Maxlinear Inc (MXL) 2015 Q1 法說會逐字稿

Good day and welcome everyone to the MaxLinear Q1 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brian Nugent. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone and thank you for joining us for today's conference call to discuss MaxLinear's first-quarter 2015 financial results. Today's call is being hosted by Dr. Kishore Seendripu, CEO and Adam Spice, CFO.

During the course of this conference call, we will make projections or other statements regarding future conditions or events relating to our products and business. Among these statements, we will provide information relating to our current expectations for second-quarter 2015 revenue, including expectations for revenue trends in our cable, terrestrial, satellite and other target markets, gross profit percentage and operating expenses, the potential impact of our pending acquisition of Entropic Communications and our current views regarding trends in our markets, including our current views of the potential for growth in our cable, terrestrial, satellite and infrastructure markets.

These statements are forward-looking statements within the meaning of federal securities laws and actual results may differ materially from results reflected in these forward-looking statements. We are subject to substantial risks and uncertainties that could adversely affect our future results. Our business and future operating results could be adversely affected if our current target markets, including terrestrial, cable, satellite and infrastructure markets do not grow or if we are not successful in expanding our target addressable market through the acquisition of new products.

In addition, substantial competition in our industry, potential declines in average selling prices, risks related to our intellectual property protection and outstanding intellectual property litigation, integration risk associated with Entropic Communications and other acquisitions, if any, and cyclicality in the semiconductor industry could adversely affect future operating results. A more detailed discussion of these risks factors and other risk factors you should consider in evaluating MaxLinear and its prospects is included under the caption Risk Factors in our filing with the Securities and Exchange Commission, in particular our most recently filed Form 10-K for the fiscal year ended December 31, 2014 and, with respect to the pending acquisition of Entropic, in the registration statement on form S-4 and related proxy statement filed with the SEC in connection with the special meeting of stockholders that was held earlier today.

In addition, we expect to file soon our Form 10-K for the first quarter of 2015, which will contain additional discussion of risk affecting MaxLinear's business, including risks related to the acquisition of Entropic and integration of its business into that of MaxLinear. These forward-looking statements are made as of today and MaxLinear does not currently intend and has no obligation to update or revise any forward-looking statements. The first-quarter 2015 earnings release is available on the Company website at maxlinear.com.

In addition, MaxLinear reports gross profit, income and loss from operations and net income and loss and basic and diluted net income and loss per share in accordance with GAAP and additionally on a non-GAAP basis. Our non-GAAP presentation excludes the effects of stock-based compensation expense and its related tax effect, accruals under our equity settled performance-based bonus plan, outstanding patent litigation with CrestaTech, deferred merger proceeds, change in fair value of contingent consideration, severance charges, amortization of acquisition-related intangibles and any nonrecurring acquisition-related expenses.

Management believes that this non-GAAP information is useful because it enhances the understanding of the Company's ongoing economic performance and MaxLinear therefore uses non-GAAP reporting internally to evaluate and manage the Company's operations. MaxLinear has chosen to provide this information to investors to enable them to perform comparisons of operating results in a manner similar to how the Company internally analyzes operating results.

The full reconciliation of the GAAP to non-GAAP financial data can be found in our earnings release issued earlier today. The earnings release and reconciliation is available on our website and we ask that you review them in conjunction with this call. And now let me turn the call over to Dr. Kishore Seendripu, CEO of MaxLinear.

Thank you, Brian and good afternoon, everyone. Thank you all for joining us today. Before jumping into the financial highlights, I would like to note that our revenue grew 9% both year-over-year and sequentially, and was above the high end of our prior guidance. This revenue strength, combined with a continued focus on controlling operating costs, resulted in a strong quarter of operating cash flow generation of $3.8 million. Strong cable and satellite growth more than offset expected seasonal softness in our terrestrial set-top box business. We are particularly encouraged that our strong cable growth was not only driven by a pronounced shift in demand to higher channel-count, 24 channel DOCSIS 3.0 modems and gateways, it was also due to notable strength across a range of cable video platforms.

The near doubling of satellite revenues quarter-over-quarter combined with our expectations for the second quarter gives us confidence that our multi-year satellite investments across gateway and satellite outdoor unit platforms leave us well-positioned to deliver meaningful returns for our shareholders. We believe that our pending acquisition of Entropic Communications represents a strategic technology platform expansion that will solidify MaxLinear as a true franchise player across and throughout the broadband ecosystem. This acquisition will combine MaxLinear's market-leading full-spectrum capture receivers with Entropic's pioneering MoCA connectivity and analog channel stacking solutions for the broadband market. We are also excited about the significant progress we have made recently in opening up large, new, addressable markets for our RF and analog mixed signal technology platform, primarily in the wireless and wired infrastructure markets.

In the first quarter, we aggressively augmented our recent Physpeed acquisition by expanding Physpeed's product development roadmap. We taped out solutions for the high-speed interconnect data center metro and long haul 100 gig and 400 gig data in telecommunications markets that we believe were uniquely enabled by the combination of our joint engineering capabilities.

We also announced some of these exciting new linear and limiting fiber amplifier and laser driver products at the recently held OFC convention in Los Angeles. Combined with our organic product development initiative in wireless and cable infrastructure, we feel confident in our ability to execute on new profitable growth vectors, which will further diversify our revenues across broadband cable, satellite, terrestrial and new infrastructure markets.

Moving to the financial specifics, net revenue in the first quarter of 2015 was $35.4 million, up approximately 9% relative to both the fourth quarter of 2014 and the year-ago quarter and above the high end of prior guidance. GAAP and non-GAAP gross margins in the first quarter were 61.2% and 61.3% respectively. This compares to GAAP and non-GAAP gross margin of 60.8% and 60.9% respectively in the fourth quarter of 2014 and GAAP and non-GAAP gross margin of 61.7% and 61.8% respectively in the year-ago quarter.

GAAP net loss in the first quarter was $0.12 per share, which compares to a loss of $0.06 per share in the prior quarter and a loss of $0.02 per share in the year-ago quarter. The GAAP net loss in the first quarter of 2015 was exacerbated by significant Entropic-related deal expenses, as well as severance and related expenses connected with the closing of our Shanghai R&D center. Our non-GAAP earnings per share in Q1 were $0.09 on diluted shares of 40 million compared to $0.05 per share in Q4 2014 and $0.10 per share in Q1 last year.

I will now discuss some current trends in our business. In the first quarter of 2015, cable contributed 66% of our total revenue versus 63% in the prior quarter. Cable grew 14% sequentially due to strong growth across a range of video applications, as well as a beneficial trend in our cable data business towards higher channel count, 24 channel DOCSIS 3.0 modems and gateways. Within this higher channel cable mix, the demand was overwhelmingly stronger for 24 channel solutions relative to 16 channel driven primarily by shipments of advanced near gigabit per second data rate capable systems to operators in North America. We are also excited that ongoing data gateway shipments at Comcast and Time Warner and upcoming platforms at Liberty Global and Vodafone Kabel Deutschland are based on 24 channel systems for which MaxLinear is in the leading position as a supplier.

Total terrestrial revenue within which we currently include our satellite revenues was roughly flat sequentially. Our near doubling of satellite revenues was offset by seasonal softness, primarily in terrestrial set-top box product and flatness in our hybrid television tuners. Underpinning our growth in satellite are production ramps of multiple satellite gateway platforms at two major operators in North America and Europe. It's also exciting to note that we are experiencing a gradual ramp to production quantities of our satellite digital outdoor unit products at two major North American operators.

While Adam will provide overall revenue guidance for Q2 2015 a bit later, based on our current bookings and backlog, we believe that satellite revenues are on pace to contribute 10% or more to overall revenue in the second quarter. We also recently announced that MaxLinear has joined the SAT-to-IP Alliance as a founding member along with SES, Astra, HISPASAT, Panasonic and NAGRA. The purpose of the alliance is to drive the adoption of SAT-to-IP technology in the satellite broadcast industry and in the consumer markets such as television by providing an open platform for distributing linear satellite free-to-air and secure pay-TV content to multiple devices throughout the home.

We also announced that MaxLinear's ISDB-T digital TV standard SOC has received the industry-leading LTE Community Performance Certification based on new requirements of Brazil set by MacKenzie Labs, which is the approval body based in Sao Paulo, Brazil. LTE performance is critical for ISDB-T digital TV reception standard in Brazil. It is a key factor in government selection of a receiver that will qualify for a set-top box subsidy program slated to start at the end of 2015. This analog to digital TV transition in Brazil will be a new terrestrial set-top growth driver for MaxLinear.

As mentioned earlier, the first quarter of 2015 was an exciting one for our high-speed interconnect initiatives as we started to leverage the foundational technology acquired through the Physpeed acquisition in Q4 of last year. Combining Physpeed with MaxLinear's world-class engineering execution resulted in several new product tape-outs that should be in a position to generate incremental revenue later this year.

Specifically, we introduced the following at the OFC convention in LA in March. We launched a new family of 56 gigabit per second linear TIA amplifiers for PAM-4 and DMT-based 100 gigabit per second and 400 gigabit per second solutions for fiber optic, data center, metro and long hall data networks that cut in half the number of optical channels needed in optical receiver and transmission modules. This reduces the power consumption, size, and cost of implementing 100 and 400 gigabit per second networks for operators.

We also announced a new 56 gigabit per second limiting transimpedance amplifier, the MxL9108 and two new 56 gigabit per second modulator drivers, the MxL9204 and MxL9205. The ultra-wide bandwidths of the TIA in drivers enable non-return to zero signaling at 56 gigabit per second.

We also announced that FiberHome, a leading telecom equipment provider for optical networks in China, has selected MaxLinear's MxL9201, a 32 gigabit per second quad-lane modulated driver IP for its 100 gigabit per second telecom application.

In conclusion, we are pleased to have delivered strong revenue growth of 9%, which exceeded our guidance and was driven by a continued strengthening in our cable revenues. Based on our current bookings and backlog, we believe that our investment in satellite TV consisting of full spectrum capture receivers for satellite gateways and digital outdoor units are poised to contribute meaningfully in 2015. We expect that satellite revenues will be 10% or more of our overall revenue in Q2 2015.

More significantly, we are making great progress towards executing on our twin strategic objectives of diversifying our technology footprint in existing broadband markets and expanding aggressively into larger infrastructure target addressable markets. Our strategic acquisitions of Entropic and Physpeed, in combination with our organic development initiatives in microwave backhaul and cable infrastructure, have resulted in the doubling of our serviceable addressable market, or SAM, to approximately $3 billion plus by 2018.

We will share more details on Entropic business outlook within a couple of weeks following the close of acquisition, which we expect to happen soon. Also we look forward to sharing more information throughout the year regarding our efforts and the important milestones related to our infrastructure roadmap. With that, let me turn the call over to Mr. Adam Spice, our Chief Financial Officer, for a review of the financials and our forward guidance.

Thank you, Kishore. I will first review our results and then briefly discuss our outlook. In summary, our Q1 revenue was $35.4 million, above the high end of our prior guidance. As Kishore noted, cable was the primary growth driver in the quarter, up 14% sequentially due to a beneficial mix exchange in favor of full spectrum capture, 16 and 24 channel count DOCSIS3.0 modems and gateway solutions versus legacy 8 channel solutions. Cable revenues also benefited from strong HD-DTA and video server gateway demand while terrestrial revenues were flat, primarily off a continued strong ramp in satellite solutions being offset by expected weakness in terrestrial set-top box demand and flattish hybrid TV contribution.

Now moving to the rest of the income statement, GAAP and non-GAAP gross margin for the first quarter were approximately 61.2% and 61.3% of revenue respectively versus our prior guidance of 61% to 62% for both GAAP and non-GAAP gross margin. This compares to GAAP and non-GAAP gross margin of 60.8% and 60.9% respectively in the fourth quarter of 2014 and GAAP and non-GAAP gross margin of 61.7% and 61.8% respectively in the year-ago quarter.

Our Q1 GAAP operating expenses were $26.2 million, which includes $3.7 million of stock-based compensation, $2.5 million in acquisition transaction-related expenses, including professional fees for Entropic and restricted merger proceeds, amortization of purchased intangible assets and the change in fair value of contingent consideration for our Physpeed acquisition.

We also incurred $700,000 of severance and other nonrecurring charges related to the termination of employees related to our exit of research and development activities in Shanghai, China, as we reallocated design efforts to more optimized existing MaxLinear locations. We also recorded $700,000 for an accrual related to our performance-based equity bonus plans for 2015 and $600,000 of net professional fees related to the Cresta Technologies patent litigation. Consistent with 2014, payouts under our 2015 performance bonus plan are expected to be settled in shares of MaxLinear stock.

Net of these items, non-GAAP OpEx was $17.9 million, lower than our prior guidance of $18.5 million and $400,000 higher than in Q4 of 2014 and up approximately $1.7 million from the year-ago quarter. First-quarter GAAP OpEx attributable to R&D was up approximately $600,000 quarter-on-quarter and $2.2 million year-on-year at $15.3 million, which included stock-based compensation of $2.3 million, $300,000 related to the 2015 stock-based bonus plans, $700,000 of severance charges related to our activities in Shanghai, China, as well as $208,000 and $116,000 of Physpeed deferred merger proceeds compensation and amortization of purchased intangible assets respectively.

Excluding these items, first-quarter non-GAAP R&D was up approximately $500,000 on a quarter-on-quarter basis to $11.6 million. Within this R&D spending, we experienced a nearly $400,000 step-up in prototyping expenses and $200,000 in higher payroll-related expenses partially offset by small declines in other expenses. First-quarter GAAP OpEx attributable to SG&A was up approximately $1.3 million quarter-on-quarter and up $3.2 million from the year-ago quarter to $10.9 million, which included $2.5 million of transaction related expenses related to the Physpeed and Entropic acquisitions, $1.3 million in stock-based compensation, $600,000 in net professional fees related to Cresta Technologies patent litigation, $300,000 in stock-based bonus plan approvals and a $200,000 credit from the change in fair value of contingent consideration related to the Physpeed acquisition.

Excluding these items, first-quarter non-GAAP SG&A was down $100,000 on a quarter-on-quarter basis to $6.3 million. At the end of the first quarter 2015, our headcount was 351 as compared to 379 at the end of the fourth quarter of 2014 and 344 at the end of the first quarter of 2014. We continue to add R&D headcount globally to staff growth initiatives and are able to derive operating leverage in R&D by appropriately balancing hiring across our R&D design centers in the US, India, China and Taiwan.

GAAP loss from operations was $4.6 million in Q1 compared to loss from operations of $4.5 million in the prior quarter and a loss of $800,000 in Q1 of last year. GAAP net loss per share in the first quarter was $0.12 on basic shares outstanding of 38 million. This compares to GAAP net loss per share of $0.06 in the prior quarter and a net loss of $0.02 in Q1 of last year. Net of these items, non-GAAP earnings per share in Q1 were $0.09 on fully diluted shares of 40 million compared to $0.05 per share in Q4 2014 and $0.10 per share in Q1 of last year.

Moving to the balance sheet and cash flow statement, our cash, cash equivalents and investments balance increased $1.9 million at the end of the quarter from Q4 2014 to approximately $81.3 million and a decrease of $7.4 million as compared to the $88.7 million in Q1 of last year. Our cash flow from operations in the first quarter of 2015 was $3.8 million versus cash consumed of $5.8 million in the fourth quarter of 2014 and $4.1 million generated in the year-ago quarter. Our days sales outstanding for the first quarter was approximately 53 days, or one day more than the previous quarter and approximately seven days less than in the year-ago quarter.

As a reminder, we only recognize revenue on a sell-through basis and as such, we are not subject to revenue fluctuations caused by changes in distributor inventory levels. Our inventory turns were 4.6 in the first quarter compared to 5.0 in the fourth quarter and 4.7 turns in the year-ago quarter. The decrease in turns relative to fourth quarter resulted from our decision to build additional inventory in support of new product launches discussed earlier.

That leads me to our guidance. Excluding any contribution from Entropic, we expect revenue in the second quarter of 2015 to be in the range of $37 million to $38 million. Built into this range, we expect cable revenues to be roughly flat to slightly up sequentially and terrestrial revenues to be up approximately 15%. More specifically, within cable, we expect growth in data modems and gateways to be offset by a normalization of cable video revenues after a strong Q1.

Within terrestrial, we expect growth to be concentrated in satellite gateway and outdoor units, partially asset by declines in terrestrial set-top boxes and hybrid TVs. We expect GAAP and non-GAAP gross profit percentage to be approximately 61% to 62% in the second quarter. Our gross profit percentage forecast could vary plus or minus 2% depending on product mix and other factors, in particular the relative contribution of cable, terrestrial and satellite applications.

We continue to fund strategic development programs targeted at delivering attractive top-line growth in 2015 and beyond with a particular focus on infrastructure initiatives and our goals of increasing the operating leverage in the business. We expect Q2 2015 GAAP operating expenses to decline approximately $2 million relative to the Q1 2015 quarter to around $24.4 million with the largest reductions coming from the removal of severance costs tied mainly to our Shanghai operations, and lower pre-closing Entropic deal-related expenses.

Partially offsetting these stepdowns, we've forecast an $800,000 stepup in prototyping and design tools expenses related to Q2 tapeout activities and smaller increases in payroll-related expenses that will reflect the full quarter effect of our incremental Q1 hires and the impact of our annual merit process. We expect that Q2 2015 non-GAAP operating expenses will increase sequentially to approximately $18.8 million with the increases driven by the previously referenced prototyping activities and payroll-related items.

In closing, we are pleased to report Q1 revenues that were above our prior guidance and delivered a strong quarter of operating cash flow generation. In cable, we benefited not only from strong demand for cable video in Q1, but we are incrementally encouraged that the cable data market is migrating strongly to higher channel count solutions.

We are encouraged by our satellite order trends, which give us confidence that we will be able to deliver strong returns on our multi-year satellite pay-TV investments and remain optimistic about the investments we are currently making in infrastructure markets to expand our total addressable market.

And last, but certainly not least, we look forward to the closing of our pending acquisition of Entropic Communications and the enhanced platform relevancy and scale benefits that this acquisition can deliver and look forward to providing combined company guidance and outlook in the near future as appropriate.

Before we go into the Q&A session, I would like to share some breaking news. I'm pleased to announce that MaxLinear and Entropic shareholder votes were concluded today and they are overwhelmingly supportive of the acquisition and therefore, the acquisition is now formally closed. With that, we can now open the call to questions. Operator.

Thank you. (Operator Instructions). Ross Seymore, Deutsche Bank.

Hi, guys. Congrats on the solid quarter and guide. I guess the exciting news you just broke, Kishore, puts the ball right back in Adam's court. Adam, is today the appropriate time to give us an update on what the two companies look like combined?

Nice try, Ross. No, we are not quite ready for that, obviously. We need more than about two minutes to figure out how we want to point you guys. But, again, I think we are -- obviously, we are going to be in a position to give you guys a much better view of what the combined company looks like a little bit more in the future. So stay tuned for that, but not today.

Okay. Then probably a less exciting question to follow. So it sounds like you're going to have the satellite business roughly double again sequentially. Can you talk a little bit about how that puts it on track for that $20 million number? Do you think you are ahead or behind? Is it more outdoor unit or the gateway side? And in the cable side, the traditional side, that being flat, talk a little bit about how that is staying flat versus the 14% rise in the first quarter, if you could.

So I'll take the first piece, which is the satellite piece. So on the satellite piece, [T-det] actually more than doubled again quarter-on-quarter, so the strength is looking very, very good there. It really doesn't change our overall view for the size of the opportunity for the year. We've been kind of bounding it around between $15 million and $25 million of contribution for 2015 and we don't see any reason to move that range at this point. Hopefully that addresses the question on satellite.

And again, I think we've also given a little bit of color in the past as far as we expected that most of the contribution, or the majority of the contribution from satellite 2015 was going to come from the gateway side and that has not changed. So again, we are getting contribution from the outdoor unit and that will continue to build as we move through 2015, but the majority of the revenue contribution is going to come from the gateway, which was experiencing an earlier ramp.

Now on the cable question, can you repeat that portion?

Just looking at it, it was much better than expected in the March quarter and you are guiding it flat to slightly up. Is there some inherent conservatism because it was so much better than expected? Or basically what are the puts and takes beyond what you said in your prepared comments on why it is flat?

If you look at it in the prepared comments, we are talking of cable being flattish to slightly up. The reason being primarily because there will be growth in the broadband side, but we expect the video part of the cable to be slightly down, so because we had a strong Q1 for video. So the cable is just an offsetting contribution, but in the broadband, strong (inaudible) what is a strengthening broadband situation in the cable versus video revenue that would come down a little bit from a strong Q1. So I think that's how I would characterize it. So the cable as a whole therefore is kind of flattish to slightly up.

Yes, and I think even a little bit more on that, Ross. I think within cable video, we saw significant strength in the quarter on the HD-DTA side of the businesses. As you know, that's probably the most volatile piece of the cable video business. So are we being guarded that you can't predict the HD-DTA volumes as well as you can maybe other cable video platforms? I think that is true. So there perhaps is some conservancy built into our model because of that volatility we've experienced in the past in that particular subsection of the cable video market.

And also I want to take up that interview. If you look at one of our major customers, Arris' earnings call, they do quite clearly say in their transcript that they are seeing -- the broadband demand remains very robust as operators continue to roll out the latest devices enabling consumers to leverage increasing network speeds with Wi-Fi attached inside these boxes. So therefore, the broadband demand that we continue to see strengthening and that is consistent with one of our major OEMs, so we have no reason to be concerned about that part of it. But the overall cable is flat because we have been conservative on the video side of it, which is a little bit volatile.

I guess as one potentially quick follow-up and then I'll go away, since you mentioned Arris, the M&A in the space, not you and Entropic, but some of your customers getting together, talk a little bit about how you see that happening. And I guess even two of your true end-market customers not getting together. All of those moving pieces, what sort of impact do you think that has on MaxLinear?

I think it is too early to talk about it, but, from our perspective, we have seen the effect of getting more certainty on the cable end-market customers, basically Comcast/Time Warner, being in a bit of a hold pattern for forecasting revenues in the second half of last year. We started seeing that they started ordering in more consistency at the end of the year and the beginning of the quarter. So I think that from our perspective we don't see any major impact with what is going on right now. It could actually turn out to be a net positive for us in a strange way because, when both of those operators are going to combine the video platform for the HD-DTA was going to be unified under one umbrella and now we see that -- we believe that the Time Warner situation or the Comcast, the platforms are independent and we should see an uptick on the video in the HD-DTA even though we are not clear as to when we will see more clearly when the pickup is going to happen. I think we feel it is going to be a net positive for us on the cable side.

On the satellite side, the AT&T/DIRECTV merger and the BSkyB acquisitions of Sky Italia and Sky Deutschland, I think we have (inaudible) taken the uncertainty of that acquisition in Europe. It took the hit in the second half of last year and obviously resumption of orders and much of the gateway revenues are what the doubling that we spoke about is driven by more clarity from the European side.

In the United States, there is a ramp started now. However, it is the early innings of the gateway ramp and we are hoping that when the two entities combine that the end demand would actually increase because of rolling out new, potentially new quad play services between the AT&T and DIRECTV merger. So we don't know that yet, but I think these are all positive vectors for us right now.

Perfect. Thank you.

Gary Mobley, Benchmark.

Hi, guys. Let me extend my congratulations as well. Your target Entropic reported results just over a week ago and if I am not mistaken, we saw better-than-expected revenue out of Entropic, an operating margin on a non-GAAP basis maybe 200, 300 basis points above what you had included in your slide when you announced the acquisition. And so I know you are not prepared to tell us specifics with respect to Entropic's 2Q sales trends, but can you at least qualitatively say whether or not the acquisition at this point is looking to be more accretive than you originally anticipated?

I think it's too early to say that. I would say that what has been comforting from going through the process between announce and close is that we haven't come across anything on the revenue or synergy side that has required us to reassess our models or look at how we value the transaction. If anything, there have been some incrementally positive developments that have happened. I think we are incrementally positive about the synergy model that we have developed and we've gotten much better visibility into the platform opportunities that are going to generate the revenue that we were building into our model.

So again, I can't talk about specifics as we will provide that guidance. I will say that the one thing that we have to think about for Q2 when we give you the right guidance is linearity of shipments -- can we say right now whether or not what the linearity for Entropic would be relative to the Q2? We are not ready to speak to that quite yet, but, overall, we are very, very positive about what we have seen and I think we are very bullish about the deal now having closed. Now we can get involved and really kind of drive the integration and the roadmaps and have a much clearer picture to provide to our customers and partners.

All right. As an extension to that, based on what you know today, do you think Entropic's Q2 sales will grow sequentially?

Again, it is too early to give that level of color.

So Gary, the color I would give you is that heading into the conversations on the Entropic acquisition, there are two scenarios that could have played out, revenues being worse than what we thought and OpEx being less minimal than we had planned for. But I am happy to share that, as we close this deal, the revenue situation seems to be healthier than our conservative estimates and the OpEx situation seems to be more amenable to deriving the synergies than we had hoped for. So I think as we look forward, we hope to provide you guidance, but hopefully all will be in the positive direction.

Okay. I just have one follow-up question. In the past, Kishore, you talked about how you have longer production leadtimes with 40 nanometer, which I think describes some of your satellite gateway products. Does that give you more visibility into your Q2 guide, maybe not only on the satellite side, but perhaps as an extension of some of your other products as well?

Yes. I think that -- I would not attribute that to the 40 nanometer node per say. I think that the lead times at the foundries have increased right now. But the 40 nanometer at the most adds maybe two weeks or so to the production lead times, so that is really in the noise. But I think what you're asking as a question is that, because coming into the call we always answer what is the bookings entering the quarter at this point in time and I would like to tell you that we are booked more than 90% of the nominal forecast at the midpoint of our guidance.

So I think we've got strong bookings in place. As usual, we are conservative and so I think the answer to your question is (inaudible) doesn't do the 40 nanometer, we have good lead time because -- we have good visibility based on the lead times that we are required now from our customers, which is about I think somewhere between 12 and 16 weeks lead time is what we need to have. So in our direct sales, we got a turns business in our consumer side in the terrestrial TV. If you just exclude that -- even without excluding that, we are more than 90% booked on the forecast right now.

All right. Thanks, guys.

Anil Doradla, William Blair.

Good results and congratulations. A couple of questions. I remember last quarter when you were giving out your March quarter guidance, you basically laid out a scenario where you are not expecting a unit volume increase. It was largely going to be driven by content increase, more towards higher channel count. Obviously, the cable came in very strong. It has to be more than just channel content increase, right? It has to be unit volumes and I had a follow-up.

Yes, so I think on that one, really on the data side of the house, it is driven by the conversion over to the higher channel count in modems, so we did have volume increases on the video side. We had a very strong quarter for video. So certainly there volumes were up, but on the data side of the business for us, it really was much more a story of converting from the 8 channel to the 24 channel and it really was very pronounced on 24 in a lot of ways -- in a big way bypassing the 16 channels.

That's very interesting.

In fact, if you look at the Arris transcript, they talk over the 24 channel applications really gaining traction with the operators and they also talk about really focusing and working towards 32 channel and DOCSIS 3.1 solutions now that they are promoting and they are very, very bullish about that. So I think you can trace that trend to our chips, so we feel that the -- in fact, if I am not mistaken, on a monthly read exiting rate at this point in time, we could be just converting to more than 50% of 24 channel content in the broadband gateway.

So building upon that, if that is what we are seeing, we haven't even seen volumes picking up, your kind of flattish outlook. Is that just conservativeness or -- it should work its way through over the next couple of quarters and if we are going to have a very strong -- obviously Q4 was tough, so I suppose Q1 comps are a little trickier, but how does 2015 play out in the course of the year in terms of maybe seasonality and some of these trends?

So I would say that you are right, Anil. We are being conservative and I think that we should see volume pick up as well and at this point in time, like I said, based on the bookings, we are more than 90% booked while we entered this call and even more so on the cable side of the business and specifically in the broadband data gateways. So you are absolutely right, but we are being careful because we want to bound volatility in the video side. Like Adam said, that's the reason we are guiding slightly flattish to up on cable right now. (multiple speakers). Everything is going very well right now across all our revenues I would say except for the softness on the terrestrial revenues and you may have seen some of our peers say the same thing in their earnings call.

Great. And if you don't mind me squeezing in one last one. Last year, you had a certain assumption on content. You were talking about high single digits to low double digits between the gateway and the audio. Have you changed your mind set based on what you are seeing now? Do you think the content is going to be somewhere what you thought it was or is it going to be lower or is it going to be higher? And thanks a lot.

I think that scenario has not changed currently. I think definitely -- I cannot speak for the end of 2015 because that's when some pricing negotiations happen, but, as we stand today, we have no reason to update that viewpoint.

Great, guys and congrats.

Tore Svanberg, Stifel.

Great quarter. First of all, just a clarification question. Kishore, out of the $23 million that is cable, did you say that almost half of that is now 24 channel, or is half of that multichannel meaning 16 and 24?

Half the volume is 24 channels.

Got it, got it.

(multiple speakers) is negligible, so I think we should forget 16 channel, which is good for us.

Okay, good. So on that topic, I know in the past you have talked about MaxLinear really being one of the only suppliers for full spectrum capture 24 channel. Is that still the case today and can you maybe update us a bit on the competitive landscape there?

Nothing (inaudible) scenario today. Whenever you look at 24 channel solutions or even 32 channel solutions, MaxLinear Intel platform is the only one that is prevalent on the data gateways. So I think that we are really, really happy that the strategic bets we have taken on our development roadmap are panning out. And I think our portion of design wins and shipments on the data gateways is really in the positive direction relative to competition right now.

Very good and will the DOCSIS3.1 design-in cycle start this year and maybe in the second half?

You are absolutely right. Right now, despite claims, nobody has adopted 3.1 working solution that is productizable and I really think that the designing of a true solution or any solution will be starting sometime at the end of the first half, but really start in the -- and get to production readiness maybe the end of the year. Now what remains to be seen from a different perspective is that we also need cable apps to be ready to be able to certify DOCSIS 3.1 products. So it could even delay one more quarter from that perspective. So we do not expect any activity in the first half of this year and I think that is holding true right now.

Very good. Last question. I know communications infrastructure is not going to be a revenue driver until next year. Although I think you did mention maybe some early revenue later on this year. But can you just talk a little bit about how your products have been received so far? Obviously, you have a 56 gig TIA for PAM-4; you had several samples going on at OFC this year. Just wondering what customers responses have been so far as far as the competitiveness of your products for that market.

Very good question. I think the products they we announced at OFC are very unique, especially if you look at our 56 gig -- our 32 gig quad modulated drivers. Nobody has that in the world, with that performance either. They are very hard to do. Without getting into the technical details, the drivers are much tougher to do than the TIAs.

On the TIA side for the linear PAM and the PAM-4 and the DMT performance are far superior to anybody that is showcasing parts or revenues today and I think you should really count on us stealing share and gathering revenue momentum. And I told while we acquired Physpeed that we have collaboration and joint development for those products with tier 1 module makers, PMD manufacturers, and that remains true. And what we announced at FiberHome is just first starting example of where this is headed.

So I can safely claim on the TIAs and on the drivers, on the products that we have announced, we have by far the best-in-class performance. There is no doubt about it. And the reception is great. I would say that we have some revenue right now that has already started shipping, but it is nothing meaningful. Hopefully at the end of the year, there will be some incremental revenue on the optical side and hopefully next year is a good double-digit sort of number for revenues.

Very helpful. Great quarter, guys. Thank you.

Quinn Bolton, Needham & Company.

Just wanted to follow up on Tore's question on the 56 gig TIAs and drivers. Looks like those are for 56 gig optics. And my understanding of 56 gig optics is it's still fairly early in terms of the lifecycle and production readiness. When do you think you will see the 56 gig lasers coming to market to enable some of these solutions?

Very, very good question. Aren't we all jockeying for position right now in the marketplace? That's how I would present it. However, there are some preliminary preparations going on with sell-in key manufacturers. I think there will be really high-end applications in the long-haul side. So in the data center side, I don't see them to be ready as quickly as people want them to be, so I would say that really -- it is middle of next year or -- is when you should start seeing some meaningful volumes on the 56 gig side. Today, our amplifiers are being used in creating some 200 odd gig module products or some deployments into 400 gig modules.

Got it. Thanks. Just wanted also to come back on a clarification on the 24 channel modem and half the market now being 24 channel modems with 16 channel being negligible. I thought the XB3 box from Comcast, the 16 channel data modem, that the chip for the X1 gateways was a 16 channel box and thought that that was still some decent volumes. Has that converted over to 24? Can you just give an update there?

Yes, you are absolutely right. Now all XB3 shipments are going with 24 channels inside them.

Got it. Great. And then you talked about strength in the HD-DTA segment of the market. I thought that has been a relatively smaller part of the cable business. Can you give us some sense what percent of overall cable revs come from the HD-DTAs versus video set-tops versus cable data?

We don't want to provide that level of detail down sub areas within cable video versus cable data. I think overall if you want to think about video versus cable -- video versus data in cable, it's probably safe to say it is kind of the two-thirds to one-third and skewed toward the favor of data.

I probably won't get you to answer this, but is DTAs the biggest part of cable video, or do you have some pretty good video set-top box wins?

Really it is so volatile; it changes pretty drastically from quarter-to-quarter, I would say, for example, within that grouping, the biggest grower in the quarter in video on the video side of cable was the media server gateway side. It wasn't even the HD-DTAs. And so the largest absolute dollar contributor within cable video was the video server gateway category this quarter.

Okay. Just wanted to -- obviously, looking back to 2014, this sort of felt like 2014 and 2015 started fairly similarly with very strong growth in orders for 24 channel or higher channel count modems. We all know what happened in the third quarter with the ODMs stopping taking deliveries. Having gone through that experience last year and seeing the initial strength here in 2015, do you have now more experience, or have you been able to put in place perhaps a better way to track end shipments or to track inventory levels through the supply chain hoping not to repeat in 2015 what we saw last year?

So I think, Quinn, you always learn from what happened. Yes, we do much more channel checks, but even having said that, it is so much after the fact when they decide to -- when the operators decide to push orders out. So I would say that currently we don't have any concerns entering the channel and I think, in fact, we are being informed now by everyone that we've got to look forward to not -- to reduce our quantities of 8 channel manufacturing itself to really transitioning over to 24 channels. And I don't know of any platform now that is not 24 channels in the major players. I talked about in the call about Comcast, I talked about Time Warner, I have talked about Kabel Deutchland, Vodafone, anybody global. So you shouldn't (inaudible) revert back to 8 channel at this point in time.

However, on the channel check side, we have put more checks in place. However, that does not mean they can push out orders at their own decision. However, we don't see that repeating anymore because there's a tremendous need by the operators to be able to upgrade to higher and higher data bandwidth and they have never seemed more earnest as they are now.

Okay, great. Thank you.

Jay Srivatsa, Chardan Capital Markets.

Kishore, what do you make of Arris' announcement to buy Pace? Does that help in the long run for you in the satellite side, or is that business still driven heavily by the operators? What do you make of it?

I think historically on the satellite side the operators drive the business and the OEMs are selected by them and then they match chip companies with the OEMs. The satellite operators function that way. Pace is an existing customer for one of our satellite products, so that is good for us. On the other hand, Arris is a very, very big customer for us and has been a partner for us for such a long time. We have great relationships there; very, very strong relationships because of the amount of time we have had with them and we really feel that there is a good chance that our collaboration, because of the various platforms at Arris, we will become a very valuable supplier to them. So we feel it is a positive for us right now and -- but that remains to be seen how this whole thing settles, so I don't think -- until it happens -- we can make the claim really.

All right. Speaking of Arris, in their call yesterday, they were a little cautious on CapEx spending and just the overall broadband CPE market, but your guidance seems to suggest otherwise, so help us understand. Is it just the mix from 8, 16 to 24 channel that is helping you, or are you seeing the market demand to be different from what Arris is looking at?

So Jay, I have the transcript in front of me. I naturally have to have it in front of me. They clearly mentioned that the broadband demand is what is driving their CPEs in a positive direction. However, the AT&T/DIRECTV merger has put a stalling on the revenues in the CPE related to that market. And also they further talk about slowing down in video gateway shipments for themselves. So they clearly talk about the softness related to video gateways and strength related to the broadband gateways, data gateways and combined, it is still soft. So I think that, in the fine print, they were very clear that the broadband DOCSIS platform is going strong. So there is some disconnect between what I am reading in the transcript and your question.

Okay. Then focusing on the satellite side, there have been some delays on that business ramping up. It looks like it is all coming together. How do you see that business tracking as you look at the rest of the year?

I think that, like Adam mentioned, we have found the business between $15 million and $25 million contribution for this year. Now whether it is $15 million or somewhere between $15 million and $25 million depends on how the satellite outdoor unit ramps as well because remember that we told that the satellite outdoor unit would be the smaller fraction of the ramp this year and it picks up in the second half of the year. And the gateway is going to be the majority of the ramp. So the gateway is ramping right now and with a bit of luck and (inaudible) ramping, we should be somewhere between that $15 million and $25 million range. If I were a betting man, the $25 million would be an astounding success. $15 million would be kind of a little bit disappointing, so the answer is somewhere in between.

Thank you very much. Congrats on a good quarter and guidance.

Alex Gauna, JMP Securities.

Good afternoon, guys. Let me echo my congratulations on the quarter and also getting Entropic closed so expediently. I am curious, Kishore, to follow up. You had just talked about the little bit of slowing that Arris talked about with the AT&T/DIRECTV. Can you confirm -- are you exposed to those platforms and therefore, should we expect at some point when the dust settles that would be a tailwind for you maybe later on this year? Thanks.

Currently, we are not exposed to the AT&T/DIRECTV platforms that are being referenced -- video platforms -- in the conversation with Arris that you speak about. So we wish we had more exposure to the AT&T/DIRECTV platform as well because it would be another wonderful opportunity for us to grow our revenues on the gateway side. So currently we do not have that as an exposure. So when the softness in video is being talked about, it is not related to the broadband data gateways or the HD-DTA market that we are exposed to on the cable side.

Okay. And then if I understand your positioning correctly in the satellite side, you do have some potential to enjoy next-gen system ramps, and Adam had talked about that on the satellite side a little bit earlier in the call. Is that still in places -- the expected ramps -- I know you are going to incorporate everything you know in your guidance, but is there some pause in the expected ramps with some of your next-gen design wins that do go into what DIRECTV has in the pipeline?

Firstly, we have never confirmed it is DIRECTV. We have just said that it's two operators in North America. And secondly, yes, we have a number of design wins in the North American operators and they are going through -- some are in ramp now and some are in pilot ramp with multiple designs. So we should get good exposure to them and we are not seeing any -- we are currently not seeing anything that is interrupting the ramp right now.

Okay. And then one more question about something Adam said earlier. Talked about -- I know you are not giving color around Entropic, but said something about we will have to see what the linearity is. What was the linearity for Entropic in the first quarter because they didn't have a conference call to share that with us? And also your linearity and was there any discrepancies between the two? Thanks.

Actually, Alex, I don't have visibility into Entropic's Q1 linearity. My comment was more talking about -- of course, when we look to provide combined guidance for the companies, we will only be providing the post-closing revenue contribution from them, which is the last two months of the quarter and of course, we will have our full three months of the quarter and so I can't say right now what the linearity for the April 1 through the April 30 shipments were and how that impacts the overall guidance for the quarter. So again, in due time, we will get these details out to you. So hopefully that helps answer your question.

I got it. That does help. And also just curious also to reiterate part of that question, your linearity, was it a fairly linear quarter and if I am hearing you right, your confidence seems to have improved as we have moved forward in the year and this quarter. Is visibility indeed improving right now? Thank you.

Alex, obviously, the confidence is improving. Last year, we were very, very confident entering the second quarter and then we saw the Q3 on the horizon, so you should assume that to the extent that we are sounding confident and non-exuberant because of cautioning from last year, so things are going quite well. We've got very good visibility and across the satellite gateway platform, cable platforms and even on the satellite ODU platforms we are seeing good visibility right now. So all in all, things are going well and it is kind of a good situation for us that Entropic has also gone very smoothly in a time period when we are also doing very well on our outlook.

And I would say, Alex, a little bit more color on that, I would say the linearity for us in Q1 was I would say maybe a little bit stronger in the middle month of the quarter, so February was a very strong month for us, but not disproportionately so relative to January and March, but it was a bit stronger.

What I would say too, kind of going back to comment on the satellite gateway side of things, I also want to make it clear that the strength that we are seeing in Q2 is not limited to North America. We are seeing strength across gateways across Europe and North America and actually at all the major design targets that we've been talking about targeting for the last couple of years. So I think we're getting a nice broader coverage on design wins for gateways and satellite coming to fruition.

Okay, great. Thanks, guys. Nice execution.

Tore Svanberg, Stifel.

Yes, just had a follow-up on the outdoor business as it relates to satellite. I think you mentioned this year most of the satellite business -- most of the satellite revenue is going to be from gateway, but you also sound like you have some good visibility in ODU. So will we get some strong contributions second half of this year, or is it going to be sort of more of a linear ramp from now through 2016?

I think it is looking -- I think it is looking like a linear ramp through the next two quarters. We could have a very strong quarter in fourth quarter of 2015 and there is also in that statement some conservatism built into our model that it won't happen in Q3, it happens in Q4. So I think it looks like a linear ramp right now with a jump up in Q4, but that could happen earlier.

Very helpful. Thanks.

Tore, we're not actually giving any guidance on the Entropic piece of things. One of the nice aspects of that acquisition, as Kishore was answering your question with regards to digital ODU, of course now as a combined company we have a very broad ODU footprint. So that's one of the advantages of having I would say a technology or platform hedge with this acquisition, is our ODU business is not all conditioned upon the ramp timing of the digital ODU. So we are actually feeling pretty good about the timing of the digital OD ramp and if that ends up pushing out a little bit, it really doesn't end up being a bad thing for us, necessarily.

To add a little bit more color on that, while that hedging, as Adam called it, within analog ODU and digital ODU tension in North America, will not affect all the design win activity we are having by expanding the TAM footprint in Latin America, Europe, other countries that are going to digital channel stacking on the tier 1 and tier 2 operators. We've got major design wins going on. So overall, I think the ODU will be a very, very nice growing business for us.

Great. Very helpful. Thank you.

And with no further questions in queue, I would like to turn the conference back over to management for closing remarks.

Yes. Thank you very much, operator. As a reminder, we will be participating in the Deutsche Bank one-on-one conference on May 12 in San Francisco, at the [BDLE] conference on May 13 in Los Angeles, the Benchmark one-on-one conference on May 28 in Milwaukee and the William Blair Growth Stock Conference on June 10 in Chicago where we hope to see many of you there. We thank you all for joining us today and we look forward to reporting on our progress to you in the next quarter.

This does conclude today's conference. Again, we appreciate everyone's participation today.