MaxLinear, Inc. (MXL) Earnings Call Transcript

Greetings, and welcome to the MaxLinear Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Leslie Green, Investor Relations. Please go ahead.

Thank you, Paul. Good afternoon, everyone, and thank you for joining us on today's conference call to discuss MaxLinear's second quarter 2026 financial results. Today's call is being hosted by Dr. Kishore Seendripu, CEO; and Steve Litchfield, Chief Financial Officer and Chief Corporate Strategy Officer. After our prepared comments, we will take questions. Our comments today include forward-looking statements within the meaning of applicable securities laws, including statements relating to our guidance for the third quarter of 2026, including revenue, GAAP and non-GAAP gross margins, GAAP and non-GAAP operating expenses, GAAP and non-GAAP interest and other expense, GAAP and non-GAAP income taxes and GAAP and non-GAAP diluted share count. In addition, we will make forward-looking statements relating to trends, opportunities, execution of our business plan and potential growth and uncertainties in various product and geographic markets, including, without limitation, statements concerning the future financial and operating results, opportunities for revenue and market share across target segments, new products, including the timing of production and launches of such products, demand for and adoption of certain technologies and our total addressable market. These forward-looking statements involve risks and uncertainties, including risks outlined in the Risk Factors section of our recent SEC filings, including our most recent annual report on Form 10-K and our Form 10-Q for the quarter ended June 30, 2026, 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 of 2026 earnings release is available in the Investor Relations section of our website at maxlinear.com. In addition, we report certain historical financial metrics, including, but not limited to, gross margin, income or loss from operations, operating expenses interest and other expense and income tax on both 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 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 the replay will be available on our website for 2 weeks. And now let me turn the call over to Dr. Kishore Seendripu, CEO of MaxLinear. Kishore?

Thank you, Leslie, and good afternoon, everyone. Our Q2 financial results highlight the exciting inflection in our business trajectory and the beginning of a multiyear growth phase for MaxLinear. Overall revenue grew 55% year-on-year, reflecting strong execution, accelerating adoption of our newest data center products, improving visibility and gathering momentum in our infrastructure portfolio. . With the improvement in profitability in the quarter, we also returned to positive GAAP EPS of $0.02. In addition, with a favorable product mix shift towards our infrastructure business, we are now forecasting Q3 2026 non-GAAP gross margin to be 60% at the midpoint of our guidance range as well as a substantial increase in our non-GAAP profitability. Infrastructure is now our largest revenue category and grew 145% year-on-year, driven by robust production ramps and optical data center oriented platforms. Based on robust customer orders and rising visibility of program ramps, we are once again raising our expectations for 2026 optical data center revenue to be between $210 million to $230 million, with continued growth as run rates expand into 2027. [indiscernible], our 100 gigabit per [indiscernible] on PAM4 DSP and CDs technology continues to ramp into high-volume production at major hyperscale customers. across U.S. and Asia for 400 gig and 800 gig deployments, delivering almost 40% lower consumption in power than competition. Keystone success serves as the foundation for multigenerational customer engagements that extend to the adoption of next-generation 1.6 terabit and 3.2 terabit optical scale-up and scale-out architectures at 200 and 400 gigabit per read speed, respectively. We expect Rush mode, our 1.6 terabit optical PAM-4 DSP at the gigabit per read speed to become an important optical connectivity growth driver beginning in 2027, which will layer on top of Keystone's successful ongoing ramp. Beyond our PAM4 service technology, we have comprehensively expanded our portfolio for optical and electrical scale-up and scale-out connectivity opportunities, including TIAs, drivers and onboard retimers. Together, these products support a broad range of data center architectures consisting of pluggable optics, LRO, LTO, NPO, NCPO providing customers with greater flexibility in the deployment of next-generation AI and cloud infrastructure using MaxLinear solutions. Washington, our stand-alone 200 gigabit per lane TIA platform not only pair seamlessly with rush mode, but it can also be deployed stand-alone in LPU and NPU implementations that do not require DSP. As the performance requirements for TIAs and drivers increased significantly at 200 and 400 gigabit per lane speed our deep SerDes expertise enables us to drive compelling performance advantages for such customer solutions. [indiscernible] our 200-gigabits per lane [indiscernible] platform targets 1.6 active electrical cable and onboard retailer requirements for scale-up in AI systems requiring low latency short-reach electrical interconnects within server racks and switches. [indiscernible] onboard retimer applications expand our presence into another critical layer of infrastructure. For both Aepona in Washington, we expect initial revenue in 2027, followed by a more meaningful volume ramp in 2028. Outside of optical, our first on hyperscale design win for dedicated data center control plane architectures has completed qualification for a 2027 ramp and beyond. Additionally, we have secured design wins for USB Big controllers at 2 major hyperscalers for AI rack management alongside our broader analog and power management portfolio. These wins broaden our engagement across the data center platform and strengthen our strategic positioning with key customers. Our Panther family of stones accelerators addresses CPU, memory and storage bottlenecks. We expect revenues from land that roughly double this year with the potential to nearly double again in '27. Outside the 12 data center, we expect edge AI-driven upgrades to 5G wireless RAN access and transport infrastructure to increase demand for our single CR, 5G radio SoC and our millimeter and microwave wireless backbone RF and [indiscernible] in solutions in the mid- to long term. Moving to broadband connectivity, both categories delivered revenue growth in Q2, driven by large-scale deployments of our single-chip fiber can and [indiscernible] platforms at major to service providers in North America and Europe. We're also in the early stages of ultra-dose 3.1 and 4.0 deployments which will provide additional stability to growth as ramps progress throughout '27 and '28. In summary, we are pleased with our first half performance and the momentum we have in our data center business Keystone has established MaxLinear as a proven high-volume, high-quality supplier of 400 gigabit and 100 gigabit PAM ports VSPs and service technology. At the same time, our Rushmore, Washington and Aaron active electrical cable and retimer platform, extend our reach into 1.6 terabit optical and next-generation AI infrastructure. With multiple revenue drivers layering on over the next 2 years we believe Maxim is exceptionally well positioned for sustained, transformative growth and increasing long-term shareholder value. With that, let me now turn the call over to Steve Litchfield, our Chief Financial Officer; and Chief Corporate Strategy Officer. Steve?

Thanks, Kishore. Total revenue for the second quarter was $168.8 million, up 23% from $137.2 million in the previous quarter and up 55% and the $108.8 million in the second quarter of 2025. Infrastructure revenue for the second quarter of '26 was approximately $85 million. Broadband revenue grew to approximately $45 million Connectivity revenue was approximately $24 million, and industrial and multimarket revenue was approximately $15 million. GAAP and non-GAAP gross margin for the second quarter were 57.8% and 59.5% of revenue. The delta between GAAP and non-GAAP gross margin in the second quarter was primarily driven by $2.5 million of acquisition-related intangible asset amortization. Second quarter GAAP operating expenses were $101.8 million and non-GAAP operating expenses were $62.8 million. The delta between GAAP and non-GAAP operating expenses was [indiscernible] primarily due to stock-based compensation and performance-based equity accruals of $36.5 million combined and acquisition-related costs and other costs of $2.2 million. GAAP loss from operations for Q2 was 2% and non-GAAP income from operations in Q2 was 22% of net revenue. GAAP and non-GAAP interest and other expense during the quarter was $2.4 million and $2.3 million, respectively. EPS for Q2 2026 was $0.02 per share, marking a return to GAAP profitability. Non-GAAP EPS was $0.35 per share. In Q2, net cash flow provided in operating activities was approximately $4.8 million. We exited Q2 of 2026 with approximately $93.7 million in cash, cash equivalents and restricted cash. This included a substantial prepayment of wafer supporting rising demand for our data center products for which we have increasing order backlog in the second half of the year and into 2027. Our days sales outstanding in Q2 was approximately 28 days versus 27 days in the previous quarter, and our days of inventory was down in the quarter from 128 days to 123 days. This concludes the discussion of our Q2 financial results. With that, let's turn to the guidance for Q3 of 2026. We currently expect revenue in the third quarter of $26 million to be between $210 million and $220 million. Looking at Q3 by end market, we expect to see growth from all 4 of our business segments with particular strength in infrastructure driven by data center optical interconnects. We expect third quarter GAAP gross margin to be approximately 57% to 60% and non-GAAP gross margin to be in the range of 58.5% and 61.5% of revenue. We expect Q3 2026 GAAP operating expenses to be in the range of $98 million to $104 million. We expect Q3 non-GAAP operating expenses to be in the range of $66 million to $71 million. We expect our Q3 GAAP and interest and other expense to be in the range of approximately $3.8 million to $4.2 million. We expect our Q3 non-GAAP and interest and other expense to be in the range of approximately $3.7 million to $4.1 million. We expect a $1.5 million tax provision on a GAAP basis and a non-GAAP tax provision of approximately $1 million. We expect our Q3 GAAP and non-GAAP diluted share count to be approximately $99 million each. In summary, our results this quarter reflect the continued strength of our optical products and the momentum we are seeing across multiple growth vectors within our infrastructure business. Our growth and innovation in this area has been transformational and and we believe we are in the early stages of a multiyear cycle characterized by revenue growth and expanding operating leverage. We're excited about the opportunities ahead and confident in our ability to create long-term shareholder value. With that, we'd like to open up the call for questions. Paul?

[Operator Instructions] Our first question is from Tore Svanberg with Stifel.

Yes. And congrats on the strong results. Kishore or Steve, you raised the optical transceiver revenue by more than EUR 50 million for this year. Could you talk a little bit about what's driving that? Maybe talk a little bit about the regional nature of that? And also if you could give us a sense for the mix between 400 gig and 800 gig.

Okay. Kishor, would you like to maybe take that one?

Yes. Tore, thank you. We're obviously very excited about the growing infrastructure business. and especially about our success with our ramps for 400 gig and 800 gigabit optical [indiscernible] business. So as we entered the year, we were more concentrated on 400 gigabit revenues, but all the revenue growth we are seeing now is driven by 800 gigabit PAM4 success for us, and this will continue in 2027. And as we move later into 2027 or 1.6 catabits more we'll start to generate revenue and will drive growth beyond '27 to '28 and '29. So yes, 800 gigabit is now substantially going to be a bigger portion of our run rate revenues moving forward. With regard to our end customers, we do not share our customer particular customer need. We have not done that. However, our customers span both U.S. and Asia of hyperscalers and Tier 1 data center customers and OEMs. And at this point in time, we are beginning to see more and more traction and revenue growth that will span both the regions, including the United States. .

Very good. And as my follow-up, just thinking about some of the extension of products that you're now sampling, whether it's Washington and per -- you talked about '27 contribution. But I'm just curious, should the ramp be mainly in '28? Or could you potentially start to see some ramps for and returns already in 2027.

So we -- our Rushmore product line, our Anapurna and even our TIAs for the 1.6 or 200 gigabit per speed has been sampling now. It's in the customer call phases and design-in process. So we expect revenue to start generating in 2027. So we expect the ramps at some -- 1 or 2 opportunity to start somewhere in the second half of the year. and then layer on top of that to '28 to '29. So yes, we do have some expectations of 1.6-terabit revenues. And the TIA is a companion and for Annapurna active electrical cables in 2027.

Sounds good. I'll go back in line. Thank you. .

Our next question is from Cody Acree with Benchmark Company.

Congrats on the strong results and guidance. Maybe if I just get 1 point of clarification, the increase in the optical outlook the $50 million increase, that is all just Keystone. Is that correct? That's not counting any Washington or Annapurna revenue in '26?

That's very correct. It's all driven by Keystone product family.

And can you just talk about the visibility you have to that the order visibility, the backlog builds that's looking into the second half, can you just give us some color on the extension of your order trends?

Yes, Cody, I can answer that one. Look, I mean, I think this probably goes without saying, but kind of across most of our businesses right now, I mean the visibility is very good. I mean, kind of given some of the tight supply and just continued increasing demand. Visibility is good. It's going out on or about 6 months anyway. So naturally, that gives us the confidence to go and raise these numbers. .

And then just lastly, can you talk about wafer prepayments, maybe the amount that you did in Q2? And any expectation for Q3? And I guess if you can just walk through some of the puts and takes for your gross margin improvement, things like your mix and your incremental supply constraints and any kind of expedite fees that you may be [indiscernible].

Sure. Yes, not a problem at all, Cody. Maybe just hit the prepayment real quick. Certainly, with this increased demand and some of the making sure that we're securing wafers and products for our customers going out. We've certainly started to prepay in a lot of cases. So that was up a little bit in the quarter. We expect that to continue next quarter as well, but that's all against a product that has a backlog out a couple of quarters, right? So comfortable with that. Your question with regard to gross margins. So a little ahead of schedule here. We're excited about hitting the 60% level in our guidance for Q3. As you're probably aware, the mix of our infrastructure products historically has been well above the corporate average. That continues to be the case today. I do see that continuing to expand over the next year or two as our Infrastructure business grows, as our 800, 1.6 products start to contribute further -- we've been a little bit cautious. We've shared this with investors that just the input cost, the wafer cost increases, the packaging test increases that we're seeing out there. we're certainly kind of careful as we're seeing this across the board. In some cases, you can pass this along to customers. And so we've just been a little bit of cautious on this front, but certainly, we see improvements from here.

Steve, I just want to add, if you look at the revenue ramp you've had throughout 2026 and raised expectations, especially with the advanced nodes in 5-nanometer, keystone is the only 5-nanometer associate shipping in volume for the 100-gig per lane speeds, at least we were the first ones. We have gotten our forecast when kept going up. And I must say that our foundry and OSAT partners have been incredibly supportive in making sure that we can meet the surging demand as our calls went through and we have started layering more and more customer product ramps on our optical products. So yes, it supply is tight, but I think having strong relationship and constant communications with our foundry partners and OSAT has been incredibly helpful, and that goes a long way in meeting our demand. .

Our next question is from Joe Quatrochi with Wells Fargo.

Yes. Maybe on the optical side of the revenue guide up, how should we think about the revenue run rate of that in the second half as we're just thinking about the trajectory into 2027?

Sure, Joe. Look, I mean, we -- as new calls kind of come through production ramps start, I mean, we started out with a great run rate going into the year. I think that's just continued to improve. -- obviously, raising this number here kind of set expectations for '27 as well. So you would expect that there's not a stair step. I mean, we continue to see as more customers qualifications get completed, move into production volumes you're seeing those numbers go up, and I would expect that to continue into next year. .

And then maybe on the broadband side, maybe just any update there in terms of what you're seeing from a demand perspective and just kind of some of the timing for some of these transitions. Has anything changed there?

Yes. Not a whole lot of changes. I mean as you know, we've been gaining share on some of our PON programs. That's gone exceptionally well this year. I think as we look out at the back half of this year and next year, telco CapEx spend continued to be good. Our customers continue to be rolling out in a lot of cases, new programs. If you recall, we've got kind of content increases and a couple of other things. So yes, I would say everything is on track on that front.

Our next question is from Suji Desilva with ROTH Capital Partners.

Steve, congratulations on the strong progress here. I know you're growing very strong in optical in '27, but I'm trying to understand '27 a little bit. Just what's the share opportunity to Kishor much more grade happen from Keystone. Do you guys haven't advantage that perhaps even grow your share? Or should we expect that it holds from the success you have in Keystone? .

So Suji, obviously, the kind of growth we are seeing comes from 2 factors, right? The market itself is growing very, very strongly. -- and the fact that we have raised our expectation by '26 revenue, which means a higher run rate expectations get towards second half of '26, which has implications for '27 as well. It's a matter of as and when we learn about the ramps and how strong the rents are, we are upgrading our revenue expectations. So it's happening in both ways, right? One is through the TAM growth and the other one is to market share goals. So yes, on both fronts, our performance differentiation and increasing traction with successful rollout of our products and various other customers is having a knock-on effect of more what I call more acceleration in the rands that they are seeing. With regards to Rushmore, obviously, Keystone is a foundational product for MaxLinear. This was the first major 1 that went to mass rollout from MaxLinear's point of view. -- even though it represents our third generation of technology. But as more at 1.6 terabit is now sampling. It's got performance and power advantages that are very, very substantial. And at the same time, it has also got a supply chain diversification that is very unique with MaxLinear versus our competition. So if you're rolling all these factors, we feel very optimistic and actually, frankly, very excited about Rushmore and the upside potential of ASP increases with the enhanced fees. So -- so I think that the same customers that are using Keystone are eagerly working towards deploying our 1.60 [indiscernible]. And obviously, the qual intros cycle is a bit longer and natural at higher speeds, but we feel we're very well positioned to be successful with 1.6 [indiscernible] mode as well. As the success of the Keystone offering -- the important thing is my own forecast for the industry is both 1800 gigabit and 1.6 terabit will be one of the work or speed nodes for a long time to come. So even as Rushmore ramps, Rushmore comes online, Keystone will still be having a lot of growth engine and capacity moving forward.

And then my other question is on the TIA driver market, the Washington product and so forth. In the 1.60 platforms, are you seeing more kind of creative kind of CPO, LPO architectures that drive higher attach rate and make better use of your products as they break out some of the components there?

I think you have to look at that for the first time, we are we are actually positioning and marketing Washington as both a stand-alone TIA and paired with Rushmore. Obviously, the first factors we'll have is a paired offering with our own SerDes and PAM4 DSP LabRAshmor. Having said that, the market -- as we go to higher speeds, our deep RF expertise is very, very valuable and differentiated and it's got a lot of potential to be used as a stand-alone product working with other DSPs. And at the same time, being designed into LPOs and LRO type of application. So at this stage, I would say, preliminary we expect our first traction to come from our own pairing with our own device.

Our next question is from Quinn Bolton with Needham & Company. .

Stephen Kishor. -- offer my congratulations as well. I wanted to follow-up on C.J.'s question just on Rushmore. As you look at your -- the qualification programs you're engaged in now -- is that a sort of expanding set or expanding opportunity? Do you think you are sort of going after more 1.6T modules at your customers than say, your originally looking at on 800 gig. I'm just kind of wondering, can you tell from the qualification activity, whether you think your share continues to increase with Rushmore? So .

Keep very, very good question. And I'm actually very pleased with where we are. From where we started in Keystone today I can safely say that -- we are now comprehensively designed it across the board of all of the optical module players on the 800 gigabit solution across the board. So in a sense, 1.6 bit now has systematically get designed to each of those customers where we have laid the foundation with Keystone and them developing their modules, calling them and then interoping them. . So if anything, Keystone has created the footprint for us to roll out 1.6 terabits. The -- obviously, it's a very multifaceted play in terms of calling trust more and it's just being designed in with the module makers, then it leads to the next phase of calls with the data center operators. -- and that's when the revenue ramps start. So we expect this to happen towards the second half of next year and with initial revenue ramp starting in '27.

Got it. And then [indiscernible], you look at the broadband sort of the CPE gateway business and you talk to your customers, do those CP boxes tend to use a fair amount of memory is the rising cost of memory causing any sort of delays in rollouts or perhaps lower units? Or do you think that the CPE business is able to absorb the memory cost increases?

So at this point of time, we do not we have not seen on our solution platforms, effect of memory as being a major driver in their decisions on using a product. If anything, we have been able to share gains because our solution actually integrates a lot -- the dip implementations, different solutions use competition uses a lot more external memory than we do. So we actually save our customers a lot more money due to the integrated solution with on-chip memory and incorporated. So -- we have not seen much impact with our customers. Obviously, they're absorbing the cost of the memory, and they're able to pass it on to their operator customers. So there is some juggling going on, but at our own level, we have not seen what I call real tangible impact on the volumes that we were expecting and forecasting for this year and looking into next year. You have to keep in mind that the lead times are pretty long these days, so you get fairly strong visibility based on backlog and bookings.

Our next question is from Tim Savageaux with Northland Capital Markets.