Gideon Massey - Investor Relations Kishore Seendripu - Chief Executive Officer Adam Spice - Chief Financial Officer.

Tore Svanberg - Stifel Ross Seymore - Deutsche Bank Suji Desilva - ROTH Capital Quinn Bolton - Needham & Company Christopher Rolland - Susquehanna International Group.

Greetings and welcome to MaxLinear 2018 Q1 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Gideon Massey..

Thank you, operator. Good afternoon, everyone and thank you for joining us on today’s conference call to discuss MaxLinear’s first quarter 2018 financial results. Today’s call is being hosted by Dr. Kishore Seendripu, CEO and Adam Spice, CFO. After our prepared comments, we will take questions.

Our comments today include forward-looking statements within the meaning of applicable security laws, including statements relating to our second quarter 2018 revenue, gross margin, operating expense, tax expense, tax rate and interest and other expense guidance as well as statements relating to trends, opportunities and uncertainties and various product and geographic markets, including without limitation, statements concerning assumptions and factors concerning potential variability in second quarter 2018 expectations.

These forward-looking statements involve substantial risks and uncertainty, including risk arising from competition, our dependence on limited number of customers, average selling price trends, the accuracy of our assumptions concerning the reasons for increased variability in our revenue expectations, risk that our market and growth opportunities may not develop as we currently expect and numerous other risks outlined in our SEC filings.

Actual results may differ materially from currently forecasted results.

For a detailed discussion of the risks and uncertainties potentially affecting these forward-looking statements, we encourage investors to review the section of our SEC filings captioned Risk Factors in our previously filed Form 10-K for the year ended December 31, 2017 and in our upcoming Form 10-Q for the quarter ended March 31, 2018 which we expect to file shortly.

Any forward-looking statements are made as of today and MaxLinear has no obligations to update or revise any forward-looking statements. The first quarter 2018 earnings release is available in the Investor Relations section of our website at maxlinear.com.

In addition, we reported certain historical financial metrics, including net revenue, gross margins, operating expenses, income or loss from operations, pre-tax margins, effective tax rate, net income or loss and net income or loss per share on both a 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 certain future charges, including stock-based compensation and its associated tax effects.

Non-GAAP financial measures discussed today do not replace the presentation of MaxLinear GAAP financial results. We are providing this information to enable investors to perform a meaningful comparison of our operating results in a manner similar to management’s analysis of our business.

Lastly, this call is being webcast and a replay will be available on our website for 2 weeks. And now, let me turn the call over to Kishore Seendripu, CEO of MaxLinear..

Thank you, Gideon, and good afternoon, everyone. Thank you all for joining us today. We are pleased to report Q1 2018 revenue of approximately $110.8 million, which is down 3% sequentially, but is up significantly by about 25% year-over-year.

During Q1, we witnessed strength in broadband cable data, G.hn home connectivity and wireless backhaul infrastructure revenues, which were offset primarily by weakness in China optical, North America satellite and some legacy Terrestrial Tuner applications.

In Q1 2018, we posted strong growth in operating margins driven by favorable product mix, a one-time reversal of a customer rebate accrual and tight operating expense management.

As always, we continue to manage our expenses prudently to preserve operating leverage in the business even as we navigate through the timing uncertainties of new designs win product ramps. Before I dwell into our Q1 highlights, I would like to step back and provide an overarching view of our product portfolio.

As we look at MaxLinear’s portfolio, we have both stable and slow growth revenue products as well as high growth revenue components that comprise our connected home infrastructure and high-performance analog, industrial and multi-market revenues.

Together, they constitute a scaled and increasingly diverse company with the ability to invest in addressing the high value, large network communications infrastructure end markets. These products have a unifying underlying theme of technology excellence and a platform centric view of the world.

Over the last 4 years, we have embarked on several new growth initiatives, primarily in infrastructure that we believe are on track to begin yielding revenues in 2018 onwards.

Specifically, as we look at our design win funnel in connectivity, hyperscale data center solutions and wireless infrastructure, we see strong evidence of increasing revenue growth with product trends beginning in the second half of 2018.

The timing and magnitude of these initial ramps rely on several factors beyond our control, and we will provide better resolution on these exciting growth factors in our upcoming investor interactions throughout 2018.

Having said that in Q1 in terms of technology milestones, there were several exciting highlights that instill confidence in the success of our ongoing strategic revenue diversification initiatives into wireless and wireline communications network infrastructure markets.

In March, at the Optical Fiber Communication Conference, we have demonstrated the industry’s first 60-nanometer CMOS, 400-gigabit PAM-4 data center transceiver with integrated laser drivers and a companion TIA family.

This family of products provides the low power and high performance required for QSFP-DD, OSFP and COBO form factors that are inside the data center high-speed fiber interconnect applications.

At OFC, we have demonstrated our silicon with three of four largest optical systems suppliers supporting our view that we are in a leadership position entering a crucial stage of the next major inside the data center fiber interconnect upgrade cycle.

In Q1, we also started sampling the industry’s first Full Duplex, or FDX, DOCSIS 3.1 cable fiber node or remote PHY system on chip device, which enables 10-gigabit cable data services to subscriber homes.

By moving to FDX remote PHY, cable operators can upgrade their existing passive cable fiber nodes and newer installations to active fiber nodes to create a distributed cable network infrastructure.

This distributed full duplex base remote PHY node infrastructure enables fiber-like capacity using existing coaxial cable network, which connects the nodes to subscriber homes.

The FDX DOCSIS 3.1 fiber node is a good example of the type of leveraging investment opportunities that exist in our core broadband markets that we believe in turn will spawn further attractive revenue growth opportunities in next-generation connected home and infrastructure platforms.

Additionally, we recently announced a new product supporting virtual fiber capable of delivering 20 gigabits per second of throughput over coaxial cable, alleviating the need for operators to deploy costly fiber alternatives. This is particularly important for operators seeking to deliver fiber-like performance in densely populated urban settings.

In wireless infrastructure, we continue to be encouraged by the strong levels of engagement with Tier 1 network equipment makers across all 3 of our wireless infrastructure verticals, namely wireless backhaul, 5G wireless access and fixed broadband wireless AirPHY solutions.

As mentioned in our press release earlier today, we recently entered into a formal partnership agreement with the world’s largest wireless networking equipment maker for wireless backhaul products.

This is significant milestone for us and bolsters our confidence in our ability to expand our analog mixed signal technology platform into the large wireless communication market. Moving on to some of the first quarter’s notable business highlights.

Our connected home revenues decreased approximately 1% sequentially, with strength in G.hn and cable data offset by weakness in North America satellite, MoCA and legacy tuners. Our G.hn powerline home connectivity business continues to scale with strong telecom and smart utility deployments.

In satellite video, while our European revenues remain strong, we are facing macro demand challenges in the U.S. market owing to the delays in broader market adoption of 4K content and subscriber losses. Moving on to infrastructure, while our Q1 infrastructure revenues were down 3% sequentially, they grew approximately 78% on a year-over-year basis.

The modest sequential declines were attributable to expected continued softness in China optical and a step back in last mile access solutions, which are expected to resume their sequential growth increases as we progress through the year.

Our wireless infrastructure business continues to be an increasing bright spot, posting strong sequential increases of more than 40%, driven by strength in wireless backhaul across a broad set of Tier 1 OEMs.

Relatedly in Q1, we announced the industry’s first and only CMOS radio transceiver enabling channel aggregation functionality for the wireless backhaul market that enables multi-gigabit wireless backhaul links over licensed microwave spectrum.

We also announced the 5-gigabit per second 16K QAM-based microwave modem SoC supporting the highest throughput bit rate for microwave point-to-point wireless transport for the 5G wireless world.

In optical, the continued slowness in the Chinese metro optical market has had a knock-on effect with regards to delays in the ramps of our new TIA and driver design wins. Optical remains an exciting future growth opportunity for MaxLinear, with the previously noted excitement related to our PAM-4 DSP cloud data center solution.

Lastly, our industrial and multimarket revenues decreased 5% sequentially to 22% of overall revenue driven primarily by ramp down in touch-sensor products for the handset market.

We are encouraged by the market reaction on recently announced universal PMIC devices being deployed on low-power FPGA and compute platform, such as the Raspberry Pi platform. We are excited with the diverse set of opportunities these products serve.

We continue to expand our high-performance analog road map at this large and diverse end markets by entering new platforms as well as increasing the silicon BOM content on our existing platforms. Before turning the call over to Adam Spice, our CFO, I would like to extend my deep and heartfelt gratitude for Adam.

He has been an invaluable colleague and partner in our 70-year plus journey of transforming MaxLinear from a fledgling and nascent IPO company, generating less than $100 million in revenues in 2010 to 1 with 7x the revenues in 2017.

Even more importantly, he has been integral to evolving our strategic road map from a consumer and broadband operator market-focused company to one that is well on its way to becoming a broad-based high-frequency analog and mixed signal SoC leader, also interestingly extremely large wireless wireline network infrastructure and industrial multi-markets.

As we make solid progress towards hiring a very capable new CFO to succeed Adam, we’re grateful to Adam for helping us in this transition period. We wish him all the best and we will miss him very dearly. With that, let me turn the call over to Mr. Adam Spice, our Chief Financial Officer, for a review of the financials and our forward guidance..

Great. Thank you, Kishore. I will first review our Q1 2018 results and then further discuss our outlook for Q2 2018. On revenue of $110.8 million, GAAP and non-GAAP gross margins for the first quarter were approximately 56.5% and 64.9% of revenue, respectively.

This compares to GAAP gross margin guidance of 55% and non-GAAP gross margin guidance range of 63%. The overage relative to GAAP and non-GAAP guidance was due to more favorable product mix than expected and reversal of a rebate accrual on a legacy connected home platform.

The delta between GAAP and non-GAAP gross margins in the first quarter was primarily acquisition-related reflecting the amortization of $9 million of purchased intangible assets and $200,000 of stock-based compensation and stock-based bonus accruals and $100,000 in depreciation of stepped-up acquired fixed assets.

Q1 GAAP operating expenses were approximately $58.2 million, which was $700,000 above the GAAP guidance, with the overage primarily related to the prototyping expenses for our remote PHY full duplex cable infrastructure chip previously referenced by Kishore.

GAAP operating expenses included stock-based compensation accruals related to our stock-based bonus plan of $8.4 million and $2.2 million respectively, amortization of purchased intangible assets of $8 million, and $300,000 in depreciation related to a step-up in acquired fixed assets.

Payouts under our 2018 performance bonus plan, if earned, are expected to be settled primarily in shares of MaxLinear stock, which are expected to be issued in Q1 2019.

Non-GAAP operating expenses was $39.3 million, slightly below our prior guidance of $39.5 million and up approximately $1 million sequentially due to the previously referenced prototyping expenses related to our remote PHY full duplex cable infrastructure chip.

Rounding out our commentary on operating expenses, at the end the first quarter 2018, our headcount was 757 compared to 753 at the end of the fourth quarter of 2017.

We continue to evaluate our staffing levels globally, particularly following our recent acquisition activity to strike a balance between driving near-term operating leverage and staffing key long-term growth initiatives.

Moving to the balance sheet and cash flow statement, our cash, cash equivalents and our restricted cash balance decreased $17.1 million to approximately $57.3 million. Our ending cash position reflects the effect of $25 million in debt prepayment during the quarter towards our term loan.

This brought the total prepayments to $95 million through the end of Q1 2018 and our loan balance down to approximately $330 million. Our cash flow generated from operating activities in the first quarter 2018 was approximately $12 million versus $21.7 million generated in the fourth quarter of 2017.

The sequential decline in cash flow generated from operating activities was largely attributable to the revenue linearity in the quarter and the quarter-end following over a Singapore bank holiday, which stranded cash receipts over the quarter boundary.

Relatedly, cash collections have rebounded strongly thus far in Q2 enabling a further $18 million in debt repayments quarter-to-date in Q2. We continue to focus on de-leveraging aggressively and are comfortable with the new cash balance target of approximately $60 million.

Our days sales outstanding for the first quarter was approximately 75 days or 22 days more than the prior quarter, which is a function of the high quarter-end AR balance.

Our inventory turns decreased to 3.9 turns in the first quarter compared to 4.2 turns in the fourth quarter and are a focus of our ongoing Exar integration efforts to better align with MaxLinear’s target model of approximately 6 inventory turns. That leads me to our guidance.

We currently expect revenue in the second quarter of 2018 to be approximately $100 million to $110 million.

We expect connected home revenues to decrease approximately 8% to 10% sequentially and account for roughly 57% of overall revenue; infrastructure to decline approximately 7% and represent 18% of our overall revenues; and industrial and multi-market to increase approximately 5%, contributing approximately 25% of overall revenues.

Within connected home, we are expecting relative stability in cable data and strength in both cable satellite – sorry, satellite gateway and G.hn connectivity offset by weakness in Terrestrial TV tuners and MoCA connectivity.

Within infrastructure, we expect double-digit growth to continue in wireless infrastructure on the back of a particularly strong Q1, modest sequential increases in the last mile access offset by continued weakness in China optical, which is exacerbated by the ZTE shipment ban, with the ZTE shipment ban also contributing to weakness in – more broadly in power management and interface products within our infrastructure as well as in industrial and multi-market segments.

The overall impact of the ZTE shipment ban to our revenues is estimated to be about $5 million in 2018.

Within industrial and multi-market, we expect a modest sequential increase as growth in PMICs for entry level compute platforms and interface solutions offset softness in our touch-sensor solutions and handsets and the previously referenced ZTE shipment ban effect.

We expect second quarter GAAP gross profit margins to be approximately 54.5% of revenue and non-GAAP gross profit margins to be approximately 63.5% of revenue. As a reminder, our gross profit margin percentage forecast could vary plus or minus 2%, depending on product mix and other factors.

We continue to fund strategic development programs targeted at delivering attractive top line growth as we look forward into the first half of 2018 and beyond, with particular focus on infrastructure initiatives and our goal of increasing the operating leverage in the business.

As such, we expect Q2 2018 GAAP operating expenses to decrease approximately $1.2 million quarter-on-quarter to approximately $57 million, with large decrease coming from lower mass spending, professional fees and payroll.

We expect Q2 2018 non-GAAP operating expenses to be down $1.3 million sequentially to $38 million, consistent with the GAAP expense trends. We expect GAAP tax expenses to be approximately $500,000 in the quarter and a non-GAAP tax rate of 7%. We expect interest and other expenses in the quarter to be $3.8 million.

In closing, Q1 2018 represents – our results reflect a quarter in which we faced a slight decline in the top line, but managed tight controls and operating expenses and continued to follow through on our commitment to aggressive de-leveraging.

Despite current choppiness to our near-term outlook, we’re as encouraged as we’ve ever been by the growing diversity and depth of our product portfolio as well as the continued execution that our company has demonstrated.

We believe MaxLinear’s shareholders are uniquely positioned to benefit from a diversified set of technologies, enabling greater data capacity across consumer, connected home, wired and wireless infrastructure networks and the diverse growing demand for high-performance analog and mixed signal solutions across industrial, automotive and multi-market applications.

Lastly, this is my final earnings call with MaxLinear, and I’d like to take this opportunity to express my sincere appreciation and thanks for the constructive relationships developed over the last 7 years with many of those on the call. And I wish MaxLinear, and all of you, the best and continued success in the future.

And with that, I would like to open the call to questions.

Operator?.

[Operator Instructions] Our first question is with Tore Svanberg with Stifel. Please proceed with your question..

Yes, thank you. First question is on the guidance for Q2 specifically and related to connected home, I believe you mentioned both MoCA and the tuner business coming down sequentially.

What’s going on with MoCA there? Is this sort of some last time things? And what other prospects for MoCA beyond the June quarter?.

Hey, Tore, this is Kishore. What’s going on here is that we are seeing the MoCA transition from being a standalone product on DOCSIS 3.0 platforms to an integrated version where the – we only get close to about 50% of the overall ASP of what used to be our original MoCA product.

As a result, on the MoCA revenues, inside the home, we are seeing a contraction due to ASP reduction and also with the delay in the rollout of the new platforms submitted to telco operators towards the end of the year. You are seeing that the MoCA is showing a decline.

My expectation is that the decline in MoCA revenues in the latter half of 2018 will be stalled and we should start seeing some pickup inside the home connectivity as the telco operator hopefully starts ramping the revenues on the new platforms, but I do want to mention that MoCA is a very strategically important networking technology platform for the company.

It’s today manifesting inside the infrastructure market for last mile access. And as Adam mentioned in his guidance, we expect the last mile access revenues for the rest of the year to primarily grow on the back of MoCA-based c.LINK technologies, primarily in Asia.

So all-in-all, MoCA, as you look at it from a connected home versus a non-connected home market, it’s actually has got very healthy prospects in front of it.

And I also want to mention that there is a telco carrier that has adopted MoCA and that is going to be ramping revenues to the end of the year while there is a timing uncertainty on MoCA in terms of the connected home..

That’s very helpful.

And as my follow-up, Adam, could you talk about that the ASC 606, what type of an impact it had this last quarter and what you are expecting for next quarter, just kind of going through the math, so we are just going to have an apples-to-apples comparison?.

Yes. So 606, the adoption of 606, definitely it could have an impact. If you look at where we are heading kind of into Q1, we took a strategic direction to lean down the inventory in the channel at the end of Q4.

So if you look at – and I will get back to kind of an apples-to-apples comparison, but what we wanted to have is little inventory in the channel as possible ending the year because under the change, with any channel – any inventory that was in the distributor channel at the time would not be able to recognize revenue for it.

So, we basically – I want to think of it this way we took inventory down below where kind of customers and distributors would normally be sitting. So we leaned it down and then there was some channel refill in the first quarter.

Now if you want to get to and if you wanted just the absolute math there between – there was approximately an impact of about $13.3 million as a result of adopting 606 to our benefit in Q1.

Now if you think about looking at kind of normal levels, you would say that if we went back and looked at what the distributor inventory channel was, let’s say at the end of Q3 of 2017, which was kind of a normal level and then now compare that to where we ended Q1 and if you go back and look at the Q from Q3 2017, there was about $17 million in deferred revenue at that time.

And if you do an apples-to-apples comparison of the recount for what that would be at the end of March, you will note there is no longer deferred revenue on the new 606. It went from about $17 million to about $19 million. So, the net change is about $2 million in apples-to-apples comparison Q3 of last year to Q1 of this year.

And part of that is just related to the fact that we have got some new platforms that are beginning to ramp and you actually would have a little bit more kind of an inventory, a channel build, if you will, as we prepare for some of these newer ramps, but that’s really kind of the most, I think cogent way to explain the implication of 606 in Q1 and we do think it’s a Q1 phenomenon.

If you believe as we do that the inventory levels are back to their normal levels now at the end of Q1, then pretty much you have seen the effect of 606.

Going forward, it should be pretty much stasis, except for the fact that as you kind of grow and grow your business, then obviously relatively speaking, your inventory levels and your channel growth reflect the growth in your overall magnitude of revenues..

That’s helpful. I will step back in line. Thank you..

Our next question is with Ross Seymore with Deutsche Bank. Please proceed with your question..

Hi, guys. Not to be a terribly repetitive after what Tore just asked but the guidance is definitely weaker than The Street expected. You guys went through some of the moving parts in there.

But I guess what’s the ASC 606 assumption if anything is that negative or positive sequentially into the quarter and then what was surprising to you versus what The Street clearly expected heading into the second quarter?.

Yes. So, to answer the first part of your question, again, I think you can think of it this way, we essentially held off – so, if you look at the way we are recognizing revenue is last year before the adoption, we would have recognized revenue on sell-through, right.

So, we actually again stopped replenishing the channel as we have kind of gotten further and further into Q4 and so the benefit of that was it was kind of a snapback to refill the buffer levels of the distributors in Q1. And again, it’s a Q1 event. We don’t see any lingering effect in Q2.

I mean, we are back to kind of normal just the inventory channel level. So, you shouldn’t see any more effect of the adoption of 606 in our current view. Now what changed kind of the overall softness right now, again, we were in line with what we were expecting for Q1. We didn’t provide any guidance for Q2.

Obviously, The Street had a somewhat higher number. And I think if you look at what was likely the delta and expectations that The Street had going into the quarter versus where we ended up with our current guidance that we announced today, it’s probably more softness on the MoCA side than we were anticipating in the second quarter.

I think we were also – we had a couple of million dollars-ish of adjustment related to ZTE effect.

So, when you take kind of overall China softness and optical continuing, we have been bit more exacerbated by ZTE and ZTE affects multiple product lines across the company, we had MoCA step back more than we were expecting it to and a little bit more softness in the guide on the Terrestrial side of things because, normally, the first half of the year in Terrestrial is soft.

It’s usually a stronger second half business related to Chinese New Year and Christmas TV sales and so forth, but it’s just a little bit softer than we would normally have expected it to be in the Q2 period and that pretty much explains the primary delta. So I think you have got a few million dollars here and there.

You have got again a few million dollars related to the ZTE probably $2 million in aggregate. You have got perhaps a couple of million dollars of continued optical softness. You probably had a couple of million dollars of MoCA and those are really primary, I would say, weak points and tuners maybe another couple of million.

So there is a couple – there is like four buckets of roughly $2 million, $2 million from ZTE, $2 million from tuners, $2 million from MoCA, and then $2 million from China optical overall. I think that’s a rough reconciliation of kind of what has changed over the course of last few months. Kishore, do you want to – is there anything you....

No, I think that is absolutely correct. It’s a little bit of all these pieces and we also saw some softness in some satellite as well for North America. So if you add up those pieces, they are the familiar items. However, if you take them all in aggregate, they have added up to the delta.

I would argue between what The Street estimates are and where we are today. Having said that, like at the start of my remarks, we are really inundated with lots of new product design wins in our platforms that are expected to ramp and the timing uncertainties of those also affect how the guidance evolves.

And at this stage, while we are pretty excited about the design wins in all the new platforms, because these are infrastructure markets and they have long lead times and generally they’re sluggish in the way they start to ramp, we are still coming to sort of understanding how these markets work, but we are really excited about – all the backlog is finally picking up in a strong way.

It’s growing extremely strongly and we have got a number of design wins that are ramping very strongly right now. You can also argue that, that’s almost like three to four quarters later than we had expected originally. So, it’s just getting trained and tuned to the latest markets that we are entering..

I guess one last question for Adam. On the gross margin side, you mentioned that there was a one-time benefit in the first quarter.

Could you size that for us and I assume that goes away in the second quarter?.

Yes, roughly, call it about $2 million was roughly, I mean – about $2 million is the impact in Q1 of the rebate reversal..

And is that the only thing that’s leading the gross margin to come down sequentially in the second quarter guide?.

That’s a primary contributor to that. Yes. I mean, if you really look across the products, we are not seeing a lot of movement in the gross margin. It’s really a function of mix, right. So as long as there is not a significant mix change, then the only thing that really swung it, Q1 to Q2, is really that rebate reversal that was recognized in Q1..

Got it. Thank you..

Our next question is with Suji Desilva with ROTH Capital. Please proceed with your question..

Hi, Kishore. Hi, Adam. Adam, good luck in the new role there.

So, the OpEx reduction you were able to get in the guidance here, how much more opportunity is there from the integration of acquisitions?.

So Suji, I could answer that. As you have seen, there is one thing that we control is our spending, right. And we have always shown incredible discipline.

If you really look at how we have so smoothly managed to keep squeezing the OpEx without hampering our execution, I think we continue to improve on our OpEx tightening through the year and barring any tape-outs in Q4, which we know we have one already, but I think that if you subtract the tape-out out of the picture, you will see that the non-tape-out related expenses are going to be really trending downwards in this year and we are very happy because part of the decrease in the OpEx comes from the fact that for the last 3 years, we have been investing in infrastructure markets and pretty much primarily and all of those are coming to completion with the exception of one product that we will sample at the end of the year.

So I think the big part of those expenses, are getting behind us. So we are getting the benefit of those not as much from an integration process on the operations side, but much more on the – just the big R&D items behind us..

Okay.

And then on the smart home broadband, can you talk about the DOCSIS 3.1 ramp and your leverage to that? Would that be lumpy or is that something that should be a steady contributor to you guys as the year progresses?.

So actually, one of the items we did not cover in particular, because it’s kind of a stable base of revenue is our really strong presence in cable data markets. But actually, we are seeing a developing scenario. Normally, if you think about it, the Q2 period tends to be a peak cable operator window.

However, the DOCSIS 3.1 rollouts are delaying and they are – and it’s a very slow ramp that has started. As a result, there is some level of concern and anxiety that operators are switching over to more DOCSIS 3.1 and therefore the ordering patterns of DOCSIS 3.0 are slowing. So, I think – so there could be two net benefits out of it, right.

One is that they are where we see them they are today in terms of conversation we are having. The other thing is that, because we are switching to a new standard, there could certainly be a snapback increasing volume in DOCSIS 3.1 ramp and really sets in strongly towards the end of the year.

So, I really don’t want to get ahead of that expectation, because we want to see it to happen and then we will communicate that to you, but there is some upside potential for DOCSIS 3.1 ramp start towards the latter half of 2018..

Okay, that’s helpful color. Thanks, guys..

By the way before we jump into the next question, I just want to clarify it for Ross. So I got a little more data in the background, the effect of the rebate reversal in Q1 was actually $1.2 million, not $2 million. So $1.2 million is the correct number..

Our next question is with Quinn Bolton with Needham & Company. Please proceed with your question..

Hey, guys. Just I was hoping for a little bit more color or clarification on the infrastructure guidance. I think you said it’s going to be down 7% sequentially. In the script, I think you said the only part of the business that was going to be weak sequentially was optical and if I am correct, I think optical was less than $1 million in March.

So even if we want to weigh entirely, it doesn’t sound like that takes infrastructure down.

What else is down sequentially in infrastructure in Q2?.

So, the only real piece that’s – so yes, optical does go down a bit. So, the total optical revenue in Q1 was around $600,000ish in the quarter and so that’s going down. So it takes about $0.5 million step down, so it’s about $0.5 million sequential decline. Again, there wasn’t much to begin with, but there is some there.

The other more meaningful piece was some of the power management interface and video compression chips from the Exar acquisition, that are included in our infrastructure bucket, so there we have the impact also of ZTE as I mentioned in my prepared comments, so ZTE kind of factors in, in across multiple layers of that infrastructure business.

So, that’s part of the decline. It’s kind of mixed across different – few different areas. But if you think about it, there is a little bit of video compression weakness and then there is just kind of just miscellaneous pieces across that portfolio that came over.

That was pretty stable Q4 to Q1, but then it looks like it’s taken a bit of a step back in Q2..

Okay.

And it is probably the third or fourth quarter in a row where the out quarter guide has fallen below The Street consensus, you guys seem excited about the second half ramp, I mean, but do you call into question your forecasting or how do we get comfort about the second half ramp given sort of the recent history with the volatility in actual results kind of versus consensus estimates?.

It’s a very good question, Quinn. I do believe that there has been some disconnect with the estimates on The Street versus where we think we will be, but even within our own estimating process, we have developed some gaps. I think largely it is attributable to the fact that we’ve got multiple places in our business.

And so before the Exar acquisition are going in, our backlog would be pretty strong and then the transition in the business that’s happening from a backlog perspective entering the call. So I think that as the business becomes larger, estimating the details, we’re still working through it.

And I think that error we are rectifying, however, as long as there are new product ramps that we are dealing with, there is going to be some uncertainty on ramp and timing. So I think that, at this stage, at this point, we are as cognizant about it as you are and also we are also very hard on ourselves on why this keeps happening.

However, I think that this time we have better stock of the situation because we have to learn from the past. And our thinking is that really looking at it, if you look at Q2 guide and normally we don’t guide beyond that, but I just want to give some color.

I really believe that Q3 would look similar to Q2 in that range, though I don’t know the exact numbers, but we should start picking up revenue growth as we exit the year in a more meaningful way.

So I do think that we have had a hard look at it and we are working through it, but it’s just that when this revenue ramps there is uncertainty in the timing and the size of the ramp and then within our Terrestrial business and Exar business, we are seeing some volatility on certain products. So we definitely have to do a better job of it..

Great. And sorry not to sound too negative, but I just wanted to ask say about the infrastructure ramp that you guys talked about some of the new product design wins. It seems to me that the full duplex fiber node solution probably doesn’t ramp, I think the single M2M 4 platforms, again, probably doesn’t ramp.

So it seems like a lot of that ramp that you are looking for in infrastructure comes from the wireless infrastructure products. You are up 40% sequentially in March and other double-digit percentage sequentially in June. So you are already working up a strong base.

But is there any more color you can provide on some of those design wins that will keep growing off a pretty healthy base in wireless access and microwave backhaul?.

Yes. I think that the – on the wireless infrastructure, the wireless backhaul is really beginning to kick some steam now. And the big part is that finally our own organic development on microwave backhaul RF transceiver is picking up some momentum.

At the same time, a larger OEM who we had the design win in place in Europe, they are beginning to pickup more product right now because they are seeing some business momentum now.

It looks like there is some level of froth – or froth is the wrong word, some spontaneous growth coming back into the telecom market and wireless, maybe in preparation for 5G and we are seeing the benefits of that.

So I think there is more growth ahead, primarily of new revenues on the backhaul modems and there are microwave wireless backhaul RF transceivers. So we are feeling very good.

And we did announce, as you saw in the press release and in the script, about our partnership announcement with a major wireless OEM for our wireless backhaul solution, but there also predicates a strong engagement on the 5G wireless access in the future.

So you are right, really on the infrastructure, we are relying on wireless backhaul as a big driver. But secondly, we are also expecting growth to come up our last mile access primarily in the MoCA technology-based c.LINK product line in the Asian market. So we have got a number of design wins there and there begin to generate some money as well.

So I think those are the two you want to look out for. We wish we had optical lag going on in the telecoms side, but that’s a weakness now that we cannot count on.

And so if you move from the wireless infrastructure growth as a first layer of growth, the last mile access to the next layer of growth, the next timing layer in 2019 would be the PAM-4 DSP 4x100-gigabit products that we have announced and then announced – and demonstrated at the OFC, following which you will see a pickup in 5G wireless access hopefully at the end – to the latter half of 2019, 2020 and then cable fiber node.

So that’s the cadence. You really want to look at infrastructures as every 6 months, one new product starts ramping in the categories over the next 18 to 24-month window.

So, these markets are what they are and like we said in our script, we have got a strong base of connected home revenue that is allowing us to invest while it’s extremely profitable and we are also spawning new growth opportunities in the connected home through infrastructure investments in full duplex infrastructure that will spawn new activity in the platform side.

So I think all-in-all, we feel very excited. It always is the case that there is a lag behind the results and where we are in the design win pipeline..

Thank you, Kishore and good luck, Adam..

Our next question is with Christopher Rolland with Susquehanna International Group. Please proceed with your question..

Hey, guys. Thanks for the question and congrats, Adam. We will miss you. So DSOs and accounts receivable, I think you mentioned Singapore holiday and then also timing of customer orders. Maybe you could just breakout what the Singapore thing was, how much that actually hit receivables and then why so back-end loaded here. It seems like a really big jump.

Thanks..

Yes. So the Singapore bank holiday itself was probably around $7 million in the – or roughly around that $7 million in the quarter. Again, it was just a function of there was a Singapore bank holiday at the end of the quarter. So, we ended up collecting it shortly thereafter and we feel very good about where we are at on our agings.

We have really never had a problem with our agings. They still look very, very good. And again, like I mentioned in the prepared remarks, we had strong cash collections in April and early May, which allowed us to pay down an incremental $18 million. So we feel good about where we’re at there. It’s just kind of unfortunate timing.

As far as the back-end loaded, I can’t really answer that with a lot of great color because it seems like we’re trying to predict what your customer’s behavior is. Not to mention the fact that they held on to their payments that caused you to kind of crawl over the quarterly boundary.

I think each of our customers has their own kind of behavioral patterns and their own incentives for either kind of wanting to have more or less a product on their balance sheet and also the cash from their balance sheet.

So I can’t – it was just an odd quarter where kind of a couple of things came together and it resulted in a weird spike at the end of the quarter, but again, things normalized as we kind of progressed through Q2..

Okay.

And then as we look at connected home year-over-year perhaps you can just move us – kind of walk us through some of the moving parts here in terms of what the biggest segments were and what the biggest kind of disappointments are, what’s causing that drop? I mean is it mostly this move to DOCSIS 3.1 that didn’t happen as quickly as you thought or is it something related to digital channel stacking? I know that, that was an issue as we were moving from analog to digital.

Did that happen and did you get the share that you want? What are kind of the big chunky things that have created the kind of year-over-year drop?.

Yes. If you look at the biggest year-over-year drop is really in the connected home piece. The tuner piece is down pretty substantially, right.

So if you want to, the old saying, turn a sow’s ear into a silk purse, you can kind of look at the areas where we have had challenges in our connected home have been in the areas which really aren’t the long-term strategic focus for us.

So, if you are going to have weakness, those are the areas that are happening, so tuners, satellite gateway and then the discrete MoCA – less of the discrete MoCA, but more on the tuners and the satellite gateways.

So if you look at the amount of year-on-year decline, it’s been about this year – this time last year, tuners were approximately $10 million in the second quarter and that declined to around $3 million or so – and that’s built into our current guide. So you had about a $7 million year-on-year decline in that tuner business.

Again, the tuners ended up being our lowest gross margins. So as that drops off and gets replaced by other revenue, it’s actually beneficial to our gross margin mix. So again, that’s a little bit of a silver lining.

And then if you look at the other parts that have kind of fallen off a little bit more than perhaps we would have liked and kind of influenced the year-on-year compares also, the digital channel stacking, as you mentioned before, was running about, I would say about a little over kind of between $5 million and $6 million this time last year.

And now it’s running below $2 million. And so the question is what’s driving that? I think the main takeaway from that is again as Kishore mentioned North America satellite is having a hard time, right? They have got subscriber losses.

There has not been the availability of 4K content to drive the upper end or higher level deployments of this visual OTA use. But that said we have done very well in securing design wins and ramps outside of North America.

So actually, when we now start to look forward and again Kishore has said we don’t give guidance and we are not going to give guidance for Q3. I will say that right now, the way that we look at our digital stacking business, it should be a very healthy step up, Q2 to Q3.

So, the second half looks much better than the first half in the digital channel stacking and that’s not based on the recovery in North America as much as deployments in the rest of the world where we put our focus.

Now, also if you look at the tuner business, that also looks to take a pretty healthy step up in Q3 and even more – and then again in Q4, again, that’s more seasonally driven, right. So we have said before, the second half of our tuner business is the strongest time of the year for that business and this year looks to be no exception.

We are looking at more than doubling of Q2 to Q3 on the tuner side and then staying up and increasing even more in Q4. So, generally what I am saying is that the year-over-years have been tough, but right now, the forecast would indicate that some of those tough areas actually have some rebound to them in the second half of the year.

Do they get back to where they were last year? No, they don’t. But they get as far as like – if you want to consider in the last year, Q2 was the peak for those businesses I am referencing. It doesn’t get back to peak levels, but it does start to increase sequentially. So, that’s the way we see the business now.

Again, I think there is a little bit of – there is a little ray of sunshine in there and the fact that these things kind of help our overall gross margin profile as we remix it with higher quality, higher margin kind of infrastructure and other connected home products, but we are going through that transition..

Got it. Thanks, Adam..

Our next question is with Tore Svanberg with Stifel. Please proceed with your question..

Yes. So I just had a follow-up question. And before I ask that question, I just wanted to thank you, Adam and good luck in your new venture there. So Kishore, you talk about design wins and infrastructure for the second half, but there is uncertainty on timing.

Could you at least rank for us where you feel relatively better as far as timing is on a lot of the new products?.

So, I feel – actually, I feel good about the design wins in the wireless backhaul, because they are all slated to start in the latter half of this 2018. The last mile access designs are done. They are primarily in China and Asia. There is always kind of timing uncertainty on those, because these are long time coming, but we do have the design wins.

And there are also design wins in G.Now, which is basically the last mile access using powerlines technologies and those are where we – and that is where we have more uncertainty given even though overall the G.hn technology platform is doing fantastic compared to last year. I mean, it’s going to be very sporadic growth this year.

I mean, we are talking about a business that falls in the $5 million range, getting in the range of $20 million, right.

So however, in the infrastructure space, there are designs wins, but G.Now at Korea Telecom in the Thailand operators and so on and so forth, where they have stalled taking product and I am just wondering when those things come back.

So, I think these operator businesses are frothed with lumpiness and we still remain to see how the wireless telecom operators play, but still there is uncertainty on the last mile access related to G.Now or G.hn technology as we call it. And then there is some uncertainty in the China on the last mile access based on MoCA technology.

However, the wireless backhaul ones are in good place, in good standing and there is quite – there is reasonable upside in the wireless infrastructure backhaul. So, we are hopeful that, that will overcome many uncertainties in the last mile access going into the second half of this year..

Okay. And just one last question, optical now, I guess, is down to $100,000 or so.

Do you have any visibility at all on how that business progresses for the second half, obviously, excluding ZTE?.

So Tore, in my book, me as an operating manager, I consider that sort of noise on the telecom side right now. All the action is in the new designs and we are trying to secure those new designs and see if we can ramp this. But all-in-all, the telecom market is really going through a stalling process.

Whatever shipments people are taking are preexisting technologies. So therefore, we don’t see any big ramp coming whatsoever. And our new designs there are installed. Remember in that market, our designs were at ZTE and FiberHome. So ZTE is now out of the picture, so FiberHome is all what we are relying on.

So I would say that long-haul telecom, metro, right now, I don’t even pay anytime to sort of gauge the size of those revenues in the second half. I spend more time in the new products on the 45-gigabaud and 64-gigabaud markets and those are definitely a year or two away on the telecom side.

So I would say revenues wise, I wouldn’t want you to be overly interested in that relative to MaxLinear. And however on the datacenter side, I think we are very well positioned and that’s when the whole trajectory changes on the optical side..

That’s very helpful. Thank you..

Ladies and gentlemen, we have reached the end of our question-and-answer session and I would like to turn the call back over to Kishore Seendripu for closing remarks..

Thank you, operator. As a reminder, I want to let all participants and listeners know that we will be attending the Stifel 2018 Cross Sector Insight Conference on June 12 and the William Blair 38th Annual Growth Stock Conference on June 13. As always, we hope to see many of you there.

However, in closing, I once again want to thank you all for being such a robust participant in investor calls when Adam has been leading those investor calls. And I am personally very thankful for Adam for being such a great steward of MaxLinear’s transformation and his interactions with the investor base of MaxLinear. Thank you very much..

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation..