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

CONTACT: Quantenna Communications, Inc.
Vernon Essi, Jr.
669-209-5647
[email protected]