MaxLinear, Inc

Greetings and welcome to the MACS Linear Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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.

Thank you, Alicia. Good afternoon, everyone, and thank you for joining us on today's conference call to discuss MaxLinear's second quarter 2024 financial results. Today's call is being hosted by Dr. Kishore Sundripu, CEO, and Steve Litchfield, Chief Financial Officer and Chief Corporate Strategy Officer. After our prepared comments, we will take your questions. Our comments today include forward-looking statements within the meaning of applicable securities laws including statements relating to our guidance for the third quarter of 2024, including revenue, gap and non-gap gross margin, gap and non-gap operating expenses, gap and non-gap interest and other expense, and gap and non-gap 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, channel inventory turnover, new products, including the timing of production launches of such products, demand for and adoption of certain technologies, our total addressable market, the effects of cost reduction measures. These forward-looking statements involve substantial risk and uncertainties, including risks outlined in our risk factor section of our recent SEC filings, including our Form 10Q for the quarter ended June 30, 2024, which we filed today. Any forward-looking statements are made as of today, and MaxLinear has no obligation to update or revise any forward-looking statements. The second quarter 2024 earnings release is available in the investor relations section of our website at maxlinear.com. In addition, we will report certain historical financial metrics, including but not limited to gross margin, operating margin, operating expenses, and interest in other expense on both 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 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 replay will be available on our website for two weeks. And now, let me turn the call over to Dr. Kishore Sindhiput, CEO of MaxLinear. Kishore?

Thank you, Leslie, and good afternoon, everyone. Our Q2 revenues were $92 million with a non-gap gross margin of 60.2%. In our infrastructure and market, we continue to make good progress with design interaction optical data center, as well as wireless access and backhaul products. We are on track to exceed the high end of our expected optical revenue target range of $10 to $30 million for 2024. We are disappointed by the weakness in our broadband demand due to the prolonged burn-off of the excess customer inventory buildup during the supply chain crisis. We are also seeing continued softness in our telecom markets with added pressure from U.S.-China tensions and regulatory compliance requirements. This is impacting our ability to make shipments, which affects our Q2 results and Q3 guidance. Despite the discouragingly slower business recovery than anticipated, multiple factors give us confidence that we are well-positioned to resume growth in 2025. Owing to our concerted R&D spend over the last three years, we have launched several new products in high-value markets, including optical data center interconnect, enterprise Ethernet and storage accelerators, 5G wireless, multi-gigabit PON broadband access, and Wi-Fi 7 connectivity. These products not only open significant new TAM, but are now poised to drive a sustained cycle of revenue growth for the next several years. As a result, we expect strong profitability growth as these products ramp, and our large R&D investment spend starts to moderate considerably. Additionally, even though demand in our primary markets remains weak, channel inventory continues to come down and is expected to bottom in the second half of the year. Our sell-through revenues continue to run above our sell-in revenues, and we have seen meaningful improvements in our bookings for four quarters in a row, along with both expedites and orders within lead times for certain parts. Now, turning to our markets, our infrastructure business, particularly high-speed optical interconnect, remains exciting today. where we are solidly positioned to exceed $30 million in revenue this year and to deliver meaningful run rate growth in 2025. We expect to be in production in the second half of the year with one of our lead data center customers and are progressing well through qualification with others. We are on track to deliver our Rushmore family of 200 gigabit per lane PAM430s and DSPs in time for the early market adopters of 1.6 terabits per second data speeds. Built on Samsung's leading-edge CMOS, Rushmore delivers best-in-class power consumption and performance across optical transceivers, active optical cables, and active electrical cables. Rushmore not only solidifies our long-term optical data center market competitiveness, but will also significantly grow our revenue over the next several years. Industry estimates currently forecast 50% compounded annual growth rate for PAMFOR market shipments through 2027. In 5G wireless infrastructure, revenue grew strongly in Q2 versus the prior quarter in the face of a continuing difficult environment for service provider capital expenditure spend. This growth was driven by hybrid microwave and millimeter wave backhaul technologies that are required to support the increasing transport data rates needed in a slowly but definitely densifying 5G network. We continue to believe wireless access and backhaul can be a $200 million product line over the next three to five years. Also, within our infrastructure revenues, our Panther 3 Series hardware storage accelerators for the enterprise all-flash array and hybrid storage enterprise appliance systems is providing exciting incremental growth opportunities, particularly in light of the growth in high-speed computing and AI. We are currently in production with a large enterprise OEM and expect additional product ramps later this year with continued growth in 2025 and beyond. In Ethernet connectivity, we continue to expand TAM for our 2.5 gigabit Ethernet product family in Q2 with the announcement of 7 and 10 port switches and 8 port 5s for the enterprise and small and medium business switch markets. Our Tier 1 North American Enterprise OEM customer is expected to ramp to production mid-2025 and contribute to significant Ethernet revenue growth next year. We believe our Ethernet business, including gateways and routers, could reach $100 million run rate over the next 18 to 24 months. Shifting to the broadband front, we are focused on PON for new-time growth in broadband and are excited by the design interaction for our platform based on our single-chip integrated fiber PON and 10-gigabit processor gateway SOC, coupled with our tri-band Wi-Fi 7 single-chip solution. We have multiple promising ongoing engagements currently, including a second tier of a North American carrier, which we believe can become a major opportunity for us in 2025 and 2026. In conclusion, we are excited and confident in our progress in the infrastructure market with our wireless and optical interconnect products, even as we await broadband recovery. In addition, our Ethernet, storage, Wi-Fi 7, FiberPond, Gateway products are all in the market today and are addressing additional new TAM. They have strong customer traction and are poised for meaningful growth. We are optimizing our efforts around these opportunities, which will be transformative for our future business while driving maximum value for our customers and shareholders. With that, let me now turn the call over to Steve Litchfield, our Chief Financial Officer and Chief Corporate Strategy Officer. Steve? Thank you, Kishore.