MaxLinear, Inc. (MXL) Q3 2013 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the MaxLinear Third Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Wednesday, October 30, 2013. I would now like to turn the conference over to Mr. Nick Kormeluk. Go ahead, sir.

Thank you, operator. Good afternoon, everyone, and thank you for joining us on today's conference call to discuss MaxLinear's Third Quarter 2013 Financial Results. Today's call is being hosted by Dr. Kishore Seendripu, CEO; and Adam Spice, CFO. During the course of this conference call, we will make projections or other statements regarding future conditions or events relating to our products and business. Among these statements, we will provide information relating to our current expectations for fourth quarter 2013 revenue, including expectations for revenue growth in our cable, terrestrial, satellite and other target markets; gross profit percentage and operating expenses; and our current views regarding trends in our markets, including our views of the potential growth for our cable, terrestrial and satellite market. These statements are forward-looking statements within the meaning of federal securities laws and actual results may differ materially from results reflected in these forward-looking statements. We are subject to substantial risks and uncertainties that could adversely affect our future results. Our business and future operating results could be adversely affected if our current target markets, including the terrestrial, cable and satellite markets, do not grow or if we are not successful in expanding our target-addressable markets through the introduction of new products. In addition, substantial competition in our industry; potential declines in average selling prices, risks relating to intellectual property protection and the prevalence of intellectual property litigation in our industry and cyclicality in the semiconductor industry could adversely affect future operating results. A more detailed discussion of these risk factors and other factors you should consider in evaluating MaxLinear and its prospects is included under the caption "Risk Factors" in our filings with the Securities and Exchange Commission, in particular, our most recently filed 10-K for fiscal 2012, subsequent quarterly filings and our upcoming 10-Q for the third quarter of 2013. These forward-looking statements are made as of today, and MaxLinear does not currently intend and has no obligation to update or revise any forward-looking statements. The third quarter 2000 (sic) [2013] earnings release is available on the company's website at maxlinear.com. In addition, MaxLinear reports gross profit income or loss from operations, and net income loss and basic and diluted net income loss per share in accordance with GAAP and, additionally, on a non-GAAP basis. Our non-GAAP presentations exclude the effect of stock-based compensation expense and its related tax effect, net expenses associated with a prior export compliance matter, accruals under our equity settled performance-based bonus plan, expenses associated with our acquisition of certain new market-related technology licenses, expenses related to prior patent litigation matter with Silicon Laboratories and mask-related asset impairments. Management believes that this non-GAAP information is useful because it can enhance the understanding of the company's ongoing economic performance. And MaxLinear, therefore, uses non-GAAP reporting internally to evaluate and manage the company's operations. MaxLinear has chosen to provide this information to investors to enable them to perform comparisons of operating results in a manner similar to how the company internally analyzes its operating results. The full reconciliation of GAAP to non-GAAP financial data can be found in our earnings release issued earlier today. The earnings release and reconciliation is also available on our website and we ask that you review them in conjunction with this call. And now, let me turn the call over to Kishore Seendripu, CEO of MaxLinear.

Thank you, Nick, and good afternoon, everyone. Thank you, all, for joining us today. Before jumping into the financial highlights, I would like to note that our third quarter 2013 financial results not only represent a record revenue quarter but also mark a double-digit year-over-year revenue growth for the company. Our strong revenue growth was derived from our industry-leading products targeting some of the most exciting and dynamic broadband content applications, such as cable DOCSIS 3.0 data modems, cable media server gateways, hybrid televisions and a variety of set-top boxes. These results and related momentum at growth markets strengthen our confidence as we focus our investment towards the expansion of our target addressable markets. These new target markets will be ideally suited for our industry-leading, low-power, RF-mixed signal broadband technology platform. I'm also pleased that MaxLinear was able to satisfactorily settle its intellectual property dispute with Silicon Labs, thereby eliminating customer and investor concerns regarding our ability to ship products into the United States and to fully mitigate related litigation costs. Moving to the financial specifics. Net revenue in the third quarter was $31.8 million, up 7% from the second quarter of 2013 and up 14% on the year ago quarter and about the midpoint of our guidance. GAAP and non-GAAP gross margin in the third quarter were 62% and 63% of revenue, respectively. GAAP net loss in the second quarter was $4.9 million or $0.14 per diluted share, and non-GAAP net income for the third quarter was $2.9 million or $0.08 per diluted share. I will now discuss current trends in our business. Consistent with our prior guidance, our cable business continued to grow in the third quarter of 2013, with revenue increasing approximately 11% relative to the second quarter of 2013. We experienced solid double-digit growth across cable data and cable media server gateway applications. Growth in these applications was offset by weakness in the demand for our basic cable set-top boxes and relative flatness in demand for cable HD digital-to-analog converter set-top boxes. Now I will review some of the specifics related to our cable revenues. In the third quarter of 2013, cable revenues increased in the mix and represented 70% of our total revenues versus 67% in the prior quarter. We continue to experience product ramp for our 16-channel and 24-channel, Full-Spectrum Capture cable receivers, which entered volume production in the second quarter of this year. Additionally, we announced that SMC Networks had selected our 16-channel, Full-Spectrum Capture, digital cable front-end receiver, MxL265, for its new family of DOCSIS 3.0 cable modems and wireless high-speed data gateways for a more efficient distribution of video and IP services. So recently, ZCorum and MaxLinear demonstrated a diagnostics application, called RF Inspector, which reports back to the cable operator spectrum-analysis data collected from tens of millions of installed DOCSIS 3.0 cable modems containing MaxLinear RF front-end IC plus Intel Puma 5 DOCSIS 3.0 processors, which takes advantage of the Full-Spectrum Capture RF functionality that we have inside our chip. Moving to the terrestrial and satellite TV markets. Terrestrial revenues declined modestly by 2% quarter-on-quarter, with strong growth in hybrid TV offset by softness in terrestrial set-top boxes. Specifically, the softness in terrestrial set-top boxes in the third quarter was a result of stronger-than-anticipated shipments of our ISDB-T broadcast digital-TV standard tuner-demodulator SoC solution in the prior quarter. We believe that a greater-than-anticipated shipment of our ISDB-T SoC products in the second quarter is the principal factor behind the current slowdown we're observing and it may take a couple of quarters to return to growth. As mentioned earlier, we experienced strong growth in demand from the continued ramp of our 65-nanometer, CMOS hybrid TV super radio solution. Some notable highlights in terrestrial in the second quarter of 2013 are: Samsung launched mass production television shipments using our MxL601 global hybrid TV tuner. We believe this design is the first direct silicon tuner onboard implementation by a major Tier 1 TV OEM and represents a significant milestone for silicon tuner adoption in TVs. We continue to see momentum from leading OEMs that are using our MxL603 silicon tuner device in new Internet video set-top boxes shipping into the United States. These new boxes are enabling the recent major consumer trend of accessing video content from over-the-top video service providers like Netflix, YouTube, Hulu and Amazon Instant Video. We are also encouraged by recent market feedback regarding the potential for our ISDB-T tuner-demodulator SoC solution used in digital-to-analog converter set-top box designs for Latin America regions such as Brazil, where the planned analog-TV blackout is expected to begin in 2015. Moving to the highlights of our target addressable market expansion efforts into satellite TV. We announced the MxL54X product family of Full-Spectrum Capture satellite tuner-demodulator SoC products addressing a new generation of multichannel, DVB-S and S2 satellite gateway platforms that deliver multiscreen viewing, personal video recorder functionality, emerging catch-up television features and fast channel change capability. These new 40-nanometer digital CMOS solution enable simultaneous reception of 4 and up to 8 satellite TV channels. The MxL54X satellite product family features MaxLinear's Full-Spectrum Capture technology, which digitizes the entire satellite 950 megahertz to 2150 megahertz satellite spectrum and replaces up to 8 discrete units and demodulators with a single-chip. Relatedly, we also announced that satellite TV set-top box manufacturer Zinwell, in Taiwan, had selected the MxL544 Full-Spectrum Capture DVB-S/S2 receivers for a new family of satellite-TV home media gateways, which facilitate viewing satellite-TV content on multiple screens throughout the home, including televisions, computers, tablets and smartphones. These systems are designed for both pay-TV and free-to-air market satellite customers in Asia and Europe. In conclusion, we are excited by the continued strength of our cable business and the relative stability in our terrestrial receiver product shipments. We are greatly encouraged by our steady progress towards delivering revenue derived from our satellite-TV initiatives. We continue to identifying and work towards opening up new, target-addressable markets for our industry-leading broadband full-Spectrum Capture RF front-end technology platform in areas beyond cable, terrestrial and satellite TV application. 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.

Thank you, Kishore. I will first review our results and then briefly discuss our outlook. In summary, our Q3 revenue was a record $31.8 million and above the midpoint of our prior guidance. As Kishore noted, growth in our revenues from cable was derived primarily from data and media server gateway applications. We're also encouraged that strength in hybrid-TV shipments was sufficiently robust to overcome the unanticipated slowdown in shipments of our ISDB-T digital-TV SoC product for terrestrial set-top box applications that Kishore mentioned earlier and which have delivered strong growth in Q2 of this year. Now moving to the rest of the income statement. GAAP and non-GAAP gross margin for the third quarter were approximately 62% and 63% of revenue, respectively, versus our prior guidance of 61%, 62% for both GAAP and non-GAAP gross margin. This compares to GAAP and non-GAAP gross margin of 58% and 62%, respectively, in the second quarter of 2013, and GAAP and non-GAAP gross margins of 63% in the year ago quarter. The divergence in GAAP and non-GAAP gross margin in the third quarter was due to stock-based compensation and accruals under our 2013 bonus plan. Our Q3 GAAP operating expenses were $24.5 million, which includes $3.4 million of stock-based compensation, $1.5 million from an accrual related to a performance-based equity bonus plan for 2013 and $2.8 million in settlement costs and net professional fees related to the Silicon Labs patent litigation matter, which is now settled and for which there are no future payment obligations for MaxLinear. Consistent with 2012, payouts under our 2013 performance bonus plan are expected to be settled in shares of MaxLinear's stock. Net of these items, OpEx was $16.8 million, which was slightly above our guidance of $16.5 million. The minor overage in OpEx was driven primarily by an increase in CAD-tools expenses, tape out and nonrecurring, facilities-related expenses in the quarter. Third quarter GAAP OpEx attributable to R&D was up approximately $2.3 million quarter-on-quarter to $14.6 million, which included stock-based compensation of $2.2 million and $900,000 related to 2013 bonus plan. The increase in R&D spending relative to Q2 2013 were primarily due to 40-nanometer R&D tape-out activities and increased payroll due to increases in headcount. Third quarter GAAP OpEx attributable to SG&A was up approximately $2.2 million quarter-on-quarter to $10 million, which included $1.3 million in stock-based compensation, $500,000 in bonus plan accruals and $2.8 million in settlement costs and net professional fees related to the Silicon Labs patent litigation. The increases in SG&A were driven predominantly by the previously discussed Silicon Labs legal expenses and settlement costs. At the end of the third quarter 2013, our headcount was 326, as compared to 297 at the end of the second quarter 2013. We continue to add R&D headcount globally to staff growth initiatives and to gain operating leverage in R&D by appropriately balancing hiring across our R&D design centers in the U.S., India, China and Taiwan. GAAP loss from operations was $4.7 million in Q3, compared to loss from operations of $2.8 million in the prior quarter and GAAP income from operations of $500,000 in Q3 of last year. GAAP net loss per share in the third quarter was $0.14 on basic shares outstanding of 34.5 million. GAAP net loss per share included $3.5 million in stock-based compensation expense, $1.5 million for an accrual related to our 2013 performance-based bonus plan and $2.8 million in settlement costs and net special fees attributable to the Silicon Labs patent litigation. This compares to GAAP net loss per share of $0.09 in the prior quarter and net income of $0.01 in Q3 of last year. Net of these items, our non-GAAP earnings per share in Q3 was $0.08 on fully diluted shares of 36.6 million, compared to $0.11 per share in Q2 2013 and $0.13 per share in Q3 of last year. Moving to the balance sheet and cash flow statement. Our cash, cash equivalents and investments balance increased $1.8 million from Q2 2013 to approximately $83 million, which is an increase of $3 million as compared to the $80 million in Q3 of last year. Our cash generated from operations in the third quarter 2013 was $3.1 million, approximately $3.1 million less than in the second quarter of 2013 and $3.2 million less than in the year ago quarter. Our days sales outstanding for the third quarter was approximately 53 days or 3 days less than the previous quarter and approximately 6 days less than in the year ago quarter. As a reminder, we only recognize revenue on a sell-through basis and, as such, we are not subject to revenue fluctuations caused by changes in distributor inventory levels. Our inventory turns decreased to 5 turns in the third quarter compared to 5.5 turns in the second quarter and improved relative to the 4.7 turns in the year ago quarter. That leads me to our guidance. We again expect revenue in the fourth quarter of 2013 to be in the range of $31 million to $32 million. Built into this range, we expect cable revenues to be approximately flat to slightly up and terrestrial revenues to decline slightly on a quarter-over-quarter basis. More specifically, in cable, we expect modest growth to come from cable data and media server gateway applications, offset by weakness in cable DTAs. We also expect modest seasonal declines in hybrid TV tuner and terrestrial set-top box revenues to be offset somewhat by initial product shipments of satellite-receiver solutions. We expect GAAP and non-GAAP gross profit percentage to be approximately 61%, 62% in fourth quarter. Our gross profit percentage forecast could vary plus or minus 2% depending on product mix and other factors, in particular the relative contribution of cable and terrestrial applications. We continue to fund strategic development programs targeted at delivering attractive top line growth in 2013 and beyond and with a focus on increasing operating leverage in the business. We expect Q4 2013 GAAP operating expenses to decrease approximately $2.5 million relative to prior quarter, to $22 million, with stepped-up payroll-related expenses, which will include the full quarter effect of our incremental Q3 hires and anticipated Q4 hiring. The increase in payroll-related expenses will be offset by savings related to the settlement of Silicon Labs litigation spending from prior quarters and reduced spending on CAD tools and embedded IP from tape-out activities. We expect that Q4 2013 non-GAAP operating expenses will be flat sequentially at approximately $16.8 million, with increases in previously referenced payroll-related spending offset by lower spending on CAD tools and embedded IP from tape-out activities. In closing, we're pleased to report revenues in Q3 that were above the midpoint of our guidance, along with better-than-expected gross margin and a satisfactory IP settlement agreement with Silicon Labs. Given the challenging macro growth conditions, we are encouraged by our guidance for flat to slightly down revenues in Q4 and the anticipated commencement of our initial shipments to the satellite market. With that, I'd like to now open the call to questions. Operator?

[Operator Instructions] And our first question is from the line of Tore Svanberg with Stifel. Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division: A few questions. First of all, Adam, can you comment a little bit on your sort of relative visibility for the quarter, either by backlog or bookings?

Sure. Yes, consistent to how we talked about this in prior quarters, I think we've got pretty good visibility into Q4. As we looked -- we've kind of use a metric, where we enter the quarter booked relative to the midpoint of our guidance. And right now, we're comfortably in a similar range to where we historically have been. I think it's a little bit lower than it was in the prior 2 quarters, which were uncharacteristically strong. But we've also had some, I'd say, some fill in since we entered the quarter that kind of got us back to where we probably were in the prior couple of quarters, which were strong also. So we feel pretty good about where we are based on the metrics that we follow for that. Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division: Very good. And I think there's been some fears out there about Q4 being down seasonally, at least in cable or maybe even some inventory adjustments. I guess last year was an abnormality because of some lead-times issues of some of your partners. So could you comment a little bit on how that looks this year in Q4?

I'll let Kishore speak to that one.

Tore, I think this quarter, positively, surprisingly for me, it's been a pretty stable follow through on our forecasting process. The billings and backlogs looks pretty much in line with where we'd like to be related to our guidance and we do not see any of those issues. On a positive note for us, actually there is a good, strong ramp in the new products that we thought would happen a little later of our new Full-Spectrum Capture products into media server gateways. That's going pretty strongly, the end customer being Comcast. And so I think that we don't see potential for the downside that we saw last year and -- because the growth is primarily being driven by product ramps in the media server gateway applications for us. Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division: Very good. And the 2 businesses that are sort of taking a near-term pause here, ISDB-T and also DTAs, what's your best guess on timing on when those business units will potentially grow again?

So the ISDB-T SoC product ramp that we saw that was quite strong in the second quarter, more than what we had anticipated, it was primarily at the end market in Latin America where the ISDB-T chip, SoC chip goes in a satellite pay-TV operators as the companion terrestrial reception broadcast TV conduit in a satellite box. And I think they are being cautious in their rollout in terms of trying to manage the inventories and such. And so we don't feel there's any pause in the business more than the fact that, once they catch up, it should recover in the next 2 quarters to the levels we had in Q2 and then grow stronger from there. So we are not feeling that negative about it. Actually we feel we got the designs locked in. These are pay-TV operator businesses, so there will be a nice pull through as we go towards the World Cup Soccer and such. So I don't see any concerns on the ISDB-T side. On the DTA market side, primarily, I think we talked about softness about it even in the prior quarter. And the HD DTA deployments at the major cable operators have taken a pause. So we expected to see the softness, so it's not a surprise. However, in the recent cable trade show, the SCTE Show in Atlanta, we had some encouraging news that the -- one of the major operators is actually going to go and renew its deployment in a stronger way in the latter part of the first half of next year. So we should see a strong resumption in growth in HD DTAs, if that were to play out, in the middle of next year. Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division: Very good. Last question on satellite, and by the way, congratulations on your fresh revenue there. How should we think about the ramp in that business? I mean, I assume in Q4, it's still fairly low base. But as we go into 2014, how should we think about the ramp in satellite?

So I'll let Adam give a little bit more color on the actual ramp simply because he's got it nicely played out in these forecasting game here. However, the key point is that this is a major, major shipment because we are shipping to a major operator, to probably one of the premier OEM manufacturers for satellite gateways out of Europe. And so that's a big deal and we have never shipped to this customer before in the cable or in the satellite market space. So we are very, very pleased about it and we'll be able to share more of these as we enter the trade shows and we have announcements to follow. So the ramp itself, we expect that -- the first half of the year we are being cautious, I think it will be modest but it will be very meaningful. But the second half of the year is where the stronger pickup will come because a bigger, major satellite gateway-deploying operator will come online, will have pilot shipments towards the end of the year and the beginning of next year and will start into a big ramp in the second quarter starting. And so we'll see very meaningful revenue in the second half of the year. So if you accumulate the revenues, I think I'll let Adam give some color on that, what our expectations on the revenue for the next year on satellite?

Yes, Tore, I would say that -- we've been fairly consistent in saying that we expected the revenue in 2013 from satellite to happen in the Q4 window and that it would be measurable but not meaningful. And I think that's going to be true. So if you want to call that in the low hundreds of thousands of dollars of contribution in the Q4 period, I think that's where we see things. But I think, as Kishore said, it's a very important kind of a watershed for us, where we enter this new market. So that's very encouraging as these things actually start to be deployed. As far as the 2014, not giving guidance beyond the current quarter, I don't want to kind of extend myself too far in what the number could be for the full year 2014. But given where people's expectations are for total corporate revenue, as I look at the consensus numbers out there, I think that there's certainly some expectation for satellite to be contributing to that number. And I think we're encouraged that satellite, again, is going to become a more measurable and meaningful number in 2014 as we move forward. But I don't really want to get any more specific than that.

And our next question is from the line of Ross Seymore with Deutsche Bank.

Just a question on the gross margin. In the fourth quarter guidance, it looks like you're guiding it to come down a little bit. Adam, can you just talk us through the puts and takes that go into that guidance, please?

Sure. Yes, I think that Q3 margins did come in obviously stronger than we were expecting to, by, call it, 60 basis points on the non-GAAP basis, about 40 basis points on GAAP. And that was really primarily a function of mix. And I think that because, again, cable grew very strongly. And as Kishore mentioned, the mix of data and media server gateway are the platforms where even -- there's some beneficial impact to the mix when those are stronger, relative to DTAs obviously, and basic set-top boxes. So as we look forward into Q4, one of the influences there is, even though there's going to be some -- as Kishore mentioned, some seasonal softness in hybrid TV, I think that there's -- if you look at one area of our business, which is under the most margin or pricing pressure, it would definitely be in that hybrid TV area. So I would say that it's really a mix effect and even though terrestrial is not going to be significantly more in the overall mix, it's the terrestrial impact within the overall mix that's causing the margin pressure. And again, it's not major. We said 61%, 62%. And I think that, last few quarters, I think we've been a little bit on the conservative side and outpaced the expectations, our internal expectations on that. I don't know that -- I think that the range we provided, 61%, 62%, is our best estimate right now. We'd always love to do better than that but I think that's a reasonable range to be in right now at this point. Our operations team, obviously, strives every quarter to kind of go beyond our expectations and deliver more savings for us. But certainly the hybrid TV market is a very competitive space and it's safe to say that, definitely, there's competitive pressure there that has influence on margin.

But the positive news there is that we grew hybrid TV very strongly last quarter and it seems that we're having very, very good success in growing hybrid TV revenues and the contribution margins, the dollars from hybrid TV, are quite healthy. So we are very happy about that.

Great. And then one follow-up on something you answered to earlier, Kishore. On the ISDB-T stuff that's taken a little bit of an inventory digestion pause. I just wanted to clarify, is that likely to continue into the first quarter or is that something that you think you'll absorb all of the excess inventory, if that's how you want to describe it, in the fourth quarter and then you can get back to some growth in the first quarter? Or is it going to take a little longer than that?

I think it's hard to predict at this stage because so much of it is pay-TV operator-driven revenues. They could just be -- being cautious for the end of the year and they could just turn it on pretty much instantaneously. So when we go through our forecasting process, in certain conversations, we have optimism that it's a temporary blip, temporary event that should recover pretty nicely at the beginning of next year. But, however, sometimes we have seen enough volatility in the operator ordering patterns that we want to be careful and not jump the gun and assume. So I would say that, at this point, it's a 50-50. But given the way the operators react, maybe there is some optimism for -- on the positive side.

Great. And then just 2 kind of housekeeping ones. I know you're not going to give the exact size of your expectation for satellite next year. But just conceptually, satellite becoming part of the mix at all, and then a growing part of the mix, do you expect that to be accretive or dilutive to gross margin? And then the second housekeeping one is just on the share count side. With some of the hiring you've had, et cetera, and where the share price has gone, what should we think about for the share count in the fourth quarter?

So I already give a little bit broader theme on the products we look and target, and target addressable markets, we look at. We never look at products that have margins below our corporate margin in terms of our expectations. So -- and satellite definitely fits that category and we believe that it's going to be very, very helpful for us as our legacy revenues, like hybrid TV, have decreasing -- have margin pressure, that something like satellite would definitely give a positive upward push to our gross margin. And we really would like to -- we really aim to make sure that we maintain the corporate margin, if not grow it in the first place. So satellite will be definitely pushing strong on the gross margin than any of the terrestrial products.

And the share count?

Ross, I'll take the share one. So on the share count, there's a couple of things at work. Obviously we have our normal employee equity-related programs that contribute to the increased share count and we have our ESPP program. And then we also have the impact of the treasury stock method on our share count. We look, on a diluted basis and how that's influenced by an increase in stock price. So given the fact that stock price has been going up, we do have some -- basically some detrimental impact from the treasury stock method. So if you want to think about area, we reported 36.6 million shares in Q3. I think you can expect that to increase, probably 700,000 to 800,000 shares in Q4, which would take you up to about 37.4 million.

And our question is from the line of Quinn Bolton with Needham & Company. N. Quinn Bolton - Needham & Company, LLC, Research Division: To follow up on Ross's question. As you come to the end of 2013, it sounds like the bonus awards are going to be paid in stock. So is there another uptick in share count as you got into sort of first quarter of next year?

Yes, Quinn. I think, right now, we will certainly have -- we would anticipate to have a similar dilutive impact in Q1 that would show up resulting from the awards that would be accrued for in Q4. And correct, our current anticipation is that we would pay out the bonus, if earned, in stocks, similar to what we did last year. So I think if you want to assume a similar kind of step up in Q1 that kind of we saw in the Q3 to Q4, I think that's probably a safe place to be. And of course, the unpredictable part of that is the treasury stock method and wherever the stock price is does have a pretty significant influence on it. If you look at the magnitude of the change in Q3 to Q4, the 700,000 to 800,000 shares that I mentioned to Ross earlier, almost half of that is related to the impact of the treasury stock method because of the change in stock price going up. N. Quinn Bolton - Needham & Company, LLC, Research Division: Okay, great. Second question just on the satellite gateway side of the business. It sounded like one of your biggest concerns about the initial design wins you had was that you were worried that, while you had the wins, somebody could come in before those got locked down and started to ship and displace you. And I'm kind of wondering, with some of the initial gateway designs starting to ramp here this quarter, do you feel more comfortable that those design wins have now been locked down by the OEMs or even the carriers or operators and those are now kind of solid design wins that should last for a couple of years?

Quinn, I would like to say, yes, empathically on the 2 platforms that we have designed in. And right now, I think, the designs are locked and there is nothing MaxLinear can do to do anymore than if they're [indiscernible] locked. Right now they're going to the qualification cycle one of the major operators are deploying in Europe, along with the major OEM with whom we have never shipped into, starting taking production quantities now. We feel that these 2 operator designs have been locked and these are actually major platforms. So I feel pretty happy that what it appears we were concerned about are now pretty much fully eliminated on these major platforms. N. Quinn Bolton - Needham & Company, LLC, Research Division: Great. And Kishore, just to clarify. It's 1 OEM into 2 different operators? Or is it the same OEM platform into 2 operators or is it different platforms at that OEM into different operators?

So I would say that the 2 platforms we talked about are 2 different operators. And right now, the OEMs who will be shipping to these operators is also 2 different ones. The one I mentioned in Europe is a very specific one, only because this was a very, very tough one that we have tried to get for years from -- in terrestrial markets and cable market. And the most amazing thing for us is that satellite was the one that brought them into our gambit. And because of the satellite, they're actually going to be using us in cable and terrestrial, as well. So that's the great news here. The other operator is completely player [indiscernible]. It's one of the world's biggest set-top box player for the satellite market. We have been shipping into them and will continue to ship. Now but both these OEMs will also be targeting other operators in the world, so they'll be -- and the same designs and platforms will move to other operators. But at this point, we are not aware on the timing of those events because these particular deployments are the showcase events for the industry in terms of the attractiveness of the media server gateway deployment model. So we're pretty excited about that. N. Quinn Bolton - Needham & Company, LLC, Research Division: Great. And then just switching to the cable gateway side of the business. You mentioned that it sounds like you've got a couple of gateways starting to ramp for Comcast. Knowing that gateways are still a fairly small percentage of overall set-top box shipments, do you expect that to be a fairly linear ramp on the gateway side? Or do you still see it being somewhat lumpy, where you could have a quarter or 2 of strong orders and then it goes quiet for the next quarter as Comcast digests some of the initial inventory?

So let me address that in 2 pieces, right? One is that we were the first one to deploy -- to be deployed in the world's most advanced gateway that any operator tries, namely Comcast, the X1 platform. And that ramp was very, very linear. And that one is continuing to persist and not be replaced by the newer generation device with respect to the media server gateway of the caliber and capabilities of the X1 platform. We do not know how many quarters it will last but so far it's pretty steady. The other platform that ramped very strongly, which was more than -- which was not as expected is the pure headless gateway. That means where the video decoding is not inside the server gateway box, everything is deployed to client devices. And that one has ramped quite non-linearly in a sense that it just went right through and we're very excited about that. And I'm not aware we had a press release on that, so I want to be very careful. So I can't reveal the name but, again, the end customer is still Comcast. So I think at this point a safe model to assume is a linear model. But the big trick with this whole gateway thing is that, how much of the X1 versus the non-X1 gateways at an operator like Comcast, what the share of each of these platforms is going to be? So for us, the revenues have been growing very steadily, a little bit more than linear in the last quarter -- in this quarter but I would think it would remain linear over the longer period of time.

And our next question is from the line of Gary Mobley with Benchmark.

I wanted to start with a sort of a multipart question. Can you confirm whether or not the settlement with Silicon Labs carries any royalty components to it? And I guess related to that, how has the settlement of this litigation impacted the timing of some of your satellite design win ramps?

Gary, I think in our press release, we've made it very clear that it was a mutually respectful, satisfactory settlement. In our filings that we did with the SEC [ph], it was very clear that it's a royalty -- no royalty at all, any of this stuff. It's a mutual cross license with no ongoing obligation of any payment to each party. And we both have a freedom to operate with the existing products without any concern of IP issues. And the third component to it is that there's a 3-year period, which -- for which both MaxLinear and Silicon Labs will not be in any legal entanglement with each other for any product, be it existing product or future product. So I think all in all, it's a great outcome for us and hopefully it's for them. And so we are pretty happy about that. With the second part of the question, how does it affect the satellite ramp? Really, this one never had any impact on the company's business relative to non-hybrid TV markets. And our customers in cable, our new customers in satellite, they're absolutely comfortable all through with MaxLinear's IP position and they were very convinced that -- convinced of the quality of our product and the IP embedded inside it. We convinced them of that. So there was never ever any threat to our cable or satellite markets at all. So it was non-event for that matter on the satellite side.

Okay. I think you mentioned that your cable business grew 11% sequentially. I know you're not going to share with us what the average selling price was on the DOCSIS side but can you give us a sense, how much of that 11% sequential growth was driven by volumes versus an increase in average selling price? And the root of my question is just trying to get a sense of how 16-inch, 24-channel count coming into the fray impacts the overall ASP?

I think you asked a very specific question. I don't know we have a data right in front of us here but let me give you some general color on the subject. Basically right now, the deployments that are happening are primarily skewed towards -- if you just look at the entire cable business, the big deployments are still on the legacy 8x4 platforms. So that's the old product, the 64-nanometer product. On the Full-Spectrum Capture product, a bigger part of the deployments today are 16-channel sales and so you would say 2/3 16 channels, 1/3 24 channels. So I would say that the gravity of the deployment is more at the 16 channel today than the 24 channel. But the second half of next year, we would start seeing a move toward the 24 channel, is our expectation.

Yes, Gary, I think a little more color on that. I think the contribution of the 16 and 24 channel into our total mix of revenue in Q3 was in the single-digit range, single-digit percentages. And we see that growing significantly in Q4 and onwards. So the transition is definitely happening. But in the current quarter, it was still sub-10% contribution of total revenue.

And our next question is from the line of Alex Gauna with JMP Securities.

Kishore, I was wondering if you could add a little bit more color around what you've already given us on Comcast? There is the X1 to X2 transition. I know there are a number of different platforms out there. Do you expect things to be stable for you as we move to the X2? Is there an opportunity to pick up some more share? And maybe give us an idea of how many of the platforms you're in?

It's hard because we don't -- though we internally track the design wins and the platforms we are on, I would -- suffice to say today that -- and I think this is largely correct. All the X platforms that Comcast is imagining up and that we like, if there are 2 suppliers, we are definitely on the platform as one of the suppliers -- on one of the platforms. So generally the -- so today, though, on the X1, we are there and we are pretty much the exclusive supplier along with the Intel platform. And the Intel one is the one that's shipping. And the X1's life is continuing beyond what the operators have assumed because of the good strong pull of it and it may well continue into the first half of next year. And who knows beyond that. And the successor [indiscernible] platform, I don't know what the exact nomenclature of it is, it's called the XP3 [ph], I think. And that's really, I don't know how the numbering goes but that's basically a headless-type gateway and that is shipping pretty strong and that's what we are in right now that has got our new Full-Spectrum Capture, 16-channel deployments that we are benefiting from. And so those are the ones that are deployed. The remaining ones come in the latter of next year, latter part of next year. They could well be delayed but I'm pretty pleased to know that any of the X deployments that are happening, we are very essential and core to those platforms and that's good for us on ASP and stickiness as the set-top box volumes shift more towards the gateway market.

Okay. I was wondering, I know you've already given a lot of color on next year and 2014 and a lot of new programs. But specifically, if we think about what normal seasonality might be like in Q1 and your visibility into what kind of offsetting new programs might hit in the first part of the year, I was wondering if you can give some color around that?

You want some color for Q4, Q1? Is the...

Really Q1, in terms of what we should be expecting from seasonality. I know there are a lot of puts and takes and you're not guiding to that timeframe yet but maybe to the extent that you can talk about the timing of some of the new platforms that either may or may have not hit in that timeframe?

Okay. I think, some of the variables would be -- let's just go to the drivers of the company for revenue next year. One is hybrid television -- and I'm going to start from the products of lesser importance, the products of greater importance for the company. Hybrid television is going to grow strongly. And then we have the HD DTA revenues for cable, we hope they will spring back and there is possibility for the spring back in terms of the upside. Then we have the ISDB-T SoC product that we referred to. There's a great possibility of a spring back on that one. And then you have X1 continuing to be stronger than we are forecasting because we always think X1 is going to be replaced by the subsequent X-generation product but X1 continues and our ASP is much higher there. And then the new headless gateway that we are shipping into Comcast could pick up even more strength and that will be even more wonderful for us. And finally, satellite. I know satellite could certainly spike up very strongly because, initially, the pilot shipment, it could spike up very strongly because both the operators may decide to really go crazy on it. And we have seen that in the past, on certain operator behaviors, and we have seen the other way around, where things get delayed. But at this point in stage, we are having a very conservative review on satellite and hopefully we will be proven wrong. Those are the upsides. What are the downsides? I guess I've already answered the downsides to the story, too, so that pretty much sums it up, I think. So there are a number of drivers for revenue growth and that's what makes next year very interesting and next year also -- it also makes it also pretty challenging in terms of understanding what are the ones that are going to take off and what are the ones that would be slow. But it's an exciting place to be with all the product cycles over the next 2 years that we're going to be running on basically.

And our next question is from the line of Anil Doradla with William Blair. Anil K. Doradla - William Blair & Company L.L.C., Research Division: A couple of questions. Broadcom, on their earnings call, kind of indirectly acknowledged share loss in the modem side, cable-modem side. And obviously we presume that it's the Intel-MaxLinear platform. Would love to seek some kind of color or commentary from you guys on -- as to when you guys get in with -- against the Broadcom platform, how you guys win? And as a follow-up, can you give an update on the market share for 16? And in 2014, how do you think that will play out? How much do you think you would have in terms of share?

Anil, so let me start with the question at the end that you said, how does the platform shake out happen on the shares of the 16 to 24. I really, really, really think that Broadcom is the formidable player in all these markets. And so we never have an overly optimistic assumption about the share wins here. We always assume that the market will split into 2 whenever there is a data gateway -- data-type market and Intel is also very, very strong and along with our front-end offering. So we always assume that we'll be getting less share than -- slightly less share than the 50% -- that is, 50% plus, let's say, minus 5% in the way we model our business. So we never assume that Broadcom loses share because historically, the way it's been is that over a longer period of time, it averages to equal share between both the players. That's number one. Number two is, when we entered -- when we go to any market, in the cable side for example, and that's true in the satellite, the way MaxLinear wins is really because 2 things happen in tandem: One, we have a great partnership with Intel. We always hit time-to-market in a very, very excellent way. We execute incredibly well. And on the RF side, more importantly, we define the power consumption, simplicity, the ease of use and we are the absolute lowest power in the industry and we really indicate all of the RF bond [ph] around the front-end silicon that no company does as well as we do. And Broadcom offers a full bundled solution but their RF integration is nowhere as close to the integration we bring to bear and we continue to do that. I think that's where the game is always set when we enter the market. MaxLinear solution is the integration king in reducing the expensive RF bond [ph], we have the lowest power solution along with Intel's well-established portfolio platform on the back end of the software and the ease of use for the bandwidth support and processing capability. Together, we win against the competition, be it a Broadcom platform and anybody else that we compete with. I think that would be the summary of it. We do RF better than everybody else can do. The broadband RF, we do even better. We do it with the lowest power. We do it in digital CMOS, which is cheaper than anybody else, so our platform gets the cost advantages that we necessarily need and then the yields are far superior to anybody who tries to integrate the whole thing.

And our next question is from the line of Jay Srivatsa with Chardan Capital Markets.

Kishore, you just spoke about the advantages that you have on the satellite side. Given that, can you highlight -- I mean, what are the entry barriers that's taking the process so long for you to penetrate these accounts? I mean, you said you were -- you've been trying for a long time and you finally got through. But can you highlight, beyond the technological superiority, what is keeping the box guys from moving to your solution versus the incumbent's?

Okay. I think that, first of all, had the market not transitioned to over-the-top content delivery, IP-based distribution, multiple channels, simultaneous access, maybe we would have never got this chance because the platform is not compelling enough to absorb what we have to offer the marketplace. So I really think the biggest barrier to entry was really speaking that there was not an inflection point or a disruptive event in the marketplace that would drive them towards us. So that happened for us. That's the #1 thing. So they were looking for a solution that would make that possible in a cost-effective manner, in a manner that is a very, very attractive for them to do so, that's the server gateway-type architectures. The second piece is that the barriers to entry are really, really relationship-oriented, as well. We have no established credibility, number two, and so we had to work our way through winning victories in the cable world and proving that we could do that and successfully ship product. And number three, is having the access to the right people to make our story and we did that with changes and upgrades in our marketing team that was required that to happen. And the number three piece to this -- to the difficulties that we had to surmount, it's a 3-year long process, the software associated with the certification of the platform with satellite operator is quite serious, right? I mean, everything is actually certified with operators because, unlike the cable world, if you look at the major operators, they pretty much designed their own boxes, run the certification qualification of each vendor and supplier. So first, you have to qualify the operator, then you had to qualify the OEM and then you recircle back into design, the specs that are, finally, they're going to share with you so that you could implement in your chip. So these are the barriers that everybody who enters this market is going to face. So in a sense, getting here itself is a big deal. But once we get here, that is the barrier to entry that any competitor that may want to enter this space. So I think what makes it so difficult to get in is also -- is the reason why we will keep this market for that period of lead time and product life-cycles. So the difficulties are really, really credibility-related as a company, for us to be able to be trusted, for a big operator to take risk in the quality of deployment they like to do on the video side, as [indiscernible] satellite operators really do.

Yes. Jay, I'd like to add one thing to what Kishore said. And we're excited to have you pick up coverage on us and join the effort. I think that one thing that folks who have been following us for a while hopefully will collaborate here -- or corroborate is the fact that we've been talking about the satellite market for some time. And I think that we've pretty much hit the window that we said that we were going to as far as initially getting into this market. So when Kishore said it will take a long time, I think that it definitely took a long time but I don't think it really took longer than we anticipated. I'd say, at the outside, maybe we're 1 quarter delayed from where we thought we would have been when we had this conversation 1 year ago. But I think that's actually a pretty tight convergence on where we hope to be. And I think we feel very positive about where we are. Probably incrementally more positive now about our prospects in satellite than we even were 1 year ago. So I think, yes, give or take a quarter, I think we've pretty much hit the marks and we're pretty excited about where we are.

I think another comment to that is that I think the operators themselves have acknowledged that they've never seen as efficient and expeditious execution for a newcomer in this marketplace with such a complex product as we have delivered. And I think that's a greater source of satisfaction for us than anything else actually. Of course we love the revenue but I think that itself is a compliment to the great job our engineering team has done.

Fair enough. In terms of the settlement with SLAB, what does it do in terms of your own market presence? Were there companies or customers who shied away from your product in the past because of these -- because of the pending lawsuit? And do you hope that they will come back? Or I guess I'm trying to understand what is the resolution do in terms of just business prospects going forward?

So I would say that, first and foremost, it stopped the giant sucking sound and the expenses for legal, right? That itself is a huge savings there. The second most-important thing is that the cloud that surrounded us relative to our more Tier 1 markets, like cable and satellite, they cleared the air on that in a public way and reduces the kind of language and protection guarantees that we were being asked to provide by our customers. I think those are the first 2 tangible benefits. On hybrid TV, I think, the day we got sued was the day we lost the battle to secure certain sockets with some Tier 1 players in Korea. And while we have finally broken into those customers in a very, very hard way but still, I think the substantial share of the platform is something that's going to be quite challenging for us to secure. Not that we rule it out but I think we have taken the hits on that. So the customers who really shied away are really maybe one big customer in Japan and 2 senior ones in Korea. But the remaining ones, I think we never had any problem because their presence in the U.S. market was quite limited. And unlike these 3 players that I mentioned about, not their specific names, and the lawsuit really pertain only to the U.S. shipment of products. So all in all, I think we took the hit a year ago and hopefully we'll convert more share of the Korean manufacturers to MaxLinear's chips. But we are not assuming that, that's going to really happen in a timely manner to affect revenues next year.

And there appears to be no further questions at this time, so I'll turn it back to management for any closing remarks.

Well, thank you, operator. I just would like to remind our listeners here that we will be participating the Stifel Midwest one-on-one conference on November 7, and we hope to see many of our investors and you guys there. I also want to thank all of you guys for joining us today and we look forward to reporting on our progress to you in the next quarter, given all the exciting things that are happening on our product cycles here. Thank you, very much.

Ladies and gentlemen, that does conclude your conference call for today. Thank you for your participation. You may now disconnect.