Maxlinear Inc (MXL) 2015 Q3 法說會逐字稿

Good day and welcome to the MXL Q3 Conference Call. Today's conference is being recorded. At this time I'd like to turn the comments over to Brian Nugent. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone, and thank you for joining us on today's conference call to discuss MaxLinear's Third 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 the fourth quarter 2015 revenue including expectations for revenue trends in our cable, terrestrial, satellite, high-speed interconnect and other target markets, gross profit percentage and operating expenses, the impact of our recently completed acquisition of Entropic Communications and Physpeed and our current views regarding trends in our markets including our current views of the potential for growth in each of our target markets.

These statements are forward-looking statements within the meaning of Federal Securities laws and actual results may differ materially from statements -- 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 the terrestrial cable, satellite, high-speed interconnect and infrastructure markets, do not grow as we currently expect or if we are not successful in expanding our target addressable markets through the acquisition of new products.

In addition, substantial competition in our industry, potential declines in average selling prices, risks arising from consolidation in our industry and among broadband operators in our principal target markets, risks related to intellectual property protection in outstanding intellectual property litigation, integration risks associated with Entropic Communications and other acquisitions, if any, and cyclicality in the semi-conductor industry could adversely affect future operating results.

A more detailed discussion of these risks factors and other factors that you should consider in evaluating MaxLinear and its prospects is included under the caption "risk factors" in our filings with the Securities and Exchange Commission, in particular our Form 10-K for the fiscal year ended December 31st, 2014 and our subsequent Forms 10-Q for the third quarter of 2015 which contains additional discussion of risks affecting MaxLinear's business.

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 third 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 effect of stock-based compensation expense and its related tax effect, accruals under our equity-settled performance-based bonus plan, outstanding patent litigation with Cresta Tech, deferred merger proceeds, change in fair value of contingent consideration, severance and restructuring charges, amortization of acquisition related intangibles and purchased inventory step-up, non-recurring acquisition and integration related expenses and production mask impairment.

Management believes that this non-GAAP information is useful because it can enhance 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 its 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 Kishore Seendripu, CEO MaxLinear.

Thank you, Brian, and good afternoon, everyone. Thank you all for joining us today. Before jumping into the details of the financial results, we are pleased to report third-quarter revenues of $95.2 million, which reflect the first full quarter revenue contribution from the close of the Entropic acquisition on April 30, 2015.

In the third quarter of 2015 we reaped this broad-based revenues strength. The revenues increased across all of our end-market focus areas of operator infrastructure and other and legacy video SoC.

In the third quarter independent of the benefit to our sequential financials owing to an incremental amount of Entropic revenue contribution we have benefitted from the strong demand for Entropic products as a whole.

Equally encouraging for us quarter MaxLinear product revenues were also up sequentially owing to strength in demand for satellite, digital outdoor units within our operator revenues and from terrestrial TV and set-top box solutions within infrastructure and others.

Now moving to the specific business highlights for the third quarter of 2015, the revenue in the third quarter of 2015 was $95.2 million, slightly above the revised guidance provided on September 16, up approximately 34% sequentially and 193% year-over-year.

Within this increase operator revenues recorded 28% sequential growth and accounted for 72% of total revenue. Both MoCA and analog and digital channel stacking satellite products showed pretty good strength.

In the quarter cable data was softer than expected as certain customers drew down their inventory levels. However, we now anticipate destocking to reverse the fourth quarter based on our backlog.

Combined with the continued transition from eight-channel modems and gateways to 24 channel solutions, they're projecting strong growth from cable data products in the fourth quarter.

Within the quarter consistent with the prior expectations, we demonstrated solid progress on our DOCSIS 3.1 initiative which we currently expect to ramp in volume in the second half of 2016.

In September we announced the availability of our DOCSIS 3.1 platform consisting of MxL278, which is a 28 nanometer CMOS full spectrum capture receiver with integrated MoCA 2.1 RF transceiver and MxL236, which is a programmable gain amplifier or PGA.

In conjunction with our SoC partner we are enabling multi-gigabit per second data banded services on existing coaxial cable network infrastructure. With the DOCSIS 3.1 platform we can deliver multi-gigabit banded capacity for both downstream and upstream applications with unique low-power, high performance small form factor and ease of use advantages.

The companion MxL236 PGA drastically reduces power dissipation relative to competing solutions. It has unique network monitoring capabilities such as reporting network health and performance parameters on the upstream link. These network capabilities are extremely valuable for operators in terms of reducing network maintenance costs. It also illustrates our ability to expand our analog mixed-signal content on existing platforms.

In conjunction with the platform launch, we also announced that our long-time customer Hitron has selected our DOCSIS 3.1 platform for the new family of DOCSIS 3.1 CPE equipment. You can expect more DOCSIS 3.1 announcements as we approach the launch.

Within our satellite family of operator products the revenue growth was driven by continued ramps in digital outdoor unit products at major European North American operators and by strong demand for analog channel stacking in MoCA shipments.

We're also building momentum on our satellite design wins. For example in September we announced that WNC would supply Sky Italia with MaxLinear based channel stacking in KU band downconverter solutions for its next generation digital channel stacking deployments.

At IDC in September, MaxLinear and its partners demonstrated a scalable multi-channel ultra HD set-top box and a media server reference design. Even though there is always uncertainty regarding new product launches and timing as operator's MaxLinear has unique engagements with major MSOs and OEMs in the satellite market. As a result, we are at the forefront of next generation satellite deployments that deliver new flexibility, efficiency and content to satellite operators and their subscribers.

Our MoCA technology and products obtained from Entropic's acquisitions span across our operator infrastructure and other and legacy video SoC platforms. We are driving MoCA to be the pre-eminent via backbone connectivity solution but the broadband connected home. MoCA promises to scale seamlessly to a true multi-gigabit platform for quality of service data and video distributions throughout the home.

We expect to report further progress in ratcheting up the speeds of MoCA as we head into 2016.

Revenues from infrastructure and other, which consists of consumer terrestrial set-top box hybrid TV and high speed optical connect solutions accounted for roughly 9% of total revenue. Growth in these revenues resulted from seasonal strength in hybrid TV and increased shipments of our consumer digital to analog converted set-top box products.

We also benefitted from the continued ramp in shipments of high speed interconnect products, specifically long-haul 100 gigabit-per-second laser drivers into Chinese customers from our Physpeed acquisition.

We continue to build on the foundational technology obtained from our Physpeed acquisition in Q4 of 2014. The combination of Physpeed Technology and MaxLinear's engineering and operational execution has enhanced our customer credibility and is resulting in increasingly meaningful and active customer engagement.

Already this year we have successfully introduced an expanded family of high-performance trans-impedance amplifier or TIA amplifier and driver products addressing the emerging 100 gig and 400 gigabits per second fiber optic datacenter metro and long-haul data networks.

We have previously indicated an expectation to achieve our first million dollar revenue contribution quarter the second half of 2015. We remain on track to do that in the fourth quarter. Additionally, we continue to make noteworthy progress in our organic infrastructure to shift it's in wireless backhaul and cable fiber nodes to support a migration to DOCSIS 3.1.

We currently expect to sample solutions in 2016 that will contribute to our infrastructure revenues in 2017. We are very excited about the technical innovation that we are bringing to our target infrastructure markets which not only leverage our leading analog mixed signal RF technology platform but also significantly expand our total addressable market.

Finally, moving to our legacy video SoC revenues derived from shipments of HDDTE and IP TV client SoC, revenues with about $18.7 million increasing in the mix approximately 20% of overall revenue versus approximately 18% in the prior quarter. The strong revenue growth resulted from the increased shipments of cable HDDTEs and IP TVs set-top box platform solutions.

We are extremely pleased to have delivered a quarter of strong revenue growth, record operating cash flow generation and operating margin momentum. The financial benefits of our increased scale are a direct result of the significant progress we have made toward the integration of Entropic.

Together with Entropic, our expanded portfolio market-leading broadband access and connectivity solutions make us a most strategic and relevant broadband platform solution provided to operators globally. In combination Entropic we are in a strong position to address the key challenge faced by our operator partners, which is delivery of higher bandwidth into and distributing richer multi-media content throughout the home.

Our stated revenue diversification and TAM expansion efforts into wireless and wired infrastructure markets are also gaining significant momentum driven by the broad applicability of our core analog RF and mixed-signal technology platform for the communications market.

We look forward to sharing more information regarding the progress of our ongoing infrastructure initiatives and new developments in our core broadband focused markets.

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 out outlook. As Kishore noted, our Q3 revenue was $95.2 million, slightly above our guidance provided September 16th.

Now, moving to the rest of the income statement, GAAP and non-GAAP gross margin for the third quarter were approximately 53.6% and 56.7% of revenue respectively versus our prior guidance of 53% for GAAP and 57% for non-GAAP gross margin. This compares to GAAP and non-GAAP gross margin of 38% and 58.4% respectively in the second quarter of 2015 and GAAP and non-GAAP gross margin of 61.2% and 61.3% respectively in the year ago quarter.

The delta between GAAP and non-GAAP gross margins in the quarter is primarily related to the amortization of $1.6 million of purchased intangibles and $958,000 of inventory step up as well as approximately $400,000 related to stock based compensation and stock based bonus accruals and the impairment production mask in the quarter.

Q3 GAAP operating expenses were approximately $49.4 million, in line with prior guidance, which included $12.2 million for the amortization of purchased intangible assets acquired from Entropic, $400,000 of severance charges, $200,000 of restricted merger proceeds related to our Physpeed acquisition and $400,000 of restructuring charges related to a former Entropic facility.

Accruals related to stock based compensation as stock based bonus plans were $4.9 million and $1.9 million respectively and we had $100,000 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 primarily in shares of MaxLinear stock.

Net of these items non-GAAP operating expenses was $29.1 million, $1.9 million below our prior guidance of $31 million and $200,000 lower than Q2 of 2015 and up approximately $10.9 million from the year ago quarter. The underage relative to guidance resulted from accelerated Entropic related headcount efficiencies, seasonal payroll tax step downs, reduced project related embedded IP purchases and the receipt of offsetting customer NRE payments.

Third quarter GAAP operating expense attributable to R&D was down approximately $500,000 quarter-on-quarter and increased $8.5 million year-on-year at $23.5 million, which included stock based compensation of $3.5 million, $1.2 million related to the 2015 stock based bonus plan, $200,000 in Physpeed deferred merger proceeds and $100,000 for the amortization of purchased intangible assets acquired from Entropic.

Excluding these items third quarter non-GAAP R&D was down approximately $700,000 on a quarter-on-quarter basis to $18.5 million. Within this R&D spending tape out related expenses declined approximately $900,000 partially offset by a $300,000 increase in payroll related spending.

Third quarter GAAP operating expense attributable to SG&A was up approximately $1.8 million quarter-on-quarter and up $17.3 million from the year ago quarter, to $25.5 million.

GAAP SG&A expense included $12.1 million for the amortization of Entropic intangible assets, $1.4 million in stock based compensation, $800,000 in stock based bonus plan accruals, $400,000 in severance charges and $100,000 in net professional fees related to the Cresta Technology's patent litigation.

Excluding these items third quarter non-GAAP SG&A was up $400,000 on a quarter-on-quarter basis to $10.6 million driven by an $800,000 increase in fees and expenses related to patent filings and accounting tax and audit partially offset by $400,000 decline in payroll spending.

At the end of the third quarter of 2015 our headcount was 505 as compared to 531 at the end of the second quarter of 2015 and 372 at the end of the third quarter of 2014. We continue to evaluate our staffing levels globally, particularly following the acquisition of Entropic, to strike a balance between driving near-term bottom line operating leverage and staffing key long-term growth initiatives. We continue to look to derive operating leverage by appropriately balancing hiring across our locations in the US, India, China and Taiwan.

GAAP income from operations was $1.6 million in Q3 compared to loss from operations of $30.6 million in the prior quarter and a loss of $3.2 million in Q3 of last year. GAAP net income per share in the third quarter was $0.03 on diluted shares outstanding of 63.2 million shares. This compares to GAAP net loss per share of $0.58 in the prior quarter and net loss of $0.09 in Q3 of last year.

Non-GAAP earnings per share in Q3 were $0.40 on fully diluted shares of 63.2 million compared to $0.21 per share in Q2 of 2015 and $0.04 per share in Q3 of last year.

Moving to the balance sheet and cash flow statement, our cash, cash equivalents and investments balance increased $22.7 million at the end of the quarter from Q2, 2015 to approximately $105 million and increased $10.9 million as compared to $93.9 million in Q3 of last year.

Our cash flow from operations in the third quarter 2015 was approximately $22 million versus cash flow of $4.6 million in the second quarter of 2015 and $6.4 million generated in the year ago quarter.

Our day sales outstanding for the third quarter was approximately 40 days or 14 days less than in the prior quarter and 13 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 4.7 in the third quarter compared to 6.8 turns in the second quarter and 5.2 turns in the year ago quarter. The second quarter turns metric was impacted by the addition of stepped up Entropic inventory which has now worked its way through the system and we should be back to normalized turns levels.

That leads me to our guidance. We expect revenue in the fourth quarter of 2015 to be in the range of $95 million to $100 million. Built into this range we expect operator revenues to increase in the mix and account for approximately 76% of revenue, infrastructure and other to be approximately 8% and legacy video SoC to be approximately 16%. More specifically, within operator we expect growth to be driven primarily by digital and analog channel stacking outdoor units and cable data platform related shipments. Within infrastructure and other we expect seasonal declines in consumer terrestrial set-top box and hybrid TV to be largely offset by the continued early ramp in high speed interconnect revenues derived from long-haul laser driver shipments supporting 100-gig deployments in China as discussed earlier.

We expect legacy video SoC demand to moderate somewhat after strong shipments in Q2 and Q3 and expect growth in demand for these products to resume in the first quarter of 2016. We expect GAAP and non-GAAP gross profit percentage to be approximately 55% and 57.5% in the fourth quarter respectively.

Our gross profit percentage forecast could vary plus or minus 2% depending on product mix and other factors, in particular the relative contribution of operator infrastructure and legacy video SoC 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 of the business.

We expect Q4, 2015 GAAP operating expenses to decrease approximately $8 million quarter-on-quarter to approximately $41 million with the largest reductions coming from the roll off of amortization of purchased intangibles of $7.3 million. We also expect less significant spending reductions attributable to lower average headcount, lower occupancy costs, declines in tape-out and project related spending on prototyping, design tools and outside services, all of which will be partially offset with increases in embedded IP spending, rep and distie commissions and the lack of customer NRE dollars that were in the mix in Q3.

We expect that Q4 2015 non-GAAP operating expenses will decrease $1 million sequentially to approximately $28.5 million driven by the earlier referenced items excluding amortization intangibles.

In closing, we are pleased to report Q3 revenues that were well above the original guidance exiting Q2, which combined with continued expense reductions drove strong operating cash flow generation. In the midst of a choppy macro environment for semis and continued consolidation amongst operators and their OEMs, the diversification of our business and our product expansion positions us to continue to benefit from a secular bandwidth demand growth driver.

We are also pleased to report further penetration of new market opportunities in satellite applications and incremental progress made and confidence in our ability to execute on our strategic wired and wireless infrastructure initiatives.

And with that, I'd like to open the call to questions. Operator?

Thank you, Mr. Spice. (Operator Instructions). And we'll take our first question today from Anil Doradla with William Blair.

Hey, guys, congrats, Kishore, Adam and the whole team. Clearly you folks are entering a sweet spot with your product cycle. Couple of questions, so Kishore and Adam, wanted understand the mechanics of the December quarter. It sounds like some of the cable inventory caution of September quarter has reversed but really you're seeing strength on the satellite side, so on the satellite side can you share a little bit more color? You've got your additional SWM the Entropic acquisition brought in, some of the analog stuff. How is the demand environment playing out? Are people willing to switch to the digital side quicker or the willingness is to stick on with the analog?

And on the cable side with the recent ODM consolidation and DOCSIS 3.1 do you believe the behavior of your customers are changing now, especially as we look into early 2015?

Oh hey, Anil, it's Kishore. I would just go in the reverse order of your questions. First I would like to start with the cable DOCSIS 3.1. You know, I think as we have told you in the last call, there are two tiers of cable operators; one, the primary one being Comcast being really leading the charge in the march and transition DOCSIS 3.1 to move towards multi gigabit data services and eventually to 10 gigabit data services using coaxial cable.

The ultimate goal is to have all legacy customers and new customers to be able to grow the data band and capacity to multi gigabit services. And you also have seen the Comcast call and you've seen that they are really gaining significant muscle and strength to subscriber growth for data for their X1 software platform, which is where we are shipping all our new 24 channel products.

Now getting the next question, the tier two cable operators Time Warner and so on, so forth, they are the transition to 24 channel solutions, Liberty Global as well, and there are other operators who are not leading the charge as aggressively as Comcast but they're also looking for the deploying the multi gigabit services and they can choose to provide downstream bandwidth using DOCSIS 3.0 for example, with our 32 channel solutions so we got multiple ways to get to multi gigabit services but we expect DOCSIS 3.1 to start yielding revenues or ramping the second half of 2016 and you've also seen our announcement of a robust DOCSIS 3.1 platform with the newly announced chips for the DOCSIS front end, the PG amplifier and integrated MoCA RF transceiver. So that's the first part of the cable related question.

Next, going to the satellite outdoor unit based questions, we saw pretty good strength not only just in satellite outdoor in analog channel stacking devices but you're also seeing ramp of satellite digital outdoor units in -- at more than one operator, and so you can see that you're getting benefiting from the mix of both analog channel sites, digital outdoor unit stacking solutions. So at this point the calling the trend on how digital outdoor units ramped related to analog channel stacking is premature because the ramp that has different operators but either case we are benefiting from that strong trend.

And the -- your more subtle question regarding the demand for this new channel stacking unit in terms of the customer subscriber reception to it, the way to look at it is that these are being deployed to enable multichannel services inside the home and the upgrading is a natural part of the sequence of things that operators are doing in already abled multichannel content services inside the home. So we don't call it as a push or a pull event, much more as a more orderly rollout so we aren't seeing any unusual spike in the ramp so I hope those answered your questions that you raised.

Great, Kishore, and then if you don't mind me squeezing in one, you know, I sense that you guys are pretty positive on the Physpeed acquisition and some of the product lines there. Is there revenue? Can you give a sense of how much revenue contribution is coming from that and is it less? Is it 1%, 2% or it's not even that at this stage? Thank you.

Yes I think we can answer the question quite well that we told in the last call. We closed Q3 with [sub] $1 million revenues related to Physpeed but we already said in the script that we're going to go hit the million dollar run rate in Q4. To be honest with you, we got more backlog than what we have called for in the forecast but at this point we want to be careful about ensuring that we can ramp our products officially to meet the backlog and hopefully we can give you a positive surprise based on our supply situation.

I mean the two aspects to supply; one, there's a number of platforms with the LTE deployment in China with a couple of major customers. We got major market share there and we're ramping in a major market share and we're qualifying these multiple platforms and as they are being qualified, those particular platforms are ramping so there are two velocities here. One is the supply velocity. The other one is designs being completely qualified and ramping so we feel pretty good that this quarter we're going to exceed the million dollars per quarter revenue run rate and a backlog that's substantially more than that.

Great and congrats.

Gary Mobley, Benchmark.

Thanks for taking my question. I had a question about cable data ASPs. Is it still the case that 2015 looks to be sort of a flattish year on a unit volume basis but any growth you might generate there on the sales side would be all purely a function of ASP increases in them? As it relates to DOCSIS 3.1 CPE ASPs, could you talk about how your BOM changes? You know, DOCSIS 3.1 relative to DOCSIS 3.0 taking into consideration your PGA sort of attach rate? I know there's a lot of acronyms there but hopefully all that makes sense.

Okay let me answer that question. Gary. So basically if you look at what we are predicting within our own forecast no market share change positions related to the OEM customers for cable providers so for the cable data providers, so as a result, we aren't expecting to see changes in the market share. However, we do expect a very modest growth in the cable volumes and, as you will have heard with the Comcast call, the data -- they are picking up more and more subscribers for data bandwidth so we are planning for a modest growth based on those kinds of commentaries.

Secondly, the ASP corner is increasing. If you just compare the 24 channel versus the eight-channel device, there's a 30% delta in the ASP. That's just a cable DOCSIS front end. However, in the new generation boxes deployment which we -- you know, there are some platforms that are transitioning to the [ARPGs] or amplifiers also being deployed and there are some platforms where we have the PG amplifier, the DOCSIS front end and our MoCA device as well. So you can see that with regard to the content in the DOCSIS 3.0 boxes, with the new 24-channel platforms we'll be picking up significantly more BOM content by virtue of the fact that we've added MoCA to it so you can look at it as a 2X increase in the total BOM on the platform for MaxLinear.

Okay and I know last we talked and talked about perhaps some positive impact to MaxLinear from AT&T buy DirecTV and the possibility of AT&T converting some of those UVerse subs over to the DirecTV platform, video platform. I'm wondering if you have any more insight into the fruition of the $120 million incremental revenue and have you started to see any positive impact from it so far? That's it for me. Thanks.

It's kind of hard to call a trend; if that in fact were playing out it would just be the beginning of it where we cannot discern as much. And also we have not seen a confirmation of that trend yet so we feel that if by the time all the marketing activities are lined up and aligned with regard to that switch over of video subscribers from UVerse, I don't expect to have a firm answer for you till the end of the first half of next year.

Alex Guana, JMP Securities.

Afternoon, guys, and congratulations on the great quarter. I was wondering, Kishore, if you could give us a ballpark on how the operator revenues split between say the cable infrastructure CAM and the satellite plan and then if there's a material difference in the near to intermediate term outlook for growth prospects in either camp? Thanks.

I think in your question you have wrapped up a few things that are not exactly the way we have called for our revenue description. We do not include cable infrastructure yet in our revenues so there is not much to speak of other than if you want me to conduct what a wonderful prospect of trend with a deep cable fiber DOCSIS 3.1 deployment where really they are going to distributor access much closer to the customer, client premises. In that particular configuration -- sorry, please go ahead, Gary.

Well, let me clarify. I mean between so the cable modem, cable set top box driven revenue so where we're counting on the Comcasts, the Coxes, the Time Warner's versus the satellite camp where we're looking at the DirecTV and the SKY camp overseas. Which -- how does that break out? I've been getting questions from investors in terms of really service provider is the big category. How does it split between the two, roughly?

I'll take a stab at this, Alex; this is Adam. I would say that when we -- after we completed the deal and we articulated what the combined business looked like going forward, we were saying that within the operator business, which was roughly three quarters of the total business for MaxLinear, the split was more in favor of cable than the satellite but satellite was growing faster because of some of the new platform dynamics that were in place and the new platforms ramping. And we said that was we exited 2015, you would start to get close to an even split between satellite and cable contribution within that mix and we're very much on track for that to be the case. It's still -- cable will still be ahead of satellite as we exit 2015 but very, very close and you could see at some point kind of them touching together in 2016 but it's really pretty close as we exit 2015.

And within that keep in mind that there's products that span both cable and satellite, typically MoCA right, so MoCA sells into cable platforms and sells into satellite platforms so there's kind of technologies that span both those operator classes, if you will.

Okay that's great; that's very helpful. And, Kishore, that touches on something you just mentioned in terms of some of your optimism on MoCA on the next gen cable platforms. I typically think of MoCA more on the set-top box front but are we seeing a lot more potential attach, real-time attach that can contribute in the near term on the cable modem front?

Absolutely, in fact whenever we talk to 24-channels today, in the new XB3 platforms that we are -- that we ship to end customer, for example Comcast, MoCA is a one-to-one attachment on every data platform. MoCA is now transforming or has already begun its transformation from a video distribution high quality of service delivery to being a backbone for both data and video content and so all the data platforms for over the top content consumption are using MoCA inside the data gateways. Specifically for Comcast on the X1 platform I can confirm that for you.

Okay and one last quick one if I could, you surprised me by saying you had expectations for the SoC business to be up I believe I heard you say in the March quarter and I am wondering if you could give us any more color. That strikes me as a somewhat longer horizon that you don't usually have visibility into. What's going on there and does any of that optimism bleed into any of the other categories? Thank you.

It's, you know, it turns out that to the extent that we can find a pattern, the ordering pattern on the video SOs is related in [DVT] of the cable or satellite players. Generally somewhere between Q2, Q2 and Q3 beginning they take -- they do the bulk of their ordering and they really go clamp down Q4 through one early and that kind of mirrors their budget cycles I am assuming, the capital expenditure cycles. So for example, you're going to play forward to the next year it would not be surprising if Q3, Q4 were down per the timing of which part of Q3 this whole thing plays out. So we're reflecting on its seasonality pattern, if you will.

But coming back to what's driving the revenues per se, you step back and say okay over the next three years where would MaxLinear's GDP revenues come from? Clearly the cable operators and one satellite operator; in the cable operators' side you can imagine Time Warner and Cox have announced big time programs for HD DTA conversion to really go digital. I think Cox has announced as many as 12 million subscribers being converted to -- you know, where the [GDA] conversions would be deployed over three years and Time Warner has announced somewhere in the between around 5 million to 10 million subscribers so there's a huge pipeline of customer conversions to where they will issue out HD DTA boxes. So you could see that these revenues are not ending anytime soon but there are timing issues.

Well, for example, as Time Warner may come down, Cox could be still going strong so it's hard to model that so we're definitely the life time of these HD DTA products or IP TV associate products at the satellite operator is clearly not a one-year, two-year. It is a multiple year thing but how the profile looks like in terms of [sunsetting] is a multiple year horizon so I hope that answers your question.

That did; that was helpful, thanks. Congratulations again.

Ross Seymore, Deutsche Bank.

Hi guys, congrats on the strong quarter and guide. I guess a couple questions on the quarter itself. Kishore, you mentioned that some inventory burn occurred on the cable gateway side as cable data side in the third quarter but you expected restocking in the fourth, anymore color on that? You know, what was the inventory burn for and what is it that gives you the confidence in the restocking given that in the past that has turned out to be problematic transition at times for you guys?

Okay you know, if I might just say, I know for sure how to cut my tongue next time, right so the whole idea here is this, that we do not see any throughput based on the earnings calls of our customers. They had very strong robust third quarters but their order patterns, they are quite subdued for us in Q3 and then they did mention that they are going to take their stocking down in terms of inventory trying to lower inventory levels so it's a more detective work, if you will.

However, based on the backlog resumption that's happened pretty strongly, the data it would not be farfetched to conclude that toward the end of Q4 where the shipments are being positioned or requested that they are doing behaviors where by their own shipments the MSOs have not diminished. They are just cleaning their homes to bring their inventory levels down for the end of the year balance sheet issues and then ordering stronger heading into Q1 for MaxLinear.

I get that. It's a perfect segue to my next question. I know you guys aren't guiding two quarters out beyond some of the commentary you just answered on the video SoC side but given the changing mix in your Company versus anytime in the past, is there any sort of seasonal patterns that you could talk about in a typical, to the extent there ever is a typical first quarter, and how those revenues play out seasonally across the various segments of you Company?

It's so tough. We could speak to our old revenues but let me try to take a guess here. You know, three quarters of our revenue is approximately operator revenues and they are all kind have behaved consistently. Q4 they go -- they do strange things in Q4 and early Q1 and they go strong in Q2 and early Q3. That seems to be a pattern so to the extent that three-quarters of the revenue is operator based, we could speak for that seasonality.

However, we have a unique situation where the satellite gateway ramp is going on in with the [Sky Properties] and some of our customers in the US as well so -- and once again, we are also fighting or negotiating some declines in legacy businesses of Entropic versus new businesses at these operators so it's kind of muddled up. But again, just sum it up for your benefit, three-quarters of revenue is operator so there is some seasonality. Q4 and early Q1 challenge us and Q2 strong, early Q3 strong, that would be the extent to which I can speak for patterns.

Yes there's a little more site -- add a little bit to that. There's a little -- obviously there's always been seasonality to our consumer business, particularly the hybrid TV business, but now that's such a small piece of our mix that we really don't see it moving the needle very much. So when it was as much as 30% or more of our revenue, it definitely had an influence where it was much stronger typically in Q3, Q4, weaker in the first half of the year, we're just not -- that pattern is still there. It's just much more muted given the overall size of the Company now.

Great and if I could sneak in one more, just from a longer-term perspective, you guys look at 2016 as a whole. You have a lot of different things going on, moving parts there as well but if I just boiled it down, Kishore, on a dollar basis, not percent, what do you expect to be the biggest driver as an upside? Where do you see there's potential dollar downside as an offset as we think about the year as a whole?

I think that there are timing risks. Timing really there is challenges with legacy revenues of analog channel stacking and SoC timings are seasonality driven in the latter half of next year. Those are seasonality related and then the analog channel stacking is timing related and digital -- and since we're the only digital outdoor unit revenue analog channel stacking revenues, we see modest upside and modest downside.

On the cable side we see pretty decent upside on MoCA revenues. We see strong upsides on satellite gateway revenues and we also see very strong on a relative basis. I know you ask on a dollar basis. I want to reiterate that we said that in 2016 our high-speed interconnect revenues would be in the $10 million to -- somewhere between $10 million to $20 million of revenue. So of all of those our high-speed interconnect revenues are the most sexy ones, if you will. It's infrastructure, high gross margin oriented. Satellite gateway revenues are very, very meaningful and probably the bigger ones and then you have revenues coming from MoCA. I think those are the three chunky revenues, if you will, that would drive growth.

Great thank you.

Tore Svanberg, Stifel.

Yes thank you and congratulations on the results. First of all, just a quick one for Adam; Adam, the higher gross margin in Q4, is that solely just a function of mix where legacy SoC will be down sequentially?

Mix is certainly a piece of it and then there's other things that are some timing related items that are working, that we believe will work in our favor as far as some of the non-standard costs in our model. So it's really mix plus a bunch of other ins and outs but the majority of it's really mix related.

Very good and go ahead, Kishore?

I think that we will -- you know, now that by the end of December, six months will be behind us with the proper scrutiny of the Entropic product lines. We should start seeing operations benefit to start to contributing to the COG beginning of next year.

Sounds good. Last few quarters your backlog has been pretty high. Where do you stand right now?

I think it's as good as it's been in the last quarter, somewhere in the closer to the 90% backlog range, you know.

Very good. Now, coming back to the topic on DOCSIS 3.1 and content, so just to clarify, the MXL 236 would be used regardless, right, the variation is on the MoCA attach?

You know, that depends. Varies from operator to operator, right? Until now on the DOCSIS 3.0 platforms the PG that was used was not MaxLinear's platform. At various customers we are transitioning the platforms and a [course] down to -- on their course down to MaxLinear's PG As. On the Comcast platform, for example, they could be three MaxLinear's -- there's a MaxLinear MoCA attach at one customer and there's no MaxLinear attach at another customer so it varies by operator and it varies by OEM so it's -- but I would say that all in all on the substantially majority share of the 24-channel at Comcast would have MaxLinear MoCA attached to it. PGA would be rolling into it in the 24-channel platform. But once we move the DOCSIS 3.1 platforms, MaxLinear's DOCSIS 3.1 PGA will be default on all the MaxLinear platforms.

That's very helpful. Last question, you mentioned $10 million to $20 million in high-speed or Physpeed revenues next year. Shall we assume that that's going to be primarily 100-gig long-haul or could you potentially even get some metro and data center revenue?

I think there's a 100-gig -- it's the 100-gig long-haul and metro and we'll also be announcing. We did make some announcements earlier but only now we're beginning to attack the data centers. We have some products that we are beginning to sample. There will be a data center related revenue towards the second half, in the second half of next year ramping so that's the reason I have such a broad range between $10 million to $20 million and I would say that there is definitely upside because we got interest in products coming out and I would be delighted if we were to be on the high end of the range and that is one of the situations where I am like I don't see a reason why we cannot make it happen if we get over our -- if we can provide more resources so the design platforms go flawlessly through and our own manufacturing is no longer the limitation.

Very good then congratulations again on the Entropic integration. Thank you.

Quinn Bolton, Needham & Company.

Hey, guys, congratulations on the nice results. Just wanted to come back to Q3, Q4 here, I didn't hear -- and maybe I missed it but any comments on the satellite gateway ramp I think you have both a North American and a European vendor currently ramping so I was a little surprised not to hear any commentary on sort of how that business trended in Q3, Q4. Obviously it sounds like it's a big part of -- or it's a big growth driver next year but can you make any comments for that second half of 2015?

Satellite gateway? So can you repeat the question please? Your question was Q3 to Q4, the trends on the satellite gateway, is that correct?

That's right in Q3 versus Q2?

Yes so I'll give a little bit of color on the satellite gateway. So the Q2 period was really the first real big ramp up for us on the satellite gateway. That's where if you recall prior to the Entropic acquisition, we were saying at what point in time would satellite represent more than 10% of our mix, kind of indicating that it kind of achieved some form of lift off. And certainly that happened in Q2 and that was a pretty big ramp for us.

Q3 gateway we're experiencing right now a little bit of digestion from that, the shipments of that product that shipped so strongly in Q2 and really we're expecting some bounce back in Q4 but certainly a much stronger demand as we head into the Q1 period so we're kind of in that typical period where operators will take a big, big slug at delivery. They build up their inventory. They fill their hubs and they start to deploy the product and then they basically kind of get that, digest a little bit of it and then kind of resume a more normal deployment pattern once they've got the initial deployments underway.

So we feel very confident about where we are. Again, Q2 was very, very strong. Then from that Q3 was reasonably -- was a reasonable quarter as well, pretty much in line with our expectations would have been had we not had such a big Q2. And then Q4 again is pretty much in line but we expect more exciting growth and kind of I would say significance of the revenues to be in Q1.

So to give you a little bit color, the way the operators order is they give us a six-month rolling forecast and they give you -- one of them gives us some kind of an open deal over a six-month period so we have good visibility into what Q1 would look like. That's why we feel pretty good that there is no hiccup in the throughput side from the customer.

We are expecting a very strong 2016 on the gateway side and we've had a very good start to that ramp with a strong 2015, very much in line. It's not better than we were expecting as we entered 2015.

And just to clarify, are both of the European and North American operator gateway ramps now sort of going through that initial channel fill and get more into steady state pull in 2016 or is there a timing difference between when the North American ramps and when the European operator ramps?

So the way it looks like is initially you looked in drivers much ahead and then they had some fits and starts and then the American operator kind of got caught up. Now there -- we've been kind of the closely paired, though they are some uncertainties associated with the planning process with the American operator due to consolidation situation and whereas it's getting more clarity as a group in operator because they are beyond the consolidation now.

Got it and just turning over to the channel stacking business, it sounds like you're seeing currently a nice ramp in the digital side of that business but there is some timing uncertainty as when your large analog channel stacking switch customers start their digital migration. Now that you've got another quarter under your belt, do you have any improved visibility into when that large North American operator may start the digital channel stacking switch conversion?

Tate, there are multiple operators in North America who are deploying our digital channel stacking solution as well so one of them is going quite strong. One of them is being very deliberate between the -- by the way, and both and all of them buy our analog channel stacking solution as well so one is being much more aggressive on the digital channel stacking ramp and there we do not have any risk of what I call revenue work in our -- in not favorably for us. And the other one they're being more deliberate and with how they're going to -- how and when they're going to mix analog with digital but they're also beginning to ramp digital channel stacking.

However, they're doing it with the lesser volume platforms right now and they're being much more deliberate. So I would say that all in all right now that trend is working in our favor but we will wait to see as we exit 2016 how that plays out and if this trend continues, it's a good one for us. If it picks up some more momentum, it's still good for us. It's just that both the deliberate strategy, deliberate deployment on more of these operators is actually in our favor and we're actually counting on that now, not in our forecast as much as like we are hoping for that.

Yes to give you a little more color, Quinn, too just to give you some context, the digital channel stacking we always were forecasting digital channel stacking would be maybe a third of the satellite revenue. Gateway would be two-thirds. But really in the second half of the year we're looking at digital channel stacking being as large, if not larger, than the gateway and at the same time as analog is also continuing to be very strong as well, so you're seeing strength across analog deployments.

You're seeing more strength than we anticipated on the digital channel stacking so digital -- sorry, channel stacking as a group of products in a family is definitely out delivering what our expectations were on an organic basis and also when we were doing the combination with Entropic. And that's not to diminish what's happening on the gateway side because that's also been very much consistent with our forecast that we had entering 2015 so that's delivered as well, just been really good upside that we're seeing on the channel stacking for both analog and digital at this time.

Great and just last one from me, Adam, you've done a great job on the non-GAAP OpEx and the kind of $28.5 million to $29.5 million range the last three quarters. I think probably many of our models if you look out to 2016 probably anticipate OpEx increasing to the $32 million to $35 million a quarter range as it progressed through the year. You know, obviously that sounds like OpEx may come in well below that kind of level. Can you give us any sense how we should be thinking about OpEx into 2016 on a quarterly basis?

I think that the way we've always told on the OpEx side is that much of our OpEx activity has always been driven by hiring and now our hiring anticipation for next year really are much lesser than before so the OpEx pickup should be more gradual than earlier years as we get -- went from Q1 to Q4 so, Adam, do you want to give some color or as I said, it's too early to do that because our AOP planning is uncomplete yet?

Well, I would say that right now we're -- and I've been pretty consistent in talking to folks about this, that we're not expecting significant step ups in OpEx in 2016 from where we exit 2015 so the fact that we provide some guidance, when I say significant we'll see the normal merit. We'll see a little bit of headcount additions. We'll see some remixing and so forth. There's a little bit more tape-out insensitivity in 2016 given our roadmap that we had in 2015 but all in all if you think about kind of bracketing the OpEx right now on a quarterly basis to being in the 30 to even I'd say the 30 to 32 is probably the range that I would be expecting for any quarter right now as I look out into 2016. Again, it's preliminary, as Kishore said. We're still going through our planning but I think that's a reasonable place to be.

No that's great, very helpful. Thank you very much.

Krishna Shankar, Roth Capital.

Yes, Kishore and Adam, congratulations for the nice results. For most of the satellite gateway deployment that you have now are they all mainly analog switches and will there be an [ASC] bump in content as you move to the combination of digital switches and satellite gateway?

The satellite gateway is a new market for us so they're very different markets, right? There's a gateway market where we get ASPs if that anywhere between $5 to $10 and then on the switches there's the similar range of pricing on the digital channel stacking solutions so I must congratulate the operators for beating us up so well that we can't expect ASP increases on our legacy solutions. On the other hand they give it as new market platforms, which with good revenue opportunity because the high ASPs not related to what we think we truly get, need to be paid but we're happy to have their business.

Great and then on the cable side with respect to DOCSIS 3.0 and 3.1, can you talk about competitive environment, how you see things out there, especially with your large competitor in the throes of a merger? What do you see in terms of competition and what customers are telling you?

I think the cable data platform has primarily always been the platform we are on, angel platform, and then the [Broadcom] platform right and I would say that competitively we don't expect any share changes. However, at this point we are very, very comfortable saying that our platform has the lowest power and the best-in-class performance for DOCSIS 3.1 applications and while when you talk of this PGA as it looks like it's another amplifier, it's just not another amplifier. The DOCSIS 3.1 PGA is incredible power consumption beast and it's really, really putting a spanner in the competitive platforms where they do not get a credible PGA so their power [bot] is incredibly bad and since we do not sell our PGA outside of our own walled garden of analog mixing components, we feel in a very, very good positively positioned with advantage owing to our MoCA, DOCSIS front end and PGA products.

Thanks, so then, Adam, on gross margins for 2016 can you sort of speak broadly on gross margin trends just giving the mix towards more balanced cable and satellite and potentially more [comms'] infrastructure? Is there a lot of upside to gross margin for 2016?

You know, I think there -- yes I think the trend is going to be our friend in 2016 on margin but I'd be really cautious to get too far ahead of ourselves. I would say that you know, we're -- as you could see, we're moving back in the right direction in Q4. I would expect that that trend would continue in 2016 but I really right now still think that it's going to be difficult to get back to a 60% plus gross margin in the 2016 time frame. I think that's really 2017 and beyond just as a function of mix and ramping new platforms that have yet to be dialed in on a cost basis. So I think we're going to be moving in the right direction. It's going to be incremental. It's not going to be any significant shifting and I think we'll work our way back towards the 60 point margin as we exit 2016 but I wouldn't be modeling at the 60% quite yet for any time in the--

The entire year, definitely not but I think we are hopeful that as we exit we will be getting us right in the 60% corner there.

Great thank you.

And we have a follow-up question from Ross Seymore with Deutsche Bank.

One last question for me and housekeeping for Adam, especially since you guys give bonuses in shares, what should we think about for the share count in the fourth quarter and then generally speaking direction on that for 2016?

You know, directionally speaking you should be thinking around I would say anywhere between 500,000 and 700,000 shares per quarter in total for all the programs including the RSU vesting for our long-term incentive plans, our share based bonus and our [ESBP]. I think that 500,000 to 700,000 shares is the right on a quarterly basis, just a little bit lumpier in some quarters versus the other and May tends to be a heavier release window for us given our annual cycles but net, net that's about the range.

And I guess one other one since I have you here with on the high-speed interface side of things can you talk a little bit about what is allowing you take that share and go to the $10 million to $20 million in revenues next year? Is it still exceedingly performance driven or is price coming into the equation as well?

What's allowing that is because we have the unique part. I mean colloquially put people have crappy parts. We are a great part. With that that would be the summation of why we are winning which we are such a surprise how fast it's happening but I would say all in all is a dearth of suppliers who really are high quality what I call high quality analog mix signal design companies. So far this market has been fed with discreet component mentality and thinking and how they design them so when we showed up with our laser driver parts it was readily accepted with the market and that's why we're winning.

And secondly, we have not yet seen a pricing pressure on the driver products but I would not be surprised on a lesser performance (inaudible) is. There are many vendors who can do that and that's going to be more price competitive and honestly, as you know, we are (inaudible) than that and we are just going to be entering that market and we hope to take share away based on our design excellence.

Perfect. Thank you again, guys.

At this time there are no further questions. I will turn the conference over to Dr. Seendripu for any additional or closing remarks.

Thank you, operator. As a reminder, we will be participating in the Stifel Midwest One-on One Conference on November 12th in Chicago. We'll also be at the Consumer Electronics Show in Vegas in the week of January 4th and the Needham & Company 18th Annual Growth Stock Conference in mid-January in New York. We hope to see many of you there.

With that, I want to thank you all for joining us today and we look forward to reporting on our progress to you in the next quarter.

That does conclude today's conference call. Thank you for your participation.