MAXLINEAR, INC (MXL) FY 2021 MD&A

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this report.

Overview

We are a provider of communications systems-on-chip solutions used in broadband, mobile and wireline infrastructure, data center, and industrial and multi-market applications. We are a fabless integrated circuit design company whose products integrate all or substantial portions of a high-speed communication system, including radio frequency (RF), high-performance analog, mixed-signal, digital signal processing, security engines, data compression and networking layers, and power management. In most cases, these products are designed on a single silicon-die, using standard digital complementary metal oxide semiconductor (CMOS) processes and conventional packaging technologies. We believe this approach enables our

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solutions to achieve superior power, performance, and cost relative to our industry competition. Our customers include electronics distributors, module makers, original equipment manufacturers (OEMs), and original design manufacturers (ODMs), who incorporate our products in a wide range of electronic devices. Examples of such devices include cable Data Over Cable Service Interface Specifications (DOCSIS), fiber and DSL broadband modems and gateways; Wi-Fi and wireline routers for home networking; radio transceivers and modems for 4G/5G base-station and backhaul infrastructure; fiber-optic modules for data center, metro, and long-haul transport networks; as well as power management and interface products used in these and many other markets.

Our highly integrated semiconductor devices and platform-level solutions are primarily manufactured using low-cost CMOS process technology. CMOS processes are ideally suited for large digital logic implementations targeting high-volume and low-cost consumer applications. Importantly, our ability to design analog and mixed-signal circuits in CMOS allows us to efficiently combine analog functionality and complex digital signal processing logic in the same integrated circuit. As a result, our solutions have exceptional levels of functional integration and performance, low manufacturing cost, and reduced power consumption. In addition, our proprietary CMOS-based radio and digital system architectures also enable shorter design cycles, significant design flexibility and low system-level cost across a wide range of broadband communications, wired and wireless infrastructure, and industrial and multi-market customer applications.

In the year ended December 31, 2021, net revenue was $892.4 million, which was derived in part from sales of RF receivers and RF receiver systems-on-chip and connectivity solutions into broadband operator voice and data modems and gateways and connectivity adapters, global analog and digital RF receiver products, radio and modem solutions into wireless carrier access and backhaul infrastructure platforms, high-speed optical interconnect solutions sold into optical modules for data-center, metro and long-haul networks, and high-performance interface and power management solutions into a broad range of communications, industrial, automotive and multi-market applications. Our ability to achieve revenue growth in the future will depend, among other factors, on our ability to further penetrate existing markets; our ability to expand our target addressable markets by developing new and innovative products; changes in government trade policies; and our ability to obtain design wins with device manufacturers, in particular manufacturers of set-top boxes, data modems, and gateways for the broadband service provider, storage networking market, cable infrastructure market, industrial and automotive markets, and optical module and telecommunications infrastructure markets.

Products shipped to Asia accounted for 83%, 82% and 84% of net revenue during the years ended 2021, 2020 and 2019, respectively, including 40%, 42% and 46%, respectively, from products shipped to Hong Kong and 12%, 17% and 14%, respectively, from products shipped to mainland China and 13% from products shipped to Vietnam in 2021. Although a large percentage of our products is shipped to Asia, we believe that a significant number of the systems designed by these customers and incorporating our semiconductor products are then sold outside Asia. For example, revenue generated from sales of our products during the years ended December 31, 2021, 2020 and 2019 related principally to sales to Asian ODMs and contract manufacturers delivering products into European and North American markets. To date, all of our sales have been denominated in United States dollars.

A significant portion of our net revenue has historically been generated by a limited number of customers. Sales to customers comprise both direct sales to customers and indirect sales through distributors. In the year ended December 31, 2021, our top two customers accounted for 26% of our net revenue, and our ten largest customers collectively accounted for 69% of our net revenue, of which distributor customers accounted for 27% of our net revenue. In the year ended December 31, 2020, two of our direct customers accounted for 28% of our net revenue, and our ten largest customers collectively accounted for 68% of our net revenue, of which distributor customers comprised 41% of our net revenue. In the year ended December 31, 2019, one of our direct customers accounted for 14% of our net revenue, and our ten largest customers collectively accounted for 63% of our net revenue, of which distributor customers comprised 38% of our net revenue. For certain customers, we sell multiple products into disparate end user applications such as cable modems, satellite set-top boxes and broadband gateways.

Our business depends on winning competitive bid selection processes, known as design wins, to develop integrated circuits for use in our customers’ products. These selection processes are typically lengthy, and as a result, our sales cycles will vary based on the specific market served, whether the design win is with an existing or a new customer and whether our product being designed in our customer’s device is a first generation or subsequent generation product. Our customers’ products can be complex and, if our engagement results in a design win, can require significant time to define, design and result in volume production. Because the sales cycle for our products is long, we can incur significant design and development expenditures in circumstances where we do not ultimately recognize any revenue. We do not have any long-term purchase commitments with any of our customers, all of whom purchase our products on a purchase order basis. Once one of our products is incorporated into a customer’s design, however, we believe that our product is likely to remain a component of the customer’s product for its life cycle because of the time and expense associated with redesigning the product or substituting an alternative chip. Product

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life cycles in our target markets will vary by application. For example, in the cable operator modem and gateway sectors, a design-in can have a product life cycle of 24 to 48 months. In the industrial and wired and wireless infrastructure markets, a design-in can have a product life cycle of 24 to 60 months and beyond.

Impact of COVID-19 and the Global Semiconductor Chip Shortage

In late January 2020 and early February 2020, in response to a severe outbreak of the novel coronavirus disease, or COVID-19, the government of China instituted mandatory quarantines in Wuhan, China, extended lunar new year holiday closures, and restricted shipments out of the country. This resulted in a temporary delay in our product shipments in the first quarter of 2020. On March 11, 2020, the World Health Organization declared a global pandemic regarding COVID-19. The COVID-19 pandemic has reached all of the countries and states in which we operate, including in California where our headquarters and central engineering team are located, as well as Massachusetts, Spain, India, Singapore, Taiwan, Canada, France, Japan, South Korea, Hong Kong, Israel, Germany, and Austria, where additional engineering, sales, and administrative personnel are located. In many of these jurisdictions, local authorities have instituted various restrictions relating to COVID-19. To protect the health and safety of our employees, we adopted social distancing policies including suspending employee travel and implementing remote work arrangements for substantially all of our workforce worldwide.

As of December 31, 2021, much of our workforce has received COVID-19 vaccinations and subsequently, most of our employees have returned to the office at full or reduced capacity adhering to local health authority guidelines in the jurisdictions in which we operate.

While we experienced some negative impact to our net revenue and gross profits in the first half of 2020 due to several industry-wide dynamics related to COVID-19, including the supply constraints described below, as well as certain customer order push-out requests, since then, we have been benefiting from the work-from-home environment that is driving an increase in demand for certain of our products. However, a sudden increase in demand for electronics containing semiconductor chips and stockpiling of chips by certain firms in China blacklisted by the U.S. has exacerbated bottlenecks in the supply chain, resulting in a global semiconductor chip shortage impacting our industry. Some chip manufacturers are estimating this supply shortage may continue into 2023. While these chip manufacturers are working to increase capacity in the future, and we are continuing to work closely with our suppliers and customers to minimize the potential adverse impacts of the supply shortage, such shortage may have a near-term impact on our ability to meet increased demand on certain products which may continue into 2023.

Further, global financial markets reacted negatively to the COVID-19 pandemic’s impacts causing significant declines or volatility in the stock price and market capitalization of many companies across all industries. Heightened volatility, global supply shortages, and uncertainty in customer demand and the worldwide economy has continued as a result of the COVID-19 pandemic, and we may experience increased volatility in our sales and revenues and our stock price in the near future. However, the magnitude of such volatility on our business and its duration is uncertain and cannot be reasonably estimated at this time.

Acquisition of Home Gateway Platform Division of Intel Corporation

On July 31, 2020, we completed our acquisition of the Home Gateway Platform Division, which we refer to as the Wi-Fi and Broadband assets business, pursuant to an Asset Purchase Agreement with Intel, dated April 5, 2020, and related agreements. We paid cash consideration of $150.0 million for the purchase of certain assets of the Wi-Fi and Broadband assets business, and assumed certain liabilities related to specified employment matters. The transaction was funded with a portion of the proceeds from a secured incremental term loan with an aggregate principal amount of $350.0 million (Note 8).

Acquisition of NanoSemi, Inc.

On September 9, 2020, we completed our acquisition of NanoSemi, Inc. pursuant to a merger agreement. The initial closing transaction consideration consisted of $10 million in cash and 804,163 shares of our common stock. In addition, the NanoSemi stockholders received $35 million in deferred cash payments in 2021, and certain NanoSemi stockholders may also receive up to an additional $35 million in potential contingent consideration, subject to the acquired business’s satisfying certain financial objectives from July 1, 2020 through December 31, 2022. The stock consideration was issued in reliance on exemptions from the registration requirements of the Securities Act of 1933, as amended. In connection with the acquisition, on

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September 9, 2020, we filed a registration statement registering the resale of the shares of our common stock received by the NanoSemi stockholders in the acquisition.

For more information, please refer to Note 3 of our consolidated financial statements.

Stock Repurchase Program

On February 23, 2021, our board of directors authorized a plan to repurchase up to $100 million of our common stock over a period ending February 16, 2024. The amount and timing of repurchases are subject to a variety of factors including liquidity, share price, market conditions, and legal requirements. Any purchases will be funded from available working capital and may be effected through open market purchases, block transactions, and privately negotiated transactions. The share repurchase program does not obligate us to make any repurchases and may be modified, suspended, or terminated by us at any time without prior notice.

For more information, please refer to Note 16 of our consolidated financial statements.

Debt

On June 23, 2021, the Company entered into a Credit Agreement, or the June 23, 2021 Credit Agreement, by and among the Company, the lenders from time to time party thereto, and Wells Fargo Bank, National Association, as administrative agent and collateral agent, that provides for a senior secured term B loan facility, or the Initial Term Loan under the June 23, 2021 Credit Agreement, in an aggregate principal amount of $350.0 million and a senior secured revolving credit facility, or the Revolving Facility, in an aggregate principal amount of up to $100.0 million.

The proceeds of the Initial Term Loan under the June 23, 2021 Credit Agreement were used (i) to repay in full all outstanding indebtedness under that certain Credit Agreement dated May 12, 2017, by and among the Company, MUFG Bank Ltd., as administrative agent and MUFG Union Bank, N.A., as collateral agent and the lenders from time to time party thereto or as amended by Amendment No. 1, dated July 31, 2020 and as further amended, amended and restated, waived, supplemented or otherwise modified from time to time, the May 12, 2017 Credit Agreement and (ii) to pay fees and expenses incurred in connection therewith. The remaining proceeds of the Initial Term Loan under the June 23, 2021 Credit Agreement are available for general corporate purposes and the proceeds of the Revolving Facility may be used to finance the working capital needs and other general corporate purposes of the Company and its subsidiaries. As of December 31, 2021, the Revolving Facility was undrawn. In connection with the settlement of the indebtedness under the May 12, 2017 Credit Agreement, during the year ended December 31, 2021, the Company recognized an aggregate loss on debt extinguishment of $5.2 million consisting of unamortized debt issuance costs and discounts.

For more information, please refer to Note 8 of our consolidated financial statements.

Recent Developments

Business Acquisition

On December 8, 2021, we completed our acquisition of a business pursuant to a purchase agreement. The initial closing transaction consideration consisted of $5 million in cash. In addition, the agreement provides for an additional $3 million to be paid out in cash if certain financial and personnel targets are met by March 31, 2023.

For more information, please refer to Note 3 of our consolidated financial statements.

Critical Accounting Estimates

Management’s discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements which are prepared in accordance with accounting principles that are generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, related disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. We continually evaluate our estimates and judgments, the most critical of which are those related to business combinations, revenue recognition, inventory valuation, production masks, goodwill and other intangible assets valuation, and income taxes. We base our estimates and judgments on historical experience and other factors that we believe to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known.

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We believe that the following accounting estimates we have identified as critical involve a greater degree of judgment and complexity than our other accounting policies. Accordingly, these are the estimates we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations. Refer to Note 1 to our consolidated financial statements included elsewhere in this report for a summary of each of the related accounting policies.

Business Combinations

Estimates in our business combination accounting that involve a significant level of estimation uncertainty include the valuation of identifiable intangible and tangible assets such as inventory, property and equipment, and intangible assets including IPR&D and contingent consideration, which involve the use of forecasted financial information available at the acquisition date, including application of revenue growth rates and margin percentages, and use of a discount rate and various other assumptions as described in more detail in the notes 1 and 3 to our consolidated financial statements. The reported amounts are sensitive to changes to certain assumptions used in the valuation. For example, if the discount rate used in our valuations increased by 1%, it would result in a decrease to the valuation of intangible assets of $3.8M for our 2020 acquisitions and $0.1M for our 2021 acquisition. The amortization and depreciation of such assets, and change in fair value of contingent consideration, impact our consolidated financial results in periods subsequent to the acquisition, and such amounts are disclosed in our consolidated financial statements. During the years ended December 31, 2021 and 2020, we have not recorded any material adjustments to the valuation of such assets, goodwill, or subsequent period adjustments to the consolidated statements of operations associated with our 2020 and 2021 business combinations, including impairment.

Revenue Recognition

Estimates in our revenue recognition that involve a significant level of estimation uncertainty include the estimates of price adjustments and returns under contractual stock rotation rights based on our analysis of expected value of actual price adjustment claims by distributors and product and historical return rates. Any changes to such estimates, for example differences in actual sell-through activity versus our estimate of sell-through activity in our price adjustments, or actual vs. historical return rates, may impact our consolidated financial results in periods subsequent to recording those estimates, and such amounts are disclosed in our consolidated financial statements. Other than our estimates of sell-through activity and customer return rates, there are no assumptions inherent in our estimates in the valuation of inventory that would result in sensitivity of reported amounts to such assumptions. During the years ended December 31, 2021, 2020, and 2019 we have not recorded any material adjustments to such estimates.

Inventory Valuation

Estimates in the valuation of inventory that involve a significant level of estimation uncertainty include our estimates of excess and obsolete inventory based on forecasts of future demand for our products in inventory. Any changes to such estimates, for example differences in actual sales versus our estimates of demand, or conversely, the ultimate sell-through of fully reserved inventory for which we did not anticipate any future demand, impact our consolidated financial results in periods subsequent to recording those estimates. Other than our forecasts of future demand, there are no assumptions inherent in our estimates in the valuation of inventory that would result in sensitivity of reported amounts to such assumptions. During the years ended December 31, 2021, 2020, and 2019, we have not recorded any material net adjustments for such changes in estimates.

Production Masks

Estimates in the capitalization of production masks that involve a significant level of estimation uncertainty include our judgment of whether the technology underlying the product to be produced using the production masks will have future benefit based on our forecasts of future demand for such technology. Any changes in circumstances affecting capitalization, for example, a decision to abandon a project associated with those production masks, may result in impairment of the production mask and therefore impact our consolidated financial results in periods subsequent to capitalizing a production mask. Other than our forecasts of future demand, there are no assumptions inherent in our estimates in the capitalization of production masks that would result in sensitivity of reported amounts to such assumptions. During the years ended December 31, 2021, 2020, and 2019, we have not recorded any material impairment of production masks.

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Impairment of Goodwill and Long-Lived Assets

Estimates in our assessment of impairment of goodwill and long-lived assets that involve a significant level of estimation uncertainty and management judgment include the comparison of our market capitalization as of the annual impairment assessment date to the carrying value of goodwill, use of forecasted financial information for our projects remaining in IPR&D, including growth rates and margin percentages, and a discount rate as of the annual IPR&D impairment assessment date, and our quarterly assessment of whether indicators of impairment exist with respect to all of our goodwill and long-lived assets. For example, a decision to abandon a project involving the technology underlying developed technology and IPR&D may result in immediate impairment of such assets in the quarter such decision is made. As of the October 31 assessment date, the valuation of IPR&D was not sensitive to changes in the underlying discount rate used in our impairment analysis; for example, if our discount rate increased by 10%, it would not result in impairment of IPR&D. Impairment of goodwill and long-lived assets impact our consolidated financial results in periods subsequent to their acquisition, and such amounts are disclosed in our consolidated financial statements. During the years ended December 31, 2021, 2020 and 2019, we have not recorded any material adjustments to the valuation of such assets.

Income Taxes

Estimates in our assessment of realizability of deferred tax assets that involve a significant level of estimation uncertainty and management judgment include projected future taxable income. For example, we continue to have a valuation allowance against state deferred tax assets, certain federal deferred tax assets, and certain foreign deferred tax assets in jurisdictions where we have cumulative losses or otherwise are not expected to utilize certain tax attributes. If projected future taxable income in the U.S., for example, were to increase from what we assumed in our estimates, in periods subsequent to recording valuation allowances, it may be more likely than not that a proportional amount of the valuation against deferred tax assets will be released, resulting in an impact to our tax provision (benefit).

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12 Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes, to remove certain exceptions related to the approach for intraperiod tax allocation, recognition of deferred tax liabilities for outside basis differences and requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The amendments in this update are effective for us beginning with fiscal year 2021. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The adoption of the amendments in this update did not have a material impact on our consolidated financial position and results of operations as of and for the year ended December 31, 2021.

In October 2020, the FASB issued ASU No. 2020-10 Codification Improvements, to make incremental improvements to GAAP and address stakeholder suggestions, including, among other things, clarifying that the requirement to provide comparative information in the financial statements extends to the corresponding disclosures section. The amendments in this update are effective for us beginning with fiscal year 2021. The amendments in this update should be applied retrospectively and at the beginning of the period that includes the adoption date. The adoption of the amendments in this update did not have a material impact on our financial disclosures as of and for the year ended December 31, 2021.

Recently Issued Accounting Pronouncements

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilties from Contracts with Customers, to provide specific guidance to eliminate diversity in practice on how to recognize and measure acquired contract assets and contract liabilities from revenue contracts from customers in a business combination consistent with revenue contracts with customers not acquired in an acquisition. The amendments in this update provide that the acquirer should consider the terms of the acquired contracts, such as timing of payment, identify each performance obligation in the contracts, and allocate the total transaction price to each identified performance obligation on a relative standalone selling price basis as of contract inception (that is, the date the acquiree entered into the contracts) or contract modification to determine what should be recorded at the acquisition date. These amendments are effective for us beginning with fiscal year 2023. The impact of the adoption of the amendments in this update will depend on the magnitude of any customer contracts assumed in a business combination in 2023 and beyond.

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Results of Operations

The following describes the line items set forth in our consolidated statements of operations. A discussion of changes in our results of operations during the year ended December 31, 2020 compared to the year ended December 31, 2019 has been omitted from this Annual Report on Form 10-K, but may be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 11, 2021, which discussion is incorporated herein by reference and which is available free of charge on the SEC’s website at www.sec.gov.

Net Revenue. Net revenue is generated from sales of radio-frequency, analog, digital, and mixed-signal integrated circuits for access and connectivity, wired and wireless infrastructure, and industrial and multi-market applications. A significant portion of our sales are to distributors, who then resell our products.

Cost of Net Revenue. Cost of net revenue includes the cost of finished silicon wafers processed by third-party foundries; costs associated with our outsourced packaging and assembly, test and shipping; costs of personnel, including stock-based compensation, and equipment associated with manufacturing support, logistics and quality assurance; amortization of acquired developed technology and purchased licensed technology intangible assets; inventory fair value adjustments; amortization of certain production mask costs and computer-aided design software license costs; cost of production load boards and sockets; and an allocated portion of our occupancy costs.

Research and Development. Research and development expense includes personnel-related expenses, including stock-based compensation, new product engineering mask costs, prototype integrated circuit packaging and test costs, computer-aided design software license costs, intellectual property license costs, reference design development costs, development testing and evaluation costs, depreciation expense and allocated occupancy costs. Research and development activities include the design of new products, refinement of existing products and design of test methodologies to ensure compliance with required specifications. All research and development costs are expensed as incurred.

Selling, General and Administrative. Selling, general and administrative expense includes personnel-related expenses, including stock-based compensation, amortization of certain acquired intangible assets, merger, acquisition and integration costs, third-party sales commissions, field application engineering support, travel costs, professional and consulting fees, legal fees, depreciation expense and allocated occupancy costs.

Impairment Losses.  Impairment losses consist of charges resulting from the impairment of intangible assets.

Restructuring Charges. Restructuring charges consist of severance, lease and leasehold impairment charges, and other charges related to restructuring plans.

Loss on Extinguishment of Debt. Loss on extinguishment of debt consists of the charge-off of remaining unamortized debt discount and issuance cost on debt we repaid early with a majority of the proceeds from a new term loan.

Interest and Other Income (Expense), Net. Interest and other income (expense), net includes interest income, interest expense and other income (expense). Interest income consists of interest earned on our cash, cash equivalents and restricted cash balances. Interest expense consists of interest accrued on debt. Other income (expense) generally consists of income (expense) generated from non-operating transactions.

Income tax provision (benefit). We make certain estimates and judgments in determining income taxes for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expenses for tax and financial statement purposes and the realizability of assets in future years.

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The following table sets forth our consolidated statement of operations data as a percentage of net revenue for the periods indicated:

Net Revenue

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Net revenue increased $413.8 million to $892.4 million for the year ended December 31, 2021, as compared to $478.6 million for the year ended December 31, 2020. The increase in broadband net revenue of $248.1 million was primarily the result of a full-year contribution of gateway revenues attributable to our acquisition of the Wi-Fi and Broadband assets business on July 31, 2020 compared to partial-year contribution in the prior year, and, to a lesser extent, improvements in cable front-end, tuner and satellite shipments. The increase in connectivity revenue of $78.5 million was primarily driven by a full-year contribution of Wi-Fi and ethernet revenues attributable to our Wi-Fi and Broadband assets business acquisition compared to partial-year contribution in the prior year, further supplemented by increases in MoCA and G.hn product shipments. The increase in infrastructure revenues of $43.3 million was primarily driven by an increase in shipments of high-performance analog, wireless backhaul and wireless access deployments driven by the ramp-up of 5G, and to a lesser extent, increased MoCA and G.hn last-mile Access product shipments in this category. The revenues in this category in part increased due to recovery in demand for high-performance analog and wireless backhaul, which saw weaker demand in 2020 during the first year of the COVID-19 pandemic. The increase in industrial and multi-market revenue of $43.9 million was related to increased shipments of high-performance analog products and component products attributable to our Wi-Fi and Broadband assets business acquisition.

We currently expect that revenue will fluctuate in the future, from period-to-period, based on evolving customer demand for existing products, the pace of adoption of newer products, and macroeconomic conditions. Further, due to heightened volatility and uncertainty in customer demand resulting from the COVID-19 pandemic, as well as uncertainty in supply from the global semiconductor chip shortage, we may experience increased volatility in our sales and revenues.

Cost of Net Revenue and Gross Profit

Cost of net revenue increased $130.8 million to $396.6 million for the year ended December 31, 2021, as compared to $265.8 million for the year ended December 31, 2020. The increase was primarily driven by higher sales and incremental expenses, primarily driven by our acquisition of the Wi-Fi and Broadband assets business. Gross profit percentage improved for the year ended December 31, 2021, as compared to the year ended December 31, 2020, due primarily to a reduction in acquisition-related amortization of inventory fair value adjustments of $32.9 million and improved absorption of amortization of intangible costs.

We currently expect that gross profit percentage will fluctuate in the future, from period-to-period, based on changes in product mix, average selling prices, and average manufacturing costs. Further, due to heightened volatility and uncertainty in customer demand resulting from the COVID-19 pandemic and global semiconductor chip shortages, we may experience increased volatility in our cost of net revenues and gross profit as a result.

Research and Development

Research and development expense increased $98.4 million to $278.4 million for the year ended December 31, 2021 from $180.0 million in the year ended December 31, 2020. The increase was primarily due to a full year impact from our 2020 business acquisitions, which resulted in added engineering headcount, facilities, and related expenses, as well as an increase in bonuses and performance stock-based compensation expenses, compared to a partial year impact in 2020. There were increases in personnel-related expense of $66.8 million, of which $19.7 million is from performance-based bonus accruals and stock-based compensation expense, outside services of $14.6 million which primarily includes consulting and computer aided design

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expense of $9.2 million and consulting expense of $4.1 million, prototype expense of $7.1 million, depreciation expense of $4.5 million, occupancy expenses of $4.3 million, and supplies expenses totaling $0.6 million.

We expect our research and development expenses to increase in future years as we continue to expand our product portfolio and enhance existing products.

Selling, General and Administrative

Selling, general and administrative expense increased $19.9 million to $149.9 million for the year ended December 31, 2021, as compared to $130.0 million for the year ended December 31, 2020. The increase was primarily due to a full year impact from our 2020 business acquisitions, which resulted in added personnel, facilities, and related expenses as well as an increase in performance-based bonuses and stock-based compensation expenses, compared to a partial year impact in 2020. There were increases in personnel expense of $21.9 million, including $8.2 million from performance-based bonus accruals and stock-based compensation expenses, outside services of $3.4 million primarily consisting of consulting fees, occupancy expenses of $2.3 million, professional fees of $2.1 million, supplies expense of $1.3 million, depreciation expense of $0.5 million. These increases were partially offset by a decrease in acquisition transaction and integration expenses of $12.4 million.

We expect selling, general and administrative expenses to increase in future years as we grow our sales and marketing organization to expand into existing and new markets.

Impairment Losses

Impairment losses in the year ended December 31, 2020 related to abandonment of a license of intellectual property.

Restructuring Charges

Restructuring charges decreased $1.6 million to $2.2 million for the year ended December 31, 2021, compared to $3.8 million for the year ended December 31, 2020. Restructuring charges for the year ended December 31, 2021 primarily consisted of $1.3 million in employee severance-related charges and $0.6 million of lease-related charges, which primarily consisted of impairment of leased right-of-use assets and leasehold improvements. Restructuring charges in the year ended December 31, 2020 primarily consisted of lease restructuring charges of $2.0 million, which included impairment of leased right-of-use assets of $1.5 million, and $1.6 million in employee severance-related charges.

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Loss on Extinguishment of Debt

Loss on extinguishment of debt in the year ended December 31, 2021 consists of the charge-off of remaining unamortized debt discount and issuance costs on debt under our prior term loan which we repaid early with proceeds from a new term loan in June 2021.

Interest and Other Income (Expense)

Interest and other income (expense), net changed by $1.6 million from a net expense of $13.7 million in the year ended December 31, 2020 to a net expense of $12.2 million for the year ended December 31, 2021. The change in interest and other income (expense), net was primarily due to the impact of a non-recurring gain on sale of a privately held investment of $1.9 million, partially offset by impacts from foreign currency exchange rate fluctuations.

Income Tax Provision (Benefit)

The income tax provision for the year ended December 31, 2021 was $5.9 million compared to an income tax benefit of $16.3 million for the year ended December 31, 2020.

The difference between our effective tax rate and the 21.0% U.S. federal statutory rate for the year ended December 31, 2021 resulted primarily from a tax on global intangible low-taxed income (“GILTI”) and non-deductible foreign stock-based compensation, offset by a benefit related to research and development tax credits, foreign earnings taxed at rates other than the federal statutory rate and the effect of a release of valuation allowance against certain Singapore deferred tax assets pertaining to usage of net operating losses.

The difference between our effective tax rate and the 21.0% U.S. federal statutory rate for the year ended December 31, 2020 resulted primarily from foreign earnings taxed at rates other than the federal statutory rate, a benefit related to release of uncertain tax positions under ASC 740-10, and excess tax benefits related to stock-based compensation. Also included in income tax benefit for the year ended December 31, 2020 was a tax benefit related to the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, enacted effective March 27, 2020, and a tax provision related to a change in judgment regarding the final outcome of the Altera tax case. Such tax benefit relates to our ability to carry back our 2019 net operating loss, originally valued at a 21% federal tax rate, to offset income taxes paid in prior periods at the 35% federal tax rate in effect at that time.

We continue to maintain a valuation allowance to offset state and certain federal and foreign deferred tax assets, as realization of such assets does not meet the more-likely-than-not threshold required under accounting guidelines. In making such determination, we consider all available positive and negative evidence quarterly, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance. During the

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quarter ended December 31, 2021, we released the beginning of the year valuation allowance of $8.3 million against our Singapore deferred tax assets. This release is a result of our Singapore operations showing cumulative profits for the prior three years, and the use of prior year carry forward attributes in the current period. Based upon our review of all positive and negative evidence, we continue to have a valuation allowance on state deferred tax assets, certain federal deferred tax assets, and certain foreign deferred tax assets in jurisdictions where we have cumulative losses or otherwise are not expected to utilize certain tax attributes. We do not incur income tax expense or benefit in certain tax-free jurisdictions in which we operate.

Our subsidiary in Singapore operates under certain tax incentives in Singapore, which are generally effective through March 2022 and may be extended through March 2027. Under these incentives, qualifying income derived from certain sales of our integrated circuits is taxed at a concessionary rate over the incentive period. We also receive a reduced withholding tax rate on certain intercompany royalty payments made by our Singapore subsidiary during the incentive period. Such incentives are conditional upon our meeting certain minimum employment and investment thresholds within Singapore over time, and we may be required to return certain tax benefits in the event we do not achieve compliance related to that incentive period. We currently believe that we will be able to satisfy these conditions without material risk.

Liquidity and Capital Resources

As of December 31, 2021, we had cash and cash equivalents of $130.6 million, restricted cash of $1.2 million and net accounts receivable of $119.7 million. Additionally, as of December 31, 2021, our working capital, which we define as current assets less current liabilities, was $196.7 million.

Our primary uses of cash are to fund operating expenses and purchases of inventory, property and equipment, and from time to time, the acquisition of businesses. We also use cash to pay down outstanding debt, repurchase our common stock under our stock repurchase plan, and from time to time, make investments. In June 2021, the Company used a portion of funds from a new senior secured term B loan facility or the “Initial Term Loan under the June 23, 2021 Credit Agreement,” in an aggregate principal amount of $350.0 million to repay in full all outstanding indebtedness under the May 12, 2017 Credit Agreement and related fees and expenses incurred. The remaining proceeds of $11.0 million of the Initial Term Loan under the June 23, 2021 Credit Agreement are available for general corporate purposes. The Company also entered into a senior secured revolving credit facility, in an aggregate principal amount of up to $100.0 million which remained undrawn as of December 31, 2021. The proceeds of the revolving facility may be used to finance the working capital needs and other general corporate purposes of the Company and its subsidiaries. In July 2020, we funded our $150.0 million acquisition of the Wi-Fi and Broadband assets business with a portion of the net proceeds of an $175.0 million incremental term loan under the May 12, 2017 Credit Agreement, which loan we repaid with the proceeds under the Initial Term Loan under the June 23, 2021 Credit Agreement as described above. In September 2020, we paid $10.0 million in cash to acquire NanoSemi and in the year ended December 31, 2021, we paid an aggregate of $35.0 million in additional cash payments to stockholders of NanoSemi, which were previously deferred under the terms of the merger agreement. In December 2021, we paid $5.0 million in cash to acquire a business.

Commencing on September 30, 2021, the Initial Term Loan under the June 23, 2021 Credit Agreement amortizes in equal quarterly installments equal to 0.25% of the original principal amount of the Initial Term Loan under the June 23, 2021 Credit Agreement. We have exercised our right to prepay a portion of the principal amount due. As of December 31, 2021, the debt outstanding of $310.0 million is due and payable on June 23, 2028.

Heightened volatility, global semiconductor chip shortages, and uncertainty in customer demand and the worldwide economy in general continues to impact business and financial markets as a result of the COVID-19 pandemic, and we may experience decreased sales and revenues in the near future. A material adverse impact from COVID-19 and the global semiconductor chip shortage could result in a need to raise additional capital or incur additional indebtedness to fund strategic initiatives or operating activities, particularly if we pursue additional acquisitions. Our future capital requirements will depend on many factors, including changes in revenue, the expansion of our engineering, sales and marketing activities, the timing and extent of our expansion into new territories, the timing of introductions of new products and enhancements to existing products, the continuing market acceptance of our products and potential material investments in, or acquisitions of, complementary businesses, services or technologies. Additional funds may not be available on terms favorable to us or at all. If we are unable to raise additional funds when needed, we may not be able to sustain our operations or execute our strategic plans.

Our cash and cash equivalents are impacted by the timing of when we pay expenses as reflected in the change in our outstanding accounts payable and accrued expenses. Cash used to fund operating expenses in our consolidated statements of cash flows excludes the impact of non-cash items such as amortization and depreciation of acquired intangible assets and leased right-of-use assets and property and equipment, inventory fair value adjustments, stock-based compensation, loss on extinguishment of debt and impairment of leased right-of-use assets and related leasehold improvements. Cash used to fund

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capital purchases and acquisitions of businesses and investments are included in investing activities in our consolidated statements of cash flows. Cash proceeds from debt and issuance of common stock and cash used to pay down outstanding debt or repurchase common stock is included in financing activities in our consolidated statements of cash flows.

As of December 31, 2021, our material cash requirements include long-term debt, non-cancelable operating leases, inventory purchase obligations and other obligations, which primarily consist of contractual payments due for computer-aided design software, as follows:

Our planned capital expenditures as of December 31, 2021 were not material. Our consolidated balance sheet at December 31, 2021 included $6.0 million in other long-term liabilities for uncertain tax positions, some of which may result in cash payment, and $2.7 million in contingent consideration associated with a business acquisition (see Note 3 for details). The future payments related to uncertain tax positions recorded as other long-term liabilities and the contingent consideration have not been presented in the table above due to the uncertainty of the amounts and timing of cash settlement with the taxing authorities and shareholders of the acquired business.

Our primary sources of cash are cash receipts on accounts receivable from our shipment of products to distributors and direct customers, and through January 2021, from billings made on our behalf to customers for products sold by Intel under a transition services agreement. Aside from the amounts billed to our customers, net cash collections of accounts receivable are impacted by the efficiency of our cash collections process, which can vary from period to period depending on the payment cycles of our major distributor customers, and relative linearity of shipments period-to-period. Additionally, the June 23, 2021 Credit Agreement, under which we entered into a senior secured term B loan facility and a $100.0 million revolving credit facility (undrawn as of December 31, 2021), permits us to request incremental loans in an aggregate principal amount not to exceed the sum of an amount equal to the greater of (x) $175.0 million and (y) 100% of "Consolidated EBITDA," (as defined in such agreement), plus the amount of certain voluntary prepayments, plus an unlimited amount that is subject to pro forma compliance with certain first lien net leverage ratio, secured net leverage ratio and total net leverage ratio tests.

Following is a summary of our working capital, cash and cash equivalents, and restricted cash for the periods indicated:

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Following is a summary of our cash flows provided by (used in) operating activities, investing activities and financing activities for the periods indicated:

Cash Flows from Operating Activities

Net cash provided by operating activities was $168.2 million for the year ended December 31, 2021 and consisted of positive impact of net income of $42.0 million and non-cash items of $161.2 million, partially offset by changes in operating assets and liabilities of $24.3 million, excess tax benefits and deferred income taxes totaling $10.7 million. Non-cash items included in net income for the year ended December 31, 2021 primarily consisted of depreciation and amortization of property, equipment, acquired intangible assets and leased right-of-use assets of $91.8 million, stock-based compensation of $59.4 million, loss on extinguishment of debt of $5.2 million, and amortization of debt issuance costs and discounts of $3.0 million.

Net cash provided by operating activities was $73.6 million for the year ended December 31, 2020 and primarily consisted of the positive impact from $162.5 million in non-cash items and $28.9 million in changes in operating assets and liabilities, partially offset by the negative impact of net loss of $98.6 million and deferred income taxes and excess tax benefits totaling $19.2 million. Non-cash items included in net loss for the year ended December 31, 2020 primarily consisted of depreciation and amortization of property, equipment, acquired intangible assets and leased right-of-use assets of $76.5 million, stock-based compensation of $47.6 million, and inventory fair value adjustments of $32.9 million.

Cash Flows from Investing Activities

Net cash used in investing activities was $91.8 million for the year ended December 31, 2021 and consisted of $40.0 million in cash used for acquisitions, comprising $35.0 million in payments of purchase price from our 2020 acquisition of NanoSemi that were previously deferred under the terms of the merger agreement and $5.0 million to purchase a business, $39.2 million in purchases of property and equipment, $7.6 million in purchases of intangible assets, and $5.0 million in purchases of long-term investments in a private entity.

Net cash used in investing activities was $175.3 million for the year ended December 31, 2020 and consisted of $160.0 million in cash used in the acquisitions, comprising $150.0 million for the WiFi and Broadband assets business and $10.0 million in initial cash for NanoSemi, $12.5 million in purchases of property and equipment, and $2.8 million in purchase of intangible assets.

Cash Flows from Financing Activities

Net cash used in financing activities was $91.9 million for the year ended December 31, 2021. Net cash used in financing activities consisted of $409.8 million in repayments of debt, $23.5 million in common stock repurchases, $13.1 million in minimum tax withholding paid on behalf of employees for restricted stock units, and $4.2 million in debt issuance costs, partially offset by cash inflows from net proceeds from the issuance of debt of $350.0 million and from issuance of common stock upon exercise of stock options of $8.8 million.

Net cash provided by financing activities was $159.6 million for the year ended December 31, 2020. Net cash provided by financing activities consisted primarily of $175.0 million in proceeds from borrowings under an incremental term loan we entered into in July 2020 in part in connection with the acquisition of the WiFi and Broadband assets business, and cash inflows from net proceeds from issuance of common stock upon exercise of stock options of $8.1 million, partially offset by aggregate repayments of principal on outstanding debt of $17.2 million, minimum tax withholding paid on behalf of employees for restricted stock units of $3.5 million, and payments of debt issuance costs of $2.7 million.

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We believe that our $130.6 million of cash and cash equivalents at December 31, 2021 will be sufficient to fund our projected operating requirements for at least the next twelve months. As of December 31, 2021, our indebtedness totaled $310.0 million, which consists of outstanding principal under the Initial Term Loan under the June 23, 2021 Credit Agreement. The June 23, 2021 Credit Agreement also provides the Company with the Revolving Facility in an aggregate principal amount of up to $100.0 million. The Initial Term Loan under the June 23, 2021 Credit Agreement has a seven-year term expiring in June 2028 and bears interest, at the Company’s option, at a per annum rate equal to either (i) a base rate equal to the highest of (x) the federal funds rate, plus 0.50%, (y) the prime rate then in effect and (z) an adjusted LIBOR rate determined on the basis of a one-month interest period plus 1.00%, in each case, plus an applicable margin of 1.25% or (ii) an adjusted LIBOR rate, subject to a floor of 0.50%, plus an applicable margin of 2.25%. Loans under the Revolving Facility initially bear interest, at a per annum rate equal to either (i) a base rate (as calculated above) plus an applicable margin of 0.00%, or (ii) an adjusted LIBOR rate (as calculated above) plus an applicable margin of 1.00%. Following delivery of financial statements for the Company’s fiscal quarter ending June 30, 2021, the applicable margin for loans under the Revolving Facility will range from 0.00% to 0.75% in the case of base rate loans and 1.00% to 1.75% in the care of LIBOR rate loans, in each case, depending on the Company’s secured net leverage ratio as of the most recently ended fiscal quarter. The Company is required to pay commitment fees ranging from 0.175% to 0.25% per annum on the daily undrawn commitments under the Revolving Facility, depending on the Company’s secured net leverage ratio as of the most recently ended fiscal quarter. Commencing on September 30, 2021, the Initial Term Loan under the June 23, 2021 Credit Agreement amortizes in equal quarterly installments equal to 0.25% of the original principal amount, with the balance payable at maturity on June 23, 2028. The June 23, 2021 Credit Agreement contains customary provisions specifying alternative interest rate calculations to be employed at such time as LIBOR ceases to be available as a benchmark for establishing the interest rate on floating interest rate borrowings.

Our cash and cash equivalents in recent years have been favorably affected by our implementation of an equity-based bonus program for our employees, including executives. In connection with that bonus program, in February 2021, we issued 0.5 million freely-tradable shares of our common stock in settlement of bonus awards for the 2020 performance period. We expect to implement a similar equity-based plan for fiscal 2021, but our compensation committee retains discretion to effect payment in cash, stock, or a combination of cash and stock.

Warranties and Indemnifications

In connection with the sale of products in the ordinary course of business, we often make representations affirming, among other things, that our products do not infringe on the intellectual property rights of others, and agree to indemnify customers against third-party claims for such infringement. Further, our certificate of incorporation and bylaws require us to indemnify our officers and directors against any action that may arise out of their services in that capacity, and we have also entered into indemnification agreements with respect to all of our directors and certain controlling persons.

Off-Balance Sheet Arrangements

As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, or SPEs, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of December 31, 2021, we were not involved in any unconsolidated SPE transactions.