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Quantenna Announces Second Quarter 2018 Financial Results

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SAN JOSE, Calif., July 30, 2018 (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 second quarter ended July 1, 2018.

"The strength of our second quarter operating results further demonstrates the success of our product offerings. During the quarter, our latest cable MSO initiated its full volume rollout of our Wave 3 10G solution. With strong engagement and positive feedback from our customers, we are also excited about our upcoming 802.11ax solutions," commented Dr. Sam Heidari, Chairman and Chief Executive Officer.

"We expect record revenue in the third quarter driven by continued growth from our Wave 3 10G products. We also expect record revenue from our Wave 2 products as these solutions continue expanding our addressable market into mainstream opportunities requiring a high-performance Wi-Fi experience."

Financial Summary

  Three Months Ended       Six Months Ended    
  July 1,   July 2,   %
Change
  July 1,   July 2,   %
Change
  2018 2017 2018 2017
                       
Revenue $ 53,427     $ 47,085     13.5%   $ 98,544     $ 84,976     16.0%
Gross Profit 25,864     23,771     8.8%   48,629     42,355     14.8%
Gross Margin 48.4 %   50.5 %   (210) bps   49.3 %   49.8 %   (50) bps
Net income (loss):                      
GAAP $ 1,032     $ 169         $ (2,215 )   $ (716 )    
Non-GAAP 4,624     2,743         5,784     3,962      
Net income (loss) per share - diluted:                      
GAAP $ 0.03     $ 0.00         $ (0.06 )   $ (0.02 )    
Non-GAAP 0.12     0.07         0.15     0.1      
                       
(in thousands except per share data, unaudited)                    
                     

Commentary on the second quarter 2018 financial results by Company management is available at http://ir.quantenna.com/events.cfm.

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.

Second Quarter Company Highlights

  • Record revenue of $53.4 million, representing year over year growth of 13% over the second quarter of 2017 and 18% sequential growth over the first quarter of 2018.

  • Second quarter GAAP diluted EPS of $0.03 compares to $0.00 in the second quarter of 2017. Second quarter non-GAAP dilutive EPS of $0.12 compares to $0.07 in the second quarter of 2017.

  • Second quarter GAAP operating income declined 15% compared to the second quarter of 2017. Second quarter non-GAAP operating income grew 59% compared to the second quarter of 2017.

  • Record revenue from both our Wave 3 10G and Wave 2 product segments.

  • Quantenna's Spartan solutions are now successfully integrated into more than 20 shipping OEM designs targeting turnkey implementation by service providers. 

  • The latest cable MSO initiated a full volume rollout using our Wave 3 10G technology in their next generation gateway.

  • Introduced ViSiON, an innovative cloud-based service for Quantenna enabled devices using advanced analytics to accelerate and improve service provider deployments of best-in-class Wi-Fi devices.

  • Announced the new QSR10GU-AX Plus targeting gateways and access points based on the draft IEEE 802.11ax standard that incorporates many unique performance features only offered by Quantenna.

Business Outlook

   
  Third Quarter 2018
Guidance Range
Revenue $57M to $59M
Gross Margin  
GAAP 48.64% +/- 50bps
Non-GAAP 48.75% +/- 50bps
Operating Expense  
GAAP $26.0M to $27.0M
Non-GAAP $22.0M to $23.0M
Net income per share-diluted  
GAAP $0.04 - $0.06
Non-GAAP $0.14 - $0.16
   
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: 5986225. 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 second quarter ended July 1, 2018, forecasted financial results for the third quarter of fiscal 2018, 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; the complexity of the products, including integration requirements with components from other third parties that are outside of our control; quarterly fluctuations in revenues and operating results; 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; potential cancellation of customer orders; 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; 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; risks related to international operations, including the uncertainty and potential impact regarding increased tariffs and escalating trade tensions among countries; dependence of our 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; potential changes in tax and other laws affecting Quantenna's business; adjustments to the preliminary financial results reported in this press release and related earnings call announcement and materials for the second quarter of 2018 in connection with completion of the final closing process and procedures and preparation of our Quarterly Report on Form 10-Q; 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 consumer's Wi-Fi experience by establishing benchmarks for speed, range, efficiency and reliability. Quantenna takes a multidimensional approach, from silicon to system and software, to provide total Wi-Fi network 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   Six Months Ended
  July 1,
2018
  July 2,
2017
  July 1,
2018
  July 2,
2017
               
Revenue $ 53,427     $ 47,085     $ 98,544     $ 84,976  
Cost of revenue 27,563     23,314     49,915     42,621  
Gross profit 25,864     23,771     48,629     42,355  
Operating expenses:              
Research and development 17,084     16,055     34,685     28,688  
Sales and marketing 3,979     3,276     8,474     6,191  
General and administrative 4,518     4,106     8,716     7,496  
Total operating expenses 25,581     23,437     51,875     42,375  
Income (loss) from operations 283     334     (3,246 )   (20 )
Interest expense     (141 )       (339 )
Other income, net 230     186     564     387  
Income (loss) before income taxes 513     379     (2,682 )   28  
(Provision) benefit for income taxes 519     (210 )   467     (744 )
Net income (loss) $ 1,032     $ 169     $ (2,215 )   $ (716 )
Net income (loss) per share - basic $ 0.03     $ 0.00     $ (0.06 )   $ (0.02 )
Net income (loss) per share - diluted $ 0.03     $ 0.00     $ (0.06 )   $ (0.02 )
               
Shares used in computing net income (loss) per share:              
Basic 36,511     33,881     36,179     33,494  
Diluted 39,377     38,475     36,179     33,494  
               

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 July 1, 2018 Three months ended July 2, 2017
  GAAP
Measure
Stock-based
Compensation
Expense
Income
Taxes*
Non-GAAP
Measure
GAAP
Measure
Stock-based
Compensation
Expense
Non-GAAP
Measure
Revenue $ 53,427       $ 53,427   $ 47,085     $ 47,085  
Gross profit 25,864   62     25,926   23,771   42   23,813  
Gross margin 48.4 % 0.1 %   48.5 % 50.5 % 0.1 % 50.6 %
Research and development 17,084   2,529     14,555   16,055   1,414   14,641  
Sales and marketing 3,979   593     3,386   3,276   410   2,866  
General and administrative 4,518   1,145     3,373   4,106   708   3,398  
Income from operations 283   4,329     4,612   334   2,574   2,908  
(Provision) benefit for income taxes 519     (737 ) (218 ) (210 )   (210 )
Net income $ 1,032   $ 4,329   $ (737 ) $ 4,624   $ 169   $ 2,574   $ 2,743  
Basic shares outstanding 36,511       36,511   33,881     33,881  
Basic earnings per share $ 0.03       $ 0.13   $ 0.00     $ 0.08  
Diluted shares outstanding 39,377       39,377   38,475     38,475  
Diluted earnings per share $ 0.03       $ 0.12   $ 0.00     $ 0.07  


     
Non-GAAP Income Statement Items Six months ended July 1, 2018 Six months ended July 2, 2017
  GAAP
Measure
Stock-based
Compensation
Expense
Income
Taxes*
Non-GAAP
Measure
GAAP
Measure
Stock-based
Compensation
Expense
Non-GAAP
Measure
Revenue $ 98,544       $ 98,544   $ 84,976     $ 84,976  
Gross profit 48,629   96     48,725   42,355   85   42,440  
Gross margin 49.3 % 0.1 %   49.4 % 49.8 % 0.1 % 49.9 %
Research and development 34,685   4,922     29,763   28,688   2,619   26,069  
Sales and marketing 8,474   1,577     6,897   6,191   763   5,428  
General and administrative 8,716   2,326     6,390   7,496   1,211   6,285  
Income (loss) from operations (3,246 ) 8,921     5,675   (20 ) 4,678   4,658  
(Provision) benefit for income taxes 467     (922 ) (455 ) (744 )   (744 )
Net income (loss) $ (2,215 ) $ 8,921   $ (922 ) $ 5,784   $ (716 ) $ 4,678   $ 3,962  
Basic shares outstanding 36,179       36,179   33,494     33,494  
Basic earnings per share $ (0.06 )     $ 0.16   $ (0.02 )   $ 0.12  
Diluted shares outstanding 36,179       39,075   33,494     38,414  
Diluted earnings per share $ (0.06 )     $ 0.15   $ (0.02 )   $ 0.10  
                               

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

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

   
Business Outlook Three Months Ended September 30, 2018
         
  Low   High
Estimated GAAP diluted earnings per share $ 0.04     $ 0.06  
Estimated stock compensation expense $ (0.10 )   $ (0.10 )
Estimated Non-GAAP diluted earnings per share $ 0.14     $ 0.16  
               

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

       
  July 1,
 2018
  December 31,
2017
Assets      
Current assets      
Cash and cash equivalents $ 23,421     $ 24,432  
Marketable securities 96,661     94,195  
Accounts receivable 29,700     26,786  
Inventory 21,391     12,662  
Prepaid expenses and other current assets 2,369     2,744  
Total current assets 173,542     160,819  
Deferred tax assets 36,482     35,422  
Property and equipment, net 12,838     12,511  
Intangible and other assets, net 3,901     3,952  
Total assets $ 226,763     $ 212,704  
Liabilities and Stockholders' Equity      
Current liabilities      
Accounts payable $ 8,904     $ 3,754  
Accrued liabilities and other current liabilities 23,155     21,065  
Long-term debt, current portion     3,943  
Total current liabilities 32,059     28,762  
Other long-term liabilities 3,214     3,339  
Total liabilities 35,273     32,101  
       
Stockholders' equity      
Common stock 3     3  
Additional paid-in capital 321,669     308,023  
Accumulated other comprehensive loss (751 )   (207 )
Accumulated deficit (129,431 )   (127,216 )
Total stockholders' equity 191,490     180,603  
Total liabilities and stockholders' equity $ 226,763     $ 212,704  
               

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

   
  Six Months Ended
  July 1, 2018   July 2, 2017
       
Cash flows from operating activities      
Net loss $ (2,215 )   $ (716 )
Adjustments to reconcile net loss to net cash provided by operating activities:      
Depreciation and amortization 2,263     1,024  
Stock-based compensation expense 8,921     4,678  
Deferred income taxes (913 )    
Other 247     197  
Changes in assets and liabilities:      
Accounts receivable (2,914 )   (3,216 )
Inventory (8,729 )   (5,165 )
Prepaid expenses and other current assets 375     (1,898 )
Deferred rent and other assets 101     (537 )
Accounts payable 4,972     5,968  
Accrued liabilities and other current liabilities 1,743     6,597  
Net cash provided by operating activities 3,851     6,932  
Cash flows from investing activities      
Purchase of property and equipment (1,378 )   (2,446 )
Purchase of long-term investment (590 )    
Purchase of marketable securities (38,998 )   (71,169 )
Maturities of marketable securities 36,120     4,994  
Net cash used in investing activities (4,846 )   (68,621 )
Cash flows from financing activities      
Proceeds from issuance of common stock, net 5,312     3,980  
Payments of taxes withheld for vested stock awards (689 )    
Payments related to intangible asset purchase (544 )    
Repayments of long-term debt (3,943 )   (1,105 )
Net cash provided by financing activities 136     2,875  
Effect of exchange rates on cash and cash equivalents (152 )    
Net decrease in cash and cash equivalents (1,011 )   (58,814 )
Cash and cash equivalents      
Beginning of period 24,432     117,045  
End of period $ 23,421     $ 58,231  
       

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

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