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Aquantia Announces Second Quarter 2018 Results

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Q2 2018 Revenue up 21 percent from Q2 2017

Aquantia Corp., (NYSE:AQ), a leader in high-speed, Multi-Gigabit
Ethernet connectivity solutions, today announced financial results for
its second quarter ended June 30, 2018.

Second Quarter 2018 Highlights:

  • Revenue for the three months ended June 30, 2018 of $30.4 million, an
    increase of 7 percent sequentially and 21 percent year-over-year;
  • Revenue by market for the three months ended June 30, 2018: Data
    Center revenue of $15.1 million, Enterprise Infrastructure revenue of
    $11.5 million, Access revenue of $3.6 million, and Automotive revenue
    of $241 thousand;
  • Gross margin of 58 percent for the three months ended June 30, 2018,
    compared to 57 percent for the three months ended March 31, 2018;
  • Operating loss of $1.2 million for the three months ended June 30,
    2018, and non-GAAP operating loss of $21 thousand for the same period;
    and
  • Net loss per diluted share of $0.02 for the three months ended June
    30, 2018, and non-GAAP net income per diluted share of $0.01 for the
    same period.

Second Quarter 2018 Results

Total revenue for the second quarter 2018 was $30.4 million, an increase
of 7 percent compared to $28.4 million in the prior quarter, and an
increase of 21 percent compared to $25.2 million in the second quarter
2017. Total revenue by market for the second quarter 2018 consisted of
Data Center revenue of $15.1 million, Enterprise Infrastructure revenue
of $11.5 million, Access revenue of $3.6 million, and Automotive revenue
of $241 thousand. Total revenue by market for the second quarter 2017
consisted of Data Center revenue of $17.0 million, Enterprise
Infrastructure revenue of $7.8 million, Access revenue of $0.2 million
and Automotive revenue of $92 thousand.

Gross profit for the second quarter 2018 was $17.5 million, or 58
percent of revenue, compared to $16.1 million, or 57 percent of revenue,
in the prior quarter, and $14.3 million, or 57 percent of revenue, in
the second quarter 2017. Operating expenses in the second quarter 2018
were $18.7 million, compared to $17.9 million in the prior quarter and
$14.6 million in the second quarter 2017.

Loss from operations for the second quarter 2018 was $1.2 million, or 4
percent of revenue, compared to $1.7 million, or 6 percent of revenue,
in the prior quarter, and $0.4 million, or 1 percent of revenue, in the
second quarter 2017. Non-GAAP loss from operations for the second
quarter 2018 was $21 thousand, or 0.1 percent of revenue, compared to
$0.8 million, 3 percent of revenue in the prior quarter and $40
thousand, 0.2 percent of revenue in the second quarter 2017.

Second quarter 2018 net loss was $0.8 million, or a loss of $0.02 per
diluted share, compared to first quarter 2018 net loss of $1.4 million,
or a loss of $0.04 per diluted share, and second quarter 2017 net loss
of $1.3 million, or $0.29 per diluted share.

Non-GAAP net income for the second quarter 2018 was $0.3 million, or
$0.01 per diluted share. This compares to non-GAAP net loss of $0.4
million, or a loss of $0.01 per diluted share for the first quarter 2018
and non-GAAP net income of $23 thousand, or breakeven for the second
quarter 2017.

"The circle of Multi-Gig influence continues to widen. In the second
quarter, we announced collaborations with tier one service providers in
Asia and saw new classes of devices with our Multi-Gig technology
announced at Computex. We also announced the first USB to Multi-Gig
Ethernet Controller which will enable new levels of wired connectivity
for laptop users," said Faraj Aalaei, Chairman and CEO. "We are very
pleased that the strong momentum that we began the year with continues
as revenue growth is up in the second quarter by 21 percent over the
same period last year. Our Enterprise, Access and Automotive businesses
exhibited revenue growth in the quarter driven by strong customer demand
across these markets. We expect to see continued growth in the second
half of the year as well as a pickup in our Data Center business."

Balance Sheet

Cash, cash equivalents and short-term investments totaled $61.7 million
at June 30, 2018, compared to $63.0 million at March 31, 2018. The
decrease of $1.3 million was primarily due to changes in working capital.

Business Outlook

For the third quarter 2018, the Company expects revenue to be in the
range of $31.75 million to $33.75 million, gross margin to be in the
range of 57 percent to 59 percent and operating expenses to be in the
range of $20.0 million to $22.5 million, which includes stock-based
compensation expenses in the range of $2.0 million to $2.4 million.

Non-GAAP Financial Measures

In addition to GAAP reporting, the Company provides non-GAAP financial
measures on income (loss) from operations and net income (loss). These
non-GAAP financial measures exclude the income statement effects of
stock-based compensation expense, amortization of acquired intangibles
resulting from business combination, and change in fair value of
convertible preferred stock warrant liability. The Company believes that
these non-GAAP financial measures help analyze the Company's financial
results, establish budgets and operational goals for managing its
business and to evaluate performance. The Company also believes that the
presentation of these non-GAAP financial measures provides an additional
tool for investors to use in comparing Aquantia's core business and
results of operations over multiple periods with other companies in the
industry, many of which present similar non-GAAP financial measures to
investors. However, the non-GAAP financial measures presented may not be
comparable to similarly titled measures reported by other companies due
to differences in the way that these measures are calculated. The
non-GAAP financial measures presented should not be considered as the
sole measure of our performance and should not be considered in
isolation from, or as a substitute for, comparable financial measures
calculated in accordance with GAAP.

About Aquantia

Aquantia is a leader in the design, development and marketing of
advanced, high-speed communications ICs for Ethernet connectivity in the
Data Center, Enterprise Infrastructure, Access and Automotive markets.
Aquantia products are designed to cost-effectively deliver leading-edge
data speeds for use in the latest generation of communications
infrastructure to alleviate network bandwidth bottlenecks caused by the
growth of global IP traffic and in emerging and demanding applications
such as autonomous driving. Aquantia is headquartered in Silicon
Valley. For more information, visit www.aquantia.com.

Conference Call Information

The Company will hold its second quarter 2018, earnings conference call
at 1:05 PM Pacific time (4:05 PM Eastern time) on Wednesday, July 25,
2018. To access the call in the U.S., please dial +1 412-317-5415,
approximately 15 minutes prior to the start of the conference call.

A live audio webcast of the conference call and an archive for the
replay will be available on the investor section of Aquantia's website
at https://investors.aquantia.com/.
To access the replay, please dial +1 412-317-0088; access code 10122320.

Forward-Looking Statements

Statements in the press release for the second quarter 2018 regarding
the Company, which are not historical facts, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements may be identified
by terms such as "outlook," "believe," "expect," "may," "will,"
"provide," "continue," "could," and "should," and the negative of these
terms or other similar expressions. These statements include statements
relating to: the Company's business outlook and current expectations for
upcoming quarter, including with respect to the financial guidance
provided; the Company's expectations regarding growth opportunities,
including in the Data Center, Enterprise infrastructure, Access and
Automotive market; and the Company's expectations regarding product
adoption. These statements are subject to significant risks and
uncertainties and actual results could differ materially from those
projected. The Company cautions investors not to place undue reliance on
the forward-looking statements contained in this release. These risks
and uncertainties include, without limitation, risks and uncertainties
related to: the Company's ability to achieve or sustain profitable
operations due to its history of losses and accumulated deficit; the
Company's dependence on a limited number of customers for a substantial
portion of revenue and lack of long-term purchase commitments therefrom;
the Company's ability to achieve design wins in competitive selection
processes; the Company's ability to develop new or enhanced products in
a timely manner; the size and growth potential of the markets that the
Company targets and the Company's ability to compete therein; market
demand for the Company's products, including by customers of its direct
customers; reliance on third parties to manufacture, assemble and test
our products as well as their ability to achieve cost and yield
improvements; lengthy and expensive qualification processes; product
defects; the Company's ability to obtain and maintain intellectual
property protection for its technology; developments in regulation and
industry standards in the United States and other jurisdictions; and
other risks inherent to the fabless semiconductor business. For a
discussion of these and other related risks, please refer to the
Company's recent SEC filings which are available on the SEC's website at www.sec.gov.
These forward-looking statements are based on the Company's expectations
and assumptions as of the date of this press release. Except as required
by law, the Company undertakes no duty or obligation to update any
forward-looking statements contained in this press release as a result
of new information, future events or changes in the Company's
expectations.

(AQ-INV)

   

AQUANTIA CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)

 
Three Months Ended Six Months Ended
June 30, June 30,
2018   2017 2018   2017
 
Revenue $ 30,432 $ 25,164 $ 58,790 $ 48,807
 
Cost of revenue 12,914 10,912 25,155 20,959
               
Gross profit   17,518   14,252   33,635   27,848
Gross Profit Margin 57.6 % 56.6 % 57.2 % 57.1 %
 
Operating expenses
Research and development 12,772 10,537 25,346 20,944
Sales and marketing 2,614 1,822 4,901 3,456
General and administrative   3,324   2,248   6,321   4,475
Total operating expenses   18,710   14,607   36,568   28,875
 
Income (loss) from operations (1,192 ) (355 ) (2,933 ) (1,027 )
Other income (expense)   291   (1,486 )   539   (2,688 )
 
Income (loss) before income tax expenses (901 ) (1,841 ) (2,394 ) (3,715 )
Provision for (benefit from) income taxes   (68 )   (509 )   (193 )   (358 )
 
Net income (loss) $ (833 ) $ (1,332 ) $ (2,201 ) $ (3,357 )
 
Net income (loss) per share
Basic $ (0.02 ) $ (0.29 ) $ (0.07 ) $ (0.74 )
Diluted $ (0.02 ) $ (0.29 ) $ (0.07 ) $ (0.74 )
 
Weighted - average shares used in computing net income per share:
Basic(1)   33,836   4,621   33,666   4,549
Diluted   33,836   4,621   33,666   4,549

(1) The number of shares for 2017 does not reflect the
conversion of convertible preferred stocks to common shares.

   

AQUANTIA CORP.

RECONCILIATION OF GAAP NET INCOME/(LOSS)

TO NON-GAAP NET INCOME (LOSS)

(in thousands, except per share amounts)

(Unaudited)

 
Three Months Ended Six Months Ended
June 30, June 30,
2018   2017 2018   2017
 
GAAP net income (loss) $ (833 ) $ (1,332 ) $ (2,201 ) $ (3,357 )
 
Stock-based compensation expense:
Cost of revenue 21 7 46 14
Research and development 521 161 1,094 293
Sales and marketing 162 37 273 64
General and administrative   458   102   727   178
Total stock-based compensation expense   1,162   307   2,140   549
 

Amortization of acquired intangibles resulting from business
combination

9 8 17 16

Change in fair value of convertible preferred stock warrant
liability

  -   1,040   -   1,700
 
Non-GAAP net income (loss) $ 338 $ 23 $ (44 ) $ (1,092 )
 
GAAP basic earnings per share $ (0.02 ) $ (0.29 ) $ (0.07 ) $ (0.74 )
Effect of non-GAAP adjustments on basic earnings per share   0.03   0.29   0.07   0.50
Non-GAAP basic earnings per share $ 0.01 $ 0.00 $ (0.00 ) $ (0.24 )
 
GAAP diluted earnings per share $ (0.02 ) $ (0.29 ) $ (0.07 ) $ (0.74 )
Effect of non-GAAP adjustments on diluted earnings per share   0.03   0.29   0.07   0.50
Non-GAAP diluted earnings per share $ 0.01 $ 0.00 $ (0.00 ) $ (0.24 )
 
Weighted - average shares used in computing net income per share:
Basic(1)   33,836   4,621   33,666   4,549
Diluted   33,836   4,621   33,666   4,549
 
(1) The number of shares for 2017 does not reflect the
conversion of convertible preferred stocks to common shares.
 
 
GAAP Income (loss) from operations $ (1,192 ) $ (355 ) $ (2,933 ) $ (1,027 )
 
Stock-based compensation expense 1,162 307 2,140 549

Amortization of acquired intangibles resulting from business
combination

  9   8   17   16
 
Non-GAAP income (loss) from operations $ (21 ) $ (40 ) $ (776 ) $ (462 )
 
   

AQUANTIA CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

 
June 30, December 31,
2018 2017
(unaudited) (audited)
Assets
Current assets:
Cash and cash equivalents $ 12,874 $ 8,040
Short-term investments 48,867 48,362
Accounts receivable, net 16,000 15,012
Inventories 16,398 18,469
Prepaid expenses and other current assets   2,713   5,623
Total current assets 96,852 95,506
 
Property and equipment, net 10,186 9,973
Intangible assets, net 4,152 4,556
Other assets   671   331
Total assets $ 111,861 $ 110,366
 
 
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 5,115 $ 7,059
Accrued liabilities   9,245   9,217
Total current liabilities 14,360 16,276
 
Other long-term liabilities   3,466   3,176
 
Total liabilities   17,826   19,452
 
Stockholders' equity (deficit):
Common stock - -
Additional paid-in capital 294,085 288,719
Accumulated comprehensive loss (175 ) (96 )
Accumulated deficit   (199,875 )   (197,709 )
Total stockholders' equity (deficit)   94,035   90,914
 
Total liabilities and stockholders' equity deficit $ 111,861 $ 110,366

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