $0.86 million in RSUs and through payment of $0.76 million in cash.



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

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 income:



	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
	(in thousands)
Employee separation expenses	$	5,996	$	—	$	5,996	$	—
Lease related charges	550		—		550		1,976
Other	—		—		—		130
	$	6,546	$	—	$	6,546	$	2,106

Included in restructuring charges for the 2017 periods is $4.4 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 of former Exar executives, other severance-related charges of $1.6 million and lease restructuring charges of $0.6 million related to exiting certain Exar facilities. The lease impairment charges in the 2016 periods include adjustments to the estimates of net present value of the remaining lease obligation for actual sublease income and period costs associated with certain vacated facilities, including commissions to brokers involved in subleasing property. Total sublease income related to leased facilities the Company ceased using was approximately $0.5 million and $1.0 million for the three and six months ended June 30, 2017. Sublease income was approximately $0.4 million and $0.5 million for the three and six months ended June 30, 2016, respectively.

The following table presents a roll-forward of the Company's restructuring liability for the six months ended June 30, 2017. 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)
Liability as of December 31, 2016	$	—		$	499		$	37	$	536
Transfers from deferred rent	—			4,405			—		4,405
Restructuring charges	5,996			550			—		6,546
Assumed in acquisition	—			—			70		70
Cash payments	(676		)	(1,465		)	—		(2,141		)
Non-cash items	(4,514		)	(6		)	—		(4,520		)
Liability as of June 30, 2017	$	806		$	3,983		$	107	$	4,896

Non-cash items primarily consist of the release of accelerated stock-based awards upon termination of a former Exar executive.



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

5. Goodwill and Intangible Assets

Goodwill

Goodwill arises from the acquisition method of accounting for business combinations and represents the excess of the purchase price over the fair value of the net assets and other identifiable intangible assets acquired. The fair values of net tangible assets and intangible assets acquired are based upon preliminary valuations and the Company's estimates and assumptions are subject to change within the measurement period (potentially up to one year from the acquisition date). During the three and six months ended June 30, 2017, the Company adjusted its allocation of purchase price for the acquisition of the wireless infrastructure backhaul business related to a decrease in an assumed liability and a corresponding decrease in goodwill of $0.3 million (Note 3).

The following table presents the changes in the carrying amount of goodwill:



	Carrying Amount
	(in thousands)
Balance as of December 31, 2016	$	76,015
Acquisitions	163,165
Adjustments	(342		)
Balance as of June 30, 2017	$	238,838

Goodwill is not amortized, but is assessed for impairment on an annual basis on October 31 each year and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The recoverability of goodwill is measured at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair market value of the reporting unit. No goodwill impairment was recognized for the three and six months ended June 30, 2017 and 2016.

Acquired Intangibles

Finite-lived Intangible Assets

The following table sets forth the Company’s finite-lived intangible assets resulting from business acquisitions and technology licenses purchased, which continue to be amortized:



		June 30, 2017							December 31, 2016
	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	$	4,838	$	(3,130	)	$	1,708	$	3,311	$	(2,957	)	$	354
Developed technology	6.9	208,561		(22,687		)	185,874		77,800		(13,550		)	64,250
Trademarks and trade names	6.1	13,800		(862		)	12,938		1,700		(405		)	1,295
Customer relationships	4.6	122,000		(12,199		)	109,801		20,000		(4,782		)	15,218
Covenants non-compete	3.0	1,100		(322		)	778		900		(156		)	744
Backlog	0.5	31,837		(28,612		)	3,225		26,600		(26,600		)	—
		$	382,136	$	(67,812	)	$	314,324	$	130,311	$	(48,450	)	$	81,861



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

The following table sets forth amortization expense associated with finite-lived intangible assets, which is included in the consolidated statements of income as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
	(in thousands)				(in thousands)
Cost of net revenue	$	6,260	$	1,787	$	8,944	$	3,369
Research and development	138		96		275		344
Selling, general and administrative	8,262		725		10,143		957
	$	14,660	$	2,608	$	19,362	$	4,670

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 six months ended June 30, 2017 related to finite-lived intangible assets resulting from acquisitions, other additions, transfers to developed technology from in-process research and development, or IPR&D, and amortization:



	Carrying Amount
	(in thousands)
Balance as of December 31, 2016	$	81,861
Acquisitions	246,400
Additions	5,325
Transfers to developed technology from IPR&D	100
Amortization	(19,362		)
Balance as of June 30, 2017	$	314,324

The Company regularly reviews the carrying amount of its long-lived assets subject to depreciation and amortization, as well as the useful lives, to determine whether indicators of impairment may exist which warrant adjustments to carrying values or estimated useful lives. An impairment loss would be 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 would be measured based on the excess of the carrying amount of the asset over the asset’s fair value. During the three and six months ended June 30, 2017 and 2016, no impairment losses related to finite-lived intangible assets were recognized.

The following table presents future amortization of the Company’s finite-lived intangible assets at June 30, 2017:



	Amount
	(in thousands)
2017 (6 months)	$	34,966
2018	63,495
2019	52,644
2020	51,780
2021	51,000
Thereafter	60,439
Total	$	314,324



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

Indefinite-lived Intangible Assets

The following table sets forth the activity of the Company’s indefinite-lived intangible assets resulting from transfers to developed technology from IPR&D:



	Gross Carrying Amount
	(in thousands)
Balance as of December 31, 2016	$	22,400
Acquisitions	16,900
Transfers to developed technology from IPR&D	(100		)
Balance as of June 30, 2017	$	39,200

The Company performs its annual assessment of indefinite-lived intangible assets on October 31 each year or more frequently if events or changes in circumstances indicate that the asset might be impaired utilizing a qualitative test as a precursor to the quantitative test comparing the fair value of the assets with their carrying amount. Based on the qualitative test, if it is more likely than not that indicators of impairment exists, the Company proceeds to perform a quantitative analysis. During the three and six months ended June 30, 2017 and 2016, no indicators of impairment were identified and, as a result, no impairment of indefinite-lived intangible assets was recorded.

6. Financial Instruments

As of June 30, 2017, the Company did not have any financial instruments that are required to be measured at fair value on a recurring basis. The composition of financial instruments as of December 31, 2016 is as follows:



	December 31, 2016
	Amortized Cost			Gross Unrealized					Fair Value
	Amortized Cost			Gains		Losses			Fair Value
	(in thousands)
Assets
Money market funds	$	39,181		$	—	$	—		$	39,181
Government debt securities	28,025			—		(32		)	27,993
Corporate debt securities	25,923			—		(7		)	25,916
	93,129			—		(39		)	93,090
Less amounts included in cash and cash equivalents	(39,181		)	—		—			(39,181		)
	$	53,948		$	—	$	(39	)	$	53,909



	Fair Value at December 31, 2016
	(in thousands)
Liabilities
Contingent consideration	375
Total	$	375

The fair values of the Company’s financial instruments are the amounts that would be received in an asset sale or paid to transfer a liability in an orderly transaction between unaffiliated market participants and are recorded using a hierarchal 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.



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

The Company classifies its financial instruments within Level 1 or Level 2 of the fair value hierarchy on the basis of valuations using quoted market prices or alternate pricing sources and models utilizing market observable inputs, respectively. The Company’s money market funds were valued based on quoted prices for the specific securities in an active market and were therefore classified as Level 1. The government and corporate debt securities have been valued on the basis of valuations provided by third-party pricing services, as derived from such services’ pricing models. The pricing services may use a consensus price which is a weighted average price based on multiple sources or mathematical calculations to determine the valuation for a security, 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 has not made any adjustments to the prices obtained from its third party pricing providers. The contingent liability is classified as Level 3 as of December 31, 2016 and is valued using an internal rate of return model. The assumptions used in preparing the internal rate of return model include revenues earned related to Physpeed products and services and a discount factor of 1 at December 31, 2016. The contingent liability was settled in the six months ended June 30, 2017. The assumptions used in preparing the internal rate of return model included estimates for outcome if milestone goals were achieved, the probability of achieving each outcome and discount rates. There were no signficant changes in any of the unobservable inputs used in the fair value measurement of contingent consideration, and the resultant fair value.

The following table presents a summary of the Company’s financial instruments that were measured at fair value on a recurring basis as of December 31, 2016:



			Fair Value Measurements at December 31, 2016
	Balance at December 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Assets
Money market funds	$	39,181	$	39,181	$	—	$	—
Government debt securities	27,993		—		27,993		—
Corporate debt securities	25,916		—		25,916		—
	$	93,090	$	39,181	$	53,909	$	—
Liabilities
Contingent consideration	$	375	$	—	$	—	$	375



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

The following summarizes the activity in Level 3 financial instruments:



	Six Months Ended June 30,
	2017			2016
	(in thousands)
Contingent Consideration ⁽¹⁾
Beginning balance	$	375		$	395
Physpeed earn-out payment	(375		)	(240		)
Loss recognized in net income⁽²⁾	—			110
Ending balance	$	—		$	265
Net loss for the period included in net income attributable to contingent consideration held at the end of the period	$	—		$	(110	)

____________________________

⁽¹⁾

In connection with the acquisition of Physpeed, the Company recorded contingent consideration based upon the expected achievement of 2015 and 2016 revenue milestones. Changes to the fair value of contingent consideration due to changes in assumptions used in preparing the valuation model are recorded in selling, general and administrative expense in the unaudited consolidated statements of income.


⁽²⁾	Changes to the estimated fair value of contingent consideration for the three and six months ended June 30, 2016 were primarily due to updates to present value discount factors.

There were no transfers between Level 1, Level 2 or Level 3 financial instruments in the three and six months ended June 30, 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, net receivables, certain other assets, accounts payable, accrued expenses, accrued compensation costs, and other current liabilities.

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

7. Balance Sheet Details

Cash, cash equivalents, restricted cash and investments consist of the following:



	June 30, 2017		December 31, 2016
	(in thousands)
Cash and cash equivalents	$	87,568	$	81,086
Short-term restricted cash	615		614
Long-term restricted cash	1,908		1,196
Total cash, cash equivalents and restricted cash	90,091		82,896
Short-term investments	—		47,918
Long-term investments	—		5,991
	$	90,091	$	136,805



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

Inventory consists of the following:



	June 30, 2017		December 31, 2016
	(in thousands)
Work-in-process	$	35,528	$	13,947
Finished goods	42,031		12,636
	$	77,559	$	26,583

Property and equipment consist of the following:



	Useful Life (in Years)	June 30, 2017			December 31, 2016
		(in thousands)
Furniture and fixtures	5	$	2,266		$	1,983
Machinery and equipment	3-5	32,027			27,028
Masks and production equipment	2	10,414			9,153
Software	3	4,979			3,625
Leasehold improvements	1-5	12,622			11,635
Construction in progress	N/A	200			39
		62,508			53,463
Less accumulated depreciation and amortization		(38,039		)	(32,914		)
		$	24,469		$	20,549

Depreciation expense for the three and six months ended June 30, 2017 was $3.6 million and $5.8 million, respectively. Depreciation expense for three and six months ended June 30, 2016 was $1.6 million and 5.3 million, respectively.

Deferred revenue and deferred profit consist of the following:



	June 30, 2017			December 31, 2016
	(in thousands)
Deferred revenue—rebates	$	161		$	464
Deferred revenue—distributor transactions	17,681			7,987
Deferred cost of net revenue—distributor transactions	(4,525		)	(2,460		)
	$	13,317		$	5,991

Accrued price protection liability consists of the following activity:



	Six Months Ended June 30,
	2017			2016
	(in thousands)
Beginning balance	$	15,176		$	20,026
Charged as a reduction of revenue	23,445			22,759
Reversal of unclaimed rebates	(40		)	(1,302		)
Payments	(13,958		)	(23,213		)
Ending balance	$	24,623		$	18,270



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

Accrued expenses and other current liabilities consist of the following:



	June 30, 2017		December 31, 2016
	(in thousands)
Accrued technology license payments	$	5,705	$	5,850
Accrued professional fees	2,808		1,620
Accrued engineering and production costs	847		1,232
Accrued restructuring	4,896		536
Accrued royalty	1,095		846
Accrued leases - other	1,565		1,560
Accrued customer credits	1,154		1,207
Income tax liability	14,447		235
Other	6,088		3,272
	$	38,605	$	16,358

8. Debt

As of June 30, 2017, the carrying amount of the Company's long-term debt consists of the following:



	June 30, 2017
	(in thousands)

Principal	$	425,000
Less:
Unamortized debt discount	(2,082		)
Unamortized debt issuance costs	(5,897		)
Net carrying amount of long-term debt	417,021
Less: current portion of long-term debt	(1,989		)
Long-term debt, non-current portion	$	415,032

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 (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-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 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 obligated 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



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

limitations and a 1.0% soft call premium applicable during the first six months for the loan term. The Company exercised its right to prepay and made a prepayment of principal in July 2017 (Note 13).

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. The credit agreement also contains customary events of default that include, among other things, certain payment defaults, cross defaults to other indebtedness, covenant defaults, change in control defaults, judgment defaults, and bankruptcy and insolvency defaults. If an event of default exists, the lenders may require immediate payment of all obligations under the credit agreement, and may exercise certain other rights and remedies provided for under the credit agreement, the other loan documents and applicable law.

As of June 30, 2017, the effective interest rate payable on the long-term debt was 3.8%.

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 six months ended June 30, 2017, the Company recognized amortization of debt discount and debt issuance costs of $0.04 million and $0.1 million to interest expense. The approximate fair value of the term loan as of June 30, 2017 was $405.0 million, 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.

Future Principal Payments of Debt

The future scheduled principal payments of debt as of June 30, 2017 are as follows:



	Total
	(in thousands)
2017 (6 months)	$	1,062
2018	5,313
2019	4,250
2020	4,250
2021	4,250
Thereafter	405,875
Total	$	425,000

9. Stock-Based Compensation and Employee Benefit Plans

Common Stock

On March 29, 2017, each share of the Company’s then outstanding Class A common stock and Class B common stock automatically converted into a single class of common stock pursuant to the terms of the Company’s Amended and Restated Certificate of Incorporation. Also on March 29, 2017, the shares underlying outstanding stock options, restricted stock units and restricted stock awards automatically converted to rights to receive shares of a single class of common stock. The conversion had no impact on the total number of issued and outstanding shares of capital stock; the Class A shares and Class B shares converted into an equivalent number of shares of common stock. The board of directors approved a reduction in the Company’s total number of authorized shares of capital stock by 65,445,853 from 1,575,000,000 to 1,509,554,147 to account for the 58,876,053 shares of Class A common stock and 6,569,800 shares of Class B common stock retired upon conversion, such that the authorized number of shares of Class A common stock is 441,123,947 and the authorized number of shares of Class B common stock is 493,430,200.



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

No additional Class A shares or Class B shares will be issued following the conversion. The authorized number of shares of common stock and preferred stock remain unchanged at 550,000,000 shares and 25,000,000 shares, respectively.

Following the conversion, each share of common stock is entitled to one vote per share and otherwise has the same designations, rights, powers and preferences as the Class A common stock prior to the conversion. In addition, holders of the common stock vote as a single class of stock on any matter that is submitted to a vote of stockholders. Prior to the conversion, the holders of the Company’s Class A and Class B common stock had identical voting rights, except that holders of Class A common stock were entitled to one vote per share and holders of Class B common stock were entitled to ten votes per share with respect to transactions that would result in a change of control of the Company or that relate to the Company’s equity incentive plans. In addition, holders of Class B common stock had the exclusive right to elect two members of the Company’s Board of Directors, each referred to as a Class B Director. The shares of Class B common stock were not publicly traded. Each share of Class B common stock was convertible at any time at the option of the holder into one share of Class A common stock and in most instances automatically converted upon sale or other transfer.

Employee Benefit Plans

At June 30, 2017, 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, and the 2010 Employee Stock Purchase Plan, or ESPP, as well as the following former Entropic plans: the 2007 Equity Incentive Plan and the 2007 Non-Employee Director's Plan. Refer to the Company’s Annual Report for a summary of the stock-based compensation and equity plans. Other than the automatic conversion of common stock underlying the plans as described above and the assumption of certain outstanding stock-based awards from Exar under the following former Exar plans: the Exar Corporation 2006 Equity Incentive Plan, the Sipex Corporation 2006 Equity Incentive Plan and the Exar Corporation 2014 Equity Incentive Plan. There have been no material changes to such plans during the six months ended June 30, 2017.

As of June 30, 2017, the number of shares of common stock reserved for issuance under the 2010 Plan was 12,531,373 shares. As of June 30, 2017, the number of shares of common stock reserved for issuance under the ESPP was 1,663,226 shares.

Stock-Based Compensation

The Company recognizes stock-based compensation in the consolidated statements of income, based on the department to which the related employee reports, as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
	(in thousands)				(in thousands)
Cost of net revenue	$	79	$	51	$	138	$	94
Research and development	4,011		3,305		7,504		6,584
Selling, general and administrative	3,024		1,746		4,946		3,533
Restructuring	4,514		—		4,514		—
	$	11,628	$	5,102	$	17,102	$	10,211

The total unrecognized compensation cost related to unvested restricted stock units and restricted stock awards as of June 30, 2017 was $56.4 million, and the weighted average period over which these equity awards are expected to vest is 2.68 years. The total unrecognized compensation cost related to unvested stock options as of June 30, 2017 was $10.8 million, and the weighted average period over which these equity awards are expected to vest is 2.25 years.



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

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 (formerly Class A 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, 2016	3,670		$	14.67
Granted	1,046		29.02
Assumed in acquisition	250		31.12
Vested	(1,013	)	15.65
Canceled	(255	)	18.78
Outstanding at June 30, 2017	3,698		19.29

Employee Stock Purchase Rights and Stock Options

The Company uses the Black-Scholes valuation model to calculate the fair value of employee stock purchase rights and stock options granted to employees. Stock based compensation expense is recognized over the vesting period using the straight-line method.

Employee Stock Purchase Rights

During the six months ended June 30, 2017, there were 117,217 shares of common stock purchased under the ESPP. The shares were purchased on May 15, 2017 at a grant price of $18.11 per share.

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:



	Six Months Ended
	June 30, 2017
Weighted-average grant date fair value per share	$	7.46
Risk-free interest rate	1.02		%
Dividend yield	—		%
Expected life (in years)	0.50
Volatility	30.00		%

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 life is the duration of the offering period for each grant date, which occurs on a semi-annual basis. In addition, the estimated volatility incorporates the historical volatility of the Company's daily share closing price.



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

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, 2016	3,025		$	6.78
Assumed in acquisition	1,135		17.44
Exercised	(677	)	8.81
Canceled	(124	)	16.96
Outstanding at June 30, 2017	3,359		$	9.60	3.04	$	61,513
Vested and expected to vest at June 30, 2017	3,324		$	9.54	3.01	$	61,099
Exercisable at June 30, 2017	2,613		$	7.94	2.40	$	52,213

No stock options were granted by the Company during the six months ended June 30, 2017.

The intrinsic value of stock options exercised was $14.3 million and $3.2 million in the six months ended June 30, 2017 and 2016, respectively.

Cash received from exercise of stock options was $6.0 million and $2.1 million during the six months ended June 30, 2017 and 2016, respectively. The tax benefit from stock options exercised was $10.3 million and $4.5 million during the six months ended June 30, 2017 and 2016, respectively.

Employee Incentive Bonus

The Company settles a majority of bonus awards for its employees, including executives, in shares of common stock under the 2010 Equity Incentive Plan. When bonus awards are settled in common stock issued under the 2010 Equity Incentive Plan, the number of shares issuable to plan participants is determined based on the closing price of the Company's common stock as determined in trading on the New York Stock Exchange on a date approved by the Board of Directors. In connection with the Company's bonus programs, in February 2017 we issued 0.2 million freely-tradable shares of our Class A common stock in settlement of bonus awards to employees, including executives, for the July 1, 2016 to December 31, 2016 performance period. At June 30, 2017, an accrual of $3.3 million was recorded for bonus awards for employees for year-to-date achievement in the 2017 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 related to projected current federal and state income taxes and income taxes in certain foreign jurisdictions. To determine the quarterly provision for income taxes, the Company used an estimated annual effective tax rate, which is 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 item 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 has released the valuation allowance against its federal deferred tax assets during the three months ended June 30, 2017. Of the federal valuation allowance of $61.6 million as of December 31, 2016, the Company released $50.1 million for an ending valuation allowance of $11.5 million as of June 30, 2017. The Company will continue to have a valuation allowance on its state deferred tax assets as



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

well as certain foreign 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 the certain tax free jurisdictions in which it operates.

The Company recorded a benefit for income taxes of $29.5 million and $27.5 million in the three and six months ended June 30, 2017, respectively, and a provision for income taxes of $0.1 million and $1.1 million for the three and six months ended June 30, 2016, respectively. The benefit from income taxes in the three and six months ended June 30, 2017 primarily relates to the release of the federal valuation allowance during the three months ended June 30, 2017. The provision for income taxes in the three and six months ended June 30, 2016 primarily relates to federal alternative minimum tax due to the Company's limitation on use of net operating losses, credit carryforwards, state income taxes, and income taxes on certain foreign jurisdictions.

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 six months ended June 30, 2017, the Company’s unrecognized tax benefits increased by $65.3 million. Of this amount, $64.3 million of the increase relates to the acquisition of Exar and $63.3 million of the increase is offset against the Company's deferred taxes. Other than as related to purchase accounting for Exar, 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 June 30, 2017 were $1.17 million and $0.30 million, respectively.

The Company files federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations. For federal income taxes, years prior to 2013 are closed. For state income taxes, years prior to 2012 are closed. In most foreign jurisdictions, years prior to 2009 are closed.

Singapore Tax Incentives

In April 2017, through its subsidiary in Singapore, the Company began operating under certain tax incentives in Singapore, which are generally effective through March 2022 and may be extended through March 2027. Under these incentives, qualifying income derived from certain sales of the Company's integrated circuits is taxed at a concessionary rate over the incentive period. The Company also receives a reduced withholding tax rate on certain intercompany royalty payments made by the Company's Singapore subsidiary during the incentive period. Such incentives are conditional upon our meeting certain minimum employment and investment thresholds within Singapore over time, and the Company may be required to return certain tax benefits in the event the Company does not achieve compliance related to that incentive period. The Company currently believes that it will be able to satisfy these conditions without material risk.

11. Concentration of Credit Risk, Significant Customers and Geographic Information

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

Significant Customers

The Company markets its products and services to manufacturers of a wide range of electronic devices (Note 1). The Company makes periodic evaluations of the credit worthiness of its customers.



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

Customers comprising greater than 10% of net revenues for each of the periods presented are as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Percentage of total net revenue
Arris	26	%	29	%	29	%	26	%
Technicolor	*		10	%	*		14	%
WNC Corporation	*		*		*		11	%

____________________________


*	Represents less than 10% of the net revenue for the respective period.

Balances that are 10% or greater of accounts receivable, based on the Company's billings to the contract manufacturer customers, are as follows:



	June 30,		December 31,
	2017		2016
Percentage of gross accounts receivable
Pegatron Corporation	17	%	17	%
Sernet Technologies Corporation	*		15	%
WNC Corporation	*		12	%

____________________________


*	Represents less than 10% of the gross accounts receivable for the respective period end.

Suppliers comprising greater than 10% of total inventory purchases are as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
United Microelectronics Corporation	19	%	16	%	21	%	15	%
Taiwan Semiconductor Manufacturing Company	16	%	12	%	18	%	*
Globalfoundries	10	%	11	%	13	%	16	%
Semiconductor Manufacturing International Corp	20	%	12	%	18	%	13	%
Advanced Semiconductor Engineering	15	%	11	%	13	%	11	%
Tower-Jazz Semiconductor	*		14	%	*		17	%

____________________________


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



Table of Contents	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 June 30,								Six Months Ended June 30,
	2017				2016				2017				2016
	Amount		% of total net revenue		Amount		% of total net revenue		Amount		% of total net revenue		Amount		% of total net revenue
Asia	$	94,823	91	%	$	94,930	93	%	$	179,131	93	%	$	192,166	94	%
United States	2,095		2	%	2,356		2	%	2,240		1	%	5,072		2	%
Rest of world	7,257		7	%	4,401		4	%	11,645		6	%	7,134		4	%
Total	$	104,175	100	%	$	101,687	100	%	$	193,016	100	%	$	204,372	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 June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Percentage of total net revenue
China	73	%	84	%	75	%	84	%

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):



	June 30,				December 31,
	2017				2016
	Amount		% of total		Amount		% of total
United States	$	511,666	83	%	$	111,336	55	%
Singapore	100,983		16	%	78,318		39	%
Rest of world	4,182		1	%	11,171		6	%
Total	$	616,831	100	%	$	200,825	100	%

12. 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 fiscal 2022. As of June 30, 2017, future minimum payments under non-cancelable operating leases, inventory purchase and other obligations are as follows: