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News Release
Quantenna Announces Third Quarter 2018 Financial Results
Another Record Revenue Quarter Highlights Quantenna’s Broad Product Portfolio
San Jose, CA - October 29, 2018 - 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
%
 
—%
 
 
 
 
 
 
 
 
 
 
 
 
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 WiFi™ 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.












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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

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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.


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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

 
 
 
 
 
 
 
 
 
 
















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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



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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



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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

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