Hello and welcome to MaxLinear’s Second Quarter 2020 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. Now my pleasure to turn the call over to Brian Nugent. Please go ahead.

Thank you, operator. Good afternoon everyone. And thank you for joining us on today's conference call to discuss MaxLinear’s second quarter of 2020 financial results. Today's call is being hosted by Dr. Kishore Seendripu, CEO; and Steve Litchfield, Chief Financial Officer and Chief Corporate Strategy Officer. After our prepared comments, we will take questions. Our comments today include Forward-Looking Statements within the meaning of the applicable securities laws, including statements relating to our guidance for third quarter 2020 revenue, third quarter revenue growth expectations and our principal target markets, GAAP and non-GAAP gross margin, GAAP and non-GAAP operating expenses, tax expense, and effective tax rates and insurance and other expenses. In addition, we will make forward-looking statements relating to trends, opportunities, and uncertainties in various product and geographic markets, including opportunities arising from our announced definitive acquisition agreement for Intel's Home Gateway business, growth opportunities for our wireless infrastructure and connectivity markets, and opportunities for improved revenues in our broadband markets. These forward-looking statements involve substantial risks and uncertainties, including risks related to our proposed acquisition of Intel's Home Gateway business, such as integration and key employee retention risks, as well as those arising more generally from competition, global trade and export restrictions, potential supply constraints, the impact of the COVID-19 pandemic, our dependence on a limited number of customers, average selling price trends and risks that our markets and growth opportunities may not develop as we currently expect and that our assumptions concerning these opportunities may prove incorrect. More information on these and other risks is outlined in the Risk Factors section of our recent SEC filings, including our Form 10-K for the year ended December 31, 2019, and our second quarter 2020 Form 10-Q, which was filed today. Any forward-looking statements are made as of today and MasLinear has no obligation to update or revise any forward-looking statements. The second quarter of 2020 earnings release is available in the investor relations section of our website at maxlinear.com. In addition, we report certain historical financial metrics, including net revenues, gross margins, operating expenses, income or loss from operations, income taxes, net income or loss and net income or loss per share on both the GAAP and non-GAAP basis. We encourage investors to review the detailed reconciliation of our GAAP and non-GAAP presentations in the press release available on our website. We do not provide a reconciliation of non-GAAP guidance for future periods because of the inherent uncertainty associated with our ability to project future charges, including stock-based compensation and its associated tax effects. Non-GAAP financial measures discussed today do not replace the presentation of MaxLinear's GAAP financial results. We are providing this information to enable investors to perform more meaningful comparisons of our operating results in a manner similar to management's analysis of our business. Lastly, this call is also being webcast and a replay will be available on our website for two weeks. And now, let me turn the call over to Kishore Seendripu, CEO of MaxLinear.

Thank you, Brian, and good afternoon everyone. We are pleased to report Q2 financial results ahead of our initial guidance. Q2 2020 revenue was up 5% sequentially to $65.2 million, with strong gross margins of 63.7% and operating cash flows of $9.3 million. In Q2 our Connected Home business stood at 45%, infrastructure at 29%, industrial and mark-to-market at 26% of overall revenues. Our business outlook heading into the second half has greatly improved with tailwinds in our cable data driven by strong bookings for Q3. We are benefiting from the demand for greater bandwidth at home in transformative work-from-home environments that we believe is an emerging long-term trend. We also saw demand recover for high-performance analog products calling a Q1 low. Still in Q2 there were some pockets of weakness due to COVID-19 in our wireless backhaul markets. Despite the challenges related to COVID, our geographically diverse team is successfully executing on critical strategic engineering initiatives and customer milestones in 5G wireless, optical data center and high-performance analog markets. We are excited about our upcoming acquisition of Intel’s Home Gateway business, which is expected to close in Q3. This acquisition more than doubles our total addressable market to about $5 billion. It includes industry-leading DOCSIS, 10-G PON fiber, and Ethernet broadband access gateway SoC technologies, along with state-of-the-art Wi-Fi 6E platform solutions. Combined with ongoing 5G wireless and optical data center infrastructure initiatives, we are ideally positioned to address all the network bandwidth expansion opportunities and bottlenecks in the cloud as well as into and throughout the home. The rapidly expanding work-from-home mandates due to COVID-19 are driving bandwidth upgrades, which will strongly benefit our core Connected Home business, as well as our acquisition of Intel's Connected Home division. Turning to some of the other highlights in optical data center, we continue to support the industry's first 400 Gigabit PAM4 deployment at our Tier-1 hyper-scale data center customer. Despite a slight delay, we remain encouraged by our customer's progress and as mentioned earlier, expect to see revenues in the second half of this year. We are also seeing strong adoption and continued progress with Tier-1 customers for our 100 Gigabit PAM4 offering, leading to early revenues this year. We believe that Single Lambda 100 Gigabit and 400 Gigabit PAM4 solutions will dominate cloud and edge data center deployments over the next several years, and we are well-positioned with our early traction. Turning to 5G wireless infrastructure, I'm excited to announce that we have started sampling our second generation 5G wireless RF transceiver product, which is the industry's first 8x8 MIMO RF transceiver in 40 nanometers CMOS. Our 5G RF transceivers have the highest performance, doubling the bandwidth at 400 megahertz and offering superior system-level integration and power consumption versus the competition. We are aggressively working to get our lead customers to market, boosting confidence in realizing initial 5G revenues in 2020 and strong multiyear growth beyond. In wireless front and backhaul transport, we witnessed a slowdown in the first half of the year, potentially due to COVID-19 related installation delays. However, we do expect a pickup starting in Q3. We continue to see a push towards even bandwidth aggregation features. We are in a very good position to capitalize on these favorable trends with our 20 gigabits per second millimeter wave dual modem and RF SoC. We expect multiple OEMs to announce new products with these features in the second half. In closing, our organic initiatives in 5G wireless, optical data center, and high-performance analog markets, along with the upcoming acquisition of Intel’s Home Gateway business will uniquely benefit MaxLinear’s shareholders by addressing existing and expanding market opportunities in challenging broadband connectivity and network infrastructure applications. With that, let me turn the call over to Mr. Steve Litchfield, our Chief Financial Officer and Chief Corporate Strategy Officer for a review of the Q2 results and our forward guidance.

Thank you, Kishore. I will first review our Q2 2020 results, and then further discuss our outlook for Q3 2020. On revenue of $65.2 million, we saw our Connected Home business down 10% sequentially, materially less than expected, with declines in our legacy business, partly offset by improvements in MoCA demand, while cable data was down slightly. Our infrastructure business grew 15%, driven by a strong recovery across our high-performance analog products, and an uptick in high-speed interconnect domains, offset by continued macro weakness in wireless backhaul deployments. Our industrial and multimarket business was up 38% sequentially as demand returned after an unusually weak Q1 owing to the COVID dynamic and related distributor inventory reductions. GAAP and non-GAAP gross margins for the first quarter were approximately 50.2% and 63.7% of revenue respectively. This compares to GAAP gross margin guidance of 49.0% to 49.5% and non-GAAP gross margin guidance of 63.5% to 64%. The delta between GAAP and non-GAAP gross margins in the second quarter reflects primarily the amortization of $8.6 million of purchased intangible assets from previous acquisitions. Second quarter GAAP operating expenses were approximately $55.5 million, which was slightly above our GAAP guidance of $54.0 million to $55.0 million, primarily due to higher stock-based compensation expense. GAAP operating expenses included stock-based compensation and stock-based bonus accruals of $15.2 million combined, amortization of purchased intangible assets of $5.5 million, and acquisition costs of $2.1 million. Non-GAAP operating expenses were $32.6 million, which was up $0.9 million sequentially due primarily to annual merit increases impacting payroll and prototyping expenses, partly offset by lower travel expenses. This was at the low end of the non-GAAP guidance of $32.5 million to $33.5 million, as a result of continued disciplined expense management. We have been successfully managing our spending during the transitional period, with trailing 12-month non-GAAP operating expenses down 11% year-over-year. Moving to the balance sheet and cash flow statement, our cash flow generated from operating activities in the second quarter of 2020 was $9.3 million versus $6.6 million generated in the first quarter of 2020. Our load balance remains at $212 million and our net leverage ratio was 1.7 times. We remained consistent in our intentions regarding the uses of cash for priorities on debt pay down and strategic acquisitions. Our days sales outstanding for the second quarter was approximately 58 days compared to 66 days in the prior quarter. Our inventory turns were flat at 4.0. That leads me to our guidance. Our guidance excludes the acquisition of Intel's Home Gateway business. We currently expect revenue in the third quarter of 2020 to be approximately $72 million to $76 million, or 13.5% sequentially at the midpoint of the guidance range. We expect Connected Home revenues to be roughly 20% quarter-over-quarter with growth driven primarily by cable data. We are expecting tailwinds from the work-from-home dynamic, as well as new customer program ramps in the second half of the year. We are working closely with our suppliers to fulfill the increased demand. We expect infrastructure revenue to be up roughly 10% to 15%, primarily driven by the recovery in backhaul demand after a weak quarter. We expect our industrial multi-market to be flat to up 5%. We expect third quarter GAAP gross profit margin to be approximately 51.5% to 52.5% of revenue and non-GAAP gross profit margins to be approximately 63.5% to 64.5% of revenue, up slightly. As a reminder, our gross profit margin percentage forecast could vary plus or minus 2% depending on the product mix and other factors. Even as we are focused on reducing our run-rate spend levels, we continue to fund strategic development programs targeting strong top-line growth in 2020 and beyond, with particular focus on infrastructure initiatives and our stated goal of increasing operating leverage in the business. We expect Q3 2020 GAAP operating expenses to increase approximately $5 million quarter-on-quarter to a range of $60 million to $61 million, driven mainly by acquisition and integration costs. We expect Q3 2020 non-GAAP operating expenses to be up approximately $0.4 million sequentially to a range of $32.5 million to $33.5 million. We expect GAAP tax expense to be approximately zero and our non-GAAP tax rate at 6%. We expect interest and other expenses in the quarter to be $2.1 million to $2.2 million. In closing, we are pleased to report continued progress in our infrastructure initiatives, with expanding design engagements in the data center market and expanding adoption of our e-band modems and RF transceivers in the fast-growing micro-market. We are encouraged to see considerable recovery in our high-performance analog offerings as end-market dynamics improved from COVID-19 impacts. The broadband business, as expected, has seen a nice recovery in 2020, but the work-from-home environment is driving an acceleration of this recovery. We remain focused on maintaining strong profitability and cash flow generation while continuing to execute on our organic infrastructure investments. With these existing initiatives, along with the financially and strategically compelling acquisition of Intel's Home Gateway business, we believe that we are uniquely positioned to deliver strong leverage in our business in 2020 and beyond. With that, I would like to open up the call for questions. Operator.

Thank you. Our first question today is coming from Quinn Bolton from Needham & Company. Your line is now live.

Thank you, congratulations on the nice results and strong third quarter outlook. Guys, I wanted to start with the Connected Home business up 20% sequentially. Can you give us a sense, is that primarily driven by one cable MSO or is it pretty broad-based? And if it is driven by one MSO, do you feel that your share is normalizing with that cable operator with the ramp of the lead generation products? Then I have a follow-up.

Thank you, Quinn. Our demand is broad-based on the operator side; it is not one particular MSO. We are seeing some total addressable market expansion happening right now with all the MSOs, especially in North America. We are also well-positioned based on the backlog and expect to start gaining share with other MSOs. So we are also seeing, in general, very healthy bookings for Q3 and beyond. We feel very good that recovery is in progress right now.

And then the second question sounded like the high-speed interconnect business was up in the second quarter, but you didn't mention it as a driver of growth in the third quarter. I was wondering if you could give us an update there, specifically, are you through the interoperability testing at that customer? Are you still in the testing phase? Thank you.

As we look forward, the optical data center revenues we are speaking about are more to give you color on how things are progressing, but they are not meaningfully different. It is a bit volatile based on sample quantities. We have some revenues in TIEs and drivers; those are the buckets where we have high-speed interconnect revenues. We have always talked about these major hyper-scale data center transitions to 400 Gigabit. We are still in the interoperability phase. When we talk about our module customers, it is not just about execution; it is about the qualification process of hyper-scale data centers. They need to reach a certain yield and reliability of supply before it can meaningfully take off. So, at this point in the supply chain, we are just supporting our customers as much as we can to ensure they are ready for manufacturing capability.

Understood. Thank you, and congrats again, guys.

Thank you.

Next question today is coming from Tore Svanberg from Stifel. Your line is now live.

Yes, thank you and good job on the turnaround here. First question on Connected Home. So that business will be far more than $30 million in Q3. Could you talk a little bit about whether there is still some legacy mix in that $30 million, or is it becoming de-minimis at this point?

Hey Tore, it is Steve. So, the legacy piece is becoming smaller, no doubt about that. In the pickup that we have seen, we highlighted that it was really driven by cable data. Some of the weakness that we saw in Q2 was driven by legacy demand, but that is becoming less and less significant. One of the legacy areas we discussed previously was satellites, and that is becoming a much smaller percentage of the business; consistent with our earlier remarks, this would be less than $10 million this year.

Very good. And you mentioned a second-generation Telluride. I was hoping you could talk a little bit about what that means from a market perspective, because this is going to be an eight-by-eight part. Also, when do you expect that product to generate meaningful revenue?

So Tore, you are referring to 5G wireless. We launched the first eight-by-eight MIMO RF transceiver. The industry has decided that greater integration is warranted to reduce the cost of 5G deployments. As 5G deployments have been delayed, the focus has shifted to the eight-by-eight platform. The most significant application will be large volume, large MIMO configurations, eight-by-eight will become the mainstay. We are among three key players sampling this particular chip, and we are ahead due to technology lead in CMOS node execution of an eight-by-eight solution. We expect the four-by-four to generate initial revenues towards the end of this year, and we are counting on the eight-by-eight to generate revenues when the platform is fully ramped by the mid of next year.

Alright, just one last one. Could you provide an update on the timing of the Intel acquisition? You mentioned closing in Q3, but any updates on timing and whether there are hurdles left?

Yes, Tore. There is not a whole lot to update here. As we mentioned in the press release, we are confident that we will close this in Q3. There are no more regulatory approvals on that front, and we are just working through the final work council issues. We hope to make an announcement soon.

Thank you. Our next question is coming from Ross Seymour from Deutsche Bank. Your line is now live.

Hi, this is Jee for Ross Seymour. Thank you for letting me ask a question. The industrial and multimarket did quite well, growing 38% sequentially. So, how do you see the progression for the rest of the year? How would you characterize the outlook for the industrial multimarket for the second half of the year?

Yes, Hey Jee. We did see a nice recovery. We encountered some weakness in Q1, and bookings picked up in early Q2, with strong demand throughout the quarter continuing today. I am optimistic that as we look out into Q4 and 2021, we may see back-to-normal circumstances. We experienced a significant snapback at the beginning of the quarter, and demand has remained good. So hopefully, we will see some stabilization in this market soon.

Just as a housekeeping, it looks like CapEx as well as stock-based compensation was up quite a bit sequentially. Could you talk about how those should trend in the third quarter?

Yes, CapEx is consistent with what we have talked about. We mentioned it being about $10 million a year, and no major changes are expected there. Stock-based comp was up in the quarter, driven by performance shares, and I wouldn’t expect that level of increase moving forward. It was down slightly in Q1 and increased in Q2, but I don't expect it to continue at that pace.

Thank you. Next question today is coming from Christopher Rolland of Susquehanna. Your line is now live.

Hi, this is David Haberle on behalf of Christopher Rolland. Thank you for taking our question. As we consider Connected Home, how are you thinking about growth in this market going forward? Do you believe it has bottomed here in Q2, and can growth from work-from-home trends and cable offset the legacy headwinds?

Yes, David. It is encouraging. Coming into this year, we expected this business to stabilize and achieve low single-digit growth rates in 2021. Work-from-home has definitely accelerated that. The key question is how long that dynamic continues. It seems like many companies are looking for long-term solutions for a work-from-home environment, so this could persist over time. However, I believe we will eventually return to low to mid-single-digit growth rates. That said, concerning the legacy business, I don't anticipate that as a headwind. It remains dominated by the cable data business and connectivity, so I don't see that as an issue.

Understood. Thank you for that. For my follow-up, I wanted to ask about MoCA, you noted that its sentiment is in a pause in ramp. I believe it was down year-over-year, though it was up quarter-over-quarter. Can you share any further details on MoCA with respect to your large customer in the ramp there? Are there other customers involved?

Yes, we are excited about MoCA and the ramp with our large customer going forward. We saw strong growth in 2019, but there has been a pause leading into the first half of the year. They face some deployment challenges due to the work-from-home environment, but I believe those issues are being resolved, which is why we are optimistic about seeing a pickup in the second half of the year.

Thank you. Our next question comes from Tim Savageaux with Northland Capital Markets.

Hey, good afternoon and congrats on the results and outlook. One question, you noted an infrastructure pickup in high-performance analog. I think that relates to the GI driver you mentioned. Can you elaborate on what types of applications are driving that pickup in the high-performance analog business? Also, did you have any 10% customers in the quarter? If so, how big?

Yes, the infrastructure was up significantly, driven primarily by the high-performance analog recovery. We encountered weakness earlier, but we expect continued improvements throughout the rest of the year. With regards to application areas, key drivers include server business and remote radio heads, among others. We have not had a 10% customer in this quarter.

Thank you. Next question today is coming from Alex Kim on behalf of Bill Peterson. I have a question regarding the infrastructure side. Are you still on track for mid-single-digit growth around 5% to 9% year-over-year for 2020?

Yes, we have talked about this, and coming into Q2, we were hopeful for improvements throughout the rest of the year. We continue to be confident in that expectation. One area that underperformed relative to our expectations was wireless backhaul, which was weaker than expected in the quarter. However, we are optimistic about seeing improvements in Q3 and Q4.

Got it. Thank you. And on the wired side with the Amazon ramp in the second half, what do you think is the revenue opportunity there?

We haven't broken out the exact revenue number related to that yet. I still believe that the contribution will be relatively small in Q3 and Q4 and we will start to see a more material contribution in the first half of 2021.

Okay, got it. And do you think cloud spending will remain strong in the second half? You mentioned a slight delay with your Tier-1 customer. Can you give your view on the overall market in terms of cloud spending remaining strong for the second half?

We might not be the best positioned to comment on that. We discussed the slight delay we experienced, which can be attributed to a variety of market conditions. However, that is all incremental revenue for MaxLinear, so we consider it upside and we don’t anticipate any downsides, as it represents potential additional revenue for our business.

Thank you. Our next question is from an analyst with Capital Markets. Your line is now live.

Hi, good afternoon. I appreciate you taking my question. Congratulations on a solid quarter and strong execution. I have two questions, starting with Connected Home. I understand you expect mid-single-digit growth rates to normalize, but do you think share gain opportunities align with that, potentially leading to a stronger revenue run rate?

Yes, thanks for joining. We are working hard on share gain potentials. Our efforts are centered around the existing MaxLinear business and not the acquisition, but we believe that our expanded product line combined with market shifts offers growth opportunities.

Great, thank you. Lastly, the delay you mentioned, is it related to the hyper-scale cloud side or the telecom side? Can you provide context?

It relates to the hyper-scale side. Regarding previous comments to not read too much into the situation, that was offered in the context of the optical business, as we continue to see early revenue contributions and anticipate material contributions next year.

Yes. Thank you. I apologize for mixing up details. Regarding Telluride, is there a follow-up to this product? I am curious about the move to seven nanometers.

Yes, there will be a follow-up to this product. The industry trend is towards convergence on the electrical interface; we are working on the next generation 400 gigabit and also the 800 gigabit versions. We are focusing on a five nanometer solution due to superior yields. We have considerable industry interest in proceeding with that, and I believe we will be the first to develop a thousand to five nanometer solution.

Okay, that is fair. My last question is about Connected Home. With work-from-home trends, are new products being launched faster from some of your customers? Could that potentially be a catalyst for you, and are you seeing those deployments already?

Good question, Tore. We are working to accelerate deployments of XP7, which may benefit our share growth. Although customer throughput has not reached full steam, we expect to see XP7 integrated rapidly. Operators are also enhancing Wi-Fi, which plays well for us. The acquisition of Intel’s Connected Home assets, together with our existing lineup and their products, provides us an opportunity for growth, particularly since we missed out on that in the last year or so. We are optimistic, but not as quickly as we hoped. Thank you, operator. We will participate in several virtual conferences including the BMO Virtual Technology Conference from August 24th to 28th, the Jefferies 2020 Virtual Semiconductor, IT Hardware & Communications Infrastructure Summit on September 1st to 2nd, and a Technology Conference on September 14th and 15th. We hope to connect with you at these events. Thank you all for joining us today. We look forward to updating you on our progress next quarter, and hopefully even sooner. Thank you very much.

Thank you. That concludes today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation.