MaxLinear, Inc. (NASDAQ:MXL) Q1 2024 Earnings Call Transcript

MaxLinear, Inc. (NASDAQ:MXL) Q1 2024 Earnings Call Transcript April 24, 2024

MaxLinear, Inc. misses on earnings expectations. Reported EPS is $-0.21 EPS, expectations were $-0.2. MaxLinear, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings and welcome to the MaxLinear First Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Leslie Green, Investor Relations. Thank you, Leslie. You may begin.

Leslie Green: Thank you, Paul and good afternoon, everyone and thank you for joining us on today's conference call to discuss MaxLinear's first quarter 2024 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 applicable securities laws, including statements relating to our guidance for the second quarter of 2024, including revenue, GAAP and non-GAAP gross margin, GAAP and non-GAAP operating expenses, GAAP and non-GAAP interest and other expense and GAAP and non-GAAP diluted share count. In addition, we will make forward-looking statements relating to trends, opportunities, execution of our business plan and potential growth and uncertainties in various product and geographic markets, including, without limitation, statements concerning future financial and operating results, opportunities for revenue and market share across our target markets, expected production ramps and timing for the launches of new products, our design win pipeline, demand for and adoption of certain technologies, our serviceable addressable market, the effects of cost reduction measures and product announcement.

These forward-looking statements involve substantial risks and uncertainties, including risks outlined in our Risk Factor section of our SEC filings, including our Form 10-Q for the quarter ended March 31 2024 which we intend to file later today. Any forward-looking statements are made as of today and MaxLinear has no obligation to update or revise any forward-looking statements. The future -- the first quarter 2024 earnings release is available on the Investor Relations section of our website at maxlinear.com. In addition, we report certain historical financial metrics, including but not limited to, gross margin, operating margin, operating expenses and interest and other expense on both a GAAP and non-GAAP basis. We encourage investors to review the detailed reconciliation of our GAAP and non-GAAP presentations and the press release available on our website.

We do not provide reconciliation of non-GAAP guidance for future periods because of the inherent uncertainty associated with our ability to project certain future changes, including stock-based compensation and its related tax effects as well as potential impairments. Non-GAAP financial measures discussed today are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures. We are providing this information because management believes it is useful to investors as it reflects how management measures our business. Lastly, this call is also being webcast and a replay will be available on our website for 2 weeks. And now let me turn the call over to Dr. Kishore Seendripu, CEO of MaxLinear. Kishore?

Kishore Seendripu: Thank you, Leslie and good afternoon, everyone. Our Q1 revenues were $95.3 million, posting a non-GAAP gross margin of 60.6%. Overall, we believe that our revenues have reached a bottom and we are now poised for sequential growth in '24. Our conviction is a result of improving market conditions and exciting new product launches in high-growth markets, including optical data center interconnect enterprise Ethernet and storage accelerators, 5G wireless, multi-gigabit PON broadband access and WiFi connectivity. All of these new products have been launched in the market today and will begin to reshape our revenue profile towards high-value data infrastructure applications. While this market recovery driving improved revenues, our strong fiscal discipline will help us position to deliver highly favorable leverage in our business model.

Highlighting our infrastructure business which we believe is on track to become a $300 million to $500 million business over the next several years, led by solid traction in high-speed optical in the connect market. Coming into 2024, we expect to deliver revenue in the $10 million to $30 million range for the year, we now expect to exceed the high end of the revenue range in 2024. As we demonstrated and announced at the Optical Fiber Conference in San Diego, our 5-nanometer CMOS Keystone 800-gigabit PAM4 DSP is in several reference designs for virtually all of the leading module makers, including Jabil for silicon photonics-based pluggable modules and Optomind for LRO modules which we announced last month. Collectively, we are building an exciting AI-related design win portfolio within the hyperscale and large enterprise markets.

Early stage revenues have already begun and we expect new production ramps later in the second half of the year to drive meaningful run rate growth in 2025. The ongoing adoption of AI in the cloud is providing a strong catalyst for the transition to 800 gigabit and beyond speeds. During Q1, we were very pleased to announce Rushmore family of 200 gigabit per lane, PAM4 SERDES and DSP's. Built on Samsung's leading-edge CMOS, it delivers best-in-class power consumption, double the data rates and significantly reduce latency across optical transceivers, active optical cables and active electrical cables. Industry estimates indicate that shipments of PAM4 DSPs are expected to grow at a CAGR of 50% through 2027, providing an exciting opportunity for us to significantly grow our revenue and market presence over the next several years.

In 5G wireless infrastructure, the expanding global rollout of new millimeter wave, microwave and hybrid backhaul technologies to upgrade the data rates of wireless transport links continues to drive our growth and our silicon content per platform. At Mobile World Congress in February, we announced our new and differentiated CRF family, a single-chip platform for 5G Open RAN radio units for both massive MIMO and macro-based station solutions. The response has been overwhelmingly positive. We expect our growing portfolio of wireless backhaul and access infrastructure products to drive significant revenue expansion over a multiyear cycle. Within our infrastructure revenues, our Panther III CDs, hardware storage accelerators for the enterprise all-flash array and hybrid storage enterprise appliance systems is providing exciting incremental growth opportunities particularly with the growth in high-speed computing and AI.

Our Panther III GPU is the only hardware-based solution in the market, delivering 12:1 ratio data compression ultra-reliable data protection, low latency and low power performance. This month, we were excited to announce a collaboration with Dell Technologies to integrate our Panther III storage accelerator into Dell's PowerMax storage platform to deliver unparalleled performance gains for mission-critical workloads. We are currently in production ramp with the solution and expect additional customer product ramps later this year. We are confident that we can double our storage-related revenues in '24 with continued strong growth through 2025 and beyond. In Ethernet connectivity with the recent launch of our new Octal 2.5 gigabit Ethernet PHY and switch products, we expanded our addressable market by $300 million to include both the enterprise and small and medium business switch markets in addition to our traditional gateway and router markets.

Customers are expected to upgrade today's more than 2 billion copper 1-gigabit Ethernet ports to 2.5 gigabit Ethernets speeds over time using the existing standard CAT-5 cabling. We are seeing exciting design win activity for our solution, including a Tier 1 North American enterprise OEM customer that is expected to ramp to production in the late 2024. As we look ahead, we believe our Ethernet business could reach $100 million over the next 18 to 24 months. Turning to broadband. We continue to gain traction in the fiber P -- PON market with new design wins driving our growth. As many of you know, in 2023, we began ramping our single-chip integrated fiber PON plus 10-gigabit processor gateway SoC and connectivity solutions with the major Tier 1 North American service providers.

We're now ramping a new opportunity with the second major Tier 1 North American service provider. Together, these wins confirm our competitive product offering and demonstrate significant growth opportunities for us in the coming years. Last year, our PON revenue was approximately $50 million. We expect to be able to more than double that over the next 2 years. In connectivity, our Wave700 single-chip tri-band, Quad MIMO WiFi 7 device continues to do extremely well in qualifications. We expect service providers to begin the initial rollout late this year with adoption peaking in 2 to 3 years. For MaxLinear WiFi 7 has the exciting potential to drive significant ASP growth and higher attach rates in our broadband access platform versus previous generations.

Overall, as we finally project return to sequential revenue growth, it is both gratifying and exciting to see years of product development and business execution begin to culminate in our next stage of growth as a data-centric infrastructure company. Across our portfolio, we have the right solution production today to meet high-value market trends and drive significant revenue growth. With that, let me turn the call over to Steve Litchfield, our Chief Financial Officer and Chief Corporate Strategy Officer. Steve?

Steven Litchfield: Thanks, Kishore. Total revenue for the first quarter was $95.3 million, down from $125.4 million in the previous quarter, including both product and IP revenues. Broadband revenue for the quarter was $33 million, connectivity revenue was $10 million, infrastructure revenue was $33 million and our industrial multi-market revenue was $20 million. GAAP and non-GAAP gross margin for the first quarter was approximately 51.7% and 60.6% of revenue. The delta between GAAP and non-GAAP gross margin in the first quarter was primarily driven by $8.2 million of acquisition-related intangible asset amortization. First quarter GAAP operating expenses were $123.9 million and non-GAAP operating expenses were $74.8 million.

The delta between GAAP and non-GAAP operating expenses was primarily due to stock-based compensation and performance-based equity accruals of $24.2 million combined and restructuring costs of $22.6 million related to the workforce reduction initiated in Q4. Non-GAAP loss for operations for Q1 2024 was 18% of net revenue. GAAP interest and other expense during the quarter was $0.5 million, non-GAAP interest and other expense during the quarter was $0.6 million. In Q1, cash flow generated in operating activities was $16 million. We exited Q1 of 2024 with approximately $193 million in cash, cash equivalents and restricted cash. Our day sales outstanding for the first quarter was approximately 121 days. Our gross inventory was down versus the previous quarter, with inventory turns at 0.9x.

This concludes the discussion of our Q1 financial results. With that, let's turn to our guidance for Q2 of 2024. We currently expect revenue in the second quarter of 2024 to be between $90 million and $110 million. Looking at Q2 by end market, we expect infrastructure, connectivity and industrial multi-market to be up, while broadband will be expected to be down. We expect second quarter GAAP gross margin to be approximately 52.5% to 56.5% and non-GAAP gross margin to be in the range of 58.5% and 61.5% of revenue. Gross margin continues to be relatively stable with the expected range being driven by a combination of near-term product, customer and end market mix. We expect Q2 2024 GAAP operating expenses to be in the range of $103 million to $113 million.

We expect Q2 2024 non-GAAP operating expenses to be in the range of $72 million to $78 million. We expect our Q2 GAAP and non-GAAP interest and other expense to be in the range of approximately $0.5 million to $1 million each. We expect our Q2 GAAP and non-GAAP diluted share count to be approximately 83.5 million. We're pleased to show progress on our new products, expanding our position in these exciting new growth markets. Our customer traction and design win momentum are producing tangible results that will be increasingly evident in our business in the coming quarters and will reshape our future as a data infrastructure company. The world is undoubtedly moving towards accelerated data architectures and MaxLinear's core competencies centering around seamless integration and low power efficiency is perfectly suited.

Our optimism and sense of purpose within this new generation of technology is high and we remain deeply committed to delivering strong value to our customers and our shareholders. With that, I'd like to open up the call for questions. Paul?

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