MAXLINEAR, INC. 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 radio-frequency, or RF, high-performance analog, and mixed-signal communications systems-on-chip solutions for the connected home, wired and wireless infrastructure, and industrial and multi-market applications. We are a fabless integrated circuit design company whose products integrate all or substantial portions of a broadband communication system. In most cases, these products are designed on a single silicon-die, using standard digital CMOS processes and conventional packaging technologies. We believe this enables our solutions to achieve superior power, performance, and cost advantages 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 end market electronic devices incorporating our products include cable DOCSIS broadband modems and gateways; wireline connectivity devices for in-home networking applications; RF transceivers and modems for wireless carrier access and backhaul infrastructure; fiber-optic modules for data center, metro, and long-haul transport networks; video set-top boxes and gateways; hybrid analog and digital televisions, direct broadcast satellite outdoor and indoor units; and power management and interface products used in these and a range of other markets.
We combine our high-performance RF and mixed-signal semiconductor design skills
with our expertise in digital communications systems, software, high-performance
analog, and embedded systems to provide highly integrated semiconductor devices
and platform-level solutions that are manufactured using a range of
semiconductor manufacturing processes, including low-cost complementary metal
oxide semiconductor, or CMOS, process technology, Silicon Germanium,
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wins with device manufacturers, in particular manufacturers of set-top boxes, data modems, and gateways for the broadband service provider and Pay-TV industries, manufacturers selling into the smartphone market, storage networking market, cable infrastructure market, industrial and automotive markets, and optical module and telecommunications infrastructure markets. Products shipped toAsia accounted for 84%, 81% and 89% of net revenue during the years endedDecember 31, 2019 , 2018 and 2017, respectively, including 60%, 63% and 71%, respectively, from products shipped toChina . Although a large percentage of our products is shipped toAsia , we believe that a significant number of the systems designed by these customers and incorporating our semiconductor products are then sold outsideAsia . For example, revenue generated from sales of our cable modem products during the years endedDecember 31, 2019 , 2018 and 2017 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 inUnited 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 endedDecember 31, 2019 , one of our direct customers, CommScope, 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. In the year endedDecember 31, 2018 , Commscope accounted for 18% of our net revenue, and our ten largest customers collectively accounted for 61% of our net revenue, of which distributor customers comprised 29% of our net revenue. In the year endedDecember 31, 2017 , Commscope accounted for 25% of our net revenue, and our ten largest customers collectively accounted for 58% of our net revenue, of which distributor customers comprised 9% 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 semiconductors 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 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. Critical Accounting Policies and Estimates Management's discussion and analysis of our financial condition and results of operations is based upon our financial statements which are prepared in accordance with accounting principles that are generally accepted inthe United States . The preparation of these 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 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 revenue recognition, inventory valuation, income taxes and stock-based compensation. 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. We believe that the following accounting policies involve a greater degree of judgment and complexity than our other accounting policies. Accordingly, these are the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations. Revenue Recognition OnJanuary 1, 2018 , we adoptedFinancial Accounting Standards Board , or FASB, Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, or ASC 606, using the modified retrospective method and accordingly, modified our policy on revenue recognition as stated below. The primary impact of adopting ASC 606 forMaxLinear was to accelerate the timing of our revenue and related cost recognition on products sold via some of our distributors, which changed from recognition upon the sale to our distributors' end customers, or the sell-through method, to recognition upon our sale to the distributor, or the sell-in method. We are also required to estimate the effects of pricing credits to our distributors from 43
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contractual price protection and unit rebate provisions, as well as stock rotation rights and record such estimated credits upon our sale to the distributor. As a result of the adoption of ASC 606 as ofJanuary 1, 2018 using the modified retrospective method, prior period amounts were not adjusted to reflect the change in revenue recognition for such distributor sales. Substantially all of our revenue is generated from sales of our integrated circuits to electronics distributors, module makers, OEMs, and ODMs under individual customer purchase orders, some of which have underlying master sales agreements that specify terms governing the product sales. EffectiveJanuary 1, 2018 , we adopted ASC 606 and recognize revenue at the point in time when control of the products is transferred to the customer at the estimated net consideration for which collection is probable, taking into account our customer's rights to price protection, other pricing credits, unit rebates, and rights to return unsold product. Transfer of control occurs either when products are shipped to or received by the distributor or direct customer, based on the terms of the specific agreement with the customer, if we have a present right to payment and transfer of legal title and the risks and rewards of ownership to the customer has occurred. For most of our product sales, transfer of control occurs upon shipment to our distributor or direct customer. In assessing whether collection of consideration from a customer is probable, we consider the customer's ability and intention to pay that amount of consideration when it is due. Payment of invoices is due as specified in the underlying customer agreement, typically 30 days from the invoice date, which occurs on the date of transfer of control of the products to the customer. Since payment terms are less than a year, we have elected the practical expedient and do not assess whether a customer contract has a significant financing component. A five-step approach is applied in the recognition of revenue under ASC 606: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when we satisfy a performance obligation. We applied ASC 606 to our customer contracts that were not completed before theJanuary 1, 2018 adoption date. Customer purchase orders plus the underlying master sales agreements are considered to be contracts with the customer for purposes of applying the five-step approach under ASC 606. Pricing adjustments and estimates of returns under contractual stock rotation rights are treated as variable consideration for purposes of determining the transaction price, and are estimated at the time control transfers using the expected value method based on our analysis of actual price adjustment claims by distributors and product and historical return rates, and then reassessed at the end of each reporting period. We also consider whether any variable consideration is constrained, since such amounts for which it is probable that a significant reversal will occur when the contingency is subsequently resolved are required to be excluded from revenues. Price adjustments are finalized at the time the products are sold through to the end customer and the distributor or end customer submits a claim to reduce the sale price to a pre-approved net price. Stock rotation allowances are capped at a fixed percentage of our sales to a distributor for a period of time, up to six months, as specified in the individual distributor contract. If our current estimates of such credits and rights are materially inaccurate, it may result in adjustments that affect future revenues and gross profits. Returns under our general assurance warranty of products for a period of one to three years have not been material and warranty-related services are not considered a separate performance obligation under the customer contracts. Most of our customers resell our product as part of their product and thus are tax-exempt, however to the extent we collect and remit taxes on product sales from customers, we have elected to exclude from the measurement of transaction price such taxes. Each distinct promise to transfer products is considered to be an identified performance obligation for which revenue is recognized upon transfer of control of the products to the customer. Although customers may place orders for products to be delivered on multiple dates that may be in different quarterly reporting periods, all of the orders are scheduled within one year from the order date. We have opted to not disclose the portion of revenues allocated to partially unsatisfied performance obligations, which represent products to be shipped within 12 months under open customer purchase orders, at the end of the current reporting period as allowed under ASC 606. We have also elected to record sales commissions when incurred, pursuant to the practical expedient under ASC 340, as the period over which the sales commission asset that would have been recognized is less than one year. Customer contract liabilities consist of obligations to deliver rebates to customers in the form of units of products, which are included in accrued expenses and other current liabilities in the consolidated balance sheets. Other obligations to customers consist of estimates of price protection rights offered to our end customers, which are included in accrued price protection liability in the consolidated balance sheets, as well as price adjustments expected to be claimed by the distributor upon sell-through of the products to their customers, and amounts expected to be returned by distributors under stock rotation rights, which are included in accrued expenses and other current liabilities in the consolidated balance sheets. We also record a right of return asset consist of amounts representing the products we expect to receive from customers in returns, which is included in inventory in the consolidated balance sheets, and is typically settled within six months of transfer of control to the customer, or the period over which stock rotation rights are based. Upon lapse of the time period for stock rotations, or the contractual end 44
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to price protection and rebate programs, which is approximately one to two years, and when we believe unclaimed amounts are no longer subject to payment and will not be paid, any remaining asset or liability is derecognized by an offsetting entry to cost of net revenue and net revenue. For additional disclosures regarding contract liabilities and other obligations to customers, see Note 15 to our consolidated financial statements. We assess customer accounts receivable and contract assets for impairment in accordance with ASC 310-10-35. Inventory Valuation We assess the recoverability of our inventory based on assumptions about demand and market conditions. Forecasted demand is determined based on historical sales and expected future sales. Inventory is stated at the lower of cost or net realizable value. Cost is computed using standard cost, which approximates actual cost on a first-in, first-out basis and net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. We reduce our inventory to its lower of cost or net realizable value on a part-by-part basis to account for its obsolescence or lack of marketability. Reductions are calculated as the difference between the cost of inventory and its net realizable value based upon assumptions about future demand, market conditions and costs. Once established, these adjustments are considered permanent and are not revised until the related inventory is sold or disposed of. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required that may adversely affect our operating results. If actual market conditions are more favorable, we may have higher gross profits when products are sold. Production Masks Production masks with alternative future uses or discernible future benefits are capitalized and amortized over their estimated useful life of two years to five years. To determine if the production mask has alternative future uses or benefits, we evaluate risks associated with developing new technologies and capabilities, and the related risks associated with entering new markets. Production masks that do not meet the criteria for capitalization are expensed as research and development costs.Goodwill and Intangible AssetsGoodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations accounted for under the acquisition method. Intangible assets represent purchased intangible assets including developed technology and in-process research and development, or IPR&D, technologies acquired or licensed from other companies, customer relationships, noncompete covenants, backlog, and trademarks and tradenames. Purchased finite-lived intangible assets are capitalized and amortized over their estimated useful lives. Technologies acquired or licensed from other companies, customer relationships, noncompete covenants, backlog, and trademarks and tradenames are capitalized and amortized over the lesser of the terms of the agreement, or estimated useful life. We capitalize IPR&D projects acquired as part of a business combination. On completion of each project, IPR&D assets are reclassified to developed technology and amortized over their estimated useful lives. Impairment ofGoodwill and Long-Lived AssetsGoodwill is not amortized but is tested for impairment using either a qualitative assessment, and/or the two-step method as needed. Step one is the identification of potential impairment. This involves comparing the fair value of each reporting unit, which we have determined to be the entity itself, with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds the carrying amount, the goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the impairment test is performed to measure the amount of impairment loss, if any. We test by reporting unit, goodwill and other indefinite-lived intangible assets for impairment atOctober 31 each year or more frequently if we believe indicators of impairment exist. During development, IPR&D is not subject to amortization and is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. We review indefinite-lived intangible assets each year for impairment using a qualitative assessment, followed by a quantitative assessment, as needed, each year as ofOctober 31 , the date of our annual goodwill impairment review, or whenever events or changes in circumstances indicate the carrying value may not be recoverable. Recoverability of indefinite-lived intangible assets is measured by comparing the carrying amount of the asset to its fair value. In certain cases, we utilize the relief-from-royalty method when appropriate, and a fair value will be obtained based on analysis over the costs saved by owning the right instead of leasing it. Once an IPR&D 45
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project is complete, it becomes a finite-lived intangible asset and is evaluated for impairment both immediately prior to its change in classification and thereafter in accordance with our policy for long-lived assets. We regularly review the carrying amount of our long-lived assets subject to depreciation and amortization, as well as the useful lives, to determine whether indicators of impairment may exist which warrant adjustments to carrying values or estimated useful lives. An impairment loss would be recognized when the sum of the expected future undiscounted net cash flows is less than the carrying amount of the asset. Should impairment exist, the impairment loss would be measured based on the excess of the carrying amount of the asset over the asset's fair value. Income Taxes We provide for income taxes utilizing the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. Deferred taxes are presented net as noncurrent. The provision for income taxes generally represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from the differences between the financial and tax bases of our assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when a judgment is made that is considered more likely than not that a tax benefit will not be realized. A decision to record a valuation allowance results in an increase in income tax expense or a decrease in income tax benefit. If the valuation allowance is released in a future period, income tax expense will be reduced accordingly. The calculation of tax liabilities involves dealing with uncertainties in the application of complex global tax regulations. The impact of an uncertain income tax position is recognized at the largest amount that is "more likely than not" to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. If the estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense would result. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We continue to assess the need for a valuation allowance on the deferred tax asset by evaluating both positive and negative evidence that may exist. Any adjustment to the net deferred tax asset valuation allowance would be recorded in the income statement for the period that the adjustment is determined to be required. OnDecember 22, 2017 , the Tax Cuts and Jobs Act, or the Tax Act, was enacted intoU.S. tax law. In 2018, we made an accounting policy election to treat Global Intangible Low Taxed Income in accordance with the Tax Act as a period cost. Stock-Based Compensation We measure the cost of employee services received in exchange for equity incentive awards, including restricted stock units and restricted stock awards, employee stock purchase rights and stock options, based on the grant date fair value of the award. We calculate the fair value of restricted stock units and performance-based restricted stock units based on the fair market value of our common stock on the grant date. Stock-based compensation expense is then determined based on the number of restricted stock units that are expected to vest; for performance-based restricted stock units, this is the number of units that are expected to vest during the performance period if it is probable that we will achieve the performance metrics specified in the underlying award agreement. We use the Black-Scholes valuation model to calculate the fair value of stock options and employee stock purchase rights granted to employees. Stock-based compensation expense is recognized over the period during which the employee is required to provide services in exchange for the award, which is usually the vesting period. We recognize compensation expense over the vesting period using the straight-line method and classify these amounts in the statements of operations based on the department to which the related employee reports. We calculate the weighted-average expected life of options using the simplified method as prescribed by guidance provided by theSecurities and Exchange Commission . This decision was based on the lack of historical data due to our limited number of stock option exercises under the 2010 Equity Incentive Plan. We will continue to assess the appropriateness of the use of the simplified method as we develop a history of option exercises. Recently Adopted Accounting Pronouncements InFebruary 2016 , the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments in this update require a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of- 46
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use asset representing its right to use the underlying asset. For leases less
than twelve months, an entity is permitted to make an accounting policy election
by class of underlying asset not to recognize right-of-use assets and lease
liabilities. If a lessee makes this election, it should recognize lease expense
for such leases generally on a straight-line basis over the lease term. We have
made this election. Also, in
In
In
In
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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 endedDecember 31, 2018 compared to the year endedDecember 31, 2017 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 endedDecember 31, 2018 , filed with theSEC onFebruary 5, 2019 , which discussion is incorporated herein by reference and which is available free of charge on theSEC's website at www.sec.gov. Net Revenue. Net revenue is generated from sales of radio-frequency, analog and mixed-signal integrated circuits for the connected home, wired and wireless infrastructure, and industrial and multi-market applications. A significant portion of our sales are to distributors, which 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 intangible assets and inventory step-ups to fair value; amortization of certain production mask 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, 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 acquired intangible assets. Restructuring Charges. Restructuring charges consist of severance, lease and leasehold impairment charges, and other charges related to restructuring plans. 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 tax expense 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. 49
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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:
Years Ended December 31,
2019 2018
Net revenue 100 % 100 %
Cost of net revenue 47 46
Gross profit 53 54
Operating expenses:
Research and development 31 31
Selling, general and administrative 28 26
Impairment losses - 1
Restructuring charges 1 1
Total operating expenses 60 59
Loss from operations (7 ) (5 )
Total interest and other income (expense), net (3 ) (4 )
Loss before income taxes (10 ) (9 )
Income tax benefit (4 ) (2 )
Net loss (6 )% (7 )%
Net Revenue
Year Ended December 31, % Change
2019 2018 2019
(dollars in thousands)
Connected home $ 152,674 $ 207,336 (26 )%
% of net revenue 48 % 54 %
Infrastructure 85,369 82,388 4 %
% of net revenue 27 % 21 %
Industrial and multi-market 79,137 95,273 (17 )%
% of net revenue 25 % 25 %
Total net revenue $ 317,180 $ 384,997 (18 )%
Net revenue decreased
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Cost of Net Revenue and Gross Profit
Year Ended December 31, % Change
2019 2018 2019
(dollars in thousands)
Cost of net revenue $ 149,495 $ 176,223 (15 )%
% of net revenue 47 % 46 %
Gross profit 167,685 208,774 (20 )%
% of net revenue 53 % 54 %
Cost of net revenue decreased
Year Ended December 31, % Change
2019 2018 2019
(dollars in thousands)
Research and development $ 98,344 $ 120,046 (18 )%
% of net revenue 31 % 31 %
Research and development expense decreased
Year Ended December 31, % Change
2019 2018 2019
(dollars in thousands)
Selling, general and administrative
28 % 26 %
Selling, general and administrative expense decreased
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Impairment Losses
Year Ended December 31, % Change
2019 2018 2019
(dollars in thousands)
Impairment losses $ - $ 2,198 (100)%
% of net revenue - % 1 %
Impairment losses decreased $2.2 million to $0 for the year ended December 31,
2019 , compared to $2.2 million for the year ended December 31, 2018 . Impairment
losses in 2018 related to acquired developed technology of Exar .
Restructuring charges
Year Ended December 31, % Change
2019 2018 2019
(dollars in thousands)
Restructuring charges $ 2,636 $ 3,838 (31)%
% of net revenue 1 % 1 %
Restructuring charges decreased $1.2 million to $2.6 million for the year ended
December 31, 2019 , compared to $3.8 million for the year ended December 31,
2018 .
Restructuring charges in 2019 primarily consisted of lease restructuring charges
of $1.3 million related to exiting certain redundant facilities and
severance-related charges of $1.2 million in connection with employee separation
expenses.
Restructuring charges in 2018 primarily consisted of severance-related charges
of $2.1 million in connection with employee separation expenses and lease
restructuring charges of $1.6 million related to exiting certain redundant
facilities.
Interest and Other Income (Expense)
Year Ended December 31, % Change
2019 2018 2019
(dollars in thousands)
Interest and other income (expense), net
(3 )% (4 )%
Interest and other income (expense), net changed by
Year Ended December 31, % Change
2019 2018 2019
(dollars in thousands)
Income tax benefit
39 % 20 %
The income tax benefit for the year ended
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The income tax benefit for the year endedDecember 31, 2018 primarily related to a partial release of our valuation allowance and the mix of pre-tax income among jurisdictions, excess tax benefits related to stock-based compensation, and release of uncertain tax positions under ASC 740-10. Liquidity and Capital Resources As ofDecember 31, 2019 , we had cash and cash equivalents of$92.7 million , restricted cash of$0.4 million , and net accounts receivable of$50.4 million . Additionally, as ofDecember 31, 2019 , our working capital was$115.2 million . Our primary uses of cash are to fund operating expenses, purchases of inventory, property and equipment, intangible assets, and from time to time, the acquisition of businesses. We also use cash to pay down outstanding debt. 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 stock-based compensation, amortization and depreciation of acquired intangible assets, leased right-of-use assets and property and equipment, and impairment of intangible assets and long-lived assets. Cash used to fund acquisitions of businesses and other capital purchases is included in investing activities in our consolidated statements of cash flows. Cash used to pay down outstanding debt is included in financing activities in our consolidated statements of cash flows. Our primary sources of cash are cash receipts on accounts receivable from our shipment of products to distributors and direct customers. 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. Our credit agreement, under which we entered into a term loan to partially fund our acquisition ofExar , permits us to request incremental loans in an aggregate principal amount not to exceed the sum of$160.0 million (subject to adjustments for any voluntary prepayments), plus an unlimited amount that is subject to pro forma compliance with certain secured leverage ratio and total leverage ratio tests. We have not requested any incremental loans to date. Following is a summary of our working capital, cash and cash equivalents, and restricted cash for the periods indicated: December 31, 2019 2018 (in thousands) Working capital$ 115,208 $ 110,044 Cash and cash equivalents$ 92,708 $ 73,142 Short-term restricted cash 349 645 Long-term restricted cash 60 404
Total cash and cash equivalents, restricted cash and investments
Following is a summary of our cash flows provided by (used in) operating
activities, investing activities and financing activities for the years ended
Years Ended December 31,
2019 2018
(in thousands)
Net cash provided by operating activities $ 78,348 $ 102,689
Net cash used in investing activities (6,973 ) (7,825 )
Net cash used in financing activities (53,383 ) (93,784 )
Effect of exchange rate changes on cash, cash
equivalents and restricted cash 934 (1,301 )
Increase (decrease) in cash, cash equivalents and
restricted cash $ 18,926 $ (221 )
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Cash Flows from Operating Activities Net cash provided by operating activities was$78.3 million for the year endedDecember 31, 2019 . Net cash provided by operating activities consisted of positive cash flow from operations including$101.1 million in non-cash expenses and$16.9 million in changes in operating assets and liabilities, partially offset by net loss of$19.9 million and deferred income taxes and excess tax benefits from stock-based compensation of$19.8 million . Non-cash items included in net loss for the year endedDecember 31, 2019 primarily included depreciation and amortization of property, equipment, intangible assets and leased right-of-use assets of$66.4 million and stock-based compensation of$32.1 million . During the year endedDecember 31, 2019 , we also exited certain leased facilities, which resulted in impairment of leased right-of-use assets of$9.2 million and leasehold improvements of$1.4 million , which was partially offset by a gain on extinguishment of related lease liabilities of$10.4 million , all of which are non-cash items that did not affect cash flows. Net cash provided by operating activities was$102.7 million for the year endedDecember 31, 2018 . Net cash provided by operating activities consisted of positive cash flow from operations including$100.3 million in non-cash operating expenses and$28.6 million in changes in operating assets and liabilities, partially offset by net loss of$26.2 million . Non-cash items included in net loss for the year endedDecember 31, 2018 primarily included depreciation and amortization of property, equipment and intangible assets of$79.0 million , stock-based compensation of$31.7 million , and impairment of intangible assets of$2.2 million , partially offset by deferred income taxes of$12.1 million and excess tax benefits on stock-based awards of$2.0 million . Cash Flows from Investing Activities Net cash used in investing activities was$7.0 million for the year endedDecember 31, 2019 . Net cash used in investing activities primarily consisted of$6.9 million in purchases of property and equipment. Net cash used in investing activities was$7.8 million for the year endedDecember 31, 2018 . Net cash used in investing activities consisted entirely of$7.8 million in purchases of property and equipment. Cash Flows from Financing Activities Net cash used in financing activities was$53.4 million for the year endedDecember 31, 2019 . Net cash used in financing activities consisted primarily of cash outflows from aggregate prepayments of principal of$50.0 million and$12.0 million in minimum tax withholding paid on behalf of employees for restricted stock units, partially offset by cash inflows of$8.6 million in net proceeds from issuance of common stock upon exercise of stock options. Net cash used in financing activities was$93.8 million for the year endedDecember 31, 2018 . Net cash used in financing activities primarily consisted of cash outflows from$93.0 million in aggregate prepayments of principal on outstanding debt and$7.6 million in minimum tax withholding paid on behalf of employees for restricted stock units, partially offset by cash inflows of$6.8 million in net proceeds from issuance of common stock upon exercise of stock options. We believe that our$92.7 million of cash and cash equivalents atDecember 31, 2019 will be sufficient to fund our projected operating requirements for at least the next twelve months. We have repaid$213.0 million of debt to date. The credit agreement permits the Company to request incremental loans in an aggregate principal amount not to exceed the sum of$160.0 million (subject to adjustments for any voluntary prepayments), plus an unlimited amount that is subject to pro forma compliance with certain secured leverage ratio and total leverage ratio tests. Incremental loans are subject to certain additional conditions, including obtaining additional commitments from the lenders then party to the credit agreement or new lenders. The term loan facility has a seven-year term and bears interest at either an Adjusted LIBOR or an Adjusted Base Rate, at our option, plus a fixed applicable margin. 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, inFebruary 2019 , we issued 0.3 million freely-tradable shares of our common stock in settlement of bonus awards for the 2018 performance period. We expect to implement a similar equity-based plan for fiscal 2019, but our compensation committee retains discretion to effect payment in cash, stock, or a combination of cash and stock. 54
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Notwithstanding the foregoing, we may need to raise additional capital or incur additional indebtedness to fund strategic initiatives or operating activities, particularly if we continue to pursue acquisitions. Our future capital requirements will depend on many factors, including our rate of revenue growth, 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. 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 ofDecember 31, 2019 , we were not involved in any unconsolidated SPE transactions. Contractual Obligations As ofDecember 31, 2019 , future minimum payments under long-term debt, non-cancelable operating leases, inventory purchase obligations and other obligations were as follows: Payments due Total Less than 1 year 1-3 years 3-5 years (in thousands) Long-term debt obligations$ 212,000 $ - $ -$ 212,000 Operating lease obligations 15,244 5,406 8,808 1,030 Inventory purchase obligations 15,093 15,093 - - Other obligations 7,500 5,735 1,318 447 Total$ 249,837 $ 26,234$ 10,126 $ 213,477
Other obligations consist of contractual payments due for software licenses.
Our consolidated balance sheet at
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