Maxlinear Inc (MXL) 2016 Q1 法說會逐字稿

Good afternoon. My name is Lisa. I'll be your conference operator today. At this time, I'd like to welcome everyone to the MaxLinear Quarter One 2016 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). At this time, I'd like to turn the conference over to Mr. Gideon Massey, Investor Relations Specialist.

[Operator]. Good afternoon, everyone, and thank you for joining us on today's conference call to discuss MaxLinear's first quarter 2016 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 2016 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 completed acquisition of Microsemi's Wireless Access business unit and our announced pending acquisition, Broadcom's Microwave Backhaul business. And our current views regarding opportunities and 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 law 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 the terrestrial, cable, satellite, high-speed interconnect and wireless infrastructure markets do not grow as we currently expect, or if we are not successful in expanding our target addressable markets through acquisition or the introduction of new products. Acquisitions including our recently completed and pending acquisitions of wireless infrastructure product lines, present particular risks relating to our ability to integrate the acquired businesses and maintain relationships with key employees, customers, suppliers and other third-parties. In addition, substantial competition in our industry, potential declines in average selling prices, risks arising from the consolidation in our industry and among broadband operators in our principal target markets, risks related to intellectual property protection and outstanding intellectual property litigation and cyclicality in the semiconductor industry could adversely affect our future operating results. For a more detailed discussion of these risks and other factors, you should consider evaluating MaxLinear and its prospects. Please refer to the information included under the caption Risk Factors in our filings with the Securities and Exchange Commission, including in particular our Form 10-K for fiscal 2015 which was filed with the SEC in February 2016, the Form 10-Q we filed today and our other SEC filings.

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 2016 earnings release is available on the Company website at maxlinear.com. In addition, MaxLinear reports gross profit, income/loss from operations, and net income/loss, and basic and diluted net income/loss per share, in accordance with GAAP, and additionally on a non-GAAP basis.

Our non-GAAP presentations exclude the effect of stock-based compensation expense and its related tax effects, accruals under our equity settlement performance-based bonus plans, outstanding patent litigation, deferred merger proceeds and change in fair value of contingent considerations, restructuring charges, impairment and amortization of acquisition-related intangibles, non-recurring acquisition and integration-related expenses, production mask impairment, and release of valuation allowance due to net deferred liability acquired.

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 operation 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 of MaxLinear.

Thank you, Gideon, and good afternoon everyone, thank you all for joining us today. Before jumping into the details of the financial results, we are very excited about the steps we have taken to accelerate and expand the strategic initiatives in infrastructure markets they are leveraging our core CMOS RF mixed-signal technology platform. Combined with the recent acquisition of Microsemi's Wireless Access infrastructure, 3G and 4G radio assets and today's announcement of having signed a definitive agreement to acquire Broadcom's Wireless Infrastructure Backhaul business, we're in a strong position to address the rapidly growing multi-billion-dollar wireless infrastructure market.

Before getting into the details of these transactions, we are pleased to have delivered record revenue of $102.7 million in Q1 of 2016. The corresponding record operating cash flow generation of $39 million reflects the success of our continued focus on supply chain optimization and tight operating expense management efforts. First quarter revenue was up 4% sequentially and 190% year-over-year. This sequential revenue increase was driven by continued momentum in the early ramp of our high-speed optical interconnect solutions as well as strength across a range of applications in our cable and satellite operator, CPE markets and legacy video SoCs. These results highlight the successful diversification of our revenue streams from both our organic initiatives and our acquisitions of Physpeed and Entropic Communications.

We are equally excited about our gross margin improvement execution as we posted GAAP gross margin of 59.6% and non-GAAP gross margin of 61.3% which exceeded the 60% threshold for the first time since our acquisition of Entropic in Q2 of 2015. We believe that we have laid the essential groundwork, both operationally and strategically, for delivering a sustainable 60% plus gross margin business moving forward.

Now, moving to the specific business highlights for the first quarter of 2016. Operator revenues grew 1% sequentially and accounted for 74% of total revenue in the quarter. Operator-based revenues benefited from particularly strong 4K resolution satellite gateway front-end shipments and RF mixed signal front-ends with cable video applications. Cable data gateway revenues were up over 10% sequentially, due to a surge in eight-channel DOCSIS 3.0 demand serving Latin American markets and a pickup in 24-channel demand, which we expect to continue into Q2. However, softness in satellite channel stacking outdoor unit deployment and operator-based terrestrial set-top box receiver shipments offset some of these strong revenue growth trends.

The DOCSIS data gateway market continues to be an exciting and strategic growth platform for us, which enables us to address the expanding over-the-top video and data markets. Our customer design wins and operator engagements around the new multi-gigabit cable DOCSIS 3.1 standard-based data services are gathering strong momentum ahead of the initial product rollouts expected in the second half. We are excited about the underlying market dynamics supporting the DOCSIS 3.1 product cycle, as well as our leadership position competitively in both cable data front-end and companion PDAs. We expect a multi-year upgrade cycle to drive solid growth for our cable data business due to new DOCSIS 3.1 deployment.

Within our satellite family of products, revenue growth resulted from a step function increase in satellite gateway of Full Spectrum Capture receiver deployment, driven by the resumption of next-generation gateway rollouts across multiple Tier 1 operators in North America and Europe. We also benefited from strong demand for MoCA deployments into a satellite platform. As mentioned before, strength in these categories offset softness in satellite channel stacking demand relative to a particularly strong Q4.

As highlighted before, MoCA is a strategic and complementary asset within an operator portfolio. We are now in a unique position to enable gigabit-plus bandwidth in-home distribution to multiple devices using MoCA 2.0 and 2.5 gigabit per second plus bandwidth distribution using MoCA 2.5, which is an increasingly strategic imperative for our broadband operative partners.

Moving to our infrastructure and other product revenues, which was roughly 10% of our total revenues in the quarter. We witnessed a strong and continuing ramping in shipments of our high-speed optical interconnect products, specifically our long-haul 100 gigabit per second laser drivers shipping into Chinese OEMs. The strong growth in Q1 combined with the significant improvements in our supply constraints boosts our confidence in meeting our 2016 growth target of $10 million to $20 million in high-speed interconnect revenue. We continue to leverage MaxLinear's world-class engineering and operations capabilities to expand into the high-speed optical interconnect market as evidence by our new product announcements at the Optical Fiber Conference in March. At OFC, we announced and demonstrated our first family of high-performance Trans-Impedence Amplifiers or TIE solutions consisting of the MxL9101 and the MxL9103 devices. These devices feature not only the best in class sensitivity for a range of 100 gigabit per second plus NRZ and PAM-4 data center applications, but also have the industry's lowest power dissipation.

Lastly, legacy video SoC revenues derived from the Entropic acquisition were $16.7 million in the quarter, increasing to 16% of total revenues, versus approximately 14% in the prior quarter. As expected, we witnessed both seasonal and potential last time buy related strength in cable HD-DTA revenues. This will likely prove to be temporary as our backlog points to a weaker second quarter for this business. Looking ahead, we also see some uncertainty and potential weakness in demand, owing to the lack of visibility on deployment plans of the recently combined Time Warner and Charter Communications cable operations.

I would now like to share some brief perspective on the strategic rational underpinning our recently announced acquisitions of Broadcom's Wireless Infrastructure Backhaul business and Microsemi's Wireless Infrastructure assets for approximately $80 million and $21 million respectively. With the Broadcom Backhaul business, we will acquire its proven market-leading Microwave and Millimeter-wave backhaul modem capabilities, which we will combine with our organically developed Microwave RF transceiver solutions. Together, they will constitute the world's first complete and most advanced wireless backhaul technology platform and only full system solution.

Broadcom's hardware, software and system-level expertise developed over a 15-year period have secured meaningful design wins at Tier 1 wireless infrastructure OEM customers. This acquisition of Broadcom's baseband technology platform not only accelerates the time to revenue in our target wireless infrastructure market, but also enhances significantly the market share prospects of our organic microwave backhaul remote radio head transceiver offering. We expect to sample our remote outdoor unit CMOS microwave radio single-chip solution a bit later this year. Suffice to say that we have great confidence in the revenue synergies and Tier 1 OEM customer acquisition potential resulting from the consolidation of our offerings. We are also excited to have acquired the Microsemi Wireless Infrastructure 3G, 4G access technology platform. We see a very exciting growth potential represented by the migration of wireless infrastructure access markets from 2G, 3G and 4G to ultimately 5G deployment, characterized by the proliferation of multiple higher-frequency range cellular bands and dramatic increases in channel band with requirements. This migration significantly increases the complexity of wireless access technologies and vastly increases the number of transceivers required in each remote radio heads inside macro and micro wireless base stations.

Factoring in our organic road map, we believe that we have assembled a comprehensive set of key wireless access and backhaul technologies that enable us to bring to our customers a new level of performance, power efficiency and cost optimization benefits in their platforms. The RF silicon content in wireless access and backhaul market is large. Based on third-party data and management estimates, who MaxLinear believes as a serviceable available market consisting of wireless infrastructure backhaul baseband and RF transceiver solutions and wireless infrastructure access RF transceivers will be approximately $700 million in 2016. We expect that this market alone will grow to about $1 billion by 2021, excluding the multi-billion dollar market opportunity represented by next-generation 5G wireless network deployments. Both of these recently announced acquisitions share key attributes. First, the technologies acquired address large and growing markets that are in much need of cost and power improvements, which can be enabled by CMOS RF integration. This need plays to our core digital CMOS RF mixed-signal design strengths and creates an opportunity for sustainable differentiation. Also, these acquisitions not only aligned with our strategy of expanding our serviceable, addressable markets with particular focus on the long product cycle infrastructure markets, but they also accelerate our time to revenue in a manner that it's consistent with the long-term revenue growth, gross margin and operating margin targets.

In conclusion, we're extremely pleased to have delivered a record revenue quarter along with gross margin expansion and strong cash generation. Our expanding portfolio of market-leading broadband access and connectivity solutions has positioned MaxLinear extremely well to address the key challenges faced by our operator partners. Simultaneously, our recently announced wireless acquisitions combined with our organic initiatives and backlog RF technologies together with our rapidly growing high speed fiber interconnect products significantly accelerate our ability to address and grow revenues in the large and growing wireless and wired infrastructure market. We look forward to sharing more information regarding the progress in our infrastructure initiatives in the coming months.

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. On Q1 revenue of $102.7 million, GAAP and non-GAAP gross margins for the first quarter were approximately 59.6% and 61.3% of revenue respectively, versus our original guidance of 57% for GAAP and 59% to 60% for non-GAAP gross margin. This compares to GAAP and non-GAAP gross margin of 56.4% and 58.1% respectively in the fourth quarter of 2015 and GAAP and non-GAAP gross margins of 61.2% and 61.3% respectively in the year-ago quarter.

The delta between GAAP and non-GAAP gross margins in the first quarter was primarily related to the amortization of $1.6 million of acquisition-related purchased intangibles at approximately $0.1 million related to stock-based compensation and stock-based bonus accruals. Q1 GAAP operating expenses were approximately $39.5 million, $1 million above guidance due primarily to a $2.1 million facility restructuring expense as we finalized sub-leases and associated expenses on all remaining former Entropic facilities, which was partially offset by lower than forecast non-GAAP operating expenses of about $1 million.

GAAP operating expenses included $0.3 million of restricted merger proceeds and contingent consideration related to our Physpeed acquisition and $0.4 million for the amortization of purchased assets acquired from Physpeed and Entropic. Accruals related to stock-based compensation and stock-based bonus and incentive plans were $4.8 million and $2.0 million respectively. And we incurred (technical difficulty) of professional fees related to Cresta Technology's patent litigation and expenses related to our recently announced acquisitions. Consistent with 2015, payouts under our 2016 performance bonus plans are expected to be settled primarily in shares of MaxLinear stock.

Net of these items, non-GAAP OpEx was $29.5 million, $1 million below our prior guidance of $30.5 million, $2 million higher than Q4 2015 and up approximately $11.5 million from the year-ago quarter. Roughly half of the [underage] relative to guidance resulted from continuing efficiencies resulting in slower than anticipated hiring, with the balance coming from a combination of accelerated NRE payments, pushout of embedded IP purchases with respect to the second quarter and a release of a prior bad debt allowance.

First quarter GAAP operating expense attributable to R&D was up approximately $1.1 million quarter-on-quarter and increased $8.5 million year-on-year at $23.8 million, which included stock-based compensation of $3.1 million, $1.4 million related to the 2015 stock-based bonus plan and incentives awards and $0.2 million in Physpeed deferred merger proceeds and contingent consideration and $0.1 million for the amortization of purchased intangible assets.

Excluding these items, first quarter non-GAAP R&D was up approximately $1.9 million on a quarter-on-quarter basis to $19 million. Within this R&D spending increase, there were $1.7 million related to tapeout and prototyping expenses and $0.7 million was driven by headcount increases as well as seasonal step-ups in payroll taxes. These sequential increases were partially offset by about $0.8 million in NRE payments and declines in spending on outsourced projects for the previously mentioned tapeouts.

First quarter GAAP OpEx attributable to SG&A was down approximately $4.4 million quarter-on-quarter and up $2.7 million from the year-ago quarter to $13.6 million. GAAP SG&A expense included $1.7 million in stock-based compensation, $0.6 million in stock-based bonus plan accruals and incentive compensation and $0.4 million in net professional fees related to the recently announced acquisitions and the Cresta Tech patent litigation and $0.3 million for the amortization of Entropic intangible assets. Excluding these items, first quarter non-GAAP SG&A was up $0.2 million on a quarter-on-quarter basis to $10.5 million, driven primarily by minor headcount additions and seasonal payroll related step-ups, partially offset by lower professional fees and the recovery of some bad debt receivables that had previously been written down. At the end of the first quarter of 2016, our headcount was 506 as compared to 500 at the end of the fourth quarter of 2015 and 352 at the end of the first quarter of 2015. We continue to evaluate our staffing levels globally, strictly following our recent acquisition activity, to strike a balance between driving near-term bottom-line operating leverage and staffing long key long-term growth initiatives. We continue to look to derive operating leverage by perfectly balancing hiring across our locations in the US, India, China, Taiwan and Canada.

GAAP income from operations was $21.7 million in Q1 compared to a loss from operations of $8.7 million in the prior quarter and a loss of $4.6 million in Q1 of last year. GAAP earnings per share in the first quarter were $0.29 on fully diluted shares outstanding of 65.8 million. This compares to GAAP loss per share of $0.14 in the prior quarter and a net loss of $0.12 per share in Q1 of last year. Non-GAAP earnings per share in Q1 were $0.47 on fully diluted shares of 65.8 million compared to $0.46 per share in Q4 2015 and $0.09 per share in Q1 of last year.

Moving to the balance sheet and cash flow statements. Our cash, cash equivalents and investment balance increased $36.3 million from the end of Q4 2015 to approximately $166.8 million, and increased $85.6 million as compared to $81.3 million in Q1 of last year. Our cash flow from operations in the first quarter 2016 was approximately $39 million versus $24.6 million generated in the fourth quarter of 2015 and $3.8 million in the year-ago quarter.

Our days sales outstanding for the first quarter was approximately 37 days or two days less than the prior quarter, and 17 days less than 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 5.4 in the first quarter compared to 5.0 turns in the fourth quarter and 4.6 turns in the year-ago quarter.

Having closed the Microsemi deal on April 28th, our second quarter guidance will include partial revenue contributions from this business, including timing adjustments to revenue contribution, as we can form the business to our sell-through revenue recognition model for distributor shipments. MaxLinear may record acquisition-related charges, including those for amortization of purchase intangible assets in the second quarter 2016 related to the acquisition. The amounts of these charges have not yet been determined and are not currently contemplated in our upcoming guidance for the second quarter.

We expect Broadcom's Wireless Infrastructure Backhaul acquisition to close on/or around July 1, 2016 subject to customary conditions and regulatory approvals and as such, our guidance for Q2 does not include any operating contribution impacts in the second quarter. That leaves me to our guidance. We expect revenue in the second quarter of 2016 to be in the range of $100 million to $104 million. Built into this range, we expect operator revenues to account for roughly 78% of overall revenue. Infrastructure and other 14% and legacy video SoC approximately 8%. More specifically, within operator, we expect growth to be driven primarily by our cable data in our cable specific MoCA business, partially offset by lower analog channel stacking and cable video receiver shipments.

Within infrastructure and other, we expect declines in consumer terrestrial set-top box shipments to be more than offset by continued early ramp in high-speed interconnect revenues and a modest contribution from our wireless access products related to the Microsemi acquisition. Within our legacy video SoC markets, we expect declines to be derived from seasonality in the North American cable HD-DTA deployments and the impact of potential last time buys realized in the first quarter related to a North American operators HD-DTA platform.

We expect GAAP gross profit margin to be between 60% and 61% of revenue and non-GAAP gross profit margin percentage to be between 62% and 63% of revenue in the second quarter. Our gross profit margin forecast could vary plus or minus 2% depending on product mix and other factors. We continue to fund strategic development programs targeted at delivering attractive topline growth in 2016 and beyond with a particular focus on infrastructure initiatives and our goals of increasing the operating leverage in the business.

Excluding the previously referenced to be determined potential acquisition-related charges, related to the Microsemi Wireless Infrastructure Access acquisition, we expect Q2 2016 GAAP operating expenses to increase approximately $1.5 million quarter-on-quarter to approximately $41 million, with the largest increases coming from headcount additions, primarily related to Microsemi acquisition and its incremental deal related professional fees and expenses and the costs associated with the Company's move to its new Irvine location later in May. These sequential increases will be partially offset by the lack of prior quarter's $2.1 million facility and fleet tape-out related expenses.

We expect Q2 2016 non-GAAP operating expenses will increase $2.5 million sequentially to approximately $32 million, driven largely by the earlier referenced headcount additions and other expenses related to the recently closed Microsemi asset acquisition, partially offset by the lack of the prior quarter's peak tape out expenses.

In closing, we are pleased to put a cap on a very eventful first quarter 2016, reporting record Q1 revenues and a Company expansion in both gross and operating margins, and record cash flow generation by our diversification and TAM expansion initiatives. We expect the increased diversification of our business through strategic acquisitions and organic development initiatives positions us to benefit from the growing demand for bandwidth across consumer, operator and infrastructure platforms.

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

(Operator Instructions) Gary Mobley.

Congrats on a good quarter and just having general strength in your business, and as well the confirmation of these recent acquisitions. I had a question about the Broadcom Limited acquisition. To be clear, is this the Provigent assets Broadcom acquired several years ago, and if I'm not mistaken, didn't Broadcom pay roughly $300 million for those assets. And purchase price for you is only $80 million and I was wondering if that's indicative of maybe the business seen some declines in revenue, some tough times or is it more indicative of the potential market for suitors for this business?

This is Adam, I'll take the first part of that and I'll let Kishore comment on latter portion. So yes, this is the Provigent business that was acquired by Broadcom back in 2011. I don't have the actual press release from when they announced the deal, but I think your purchase price range is about right. Of course, there's been considerable investment in the business since that 2011 acquisition. So, I think what we're acquiring is a significantly more matured asset than what was acquired at the time. And as you know sometimes in new businesses, time can be your friend or your enemy. I think in this case, we're benefiting from the fact that there's been quite a bit of investment through the Provigent period plus through the post Broadcom ownership period. So, we're very excited about having the business in the fold. And I guess with your comment based on kind of the range of buyers and so forth, and hard times or not, I'll let Kishore comment on that.

I just want to make a note here that for us, the acquisition of the Broadcom's baseband modem assets for Microwave Backhaul is a fantastic complementary fit to our organic investments in Microwave Backhaul outdoor unit radios. On our road map, as we have told you earlier, we're in the path after finishing of the radio to invest in the modem in order to own the complete end-to-end system both for a split outdoor-indoor unit implementation of the backhaul or an all outdoor unit active antenna implementation. So, it was a very, very great fit for us.

Having said that, I think I can only speculate as to the reasons why what has transpired over time. I think they were early for their markets and they did not have a world-class radio solution that spans the entire frequency bands from 5 gigahertz to 45 gigahertz in the microwave spectrum. That's taken them a long time to develop and a lack of radio really handicapped them from owning the full system and running the revenue growth that probably was anticipated at the time of Broadcom's acquisition.

What you have today is by combining both the assets, you'll have exactly the full system solution one would require to create the revenue synergies and customer market share acquisition prospects to really have good growing revenue. All I can tell you right now is that the prospects of growth in revenue of the acquisition are quite clear. We are very excited about it. And this will be a growth business for MaxLinear from a revenue point of view.

Relating to that, I had a question about the gross margin for the products you're acquiring from Microsemi and as well here from Broadcom Limited. I'm assuming that gross margins for this particular product set or these product sets are higher than the corporate average or at least comparable to some of the higher end products that you have. And with that in mind and in the mix growing leading to this microwave RF business, and then as well the decline in the low margin Entropic set-top box business, should we think about the new gross margin long-term growth potential for MaxLinear being 62% plus versus the 60% Kishore that you quoted.

Absolutely. I would say that -- let me characterize clearly at this point of these acquisitions, it's really early to tell what kind of gross margins exactly we can dial into given the two acquisitions come from two different large companies and their procurement models will be quite different than MaxLinear's. Having said that, I think I'm very happy and confident to tell you that we should see an upward bias in the gross margin at or above the corporate margins we have today as a result of these acquisitions.

Moving to the next topic about gross margin bias and sustainability of gross margin above 60%, yes, I think we have affirmatively said in the call just now that we see a path to sustainable 60% plus gross margin, we have cleared that hurdle in Q1 and we're guiding to a higher gross margin in Q2. So, I would say that the Company is on a solid footing to move towards the earlier higher gross margins of 60% to 62%, and hopefully as time goes by in the mid to longer term, we could exceed that as a result of the mix changing. But for now, your assumptions or your speculation regarding 60% to 62% is quite supportable.

Tore Svanberg.

First question coming back to the Broadcom Provigent assets. Can you just elaborate Kishore a little bit of how important it is to have an end-to-end solution in that market because obviously, historically, you've been much more on the RF signal chain. Now you're obviously, integrating the baseband. So help us understand a little bit why that is so important in this particular market?.

Okay, firstly Tore, I want to make it very clear that the organic development in Microwave backhaul radio RF that MaxLinear has been embarked on, and which we said we'll be announcing later in the middle to the end of the year, that is independent of which baseband you work with. Having said that, all the Tier 1 customers have had internal FPGA developments or their own baseband ASIC solutions. What the Broadcom ASIC provides us is the ability to control both the baseband and the RF to really interact smoothly with each other to enhance the performance. Also Broadcom was already on its path to -- with agreements of development with various Tier 1 OEM customers to use their baseband modem in the Microwave backhaul market.

So, we felt that was a wonderful fit. And while that model is valid in a split implementation. That means that today's implementations of backhauls have a separate outdoor unit and a separate indoor unit. Indoor unit is a modem and the outdoor unit is the radio. Moving forward, as we evolve towards 5G markets, there are going to be standalone all outdoor units where the entire system will fit on an antenna and so you have the RF at the baseband sitting together where power is incredibly important, bandwidth is incredibly important. And all those factors allow us to optimize using our CMOS technology to integrate both of them.

I want to also qualify your statement about we have traditionally been on the RF side and not the baseband modem site. Actually all of our cable Full-Spectrum Capture receivers and satellite RF front end receivers, they all have significant DEMOD mode in content. So this really, we're not doing any of the packet processing on the processor work. It's just a pure layer one implementations of RF and digital signal processing. To that extent it's a Pure-Fi that includes the RF and the DSP. So, it is not an expansion of our product platform technology. It's within the context of our platform of RF mixed signal technologies implemented in CMOS. So, we have just accelerated our road map, so that we can have some robust mix of infrastructure revenues in our portfolio and at the same time a growing portfolio of revenues when you couple with our microwave radio solutions that will be announced pretty soon.

When you look at the Entropic acquisition, that they have come with some legacy businesses that are declining. If you look at these two and I think you made a statement that these are clearly growth businesses. I assume there will be no legacy businesses here that could potentially face a headwind?

Yes, you're absolutely right. The [attractiveness] of both these acquisitions are they have design traction, design wins that are just ramping in one -- and some have already ramped and growing still because the adoption of these technology is much more recent as a trend towards more and more integration of MIMO systems both in backhaul and wireless access represented by the Microsemi assets that we acquired. So these are growth businesses, there are no declining businesses. And that also is partially the reason why we are very excited about these because we like the growth nature of these businesses and we will put some of the headwinds of the legacy solutions of Entropic behind us with these products solidly in our mix and will really look -- when you look at MaxLinear, it will be nothing but a comprehensive RF mixed signal DSP technology platform across the broadband and infrastructure space, both with wireless and wireline and when legacy video associate is fully gone out of our system. And they should be a very nice upward margin bias, long product cycles and huge TAMs, multi-billion dollar TAMs, so we can keep investing to convert our TAMs into SAMs as we move forward steadily with no more distractions.

Question for Adam. Adam, you mentioned the video SoC business declined about 8% of revenue in Q2. It sounds that you're taking a pretty big haircut to the analog channel-stack switch business. You obviously, didn't give any guidance there, but as we just saw the math, it just sound like, you are at least assuming that business could come down quite a bit in Q2. Would that be correct?

Well, I think the focus really is so. If you look at the commentary, yes, the video SoC business is going to be certainly softer in Q2 as we talked about in our guidance. I think when you look at the channel stacking products as a category, you're not -- the same dynamic is not in play, it's much more of a stable kind of view when you look across the analog and digital for the next couple of quarters. So I think they're very different. They are very different. And we do look -- we look at legacy video SoC as just kind of a standalone, that's why we kind of separate it out and provide the visibility there, it's because it has very different dynamics. We've always viewed channel-stacking as not analog versus digital, but what is the category of channel-stacking represent as an opportunity for the Company. And like I said, that is a much more stable outlook for the next couple of quarters.

Just one last question, so your free cash flow now is higher than your non-GAAP net income, which I guess makes the GAAP versus non-GAAP discussion a bit irrelevant. But was there anything unique in the quarter that caused that free cash flow to be as high it was or should we sort of think of this being the base level and then we'll grow from here on now?

No, the only really unique thing in the quarter was really the facility's restructuring charges that we talked about where we put the last of the Entropic facilities under sublease. So we got that up from underneath us, but it did incur a charge because, previously, you based the restructuring estimates based on -- again estimates, and then once we actually had subleases fully executed and we knew for certainty, what that cash flows are going to be, then we basically trued that up and that was the one disconnect. But for the most part, I think there was just -- it was a good kind of collection cycle and so forth. So I think, nothing really unique, I would say in this quarter other than that one facility's restructuring element.

Suji Desilva.

Congratulations on the acquisitions here. Just a couple questions on those, with the efforts you have that were in house and acquired, would there be any duplicate efforts that you can realize synergies from and the operating expense side?

Firstly, the deal is a good deal. It's a very, very complimentary asset in terms of technology that we were going to build on our road map and this acquisition accelerates the availability of the technology, where you have paid it upfront without doing all the R&D and the time lost in the process. However, on the OpEx side, there are definitely synergies, because over the last ten years, there have been investments in developing the point narrow-band RF receivers in the Microwave backhaul in Broadcom, and whereas MaxLinear has already completed the design for the broadband entire license spectrum, 5 gigahertz to 45 gigahertz frequency of these Microwave Backhaul radios and we'll be announcing the product soon.

So clearly, we will not have to invest in developing new radios in the acquired entity. So that would be the ongoing forward synergies on the R&D side on the OpEx. With respect to -- regarding sales marketing channels, since we're all talking to the same customers be it backhaul of wireless access, I think you should see consolidation in both aspects of the business.

And then maybe a higher level question, you're just looking at the challenges of selling into the wireless infrastructure market versus the traditional broadband end market servicing even servicing if there's -- you can say them similar or whether it's different challenges there?

I would say they are similar, but they're very, very different. The broadband operators typically all the products we developed have very, very customized solution that have to pass internal qualifications. In the cable case, you've to pass cable DOCSIS certifications. In the satellite case, each satellite operator has their own specific recipe for the satellite modem technology, so you'd have to pass that.

So the operators in some ways are more difficult because there is huge potential so the operators in some ways a more difficult because there's a huge certification barrier inside the operators. With the infrastructure customers, that the good is the fact that these are very protocol dependent standardized protocol solutions, so one solution that works for one infrastructure customer works for the others very easily, with some minor customization, mostly the software or firmware layers. So, they're different, however, the time to revenues in both the markets is equally long, and however, the barriers to entry is also very, very high. And the good news is the product cycles to infrastructure even longer that TAMs a much bigger, so I would say in that sense the wireless wireline infrastructure revenues are far more long-term growth and size vectors than that of the broadband operators, that we serve traditionally.

Ross Seymore, Deutsche Bank.

Hi, guys. Thanks a lot. Let me ask you a question, one more about the two deals that you did, obviously very different from in Tropic, where there is some legacy businesses and a lot of OpEx synergies, this seem to be much more growth oriented, and Kishore you went through some of the TAMs that we can look forward to. But generally speaking from the revenue levels that you said these businesses are operating today. Any sort of hints as to the growth rate you would expect second half of this year how much that as revenue or 2017, 2018, any sort of bands around the growth you expect?

Ross, I think it's very early to call this, because we won't have our own estimate on more towards diligent of what the opportunities or potentials of our revenue growth. I can say there is a good growth revenues and these platforms ramp slowly, but the revenues are growing and they're meaningful, I think right now what we expect is that the close of acquisition of the Broadcom wireless backhaul assets, Adam is going to set a date for updating these numbers and some guidance related to these two acquisitions and the revenue and OpEx impact moving forward. I think at this stage it's quite early to talk about these things.

Adam maybe, I might run into the same issue with my second question, but when you said the deals to be accretive in the third quarter, generally speaking, any sort of metrics as to either what level of accretion or kind of what are the moving parts towards that accretion?

So, I would say again, when we get to -- the deal is supposed to close on or around July 1st. I think, much like we did with Entropic acquisition where after we closed the deal, we provided the Street with a much better view of what the -- what the remainder of the year should look like. That would be our current plan as well here. I would say, of course, we do have a view about revenue and revenue growth and certainly contribution in the second half of the year and we'll give you that color again once the deals close out. I don't think it's appropriate to do that quite yet given the fact that we haven't got the deal -- the second deal closed.

On the first deal, we -- that business is, I just want to say, kind of roughly, if we could, on an annualized basis this year, would be kind of a $5 million to $10 million, the Microsemi deal. So, if you think about -- but we're only owning that for a partial year. So you can kind of back into you think the revenue contribution might be from this point. And that business should be a very nice grower. I think that one should not have dissimilar growth rates to kind of what we've been talking about for our high-speed optical interconnect business.

And then I think when you talk about the Broadcom business, it's a more -- it's a larger asset from a revenue perspective on a current run rate basis, but we're also excited about the growth rate there too. So, I don't think that the growth rates for either one of these are not to be skinny growth rates once we start looking at the 2017, 2018 time frames. So, it's not like these are pre-revenue assets. They come with revenue and we've got a pretty good feel for where the design wins are and where kind of current platforms are ramping and so forth.

I would say that, as far as the accretion levels again, we'll provide more color on that. Of course, we haven't done the purchase price accounting yet, so it's very difficult to give any GAAP numbers, but, if you can -- let me say accretive -- it'll be accretive by I think when we're talking about the type of earnings that we're generating right now, as you've seen in Q1 or in guidance for Q2, it would take quite a bit to move the needle. But I think that the main emphasis here is these will not be drags to our non-GAAP EPS. They will be the accretion, but I don't think they'll be -- needle moving in the remainder of 2016.

Thanks for that detail and I realize it's difficult to answer to some of the questions, so you actually hadn't any assets. One that you actually do own and you guided to a decent size drop in the second quarter is the legacy SoC business. Just looking a little further out, you guys have some decent visibility into the back half of the year, any sort of color on the glide path for that business, down that we all know the direction, but any sort of color as to what the slope of that curve?

So Ross, I will take the question. I think, we were very clear in the earnings call as to how that it's looking soft, but having said that, I will just lean a little bit forward and say that, while a longer-term trend is what you've just mentioned about declining over a period of time, we still see a stable Q3 and beyond that, it's very hard to speculate. But, there is some cloudy uncertainty developing because the Charter-Time Warner acquisition and what the decision moving forward is going to be. And the other dynamic is that the -- whether it's Comcast, Cox, Time Warner and so on so forth, what is the deployment plan going to be in the future in terms of which platform they're going to deploy. Are they going to stick to the legacy HD-DTA or deploy the XID platform which is part of the Comcast X platform offering?

And in that case, if the displacement is going to happen with the XID platform, obviously the revenue is going to be lower, but we are the front end on the back ends of those chips, 100%. So, we will be replacing with the video revenues associated with the front ends for those platforms. So, we don't know how these dynamics are going to play out, but I think I could tell you for now, if I lean forward a little bit that Q3 is looking stable relative to Q2 guidance.

Great. Thank you.

Yes.

Krishna Shankar, ROTH Capital.

Yes, Kishore and Adam, congratulations on the nice results and the acquisitions. Can you talk about the optical interconnect business and what areas you're seeing strength there? Is it in metro telecom and also if it is data center, can you talk about what product lines are you seeing good demand in?.

Hi, Krishna, this is Kishore. We're really excited about the growth in our optical interconnects. I mean we had a strong Q1. We are guiding for a strong Q2 and the Q2 is going to be particularly strong because of the fact that there was a pent-up demand, it was supply constraint. So, we're really finally relieved that supply constraints are playing a lot of catchup. The growth is primarily coming with the 100 gigabit per second drivers, explicitly and exclusively in the metro telecom markets with the Chinese OEMs and there are one or two categories of drivers. The primary driver for being long haul and there is a newer driver we've launched for sort of the metro markets. So, those would be the drivers of the revenue. And as you move to the end of the second half of the year, you'll start seeing the TIAs come in being designed in and maybe ramping at the end of the year for the data center markets. So, we don't expect this year to have much revenues in TIAs, for data centers, or for long-haul metro markets. It's going to be primarily driver revenues, both for metro and the long-haul markets.

Okay. And then, as you look at 2016 in total, would you expect your service provider part of your revenues to grow versus 2015, and will cable or satellite grow more versus 2015?

I think if you look at all of our revenues, relative to -- I'll let Adam speak for this, but I think generally, our operator revenues in size relative to last year are going to be growing. I can't give a quarter-to-quarter comparison since we only guide for the quarter, but we expect them to be growing. Adam, do you have anymore --?

Yes, I think there are different pieces moving around. I think overall, yes, there is a bias towards growth that we're seeing right now, but I would say that as we've talked about, as we talk about the channel-stacking as a category of products, I kind of provided some detail earlier there, but that should be relatively stable over the next couple of quarters. It's hard to compare year-over-year for that because there wasn't much digital in the mix this time last year, where there is a significant mix of digital channel-stacking right now. Certainly, as Kishore mentioned in his comments, the cable data business has done quite well in the first half or has teed up very well for the first half of this year relative to last year. So, then cables is certainly a grower year-on-year comparative. I think as channel-stacking, it's harder to get the mixed bag. Again, we didn't own the whole platforms this time last year between analog and digital.

When you look at satellite, certainly your satellite gateways are ramping very, very nicely for us this year versus last year, there's a lot of scale there. I think overall, it's very good news from the operators, if you compare this time last year to where we are right now.

Okay, thank you.

Quinn Bolton, Needham & Company.

Hey guys, congratulations on the nice cash flow in the quarter and on the acquisitions. Just wanted to touch on the acquisitions. I think for the Provigent or the Broadcom acquisition, you discussed in the press release bringing over about 120 heads. Can you give us any sense what the OpEx associated with that group might be? And then, I've got a couple of follow-ups on the core business.

Hey, Quinn. So yes, the business currently has 120 people. As Kishore mentioned, once we get closer to or actually get past the close after on July 1, we'll provide a lot more color there. It's really too early to talk about kind of how the groups coming together are going to look two months from now. So, I would just hold that question and get back to you a little later on that.

Understood. Okay. And then on the channel stacker business, it sounds like across analog and digital, you're looking for a relatively stable outlook. But I think you mentioned that the analog channel stackers were down. Have we started to see the transition from analog to digital channel stackers at your largest customer or is there another dynamic going on between analog and digital?

Hey, Quinn, I'll take the question. There is no large dynamic that's going on between analog and digital stacking, it's what we expected. As Adam said, the whole category is looking stable maybe a couple of quarters out. We have little bit of a softer outlook looking forward as the primary customer for analog channel stacking is still trying to figure out when and what and how much of digital channel stacking they will be rolling out relative to the analog channel stacking. It's possible, nothing happens, but under those circumstances, the visibility not being that clear and it's fluctuating, it's highly volatile. So we decided to take a conservative view on that and in our forecasting of how that plays out. Having said that, as a category, it's looking a bit stable. Certain operators are doing incredibly strong and many other digital channel stacking operators are coming online in the second half of this year. So, I think as an overall category, we feel very good that it's going to be a good, stable business for us.

Okay. But if I just sort of infer from your comments, it sounds like based on the ramp of some of your digital channel stackers that digital grows and offsets a decline in analog is how you would sort of forecast the business over the next couple of quarters?

Yes, Quinn, I think we've been pretty consistent in the last three or four quarters about what we think the profile of analog and digital are going to be. I think, we've had the benefit of having a strong analog channel stacking business at that primary customer well. Other carriers started -- or operators started to ramp the digital channel stacking, one operator in particular and so we've really had a very nice period where we've had no analog headwinds offsetting the growth from digital. I think at some point, that will be confronted, right, where you'll have the inevitable kind of tailing off of the analog revenue and we've got to count on the replacement of the digital revenue to offset that and there could be a period of time where we have a little bit of an air pocket where as a category, it comes down a little bit before it starts to build back up when everyone's kind of solidly in their transition to digital. So, I would say that right now, it's really kind of, as Kishore said, it's a little bit too early to tell. We don't have great clarity from the primary analog channel stacking operator, but I think we get more information kind of each month as we move through the year and I think right now, all we know is what we can see for the next quarter kind of the quarter that we're in and the quarter after that. Beyond that, we really don't have a lot of visibility. But, I do think that as a category, we've been kind of running in kind of a -- you'll get a category of a channel stacking it's been in kind of the 20s, low 20s as far as total revenue. Does it stay up there? Yes, it will certainly get back to that point once it starts to kind of have some of those headwinds presenting itself, but there could be a period where it certainly could be in the teens, right, in the middle teens, for example. But I think we can't see that right now, but I think it's kind of a -- that would be a common sense way to view the opportunity where you've got maybe a little bit of a valley for digital solidly provides a long-term growth trajectory for the business.

I just want to add a comment to what Adam said that right now, the primary consumer's analog channel stacking has not ramped or is taking any shipments of digital channel stacking from MaxLinear. So I think it has not started, if you will, on the trend, but having said that, we are being cautious about how it plays out later on.

Understood. And then, just two sort of final questions. Adam, I think in your comments about R&D, you mentioned an NRE payment. Just wondering if you could give us any more color on that. Is that from one of your infrastructure businesses?

No, it was actually related to a legacy video SoC. So there is just some -- it's relatively minor kind of ongoing NRE for some support -- for some ongoing product support.

Got it. Okay. Great. Thank you.

Anil Doradla, William Blair

Hey, guys. Congrats once again. When I look at Provigent, Provigent was there call it four or five years ago and when we looked at it, the good news was that Provigent's entry was -- they were expected to innovate significantly in the whole microwave space where there was not a lot of innovation and the revenues that you had in your press release around $29 million, that's lower than what Provigent originally had. So the question I had was doesn't sound like Broadcom was able to lever these assets up much, and one of the criticisms that we have heard periodically is, there's not a lot of willingness to perhaps change the microwave infrastructure, it tends to be if it's working, let's not fix it. So walk us through -- you guys obviously are going to piece this together with other portions of your business, walk us through why you believe that you could do a much better job and you could revert this back to growth?

So Anil, let me -- I think there are some qualifications to your understanding of the story of Provigent and I can only speculate based on what we've learned in the market. We don't know the internal goings-on inside Broadcom at that time. The first thing is that our understanding was that that one major customer was a source of the biggest revenue for them at that time, that was ramping, who later went to an internal silicon solution. So that resulted in a decline in the revenues of that particular big customer, while they were ramping revenues at other customer. So as a result, they dipped down before they again started picking up in revenues. I think that is the big disconnect in the perception of people. So they actually have been successful in securing design wins with Tier 1 OEMs now that are ramping.

Secondly, one of the reasons they were not successful is that for the longest and the strategy was to bundle their baseband with the RF radio solution that was really subpar in its performance. When that was coupled in that manner, the OEM's interest in buying both the radio and their baseband was limited until they changed strategy and decided to promote only the baseband. So what you have an opportunity here is, on the other hand, MaxLinear has been promoting only the radio solutions because we wanted to get to the baseband in a sequential manner on the modem side and the real customer pull was why don't you guys develop the radio first and then we'll come to the baseband. So what the customers have done in the background is that, they have been qualifying the Broadcom baseband, while they have been working engaged very actively with MaxLinear's radio.

So in that sense, it really works out very nicely when both these assets come together. So that may explain the contradictions or gaps in your understanding of how it played out and what it's going to play out in the future. So together, these are going to be revenue synergies and the Tier 1 OEMs that both of us, each are working with will become part of our end customer base for us.

Yes. I would add a little bit to that Anil too. I think that, also in the process of doing our diligence on these assets, it became pretty clear to us, there is a tremendous amount of IP that's been developed by this very talented team in Israel. And it actually was a very good thing for us to be able to do this diligence and do this deal because it would have been a very, very, very significant development undertaking internally to MaxLinear to do this organically. I think we've been very successful because we've been focused on the RF development for this backhaul market, but there is a -- I think people could easily underestimate how much work it really took on the development side to get the platform to where it is within Provigent. So we're very, very excited to be able to take kind of the running start and it's been the tremendous amount of technology that's been developed and move that forward by combining with RF. So it's a very, very nicely fitting asset from that perspective. I'm just very glad that we actually didn't have to develop all that technology from scratch.

So other thing, I think we've talked a lot about the microwave backhaul, I think we should not underestimate the value and importance of the millimeter wave baseband modem solutions that Broadcom has developed, as you want to go to multiple gigabits to a maximum even 10 gigabits per second data waves or wireless backhaul and then later the evolution of 5G and small cells and the densification of the networks, the millimeter-wave backhaul is going to be equally if not even more important than microwave backhaul and the market size for that is significantly higher. So, I think that we're acquiring the millimeter-wave backhaul solutions that we don't even have into the MaxLinear portfolio in terms of both the radio and the baseband modems, and what we get with the Broadcom acquisition position in addition is the future road map items of millimeter-wave backhaul modem and the millimeter-wave radio solutions narrow band, which we will eventually be able to move to CMOS and come up with a single-chip solution for the entire market.

Okay. Great. And just one clarification. In the press release a couple of days ago, you talked about a certain TAM. I think it was about $500 million. Today, you're talking about another TAM, which is larger. So in the opening remarks, when you talked about the $700 million SAM going to $1 billion by 2021, is that the combination of these both acquisitions or is it just from today's acquisition?

The combination of both assets, right. If you look at the press release, it clearly states that if the RF transceiver access assets and the RF microwave backhaul radio and the baseband modem assets combined, it's $700 million, of which about $400 million to $500 million is the access side on the 4G market, and then the remaining is the microwave backhaul at that point in time. And the way it goes to $700 million to $1 billion is the number of transceivers in the wireless access that keep increasing as you go towards massive MIMO and in each radio head, you'll have multiple radio transceivers. On the backhaul side, you again have a dual carrier multiple MIMO systems also being developed for greater capacity in the microwave links, leading up to millimeter-wave links, that results in a $1 billion SAM we talked about. And beyond that, in the 5G market, it's a whole different ball game, because, I can get into the details, but suffice it to say that you're going to have beam-forming arrays and massive MIMO with 16 antennas -- elements for each sectorized antenna inside a microwave base station. So if you just do the math, it just exponentially grows, but that's beyond 2020. So that is how we built up the SAM internally using third-party data and our own data, so that's how you get to these multi-billion dollar market opportunity in the long-term.

Very good. And once again, congrats on the amazing transformation you guys are -- you've embarked upon into the infrastructure markets.

Thanks, Anil.

Tore Svanberg, Stifel.

Yes. Just had a follow-up. I think for the Broadcom acquisition, you're spending about $80 million in cash. Can you just talk a little bit about how you intend to fund that? It's going to be from your balance sheet or will you be raising any debt?

Yes, Tore, no. As I mentioned, so we've got a -- we closed the quarter with $166 million plus in cash and cash equivalents, so we're going to fund it off of the balance sheet. And given the guidance that we just provided, we'll be generating again pretty strong cash flow in Q2. So even once these two -- now, when the Broadcom deal closes on June 30 or July 1 on the quarter boundary, if you take in consideration that that cash comes out of that $80 million, so we will be going out of pocket about $101 million. We should still end Q2 or kind of around that time frame once these deals are funded that again approaching $100 million of cash.

So we don't have any liquidity constraints or concerns. As you know, we have no debt. So we feel very good about our position to continue looking at strategic ways to accelerated entry in some of these new markets as well.

That's a great clarification. And then, you talked about DOCSIS 3.1 starting to ramp in the second half. I'm just trying to understand sort of the slope there, at least based on some of the conversations that you've had with customers. Is it going to be sort of a small upgrade cycle and then it's sort of accelerates next year? Help us a little bit how you see that product cycle for you?

So, okay, Tory. The [better] thing of DOCSIS 3.1 is the primary player who will be deploying the DOCSIS 3.1 data very, very aggressively will be first Comcast, right. And if you think of Comcast volume of about 6 million to 8 million units of data gateways as of -- for this year, let's say, we expect sometime in the Q3-Q4 time frame, around 10% or more we expect in volume quantities to be DOCSIS 3.1. Now, on a run rate basis, maybe it's higher ending the year, but we don't expect to see more than 10% deployments at this stage of conservative forecasting on DOCSIS 3.1. Can it be higher? Yes. But I think that next year, it really takes off pretty rapidly, because you will be ending the year on a fast clip. So now how steep will be the hockey stick, I don't know at this stage, but we will have more clarity as we enter the next earnings call.

Very good. Just one last question. You talked about the satellite gateways being driven by 4K. Again, similar question, is this sort of just the initial ramp and is this something that will gradually continue to grow going forward?

Yes. It's looking like a pretty good, strong growth. I think if you go to Europe and you look at the ads from Sky, the Q platform, that's all MaxLinear front-end. In fact, 100% of the front end of the satellite gateway platforms in the Sky in Europe -- in the UK and we will have growth well beyond that. Then, even North America, a major satellite operator is deploying 4K satellite gateways on their main box and I think this keeps continuing growing actually. Actually, we are quite excited that finally satellite gateway is growing very steadily and we hope to continue it to grow into next year and beyond. It's a three-year cycle is the typical way we forecast the ramps. So we should see strong growth as even more new operators come online.

Sounds good. Thanks, again.

Thank you.

Alright. Thank you, everyone. I think with that, we would like to end the call here. I would say, thank you, operator, and also I want to remind everyone that we will be participate in the Deutsche Bank 9th Annual Semiconductor Conference on May 19 in San Francisco, The B. Riley 17th Annual Investment Conference on May 25 in Los Angeles, the Benchmark Company One-on-One Conference on June 2 in Milwaukee, the Stifel 2016 Technology, Internet and Media Conference June 7 in San Francisco and the William Blair's 36th Annual Growth Stock Conference on June 16 in Chicago. So we hope to see many of you there. With that, I want to thank all of you for joining us today and we hope to and look forward to reporting on our progress to you in the next quarter. Thank you.

This concludes today's conference call. You may now disconnect.