Aquantia Earnings 2019-06-30

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

10-Q 1 aq-10q_20190630.htm 10-Q aq-10q_20190630.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission File Number: 001-38270

AQUANTIA CORP.

(Exact Name of Registrant as Specified in its Charter)

Delaware

20-1199709

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

91 E. Tasman Drive, Suite 100

San Jose, CA 95134

(Address of principal executive offices)

Registrant’s telephone number, including area code: (408) 228-8300

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, $0.00001 par value

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☑
Non-accelerated filer	☐	Small reporting company	☐
Emerging growth company	☑

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☑

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of August 2, 2019, the registrant had 36,085,333 shares of common stock, $0.00001 par value per share, outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (Unaudited)	3
	Unaudited Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018	3
	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2019 and 2018	4
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months ended June 30, 2019 and 2018	5
	Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2019 and 2018	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	25
Item 4.	Controls and Procedures	26

PART II.	OTHER INFORMATION	28
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 6.	Exhibits	30

Signatures		31

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

AQUANTIA CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except for par value and share amounts)

(unaudited)

	June 30,			December 31,
	2019			2018
Assets
Current assets:
Cash and cash equivalents	$	4,297		$	6,684
Short-term investments		45,914			60,730
Accounts receivable		7,526			16,927
Inventories		20,317			14,474
Prepaid expenses and other current assets		1,427			2,018
Total current assets		79,481			100,833
Property and equipment, net		10,721			9,225
Operating lease assets, net		5,386			—
Intangible assets, net		3,345			3,748
Other assets		618			617
Total assets	$	99,551		$	114,423
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	6,851		$	5,495
Accrued liabilities		14,486			13,907
Operating lease liabilities - short term		840			—
Total current liabilities		22,177			19,402
Operating lease liabilities - long term		6,048			—
Other long-term liabilities		413			1,799
Total liabilities		28,638			21,201
Commitments and contingencies (Note 3 and Note 6)
Stockholders’ equity:
Common stock, $0.00001 par value, 95,000,000 shares authorized as of each of June 30, 2019 and December 31, 2018; 36,078,275 and 35,050,425 shares outstanding at June 30, 2019 and December 31, 2018, respectively		—			—
Additional paid-in capital		309,269			300,791
Accumulated other comprehensive income (loss)		38			(123	)
Accumulated deficit		(238,394	)		(207,446	)
Total stockholders’ equity		70,913			93,222
Total liabilities and stockholders’ equity	$	99,551		$	114,423

See accompanying notes to condensed consolidated financial statements.

AQUANTIA CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Revenue	$	9,231		$	30,432		$	26,253		$	58,790
Cost of revenue		4,846			12,914			12,902			25,155
Gross profit		4,385			17,518			13,351			33,635
Operating expenses:
Research and development		15,004			12,772			31,074			25,346
Sales and marketing		2,652			2,614			5,371			4,901
General and administrative		4,932			3,324			8,354			6,321
Total operating expenses		22,588			18,710			44,799			36,568
Loss from operations		(18,203	)		(1,192	)		(31,448	)		(2,933	)
Other income (expense):
Other income, net		344			291			712			539
Total other income (expense)		344			291			712			539
Loss before income tax expense		(17,859	)		(901	)		(30,736	)		(2,394	)
Provision for (benefit from) income taxes		22			(68	)		212			(193	)
Net loss	$	(17,881	)	$	(833	)	$	(30,948	)	$	(2,201	)
Net loss per share, basic and diluted	$	(0.50	)	$	(0.02	)	$	(0.87	)	$	(0.07	)
Weighted-average shares used to compute net loss per share, basic and diluted		35,775			33,836			35,468			33,666
Comprehensive loss:
Net loss	$	(17,881	)	$	(833	)	$	(30,948	)	$	(2,201	)
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) - short-term investments		42			52			161			(79	)
Comprehensive loss	$	(17,839	)	$	(781	)	$	(30,787	)	$	(2,280	)

See accompanying notes to condensed consolidated financial statements.

AQUANTIA CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Amounts in thousands, except share amounts)

									Accumulated
						Additional			Other						Total
	Common Stock					Paid-In			Comprehensive			Accumulated			Stockholders'
	Shares			Amount		Capital			loss			Deficit			Equity
BALANCE—December 31, 2018		35,050,425			—		300,791			(123	)		(207,446	)		93,222
Other comprehensive loss (gain) - unrealized loss (gain) on short-term investments		—			—		—			119			—			119
Exercise of stock options		132,692			—		392			—			—			392
Issuance of restricted stock units		325,436			—		—			—			—			—
Stock-based compensation expense		—			—		2,290			—			—			2,290
Net loss		—			—		—			—			(13,067	)		(13,067	)
BALANCE—March 31, 2019		35,508,553		$	—	$	303,473		$	(4	)	$	(220,513	)	$	82,956
Other comprehensive loss (gain) - unrealized loss (gain) on short-term investments		—			—		—			42			—			42
Exercise of stock options		320,601			—		1,334			—			—			1,334
ESPP Purchase		186,120			—		1,573			—			—			1,573
Issuance of restricted stock units		63,001			—		—			—			—			—
Stock-based compensation expense		—			—		2,889			—			—			2,889
Net loss		—			—		—			—			(17,881	)		(17,881	)
BALANCE—June 30, 2019		36,078,275		$	—	$	309,269		$	38		$	(238,394	)	$	70,913

									Accumulated
						Additional			Other						Total
	Common Stock					Paid-In			Comprehensive			Accumulated			Stockholders'
	Shares			Amount		Capital			loss			Deficit			Equity
BALANCE—December 31, 2017		33,523,683			—		288,719			(96	)		(197,709	)		90,914
Cumulative effect upon adoption of ASC 606		—			—		—			—			35			35
Other comprehensive loss (gain) - unrealized loss (gain) on short-term investments		—			—		—			(131	)		—			(131	)
Exercise of stock options		3,466			—		—			—			—			—
Issuance of restricted stock units		102,500			—		—			—			—			—
Issuance of restricted stock units (reversed, not yet issued)		(137,529	)		—		—			—			—			—
Issuance of common stock, net upon exercise of warrants		48,305			—		—			—			—			—
Repurchase of stock options		(3,626	)		—		—			—			—			—
IPO Costs		—			—		(22	)		—			—			(22	)
Stock-based compensation expense		—			—		978			—			—			978
Net loss		—			—		—			—			(1,368	)		(1,368	)
BALANCE—March 31, 2018		33,536,799		$	—	$	289,675		$	(227	)	$	(199,042	)	$	90,406
Other comprehensive loss (gain) - unrealized loss (gain) on short-term investments		—			—		—			52			—			52
Exercise of stock options		520,400			—		1,673			—			—			1,673
ESPP Purchase		207,935					1,591									1,591
Repurchase of stock options		(4,929	)		—		(16	)		—			—			(16	)
Stock-based compensation expense		—			—		1,162			—			—			1,162
Net loss		—			—		—			—			(833	)		(833	)
BALANCE—June 30, 2018		34,260,205		$	—	$	294,085		$	(175	)	$	(199,875	)	$	94,035

See accompanying notes to condensed consolidated financial statements.

AQUANTIA CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Six Months Ended
	June 30,
	2019			2018
Cash flows from operating activities
Net loss	$	(30,948	)	$	(2,201	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		3,179			2,755
Stock-based compensation expense		5,179			2,140
Accretion of investment premium, net of amortization of discount		(222	)		—
Loss (Gain) on disposal of fixed assets and lease impairment		—			(70	)
Changes in operating assets and liabilities:
Accounts receivable		9,401			(988	)
Inventories		(5,843	)		2,071
Operating lease assets, net		512			—
Prepaid expenses and other assets		590			2,570
Accounts payable		1,124			(2,527	)
Accrued and other liabilities		609			633
Operating lease liabilities		(426	)		—
Net cash provided by (used in) operating activities		(16,845	)		4,383
Cash flows from investing activities
Purchases of property and equipment		(4,040	)		(1,981	)
Proceeds from sales of PP&E		—			70
Proceeds from sales of short-term investments		1,000			—
Proceeds from maturities of short-term investments		26,085			20,553
Purchases of short-term investments		(11,886	)		(21,137	)
Net cash provided by (used in) investing activities		11,159			(2,495	)
Cash flows from financing activities
Proceeds from exercise of stock options and preferred stock warrants		1,726			1,657
Proceeds from employee stock purchase plan		1,573			1,591
Purchases of IP licenses		—			(26	)
Payment of costs related to initial public offering		—			(276	)
Net cash provided by financing activities		3,299			2,946
Net decrease in cash and cash equivalents		(2,387	)		4,834
Cash and cash equivalents at beginning of period		6,684			8,040
Cash and cash equivalents at end of period	$	4,297		$	12,874
Supplemental disclosures of cash flow information
Cash paid for interest	$	17		$	—
Cash paid for income taxes	$	207		$	80
Cash paid for amounts included in the lease liabilities	$	770		$	—
Cashless exercises of warrants, net of assumed proceeds from shares	$	—		$	550
Property and equipment received and accrued	$	318		$	1,002

See accompanying notes to condensed consolidated financial statements.

AQUANTIA CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Organization, Description of Business and Basis for Presentation

Organization—Aquantia Corp. (together with its subsidiaries, the “Company”) was incorporated in Delaware on January 27, 2004. The Company is a leader in the design, development and marketing of advanced high-speed communications integrated circuits, or ICs, for Ethernet connectivity in the data center, enterprise infrastructure, access and automotive markets.

Pending Acquisition

On May 6, 2019, the Company and Marvell Technology Group Ltd., a Bermuda exempted company (“Marvell”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Marvell and Aquantia Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Marvell (“Merger Sub”) providing for the merger of Merger Sub with and into the Company (the “Merger”) with the Company surviving the Merger as a wholly owned subsidiary of Marvell. At a special meeting of the Company’s stockholders held on July 10, 2019, the stockholders adopted the Merger Agreement.

Under the terms of the Merger Agreement, Marvell will acquire all outstanding shares of the Company’s common stock in exchange for consideration of $13.25 per share in cash. The Merger Agreement contains representations and warranties customary for transactions of this type. The Merger is expected to close before the end of the calendar year 2019, subject to the satisfaction or waiver of a number of closing conditions. The Merger Agreement provides Marvell and the Company with certain termination rights and, under certain circumstances, may require Marvell or the Company to pay a termination fee.

The Company recorded acquisition-related costs of approximately $1.9 million for each of the three and six months ended June 30, 2019 primarily for outside legal and external financial advisory fees associated with the pending acquisition by Marvell. These costs were recorded in general and administrative expense in the Company’s condensed consolidated statements of operations and comprehensive loss in the respective reporting periods. Additional acquisition-related costs are expected to be incurred through the closing of the Merger.

Basis of Presentation and Principles of Consolidation—The accompanying unaudited condensed consolidated financial statements included herein have been prepared by us in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, normal recurring adjustments considered necessary for a fair presentation have been reflected in these condensed consolidated financial statements. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations.

The condensed consolidated balance sheet as of December 31, 2018 has been derived from the audited financial statements for the fiscal year then ended included in the Company’s Annual Report on Form 10-K filed with the SEC on March 6, 2019 (the “2018 Annual Report on Form 10-K”), but does not include all of the information and notes required by U.S. GAAP for complete consolidated financial statements. The financial information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements as of and for the fiscal year ended December 31, 2018 and the related notes thereto included in the 2018 Annual Report on Form 10-K.

2. Summary of Significant Accounting Policies

During the three and six months ended June 30, 2019, there have been no changes in our significant accounting policies as described in the Company’s 2018 Annual Report on Form 10-K, except as discussed below:

Recent Accounting Pronouncements—

Adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (herein referred to as “ASC 842”). The new guidance requires entities to recognize assets and liabilities for leases and additional disclosures to better understand the amount, timing and uncertainty of cash flows arising from leases. The guidance was effective for financial statements issued for fiscal years beginning after December 15, 2018. Early adoption was permitted. The Company adopted this guidance in the first quarter of 2019 using the modified retrospective approach, electing the package of practical expedients, which allows for the carryforward of the Company’s historical lease classification and assessment on whether a contract is or contains a lease, and the practical expedient to not separate lease and non-lease components. The Company has elected not to record on the balance sheet leases with an initial term of twelve months or less and that do not have a purchase option that the Company is reasonably certain to exercise. The Company also elected the optional transition method that permits adoption of the new standard as of the effective date without adjusting comparative periods presented. Adoption of the

standard resulted in the recognition of $5.9 million of right-of-use assets and $7.3 million of lease liabilities on our condensed consolidated balance sheet at adoption related to our leases. The difference of $1.4 million represented lease incentives and deferred rent for leases that existed as of the date of adoption, which reduced the right-of-use asset recorded at the date of adoption. The adoption of the standard on January 1, 2019 did not have a material impact on the Company’s consolidated statements of operations, stockholders’ equity or cash flows. See Note 3 for additional information.

3. Balance Sheet Components

Inventories consisted of the following (in thousands):

	As of June 30,		As of December 31,
	2019		2018
Processed wafers	$	1,847	$	1,233
Work in process		7,979		5,990
Finished goods		10,491		7,251
Total inventories	$	20,317	$	14,474

Property and equipment, net consisted of the following (in thousands):

		As of June 30,			As of December 31,
	Estimated Useful Lives	2019			2018
Machinery and equipment	2-3 years	$	16,530		$	15,237
Production masks	4 years		8,101			5,401
Software and computer equipment	3 years		4,617			4,492
Leasehold improvements	Shorter of estimated life of asset or remaining lease term		1,414			1,414
Office furniture and fixtures	3 years		163			117
Total property and equipment			30,825			26,661
Less: accumulated depreciation and amortization			(20,104	)		(17,436	)
Property and equipment, net		$	10,721		$	9,225

Depreciation and amortization of property and equipment totaled $1.4 million and $1.2 million for the three months ended June 30, 2019 and 2018, respectively. Depreciation and amortization of property and equipment totaled $2.8 million and $2.4 million for the six months ended June 30, 2019 and 2018, respectively.

Intangible assets, net were carried at cost, less accumulated amortization. Intangible assets were as follows (in thousands):

		As of June 30,			As of December 31,
	Estimated Useful Lives	2019			2018
IP license	7 years	$	5,416		$	5,416
Patents	10-12 years		348			348
Total intangible assets			5,764			5,764
Less: accumulated amortization			(2,419	)		(2,016	)
Intangible assets, net		$	3,345		$	3,748

Amortization of intangible assets totaled $0.2 million and $0.2 million for the three months ended June 30, 2019 and 2018, respectively. Amortization of intangible assets totaled $0.4 million and $0.4 million for the six months ended June 30, 2019 and 2018, respectively.

Amortization expense related to amortizable intangibles in future periods as of June 30, 2019 is expected to be as follows (in thousands):

2019 (remaining)

405

Price	182.80	EPS	-1
Shares	36	P/E	-170
MCap	6,540	P/FCF	-585
Net Debt	-4	EBIT	-38
TEV	6,535	TEV/EBIT	-174
TTM 2019-06-30, in MM, except price, ratios

10-Q	2019-06-30	Filed 2019-08-08
10-Q	2019-03-31	Filed 2019-05-09
10-K	2018-12-31	Filed 2019-03-06
10-Q	2018-09-30	Filed 2018-11-07
10-Q	2018-06-30	Filed 2018-08-08
10-Q	2018-03-31	Filed 2018-05-09
10-K	2017-12-31	Filed 2018-03-07
10-Q	2017-09-30	Filed 2017-12-06

8-K	2019-09-19
8-K	2019-07-10
8-K	2019-06-19
8-K	2019-05-07
8-K	2019-05-06
8-K	2019-05-06
8-K	2019-05-06
8-K	2019-03-01
8-K	2019-02-12
8-K	2019-01-23
8-K	2018-10-25
8-K	2018-07-25
8-K	2018-06-29
8-K	2018-04-26
8-K	2018-04-25
8-K	2018-04-06
8-K	2018-02-08
8-K	2018-02-06
8-K	2018-01-12

EX-31.1	aq-ex311_8.htm
EX-31.2	aq-ex312_6.htm
EX-32.1	aq-ex321_7.htm

AQ 10Q Quarterly Report

Aquantia Earnings 2019-06-30