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Press Release

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Feb 4, 2019

Quantenna Announces Fourth Quarter and Fiscal 2018 Financial Results

Record Quarterly Revenue Grew 52% Annually Driven by Quantenna’s Product Strategy

SAN JOSE, Calif., Feb. 04, 2019 (GLOBE NEWSWIRE) -- Quantenna Communications, Inc. (NASDAQ:QTNA), a global leader and innovator of leading-edge performance Wi-Fi solutions, today announced preliminary unaudited financial results for the fourth quarter and fiscal year 2018 ended December 30, 2018.

"Our strong fourth quarter and annual operating results showcase the success of our broad product portfolio as both our premium Wave 3 10G product and high-performance mainstream Wave 2 product experienced record revenue. We continue to experience strong customer engagement with our products, including our family of Wi-Fi 6 product offerings,” commented Dr. Sam Heidari, Chairman and Chief Executive Officer.

Financial Summary

  Three Months Ended       Twelve Months Ended    
  December 30,
 2018
  December 31,
 2017
  % Change   December 30,
 2018
  December 31,
 2017
  % Change
(in thousands except per share data, unaudited)                    
Revenue $ 62,567     $ 41,275     51.6%   $ 220,460     $ 176,359     25.0%
Gross Profit 31,283     21,279     47.0%   109,402     88,151     24.1%
Gross Margin 50.0 %   51.6 %   (160) bps   49.6 %   50.0 %   (40) bps
                       
Net income:                      
GAAP $ 1,419     $ 32,325         $ 3,083     $ 34,412      
Non-GAAP 7,619     455         20,371     9,989      
                       
Net income per share - diluted:                      
GAAP $ 0.04     $ 0.84         $ 0.08     $ 0.89      
Non-GAAP 0.19     0.01         0.51     0.26      
                       

Commentary on the fourth quarter and fiscal year 2018 financial results by Company management is available at http://ir.quantenna.com/.

Please see the note below regarding the use of non-GAAP financial measures, including a detailed reconciliation between GAAP and non-GAAP information in the tables included herein.

Fourth Quarter and Fiscal Year 2018 Company Highlights

  • Record revenue of $220.5 million in fiscal year 2018 represented year over year growth of 25% compared to fiscal year 2017. Record revenue of $62.6 million in the fourth quarter represented year over year growth of 52% over the fourth quarter of 2017.
     
  • Fiscal year 2018 GAAP diluted EPS of $0.08 compared to $0.89 in fiscal year 2017. Fourth quarter GAAP diluted EPS of $0.04 compared to $0.84 in the fourth quarter of 2017.
     
  • Record fiscal year 2018 non-GAAP diluted EPS of $0.51 compared to $0.26 in fiscal year 2017. Record fourth quarter of 2018 non-GAAP diluted EPS of $0.19 compared to $0.01 in the fourth quarter of 2017.
     
  • GAAP operating income of $2.8 million and non-GAAP operating income of $20.1 million in fiscal year 2018, compared to GAAP operating loss of $(0.9) million and non-GAAP operating income of $9.9 million in fiscal year 2017.
     
  • Cash from operations totaled $24.8 million in fiscal year 2018, compared to $6.6 million in fiscal year 2017, representing annual growth of 274%. Fourth quarter cash from operations totaled $5.1 million compared to $(7.6) million in the fourth quarter of 2017.
     
  • Record revenue from both our Wave 3 10G and Wave 2 product segments.
     
  • Reinforced our strategic partnership with Telefónica, a leading global service provider, with the development of new product offerings utilizing our Wi-Fi 6 solutions.
     
  • Starry Inc., a next generation service provider using 5G millimeter wave technology, will use our Wi-Fi 6 chipsets in their base station technology.
     
  • Delivered Wi-Fi 6 reference designs for next generation GPON gateways and routers with Cortina Access, Inc.
     
  • Introduced Spartan Essential, a turn-key design targeting multiple consumer Wi-Fi applications such as mesh, access point for wired extenders and boosters for upgrading existing gateways.
     
  • Orange S.A., the largest broadband provider in France, is using our Wave 2 technology for its latest generation of repeaters and set-top boxes.

Business Outlook

  First Quarter 2019
Guidance Range
Revenue $56M to $59M
Gross Margin  
GAAP 50.4% +/- 50bps
Non-GAAP 50.5% +/- 50bps
Operating Expenses  
GAAP $27.4M to $28.4M
Non-GAAP $23.0M to $24.0M
Net income per share-diluted  
GAAP $0.02 to $0.04
Non-GAAP $0.13 to $0.15
   
Gross margin, operating expense and net income GAAP to Non-GAAP reconciliation relates to stock-based compensation expense and change in deferred tax assets.  

Webcast and Conference Call

Quantenna management will host a conference call discussing the quarterly results and business outlook following this press release at 1:30 p.m. Pacific Time today. Individuals interested in listening to the conference call may do so by dialing (877) 239-5585 for domestic callers or (661) 378-9806 for international callers. Please reference Conference ID: 5966507. An audio webcast and replay will be available on the “Investor Relations” section of Quantenna’s website at http://ir.quantenna.com/events.cfm.

Non-GAAP Financial Measures

In addition to GAAP reporting, Quantenna provides information regarding net income, gross profit, gross margin, and operating expenses on a non-GAAP basis. This non-GAAP information excludes stock-based compensation expense and changes to deferred tax balances. These non-GAAP measures are used by the Company’s management for the purposes of evaluating the underlying operating performance of the Company, establishing internal budgets, comparing performance with internal forecasts and goals, strategic planning, benchmarking against other companies, to provide a more consistent basis of comparison and to enable more meaningful period to period comparisons. These non-GAAP measures are provided in addition to, and not as a substitute for, measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial data is included in the supplemental financial tables included in this press release.

Forward-Looking Statements

This press release contains forward-looking statements based on Quantenna’s current expectations, including statements regarding Quantenna’s preliminary financial results for the fourth quarter and fiscal year 2018 ended December 30, 2018, forecasted financial results for the first quarter of fiscal 2019, expected future business and financial performance, growth opportunities, product technologies and customer relationships. The words "believe," "estimate," "expect," "intend," "anticipate," "plan," "project," "will" and similar phrases as they relate to Quantenna are intended to identify such forward-looking statements. These forward-looking statements reflect the current views and assumptions of Quantenna and are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. Among the factors that could cause actual results to differ materially from those in the forward-looking statements are the following: challenges developing new and leading edge products on a timely basis that achieve market acceptance; quarterly fluctuations in revenues and operating results; risks and uncertainties related to international operations, including the impact of increased tariffs and escalating trade tensions with China directly and indirectly impacting Quantenna and its customers, end customers, vendors and partners; potential cancellation, delay or volatility of customer orders; intense market competition, including competition from other companies that are larger and have greater resources and broader product ecosystem offerings; ability to accurately predict future revenue and expenses; risks that Quantenna may not be able to maintain its historical growth or achieve similar levels of success with respect to new products; ability to attract and retain customers and service providers; dependence on a limited number of products and customers; the complexity of the products, including integration requirements with components from other third parties that are outside of Quantenna's control; intellectual property litigation risks; industry consolidation and risks associated with acquisitions, divestitures and strategic partnerships with respect to Quantenna as well as third parties; product liability risks; dependence of Quantenna's customers on components from other third parties; risks that Quantenna may not be able to manage strains associated with its growth; dependence on key personnel; stock price volatility; the cyclical nature of the semiconductor industry; changes in tax and other laws affecting Quantenna’s business and operations; cyberattacks; adjustments to the preliminary financial results reported in this press release and related earnings call announcement and materials for the fourth quarter of 2018 in connection with completion of the final closing process and procedures and preparation of our preparation of our Annual Report on Form 10-K; and other factors that are detailed in the Securities and Exchange (“SEC”) filings of Quantenna, which you may obtain for free at the SEC’s website at http://www.sec.gov. Quantenna disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

About Quantenna Communications

Quantenna (Nasdaq:QTNA) is the global leader and innovator of high performance Wi-Fi solutions. Founded in 2006, Quantenna has demonstrated its leadership in Wi-Fi technologies with many industry firsts. Quantenna continues to innovate with the mission to perfect Wi-Fi by establishing benchmarks for speed, range, efficiency and reliability. Quantenna takes a multidimensional approach, from silicon and system to software, and provides total Wi-Fi solutions. For more information, visit www.quantenna.com.

Quantenna Communications, Inc.
Condensed Consolidated Statements of Operations
(in thousands except per share data, unaudited)

  Three Months Ended   Twelve Months Ended
  December 30,
 2018
  December 31,
 2017
  December 30,
 2018
  December 31,
 2017
               
Revenue $ 62,567     $ 41,275     $ 220,460     $ 176,359  
Cost of revenue 31,284     19,996     111,058     88,208  
Gross profit 31,283     21,279     109,402     88,151  
Operating expenses:              
Research and development 19,054     16,048     71,522     59,747  
Sales and marketing 3,996     4,487     16,303     14,040  
General and administrative 5,165     4,069     18,767     15,299  
Total operating expenses 28,215     24,604     106,592     89,086  
Income (loss) from operations 3,068     (3,325 )   2,810     (935 )
Interest expense     (272 )       (713 )
Other income, net 432     509     1,239     1,118  
Income (loss) before income taxes 3,500     (3,088 )   4,049     (530 )
Benefit (provision) for income taxes (2,081 )   35,413     (966 )   34,942  
Net income $ 1,419     $ 32,325     $ 3,083     $ 34,412  
Net income per share - basic $ 0.04     $ 0.92     $ 0.08     $ 1.00  
Net income per share - diluted $ 0.04     $ 0.84     $ 0.08     $ 0.89  
               
Shares used in computing net income per share:              
Basic 37,527     35,316     36,744     34,259  
Diluted 40,027     38,281     39,663     38,484  
                       

Quantenna Communications, Inc.
Condensed Consolidated Balance Sheets
(in thousands, unaudited)

  December 30,
 2018
  December 31,
2017
Assets      
Current assets      
Cash and cash equivalents $ 38,881     $ 24,432  
Marketable securities 97,268     94,195  
Accounts receivable 28,326     26,786  
Inventory 20,218     12,662  
Prepaid expenses and other current assets 5,325     2,744  
Total current assets 190,018     160,819  
Deferred tax assets, net 35,563     35,422  
Property and equipment, net 13,691     12,511  
Intangible and other assets, net 6,384     3,952  
Total assets $ 245,656     $ 212,704  
Liabilities and Stockholders’ Equity      
Current liabilities      
Accounts payable $ 9,852     $ 3,754  
Accrued liabilities and other current liabilities 25,946     21,065  
Long-term debt, current portion     3,943  
Total current liabilities 35,798     28,762  
Other long-term liabilities 3,371     3,339  
Total liabilities 39,169     32,101  
       
Stockholders’ equity      
Common stock 4     3  
Additional paid-in capital 331,551     308,023  
Accumulated other comprehensive loss (935 )   (207 )
Accumulated deficit (124,133 )   (127,216 )
Total stockholders’ equity 206,487     180,603  
Total liabilities and stockholders’ equity $ 245,656     $ 212,704  
               

Quantenna Communications, Inc.
Condensed Consolidated Cash Flows
(in thousands, unaudited)

  Years Ended
  December 30,
2018
  December 31,
2017
       
Cash flows from operating activities      
Net income $ 3,083     $ 34,412  
Adjustments to reconcile net income to net cash provided by operating activities:      
Stock based compensation 17,289     10,683  
Depreciation and amortization 4,861     2,669  
Deferred income taxes 53     (35,333 )
Other 1,067     635  
Changes in assets and liabilities:      
Accounts receivable (1,540 )   (12,306 )
Inventory (7,556 )   3,158  
Prepaid expenses and other current assets (2,581 )   (335 )
Deferred rent and other assets 313     (467 )
Accounts payable 5,791     (5,752 )
Accrued liabilities and other current liabilities 4,040     9,265  
Net cash provided by operating activities 24,820     6,629  
Cash flows from investing activities      
Purchase of property and equipment (5,100 )   (8,970 )
Purchase of long-term investment (590 )    
Purchase of intangible asset (1,732 )    
Purchase of marketable securities (69,716 )   (131,790 )
Proceeds from sales of marketable securities     10,684  
Maturities of marketable securities 66,173     26,440  
Net cash used in investing activities (10,965 )   (103,636 )
Cash flows from financing activities      
Proceeds from issuance of common stock 8,418     7,675  
Payment of taxes withheld for vested stock awards (2,501 )   (626 )
Proceeds from initial public offering, net of issuance costs     (96 )
Payments related to intangible asset purchase (1,086 )   (266 )
Repayments of long-term debt (3,943 )   (2,406 )
Net cash provided by financing activities 888     4,281  
Effect of exchange rate changes on cash and cash equivalents (294 )   113  
Net increase (decrease) in cash and cash equivalents 14,449     (92,613 )
Cash and cash equivalents      
Beginning of year 24,432     117,045  
End of year $ 38,881     $ 24,432  
               

Quantenna Communications, Inc.
Unaudited reconciliation of GAAP to Non-GAAP Financial Measures
(in thousands, except per share data)

Non-GAAP Income
Statement Items
Three Months Ended December 30, 2018 Three Months Ended December 31, 2017
  GAAP
Measure
Stock-based
Compensation
Expense
Income
Taxes*
Non-
GAAP
Measure
GAAP
Measure
Stock-based
Compensation
Expense
Non-
Recurring
Items**
Income
Taxes*
Non-GAAP
Measure
Revenue $ 62,567       $ 62,567   $ 41,275         $ 41,275  
Gross profit 31,283   53     31,336   21,279   42       21,321  
Gross margin 50.0 % 0.1 %   50.1 % 51.6 % 0.1 %     51.7 %
Research and development 19,054   2,506     16,548   16,048   1,630       14,418  
Sales and marketing 3,996   578     3,418   4,487   584   199     3,704  
General and administrative 5,165   1,229     3,936   4,069   980       3,089  
Income (loss) from operations 3,068   4,366     7,434   (3,325 ) 3,236   199     110  
Benefit (provision) for income taxes (2,081 )   1,834   (247 ) 35,413       (35,305 ) 108  
Net income (loss) $ 1,419   $ 4,366   $ 1,834   $ 7,619   $ 32,325   $ 3,236   $ 199   $ (35,305 ) $ 455  
Basic shares outstanding 37,527       37,527   35,316         35,316  
Basic earnings per share $ 0.04       $ 0.20   $ 0.92         $ 0.01  
Diluted shares outstanding 40,027       40,027   38,281         38,281  
Diluted earnings per share $ 0.04       $ 0.19   $ 0.84         $ 0.01  


Non-GAAP Income
Statement Items
Twelve months ended December 30, 2018 Twelve months ended December 31, 2017
  GAAP
Measure
Stock-based
Compensation
Expense
Income
Taxes*
Non-
GAAP
Measure
GAAP
Measure
Stock-based
Compensation
Expense
Non-
Recurring
Items**
Income
Taxes*
Non-GAAP
Measure
Revenue $ 220,460       $ 220,460   $ 176,359         $ 176,359  
Gross profit 109,402   199     109,601   88,151   165       88,316  
Gross margin 49.6 % 0.1 %   49.7 % 50.0 % 0.1 %     50.1 %
Research and development 71,522   9,676     61,846   59,747   5,616       54,131  
Sales and marketing 16,303   2,696     13,607   14,040   1,763   199     12,078  
General and administrative 18,767   4,718     14,049   15,299   3,139       12,160  
Income (loss) from operations 2,810   17,289     20,099   (935 ) 10,683   199     9,947  
Benefit (provision) for income taxes (966 )   (1 ) (967 ) 34,942       (35,305 ) (363 )
Net income (loss) $ 3,083   $ 17,289   $ (1 ) $ 20,371   $ 34,412   $ 10,683   $ 199   $ (35,305 ) $ 9,989  
Basic shares outstanding 36,744       36,744   34,259         34,259  
Basic earnings per share $ 0.08       $ 0.55   $ 1.00         $ 0.29  
Diluted shares outstanding 39,663       39,663   38,484         38,484  
Diluted earnings per share $ 0.08       $ 0.51   $ 0.89         $ 0.26  

*Income tax adjustment relating to change in US Federal and State deferred tax assets.

**Non-recurring items comprised of executive severance.

Quantenna Communications, Inc.
Unaudited Forward-Looking Statements Regarding Business Outlook

Business Outlook Three Months Ended March 31, 2019
       
  Low   High
Estimated GAAP diluted earnings per share $ 0.02     $ 0.04  
Estimated stock compensation expense (0.11 )   (0.11 )
Estimated Non-GAAP diluted earnings per share $ 0.13     $ 0.15  


Quantenna Communications, Inc.Vernon Essi, Jr.
669-209-5647
vessi@quantenna.com 

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Source: Quantenna Communications, Inc.