QTNA - Quantenna Announces Third Quarter 2018 Financial Results

October, 29 2018 04:05 PM Quantenna Communications Inc.

Another Record Revenue Quarter Highlights Quantenna’s Broad Product Portfolio

SAN JOSE, Calif., Oct. 29, 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 third quarter ended September 30, 2018.

"Our strong third quarter operating results highlight the success of our Wave 3 10G product. This solution is now also designed into the flagship offering of one of the largest European broadband service providers in addition to its continued deployment by cable MSOs in North America. With strong customer engagement and positive market feedback, we also expanded our 802.11ax product family with the launch of our mainstream offering, the world’s only dual-band, 9-stream 802.11ax solution,” commented Dr. Sam Heidari, Chairman and Chief Executive Officer.

“We expect record revenue in the fourth quarter driven by continued growth across our primary product segments as we are expanding our addressable market into mainstream opportunities that are seeking a superior Wi-Fi experience.”

Financial Summary


Three Months Ended



Nine Months Ended



September 30, 2018

October 1, 2017

% Change

September 30, 2018

October 1, 2017

% Change












Revenue
$
59,349


$
50,108


18.4%

$
157,893


$
135,084


16.9%
Gross Profit
29,490


24,517


20.3%

78,119


66,872


16.8%
Gross Margin
49.7
%

48.9
%

80 bps

49.5
%

49.5
%

– bps












Net income:











GAAP
$
3,879


$
2,802




$
1,664


$
2,087



Non-GAAP
6,968


5,571




12,752


9,534















Net income per share - diluted:











GAAP
$
0.10


$
0.07




$
0.04


$
0.05



Non-GAAP
0.17


0.14




0.32


0.25















(in thousands except per share data, unaudited)

Commentary on the third 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.

Third Quarter Company Highlights

Record revenue of $59.3 million, representing year over year growth of 18% over the third quarter of 2017 and 11% sequential growth over the second quarter of 2018.
Third quarter GAAP diluted EPS of $0.10 compares to $0.07 in the third quarter of 2017. Third quarter non-GAAP dilutive EPS of $0.17 compares to $0.14 in the third quarter of 2017.
Third quarter GAAP operating income grew 24% compared to the third quarter of 2017. Third quarter non-GAAP operating income grew 35% compared to the third quarter of 2017.
Third quarter cash generated from operations grew 118% compared to the third quarter of 2017. Cumulative 2018 year-to-date cash from operations grew 39% compared to 2017.
Record revenue from both our Wave 3 10G and Wave 2 product segments.
Expansion of Wave 3 10G into Europe with Deutsche Telekom’s award-winning Speedport Pro gateway powered by Quantenna’s Wave 3 10G solution, using its full 12 stream capabilities for maximum Wi-Fi performance.
Released and sampled to customers the QSR5GU-AX PLUS, the world’s only dual-band, 9-stream 802.11ax solution.
The latest North American cable MSO initiated a full volume rollout using our Wave 3 QSR 10G technology in their next generation gateway bringing our total to four cable MSOs in deployment.
Enabled individual Wi-Fi clients to exceed 1Gbps throughput using Quantenna's QSR10GU-AX PLUS and QSR10G with commercially available mobile products from Intel Corp.
Orange Poland launched their new dual-band dual-concurrent Wi-Fi repeater, the Smart Wi-Fi Box, based on one of our Wave 2 chipsets.
Integrated Plume’s Adaptive WiFiâ„¢ AI driven mesh solution into our QSR5GU-AX PLUS solution to deliver the next generation of whole-home mesh networking.
Announced a strategic partnership with Aerial Technologies to bring the latest in Wi-Fi motion detection technology to the market.

Business Outlook

Fourth Quarter 2018
Guidance Range

Revenue

$61M to $63M

Gross Margin

GAAP

49.9% +/- 100bps

Non-GAAP

50.0% +/- 100bps

Operating Expense

GAAP

$27.1M to $28.1M

Non-GAAP

$23.0M to $24.0M

Net income per share-diluted

GAAP

$0.08 - $0.10

Non-GAAP

$0.18 - $0.20

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: 1795125. 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 third quarter ended September 30, 2018, forecasted financial results for the fourth 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 Quantenna's 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 impact of increased tariffs and escalating trade tensions among countries on Quantenna and its customers, end customers, vendors and partners; 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 third 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 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

Nine Months Ended


September 30, 2018

October 1, 2017

September 30, 2018

October 1, 2017










Revenue
$
59,349


$
50,108


$
157,893


$
135,084


Cost of revenue
29,859


25,591


79,774


68,212


Gross profit
29,490


24,517


78,119


66,872


Operating expenses:








Research and development
17,783


15,011


52,468


43,699


Sales and marketing
3,833


3,363


12,307


9,553


General and administrative
4,886


3,735


13,602


11,231


Total operating expenses
26,502


22,109


78,377


64,483


Income (loss) from operations
2,988


2,408


(258
)

2,389


Interest expense
–


(103
)

–


(442
)

Other income, net
243


223


807


610


Income before income taxes
3,231


2,528


549


2,557


Benefit (provision) for income taxes
648


274


1,115


(470
)

Net income
$
3,879


$
2,802


$
1,664


$
2,087


Net income per share - basic
$
0.10


$
0.08


$
0.05


$
0.06


Net income per share - diluted
$
0.10


$
0.07


$
0.04


$
0.05











Shares used in computing net income per share:








Basic
37,070


34,734


36,476


33,907


Diluted
40,026


38,525


39,425


38,419




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 September 30, 2018
Three months ended October 1, 2017

GAAP Measure
Stock-based Compensation Expense
Income Taxes*
Non-GAAP Measure
GAAP Measure
Stock-based Compensation Expense
Non-GAAP Measure
Revenue
$
59,349



$
59,349

$
50,108


$
50,108

Gross profit
29,490

50


29,540

24,517

38

24,555

Gross margin
49.7
%
0.1
%

49.8
%
48.9
%
0.1
%
49.0
%
Research and development
17,783

2,248


15,535

15,011

1,367

13,644

Sales and marketing
3,833

541


3,292

3,363

416

2,947

General and administrative
4,886

1,163


3,723

3,735

948

2,787

Income from operations
2,988

4,002


6,990

2,408

2,769

5,177

(Provision) benefit for income taxes
648

–

(913
)
(265
)
274

–

274

Net income
$
3,879

$
4,002

$
(913
)
$
6,968

$
2,802

$
2,769

$
5,571

Basic shares outstanding
37,070



37,070

34,734


34,734

Basic earnings per share
$
0.10



$
0.19

$
0.08


$
0.16

Diluted shares outstanding
40,026



40,026

38,525


38,525

Diluted earnings per share
$
0.10



$
0.17

$
0.07


$
0.14

Non-GAAP Income Statement Items
Nine months ended September 30, 2018
Nine months ended October 1, 2017

GAAP Measure
Stock-based Compensation Expense
Income Taxes*
Non-GAAP Measure
GAAP Measure
Stock-based Compensation Expense
Non-GAAP Measure
Revenue
$
157,893



$
157,893

$
135,084


$
135,084

Gross profit
78,119

146


78,265

66,872

123

66,995

Gross margin
49.5
%
0.1
%

49.6
%
49.5
%
0.1
%
49.6
%
Research and development
52,468

7,170


45,298

43,699

3,986

39,713

Sales and marketing
12,307

2,118


10,189

9,553

1,179

8,374

General and administrative
13,602

3,489


10,113

11,231

2,159

9,072

Income (loss) from operations
(258
)
12,923


12,665

2,389

7,447

9,836

(Provision) benefit for income taxes
1,115

–

(1,835
)
(720
)
(470
)
–

(470
)
Net income (loss)
$
1,664

$
12,923

$
(1,835
)
$
12,752

$
2,087

$
7,447

$
9,534

Basic shares outstanding
36,476



36,476

33,907


33,907

Basic earnings per share
$
0.05



$
0.35

$
0.06


$
0.28

Diluted shares outstanding
39,425



39,425

38,419


38,419

Diluted earnings per share
$
0.04



$
0.32

$
0.05


$
0.25

















*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 December 30, 2018







Low

High
Estimated GAAP diluted earnings per share

$
0.08


$
0.10

Estimated stock compensation expense

$
(0.10
)

(0.10
)
Estimated Non-GAAP diluted earnings per share

$
0.18


$
0.20





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





September 30, 2018

December 31, 2017
Assets



Current assets



Cash and cash equivalents
$
34,559


$
24,432

Marketable securities
97,471


94,195

Accounts receivable
20,081


26,786

Inventory
21,578


12,662

Prepaid expenses and other current assets
6,512


2,744

Total current assets
180,201


160,819

Deferred tax assets
37,443


35,422

Property and equipment, net
13,418


12,511

Intangible and other assets, net
3,571


3,952

Total assets
$
234,633


$
212,704

Liabilities and Stockholders’ Equity



Current liabilities



Accounts payable
$
10,255


$
3,754

Accrued liabilities and other current liabilities
23,220


21,065

Long-term debt, current portion
–


3,943

Total current liabilities
33,475


28,762

Other long-term liabilities
2,670


3,339

Total liabilities
36,145


32,101





Stockholders’ equity



Common stock
3


3

Additional paid-in capital
324,931


308,023

Accumulated other comprehensive loss
(894
)

(207
)
Accumulated deficit
(125,552
)

(127,216
)
Total stockholders’ equity
198,488


180,603

Total liabilities and stockholders’ equity
$
234,633


$
212,704



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



Nine Months Ended

September 30, 2018

October 1, 2017




Cash flows from operating activities



Net income
$
1,664


$
2,087

Adjustments to reconcile net income to net cash provided by operating activities:



Depreciation and amortization
3,467


1,566

Stock-based compensation expense
12,923


7,447

Deferred income taxes
(1,821
)

–

Other
705


347

Changes in assets and liabilities:



Accounts receivable
6,705


(8,340
)
Inventory
(8,916
)

(7,880
)
Prepaid expenses and other current assets
(3,768
)

(22
)
Deferred rent and other assets
159


(790
)
Accounts payable
6,498


5,119

Accrued liabilities and other current liabilities
2,075


14,660

Net cash provided by operating activities
19,691


14,194

Cash flows from investing activities



Purchase of property and equipment
(3,962
)

(6,961
)
Purchase of long-term investment
(590
)

–

Purchase of marketable securities
(47,917
)

(104,044
)
Proceeds from sales of marketable securities
–


3,670

Maturities of marketable securities
44,259


12,239

Net cash used in investing activities
(8,210
)

(95,096
)
Cash flows from financing activities



Proceeds from issuance of common stock, net
6,091


5,083

Payments of taxes withheld for vested stock awards
(2,428
)

(626
)
Payments related to intangible asset purchase
(815
)

–

Repayments of long-term debt
(3,943
)

(1,756
)
Net cash (used in) provided by financing activities
(1,095
)

2,701

Effect of exchange rates on cash and cash equivalents
(259
)

–

Net increase (decrease) in cash and cash equivalents
10,127


(78,201
)
Cash and cash equivalents



Beginning of period
24,432


117,045

End of period
$
34,559


$
38,844

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

Company Name:	Quantenna Communications Inc.
Stock Symbol:	QTNA
Market:	NASDAQ

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