QUANTENNA COMMUNICATIONS INC (Form: 10-K, Received: 03/01/2019 06:29:41)

February 28, 2019

/s/ Sam Heidari

Sam Heidari

Chief Executive Officer (Principal Executive Officer)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________

FORM 10-K

_____________________________________



(Mark One)
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 30, 2018



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

For transition period from to

Commission File Number: 001-37927

____________________________________

QUANTENNA COMMUNICATIONS, INC.

(Exact name of Registrant as specified in its charter)

_____________________________________



Delaware		33-1127317
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

1704 Automation Parkway

San Jose, California 95131

(Address of principal executive offices, including zip code)

(669) 209-5500

(Registrant’s telephone number, including area code)

_____________________________________

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



Title of each class		Name of each exchange on which registered
Common Stock, par value $0.0001		The NASDAQ Stock Market LLC
		(NASDAQ Global Select Market)

Securities registered pursuant to section 12(g) of the Act:

None

__________________

Indicate by a check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

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 x 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 x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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	x
Non-accelerated filer	¨	Smaller reporting company	¨
		Emerging growth company	x

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. x

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

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant, based on the closing price of a share of the registrant’s common stock on June 29, 2018 (the last business day of the registrant's most recently completed second fiscal quarter) as reported by the NASDAQ Global Select Market on such date was approximately $506,823,969 .

As of February 26, 2019 , 38,261,220 shares of the registrant’s common stock, $0.0001 par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the information called for by Part III of this Annual Report on Form 10-K where indicated are hereby incorporated by reference from the Definitive Proxy Statement for the registrant’s Annual Meeting of Stockholders to be held in 2019 , which will be filed with the Securities and Exchange Commission not later than 120 days after the end of the registrant’s fiscal year ended December 30, 2018 .

Table of Contents

TABLE OF CONTENTS



		Page
Part I
Item 1.	Business	1
Item 1A.	Risk Factors	13
Item 1B.	Unresolved Staff Comments	30
Item 2.	Properties	30
Item 3.	Legal Proceedings	30
Item 4.	Mine Safety Disclosures	30

Part II.
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	31
Item 6.	Selected Consolidated Financial Data	33
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 7A.	Quantitative and Qualitative Disclosure About Market Risk	51
Item 8.	Financial Statements and Supplementary Data	52
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	83
Item 9A.	Controls and Procedures	83
Item 9B.	Other Information	85

Part III.
Item 10.	Directors, Executive Officers and Corporate Governance	86
Item 11.	Executive Compensation	86
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	86
Item 13.	Certain Relationships and Related Transactions and Director Independence	86
Item 14.	Principal Accounting Fees and Services	86

Part IV.
Item 15.	Exhibits, Financial Statement Schedules	87

SIGNATURES

_____________________________________

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Annual Report on Form 10-K include, but are not limited to, statements about our products, technology, customers, business, operations, and market and industry developments.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Annual Report on Form 10-K primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Annual Report on Form 10-K. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Annual Report on Form 10-K relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Annual Report on Form 10-K to reflect events or circumstances after the date of this Annual Report on Form 10-K or to reflect new information or the occurrence of unanticipated events, except as required by law.

- 3 -

Table of Contents

PART I

Item 1. BUSINESS

Overview

We are a leader in the design, development, and marketing of advanced high-speed wireless communication solutions enabling wireless local area networking. Our solutions are designed to deliver leading-edge Wi-Fi performance to support an increasing number of connected devices accessing a rapidly growing pool of digital content. We apply our wireless systems and software expertise with high-performance radio frequency, mixed-signal and digital semiconductor design skills to provide highly integrated Wi-Fi solutions to our customers. Our technical expertise and focus on innovation enable us to address the increasing complexity inherent in managing Wi-Fi network access for multiple client devices with different high-bandwidth content streams, while simultaneously delivering superior network speed, broad coverage area, and high capacity and reliability. Our innovative solutions have historically addressed the communications service provider, or service provider, market for home networking applications, including home gateways, repeaters, mesh nodes and video clients such as set-top boxes, or STBs, but we are seeking to increasingly address additional end markets, with solutions for retail, outdoor, small and medium business, enterprise, industrial and consumer electronics. As a pioneer in high performance Wi-Fi solutions, we believe that we are well positioned to serve the rapidly evolving Wi-Fi needs of customers in both our existing and future end markets. We also believe our significant engineering expertise in wireless and communications can expand our addressable market beyond Wi-Fi.

Wi-Fi is a ubiquitous standard for wireless network connectivity, defined by the Institute of Electrical and Electronics Engineers, or IEEE, 802.11 standardization body working group that is rapidly evolving to deliver continued performance improvements while maintaining backward compatibility. According to ABI Research, in 2018 approximately 2.9 billion Wi-Fi-enabled devices are expected to ship, of which approximately 0.8 billion were non-portable devices, and cumulatively, over 18 billion Wi-Fi-connected devices are expected to ship worldwide as of the end of 2018. The rapid growth in Wi-Fi connected devices, coupled with the steadily rising volume of global Internet Protocol-based, or IP-based, traffic, such as web browsing, email, Internet audio and video, file sharing, cloud computing and online gaming, has significantly increased the performance requirements of access points that power Wi-Fi networks. The Cisco Visual Networking Index forecasts that monthly worldwide IP traffic over Wi-Fi will grow from 54 exabytes per month in 2017 to 202 exabytes per month in 2022, a compound annual growth rate of 30%. Such requirements have led to the adoption of ever faster and higher performing Wi-Fi with every standard iteration.

The current generation of Wi-Fi standard is 802.11ac, which experienced its initial adoption in 2013. Due to its higher order modulation and spatial streams, which increased to eight compared to four in the prior generation, as well as its introduction of multi-user, multiple input and multiple output (MU-MIMO), the 802.11ac standard provided an opportunity for us to differentiate our solution from our competitors and gain market share by meeting the full performance and standard requirements. The next Wi-Fi standard is 802.11ax, designated as “Wi-Fi 6” by the Wi-Fi Alliance in October 2018, is currently in draft form and anticipated to be ratified in late 2019. Wi-Fi 6 is the latest revision of the 802.11 Wi-Fi standard, which offers improvement in network speeds over its predecessor and accommodates more users and client nodes. Wi-Fi 6 makes use of orthogonal frequency-division multiple access (OFDMA), which allows better multiplexing of various users. We believe once again that our solutions meet the Wi-Fi 6 standard and will differentiate us from our competitors and give us more opportunities to gain market share. Given the limited wireless spectrum available for Wi-Fi networks and the rapidly increasing demand for Wi-Fi-enabled services, the IEEE standardization body continues to define more advanced capabilities for future revisions of the standard, in particular a new standard to be based on the EHT (extremely high throughput) study group which seeks to advance 802.11 technology to the 6 gigahertz, or GHz, unlicensed bands, which offers more than twice the total spectrum the current 2.4GHz and 5GHz Wi-Fi unlicensed bands. The 802.11 standard implementation is left to the chipset vendors, and the inherent complexity and many optional features of the standard result in trade-offs leading to wide-ranging levels of Wi-Fi chipset functionality, performance, power and cost.

As the performance requirements of next generation Wi-Fi increase, a more advanced approach to the design of high-speed wireless communication products is required to address numerous challenges such as increasing Wi-Fi speeds, spectrum sharing, competing traffic, evolving standards, legacy Wi-Fi processing architecture and network interferences. We have pioneered significant enhancements to advanced features such as higher-order Multiple Input and Multiple Output, or MIMO, Multi-User MIMO, or MU-MIMO, transmit beamforming, and additional technologies to achieve superior Wi-Fi performance relative to our competition. Our competitive strengths include support of the most advanced specifications, proprietary technology

- 1 -

Table of Contents

architectures, and advanced software and system-level algorithms. Furthermore, we have created a series of software products and tools that augment our silicon solutions. These include: ViSiON, a cloud-based Wi-Fi analytics and monitoring platform that remotely diagnoses network inefficiencies; SONiQ, intelligent self-optimizing network software for seamless mesh connectivity between multiple repeaters and multi-access points; and Qdock, a software layer that resides on all of our silicon solutions, enabling an interface for third-party developers and partners to develop new features on our Wi-Fi ecosystem.

Customers choose our Wi-Fi solutions to offer products with differentiated network speed, coverage area, reliability, and capacity. Our solutions portfolio is currently comprised of multiple generations of our radio frequency chip and our digital baseband chip, which together support the IEEE Wi-Fi standards, including 802.11n, 802.11ac and the draft Wi-Fi 6 standard. Radio frequency chips use a combination of analog, digital and high frequency circuits to transmit and receive signals in certain frequencies, such as 2.4 gigahertz and 5GHz for Wi-Fi. Digital baseband chips transmit and receive data to and from radio frequency chips. These chips are typically sold together as a chipset combined with software and system-level reference designs that constitute a highly integrated Wi-Fi solution. We maintain our product differentiation by designing and implementing a variety of innovative system architecture features, as well as advanced software and system-level algorithms.

According to ABI Research, the global market for Wi-Fi chipsets is expected to grow from $4.0 billion in 2017 to $5.5 billion in 2022. We have shipped over 200 million chips to our customers across four semiconductor process generations. Our chips consist of transistors using various advanced semiconductor fabrication technology nodes, which are measured in nanometers, or nm, to address different system requirements. We are currently in volume production in 90nm, 65nm, 40nm and 28nm. During the year ended December 30, 2018 , our global original equipment manufacturer, or OEM, and original design manufacturer, or ODM, customers included Arris International plc, or Arris, Foxconn Technology Group or Foxconn, Mitrastar Technology Corp. or Mitrastar, Sagemcom Broadband SAS, or Sagemcom, and Technicolor SA, or Technicolor. During the same period, these OEM and ODM customers supported a number of major service providers in the United States as well as internationally. For the year ended December 30, 2018 , our revenue was $220.5 million and our net income was $3.1 million , and we had an accumulated deficit of $124.1 million as of December 30, 2018 .

Industry Background

Global growth in IP data traffic and the proliferation of Wi-Fi connected devices are driving demand for increased and higher performance Wi-Fi connectivity. In addition, the types of IP traffic carried over Wi-Fi are also expanding. When Wi-Fi was first introduced into homes and enterprises, the predominant applications were email and Internet access. Today, the number of applications supported over Wi-Fi has grown to also encompass voice over IP, high-definition audio, Ultra High Definition television, or UHD, TV, cloud computing, gaming and over-the-top video, which refers to the delivery of video over the subscriber’s broadband connection without the involvement of traditional TV service providers. We believe that Wi-Fi will become the most prevalent method to carry these applications.

To meet these demands, service providers, retail OEMs, enterprise OEMs, and consumer electronics OEMs are increasingly focused on integrating the best Wi-Fi capabilities into their products.

•

Service Providers . Service providers, including AT&T, Inc., or AT&T, Comcast Corporation, or Comcast, Cox Communications, Orange S.A., and Telefonica, S.A., are seeking to deploy and manage the best Wi-Fi infrastructure inside the home to enable the connectivity of a growing number of Wi-Fi devices, and to offer a richer complement of value-added services such as high-speed Internet, UHD TV, voice over IP, home security, energy management, cloud computing and gaming. To meet the connectivity and bandwidth demands of such wireless infrastructure, service providers have migrated from home gateways with single-band 2.4GHz 802.11n to dual-band 2.4GHz and 5GHz home gateways and mesh nodes, which include support for 802.11ac and the draft Wi-Fi 6 standards. The Wi-Fi 6 standard not only supports faster speeds but also allows more devices to be simultaneously connected within the home, which is a crucial requirement as the average number of connected devices per household will continue to grow rapidly. Furthermore, service providers desire to offer their customers a seamless Wi-Fi connectivity experience outside the home. They have increased investments in the deployment of Wi-Fi hotspots to support sophisticated roaming and authentication with other hotspots and with customers’ home gateways. As a result, service providers use Wi-Fi to offer a higher performance, lower cost alternative to traditional mobile cellular services.


•	Retail OEMs. Retail OEMs, including Asus, Belkin International, Inc. and NETGEAR, Inc. are focusing on higher performance Wi-Fi as consumers are increasingly motivated to invest in higher-performance Wi-Fi for their homes. Consumers desire high-performance Wi-Fi throughout the home to connect many devices including laptops,

- 2 -

Table of Contents

smartphones, tablets, TVs, gaming consoles, wireless speakers, thermostats, smoke detectors, home security and other Internet of Things, or IoT applications. As a result, retail OEMs strive to offer routers and mesh repeaters with the latest Wi-Fi technology and performance to provide customers’ homes with the fastest and most reliable speeds. Accordingly, we believe high-performance Wi-Fi routers will constitute an increasing portion of retail OEM router sales.

•

Enterprise OEMs. Enterprise OEMs for enterprise networking are seeking to meet the demands of an increasingly mobile workforce that is connecting to the network via multiple devices beyond a desktop or laptop, such as smartphones and tablets. Enterprises are also seeking to optimize the costs of their networking infrastructure by adopting cost-effective wireless architecture. As a result, enterprise OEMs are increasingly adopting higher performance Wi-Fi in their products to achieve higher speeds and improved wireless network capacity. Capacity refers to the amount of data that can be supported in a given frequency or channel. 802.11ac access points can support almost three times the capacity of 802.11n access points, and Wi-Fi 6 provides even more capacity. Higher capacity translates into a lower cost per bit, which is an important metric when tens, hundreds, or even thousands of access points are deployed in a given enterprise environment. We believe that the combination of higher capacity and lower cost per bit translates into greater enterprise demand for high-performance Wi-Fi enterprise access points.

•

Fixed Wireless Access (FWA). Wireless technology performance has improved to a point where it can provide reliable gigabit level transmissions. This allows wireless to be a viable alternative to fixed line technologies, such as fiber and cable, for last mile broadband access since it does not require the easement and implementation costs to physically deploy the connection. While most FWA systems in the past have used cellular or even proprietary technologies, Wi-Fi (due to its advancements starting with 802.11ac) is now comparable in performance to these incumbent technologies. In addition, Wi-Fi based systems, due to their simplicity versus cellular, have lower costs for not only the base station but also the modems at the end-customer. This may provide an augmentation to the base station connectivity for a next generation 5G network build. Our massive MIMO technology in addition to other features, allows FWA systems to extract the most performance and reliability at the lowest possible costs for FWA. We have existing and new relationships with suppliers and service providers to explore FWA systems.

•

Consumer Electronics OEMs. A more robust Wi-Fi network inside the home has enabled a proliferation of connected Wi-Fi devices and has driven an increasing need for better delivery of content to those Wi-Fi-enabled devices. As a result, consumer electronics OEMs are seeking to incorporate high-performance Wi-Fi in their products. We believe high-performance Wi-Fi is becoming a differentiator in consumer purchase decisions for high-end products which deliver optimal user experience and, as a result, we believe consumer electronics device OEMs will increasingly enable devices, such as 4K UHD TVs, over-the-top set top boxes, and gaming consoles with higher performance Wi-Fi.

Industry Challenges

Designing Wi-Fi solutions to provide the highest levels of performance is imperative to address increased traffic demands, yet remains very challenging due to the following factors.

Increasing Wi-Fi Speeds. 802.11ac-based devices are up to 10 times faster than prior generation devices, and Wi-Fi 6 will be even faster, sending data at gigabits per second through the wireless channel, an unpredictable medium filled with physical obstacles, such as walls, doors, and furniture, as well as radio interference, such as Bluetooth, Zigbee, microwave ovens, car alarms, cordless phones and baby monitors. As a result, more advanced digital signal processing techniques, such as MIMO, MU-MIMO, and explicit transmit beamforming, are required to keep up with the increasing performance requirements. A device incorporating MIMO technology transmits signals using more than one antenna and receives signals using more than one antenna, which allows the device to have increased speed and range. MU-MIMO allows multiple client devices to be served by a Wi-Fi access point simultaneously. Explicit transmit beamforming is a technique that enables gateways and access points to direct their signals toward a client rather than covering a larger area, which increases transmission efficiency and ultimately improves Wi-Fi speed, range and reliability. Together, these techniques increase the performance level of 802.11ac and 802.11ax solutions with improved range and more reliable connections, while serving an increased number of simultaneous users.

Spectrum Sharing. Wi-Fi operates in a limited, unlicensed wireless spectrum, as regulated in the United States by the Federal Communications Commission, or FCC. While the 5GHz spectrum used by 802.11ac and Wi-Fi 6 is inherently wider relative to the 2.4GHz spectrum, it is not always entirely available due to regulatory constraints that vary from country to country. For example, in many parts of the world, much of the 5GHz spectrum is reserved for military, weather radar, and air traffic control applications. These regulations mandate that Wi-Fi devices vacate such reserved spectrum upon detection of higher priority applications. To reliably achieve maximum speeds with 802.11ac and Wi-Fi 6, some of this restricted spectrum needs

- 3 -

Table of Contents

to be utilized. Therefore, a method referred to as Dynamic Frequency Selection, or DFS, needs to be implemented to accurately detect when these channels are available for Wi-Fi use. As bands become wider, it becomes increasingly critical for Wi-Fi applications to operate in the DFS spectrum. In the United States, in the 5GHz frequency band, there are 16 DFS channels that can be used in addition to the nine non-DFS channels. Therefore, a network that can use these DFS channels will increase total system capacity by almost threefold. Implementing efficient use of DFS channels requires complex algorithms.

Competing Traffic. The types of traffic carried by Wi-Fi are rapidly increasing as technology providers seek to enable more device connectivity and value-added services. Each type of traffic has unique quality metrics that must be met in order to create a satisfactory user experience. For example, voice and video latencies must be low to ensure that users do not perceive any gaps in performance. Internet webpage and email traffic are sporadic by nature and typically do not have strict latency guidelines. As a result, certain traffic types need to be prioritized over others. A comprehensive Quality of Service, or QoS, mechanism is needed to prioritize traffic types, guarantee on-time delivery of specific traffic types ahead of others, and scale to meet the increased number of Wi-Fi clients in a network.

Rapid Evolution of Industry Standards. The IEEE standardization body continually strives to improve Wi-Fi functionality and performance. For example, from 1997 to 2013, Wi-Fi maximum speeds increased from 1Mbps under the 802.11 standard to 6.8 gigabit per second, or Gbps, with the 802.11ac revision, and 9.7 Gbps for draft Wi-Fi 6. All competitors in the Wi-Fi solutions market design their products according to the same IEEE Wi-Fi standards, which have become more complex as each subsequent standard includes an increasing number of specifications for both basic and optional features. While all Wi-Fi products need to incorporate all of the basic specifications under the standards, competitors in the high-performance Wi-Fi solutions market distinguish themselves by the speed with which they introduce new products and the degree to which their products are able to support advanced specifications and optional features such as explicit transmit beamforming, high-order MIMO, and MU-MIMO. Some competitors decide to only implement the mandatory specifications and leave more complex optional features out of their products.

Legacy Wi-Fi Processing Architecture. There are seven distinct layers of software functions needed for one Wi-Fi device to transmit data to another under IEEE Wi-Fi standards. Layers one and two comprise the Wi-Fi protocol stack, and layers three and above are referred to as higher-layer network functions. Historically, Wi-Fi chipsets were architected such that the host central processing unit, or CPU, inside a gateway or access point handled the majority of the higher-layer network processing activity. However, as Wi-Fi speeds increase, the ability of the CPU to sustain maximum Wi-Fi data bandwidth while also performing other tasks is compromised. As a result, in order for the end product to meet its performance specifications, the Wi-Fi chipset must be capable of processing a greater proportion of both the Wi-Fi protocol stack and network functions to ensure that host CPUs have the bandwidth to operate properly.

Network Interference Management. As Wi-Fi usage increases, higher levels of network congestion will occur. This was especially common with 802.11b 2.4GHz networks, which only had three non-overlapping channels. The limited number of channels meant that there was a high likelihood that competing devices were using the same channel, thereby degrading performance. While the industry’s transition to 5GHz networks temporarily helped to alleviate such degradation by offering more channels, similar congestion and degradation of performance may occur over time. A Wi-Fi management system is needed to constantly monitor and optimize Wi-Fi network performance. Such a system would not only oversee one access point or gateway within a particular home, but would also have the capability to monitor a whole network of access points, which can comprise millions of Wi-Fi clients.

Our Solution and Competitive Strengths

Our four generations of Wi-Fi solutions have been designed to achieve and maintain market leadership. Historically, in each case where we have introduced a new high-performance Wi-Fi solution compliant with the 802.11 IEEE standard, we have done so well before our competitors have introduced a comparable product with the same features. This first-mover advantage has enabled us to market and monetize our solutions and capture key new customers and design wins while our competitors were still in the product development phase. This advantage has been particularly evident in the service provider market for home networking applications. Due to long design and deployment cycles, service providers may only undertake major product updates every few years. As a result, the ability to secure a service provider design win for a solution with advanced features can create a market advantage that lasts for months to years, depending on various factors, including how quickly a competitor releases a comparable product, how the performance of the competing product compares to ours, and how the timing of such release relates

- 4 -

Table of Contents

to the service provider’s design and deployment cycle. We believe our success in pioneering previous Wi-Fi solutions has also given us a head start in the development of next generation Wi-Fi solutions.

We strive to deliver the industry’s highest speed, broadest coverage, highest capacity, and most reliable performance through advanced software and system-level algorithms, Wi-Fi protocol processing using embedded CPUs, and the introduction of a cloud-based Wi-Fi network analytics and monitoring solution. Our solutions allow us to address the industry challenges posed by increasing Wi-Fi speeds, limited spectrum, increasing traffic, legacy Wi-Fi processing architectures and network interference management. We deliver proprietary feature set extensions beyond standard requirements, offering significant performance advantages to the user. Our innovative solutions have historically addressed the service provider market for home networking applications such as home gateways, repeaters, and STBs, and we are increasingly addressing additional end markets, with solutions for home networking and small and medium business applications (e.g., routers and repeaters), enterprise networking (e.g., access points), FWA and consumer applications, including wireless streaming of audio and video, wireless TVs, and wireless speakers.

Performance Benefits We Provide Our Customer Partners and their End Users

We believe our Wi-Fi solutions enable the highest overall level of Wi-Fi performance in the market relative to network speed, range, capacity and reliability. A high-performing solution results in a positive user experience and high level of satisfaction from customers, service providers and their subscribers. The performance benefits that we provide to our customer partners and their end users are set forth below.


•	Integrated 2.4GHz and 5GHz Solutions. Our most recent solutions include both 2.4 GHz and 5 GHz capabilities. As a result, our customer partners only need to design in a single chipset, instead of one for each frequency band. This integrated solution not only enables a more streamlined design process, but also maximizes interoperability and performance.

•

Streamlined Integration and Faster Time to Market. We have designed host offload technology, which allows the majority of Wi-Fi functions to be executed within our baseband chips. This offload software capability streamlines the integration of our chipsets into customer and reference design partner platforms. In addition, our experienced customer engineering support team engages with our OEM and ODM customers and partners early in their respective design cycles, which we believe accelerates their product development and ultimately optimizes product performance.

•

Improved Subscriber Experience and Increased Subscriber Retention. Our Wi-Fi solutions are high-performance solutions, which helps create a positive subscriber experience when using Wi-Fi. Our Wi-Fi solutions also provide enhanced network performance capabilities, which enable service providers to offer their subscribers a broader range of value-added products and services such as wireless phone service, wireless set-top boxes and seamless streaming of ultra-high definition video. By offering such premium products and services, we believe service providers are able to generate more revenue per subscriber and deliver a better subscriber experience, which contributes to improved subscriber retention.


•	Premium Product Positioning. Because of our customers’ product benefits, we believe our high-performance Wi-Fi solutions allows them to command a premium with subscribers, or in the case of retail-oriented products, the end consumer. This allows greater profitability and customer satisfaction for our customer partners.

•

Longer Lifecycle and Reduced Capital Investment. Subscribers desire the most up-to-date technologies from their service providers. Devices featuring our solutions offer the leading edge of Wi-Fi technology, and therefore have a longer lifecycle and time to obsolescence. Additionally, a high-performing Wi-Fi infrastructure results in lower network expenditures for service providers by offloading cellular data, thereby reducing the burden on the cellular network.

•

Fewer Service Disruptions and Lower Support Costs. Because our Wi-Fi solutions support the most advanced IEEE Wi-Fi optional specifications, they provide higher speed, greater range and better reliability than our competitors’ products, which increases the quality of data transmission and improves Wi-Fi connectivity within a given area. We believe the high quality and reliability of our Wi-Fi solutions results in fewer service disruptions, and therefore reduces customer complaints and the need for support calls and on-site service requests.


•	Automated Network Management. We have a cloud-based Wi-Fi analytics and monitoring platform which allows us to remotely collect data from our products in the field. The dataset helps us to efficiently support our customers, improve

- 5 -

Table of Contents

future performance of our products and improve our customers’ ability to ramp deployments, ultimately accelerating our time to market.

Our competitive strengths include:

•

Market Leadership through Support of the Most Advanced Specifications. We design Wi-Fi solutions that support the most advanced IEEE Wi-Fi optional specifications, which allow us to be a leader in terms of both performance and innovation. For example, we shipped the world’s first 4x4 MIMO solution when our competitors were providing products with support for only 2x2 or 3x3 MIMO. Today, we are the first and only company shipping the full 8x8 MIMO specification of both 802.11ac with our QSR10G Wi-Fi solution, and Wi-Fi 6 with our QSR10GU-AX solution currently sampling, which we believe allows us to offer the highest speed as well as the farthest range. Also, we are the first and only company shipping samples of a 5x5 MIMO solution, which is addressing the Wi-Fi 6 standard. While some of our competitors offer a wider variety of products, many of those products incorporate only basic features for low-performance applications outside our target market segments. In contrast, we focus on segments of the market where advanced features are critical for the targeted application to provide higher performance, such as whole home coverage or video delivery over Wi-Fi.

•

Proprietary Technology Architectures. We design proprietary technology architectures that we deliver through our high-performing chipsets. The 802.11 standard does not dictate implementation and a significant portion of the design is vendor discretionary. We were the first to commercially introduce several new technology architectures, including the first 4-stream and only 802.11n 4x4 chipset in 2010, the first 4x4 802.11ac chipset in 2013 ,the first 802.11ac 8x8 chipset in 2015, and first 802.11ax 8x8 chipset in 2017. In 2018, we introduced the concept of adaptive MIMO at 5GHz, which allows dynamically switching between 8x8 MIMO and dual 4x4 MIMO depending on radio conditions. We were also the first to introduce a 5x5 MIMO chipset architecture. We were the first Wi-Fi solution provider to have integrated 12 chains on a single baseband chip die and eight transmit and eight receive chains on a single radio frequency chip, or RFIC, die as part of a 10Gbps Wi-Fi access point solution. Transmit and receive chains refer to circuitry in the RFIC responsible for transmitting and receiving data, respectively. We believe our proprietary architectures are a key part of what enables us to successfully compete against our larger, more established competitors.

•

Advanced Software and System-Level Algorithms. We enable our innovative Wi-Fi solutions with advanced proprietary software and system-level algorithms that provide superior functionality. For example, we were the first to commercially introduce a number of features built on the 802.11 standards, such as 4x4 MIMO, 5x5 MIMO, 8x8 MIMO, MU-MIMO, and 4x4 universal beamforming. We have integrated advanced digital signal processing, or DSP, algorithms in each of our baseband chips. The process of detecting and decoding the desired data from a noisy environment requires sophisticated DSP algorithms, which we have developed over the last 10 years. These algorithms include explicit transmit beamforming, MIMO, MU-MIMO, and others. We believe these algorithms are crucial to the performance and stability of products integrating our solutions.


•	Pure Focus on High-Performance Wi-Fi Solutions and Deep Wireless Engineering Expertise. Our research and development, engineering, manufacturing, sales, and marketing activities are focused mainly on high-performance Wi-Fi solutions, which we believe gives us an advantage over many of our competitors who do not focus exclusively on Wi-Fi.

•

Deep Relationships with Our Customers and Reference Design Partners. We have built collaborative relationships with our customers and reference design partners, many of whom are industry leaders. We believe these relationships provide us with enhanced visibility into their future requirements. We often collaborate with these leaders at the front end of the design cycle and help them architect their next-generation products. We believe we have a strong industry reputation for responsiveness and delivering Wi-Fi solutions that meet or exceed our customers and reference design partners’ technological requirements, as well as their overall business needs.

- 6 -

Table of Contents

Our Strategy

The key components of our strategy include the following:


•	Continue to Deliver Wi-Fi Innovation. The Wi-Fi industry is constantly evolving as new technologies emerge and standards are updated. We intend to continue our investment in research and development to drive further innovation, including new Wi-Fi standards, and performance differentiation, so as to maintain a market leadership position in the Wi-Fi marketplace.

•

Expand Share in Service Provider Market. We intend to leverage our growing number of service provider and OEM and ODM relationships to aggressively market our solutions’ competitive advantages and increase our footprint among service providers. This market is characterized by long product lifecycles and stable customer engagements with greater visibility into future revenue. In addition, we intend to expand our geographic reach beyond North America and Western Europe, which are currently the predominant end markets for our Wi-Fi solutions.


•	Leverage Industry Partnerships to Promote Adoption of Our Solutions. We maintain partnerships with several technology industry leaders to ensure the compatibility of our solutions with other components of the end product, and to promote the adoption of our Wi-Fi solutions. We will seek to broaden and strengthen these partnerships to drive design wins and establish incumbency.

•

Address Other Wi-Fi Market Segments. We have addressed only a small portion of the retail Wi-Fi and the small and medium business market opportunities, and we have not yet entered the broader enterprise, FWA and consumer electronics markets. We intend to leverage our existing technologies and solutions, as well as broaden our Wi-Fi solutions portfolio, to continue to expand our presence in the retail Wi-Fi market and address the small and medium business, enterprise, consumer electronics, industrial and other markets.


•	Broaden Solutions Beyond Wi-Fi . We believe our existing technologies and wireless engineering expertise, as well as our deep industry relationships, provide us an opportunity to expand beyond the Wi-Fi market through a combination of organic investments and acquisitions.

Our Products and Technology

Our differentiated Wi-Fi system architecture typically consists of a radio frequency integrated circuit (RFIC) and a digital baseband system-on-chip, or baseband SoC. The RFIC transmits and receives at a particular frequency, and the baseband SoC implements system-level algorithms to process physical layer (layer one) functions and additional logic that executes software to process 802.11 protocols from the signals received to and from the RFIC. The RFIC and baseband SoC are placed on a printed circuit board called a “reference design”, where they interact with the rest of the hardware and software system of the end product. In more recent implementations our architecture includes two RFICs to address dual-band capability, while still operating with one baseband SoC.

The typical applications that use our current solutions are:

•

Access Point and Gateways. These applications are at the core of wireless home networking and enterprise access. Our initial solutions supported 2-stream applications with 4x4 5GHz 802.11n, and we have continuously innovated to deliver increasing speeds, culminating in our latest 12-stream (8x8 5GHz + 4x4 2.4GHz), 10Gbps, dual-band dual-concurrent Wi-Fi 6 offering. Our solutions have also evolved from primarily supporting real-time video delivery over Wi-Fi to supporting voice, video, and data. We seek to extend our industry-leading position by continuing to develop solutions to support the next-generation of Wi-Fi applications. We believe that the increasing demands on wireless home networks and enterprise applications will help drive the need for high performance access points and gateways in the marketplace, which we believe will also contribute to greater demand for high-performance Wi-Fi solutions with higher average selling prices, or ASPs, given the benefits they provide to our customers.

•

Clients. We provide Wi-Fi solutions for non-mobile client applications such as video clients (including STBs). We believe the performance advantages of our solutions will better support the latest generation of UHD STBs, which have higher Wi-Fi speed requirements. In addition, increased speed, range, capacity and reliability can be achieved when our client solutions are used in conjunction with our access point and gateway solutions.

- 7 -

Table of Contents

•

Repeaters and Mesh Nodes. In certain challenging networking environments, repeaters and mesh nodes can be used to provide extended Wi-Fi coverage. Our repeater and distributed access point solutions support advanced functionality, including setup, management, and client connectivity features. We believe repeaters, along with our access point solutions, can play an important role in addressing the growing consumer demand for whole-home coverage.

We differentiate our solutions portfolio by designing and implementing a variety of innovative system architecture and software features that are aimed at solving the challenges of high-performance wireless networking, including:

Increasing Wi-Fi Speeds

•

Transmit Beamforming. Beamforming is critical to effectively compete in the high-performance Wi-Fi market as it enables gateways and access points to direct their signals toward a client to increase transmission efficiency and improve Wi-Fi speed and range. We were the first to apply Wi-Fi transmit beamforming technology to four antennas, and have continued to optimize it for eight antennas. Beamforming is an integral part of our solutions, and our engineering team includes leading system algorithm experts to address the design and implementation challenges in this field.

•

Advanced MIMO and MU-MIMO. MIMO technology multiplies the capacity of a wireless connection by allowing access points to transmit and receive multiple streams of data at the same time. MU-MIMO technology permits not only multiple streams to a single device, but also enables multiple client devices to receive multiple streams of data at the same time. When combined, these two features allow the most efficient use of a given channel by offering the highest bits per hertz. A 4x4 MIMO transmission uses four antennas, and an 8x8 MIMO transmission uses eight antennas. We refer to these technologies as higher-order MIMO. Four antennas are used in the 2.4GHz band, and four or eight antennas are used in the 5GHz band. We were the first to commercially introduce MIMO and MU-MIMO for 4x4 802.11n, 4x4 802.11ac, 8x8 802.11ac, and 8x8 Wi-Fi 6. We have experienced wireless system architects and software engineers to lead the implementation of these technologies.

Addressing Spectrum Scarcity


•	SuperDFS Dynamic Smart Channel Selection. SuperDFS is a set of system-level algorithms that combine RFIC, baseband, and software functions to select a particular DFS channel that has the least interference and best system capacity. Our detection mechanisms have been optimized to pass strict FCC product certification guidelines without being overly reactive in DFS frequencies.

Handling Quality-of-Service with different Traffic Types


•	IQStream Advanced Traffic Management. IQstream is a proprietary system-level algorithm that classifies and prioritizes all types of Wi-Fi traffic in order for the most critical traffic to be delivered with the least interruption. For example, IQStream allows the prioritization of real-time HD video or voice call transmissions over lower priority data such as email and Internet webpage access.

Easier Integration into Existing Designs


•	Host Offload. We have implemented host offload technology, which allows the majority of Wi-Fi functions to be executed within our baseband chips. This not only frees up the resources of the host CPU, but also requires less software integration and optimization between our Wi-Fi chips and the host CPU during system design. This significantly decreases our customers’ product development time.

Network Management


•	Cloud-based Wi-Fi Monitoring and Analytics Platform. Our proprietary cloud-based platform comprises a debugging agent embedded within a product, such as an access point, which sends Wi-Fi data to an analytics and monitoring engine in the cloud. This system permits remote, real-time issue identification and resolution. This allows us to deliver enhanced customer support and Wi-Fi performance.

•

Smart Wi-Fi Management. Our smart Wi-Fi managed home solution provides a comprehensive solution for total home connectivity. This solution is comprised of a software framework, SONiQ, for the management of multiple access points or repeaters, and a range of repeater hardware reference designs. Together, these two elements manage and optimize home Wi-Fi networks and help provide maximum speed and quality of experience for our customers.

- 8 -

Table of Contents

We are currently shipping our second generation 4x4 802.11n, third generation 4x4 802.11ac Wi-Fi solutions and fourth generation 8x8 802.11ac in volume, as well as production samples of our fifth generation Wi-Fi 6 10Gbps Wi-Fi solution.

Our Customers

Our customer relationships are primarily driven by the end user demands for our high-performance Wi-Fi solutions. This influences our customer partners, regardless of end market focus. Our primary customer partners currently consist of service providers, where we direct a majority of our strategic design efforts. Service providers seek to offer competitive products to their end user subscribers. As a result, we sell our Wi-Fi solutions directly to global OEMs and ODMs that serve these service providers and other end markets we target. In addition, we sell our Wi-Fi solutions to third-party distributors who in turn resell to OEMs and ODMs. OEMs incorporate our Wi-Fi solutions into their products, which are then sold to their own customers, such as service providers, retailers, enterprises, small and medium businesses, and retail consumers. To date, we have primarily addressed the service provider market for home networking applications, including home gateways, repeaters, and set-top boxes. We are seeking to increasingly address additional end markets with solutions for (i) retail OEMs for home networking as well as small and medium business applications (e.g., routers and repeaters), (ii) enterprise OEMs for enterprise networking applications (e.g., access points), and (iii) consumer electronics OEMs for consumer applications, including wireless streaming of audio and video, wireless TVs, and wireless speakers. We believe the life cycles of our customers’ products can range from approximately one year to five years or more depending on the end market.

Some OEMs purchase our Wi-Fi solutions directly from us and use them in the design and manufacture (directly or through their third-party contract manufacturers) of their own products. Other OEMs utilize ODMs to design and build subsystem products incorporating our Wi-Fi solutions, which the OEMs then purchase from the ODM and incorporate into the OEM products. Accordingly, we ship our Wi-Fi solutions either directly to the OEM, its contract manufacturer, or its ODM, based on the requirements of each OEM. However, we maintain close relationships with the target OEM to monitor OEM end-market demand as the initial Wi-Fi solution design win is generally awarded by the OEM.

Service providers purchase the products they sell to, or subsidize for use by, their subscribers through OEMs and ODMs. We typically do not enter into formal agreements with service providers, and our relationship with service providers varies depending on the service provider’s strategy:

•

Service Providers Selecting Wi-Fi Technology Directly. Some service providers, typically those with large subscriber bases, require that a specific Wi-Fi solution be designed into the OEM products they purchase. As a result, although our customers are OEMs and ODMs, we maintain close relationships with these service providers since they award design wins for our Wi-Fi solutions. After a design win is achieved, we continue to work closely with the service providers to assist them and their OEMs and ODMs throughout their product development and early deployment, which can often last six to 18 months.

•

Service Providers Selecting OEM / ODM Products . Other service providers, typically those with smaller subscriber bases, do not require that specific Wi-Fi solutions be designed into the OEM or ODM products they purchase. As a result, the OEM or ODM is the key decision maker with respect to awarding design wins and may incorporate the winning design into their products for numerous service providers. We maintain close relationships with our OEM and ODM customers to secure design wins and monitor end-market demand.

For the years ended December 30, 2018 , December 31, 2017 , and January 1, 2017 , substantially all of our revenues have been derived from sales of our Wi-Fi solutions to customers serving the service provider home networking market and were generated outside the United States based on ship-to destinations, and we anticipate that the vast majority of our shipments will continue to be delivered outside the United States. Although almost all shipments are delivered outside the United States, we believe that a significant number of the Wi-Fi products that include our semiconductors, such as access points, gateways, set-top boxes and repeaters, are ultimately directed and sold by OEM customers to service providers in North America and Western Europe with an increasing presence in Latin America and Southeast Asia. To date, all of our revenue has been denominated in U.S. dollars. See Note 13 of the Notes to Consolidated Financial Statements, Segment Information and Operations by Geographic Area , included elsewhere in this Annual Report on Form 10-K for information regarding our operations by geographic area. While licensing and non-recurring arrangements are not part of our primary focus, we may enter into such arrangements on an opportunistic basis from time to time.

- 9 -

Table of Contents

In 2018 , four customers accounted for approximately 52% of our revenue. In 2017 , six customers accounted for approximately 52% of our revenue. In 2016 , five customers accounted for approximately 54% of our revenue. Technicolor SA, purchasing on behalf of various service providers, accounted for approximately 29% of our revenue in 2018 .

Sales and Marketing

We sell our solutions worldwide using a combination of a direct sales force and third-party distributors. We employ direct sales teams in the United States, Europe and Asia who support our OEM and ODM customers and service providers. We have located our sales and marketing teams near our existing OEM and ODM customers and larger service providers in the United States (serving North America), France, Netherlands, Spain, Singapore, China and Taiwan (serving greater Asia). Each salesperson has specific end market expertise. We also employ field application engineers, or FAEs, typically co-located with our direct sales teams, who provide technical pre-sales support to our sales team and assistance to existing and potential customers throughout their design-in and qualification cycles. Our FAE team is organized by end markets as well as core competencies in hardware, software, and wireless systems necessary to support our customers and their target service providers.

To supplement our direct sales team, we have contracts with several independent distributors in Taiwan, Korea, and China. We selected these independent distributors based on their ability to provide effective field sales, marketing communications and technical support for our Wi-Fi solutions. In the case of distributors, our customers place orders through distributors who purchase inventory from us.

Our sales have historically been made on the basis of purchase orders rather than customer specific, long-term agreements. All of our material terms and conditions are consistent with general industry practice but vary from customer to customer. We typically receive purchase orders 16 to 18 weeks ahead of the customer’s desired delivery date. Because industry practice allows customers to reschedule or cancel orders on relatively short notice, we believe that backlog is not a reliable indicator of our future revenue.

Our marketing team focuses on our solutions strategy and road maps, product marketing, new solution introduction processes, demand assessment and competitive analysis, marketing communication and public relations.

Manufacturing

We use a fabless semiconductor business model and rely on third-party contractors to fabricate, assemble, and test our chipset designs. We believe this outsourced manufacturing approach gives us access to the best available process technology, reduces our capital requirements, and allows us to focus our resources on the design, development, marketing, sales and customer integration of our Wi-Fi solutions. We use industry-standard complementary metal-oxide semiconductor manufacturing process technology, which enables us to produce cost-effective products and achieve high-performance. We partner with our third-party contractors to improve the efficiency of our supply chain and to secure the necessary level of manufacturing capacity. We work closely with these contractors to improve our chipset’s manufacturability, enhance yields, lower product and manufacturing costs, and improve quality. We are committed to continuous improvements in our chipset design for better manufacturability and in our third-party contractors’ manufacturing processes to achieve the high-quality, reliability, cost, and the performance metrics targets.

Wafer Fabrication, Assembly and Testing

We purchase silicon wafers from Taiwan Semiconductor Manufacturing Corporation, or TSMC, in Taiwan, our foundry partner, which are then shipped to third-party contractors who assemble and test our chipsets. We currently use several process nodes ranging from 90nm to 28nm. We qualify and utilize multiple TSMC facilities to ensure consistent production performance and redundancy, which is a critical component of our supply chain strategy. We currently use Advanced Semiconductor Engineering in Taiwan and Signetics Corporation in Korea for assembly and testing. All of our material terms and conditions are consistent with general industry practice but vary from vendor to vendor. Our inventory is distributed from the third-party contractors and a contracted warehouse in Taiwan. We require our third-party contractors to have comprehensive quality manufacturing systems, certified at International Organization for Standardization, or ISO, 9000 levels.

- 10 -

Table of Contents

Research and Development

We believe that our success depends on our ability to enhance our existing Wi-Fi solutions, develop new innovative solutions, and integrate additional capabilities to serve our existing and future target markets. We engage in research and development efforts in four core areas:


•	System-level algorithm development (core Wi-Fi algorithms and system-level integration);


•	Digital, mixed-signal, and RFIC design (baseband and RFIC Wi-Fi silicon chipsets);


•	Software development (embedded Wi-Fi and network-level drivers); and


•	Reference hardware platforms (board designs for internal use and customer reference).

We also have a team of dedicated customer engineers to support our OEMs and service providers in their integration of our solutions into their products. We believe our competencies can be leveraged to broaden our solutions portfolio within and beyond the Wi-Fi market.

Our research and development team is comprised of highly skilled engineers and technologists with extensive experience in digital, mixed signal, and RFIC design, system level architecture, and software development. We have assembled our engineering team in the United States, Australia, China, Taiwan, and Russia comprising of 319 engineers worldwide.

We intend to continue to invest in research and development to support and enhance our existing Wi-Fi solutions and design and develop future product offerings.

Intellectual Property

We rely on a combination of intellectual property rights, including patents, trade secrets, copyrights and trademarks, and contractual protections, to protect our core technology and intellectual property. As of December 30, 2018 , we had 59 issued patents in the United States and 5 foreign counterpart patents issued in Taiwan. The issued patents in the United States expire beginning in 2026 through 2037. Our issued patents and pending patent applications relate to MIMO systems, algorithms, circuits, system level optimization and wireless network management.

In addition to our own intellectual property, we also use third-party licenses for certain technologies embedded in our Wi-Fi solutions. These are typically non-exclusive contracts provided under royalty-accruing or paid-up licenses. While we do not believe our business is dependent to any significant degree on any individual third-party license, we expect to continue to use and may license additional third-party technology for our solutions. We also invest in the latest commercially available software design and simulation tools, which enable us to leverage our intellectual property portfolio, improve time to commercialization, and deliver high-performance solutions.

We generally control access to and use of our confidential information through employing internal and external controls, including contractual protections with employees, consultants, customers, partners and suppliers. Our employees and consultants are required to execute confidentiality agreements in connection with their employment and consulting relationships with us. We also require them to agree to disclose and assign to us all inventions conceived or made in connection with the employment or consulting relationship. Despite our efforts to protect our intellectual property, unauthorized parties may copy or otherwise obtain and use our software, technology or other information that we regard as proprietary intellectual property.

Competition

We compete with numerous domestic and international semiconductor companies, many of which have greater financial and other resources with which to pursue design, development, manufacturing, sales, marketing and distribution of their products.

- 11 -

Table of Contents

Our competitors include public companies with broader product lines, a larger base of customers and greater resources compared to us. We consider our primary competitors to be other companies that provide Wi-Fi products to the market, including Broadcom Corporation, or Broadcom, Celeno Communications, Intel Corporation, or Intel, Marvell Technology Group Ltd., or Marvell, MediaTek USA Inc., or MediaTek, Qualcomm Incorporated, or Qualcomm, and Realtek Semiconductor Corp. We may also face competition from other new and emerging companies, including emerging companies in China.

The principal competitive factors in our market include:


•	performance of Wi-Fi solutions, including the ability to support advanced optional IEEE Wi-Fi specifications;


•	cost effectiveness of Wi-Fi solutions;


•	design process and time to market;


•	innovation and development of functionality and features not previously available in the marketplace;


•	ability to anticipate requirements of customers’ and service providers’ next-generation products and applications;


•	ability to identify new and emerging markets, applications and technologies;


•	brand recognition and reputation;


•	strength of personnel, including software engineers and chip designers; and


•	customer service and support.

While most of our competitors may offer a wider variety of products, we design Wi-Fi solutions that support the most advanced optional IEEE Wi-Fi specifications. As such, we focus on high-performance Wi-Fi solutions for each of our end markets and we believe we compete favorably with respect to the factors described above.

Information about Segment and Geographic Revenue

Information about segment and geographic revenue is set forth in Note 13 of the “Financial Statements and Supplementary Data-Notes to Consolidated Financial Statements” under Part II, Item 8 of this Annual Report on Form 10-K.

Employees

As of December 30, 2018 , we employed a total of 415 people, comprised of 319 in research and development and in operations, and 96 in sales, marketing, and administration. We also engage temporary employees and consultants. We have never had a work stoppage, and we consider our employee relations to be good. None of our employees are represented by a labor organization or subject to a collective bargaining arrangement.

Facilities

Our corporate headquarters is located in San Jose, California and consists of approximately 84,000 square feet, which expires in 2024. We also lease properties in Australia, China, France, Russia, Singapore, Spain and Taiwan which accommodate our design centers and sales support team. Based on our business requirements, the location and size of these leased properties will change from time to time. We do not own any real property.

Corporate Information

We were incorporated in Delaware in November 2005 as mySource Communications, Inc., and we changed our name to Quantenna Communications, Inc. in January 2007. Our headquarters is located at 1704 Automation Parkway, San Jose, California, 95131, and our telephone number is (669) 209-5500. We completed our initial public offering in October 2016 and our common stock is listed on the NASDAQ Global Select Market under the symbol “QTNA.” Unless the context requires otherwise, the words “Quantenna,” “we,” “Company,” “us” and “our” refer to Quantenna Communications, Inc. and our wholly owned subsidiaries.

“Quantenna” and our other registered or common law trademarks, service marks or trade names appearing in this Annual Report on Form 10-K are the property of Quantenna Communications, Inc. Other trademarks and trade names referred to in this prospectus are the property of their respective owners.

- 12 -

Table of Contents

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, and, as such, we have elected to comply with certain reduced public company reporting requirements. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the completion of our initial public offering, (ii) the last day of the first fiscal year in which our annual gross revenue is $1 billion or more, (iii) the date on which we have, during the previous rolling three-year period, issued more than $1 billion in non-convertible debt securities or (iv) the date on which we are deemed to be a “large accelerated filer” as defined in the Exchange Act. We refer to the Jumpstart Our Business Startups Act of 2012 herein as the “JOBS Act,” and references herein to “emerging growth company” are intended to have the meaning associated with it in the JOBS Act.

Available Information

Our website is located at www.quantenna.com, and our investor relations website is located at http://ir.quantenna.com/. We have used, and intend to continue to use, our Investor Relations website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, are available, free of charge, on our investor relations website as soon as reasonably practicable after we file such material electronically with or furnish it to the Securities and Exchange Commission, or the SEC. The SEC also maintains a website that contains our SEC filings. The address of the site is www.sec.gov.

Item 1A. RISK FACTORS

You should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes. The risks and uncertainties described below are not the only ones we face. Additional risk and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations. If any of the events or circumstances described in the following risk factors actually occurs, our business, operating results, financial condition, cash flows and prospects could be materially and adversely affected. In that event, the trading price of our common stock could decline, and you could lose part or all of your investment.

Risks Related to Our Business and Industry

If we fail to develop and introduce new or enhanced Wi-Fi solutions to meet the requirements of our target markets on a timely basis, our ability to retain and attract customers could be impaired and our competitive position could be harmed.

We are largely dependent on sales of leading-edge, high-performance Wi-Fi solutions. The markets we target with our solutions are characterized by rapidly changing technology, changing customer and service provider needs, evolving industry standards, intense competition and frequent introductions of new products. To succeed, we must effectively anticipate customer and service provider requirements and respond to these requirements on a timely basis. For example, we were the first to announce an 802.11ac 8x8 product, our QSR-10G product, in September 2015. We also announced new products based on the draft 802.11ax standard, which was designated as “Wi-Fi 6” by the Wi-Fi Alliance in October 2018, in October 2016 and January 2017. If we fail to develop new Wi-Fi solutions or enhancements to our existing solutions that offer increased features and performance in a cost-effective manner, or if our customers or service providers do not believe that our solutions have compelling technological advantages, our business could be adversely affected. We must also successfully manage the transition from older solutions to new or enhanced solutions to minimize disruptions in our business. In addition, if our competitors introduce new products that outperform our solutions or provide similar performance at lower prices, we may lose market share or be required to reduce our prices. For example, in February 2017, Qualcomm announced a new 8x8 product based on the draft Wi-Fi 6 standard that may compete with our previously announced product. In addition, in August 2017, Broadcom announced new 4x4 Wi-Fi connectivity solutions based on the draft Wi-Fi 6 standard and in January 2018, Intel announced new chipsets based on the draft Wi-Fi 6 standard for mainstream 2x2 and 4x4 home routers and gateways. We expect our competitors will also introduce new products based on new standards and other next generation technologies in the future. In addition, establishment of new standards, such as Wi-Fi 6, must go through an extensive process with the Institute of Electrical and Electronics Engineers as well as an extensive certification process with the Wi-Fi Alliance, and may be subject to delays and revision. Our failure to accurately predict market needs or timely develop Wi-Fi solutions that address market needs could harm our business, results

- 13 -

Table of Contents

of operations and financial condition.

The complexity of our solutions could result in unforeseen design and development delays or expenditures.

Developing our Wi-Fi solutions is expensive, complex and time-consuming, and involves uncertainties. We must often make significant investments in product roadmaps, design and development far in advance of established market needs and may not be able to consistently and accurately predict what those actual needs will be in the future. Each phase in the development of our solutions presents serious risks of failure, rework or delay, any one of which could impact the timing and cost-effective development of such solutions and could jeopardize customer acceptance of the solutions. Product development efforts may last two years or longer, and require significant investments of time, third-party development costs, prototypes and sample materials, as well as sales and marketing resources and expenses, which will not be recouped if the product launch is unsuccessful. We also have limited resources and may not be able to develop alternative designs or address a variety of differing market requirements in parallel. Our failure to adequately address any such delays in a cost-effective manner could harm our business, results of operations and financial condition.

In addition, as is common in our industry, our Wi-Fi solutions may contain defects, errors and bugs when they are first introduced or as new versions are released. We have in the past, and may in the future, experience defects, errors and bugs. For example, in 2015, in response to a defect we identified, we were required to make a revision to one of our semiconductors, which resulted in a four-month delay in product introduction. Product defects, errors or bugs could affect the performance of our products resulting in reliability, quality or compatibility problems, cause reduced manufacturing yields, result in excess or obsolete inventory, and delay the development or shipments of new solutions or new versions of our solutions. As a result, our reputation may be damaged and the market adoption of our Wi-Fi solutions could be adversely affected. If any of these problems are not found until after we have commenced shipment of a new solution, we may incur significant additional development costs to redesign, recall, repair or replace the defective solution. These problems may also trigger warranty or contractual indemnity claims against us by our customers or others, and our reputation and results of operations may be adversely affected.

Our solutions must also successfully operate with products from other vendors. As a result, when problems occur in a customer product in which our solution is used, it may be difficult to identify the source of these problems. The products of our customers that use our solutions can also be very complex, which can increase the possibility of design, development or production issues. For example, our customers may be dependent on the successful development and testing of our solutions with products from other vendors as well as the availability on a timely and cost-effective basis of all of the necessary components used in our customers’ final products. The occurrence of hardware and software errors, whether or not caused by our solutions, could result in the delay or loss of market adoption of our solutions, and therefore delay our ability to recognize revenue from sales, and any necessary repairs may cause us to incur significant expenses. The occurrence of any such problems could harm our business, results of operations and financial condition.

We depend on a limited number of customers and service providers for a significant portion of our revenue.

We derive a significant portion of our revenue from a small number of OEMs and ODMs, and we anticipate that we will continue to do so for the foreseeable future. In 2018 , four customers accounted for approximately 52% of our revenue. In 2017 , six customers accounted for approximately 52% of our revenue. In 2016 , five customers accounted for approximately 54% of our revenue. In 2018 and 2017, one customer accounted for more than 10% of our revenue, representing 29% and 16% of our revenue, respectively. In 2016, three customers accounted for more than 10% of our revenues, representing 19% , 11% and 11% of our revenue.

In addition, substantially all of our revenue to date has been generated by sales of our solutions to OEMs and ODMs serving the service provider market for home networking. Based on sell-through information provided to us by our OEM and ODM customers, we estimate that the two largest service providers, which are both based in the United States, represented on a combined basis approximately 34% of our revenue in 2018 . The demand from these OEM and ODM customers and, their service provider customers, is subject to fluctuations based on a variety of factors affecting the service provider industry and their related businesses. The loss of a key customer or service provider, or a reduction in sales to any key customer or service provider could negatively impact our revenue, cause us to have excess or obsolete inventory, and harm our business, results of operations and financial condition.

- 14 -

Table of Contents

We have an accumulated deficit and have incurred net losses in the past, and we may incur net losses in the future.

We have incurred net losses in the past and may incur net losses in the future. For the years ended December 30, 2018 and December 31, 2017 , we generated a net income of $3.1 million and $34.4 million , respectively. However, for the year ended January 1, 2017 , we incurred a net loss of $1.9 million . As of December 30, 2018 , we had an accumulated deficit of $124.1 million . We expect to continue to make significant investments related to the development of our Wi-Fi solutions and the expansion of our business, including investments to support our research and development, sales and marketing and general and administrative functions. As a public company, we also incur significant additional legal, accounting and other expenses. If we fail to continue to grow our revenue or if our revenue growth is not sufficient to offset the growth of these anticipated expenses, we may not be able to achieve or sustain profitability, and our stock price could decline.

We face intense competition from a number of larger and more established companies and expect competition to increase in the future, which could have an adverse effect on our market share, revenue and results of operations.

Many of our competitors, including Broadcom, Intel Corporation, Marvell, MediaTek, and Qualcomm, have greater financial, technical, sales, marketing and other resources than we do, as well as longer operating histories, greater name recognition, larger customer bases and more established customer relationships. In the future, we may also face competition from other new and emerging companies, including from companies in China.

Our competitors may be able to anticipate, influence or adapt more quickly to new or emerging technologies and standards and changes in customer and service provider requirements. Our competitors may also be able to devote greater resources to the promotion and sale of their products, initiate or withstand substantial price competition, take advantage of acquisitions or other opportunities more readily and develop and expand their product offerings more quickly than we can. In addition, many of our larger competitors offer a broader range of products than we do, including non-Wi-Fi products. These competitors may be able to sell at lower margins, bundle additional products and features with their Wi-Fi products, leverage incumbent positions, or create closed platforms that discourage customers or service providers from purchasing our Wi-Fi solutions. This strategy may be particularly effective for customers and service providers who prefer the convenience of purchasing all of their Wi-Fi products from a single provider. If we are unable to maintain our competitive advantages through the delivery of superior solutions, our business, results of operations and financial condition may be harmed.

Consolidation in our industry or in a related industry that involves our customers, service providers, partners and competitors could disrupt our business.

There has been a significant amount of consolidation in our industry and related industries. Examples include consolidation among service providers, such as the acquisition of DIRECTV by AT&T in 2015; consolidation involving our customers, such as the acquisition of the Cisco service provider consumer premise equipment (CPE) business by Technicolor in 2015, the acquisition of Pace plc, by ARRIS Group, Inc., in 2016, and the acquisition of ARRIS International plc by CommScope Holding Company, Inc., which was announced in November 2018 and is expected to close in the first half of 2019; consolidation involving our partners, such as the acquisition of Freescale Semiconductor by NXP Semiconductors in 2015; and consolidation involving our competitors, such as the acquisition of Broadcom by Avago Technologies in 2016, the proposed acquisition of NXP Semiconductors by Qualcomm announced in October 2016 and abandoned in July 2018 after failing to obtain regulatory approval in China, and the acquisition of Cavium Inc. by Marvell announced in November 2017 and completed in July 2018. In addition, in November 2017, Broadcom announced an unsolicited offer to acquire Qualcomm. Broadcom subsequently withdrew and terminated its offer to acquire Qualcomm in March 2018 after the President of the United States issued an executive order prohibiting the acquisition of Qualcomm by Broadcom.

Consolidation among our customers, service providers, competitors and other industry related third parties, including during the period between the announcement and closing of acquisitions when the transaction may be undergoing regulatory scrutiny and otherwise seeking to satisfy required closing conditions, can create significant industry uncertainty, which could impact demand for our Wi-Fi solutions and could cause delays in the purchase of our Wi-Fi solutions or the loss of business. For example, in 2015 our two largest service providers consolidated, resulting in the cancellation of previously submitted purchase orders, which adversely impacted our revenue for several quarters. Consolidation among our customers, service providers, competitors and other industry related third parties could adversely affect the competitive landscape and industry dynamics, including causing increased pricing pressure, intensifying the focus of our competitors on certain markets or customers that could cause us to lose market share or customers, and enabling our competitors to leverage complementary products or technologies of the combined

- 15 -

Table of Contents

company. Accordingly, any industry consolidation could have an adverse effect on our business, results of operations and financial condition.

Our customers may cancel their orders, change production quantities or delay production, which could harm our business.

Our customers typically do not provide us with firm, long-term purchase commitments. Substantially all of our sales to date have been made on a purchase order basis, which permits our customers to cancel, change or delay their purchases of our solutions with little or no notice to us. As a result, our ability to accurately forecast customer demand is limited. Any such cancellation of or decrease in purchase orders subjects us to a number of risks, including unanticipated revenue shortfalls, loss of volume-based wafer rebates from our third-party foundry and excess or obsolete inventory.

We may face claims of intellectual property infringement, which could be time-consuming and costly to defend or settle and, if adversely adjudicated, could harm our business.

The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights, which has resulted in protracted and expensive litigation for many companies. We have received communications from third parties, including non-practicing entities, alleging our infringement of their patents, and we may receive additional claims of infringement in the future. For example, in October 2016, a third party filed suit in the United States District Court for the Northern District of Illinois alleging infringement by us of nine expired United States patents. While this matter was favorably settled by us for an immaterial amount, we cannot predict the results of other future litigation with other third parties. See Note 7, “Commitments and Contingencies” contained in the Notes to Consolidated Financial Statements of our Annual Report on Form 10-K. In addition, our customers and service providers may become subject to litigation or receive communications regarding alleged infringement of their products that implicate our Wi-Fi solutions. We have certain contractual obligations to defend and indemnify our customers and other third parties from damages and costs which may arise in connection with any such infringement claims. We or our customers may be required to obtain licenses for such patents, which could require us to pay royalties. Any lawsuits could subject us to significant liability for damages, invalidate our proprietary rights and harm our business and our ability to compete. Any litigation, regardless of success or merit, could cause us to incur substantial expenses, reduce our sales and divert the efforts of our technical and management personnel. If we receive an adverse result in any litigation, we could be required to pay substantial damages, seek licenses from third parties, which may not be available on reasonable terms or at all, cease sale of products or licensing of our technology, expend significant resources to redesign our solutions, develop alternative technology or discontinue the use of processes requiring the relevant technology.

Our failure to adequately protect our intellectual property rights could impair our ability to compete effectively or defend ourselves from litigation, which could adversely affect our results of operations and financial condition.

Our success depends, in part, on our ability to adequately protect our intellectual property. We rely primarily on patent, copyright, trademark and trade secret laws, as well as confidentiality and non-disclosure agreements and other contractual provisions, to protect our proprietary technologies and know-how. As of December 30, 2018 , we had 59 issued patents in the United States and five foreign counterpart patents issued in Taiwan. The rights granted to us may not be meaningful or provide us with any commercial advantage. For example, any patent claims we make may be deemed insufficient to cover the third party’s product or technology or the patent could be opposed, contested, circumvented, designed around or be declared invalid or unenforceable in judicial or administrative proceedings. The failure of any of our patents to adequately protect our technology could make it easier for our competitors to offer similar products or technologies. Our foreign patent protection is not as comprehensive as our United States patent protection. As a result, we may not be able to effectively protect our intellectual property in some countries where our solutions are sold or may be sold in the future. Even if foreign patents are granted, effective enforcement in foreign countries may be challenging or may not be available. Furthermore, changes to the patent laws in the United States and other jurisdictions could also diminish the value of our patents and patent applications or narrow the scope of our patent protection.

We cannot ensure that the steps we have taken will prevent unauthorized use of our intellectual property or the reverse engineering of our technology. In addition to the protection afforded by patents, we rely on confidential proprietary information, including trade secrets and know-how, to develop and maintain our competitive position. Any disclosure or misappropriation by third parties of our confidential proprietary information could enable competitors to quickly duplicate our proprietary information, thus eroding our competitive position. We seek to protect our proprietary information in part by confidentiality agreements with our employees, contractors, customers, partners and other third parties. These agreements are designed to protect our proprietary information; however, any of these parties may breach the agreements and disclose our proprietary

- 16 -

Table of Contents

information, and we may not be able to obtain adequate remedies for such breaches. Detecting and monitoring unauthorized use of our intellectual property can be difficult and costly. It is possible that unauthorized use of our intellectual property may have occurred or may occur without our knowledge. Our failure to adequately protect our intellectual property could adversely impact our ability to maintain a competitive advantage in our markets, thus harming our business, results of operations and financial condition.

We may in the future need to initiate infringement claims or litigation to try to protect our intellectual property rights. Litigation, whether we are a plaintiff or a defendant, can be very expensive and time-consuming and may divert the efforts of our technical and management personnel without resulting in a favorable outcome. Further, many of our current and potential competitors have the ability to dedicate substantially greater resources to defending intellectual property infringement claims and to enforcing their intellectual property rights. If we are unable to protect our proprietary rights or if third parties independently develop or gain access to our or similar technologies, our business, revenue, reputation and competitive position could be harmed.

We may have difficulty accurately predicting our future revenue, cost of revenue, operating expense, working capital, and capital investments.

We were incorporated in 2005 and only began shipments of our Wi-Fi solutions in 2010. As a result, we have a limited operating history from which to predict future operating results. This limited operating history, combined with the rapidly evolving nature of the markets in which we sell our Wi-Fi solutions, substantial uncertainty concerning how these markets may develop, limited visibility into the purchasing decisions and timing of our customers and end customers, and other factors beyond our control, limit our ability to accurately forecast our future revenue, cost of revenue, operating expense, working capital, and capital investments. Additionally, if we are unable to accurately forecast customer demand or service provider deployments in a timely manner, we may not build enough supply or maintain enough inventory, which could lead to delays in product shipments and lost sales opportunities, as well as cause our customers to identify alternative sources of supply. Alternatively, we may accumulate excess or obsolete inventory. Any of these factors could harm our margins, increase our write-offs due to product obsolescence and restrict our ability to fund our operations. If our revenue does not increase as anticipated, we could incur significant losses to the extent we are unable to decrease our expenses in a timely manner to offset any shortfall in future revenue. Any failure to accurately predict our future operating results could cause us to miss our financial projections and adversely affect the price of our common stock.

If we are unable to effectively manage any future growth, we may not be able to execute our business plan and our results of operations could suffer.

We have expanded our operations significantly since our inception in 2005 and anticipate that further expansion will be required to achieve our business objectives. For example, we grew from 380 employees as of December 31, 2017 to 415 employees as of December 30, 2018 , and we expect our headcount to continue to grow as we scale our business. The growth and expansion of our business have placed and will continue to place a significant strain on our management, operations and financial resources. We expect that any future growth will also add complexity to, and require effective coordination throughout, our organization.

To manage any future growth effectively, we must continue to improve and expand our operating and administrative systems and controls. We may not be able to successfully implement improvements to these systems and controls in a timely or efficient manner, which could result in operating inefficiencies and could cause our costs to increase more than planned. If we are unable to effectively manage our future growth, our business, results of operations and financial condition may be harmed.

We rely on a limited number of third-party contractors and suppliers in connection with the design and manufacture of certain parts of our solutions. The failed performance or loss of any of these third parties may adversely impact our business.

We currently depend on a single foundry, Taiwan Semiconductor Manufacturing Company Limited (“TSMC”), for the supply of our mask-sets and for the fabrication of our wafers. We also depend on a limited number of sources in connection with the design, development, testing and assembly of our solutions and components thereof. We currently do not have long-term supply contracts with any of our third-party contractors or suppliers, and we typically negotiate pricing separately for each purchase order. Therefore, our contractors and suppliers are not obligated to perform services or supply products to us for any specific period, in any specific quantities, or at any specific price, except as may be provided in a particular purchase order. Sufficient capacity at our third-party foundry or the third-party contractors we rely on for assembly and testing may not be available when we need it or at reasonable prices. In addition, we rely on intellectual property rights and software development

- 17 -

Table of Contents

tools from third-parties such as Cadence Design Systems, Inc., Mentor Graphics Corporation, and Synopsys, Inc., to support the design, development, simulation and verification of new solutions or enhancement to existing solutions. If licenses to such technologies are not available on commercially reasonable terms and conditions, or such products become unavailable for any other reason, and we cannot otherwise integrate such technologies, our solutions or our customers’ products could become unmarketable or obsolete, and we could lose market share. In such instances, we could also incur substantial unanticipated costs or scheduling delays to develop or acquire substitute technologies to deliver competitive products.

If we lose any of our single source or limited source contractors or suppliers, we could be required to transition to a new third party, which could increase our costs, result in delays in the manufacture and delivery of our solutions, require a redesign of our solutions to transition to alternative sources, or cause us to carry excess, obsolete or insufficient inventory. In addition, if these contractors or suppliers fail to produce and deliver our solutions according to required specifications, quantity, quality, cost and time requirements, our business, results of operations and financial condition could suffer.

Our results of operations are likely to vary significantly from period to period, which could cause the trading price of our common stock to decline.

Our results of operations have fluctuated from period to period, and we expect such results to continue to fluctuate as a result of a number of factors, many of which are outside our control and may be difficult to predict, including:


•	the fluctuations in demand for high-performance Wi-Fi products in general;


•	the inherent complexity, length and associated unpredictability of the sales cycles for our Wi-Fi solutions;


•	changing market conditions and competitive dynamics of our markets, including new entrants and current and potential customer or service provider consolidation;


•	timing of introductions of new products by our customers and service providers and our ability to secure design wins related to such products;


•	seasonality and other fluctuations in the ordering patterns of our customers and service providers or other end customers;


•	changes to or inaccurate demand forecasts from our customers and service providers;


•	delays in deployment schedules or program cancellations by service providers, which can result in delays or cancellations of purchases by our customers;


•	the timing and amount of purchase orders, especially from significant customers;


•	reductions in or cancellations of purchase orders by our customers, including with little or no notice;


•	changes in the mix of our sales in the service provider market versus retail, enterprise or consumer electronics end markets and among different customers;


•	declines in average selling prices (“ASPs”) and the extent to which the impact of such declines is offset by increased sales volume or decreased manufacturing and other costs;


•	changes in manufacturing costs, including wafer fabrication, testing and assembly costs, manufacturing yields and product quality and reliability;


•	our ability to develop, introduce and ship new Wi-Fi solutions in a timely manner and anticipate future market demands that meet our customers’ requirements;


•	the timing and amount of tape-out costs;


•	timing of headcount adjustments;


•	the timing and amount of litigation expense or settlement of any litigation or other disputes;


•	volatility in our stock price, which may lead to material changes in stock compensation expense;


•	the impact and timing of taxes or changes in tax law; and


•	our ability to derive benefits from our investments in research, development, sales, marketing, and other activities.

- 18 -

Table of Contents

The effects of the risk factors noted herein could result in large fluctuations and unpredictability in our quarterly and annual results of operations. Therefore, comparing our results of operations on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance.

If we fail to successfully address additional Wi-Fi markets, our revenue growth and financial condition could be harmed.

Currently, we sell most of our Wi-Fi solutions to OEMs and ODMs that target the service provider market for home networking. Our success will depend in part on our ability to expand beyond the service provider market to other Wi-Fi markets, including the enterprise and consumer electronics markets, as well as grow our market share in the retail market. These other markets have separate and unique requirements that may not be directly addressed by our current Wi-Fi solutions, including different specifications, performance requirements and product support needs. For example, our current Wi-Fi solutions may not be well suited for certain market opportunities and may require significant new functionality or features. Therefore, meeting the technical requirements and securing design wins with customers targeting these markets will require a substantial investment of our time and resources. We may also face challenges and delays in accurately understanding the specific needs of new markets, which in turn may impair our ability to develop the customer and partner relationships necessary to be successful in such markets. If any of these markets do not develop as we currently anticipate or if we are unable to penetrate them successfully, our growth opportunities could be harmed and our business, results of operations and financial condition could be negatively impacted.

If we fail to successfully leverage our engineering expertise to penetrate markets beyond Wi-Fi, our long-term revenue growth and financial condition could be harmed.

Our future growth will depend in part on our ability to leverage our engineering expertise in wireless and communications to address other markets beyond Wi-Fi. We have historically focused on high-performance Wi-Fi solutions, and may not be successful in identifying or implementing strategies to penetrate and sustain growth in new markets. If we are unable to develop solutions that are applicable beyond the Wi-Fi market, or to manage the expansion and growth of our business in such markets, our long-term revenue growth and financial condition could be harmed.

If we are unable to attract, train and retain qualified and key personnel, particularly our engineering personnel, we may not be able to execute our business strategy effectively.

We believe our future success will depend in large part upon our ability to attract, train and retain highly skilled management, engineering and sales and marketing personnel. Each of our employees is an at-will employee. The loss of any key employees or the inability to attract, train or retain qualified personnel, particularly our engineering personnel, could harm our business. For example, if any of these individuals were to leave unexpectedly, we could face substantial difficulty in hiring qualified successors and could experience a loss in productivity during the search for any such successor and while any successor is integrated into our business and operations.

Our key engineering personnel represent a significant asset and serve as the source of our technological and product innovations. We may not be successful in attracting, training and retaining sufficient numbers of technical and engineering personnel to support our anticipated growth. In addition, any changes to immigration laws, or uncertainty regarding potential changes, could impact our ability to hire technical and engineering personnel on a timely basis. The competition for qualified engineering personnel in our industry is very intense, especially in the San Francisco Bay Area, where we have a substantial presence and need for highly skilled personnel.

To compete effectively in the Wi-Fi marketplace, we rely on industry partners, some of which may be our competitors, to enable and complement our Wi-Fi solutions.

Our Wi-Fi solutions need to be integrated with other components and products, such as broadband processors, video system on chips and network processors, to serve the service provider markets. We have developed relationships with various third-party partners who enable and enhance our ability to bring our Wi-Fi solutions to various markets. These partners can provide critical support to enable us to reach certain markets and better address customer needs, including through the development of joint reference designs, the establishment of relationships with key customers, the validation of our Wi-Fi solutions, and the creation of bundled solutions to contend with competitive offerings. For example, when our Wi-Fi solution is designed into a product that also incorporates Intel or Broadcom network processors or other components, we depend on the ability of these partners to deliver their products in a timely fashion in order to meet shipping schedules. These partners may also be our competitors, which can negatively impact their willingness to collaborate with us, to support the integration of our solutions

- 19 -

Table of Contents

with their products, and to pursue joint sales and marketing efforts. In addition, in some cases it may be necessary to share competitively sensitive information with our partners that could enable our partners to compete more effectively against us or create uncertainty regarding ownership of intellectual property rights. If we are unable to continue to successfully develop or maintain these relationships, we may not be able to compete effectively and our business and results of operations may be adversely affected.

Our historical growth rate may not be indicative of future financial results.

You should not consider the growth rate in our revenue in recent periods as indicative of our future performance. For example, our revenue increased to $220.5 million in the year ended December 30, 2018 from $176.4 million in the year ended December 31, 2017 , representing a 25% increase. We may not be able to grow at the same rate, or a higher rate, in future periods compared to historical rates. Our revenue may be adversely impacted by various factors, including reduced or delayed demand for our Wi-Fi solutions, increased competition, a decrease in the size of our target markets, and the failure to capitalize on growth opportunities and other risk factors described herein. Moreover, even if our revenue continues to increase in absolute terms, we expect that our revenue growth rate will decline over time as we mature as a public company.

We may pursue strategic acquisitions or partnerships which could require significant management attention, increase operating risk, dilute stockholder value, fail to achieve intended results, and adversely affect our business, results of operations and financial condition.

We may acquire other businesses, products or technologies, or partner with other businesses. Our ability to make and successfully integrate acquisitions is unproven. Even if we complete one or more acquisitions or strategic partnerships, we may not be able to strengthen our competitive position or realize the intended benefits of the acquisition or the strategic partnership in a timely manner, or at all. Any acquisitions or strategic partnerships may also be viewed negatively by our customers, financial markets or investors. In addition, any acquisitions we make could lead to difficulties in integrating technologies, products and operations from the acquired businesses and in retaining and motivating key personnel from these businesses. Acquisitions may disrupt our ongoing operations, divert management from their primary responsibilities, subject us to additional liabilities, increase our expense and adversely impact our business. Acquisitions may also reduce our cash available for operations and other uses, and could also result in an increase in amortization expense related to identifiable assets acquired, potentially dilutive issuances of equity securities or the incurrence of debt, any of which could harm our business.

Our business is subject to disruption from hazards, natural disasters, terrorism, political unrest and other similar events, which could cause significant delays in the design, development, production or shipment of our solutions.

Our operations and those of our third-party contractors are vulnerable to interruptions caused by technical breakdowns, computer hardware and software malfunctions, software viruses, infrastructure failures, fires, earthquakes, tsunamis, flooding, power losses, telecommunications failures, terrorist attacks, wars, political unrest and disputes, Internet failures and other events beyond our control. For example, our sole foundry, TSMC, is located in Taiwan, which has been subject to a number of earthquakes, which has in the past impacted, and may in the future impact, the fabrication of our solutions. In addition, a significant portion of our engineering equipment, servers, storage and networking equipment, and other office equipment is located in our offices in the seismically active San Francisco Bay Area and Taiwan. Another example relates to rising political tensions and the potential for one or more countries to engage in hostilities with North Korea that could adversely affect various locations where we or our customers conduct business. If we suffer a significant hazard or outage to these offices and equipment, our business could experience disruption, which could harm our business and negatively impact our business, results of operations and financial condition.

The average selling prices for our Wi-Fi solutions could decrease over time, which could harm our revenue, gross margin and results of operations.

Products sold in our industry, including our Wi-Fi solutions, have often experienced a decrease in ASPs over time. We anticipate that the ASPs of our solutions may decrease in the future in response to competitive pricing pressures, customer expectations for price reduction, increased sales discounts, and new product introductions by our competitors. Our future results of operations may be harmed due to the decrease of our average selling prices.

Additionally, because we use a fabless semiconductor business model and rely on third-party contractors to fabricate, assemble, and test our chipset designs, we may not be able to reduce our costs as rapidly as companies that operate their own

- 20 -

Table of Contents

manufacturing processes, and our costs may even increase, which could also reduce our gross margins. To maintain our current gross margins or increase our gross margins in the future, we must develop and introduce on a timely basis new solutions and enhancements to existing solutions; continually reduce the costs of manufacturing our solutions; and manage transitions from one solution to another in a timely and cost-effective manner. Our failure to do so would likely cause our revenue and gross margins to decline, which could have an adverse effect on our business, results of operations and financial condition.

Our international operations expose us to additional business risks, and failure to manage these risks may adversely affect our business.

We have international operations in China, Russia, Taiwan, Australia, Japan, Singapore and parts of Europe, and we derive substantially all of our revenue from shipments delivered outside the United States, particularly in Asia. International operations are subject to inherent risks, and our future results could be adversely affected by a number of factors, including:


•	differing technical standards, existing or future regulatory and certification requirements and required product features and functionality;


•	challenges related to managing and integrating operations in new markets with different languages, cultures and political systems;


•	heightened risks of unfair or corrupt business practices in certain countries and of improper or fraudulent sales arrangements that may impact financial results and lead to restatements of, and irregularities in, our financial statements or violations of law, including the U.S. Foreign Corrupt Practices Act;


•	tariffs and trade barriers, export controls and trade and economic sanctions regulations and other regulatory or contractual limitations on our ability to sell or develop our solutions in certain foreign markets, particularly in China and Russia;


•	rapidly changing immigration laws, requirements and processes, which may result in travel restrictions and delays, reduced hiring opportunities of qualified personnel, hiring delays, and increased immigration costs;


•	difficulties and costs associated with staffing and managing international operations;


•	difficulties associated with enforcing and protecting intellectual property rights in some countries;


•	requirements or preferences for in-country products, which could reduce demand for our products;


•	difficulties in enforcing contracts and collecting accounts receivable, which may result in longer payment cycles, especially in emerging markets;


•	potentially adverse tax consequences, including taxes impacting our ability to repatriate profits to the United States;


•	added legal compliance obligations and complexity;


•	public health emergencies and other disasters, such as earthquakes and tsunamis, that are more common in certain regions;


•	increased cost of terminating employees in some countries;


•	the effect of currency exchange rate fluctuations;


•	the effect of inflation;


•	political and economic instability;


•	war or hostilities between countries, including, for example, recent escalating hostilities between India and Pakistan; and


•	acts of terrorism.

Additionally, the United States has announced restrictions on exports involving specific companies. In April 2018, the U.S. Department of Commerce’s Bureau of Industry and Security imposed a denial of export privileges against Zhongxing Telecommunications Equipment Corporation (“ZTE”) and a second ZTE entity. These restrictions were subsequently lifted in July 2018, but may be imposed in the future with little or no advance notice. Recent reports in December 2018 noted that President Trump is considering an executive order to declare a national emergency and ban U.S. companies from using telecommunications equipment made by Chinese companies Huawei and ZTE. While the prior export ban applicable to ZTE

- 21 -

Table of Contents

has been lifted by the United States, the imposition of any export bans and the resulting uncertainty regarding the eventual resolution or potential for future export bans, can delay or cause the loss of revenue opportunities and harm our results of operations.

Data privacy laws in various jurisdictions are changing significantly and creating a complex regulatory compliance environment. For example, the European Union adopted the General Data Protection Regulation (the “GDPR”), which requires companies to meet new requirements beginning in May 2018 regarding the use and handling of personal data in the European Union. Failure to meet GDPR requirements could result in penalties of the greater of €20 million or up to 4% of a company’s worldwide revenue, as well as other potential penalties and fines. It can be challenging to comply with these changing laws and our efforts to comply could cause us to incur substantial costs. Failure to comply also subjects us to significant potential penalties, reputational damage and loss of business.

In 2012, we established our Russian subsidiary for research and development activities pursuant to a letter agreement with Joint Stock Company “RUSNANO” (“RUSNANO”). Pursuant to the letter agreement, as amended, we have obligations to periodically fund the subsidiary, and RUSNANO has certain rights regarding the governance and operation of the subsidiary. While certain of these rights terminated upon completion of our initial public offering, RUSNANO may seek to continue to remain involved with our subsidiary, including its board of directors and use of our subsidiary’s funds. We may incur specified penalties under the letter agreement if we fail to meet any applicable funding obligations, and may incur other unanticipated costs if we are required to restructure our operations in Russia.

We expect that we will continue to rely on our international operations, and our success will depend on our ability to anticipate and effectively manage these and other associated risks. The imposition, or even the mere threat of imposition, of any of the actions described above, or similar actions, increases the overall business risks related to international commerce and creates additional uncertainty in connection with our international operations. Our failure to successfully manage any of these risks, and take appropriate action in a timely manner in response to any such new developments, could harm our international operations and adversely affect our business.

Changes in government trade policies could have an adverse impact on our business or the business of our customers, which may materially adversely affect our business operations, sales or gross margins.

The United States has recently enacted significant changes, and has indicated it may seek additional changes, with respect to a variety of issues, including trade agreements among nations, import and export regulations, tariffs and customs duties, foreign relations, and tax laws and regulations. For example, during 2018, the United States and China each imposed new tariffs, and announced further proposed tariffs, on various products imported from China and the United States, respectively. In particular, in July 2018, the United States Trade Representative announced potential additional tariffs of 10% on over 6,000 categories of products imported from China with a value of $200 billion, including certain networking and Wi-Fi related equipment, which went into effect in September 2018 and is scheduled to increase to a rate of 25% in 2019. Although we do not manufacture any chips in China and have limited test and assembly operations in China, these tariffs have impacted certain of our customers. In addition, many of our impacted customers with China-based production operations have announced plans to move at least some of their production and supply chain activities outside of China, which may impact the timing or amount of product purchases, cause greater inventory volatility, increase costs and otherwise disrupt operations and manufacturing processes. The United States has also announced tariffs on other countries as well as further potential tariffs on China. In addition, the United Kingdom's 2016 referendum to withdraw from the European Union, commonly referred to as “Brexit,” has created economic and political uncertainty in the European Union and worldwide. We cannot predict what actions may ultimately be taken with respect to tariffs or trade relations between the United States and other countries, what products may be subject to such actions, or what actions may be taken by the other countries in retaliation. Accordingly, it is difficult to predict exactly how, and to what extent, such actions may impact our business, or the business of our customers, partners or vendors. However, our business operations, as well as the businesses of our customers and vendors on which we are substantially dependent, are located in various countries at risk for escalating trade disputes, including the United States, China and Europe. Any resulting trade wars could have a significant adverse effect on world trade and could adversely impact our revenues, gross margins and business operations.

We could be subject to additional tax liabilities.

We are subject to U.S. federal, state and local income, sales and other taxes in the United States and foreign income taxes, withholding taxes and value-added and other transaction taxes in numerous foreign jurisdictions. Significant judgment is required in evaluating our tax positions and our worldwide provision for taxes. During the ordinary course of business, there are many

- 22 -

Table of Contents

activities and transactions for which the ultimate tax determination is uncertain. Our tax obligations and effective tax rates could be adversely affected by changes in the relevant tax, accounting and other laws, regulations, principles and interpretations, including those relating to income tax nexus, by challenges to our intercompany arrangements, valuation methodologies and transfer pricing, by recognizing tax losses or lower than anticipated earnings in jurisdictions where we have lower statutory rates and higher than anticipated earnings in jurisdictions where we have higher statutory rates, by changes in foreign currency exchange rates, or by changes in the valuation of our deferred tax assets and liabilities. In addition, on December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into legislation, which contains many significant changes to the U.S. tax laws. The Tax Act, among other changes, reduces the U.S. federal corporate tax rate from as high as 35% to 21%, implements a modified territorial tax system that includes a one-time transition tax on deemed repatriation of previously untaxed accumulated earnings and profits of certain foreign subsidiaries, and creates new taxes on certain foreign-sourced earnings. We are still evaluating the impact of the recently enacted Tax Act, including whether and how state, local and foreign jurisdictions will react to such changes. Changes in corporate tax rates, the realizability of the net deferred tax assets relating to our U.S. operations, the taxation of foreign earnings and the deductibility of expenses contained in the Tax Act or other tax reform legislation could result in significant one-time charges in the current or future taxable years and could increase our future U.S. tax expense. In addition, we will re-evaluate our international operating structure and strategy due to changes to European tax laws, including new European tax laws effective January 1, 2020, which could have an adverse impact on our effective tax rate in the future. Furthermore, changes to the taxation of undistributed foreign earnings could change our future intentions regarding reinvestment of such earnings. The foregoing items could have an adverse effect on our operating results, cash flow or financial condition. We may also be audited in various jurisdictions, and such jurisdictions may challenge our intercompany structures or assess additional taxes, interest and penalties, including sales taxes and value-added taxes against us. Although we believe our tax estimates are reasonable, the final determination of any tax audits or litigation could be materially different from our historical tax provisions and accruals, which could have an adverse effect on our results of operations or cash flows in the period or periods for which a determination is made.

Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.

We currently have a significant amount of net operating losses, or NOLs, which we expect will reduce our overall tax liability for the foreseeable future. However, if we undergo an ownership change our ability to utilize NOLs could be further limited by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the Code. Furthermore, our ability to utilize NOLs of companies that we may acquire in the future may be subject to limitations. There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities. For these reasons, we may not be able to utilize a material portion of the NOLs reflected on our balance sheet, even if we attain profitability. See Note 11, “Income Taxes” of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for details.

Our use of open source software in our solutions, processes and technology may expose us to additional risks and compromise our proprietary intellectual property.

We incorporate open source software into our Wi-Fi solutions, including certain open source code governed by the GNU General Public License, the GNU Lesser General Public License and the Common Development and Distribution License. The terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that these licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our solutions. In such event, we could be required to seek licenses from third parties to continue offering our solutions, make our proprietary code generally available in source code form (for example, proprietary code that links to certain open source modules), re-engineer our solutions, discontinue the sale of our solutions if re-engineering cannot be accomplished on a cost-effective and timely basis, or become subject to other consequences, any of which could adversely affect our business, results of operations and financial condition.

Changes to industry standards and government requirements relevant to our solutions and markets could adversely affect our business, results of operations and financial condition.

If our customers adopt new or competing industry standards with which our solutions are not compatible, our existing solutions would become less desirable and our revenue and results of operations would suffer. In addition, changes in government-

- 23 -

Table of Contents

imposed requirements, such as maximum power consumption regulations in Europe, can prevent our solutions from being shipped to certain countries if they do not meet such requirements.

The requirements of being a public company may strain our resources and divert management’s attention from managing our business.

As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the listing requirements of the securities exchange on which our common stock is traded, and other applicable securities rules and regulations. Our management team and other personnel devote a substantial amount of time to compliance. Compliance with these rules and regulations has increased our legal and financial compliance costs, made some activities more difficult, time-consuming or costly, and increased demands on our administrative systems and resources. Among other things, the Exchange Act requires that we file annual, quarterly and current reports with respect to our business and results of operations, and maintain effective disclosure controls and procedures and internal control over financial reporting. To maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could harm our business and results of operations. In addition, we have limited internal resources and we may need to hire additional employees to comply with these requirements in the future, which will increase our costs and expenses. We may also not be able to hire additional, qualified resources on a timely basis.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs, and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations, and standards, and this investment will increase our general and administrative expense and result in a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations, and standards are unsuccessful, regulatory authorities may initiate legal proceedings against us and our business, results of operations and financial condition may be harmed.

While we have remediated a prior material weakness in our internal control over financial reporting, we could experience a material weakness in the future that, if not properly remediated, could result in material misstatements in our financial statements in future periods and impair our ability to comply with the accounting and reporting requirements applicable to public companies.

We have experienced a material weakness in the past and could experience one or more material weaknesses in the future. During the course of the preparation of our 2016 consolidated financial statements, we identified a control deficiency in our internal control over financial reporting that we determined constituted a material weakness as previously disclosed in our Prospectus and in our Annual Reports on Form 10-K for the fiscal years ended January 1, 2017 (fiscal 2016) and December 31, 2017 (fiscal 2017). While we have taken a number of steps to improve our internal controls over financial reporting and have successfully remediated this material weakness, we cannot be certain that other material weaknesses and control deficiencies will not be discovered in the future. In addition, if material weaknesses or control deficiencies occur in the future, we may be unable to report our financial results accurately or on a timely basis, which could cause our reported financial results to be materially misstated and result in the loss of investor confidence or delisting and cause the trading price of our common stock to decline. As a result of any such failures, we could also become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, and become subject to litigation from investors and stockholders, which could harm our reputation and financial condition, or divert financial and management resources from our core business.

We may not be able to maintain an effective system of internal controls and accurately report our financial results on a timely basis, which may adversely affect investor confidence in our company and negatively impact the trading price of our common stock.

Pursuant to the Exchange Act, we are required to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting in our Annual Report on Form 10-K. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting. We plan to continue to further document and test our internal controls in order to identify, evaluate and remediate any deficiencies in those internal controls

- 24 -

Table of Contents

and document the results of our evaluation, testing and remediation, provided, however, we may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, as we did in preparing our 2015, 2016 and 2017 consolidated financial statements (which we have successfully remediated as of December 30, 2018), that we are unable to remediate before the end of the same fiscal year in which the material weakness is identified, we will be unable to assert that our internal controls are effective. In addition, as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”), we have taken advantage of certain exemptions from various requirements that are applicable to public companies that are not “emerging growth companies,” including not being required to comply with the independent auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. Once we no longer qualify as an “emerging growth company,” we will be subject to such additional requirements, which will require additional effort, increased costs and further scrutiny. If we are unable to assert that our internal control over financial reporting is effective, or if our auditors, when required, are unable to attest to management’s report on the effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline.

We are subject to the cyclical nature of the semiconductor industry, which has suffered, and may in the future suffer, from cyclical downturns.

The semiconductor industry is highly cyclical and is characterized by constant and rapid technological change, rapid product obsolescence, price erosion, evolving standards, consolidation and wide fluctuations in product supply and demand. The industry has historically experienced cyclical downturns, including during global recessions, which have been characterized by diminished product demand, production overcapacity, high inventory levels and accelerated erosion of ASPs. A significant portion of our operating expense is incurred in connection with developing our Wi-Fi solutions, securing design wins and assisting customers and service providers in the development of their product specifications in advance of anticipated sales. As a result, in the event that such sales do not ultimately materialize due to a cyclical downturn or otherwise, we may not be able to decrease our operating expense rapidly enough to offset any unanticipated shortfall in revenue. There is a risk that future downturns could negatively impact our revenue, which could harm our business, results of operations and financial condition.

Our products, results of operations and financial condition could be seriously impacted by security breaches, including cyber security incidents.

We rely on several information technology systems to provide products and services, process orders, manage inventory, process shipments to customers, keep financial, employee, and other records, and operate other critical functions. We also use third-party vendors that store certain confidential or sensitive data. These information technology systems are subject to damage or interruption from a number of potential sources. In addition, defects and security vulnerabilities could be introduced into the software embedded in our products, and possibly impact the functionality, performance, reliability and security of our products. Security breaches, including cyber-attacks, phishing attacks, attempts to misappropriate or compromise confidential or proprietary information, including personal data, or sabotage information technology systems with malware, viruses or other malicious attacks, are becoming increasingly frequent and more sophisticated. We may not be able to effectively detect, prevent and recover from security breaches, including attacks on information technology and infrastructure by hackers and viruses. Cyber attacks could result in unauthorized parties gaining access to certain confidential business information or personal data, and could include unauthorized third parties obtaining trade secrets and proprietary information related to our solutions. For example, we offer a cloud-based Wi-Fi analytics and monitoring platform that collects certain Wi-Fi network and system data. While we utilize Amazon Web Services for this platform, which provides a number of sophisticated technical and physical controls designed to prevent unauthorized access to or disclosure of customer content, we cannot be certain that such controls will be sufficient to prevent a security breach. It can be difficult, if not impossible, to entirely prevent cyber attacks. As these threats continue to evolve, we may be required to expend significant resources to enhance our control environment, processes, practices and other protective measures. Despite these efforts, if we experience a cyber security incident, such incident could subject us to legal or regulatory claims or proceedings, disrupt our operations, damage our reputation, cause a loss of confidence in our products and services, negatively impact our stock price and adversely affect our business, results of operations and financial condition.

- 25 -

Table of Contents

We are exposed to fluctuations in currency exchange rates that could negatively impact our business, operating results and financial condition.

Because a portion of our business is conducted outside of the United States, we face exposure to adverse movements in foreign currency exchange rates. These exposures may change over time, as international customer mix, business practices and our international footprint evolve, and they could have a material adverse impact on our business, operating results and financial condition.

To date, all of our revenue has been denominated in U.S. dollars; however, most of our expenses associated with our international operations are denominated in local currencies. As a result, a decline in the value of the U.S. dollar relative to the value of these local currencies could have a material adverse effect on our results of operations. Conversely, an increase in the value of the U.S. dollar could result in our Wi-Fi solutions being more expensive to our customers in their local currencies, and could have an adverse impact on our pricing and our business.

Although we hedge a portion of our international currency exposure, not every exposure can be hedged and, where hedges are put in place based on expected foreign currency exchange exposure, they are based on forecasts that may vary or that may later prove to have been inaccurate. As a result, fluctuations in foreign currency exchange rates or our failure to successfully hedge against these fluctuations could have a material adverse effect on business, operating results and financial condition.

Risks Related to Ownership of Our Common Stock

The market price of our common stock has been and may continue to be volatile, which could cause the value of an investment in our common stock to decline.

Technology stocks have historically experienced high levels of volatility. Prior to our initial public offering, there had been no public market for shares of our common stock. Since our initial public offering, the trading price of our common stock has fluctuated from an intra-day high of $25.45 to an intra-day low of $9.60 and may continue to fluctuate substantially. These fluctuations depend on many factors, some of which are beyond our control and may not be related to our operating performance. These fluctuations could cause an investor to lose all or part of their investment in our common stock. Factors that could cause fluctuations in the trading price of our common stock include the following:


•	announcements of new products or technologies, commercial relationships, acquisitions or other events by us or our competitors;


•	changes in how customers perceive the benefits of our Wi-Fi solutions;


•	departures of key personnel;


•	price and volume fluctuations in the overall stock market or semiconductor market from time to time;


•	fluctuations in the trading volume of our shares or the size of our public float;


•	sales of large blocks of our common stock;


•	sales of our common stock by our directors and officers;


•	actual, anticipated or perceived changes, fluctuations or developments in our business, outlook or results of operations;


•	whether our results of operations meet the expectations of securities analysts or investors;


•	changes in actual or future expectations of investors or securities analysts;


•	litigation involving us, our industry, or both;


•	regulatory developments in the United States, foreign countries or both;


•	general economic conditions and trends;


•	major catastrophic events in our domestic and foreign markets; and


•	“flash crashes,” “freeze flashes” or other glitches that disrupt trading on the securities exchange on which we are listed.

- 26 -

Table of Contents

In addition, if the market for technology stocks or the stock market in general experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, results of operations or financial condition. The trading price of our common stock might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. If our stock price is volatile, we may become the target of securities litigation. Securities litigation could result in substantial costs and divert our management’s attention and resources from our business. This could have a material adverse effect on our business, results of operations and financial condition.

If securities analysts or industry analysts downgrade our stock, publish negative research or reports or fail to publish reports about our business, our stock price could be adversely affected.

The trading market for our common stock will, to some extent, depend on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us should downgrade our stock or publish negative research or reports, cease coverage of our company or fail to regularly publish reports about our business, such actions could adversely affect our stock price.

Sales of substantial amounts of our common stock in the public markets, or the perception that such sales might occur, could reduce the price that our common stock might otherwise attain.

Sales of a substantial number of shares of our common stock in the public market, or the perception that such sales could occur, could have an adverse effect on the market price of our common stock and may make it more difficult for investors to sell their shares of our common stock at a desirable time and price. In addition, our executive officers and directors may wish to sell shares of our common stock held by them, including sales through automatic and non-discretionary written plans, known as “Rule 10b5-1 Plans.” Sales made by our executive officers and directors, including sales pursuant to Rule 10b5-1 Plans, regardless of the amount of such sales, could adversely affect the market price of our common stock.

Our issuance of additional capital stock in connection with financings, acquisitions, investments, our stock incentive plans or otherwise will dilute all other stockholders.

We expect to issue additional capital stock in the future that will result in dilution to all other stockholders. We expect to grant equity awards to employees, directors and consultants under our stock incentive plans. We may also raise capital through equity financings in the future. As part of our business strategy, we may acquire or make investments in complementary companies, products or technologies and issue equity securities to pay for any such acquisition or investment. Any such issuances of additional capital stock may cause stockholders to experience significant dilution of their ownership interests and the per share value of our common stock to decline.

A limited number of stockholders may have substantial control over us, which could limit your ability to influence the outcome of key transactions, including a change of control and other matters requiring stockholder approval.

Our directors, executive officers and each of our stockholders who own greater than 5% of our outstanding common stock, in the aggregate, beneficially own a significant portion of the outstanding shares of our common stock. As a result, these stockholders, if acting together, may be able to influence or control matters requiring approval by our stockholders, and limit your ability to influence the outcome of key transactions, including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions. They may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. This concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.

We do not intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

We have never declared or paid any dividends on our common stock. We intend to retain any earnings to finance the operation and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future. As a result, you may only receive a return on your investment in our common stock if the market price of our common stock increases.

- 27 -

Table of Contents

Delaware law and our corporate charter and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable.

Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws contain provisions that could delay or prevent a change in control of our company. These provisions could also make it difficult for stockholders to elect directors who are not nominated by the current members of our board of directors or take other corporate actions, including effecting changes in our management. These provisions include:


•	a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors;


•	the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;


•	the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;


•	a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;


•	the requirement that a special meeting of stockholders may be called only by our board of directors, the chairperson of our board of directors, our chief executive officer or our president (in the absence of a chief executive officer), which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;

•

the requirement for the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend the provisions of our amended and restated certificate of incorporation relating to the management of our business (including our classified board structure) or certain provisions of our Amended and Restated Bylaws, which may inhibit the ability of an acquirer to effect such amendments to facilitate an unsolicited takeover attempt;


•	the ability of our board of directors to amend the bylaws, which may allow our board of directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the bylaws to facilitate an unsolicited takeover attempt; and


•	advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.

In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law, which may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a specified period of time.

- 28 -

Table of Contents

Our Amended and Restated Bylaws designate a State or Federal court located within the State of Delaware as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.

Pursuant to our Amended and Restated Bylaws, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (3) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law, or (4) any action asserting a claim against us that is governed by the internal affairs doctrine, shall be a State or Federal court located within the State of Delaware, in all cases subject to the court’s having personal jurisdiction over indispensable parties named as defendants. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to this provision. The forum selection clause in our Amended and Restated Bylaws will limit stockholders’ choice in selecting a judicial forum for disputes with our company and may have the effect of discouraging lawsuits against us or our directors and officers.

We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders and our failure to raise capital when needed could prevent us from executing our growth strategy.

We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new and enhance our existing Wi-Fi solutions, improve our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional equity financing, our stockholders may experience significant dilution of their ownership interests and the per share value of our common stock could decline. Furthermore, if we engage in debt financing, the holders of debt would have priority over the holders of common stock, and we may be required to accept terms that restrict our ability to incur additional indebtedness. We may also be required to take other actions that would otherwise be in the interests of the debt holders and force us to maintain specified liquidity or other ratios, any of which could harm our business, results of operations, and financial condition. If we need additional capital and cannot raise it on acceptable terms, we may not be able to, among other things:


•	develop new or enhance our existing Wi-Fi solutions;


•	expand our research and development and sales and marketing organizations;


•	respond to competitive pressures or unanticipated working capital requirements;


•	hire, train and retain employees;


•	expand our operations, in the United States or internationally; or


•	acquire complementary technologies, products or businesses.

Our failure to do any of these things could harm our business, financial condition and results of operations.

We are an “emerging growth company,” and our election to comply with the reduced disclosure requirements as a public company may make our common stock less attractive to investors.

For so long as we remain an “emerging growth company,” as defined in the JOBS Act, we have taken advantage of certain exemptions from various requirements that are applicable to public companies that are not “emerging growth companies,” including not being required to comply with the independent auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the completion of our initial public offering, (ii) the last day of the first fiscal year in which our annual gross revenue is $1.07 billion or more, (iii) the date on which we have, during the previous rolling three-year period, issued more than $1 billion in non-convertible debt securities or (iv) the date on which we are deemed to be a “large accelerated filer” as defined in the Exchange Act. We cannot predict if investors will find our common stock less attractive because we have relied on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, and our stock price may be more volatile and may decline.

- 29 -

Table of Contents

In addition, the JOBS Act also provides that an “emerging growth company” can take advantage of an extended transition period for complying with new or revised accounting standards. However, we have chosen to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

Item 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

Item 2. PROPERTIES

Our corporate headquarters is located in San Jose, California and consisting of approximately 84,000 square feet, which expires in 2024. We also lease properties in Australia, France, Spain, Russia, China, Singapore and Taiwan which accommodate our design centers and sales support team. Based on our business requirements, the location and size of these leased properties will change from time to time. We do not own any real property.

Item 3. LEGAL PROCEEDINGS

From time to time, we are a party to litigation and subject to claims incident to the ordinary course of business, including intellectual property claims, labor and employment claims, breach of contract claims, and other matters. Significant judgment is required when we assess the likelihood of any adverse judgments or outcomes to a potential claim or legal proceeding, as well as potential ranges of probable losses, and when the outcomes of the claims or proceedings are probable and reasonably estimable. Because of uncertainties related to these matters, we base our estimates on the information available at the time. As additional information becomes available, we reassess the potential liability related to pending claims and litigation, and may revise our estimates. Any revisions in the estimates of potential liabilities could have a material impact on our results of operations, financial position, and cash flows. As of the date of this Annual Report on Form 10-K for the year ended December 30, 2018 , we are not a party to any litigation the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our results of operations, financial position, and cash flows.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

- 30 -

Table of Contents

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock has traded on the NASDAQ Global Select Market under the symbol “QTNA” since October 28, 2016.

Holders of Record

As of February 26, 2019 , there were 38 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.

Stock Performance Graph

This performance graph shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, or the SEC, for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or the Securities Act, except as shall be expressly set forth by specific reference in such filing.

The following performance graph compares, for the period beginning on October 28, 2016, the first day of trading of our common stock on the NASDAQ Global Select Market, and ending on December 30, 2018 , the last day of our most recent fiscal year, the cumulative total stockholder return for our common stock, the NASDAQ Composite Index and Philadelphia Semiconductor Index. The graph assumes that $100 was invested on October 28, 2016 in each of our common stock, the NASDAQ Composite Index and Philadelphia Semiconductor Index and assumes reinvestment of any dividends. The stock price performance on the following graph is not necessarily indicative of future price performance of our stock.

- 31 -

Table of Contents



Company/Index	October 28, 2016		January 1, 2017		December 31, 2017		December 30, 2018
Quantenna Communications, Inc	$	100	$	119	$	79	$	91
NASDAQ Composite Index	100		104		133		127
Philadelphia Semiconductor Index	$	100	$	111	$	153	$	140

Dividends

We have never declared or paid a cash dividend on our common stock and we intend to retain all available funds and any future earnings to fund the development and growth of our business. We therefore do not anticipate paying any cash dividends on our common stock in the foreseeable future. In addition, our credit facility materially restricts, and future debt instruments may materially restrict, our ability to pay dividends on our common stock. Any future determinations to pay dividends on our common stock would depend on our results of operations, our financial condition and liquidity requirements, restrictions that may be imposed by applicable law or our contracts, and any other factors that our board of directors may consider relevant.

Securities Authorized for Issuance under Equity Compensation Plans

The information required by this item will be included in our Definitive Proxy Statement for the 2019 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 30, 2018 , and is incorporated herein by reference.

Recent Sales of Unregistered Securities

Unregistered Sales of Equity Securities

None.

Use of Proceeds

None.

Purchases of Equity Securities by the Issuer

None.

- 32 -

Table of Contents

Item 6. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The following selected consolidated financial data should be read in conjunction with our Consolidated Financial Statements and the accompanying notes appearing in Part II, Item 8, “Financial Statements and Supplementary Data”, and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included elsewhere in this Annual Report on Form 10-K. The selected data in this section is not intended to replace our Consolidated Statements of Operations and Consolidated Balance Sheets. Our historical results are not necessarily indicative of the results that may be expected in the future.



	Years Ended
	December 30, 2018		December 31, 2017		January 1, 2017			December 27, 2015			December 28, 2014
			(1), (2)
	(In thousands, except per share data)
Consolidated Statements of Operations Data:
Revenue	$	220,460	$	176,359	$	129,069		$	83,773		$	66,860
Gross profit	109,402		88,151		64,429			41,219			28,649
Net income (loss)	3,083		34,412		(1,895		)	(7,045		)	(13,598		)
Net income (loss) per share:
Basic	0.08		1.00		(0.30		)	(9.16		)	(20.72		)
Diluted	$	0.08	$	0.89	$	(0.30	)	$	(9.16	)	$	(20.72	)



(1)	The increase in net income for fiscal 2017 was primarily due to the release of $35.3 million of previously established tax valuation allowances. Management believed, based on available objective evidence, that it was more likely than not that the net deferred tax assets will be realized for federal and state purposes except for California. Accordingly, management released its valuation allowance against its federal and state net deferred tax assets as of this date.
(2)	Revenue for fiscal 2017 included approximately $2.0 million of accrued customer rebate relating to the reversal of accrued customer rebate liabilities that were extinguished.



	As of
	December 30, 2018		December 31, 2017		January 1, 2017		December 27, 2015			December 28, 2014
					(3)
	(In thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents and marketable securities	$	136,149	$	118,627	$	117,045	$	18,850		$	18,320
Working Capital	154,220		132,057		127,981		28,287			21,091
Total assets	245,656		212,704		154,789		46,667			43,533
Total liabilities	39,169		32,101		26,041		17,635			23,078
Total stockholders’ equity (deficit)	$	206,487	$	180,603	$	128,748	$	(155,672	)	$	(149,993	)



(3)	We completed our initial public offering in October 2016 (fiscal year ended January 1, 2017).

- 33 -

Table of Contents

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section titled “Selected Consolidated Financial and Other Data” and the consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations and beliefs that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” included elsewhere in this Annual Report on Form 10-K.

Our management’s discussion and analysis is organized as follows:


•	Overview. Discussion of our business and overall analysis of financial and other highlights affecting us.


•	Results of Operations. Analysis of our financial results comparing fiscal 2018 to the corresponding year in fiscal 2017 and comparing fiscal 2017 to the corresponding year in fiscal 2016 .


•	Liquidity and Capital Resources. Analysis of changes in our balance sheets and cash flows, and discussion of our financial condition and sources of liquidity.


•	Contractual Commitments. Contractual obligations and off-balance sheet arrangements as of December 30, 2018 .

Overview

We sell our Wi-Fi solutions directly to global original equipment manufacturers (“OEMs”), original design manufacturers (“ODMs”) and contract manufacturers (“CMs”) that serve the end markets we address. In addition, we sell our Wi-Fi solutions to third-party distributors who, in turn, resell to OEMs, ODMs and CMs. OEMs incorporate our solutions into their products, which are then sold to their own customers, such as service providers, retailers, enterprises, small and medium businesses, and retail consumers. To date, we have primarily addressed the service provider market for home networking applications, including home gateways, repeaters, and set-top boxes. We also seek to address additional end markets, with solutions for (i) retail OEMs for home networking as well as small and medium business applications (e.g., routers and repeaters), (ii) enterprise OEMs for enterprise networking applications, (iii) fixed wireless access (FWA), and (iv) potential future opportunities from consumer electronics OEMs for consumer connected home applications. We believe the life cycles of our customers’ products can range from approximately one year to five years or more depending on the end market.

We derive the substantial majority of our revenue from the sale of our Wi-Fi solutions. In addition, historically we also derived a portion of our revenue from a limited number of licensing and non-recurring arrangements. While licensing and non-recurring arrangements are not part of primary focus, we may enter into such arrangements on an opportunistic basis from time to time.

- 34 -

Table of Contents

The following table shows OEM, ODM and third-party distributor customers from which we derived 10% or more of our revenue:



	Years Ended
	December 30, 2018	December 31, 2017	January 1, 2017
	(Percentage of revenue)
Customer:
A	29%	16%	11%
B	*	*	19%
C	*	*	11%

________________________


*	Customer percentage of revenue was less than 10%.

Substantially all of our revenue as of December 30, 2018 has been derived from sales to customer partners serving the service provider home networking market.

Almost all of our revenue was generated outside the United States for the years ended December 30, 2018 , December 31, 2017 , and, January 1, 2017 , based on ship-to destinations, and we anticipate that the vast majority of our shipments will continue to be delivered outside the United States. Although almost all shipments are delivered outside the United States, we believe that a significant number of the Wi-Fi products that include our semiconductors, such as access points, gateways, set-top boxes and repeaters, are ultimately sold by OEM customers to service providers in North America and Western Europe. To date, all of our revenue has been denominated in U.S. dollars. Refer to Note 13 to the consolidated financial statements, Segment Information and Operations by Geographic Area, for further details of the Company’s revenue by geographic region.

We use a fabless semiconductor business model and rely on third-party contractors to fabricate, assemble, and test our chipset designs. We purchase silicon wafers from Taiwan Semiconductor Manufacturing Company Limited (“TSMC”), our foundry partner, which are then shipped to third-party contractors who assemble and test our chipsets. Our inventory is distributed from the third-party contractors and a contracted warehouse in Taiwan. We believe this outsourced manufacturing approach gives us access to the best available process technology, reduces our capital requirements, and allows us to focus our resources on the design, development, marketing, sales, and customer integration of our Wi-Fi solutions. We typically receive purchase orders 16 to 18 weeks ahead of our customers’ desired delivery date, and we build our inventory primarily on the basis of purchase orders from our customers.

Fiscal 2018 Highlights

Revenue increased $44.1 million , or 25% , to $220.5 million in 2018 and net income decreased by $31.3 million as compared to the same period in 2017 . Gross profit increased $21.3 million , or 24% , in 2018 as compared to the same period in 2017 . The increase in revenue and gross profit were primarily due to an increase in sales of our Wi-Fi solutions driven by higher unit volumes of our 11ac products. Gross margin in 2018 was flat as compared to the same period in 2017 and changes in our gross margin were primarily due to changes in our product mix including an increased concentration of our higher cost 11ac Wave 3 (10G) product.

Operating expenses increased $18 million , or 20% , to $107 million in 2018 as compared to the same period in 2017 , primarily due to the continued expansion of our operations. The decrease in net income in 2018 was primarily due to the release of $35.3 million of previously established valuation allowances as of December 31, 2017 as management believed that, based on the available objective evidence, it was more likely than not that the net deferred tax assets will be realized for federal and state purposes except for California. Accordingly, management released its valuation allowance against its federal and state net deferred tax assets as of December 31, 2017.

We generated cash from operations of $24.8 million for the year ended December 30, 2018 and had cash and cash equivalents and marketable securities of $136.1 million as of December 30, 2018 , up 14.8% compared to December 31, 2017 .

- 35 -

Table of Contents

As of December 30, 2018 , we had 415 employees (of which 77% were engaged in research and development activities), up from 380 employees (of which 79% were engaged in research and development activities) as of December 31, 2017 . We expect our headcount to continue to grow as we scale our business.

In 2018 , we publicly announced that we:


•	partnered with Canal+ Group to deliver an end-to-end solution that enables wireless HD video redistribution from set-top box to a companion Over-The-Top (OTT) set-top box;


•	enhanced Wi-Fi features on our QSR10G chipset family targeting gateways and access points that significantly improve the user experience of mobile Wi-Fi clients;


•	partnered with Greenwave Systems, Inc., to deliver a full duplex 4x4 802.11ac Wave 2 Wi-Fi extender for superior whole-home coverage;


•	collaborated with Icotera to deliver innovative next-generation fiber gateway and Wi-Fi access point solutions to the European market;


•	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;


•	successfully integrated our full host offload, Spartan Wi-Fi booster, mesh repeater and access point solutions into more than 20 shipping OEM and ODM designs targeting turnkey implementation by service providers;


•	announced the new QSR10GU-AX Plus, a new enhanced solution targeting gateways and access points based on the draft 802.11ax standard, which was designated as “Wi-Fi 6” by the Wi-Fi Alliance in October 2018, that incorporates many unique performance features only offered by us;


•	partnered with Aerial Technologies to bring the latest in Wi-Fi motion detection technology to the market;


•	demonstrated over 1Gbps of Wi-Fi throughput using Quantenna QSR10GU-AX PLUS and QSR10G, each independently communicating with commercially available mobile products from Intel Corp.;


•	powered Deutsche Telekom’s award-winning Speedport Pro gateway with Quantenna’s Wave 3 10G solution, using its full 12 stream capabilities;


•	released and sampled to customers the QSR5GU-AX PLUS, a dual-band, 9-stream Wi-Fi 6 solution;


•	Orange Poland launched their new dual-band dual-concurrent Wi-Fi repeater based on our QV860 chipset;


•	joined forces with SoftAtHome to accelerate the availability of Wi-Fi solutions based on the latest draft Wi-Fi 6 standard;


•	integrated Plume’s Adaptive WiFi™ AI driven mesh solution into our QSR5GU-AX PLUS solution to deliver whole-home mesh networking;


•	reinforced our strategic partnership with Telefónica whereby this leading European service provider will develop new product offerings around our 8x8 MIMO Wi-Fi 6 capabilities;


•	introduced Spartan Essential, a turn-key design targeting multiple consumer Wi-Fi applications such as mesh, access point for wired extenders and simple boosters for upgrading existing gateway wireless LANs;


•	Starry Inc., a next generation service provider using pre-standard 5G millimeter wave technology, will use both our Wi-Fi 6 8x8 MIMO chipsets in their base station technology;


•	provided Wi-Fi 6 reference designs for next generation GPON gateways and routers that were delivered with Cortina Access, Inc.; and


•	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.

- 36 -

Table of Contents

We plan to continue to introduce leading edge premium Wi-Fi solutions and related technologies that increase our addressable market and expand our selling opportunities into the strategic customers which we serve.

Factors Affecting Our Performance

Design Wins with Existing and Prospective Service Providers

Existing and prospective service providers that we serve through our OEM and ODM customer partners tend to be global enterprises that are continuously working with their partners to deploy new products. We believe our Wi-Fi solutions enable service providers to differentiate their products and services and drive the next upgrade cycles in their end market to ultimately gain market share. We work closely with service providers to assist in the development of their product specifications and designs. We compete to secure service provider design wins through an extended sales cycle, which can often last six to 18 months. After a design win is achieved, we continue to work closely with the service providers to assist them and their OEMs and ODMs throughout their product development and early deployment, which can often last six to 18 months. We believe our design win performance is dependent on the investments we make in research and development and sales and marketing to bring innovative Wi-Fi solutions to our existing and new markets and develop close relationships with our customer partners and service providers. As a result, we expect our research and development and sales and marketing expenses to increase in absolute dollars as we continue to grow our business.

Because of this extended sales cycle, our revenue is highly dependent upon the ongoing achievement of service provider design wins, including our Wave 2 11ac, Wave 3 11ac and Wi-Fi 6 product solutions. We expect future revenue to depend upon sales to service providers with whom we have existing relationships as well as our ability to garner design wins with new service providers with whom we currently do not have relationships or sales. Further, because we expect revenue relating to our earlier generation solutions to decline in the future, we consider these design wins critical to our future success.

Product Life Cycle of our Customer Partners and Service Providers; Expanding into Other End Markets

In the service provider home networking market, once service providers select our Wi-Fi solutions for integration into their products, we work with our OEM and ODM customer partners to monitor all phases of the product life cycle, including the initial design phase, prototype production and volume production. Our service providers’ product life cycles typically range from three to five years or more, based on product features, size of subscriber base, and roll-out plans. In contrast, wireless products sold in the retail or consumer electronics end markets have shorter life cycles than those sold into the service provider home networking market. In the retail or consumer electronics markets, a wireless product typically has a product life cycle of one to two years.

Currently, the majority of our revenue is derived from sales to OEMs and ODMs serving the service provider home networking market, with relatively longer sales cycles, longer customer product development cycles and longer time to shipment, but also with longer product life cycles. However, as we expand into additional end markets, such as retail, small and medium business, enterprise, FWA or consumer electronics, we expect revenue from such markets to increase as a proportion of our revenue over time. The shorter product life cycles associated with such additional end markets typically require greater frequency of design wins, and they may also result in faster time to shipment of our Wi-Fi solutions.

Sales Volume and Customer Concentration

A typical design win can generate a wide range of sales volumes for our Wi-Fi solutions, depending on the end market demand for our customers’ products. Such demand depends on several factors, including end market size, size of the service providers, product price and features, and the ability of our customer partners to sell their products into their end markets. As such, some design wins result in orders and significant revenue shortly after the design win is awarded and other design wins do not result in significant orders and revenue for several months or longer after the initial design win, if at all. As a result, an increase or decrease in the number of design wins we achieve on a quarterly or annual basis does not necessarily correlate to a likely increase or decrease in revenue in the same or immediately succeeding quarter or year. Nonetheless, design wins are critical to our continued sales, and we believe that the collective impact of design wins correlates to our overall revenue growth over time.

Our customer partners often share their product development schedules with us, including the projected launch dates of their wireless product offerings. Once our customer partners are in production, they generally will provide nine to 12-month

- 37 -

Table of Contents

forecasts of expected demand. However, they may change their purchase orders and demand forecasts at any time with limited or no prior notice.

We derive a significant portion of our revenue from a small number of OEMs and ODMs, and substantially all of our revenue to date has been generated by sales of our solutions to OEMs and ODMs serving the service provider market for home networking. While we strive to expand and diversify our customer base and we expect our customer concentration to decline over time, we anticipate that sales to a limited number of customer partners will continue to account for a significant percentage of our revenue in the foreseeable future. In light of this customer partner concentration, our revenue is likely to continue to be materially impacted by the purchasing decisions of our largest customer partners.

Wi-Fi Solutions Pricing, Cost and Gross Margin

Our average selling price (“ASP”) can vary by product mix, customer mix and end market, due to end market-specific characteristics such as supply and demand, competitive landscape, the maturation of Wi-Fi solutions launched in prior years and the launch of new Wi-Fi solutions. Our gross margin depends on a variety of factors, including the sales volume, features, price, and manufacturing costs of our Wi-Fi solutions. We make continuous investments in our solutions to enhance existing and add new features, maintain our competitiveness, minimize ASP erosion, and reduce the cost of our solutions.

As we rely on third-party contractors for the fabrication, assembly and testing of our chipsets, we work closely with these third-parties to improve the manufacturability of our chipsets, lower wafer cost, enhance yields, lower assembly and test costs, and improve quality.

In general, our latest generation solutions have higher prices compared to our prior generation solutions. As is typical in the semiconductor industry and consistent with our historical trends, we expect the ASPs of our solutions to decline as those solutions mature and unit volumes increase. These ASP declines often occur with improvements in manufacturing yields and lower wafer, assembly and testing costs, which may offset some or all of the margin reduction that results from lower ASPs.

Components of Results of Operations

Revenue

Our revenue is generated primarily from sales of our Wi-Fi solutions to our customer partners, net of accruals for estimated sales rebates. In addition, we sell our Wi-Fi solutions to third-party distributors who in turn resell to OEMs and ODMs. Our Wi-Fi solutions are integrated into OEM products, such as gateways, set-top boxes, repeaters or routers, which are then sold primarily to service providers. Our sales have historically been made on the basis of purchase orders against our standard terms and conditions, rather than long-term agreements and revenue is recognized on a sell-in basis. We account for rebates to end-user customer partners based on the rebates expected to be claimed under the terms of the arrangement. Claims for customer rebates are accrued upon shipment to the ODM and adjusted based on historical settlement data. These rebate claim estimates are adjusted based on actual experience over time.

Sales of our Wi-Fi solutions fluctuate primarily based on competition, sales volume, customer inventory and price. We expect our revenue to fluctuate from quarter to quarter due to a variety of factors, such as customer product development and deployment cycles and the purchasing patterns of our customer partners and third-party distributors.

Cost of Revenue, Gross Margin

We utilize third-party contractors for the production of the chipsets included in our Wi-Fi solutions. Cost of revenue primarily relates to the purchase of silicon wafers from our third-party foundry, and costs associated with assembly, testing and inbound and outbound shipping of our wafers and chipsets. After we purchase wafers from our third-party foundry, we bear the manufacturing yield risk related to assembling and testing these wafers into chipsets, which can result in benefit or expense recorded in cost of revenue. Cost of revenue also includes scrap and inventory obsolescence, royalty costs, and any accruals for warranty obligations, which we record when revenue is recognized. Additionally, cost of revenue includes manufacturing overhead expense, such as personnel cost which primarily consist of compensation costs related to employees, consultants and contractors, including salaries, sales commissions, bonuses, stock-based compensation and other employee benefits, depreciation expense, and allocated administrative costs associated with supply chain management and quality assurance activities as well as property insurance premiums.

- 38 -

Table of Contents

We seek to negotiate price reductions, which historically has included rebates, from our third-party foundry on the purchase of silicon wafers upon achieving certain volume targets. Such rebates are recorded as a reduction of inventory cost and are recognized as a reduction of cost of revenue. Because we do not have long-term, fixed supply agreements, our wafer costs are subject to changes based on the cyclical demand for semiconductors.

We calculate gross margin as revenue less cost of revenue divided by revenue. Our gross margin has been and will continue to be affected by a variety of factors, including ASPs, sales volume, and wafer, assembly and testing costs. The recent trade disputes and tariff increases may also impact gross margins. We believe the primary driver of our gross margin is the ASPs negotiated between us and our customer partners, relative to the wafer, assembly and testing costs for our Wi-Fi solutions. As each of our Wi-Fi solutions matures and sales volumes increase, we expect ASPs to decline. Historically, such ASP declines have often coincided with lower wafer, assembly and testing costs, which have offset some or all of the gross margin reduction resulting from lower ASPs. In the future, we expect our gross margin to fluctuate as a result of changes in ASPs, introductions of new Wi-Fi solutions, changes in our product and customer mix, and changes in wafer, assembly and testing costs.

Operating Expenses

Our operating expenses consist of research and development (“R&D”), sales and marketing (“S&M”) and general and administrative (“G&A”) expenses. Personnel costs are the largest component of operating expenses and primarily consist of compensation costs related to employees, consultants and contractors, including salaries, sales commissions, bonuses, stock-based compensation and other employee benefits. As we continue to grow our business, we expect operating expenses to increase in absolute dollars.

Research and Development. Our R&D expenses consist primarily of personnel costs to support our R&D activities, including silicon design, software development and testing, and customers partner’s product development support and qualification. R&D expenses also include tape-out costs, which include layout services, mask sets, prototype wafers, mask set revisions, intellectual property license fees, and system qualification and testing incurred before releasing new semiconductor designs into production. In addition, R&D expenses include design software and simulation tools licenses, depreciation expense, and allocated administrative costs. All R&D costs are expensed as incurred.

Sales and Marketing. Our S&M expenses consist primarily of personnel costs for our S&M activities, including pre-sales support. S&M expenses also included sales-based commissions we pay to independent sales representatives, public relations costs, trade show expenses, product marketing and communication, promotional activities, travel and entertainment costs and allocated administrative costs.

General and Administrative. Our G&A expenses consist primarily of personnel costs for our administrative personnel in support of our infrastructure functions such as general management, finance, human resources, legal, facilities and information technology. G&A expenses also include professional services fees, insurance premiums, office equipment and supplies, depreciation expense and allocated administrative costs.

Interest Expense

Interest expense consisted primarily of interest related to outstanding debt and amortization of debt discount.

Other Income (Expense), Net

Other income (expense), net consist primarily of interest income from our cash and cash equivalents and marketable securities portfolio, and the effect of exchange rates on our foreign currency-denominated asset and liability balances.

Benefit (Provision) for Income Taxes

Provision for income taxes consist primarily of income taxes in the foreign jurisdictions in which we conduct business. The 2017 benefit for income taxes consisted primarily of the release of the company's valuation allowance, the change in the federal tax rate valuing the deferred tax assets due to the Tax Act enacted in 2017, stock compensation, and the difference between the statutory rate and the foreign effective tax rate.

- 39 -

Table of Contents

Results of Operations

The following tables set forth our results of operations for the periods presented, in dollars and as a percentage of our revenue:



	Years Ended
	December 30, 2018					December 31, 2017					January 1, 2017
	Amount			% of Revenue		Amount			% of Revenue		Amount			% of Revenue
	Amount			% of Revenue		Amount			% of Revenue		Amount			% of Revenue
	(In thousands except per share data)
Revenue	$	220,460		100.0	%	$	176,359		100	%	$	129,069		100.0	%
Cost of revenue ⁽¹⁾	111,058			50.4		88,208			50		64,640			50.1
Gross profit	109,402			49.6		88,151			50		64,429			49.9
Operating expenses: ⁽¹⁾
Research and development	71,522			32.4		59,747			34		46,604			36.1
Sales and marketing	16,303			7.4		14,040			8		8,091			6.3
General and administrative	18,767			8.5		15,299			9		10,559			8.2
Total operating expenses	106,592			48.3		89,086			51		65,254			50.6
Income (loss) from operations	2,810			1.3		(935		)	(1	)	(825		)	(0.7	)
Interest expense	—			—		(713		)	—		(665		)	(0.5	)
Other income (expense), net	1,239			0.6		1,118			1		(38		)	—
Income (loss) before income taxes	4,049			1.9		(530		)	—		(1,528		)	(1.2	)
Benefit (provision) for income taxes	(966		)	(0.4	)	34,942			20		(367		)	(0.3	)
Net income (loss)	$	3,083		1.5	%	$	34,412		20	%	$	(1,895	)	(1.5	)%
Net income (loss) per share:
Basic	$	0.08				$	1.00				$	(0.30	)
Diluted	$	0.08				$	0.89				$	(0.30	)
Weighted-average number of shares used in per share calculations:
Basic	36,744					34,259					6,385
Diluted	39,663					38,484					6,385

________________________


(1)	Cost of revenue and operating expenses include stock-based compensation expense as follows:



	Years Ended
	December 30, 2018		December 31, 2017		January 1, 2017
	(in thousands)
Cost of revenue	$	199	$	165	$	33
Research and development	9,676		5,616		911
Sales and marketing	2,696		1,763		248
General and administrative	4,718		3,139		1,898
Total stock-based compensation expense	$	17,289	$	10,683	$	3,090

- 40 -

Table of Contents

Comparison of the Years Ended December 30, 2018 and December 31, 2017

Revenue, Cost of Revenue, Gross Profit and Gross Margin



	Year Ended
	December 30, 2018			December 31, 2017			Change		% Change
	(Dollars in thousands)
Revenue	$	220,460		$	176,359		$	44,101	25	%
Cost of revenue	111,058			88,208			22,850		26
Gross profit	$	109,402		$	88,151		$	21,251	24	%
Gross margin	49.6		%	50.0		%	(40) bps

Revenue . Revenue increased $44.1 million , or 25% , to $220.5 million in 2018 compared to 2017 , primarily due to higher unit volumes from increased sales of our new 11ac Wave 3 (10G) products and our 11ac Wave 2 products. This increase was partially offset by declining sales of our legacy 11n products. Revenue for fiscal 2017 included approximately $2.0 million of accrued customer rebates relating to the reversal of accrued customer rebate liabilities that were extinguished or considered remote. We expect that revenue will decrease in absolute dollars in the first quarter of 2019 compared to the fourth quarter of 2018 due to lower unit shipments of our Wi-Fi solutions.

Cost of Revenue, Gross Profit and Gross Margin . Cost of revenue increased $22.9 million , or 26% , to $111.1 million in 2018 compared to 2017 , as a result of higher unit volumes and changes to the product mix including an increased concentration of our higher cost 10G product. Gross profit increased $21.3 million , or 24% , to $109.4 million in 2018 compared to 2017 , due to the higher unit volumes and changes to the product mix including an increased concentration of our higher priced 10G product. Gross margin was flat in 2018 compared to 2017 . We expect gross margin to increase in the first quarter of 2019 compared to the fourth quarter of 2018 due to cost improvements in our 10G as well as customer mix.

Operating Expenses



	Year Ended
	December 30, 2018				December 31, 2017
	Amount		% of Revenue		Amount		% of Revenue		Change		% Change
	(Dollars in thousands)
Operating expenses:
Research and development	$	71,522	32	%	$	59,747	34	%	$	11,775	20	%
Sales and marketing	16,303		7		14,040		8		2,263		16
General and administrative	18,767		9		15,299		9		3,468		23
Total operating expenses	$	106,592	48	%	$	89,086	51	%	$	17,506	20	%

Research and Development Expense . R&D expenses increased $11.8 million , or 20% to $71.5 million in 2018 compared to 2017 . The increase was primarily due to a $9.3 million increase in personnel costs, including $4.1 million in stock-based compensation expense, resulting from a 6% increase in headcount to further develop and expand our solutions portfolio and support increased customer product development activities, $2.1 million in allocated administrative costs due to increased headcount, $0.8 million in equipment related expenses to support and qualify new product platforms and $0.5 million in other expenses. This increase was partially offset by a decrease of $0.5 million in professional services and $0.5 million in tape-out and lay-out expenses. We expect that R&D expenses will be lower in the first quarter of 2019 compared to the fourth quarter of 2018 .

Sales and Marketing Expense . S&M expenses increased $2.3 million , or 16% , to $16.3 million in 2018 compared to 2017 , primarily due to an increase of $1.7 million in personnel related costs, including $0.9 million in stock based compensation

- 41 -

Table of Contents

expense to support our expanding business and $0.4 million in allocated administrative costs. We expect that S&M expenses will be higher in the first quarter of 2019 compared to the fourth quarter of 2018 .

General and Administrative Expense . G&A expenses increased $3.5 million , or 23% , to $18.8 million in 2018 compared to 2017 , primarily due to a $4.0 million increase in personnel costs, including a $1.6 million increase in stock-based compensation expense, as we increased our administrative headcount by 25% to support the growth of our business, $1.5 million in additional facility costs, $0.7 million in depreciation and amortization expense and $0.4 million in other expenses. This increase was partially offset by $2.4 million in lower allocated administrative costs and $0.9 million in reduced legal and professional services. We expect that G&A expenses will be lower in the first quarter of 2019 compared to the fourth quarter of 2018 .

Comparison of the Years Ended December 31, 2017 and January 1, 2017

Revenue, Cost of Revenue, Gross Profit and Gross Margin



	Years Ended
	December 31, 2017			January 1, 2017			Change			% Change

Revenue	$	176,359		$	129,069		$	47,290		37	%
Cost of revenue	88,208			64,640			23,568			36	%
Gross profit	$	88,151		$	64,429		$	23,722		37	%
Gross margin	50.0		%	49.9		%	0.1		%

Revenue. Revenue increased $47.3 million, or 37%, to $176.4 million in 2017 compared to 2016, primarily due to an increase in sales of our 11ac Wave 2 products driven by higher unit volumes on substantially flat average selling prices (“ASPs”) and initial demand for our new 11ac Wave 3 (10G) products. The above increase was partially offset by declining sales of our legacy 11n products and a $0.5 million decrease in revenue from licensing arrangements that ended in January 2016.

Revenue for fiscal 2017 included approximately $2.0 million of accrued customer rebates relating to the reversal of accrued customer rebate liabilities that were extinguished or considered remote. Upon the adoption of Accounting Standards Codification Topic No. 606 (“ASC Topic 606”), Revenue from Contracts with Customers on January 1, 2018, customer rebate arrangements are accounted for as variable consideration and we are required to estimate the level of variable consideration. Refer to Note 1 to the Notes to Consolidated Financial Statements, The Company and Summary of Significant Accounting Policies - Revenue Recognition , for further details on the impact of adoption of ASC Topic 606.

Cost of Revenue, Gross Profit and Gross Margin. Cost of revenue increased $23.6 million, or 37%, to $88.2 million in 2017 compared to 2016, as a result of higher unit volumes partially offset by lower unit costs for our Wi-Fi solutions. Gross profit increased $23.8 million, or 37%, to $88.2 million in 2017 compared to 2016, due to the higher unit volumes and lower unit costs. Gross margin increased by 10 basis points, to 50% in 2017 compared to 2016.

- 42 -

Table of Contents

Operating Expenses



	Years Ended
	December 31, 2017				January 1, 2017
	Amount		% of Revenue		Amount		% of Revenue		Change		% Change
	Amount		% of Revenue		Amount		% of Revenue		Change		% Change
	(Dollars in thousands)
Operating expenses:
Research and development	$	59,747	34	%	$	46,604	36	%	$	13,143	28	%
Sales and marketing	14,040		8		8,091		6		5,949		74
General and administrative	15,299		9		10,559		8		4,740		45
Total operating expenses	$	89,086	51	%	$	65,254	50	%	$	23,832	37	%

Research and Development Expenses. R&D expenses increased $13.1 million, or 28% to $59.7 million in 2017 compared to 2016. The increase was due to a $12.4 million increase in personnel costs, including $4.8 million in stock based compensation expense, resulting from an 15% increase in headcount to further develop and expand our solutions portfolio, and to support increased customer product development activities, $1.0 million due to an increase from allocated administrative costs and $1.4 million from equipment related expenses to support and qualify new product platforms. This was partially offset by reduction in tape-outs of $1.5 million and lower professional services of $0.2 million.

Sales and Marketing Expenses. S&M expenses increased $5.9 million, or 74%, to $14.0 million in 2017 compared to 2016, due primarily to an increase of $4.8 million in personnel related costs, including $1.5 million in stock based compensation, to support our expanding business, $0.4 million in higher consulting expenses, $0.3 million from allocated G&A expenses and $0.2 million in travel related expenses.

General and Administrative Expenses. G&A expenses increased $4.7 million, or 45%, to $15.3 million in 2017 compared to 2016, primarily due to an increase of $1.9 million in personnel costs, including $1.2 million of stock based compensation expense, as we increased our administrative headcount by 33% to support the growth of our business, $1.8 million in public company legal and consulting expenses, $1.1 million in facility costs, $0.5 million in office equipment and supplies, $0.4 million in insurance costs, $0.3 million in professional fees, $0.3 million in general administrative costs, and $0.2 million in travel related expenses partially offset by $1.9 million allocated administrative costs.

Quarterly Results of Operations

The following table sets forth selected unaudited quarterly consolidated statements of operations data for each of the eight quarters in the period ended December 30, 2018 . The information for each of these quarters has been prepared on the same basis as our audited consolidated financial statements and reflect, in the opinion of management, all adjustments of a normal, recurring nature that are necessary for a fair statement of this information. These quarterly operating results are not necessarily indicative of the results that may be expected for a full year or any other period. This information should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. Basic and diluted net income (loss) per share for each of the quarters in 2018 and 2017 and for the full years ended December 30, 2018 and December 31, 2017 have been computed separately. Accordingly, quarterly amounts may not add to the annual amounts because of differences in the weighted-average shares outstanding during each quarter due to the effect of potentially dilutive securities only in the periods in which such effect would be dilutive.

- 43 -

Table of Contents



	Three Months Ended
	Dec 30, 2018			Sep 30, 2018		Jul 1, 2018		Apr 1, 2018			Dec 31, 2017			Oct 1, 2017			Jul 2, 2017			Apr 2, 2017
											(a), (b)
	(in thousands, except per share data)
	(unaudited)
Revenue	$	62,567		$	59,349	$	53,427	$	45,117		$	41,275		$	50,108		$	47,085		$	37,891
Cost of revenue ⁽¹⁾	31,284			29,859		27,563		22,352			19,996			25,591			23,314			19,307
Gross profit	31,283			29,490		25,864		22,765			21,279			24,517			23,771			18,584

Operating expenses ⁽¹⁾ :
Research and development	19,054			17,783		17,084		17,601			16,048			15,011			16,055			12,633
Sales and marketing	3,996			3,833		3,979		4,495			4,487			3,363			3,276			2,914
General and administrative	5,165			4,886		4,518		4,198			4,069			3,735			4,106			3,389
Total operating expenses	28,215			26,502		25,581		26,294			24,604			22,109			23,437			18,936
Income (loss) from operations	3,068			2,988		283		(3,529		)	(3,325		)	2,408			334			(352		)
Interest expense	—			—		—		—			(272		)	(103		)	(141		)	(197		)
Other income, net	432			243		230		334			509			223			186			200
Income (loss) before income taxes	3,500			3,231		513		(3,195		)	(3,088		)	2,528			379			(349		)
Benefit (provision) for income taxes	(2,081		)	648		519		(52		)	35,413			274			(210		)	(535		)
Net income (loss)	$	1,419		$	3,879	$	1,032	$	(3,247	)	$	32,325		$	2,802		$	169		$	(884	)

Net income (loss) per share - basic	$	0.04		$	0.10	$	0.03	$	(0.09	)	$	0.92		$	0.08		$	—		$	(0.03	)
Net income (loss) per share - diluted	$	0.04		$	0.10	$	0.03	$	(0.09	)	$	0.84		$	0.07		$	—		$	(0.03	)
Shares used in computing net income (loss) per share - basic	37,527			37,070		36,511		35,848			35,316			34,734			33,881			33,107
Shares used in computing net income (loss) per share - diluted	40,027			40,026		39,377		35,848			38,281			38,525			38,475			33,107



(a)	In the fourth quarter of fiscal 2017, tax benefit of $35.4 million included the release of $35.3 million of previously established valuation allowances.
(b)	In the fourth quarter of fiscal 2017, revenue of $41.3 million included approximately $2.0 million of accrued customer rebate relating to the reversal of accrued customer rebate liabilities that were extinguished.

________________________


(1)	Cost of revenue and operating expenses include stock-based compensation expense as follows (unaudited) :



	Dec 30, 2018		Sep 30, 2018		Jul 1, 2018		Apr 1, 2018		Dec 31, 2017		Oct 1, 2017		Jul 2, 2017		Apr 2, 2017
	(in thousands)
Cost of revenue	$	53	$	50	$	62	$	34	$	42	$	38	$	42	$	43
Research and development	2,506		2,248		2,529		2,393		1,630		1,367		1,414		1,205
Sales and marketing	578		541		593		984		584		416		410		353
General and administrative	1,229		1,163		1,145		1,181		980		948		708		503
Total stock-based compensation expense	$	4,366	$	4,002	$	4,329	$	4,592	$	3,236	$	2,769	$	2,574	$	2,104

- 44 -

Table of Contents



	Three Months Ended
	Dec 30, 2018		Sep 30, 2018		Jul 1, 2018		Apr 1, 2018		Dec 31, 2017		Oct 1, 2017		Jul 2, 2017		Apr 2, 2017
	(As a percentage of revenue)
	(Unaudited)
Revenue	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenue	50.0		50.3		51.6		49.5		48.4		51.1		49.5		51.0
Gross profit	50.0		49.7		48.4		50.5		51.6		48.9		50.5		49.0

Operating expenses:
Research and development	30.5		30.0		32.0		39.0		38.9		30.0		34.1		33.3
Sales and marketing	6.4		6.5		7.4		10.0		10.9		6.7		7.0		7.7
General and administrative	8.3		8.2		8.5		9.2		9.8		7.4		8.7		8.9
Total operating expenses	45.1		44.7		47.9		58.2		59.6		44.1		49.8		49.9
Income (loss) from operations	4.9		5.0		0.5		(7.7	)	(8.0	)	4.8		0.7		(0.9	)
Interest expense	—		—		—		—		(0.7	)	(0.2	)	(0.3	)	(0.5	)
Other income, net	0.7		0.4		0.4		0.7		1.2		0.4		0.4		0.6
Income (loss) before income taxes	5.6		5.4		0.9		(7.0	)	(7.5	)	5.0		0.8		(0.8	)
Benefit (provision) for income taxes	(3.3	)	1.1		1.0		(0.1	)	85.8		0.5		(0.4	)	(1.4	)
Net income (loss)	2.3	%	6.5	%	1.9	%	(7.1	)%	78.3	%	5.5	%	0.4	%	(2.2	)%

Liquidity and Capital Resources

Since our inception in 2005, we have funded our operations primarily through sales of our common stock in conjunction with our initial public offering (“IPO”), private equity financing, gross profits generated from sales, technology licensing and debt financing arrangements. As of December 30, 2018 and December 31, 2017 , we had cash and cash equivalents and marketable securities of $136.1 million and $118.6 million , respectively. As of December 30, 2018 , we had an accumulated deficit of $124.1 million .

Credit Facilities

Our Amended and Restated Loan and Security Agreement with Silicon Valley Bank (“SVB”) (the “SVB Loan and Security Agreement”) included (i) term loans, (ii) a revolving line of credit, and (iii) a mezzanine loan. The mezzanine loan was canceled upon its expiration in fiscal 2017 and the revolving line of credit expired in May 2018.

On December 31, 2017, we sought to extinguish our term loans under the SVB Loan and Security Agreement of which approximately $3.9 million (including interest and early termination fees) remained outstanding. The Company reclassified the final $3.9 million payment on December 31, 2017 to “Long-term debt, current portion” in its condensed consolidated balance sheet as of that date. The payment for the extinguishment of the term loans was processed on January 2, 2018.

Based on our current operating plan, we expect that our cash and cash equivalents and marketable securities will be sufficient to fund our operations through at least the next 12 months. However, our liquidity assumptions may prove to be incorrect, and we could utilize our available financial resources sooner than we currently expect.

In the event that additional capital is needed, we may not be able to raise such capital on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would be adversely affected. We may also seek to raise capital opportunistically to support the anticipated growth of our business.

- 45 -

Table of Contents

Cash Flows

The following table sets forth the primary sources and uses of cash and cash equivalents for each of the periods presented below:



	Years Ended
	December 30, 2018			December 31, 2017			January 1, 2017
	(In thousands)
Net cash provided by (used in):
Operating activities	$	24,820		$	6,629		$	2,316
Investing activities	(10,965		)	(103,636		)	(2,783		)
Financing activities	$	888		$	4,281		$	98,662

Cash flows from Operating Activities.

Net cash provided by operating activities for 2018 resulted from a net income of $3.1 million , net cash outflow from changes in operating assets and liabilities of $1.5 million and non-cash expenses of $17.3 million in stock based compensation, $4.9 million in depreciation and amortization and $1.1 million in other non-cash expenses.

The $1.5 million net cash outflow from changes in operating assets and liabilities primarily consisted of a $7.5 million increase in inventory due to timing of raw materials purchases, $2.6 million increase in prepaid expenses and other assets required to support the growth of our business and a $1.5 million increase in accounts receivable due to increased sales and timing of collections, partially offset by a $5.8 million increase in accounts payable due to timing of payments to our suppliers, a $4.0 million increase in accrued liabilities and other current liabilities as a result of an increase in expenses consistent with the growth of our business and a $0.3 million decrease in deferred rent and other assets.

Net cash provided by operating activities for 2017 resulted from a net income of $34.4 million, net cash outflow from changes in operating assets and liabilities of $6.4 million and non-cash expenses of $10.7 million in stock based compensation, $2.7 million in depreciation and amortization and $0.6 million in other non-cash items offset by the non-cash release of the federal tax valuation allowance of $35.3 million. The $6.4 million net cash outflow from changes in operating assets and liabilities primarily consisted of a $12.3 million increase in accounts receivable due to increased sales and timing of collections, a $5.8 million increase in accounts payable due to timing of payments to our suppliers, a $0.5 million increase in deferred rent and other assets and an increase of $0.3 million of prepaid expenses and other current assets. The above cash outflow was partially offset by an increase of $9.3 million in accrued liabilities and other current liabilities as a result of an increase in expenses consistent with the growth of our business and a $3.2 million increase in inventory due to timing of purchases of raw materials.

Net cash provided by operating activities for 2016 of $2.3 million resulted from a net loss of $1.9 million, net cash outflow from changes in operating assets and liabilities of $0.6 million, and non-cash expenses of $3.1 million in stock-based compensation, $1.3 million in depreciation and amortization and $0.4 million in non-cash interest expense. The $0.3 million net cash outflow from changes in operating assets and liabilities primarily consisted of a $5.8 million increase in accrued liabilities and other current liabilities as a result of an increase in expenses consistent with the growth of our business, $1.8 million increase in accounts payable due to timing of payments to our suppliers, and a decrease of $1.2 million in accounts receivable due to timing of payments from our customers, offset by an increase of $8.4 million in inventory due to timing of purchases of raw materials and an increase of $0.9 million in prepaid expenses and other current assets.

Cash flows from Investing Activities.

Net cash used in investing activities in 2018 related to $69.7 million of marketable securities purchases, $5.1 million of property and equipment purchases, $1.7 million of intangible asset purchases and $0.6 million of long-term investment purchases, partially offset by maturities of $66.2 million in marketable securities.

Net cash used in investing activities in 2017 related to $131.8 million of marketable securities purchases and $9.0 million of property and equipment purchases including $5.0 million in leasehold improvements to our new corporate headquarters, partially offset by maturities and sales of $37.1 million in marketable securities.

- 46 -

Table of Contents

Net cash used in investing activities for 2016 primarily related to $2.7 million for purchases of property and equipment.

Cash flows from Financing Activities.

Net cash provided by financing activities in 2018 resulted from $5.9 million in proceeds from issuance of common stock, net of taxes withheld for vested stock awards, offset by repayments of outstanding long-term debt of $3.9 million and payment of $1.1 million related to intangible asset purchase.

Net cash provided by financing activities in 2017 resulted from $7.0 million in proceeds from issuance of common stock, net of taxes withheld for vested stock awards, offset by repayments of outstanding long-term debt of $2.4 million and payment of $0.3 million related to intangible asset purchase.

Net Cash provided by financing activities for 2016 primarily resulted from $97.5 million proceeds from the IPO, net of issuance costs, $3.8 million in long-term debt borrowing, net of debt issuance costs, $3.0 million from borrowing under our revolving line of credit, and $1.2 million proceeds from exercise of stock options, offset by repayments of outstanding long-term debt of $3.8 million and repayment of outstanding amounts under the revolving line of credit of $3.0 million.

Contractual Obligations and Commitments

The following table summarizes our contractual commitments and obligations as of December 30, 2018 :



	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
	(In thousands)
Operating lease obligations	$	11,144	$	2,862	$	4,232	$	3,733	$	317
Commitments ⁽¹⁾	4,900		2,400		2,500		—		—
Software license commitments	2,604		1,488		1,116		—		—
	$	18,648	$	6,750	$	7,848	$	3,733	$	317

________________________

(1)

In April 2012, we entered into a letter agreement with RUSNANO, pursuant to which we agreed, among other matters, to create a subsidiary to be incorporated in Russia and to fund such subsidiary in an aggregate amount of $20.0 million over three years. In July 2014, we amended and restated such letter agreement with RUSNANO, pursuant to which we agreed, among other matters, to operate and fund our Russian operations in an aggregate amount of $13.0 million over six annual periods beginning on December 31, 2014. The annual funding requirements in period one to period six are $2.2 million , $1.7 million , $2.0 million , $2.2 million , $2.4 million , and $2.5 million , respectively. In the event that we fail to meet our funding obligations for any period, we will be required to pay RUSNANO a penalty fee of 10% on 80% of the difference between the funding obligation and the actual funding for that period, subject to a cure period of one calendar quarter after the applicable period funding deadline As of December 30, 2018 , we had met the minimum funding requirements.

Obligations under contracts that we can cancel without a significant penalty are not included in the table above. As of December 30, 2018 , we have purchase obligations of $11.4 million that are based on outstanding purchase orders related to the fabrication of silicon wafers for which production has started. These purchase orders are cancellable at any time, provided that we are required to pay all costs incurred through the cancellation date. Historically, we have rarely canceled these agreements once production has started. In addition, as of December 30, 2018 , we also have a non-cancellable commitment with a vendor to purchase additional intellectual property licenses up to $2.5 million upon the successful integration of the vendor’s existing software licenses with our products.

Design Win Commitments

In order to further promote its Wi-Fi solutions and secure additional design wins with service providers (“SPs”), we enter into arrangements with some of our OEMs and ODMs to incentivize the promotion of our design win solutions with SPs. Once a design win is secured through this arrangement, the Company is obligated to compensate the OEM or ODM a success fee. The resulting liability is expected to be settled through the shipment of its Wi-Fi chips. As of December 30, 2018 , we had open commitments to our OEMs and ODMs under these arrangements amounting to $4.3 million . There is no guarantee that we will

- 47 -

Table of Contents

secure some or all of these design wins (including the time frame when such design wins may be realized) in future reporting periods.

Off-Balance Sheet Arrangements

As of December 30, 2018 and December 31, 2017 , we did not have any off-balance sheet arrangements.

Segment Information

We have one primary business activity and operate as one reportable segment, design, development, and marketing of advanced high-speed wireless communication solutions enabling wireless local area networking.

JOBS Act Accounting Election

The JOBS Act permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.

Critical Accounting Policies, Significant Judgments and Use of Estimates

This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities. Our estimates are based on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities. Actual results may differ from these estimates. We believe that the critical accounting policies discussed below are essential to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s estimates and judgments.

Revenue Recognition

We derive our revenue primarily from the sale of Wi-Fi solutions, net of accruals for estimated sales returns and rebates. We adopted Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) on January 1, 2018 which resulted in a change to our revenue policy relating to customer rebate arrangements. Revenue is recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

We adopted Accounting Standard Codification (“ASC”) Topic 606 (“ASC Topic 606”) as of January 1, 2018 using the modified retrospective transition method. Based on the evaluation of its current contracts and revenue streams under the new standard, we identified a change in accounting relating to customer rebate arrangements. Under the new standard, we are required to account for customer rebate arrangements as variable consideration which requires an estimate of the variable consideration to be made when revenue is recognized. In order to estimate this amount, we used historical data to determine an estimate of breakage which was applied to the amount of customer rebate due under its contractual arrangements. The cumulative effect upon adoption of ASC Topic 606 was not material and did not have a material impact on our consolidated financial position or results of operations. The impact of the estimate of breakage for the year ended December 30, 2018 was approximately $1.0 million , which was recorded as a result of applying the new revenue standard and is not considered material to revenue or any other affected financial statement line items.

Our sales arrangements with distributors do not allow for rights of return or price protection on unsold Wi-Fi solutions and its policy is to classify shipping and handling costs, net of costs charged to customers, as cost of revenue.

Prior to the adoption of ASC Topic 606, we accounted for rebates to end-user customers based on the maximum amount of rebate contractually due under the terms of the arrangement. Claims for customer rebates were charged to the customer rebate accrual when received and approved. Accrued customer rebates were released to revenue only at such time the rebate liability had been extinguished or was considered remote.

- 48 -

Table of Contents

We also have historically derived revenues from contracts with multiple deliverables, including a mix of intellectual property licenses, research and development services, and other non-recurring arrangements. While licensing and non-recurring arrangements are not part of primary focus, we may enter into such arrangements on an opportunistic basis from time to time.

Inventory

Inventory is stated at the lower of cost to purchase or manufacture the inventory or the market value of such inventory. Cost is determined using the standard cost method which approximates the first-in first-out basis. Market value is determined as the lower of replacement cost or net realizable value. We, at least quarterly, assess the recoverability of all inventories to determine whether adjustments are required to record inventory at the lower of cost or market. Potentially excess and obsolete inventory is written off based on management’s analysis of inventory levels and estimates of future 12-month demand and market conditions. We are also entitled to receive rebates from its foundry partner on the purchase of silicon wafers upon achieving certain volume targets. Rebates from our foundry partner are recorded as a reduction of inventory cost when they are probable and reasonably estimable, and are recognized in cost of revenue as the chipsets made from such silicon wafers are sold to customers.

Stock-Based Compensation

Stock-based compensation expense is based on the grant date fair value. We recognize compensation expense for all stock-based awards on a straight-line basis over the requisite service period of the awards, which is generally the option vesting term of four years.

We use the Black-Scholes option valuation model, which requires the use of highly subjective assumptions to determine the fair value of stock-based awards. The assumptions used in our option-pricing model represent management’s best estimates. These estimates are complex, involve a number of variables, uncertainties and assumptions and the application of management’s judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future. The assumptions and estimates that we use in the Black-Scholes model are as follows:


•	Fair Value of Common Stock . We determine the fair values of the shares of common stock underlying our share–based awards based upon the closing stock price on the date of grant. For all periods prior to the IPO, the fair value of common stock was determined on a periodic basis by our board of directors, with the assistance of an independent third-party valuation firm.


•	Risk-Free Interest Rate. We base the risk-free interest rate used in the Black-Scholes valuation model on the implied yield available on U.S. Treasury zero-coupon issues with a term equivalent to that of the expected term of the options for each option group.

•

Expected Term. The expected term represents the period that our stock-based awards are expected to be outstanding. Because of the limitations on the sale or transfer of our common stock as a privately held company prior to our IPO, we do not believe its historical exercise pattern is indicative of the pattern it will experience as a publicly traded company. We have consequently used the Staff Accounting Bulletin 110, or SAB 110, simplified method to calculate the expected term, which is the average of the contractual term and vesting period. We plan to continue to use the SAB 110 simplified method until we have sufficient trading history as a publicly traded company.

•

Volatility. We determine the price volatility based on the historical volatilities of industry peers as we have insufficient trading history for our common stock price. Industry peers consist of several public companies in the semiconductor industry with comparable characteristics, including revenue growth, operating model and working capital requirements. We intend to continue to consistently apply this process using the same or a similar peer group of public companies until a sufficient amount of historical information regarding the volatility of our own common stock price becomes available, or unless circumstances change such that the identified peer companies are no longer similar, in which case other suitable peer companies whose common stock prices are publicly available would be utilized in the calculation.


•	Dividend Yield. The expected dividend assumption is based on our current expectations about our anticipated dividend policy. To date, we have not declared any dividends, and therefore we have used an expected dividend yield of zero.

On January 1, 2017, we adopted FASB ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting . Under this guidance, we elected the option to no longer apply a forfeiture rate to the stock-based compensation expense, but to record forfeitures when they occur. We will continue to use judgment in evaluating

- 49 -

Table of Contents

the assumptions related to our stock-based compensation on a prospective basis. As we continue to accumulate additional data, we may have refinements to our estimates, which could materially impact our future stock-based compensation expense.

Income Taxes

The provision for income taxes consists primarily of income taxes in the foreign jurisdictions in which we conduct business.

We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. We recognize future tax benefits, measured by enacted tax rates attributable to deductible temporary differences between financial statements and income tax bases of assets and liabilities, and net operating loss carry-forwards to the extent that realization of such benefits is more likely than not.

We record a liability for the difference between the benefit recognized and measured pursuant to the accounting guidance on accounting for uncertain tax positions and the tax position taken or expected to be taken on our tax return. To the extent that the assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. We establish these liabilities based on estimates of whether, and the extent to which, additional taxes will be due. These liabilities are established when we believe that certain positions might be challenged despite our belief that the tax return positions are fully supportable. The liabilities are adjusted in light of changing facts and circumstances, such as the outcome of tax audits.

Contingencies and Litigation

The outcome of litigation is inherently uncertain and subject to numerous factors outside of our control. Significant judgment is required when we assess the likelihood of any adverse judgments or outcomes to a potential claim or legal proceeding, as well as potential ranges of probable losses, and when the outcomes of the claims or proceedings are probable and reasonably estimable. A determination of the amount of accrued liabilities required, if any, for these contingencies is made after the analysis of each matter. Because of uncertainties related to these matters, we base our estimates on the information available at the time. As additional information becomes available, we reassess the potential liability related to pending claims and litigation, and may revise our estimates. Any revisions in the estimates of potential liabilities could have a material impact on our results of operations, financial position and cash flows.

Intangible Assets

Definite long-lived intangible assets consist of software, intellectual property and design win assets for our Wi-Fi solutions which are recorded based on the total contractual price. Such assets are amortized over its contractual lives and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined that such assets are not recoverable, an impairment charge is recognized for the amount by which the carrying amount of such assets exceeds their fair values.

Recent Accounting Pronouncements

See Note 2 of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for information regarding recently issued accounting pronouncements.

- 50 -

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business. We are primarily exposed to market risks related to changes in interest rates, foreign currency exchange rates and inflation, as well as risks relating to changes in the general economic conditions in the countries where we conduct business. These exposures may change over time as business practices evolve and could have a material adverse impact on our financial results.

Interest Rate Risk

We had cash and cash equivalents and marketable securities of $136.1 million and $118.6 million as of December 30, 2018 and December 31, 2017 , respectively. We manage our cash and cash equivalents portfolio and marketable securities for operating and working capital purposes.

Our cash and cash equivalents are held in cash, short-term money market funds, agency securities and commercial paper with maturities of less than 90 days when purchased. Due to the short-term nature of these instruments, we believe that we do not have any material exposure to changes in the fair value of our cash equivalents portfolio as a result of changes in interest rates. Declines in interest rates, however, would reduce our future interest income. During the years ended December 30, 2018 , December 31, 2017 and January 1, 2017 , the effect of a hypothetical 100-basis point (one percentage point) increase or decrease in overall interest rates would have affected our interest income by approximately $1.0 million.

Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio comprising of marketable securities. We invest in a number of securities including U.S. agency notes, U.S. treasuries, commercial paper, corporate bonds, municipal bonds and money market funds. We attempt to ensure the safety and preservation of our invested principal funds by limiting default risk, market risk and reinvestment risk. We mitigate default risk by investing in high grade investment securities.

The fair market value of our fixed rate securities may be adversely impacted by increases in interest rates while income earned may decline as a result of decreases in interest rates. A hypothetical 100 basis-point (one percentage point) increase or decrease in interest rates compared to rates at December 30, 2018 would have affected the fair value of our investment portfolio by approximately $0.5 million.

Foreign Currency Exchange Risk

To date, all of our revenue and the majority of our operating expenses have been denominated in U.S. dollars. Some operating expenses, primarily associated with our international subsidiaries, are denominated in foreign currencies and are therefore exposed to fluctuations due to changes in foreign currency exchange rates, which may cause us to recognize transaction gains and losses in our consolidated statements of operations. During fiscal 2018, we established a currency risk management program to hedge against fluctuations and volatility of future cash flows caused by changes in currency exchange rates. Under this program, our strategy is to have increases or decreases in foreign currency exposures mitigated by gains or losses on the foreign currency forward derivative contracts in order to mitigate the risks and volatility associated with foreign currency transaction gains or losses. This strategy reduces, but does not always entirely eliminate, the impact of currency exchange rate movements. Refer to Note 6 to the consolidated financial statements, Derivative Instruments , for further details.

Inflation Risk

We do not believe that inflation had a significant impact on our results of operations for any periods presented in our consolidated financial statements. Nonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

- 51 -

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



	Page(s)
Report of Independent Registered Public Accounting Firm	53
Consolidated Financial Statements:
Consolidated Balance Sheets	54
Consolidated Statements of Operations	55
Consolidated Statements of Comprehensive Income (Loss)	56
Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)	57
Consolidated Statements of Cash Flows	58
Notes to Consolidated Financial Statements	60

The supplementary financial information required by this Item 8 is included in Item 7 under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations--Quarterly Results of Operations.”

- 52 -

Table of Contents

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Quantenna Communications, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Quantenna Communications, Inc. and its subsidiaries (the “Company”) as of December 30, 2018 and December 31, 2017 , and the related consolidated statements of operations, of comprehensive income (loss), of convertible preferred stock and stockholders’ equity (deficit) and of cash flows for each of the three years in the period ended December 30, 2018 , including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 30, 2018 and December 31, 2017 , and the results of its operations and its cash flows for each of the three years in the period ended December 30, 2018 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

San Jose, California

February 28, 2019

We have served as the Company’s auditor since 2011, which includes periods before the Company became subject to SEC reporting requirements.

- 53 -

Table of Contents

Quantenna Communications, Inc.

Consolidated Balance Sheets

(In thousands, except share and per share data)



	December 30, 2018			December 31, 2017
	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
Commitments and contingencies (see Note 7)
Stockholders’ equity
Common stock: $0.0001 par value, 1,000,000,000 shares authorized at December 30, 2018 and December 31, 2017, 37,695,109 and 35,528,880 shares issued and outstanding at December 30, 2018 and December 31, 2017, respectively	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

The accompanying notes are an integral part of these financial statements.

Table of Contents

Quantenna Communications, Inc.

Consolidated Statements of Operations

(In thousands, except per share data)



	Years Ended
	December 30, 2018			December 31, 2017			January 1, 2017

Revenue	$	220,460		$	176,359		$	129,069
Cost of revenue	111,058			88,208			64,640
Gross profit	109,402			88,151			64,429
Operating expenses:
Research and development	71,522			59,747			46,604
Sales and marketing	16,303			14,040			8,091
General and administrative	18,767			15,299			10,559
Total operating expenses	106,592			89,086			65,254
Income (loss) from operations	2,810			(935		)	(825		)
Interest expense	—			(713		)	(665		)
Other income (expense), net	1,239			1,118			(38		)
Income (loss) before income taxes	4,049			(530		)	(1,528		)
Benefit (provision) for income taxes	(966		)	34,942			(367		)
Net income (loss)	$	3,083		$	34,412		$	(1,895	)
Net income (loss) per share:
Basic	$	0.08		$	1.00		$	(0.30	)
Diluted	$	0.08		$	0.89		$	(0.30	)
Weighted-average number of shares used in per share calculations:
Basic	36,744			34,259			6,385
Diluted	39,663			38,484			6,385

The accompanying notes are an integral part of these financial statements.

Quantenna Communications, Inc.

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)



	Years Ended
	December 30, 2018			December 31, 2017			January 1, 2017

Net income (loss)	$	3,083		$	34,412		$	(1,895	)
Other comprehensive loss, net of tax:
Unrealized gains (losses) on available-for-sale marketable securities	57			(207		)	—
Unrealized losses on derivative instruments	(785		)	—			—
Other comprehensive loss, net of tax	(728		)	(207		)	—
Comprehensive income (loss)	$	2,355		$	34,205		$	(1,895	)

The accompanying notes are an integral part of these financial statements.

Table of Contents

Quantenna Communications, Inc.

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(In thousands, except share data)



	Convertible Preferred Stock					Common Stock
	Shares		Amount			Shares	Amount		Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholder's Equity (Deficit)
Balances at December 27, 2015	22,471,537		$	184,704		1,106,240	$	—	$	4,007		$	—		$	(159,679	)	$	(155,672	)
Issuance of common stock for exercise of options	—		—			329,017	—		579			—			—			579
Issuance of common stock for service provided	—		—			2,777	—		25			—			—			25
Proceeds from initial public offering, net of issuance costs	—		—			6,775,466	1		97,418			—			—			97,419
Conversion of preferred stock to common stock pursuant to IPO	(22,471,537	)	(184,704		)	24,790,650	2		184,702			—			—			184,704
Conversion of preferred stock warrants to common stock warrants	—		—			—	—		342			—			—			342
Issuance of common stock upon exercise of options subject to repurchase	—		—			72,000	—		—			—			—			—
Vesting of options subject to repurchase	—		—			—	—		85			—			—			85
Stock-based compensation expense	—		—			—	—		3,065			—			—			3,065
Issuance of common stock warrants	—		—			—	—		96			—			—			96
Net loss	—		—			—	—		—			—			(1,895		)	(1,895		)
Balances at January 1, 2017	—		—			33,076,150	3		290,319			—			(161,574		)	128,748
Cumulative effect adjustment of ASU 2016-09 (Note 1)	—		—			—	—		54			—			(54		)	—
Issuance of common stock for exercise of options and awards, net of shares withheld for taxes	—		—			2,452,730	—		7,253			—			—			7,253
Issuance costs related to initial public offering	—		—			—	—		(286		)	—			—			(286		)
Stock-based compensation expense	—		—			—	—		10,683			—			—			10,683
Change in unrealized loss on marketable securities, net of tax	—		—			—	—		—			(207		)	—			(207		)
Net income	—		—			—	—		—			—			34,412			34,412
Balances at December 31, 2017	—		—			35,528,880	3		308,023			(207		)	(127,216		)	180,603
Issuance of common stock for exercise of options and awards, net of shares withheld for taxes	—		—			2,166,229	1		6,239			—			—			6,240
Stock-based compensation expense	—		—			—	—		17,289			—			—			17,289
Change in unrealized loss on marketable securities, net of tax	—		—			—	—		—			57			—			57
Change in unrealized loss on derivative instruments, net of tax	—		—			—	—		—			(785		)	—			(785		)
Net income	—		—			—	—		—			—			3,083			3,083
Balances at December 30, 2018	—		$	—		37,695,109	$	4	$	331,551		$	(935	)	$	(124,133	)	$	206,487

The accompanying notes are an integral part of these financial statements.

Table of Contents

Quantenna Communications, Inc.

Consolidated Statements of Cash Flows

(In thousands)



	Years Ended
	December 30, 2018			December 31, 2017			January 1, 2017

Cash flows from operating activities
Net income (loss)	$	3,083		$	34,412		$	(1,895	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Stock based compensation	17,289			10,683			3,065
Depreciation and amortization	4,861			2,669			1,278
Deferred income taxes	53			(35,333		)	—
Other	1,067			635			434
Changes in assets and liabilities:
Accounts receivable	(1,540		)	(12,306		)	1,237
Inventory	(7,556		)	3,158			(8,413		)
Prepaid expenses and other current assets	(2,581		)	(335		)	(901		)
Deferred rent and other assets	313			(467		)	(50		)
Accounts payable	5,791			(5,752		)	1,804
Accrued liabilities and other current liabilities	4,040			9,265			5,757
Net cash provided by operating activities	24,820			6,629			2,316
Cash flows from investing activities
Purchase of property and equipment	(5,100		)	(8,970		)	(2,724		)
Purchase of long-term investment	(590		)	—			—
Purchase of intangible asset	(1,732		)	—			—
Purchase of marketable securities	(69,716		)	(131,790		)	—
Proceeds from sales and maturities of marketable securities	66,173			37,124			—
Restricted cash	—			—			(59		)
Net cash used in investing activities	(10,965		)	(103,636		)	(2,783		)
Cash flows from financing activities
Proceeds from issuance of common stock	8,418			7,675			1,191
Payment of taxes withheld for vested stock awards	(2,501		)	(626		)	—
Proceeds from initial public offering, net of issuance costs	—			(96		)	97,483
Proceeds from revolving line of credit, net of fees paid	—			—			2,950
Repayment of revolving line of credit	—			—			(3,000		)
Proceeds from issuance of long-term debt, net of fees paid	—			—			3,854
Payments related to intangible asset purchase	(1,086		)	(266		)	—
Repayments of long-term debt	(3,943		)	(2,406		)	(3,816		)
Net cash provided by financing activities	888			4,281			98,662
Effect of exchange rate changes on cash and cash equivalents	(294		)	113			—
Net increase (decrease) in cash and cash equivalents	14,449			(92,613		)	98,195
Cash and cash equivalents
Beginning of year	24,432			117,045			18,850
End of year	$	38,881		$	24,432		$	117,045

The accompanying notes are an integral part of these financial statements.

Table of Contents

Quantenna Communications, Inc.

Consolidated Statements of Cash Flows

(In thousands)



Supplemental disclosure of cash flow information
Interest paid during the period	$	—	$	224	$	489
Income taxes paid during the period	$	455	$	278	$	106

Supplemental disclosure of non-cash investing and financing activities
Purchases of property and equipment included in accounts payable and accrued liabilities and other current liabilities	$	193	$	433	$	213
Intangible assets, capitalized	$	1,650	$	3,259	$	—
Conversion of convertible preferred stock to common stock	$	—	$	—	$	184,704

The accompanying notes are an integral part of these financial statements.

Table of Contents

Quantenna Communications, Inc.

Notes to Consolidated Financial Statements

1. The Company and Summary of Significant Accounting Policies

Quantenna Communications, Inc. (the “Company”) was incorporated in the State of Delaware on November 28, 2005. The Company designs, develops and markets advanced high-speed wireless communication solutions enabling wireless local area networking. The Company’s solutions are designed to deliver leading-edge Wi-Fi performance to support an increasing number of connected devices accessing a rapidly growing pool of digital content. The Company applies its wireless systems and software expertise with high-performance radio frequency, mixed-signal and digital semiconductor design skills to provide highly integrated Wi-Fi solutions to its customers.

Reporting Calendar

The Company prepares financial statements on a 52- or 53-week fiscal year that ends on the Sunday closest to December 31. The fiscal years ended on December 30, 2018 , December 31, 2017 and January 1, 2017 consisted of 52 weeks, 52 weeks and 53 weeks, respectively. Fiscal 2019 consists of 52 weeks ending on December 29, 2019.

Use of Estimates

Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, or US GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting periods covered by the financial statements and accompanying notes. Among the significant estimates affecting the financial statements are those related to inventories, revenue recognition, stock-based compensation and income taxes. Actual results could differ from those estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Foreign Currency Remeasurement

The Company and its subsidiaries use the U.S. dollar as the functional currency. Foreign currency assets and liabilities are remeasured into U.S. dollars at the end-of-period exchange rates except for non-monetary assets and liabilities, which are measured at historical exchange rates. Revenue and expenses are remeasured using an average exchange rate for the respective period, except for expenses related to non-monetary assets and liabilities, which are measured at historical exchange rates. Gains or losses from foreign currency remeasurement and transactions are included in “Other income (expense), net”. For the years ended December 30, 2018 , December 31, 2017 and January 1, 2017 , foreign currency remeasurement and transactions gains and losses were immaterial.

Cash and Cash Equivalents

Cash equivalents include liquid short-term investments with original or remaining maturities of three months or less at the date of purchase, readily convertible to known amounts of cash.

Marketable Securities

Marketable securities consist primarily of highly liquid investments with maturities of greater than 90 days when purchased. We generally classify our marketable securities at the date of acquisition as available-for-sale. These securities are reported at fair value with the related unrealized gains and losses included in " Accumulated other comprehensive loss ", a component of stockholders’ equity, net of tax. Any unrealized losses which are considered to be other-than-temporary impairments are recorded in " Other income (expense), net " in the Consolidated Statements of Operations. Realized gains (losses) on the sale of marketable securities are determined using the specific-identification method and recorded in " Other income (expense), net " in the Consolidated Statements of Operations.

- 60 -

Table of Contents

Quantenna Communications, Inc.

Notes to Consolidated Financial Statements

All of our available-for-sale investments are subject to a periodic impairment review. We record a charge to earnings when a decline in fair value is significantly below cost basis and judged to be other-than-temporary, or have other indicators of impairments. If the fair value of an available-for-sale investment is less than its amortized cost basis, an other-than-temporary impairment is triggered in circumstances where (1) we intend to sell the instrument, (2) it is more likely than not that we will be required to sell the instrument before recovery of its amortized cost basis or (3) a credit loss exists where we do not expect to recover the entire amortized cost basis of the instrument. If we intend to sell or it is more likely than not that we will be required to sell the available-for-sale investment before recovery of its amortized cost basis, we recognize an other-than temporary impairment charge equal to the entire difference between the investment's amortized cost basis and its fair value.

Derivative Financial Instruments

The Company uses derivative instruments to manage its exposure to changes in foreign currency exchange rates from forecasted cash flows associated with the operational expenses of its foreign subsidiaries. Derivative instruments are measured at their fair values and recognized as either assets or liabilities. The Company’s derivative forward contracts are designated as cash-flow hedges and their effectiveness is measured by comparing the cumulative forward-rate changes in the fair value of the hedge contract with the cumulative forward-rate change in the forecasted cash flows of the hedged item. See Note 6 , “Derivative Instruments,” of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for further details.

Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments, which include cash equivalents, accounts receivable, accounts payable and accrued liabilities and other current liabilities, approximate their fair values due to their short maturities. Estimates of fair value of our marketable securities are based on quoted market prices from active markets or third party, market-based pricing sources which we believe to be reliable. Derivative instruments are measured at their fair values and recognized as either assets or liabilities. See Note 5 , “Fair Value Measurements,” of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for further details.

Accounts Receivable and Allowances for Doubtful Accounts

Accounts receivable are stated at invoice value less estimated allowances for returns and doubtful accounts. The Company continually monitors customer payments and maintains an allowance for estimated losses resulting from its customers’ inability to make required payments. The Company considers factors such as historical experience, credit quality, age of the accounts receivable balances, geographic related risks and economic conditions that may affect a customer’s ability to pay. In cases where there are circumstances that may impair a specific customer’s ability to meet its financial obligations, a specific allowance is recorded against amounts due, which reduces the net recognized receivable to the amount reasonably believed to be collectible. For all periods presented, the Company concluded that no allowance for doubtful accounts was necessary and therefore no amounts were recorded as bad debt provision.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents, marketable securities and accounts receivable. We invest our excess cash primarily in banks, money market funds, government debt securities and corporate debt securities. We have established guidelines relative to credit ratings, diversification and maturities that seek to maintain safety and liquidity.

The Company generally requires no collateral from its customers. For the years ended December 30, 2018 , December 31, 2017 and January 1, 2017 , one , one and three customers accounted for 10% or more of revenue, respectively.

- 61 -

Table of Contents

Quantenna Communications, Inc.

Notes to Consolidated Financial Statements

The following table discloses these customers’ percentage of revenue for the respective periods:



	Years Ended
	December 30, 2018	December 31, 2017	January 1, 2017

Customer
A	29%	16%	11%
B	*	*	19%
C	*	*	11%


*	Total customer percentage of revenue was less than 10% .

The following table discloses customer balances that accounted for 10% or more of accounts receivable:



	December 30, 2018	December 31, 2017

Customer
A	36%	31%
B	14%	*
C	*	12%
D	10%	*
E	10%	14%

Inventory

Inventory is stated at the lower of cost to purchase or manufacture the inventory or the market value of such inventory. Cost is determined using the standard cost method which approximates the first-in first-out basis. Market value is determined as the lower of replacement cost or net realizable value. The Company, at least quarterly, assesses the recoverability of all inventories to determine whether adjustments are required to record inventory at the lower of cost or market. Potentially excess and obsolete inventory is written off based on management’s analysis of inventory levels and estimates of future 12-month demand and market conditions. The Company is also entitled to receive rebates from its foundry partner on the purchase of silicon wafers upon achieving certain volume targets. Rebates from the Company’s foundry partner are recorded as a reduction of inventory cost when it is probable and reasonably estimable, and are recognized in cost of revenue as the chipsets made from such silicon wafers are sold to customers.

Property and Equipment

Property and equipment are stated at cost and depreciated using the straight‑line method over the estimated useful lives of the assets as follows:



Computer and lab equipment	3 to 5 years
Computer software	3 years
Furniture and fixtures	3 to 7 years
Leasehold improvements	Shorter of remaining lease term or estimated useful lives of the assets

Costs of maintenance and repairs that do not improve or extend the lives of the respective assets are expensed as incurred. Upon retirement or sale, the cost and related accumulated depreciation are removed from the consolidated balance sheets and the resulting gain or loss is reflected in operating expenses.

- 62 -

Table of Contents

Quantenna Communications, Inc.

Notes to Consolidated Financial Statements

Intangible Assets

Definite long-lived intangible assets consist of software, intellectual property and design win assets for the Company’s Wi-Fi solutions which are recorded based on the total contractual price. Such assets are amortized over its contractual lives and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined that such assets are not recoverable, an impairment charge is recognized for the amount by which the carrying amount of such assets exceeds their fair values. There was no impairment of definite long-lived intangible assets for the periods presented. As of December 30, 2018 , the Company’s definite long-lived intangible assets amounted to approximately $5.1 million , net of accumulated amortization of $1.5 million .

Impairment of Long-Lived Assets

The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When the sum of the undiscounted future net cash flows expected to result from the use of the asset or asset group and its eventual disposition is less than its carrying amount, an impairment loss would be measured based on the discounted cash flows compared to the carrying amount attributable to the asset group. No impairment loss has been recognized for the periods presented.

Warranty

The Company provides 12 -month warranty coverage on all of its Wi-Fi solutions. The warranty provides for replacement of the associated Wi-Fi solutions during the warranty period. The Company establishes a liability for estimated warranty costs at the time revenue is recognized. The warranty obligation is affected by historical failure rates and associated replacement costs. The warranty liability is included in accrued liabilities and other current liabilities on the consolidated balance sheets. The warranty liability and activity for the periods presented were immaterial.

Income Taxes

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. The Company recognizes future tax benefits, measured by enacted tax rates attributable to deductible temporary differences between financial statements and income tax bases of assets and liabilities, and net operating loss carry-forwards to the extent that realization of such benefits is more likely than not.

The Company records a liability for the difference between the benefit recognized and measured pursuant to the accounting guidance on accounting for uncertain tax positions and the tax position taken or expected to be taken on the Company’s tax return. To the extent that the assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. The Company establishes these liabilities based on estimates of whether, and the extent to which, additional taxes will be due. These liabilities are established when the Company believes that certain positions might be challenged despite the Company’s belief that the tax return positions are fully supportable. The liabilities are adjusted in light of changing facts and circumstances, such as the outcome of tax audits.

Revenue Recognition

The Company derives its revenue primarily from the sale of Wi-Fi solutions, net of accruals for estimated sales returns and rebates. The Company adopted Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) on January 1, 2018 which resulted in a change to its’ revenue policy relating to customer rebate arrangements. Revenue is recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

The Company adopted Accounting Standard Codification (“ASC”) Topic 606 (“ASC Topic 606”) as of January 1, 2018 using the modified retrospective transition method. Based on the evaluation of its current contracts and revenue streams under the new standard, the Company identified a change in accounting relating to customer rebate arrangements. Under the new standard, the Company is required to account for customer rebate arrangements as variable consideration which requires an estimate of the variable consideration to be made when revenue is recognized. In order to estimate this amount, the Company used historical data to determine an estimate of breakage which was applied to the amount of customer rebate due under its contractual arrangements. The cumulative effect upon adoption of ASC Topic 606 was not material and did not have a material

- 63 -

Table of Contents

Quantenna Communications, Inc.

Notes to Consolidated Financial Statements

impact on the Company’s consolidated financial position or results of operations. The impact of the estimate of breakage for the year ended December 30, 2018 was approximately $1.0 million , which was recorded as a result of applying the new revenue standard and is not considered material to revenue or any other affected financial statement line items.

The Company’s sales arrangements with distributors do not allow for rights of return or price protection on unsold Wi-Fi solutions and its policy is to classify shipping and handling costs, net of costs charged to customers, as cost of revenue.

Prior to the adoption of ASC Topic 606, the Company accounted for rebates to end-user customers based on the maximum amount of rebate contractually due under the terms of the arrangement. Claims for customer rebates were charged to the customer rebate accrual when received and approved. Accrued customer rebates were released to revenue only at such time the rebate liability had been extinguished or was considered remote.

During the fourth quarter of fiscal 2017, the Company undertook a process to confirm accrued customer rebate balances and obtain confirmation, where possible, from customers of amounts outstanding under customer rebate programs. This confirmation process provided new evidence that the probability of certain customer rebate liabilities being claimed was remote and accordingly the related accrual was reversed and recorded as revenue. The total amount of customer rebate accrual reversed and recorded in revenue during the fourth quarter of fiscal 2017 amounted to approximately $2.0 million .

Deferred Revenue

Deferred revenue is comprised of billings or payments received in advance of meeting revenue recognition criteria.

Research and Development Expenses

All costs related to the research and development of the Company’s Wi-Fi solutions are expensed as incurred. Research and development (“R&D”) expense consists primarily of personnel costs for the Company’s R&D activities. R&D expense also includes costs associated with the design and development of the Company’s Wi-Fi solutions, such as mask sets, prototype wafers, prototype engineering boards, software and computer-aided design software licenses, intellectual property licenses, reference design development, development testing and evaluation, depreciation and amortization expense, and allocated administrative costs.

Operating Leases

The Company recognizes rent expense on a straight-line basis over the non-cancellable term of the operating lease. The difference between rent expense and rent paid is recorded as deferred rent in accrued liabilities and other current liabilities on the consolidated balance sheets.

Advertising and Promotion Costs

Expenses related to advertising and promotion of products are charged to sales and marketing expense as incurred. The Company incurred immaterial advertising or promotion expenses in the years ended December 30, 2018 , December 31, 2017 and January 1, 2017 , respectively.

Stock-Based Compensation

The Company measures and recognizes compensation expense for all stock-based awards made to employees, directors and non-employees, based on estimated fair values recognized using the straight-line method over the requisite service period.

On January 1, 2017, the Company adopted FASB ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting . Under this guidance, the Company elected the option to no longer apply a forfeiture rate to the stock-based compensation expense, but to record forfeitures when they occur, and, as a result, under the modified retrospective method of adoption the Company recorded an immaterial cumulative effect adjustment of $54,000 to the opening accumulated deficit on January 2, 2017.

- 64 -

Table of Contents

Quantenna Communications, Inc.

Notes to Consolidated Financial Statements

The fair value of options to purchase common stock granted to employees is estimated on the grant date using the Black-Scholes option valuation model. The calculation of stock-based compensation expense requires that the Company make assumptions and judgments about the variables used in the Black-Scholes model, including the expected term, expected volatility of the underlying common stock and risk-free interest rate. The fair value for restricted stock awards is measured based on the closing market price of our common stock on the date of grant.

Net Income (Loss) per Share

Basic net income (loss) per share is calculated by dividing the net income (loss) by the weighted-average number of shares of common stock outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock, without consideration for potentially dilutive securities as the inclusion of such securities would be anti-dilutive. For purposes of the diluted net loss per share calculation, unvested stock awards, warrants, convertible preferred stock and unvested employee stock purchase plan awards are considered to be potentially dilutive securities. Diluted net income per share is calculated by dividing the net income by the weighted-average number of shares of common stock and potentially dilutive securities outstanding for the period.

Basic and diluted net loss per share is presented in conformity with the two-class method required for participating securities as the convertible preferred stock is considered a participating security. In addition, the Company considers shares issued upon the early exercise of non-vested warrants to purchase common stock to be participating securities, as the holders of these shares have a non-forfeitable right to dividends. In accordance with the two-class method, earnings allocated to these participating securities and the related number of outstanding shares of the participating securities, which include contractual participation rights in undistributed earnings, have been excluded from the computation of basic and diluted net loss per share attributable to common stockholders. The Company’s participating securities do not have a contractual obligation to share in the Company’s losses. As such, the net loss was attributed entirely to common stockholders.

Reclassifications

Reclassifications of certain prior period amounts in the consolidated financial statements have been made to conform to the current year presentation.

2. Recent Accounting Pronouncements

On February 14, 2018, the FASB released ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The guidance allows a company to elect to reclassify from accumulated other comprehensive income (“AOCI”) to retained earnings the stranded tax effects from the adoption of the newly enacted federal corporate tax rate as a result of the 2017 Tax Cuts and Jobs Act (the “Tax Act”). The amount of the reclassification is calculated as the difference between the amount initially charged to other comprehensive income at the time of the previously enacted tax rate that remains in AOCI and the amount that would have been charged using the newly enacted tax rate, excluding any valuation allowance previously charged to income. ASU 2018-02 is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with early adoption permitted. The Company early-adopted ASU 2018-02 during the third quarter of fiscal 2018 with no material impact to our consolidated financial statements as a result of this adoption.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities . The new standard is intended to improve and simplify accounting rules around hedge accounting. The new standard refines and expands hedge accounting for both financial (e.g., foreign currency) and commodity risks. Its provisions create more transparency around how economic results are presented, both on the face of the financial statements and in the footnotes, for investors and analysts. The new standard takes effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted in any interim period or fiscal years before the effective date of the standard. The Company early-adopted ASU 2017-12 during the second quarter of fiscal 2018 when it commenced its hedging activities with no material impact to our consolidated financial statements as a result of this adoption. Refer to Note 6 to the consolidated financial statements, Derivative Instruments , for further details.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory , which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within

- 65 -

Table of Contents

Quantenna Communications, Inc.

Notes to Consolidated Financial Statements

those fiscal years. Early adoption is permitted as of the beginning of a fiscal year. The new standard must be adopted using a modified retrospective transition method which is a cumulative-effective adjustment to retained earnings as of the beginning of the first effective reporting period. The adoption of this standard has no impact on the Company’s consolidated financial position and results of operations.

In February 2016, the FASB issued ASU 2016-02, Leases (“ASC 842”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of their classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases today. ASC 842 supersedes the previous leases standard, ASC 840 Leases . The standard is effective for the Company as of the first quarter of fiscal 2019.

The Company will elect an optional transition method to account for the impact of the adoption with a cumulative-effect adjustment in the period of adoption and will not restate prior periods. It further expects to elect certain practical expedients permitted under the transition guidance and has substantially completed its evaluation of the effect that the adoption of this ASU will have on its financial statements. The Company believes that substantially all of its operating lease commitments will be subject to the new standard and in connection with the adoption of ASC 842, it expects to recognize additional right-of-use assets and operating lease liabilities based on the outstanding lease commitments as of December 30, 2018 and as disclosed in Note 7 to the consolidated financial statements, Commitments and Contingencies - Leases. In accordance with the guidance under ASC 842 and upon adoption, the additional right-of-use assets that will be capitalized and corresponding operating lease liabilities will be recorded at its net present value using an appropriate discount rate.

3. Earnings Per Share

The following table summarizes the Company’s computation of basic and diluted net loss per share:



	Years Ended
	December 30, 2018		December 31, 2017		January 1, 2017
	(in thousands, except per share data)
Net income (loss)	$	3,083	$	34,412	$	(1,895	)
Weighted-average shares outstanding - basic	36,744		34,259		6,385
Dilutive effect of stock options, ESPP and RSUs	2,919		4,225		—
Weighted average shares outstanding - diluted	39,663		38,484		6,385
Net income (loss) per share:
Basic	$	0.08	$	1.00	$	(0.30	)
Diluted	$	0.08	$	0.89	$	(0.30	)

- 66 -

Table of Contents

Quantenna Communications, Inc.

Notes to Consolidated Financial Statements

The following potentially dilutive securities outstanding at the end of the periods have been excluded from the computation of diluted shares outstanding as the effect would have been anti-dilutive:



	Years Ended
	December 30, 2018	December 31, 2017	January 1, 2017
	(in thousands)
Warrants to purchase common stock	—	—	477
Shares available for ESPP	24	—	224
Restricted Stock Units (RSUs)	40	1,095	7
Options to purchase common stock	1,311	857	6,474
Total	1,375	1,952	7,182

4. Balance Sheets Components

Marketable Securities

Marketable securities at December 30, 2018 consisted of the following:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
Corporate debt securities	$	85,353	$	24	$	(242	)	$	85,135
Government debt securities	12,141		2		(10		)	12,133
	$	97,494	$	26	$	(252	)	$	97,268

The contractual maturities of marketable securities as of December 30, 2018 were as follows:



	Amortized Cost		Fair Value
	(in thousands)
Due in one year or less	$	80,041	$	79,840
Due after one year to five years	17,453		17,428
	$	97,494	$	97,268

Marketable securities as of December 31, 2017 consisted of the following:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
Corporate debt securities	$	83,570	$	7	$	(250	)	$	83,327
Government debt securities	10,889		—		(21		)	10,868
	$	94,459	$	7	$	(271	)	$	94,195

- 67 -

Table of Contents

Quantenna Communications, Inc.

Notes to Consolidated Financial Statements

The contractual maturities of marketable securities as of December 31, 2017 were as follows:



	Amortized Cost		Fair Value
	(in thousands)
Due in one year or less	$	49,201	$	49,144
Due after one year to five years	45,258		45,051
	$	94,459	$	94,195

Property and equipment, net consisted of the following:



	December 30, 2018			December 31, 2017
	(in thousands)
Computer and lab equipment	$	17,858		$	14,295
Computer software	1,047			795
Furniture and fixtures	1,739			1,589
Leasehold improvements	4,579			3,977
Sub-total	25,223			20,656
Accumulated depreciation and amortization	(11,532		)	(8,145		)
Property and equipment, net	13,691			12,511

Depreciation and amortization expense related to property and equipment was $3.6 million , $2.4 million and $1.3 million , for the years ended December 30, 2018 , December 31, 2017 and January 1, 2017 , respectively.

Inventory

Inventory consisted of the following:



	December 30, 2018		December 31, 2017
	(in thousands)
Raw materials	$	9,069	$	5,812
Work in progress	1,093		1,069
Finished goods	10,056		5,781
	$	20,218	$	12,662

- 68 -

Table of Contents

Quantenna Communications, Inc.

Notes to Consolidated Financial Statements

Accrued Liabilities and Other Current Liabilities

Accrued liabilities and other current liabilities consisted of the following:



	December 30, 2018		December 31, 2017
	(in thousands)
Accrued customer rebates	$	10,705	$	8,710
Accrued payroll and related benefits	6,424		3,411
Accrued expenses	3,004		4,507
Accrual for inventory purchases	1,214		2,124
ESPP employee contributions	1,043		706
Other	3,556		1,607
	$	25,946	$	21,065

5. Fair Value Measurements

The Company determines fair value measurements used in its consolidated financial statements based upon the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (i) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (ii) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:


Level 1	Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.


Level 2	Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.


Level 3	Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company obtains the fair value of its Level 1 investments in money market funds, at the expected market price. These investments are expected to maintain a net asset value of $1 per share.

The Company determines the fair value of its Level 2 financial instruments from third-party asset managers, custodian banks, and the accounting service providers.

The Company classifies financial instruments in Level 3 of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level 3 financial instruments typically also rely on a number of inputs that are readily observable, either directly or indirectly. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability. There were no assets or liabilities in Level 3 of the fair value hierarchy and there were no transfers between Level 1 and Level 2 categories during the year ended any of the periods presented.

The Company utilizes the market approach to measure the fair value of our fixed income securities. The market approach is a valuation technique that uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The fair value of our fixed income securities is obtained using readily-available market prices

- 69 -

Table of Contents

Quantenna Communications, Inc.

Notes to Consolidated Financial Statements

from a variety of industry standard data providers, large financial institutions and other third-party sources for the identical underlying securities.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of December 30, 2018 and December 31, 2017 respectively, the Company measures and reports certain assets at fair value on a recurring basis as shown below except for cash held at banks that are measured at historical cost and which are therefore not included in the tables below.



	Fair Value as of December 30, 2018
	Level 1		Level 2		Level 3		Total
Assets:	(in thousands)
Cash equivalents:
Money market funds	$	3,170	$	—	$	—	$	3,170
Commercial paper	—		2,044		—		2,044
Total cash equivalents	3,170		2,044		—		5,214
Marketable Securities:							—
Corporate debt securities	—		85,136		—		85,136
Government debt securities	—		12,132		—		12,132
Total marketable securities	—		97,268		—		97,268

Total cash equivalents and marketable securities	$	3,170	$	99,312	$	—	$	102,482



	Fair Value as of December 31, 2017
	Level 1		Level 2		Level 3		Total
Assets:	(in thousands)
Cash equivalents:
Money market funds	$	4,398	$	—	$	—	$	4,398
Corporate debt securities	—		2,000		—		2,000
Total cash equivalents	4,398		2,000		—		6,398
Marketable Securities:							—
Corporate debt securities	—		83,329		—		83,329
Government debt securities	—		10,866		—		10,866
Total marketable securities	—		94,195		—		94,195

Total cash equivalents and marketable securities	$	4,398	$	96,195	$	—	$	100,593

The Level 1 assets consist of money market funds. The Level 2 assets consist of available-for-sale investment portfolio, which are valued utilizing a market approach.

Foreign currency derivative forward contracts are measured at fair value based on market-based observable inputs including currency exchange spot and forward rates, interest rates, and credit-risk spreads, and are classified at Level 2 of the fair value hierarchy.

- 70 -

Table of Contents

Quantenna Communications, Inc.

Notes to Consolidated Financial Statements

Total notional and net fair values for foreign exchange derivative contracts designated as hedging instruments as of December 30, 2018 were as follows:



Derivative Assets*					Derivative Liabilities*
	Notional Amount		Fair Value			Notional Amount		Fair Value
(in thousands)
Current assets	$	376	$	3	Current liabilities	$	18,386	$	908
Non-current assets**	2,630		28		Non-current liabilities**	3,050		82
Total foreign exchange contracts	$	3,006	$	31	Total foreign exchange contracts	$	21,436	$	990



*	The Company recorded a net derivative liability of approximately $1.0 million as of December 30, 2018. There were no derivative assets or liabilities recorded in fiscal 2017.
**	Non-current derivative assets and liabilities were discounted at the prevailing risk-free interest rate.

Common Stock Warrants

During the year ended December 30, 2018 , the remaining 83,006 common stock warrants of those originally issued in September 2015 were exercised at $2.50 per share. There were no outstanding common stock warrants as of December 30, 2018

As of December 31, 2017 , warrants issued and outstanding were as follows:



	Date of Issuance	Number of Warrants	Exercise Price		Expiration Date
	Date of Issuance	Number of Warrants	Exercise Price		Expiration Date
Common stock warrants	September 2015	83,006	$	2.50	February 2019

6. Derivative Instruments

The Company uses foreign currency forward contracts to reduce the earnings impact that exchange rate fluctuations have on operating expenses denominated in currencies other than the U.S. dollar. For accounting purposes, foreign currency forward contracts are designated as hedging instruments and, accordingly, the Company will record the fair value of the effective portion of these contracts as of the end of its’ reporting period in its’ consolidated balance sheets (as an asset or a liability) with changes in fair value recorded within “ Accumulated other comprehensive loss ” under “Total stockholders’ equity”. The fair values of the derivative financial instruments are combined together on the balance sheet whenever there is a master netting arrangement in place. The changes in fair value will remain in “ Accumulated other comprehensive loss ” until the costs are recognized, at which time the Company will reclassify the cumulative change of fair value relating to the hedges proportionately into the respective line items on the condensed consolidated income statements. Any changes in fair value of the ineffective portion of the forward contracts will be recognized immediately in the Company’s consolidated income statement under “ Other income (expense), net ”.

In concurrence with the implementation of its hedging program, the Company early-adopted the provisions of ASU 2017-12 as of the beginning of the second quarter of fiscal 2018 on a prospective basis. The early-adoption of ASU 2017-12 did not result in any adjustment to the Company’s consolidated financial statements as of the beginning of the second quarter of fiscal 2018 as the Company did not enter into any hedge accounting activities in prior reporting periods.

- 71 -

Table of Contents

Quantenna Communications, Inc.

Notes to Consolidated Financial Statements

The effects of derivative instruments and hedging activities on the consolidated statement of operations and its effect on the consolidated statement of comprehensive loss from changes in fair value for the year ended December 30, 2018 was as follows:



	Location and Amount of Loss Recognized for Hedging Activities:
	Consolidated Statement of Operations												Consolidated Statement of Comprehensive Income (Loss)- (pre-tax)
	Research and Development			Sales and Marketing			General and Administrative			Total
	(in thousands)
Total expense from foreign currency hedging	$	414		$	102		$	27		$	543		$	(959	)
Effects of foreign currency cashflow hedging:
Loss reclassified from consolidated statement of comprehensive Income (loss)	$	(414	)	$	(102	)	$	(27	)	$	(543	)	$	543
Loss recognized in consolidated statement of comprehensive Income (loss)	$	—		$	—		$	—		$	—		$	(1,502	)

The Company did not enter into any hedging activities in fiscal 2017.

7. Commitments and Contingencies

Leases

The Company conducts its operations using leased office facilities in various locations. The following is a schedule of future minimum lease payments under operating leases as of December 30, 2018 (in thousands):



2019	$	2,862
2020	2,333
2021	1,899
2022	1,923
2023	1,809
2024 and beyond	318
Total minimum lease payments	$	11,144

The Company leases office space under arrangements expiring through 2026. Rent expense for the years ended December 30, 2018 , December 31, 2017 and January 1, 2017 was $2.9 million , $1.9 million and $1.2 million , respectively.

Purchase Commitments

The Company has purchase obligations of $11.4 million that are based on outstanding purchase orders as of December 30, 2018 , related to the fabrication of certain wafers for which production has started. These purchase orders are cancellable at any time, provided that the Company is required to pay all costs incurred through the cancellation date. Historically, the Company has rarely canceled these agreements once production has started. The Company did not otherwise have any outstanding non-cancellable purchase obligations as of December 30, 2018 .

Indemnification

In connection with the sale of its semiconductor products, the Company executes standard software license agreements allowing customers to use its firmware. Under the indemnification clauses of these license agreements, the Company agrees to defend the licensee against third-party claims asserting infringement by the Company’s products of certain intellectual property rights, which may include patents, copyrights, trademarks or trade secrets, and to pay any judgments entered on such claims against the licensee, subject to certain restrictions and limitations. The Company has never incurred significant expense defending

- 72 -

Table of Contents

Quantenna Communications, Inc.

Notes to Consolidated Financial Statements

its licensees against third-party claims. Further, the Company has never incurred significant expense under its standard product or services performance warranties. As a result, the Company believes the estimated fair value of these agreements is minimal. Accordingly, the Company has no liabilities recorded for these agreements at December 30, 2018 .

Commitments

In April 2012, an agreement was entered into with Joint Stock Company “RUSNANO” (“RUSNANO”) (formerly Open Joint Stock Company “RUSNANO”), which required the Company to form a wholly-owned subsidiary in the Russian Federation and to provide funding to the subsidiary in the three years following April 16, 2012. This wholly-owned subsidiary performs research and development activities for the Company. Funding means cash transfers to the subsidiary for equity investments, reimbursements of subsidiary operating expenses and Company expenses related to the subsidiary. RUSNANO also requires participation in subsidiary financial decisions.

In July 2014, the Company entered into an amended and restated letter agreement with RUSNANO pursuant to which the Company agreed, among other matters, to operate and fund its Russian operations in an aggregate amount of $13.0 million over six annual periods beginning on December 31, 2014. The annual funding requirements in period one to period six are $2.2 million , $1.7 million , $2.0 million , $2.2 million , $2.4 million , and $2.5 million , respectively. In the event that the Company fails to meet its funding obligations for any period, it will be required to pay RUSNANO a penalty fee of 10% on 80% of the difference between the funding obligation and the actual funding for that period, subject to a cure period of one calendar quarter after the applicable period funding deadline. As of December 30, 2018 , the Company had met the minimum funding requirements and no penalty had been incurred.

As of December 30, 2018 , the Company’s non-cancellable obligations for its definite long-lived intangible assets which are comprised of software licenses were approximately $2.6 million , of which $1.5 million and $1.1 million are due payable in fiscal 2019 and fiscal 2020, respectively. In addition, as of December 30, 2018 , the Company also has a non-cancellable commitment with a vendor to purchase additional intellectual property licenses up to $2.5 million upon the successful integration of the vendor’s existing software licenses with the Company’s products.

Design Win Commitments

In order to further promote its Wi-Fi solutions and secure additional design wins with service providers (“SPs”), the Company enters into arrangements with some of its OEMs and ODMs to incentivize the promotion of its design win solutions with SPs. Once a design win is secured through this arrangement, the Company is obligated to compensate the OEM or ODM a success fee. The resulting liability is expected to be settled through the shipment of its Wi-Fi chips. As of December 30, 2018 , the Company had open commitments to its OEMs and ODMs under these arrangements amounting to $4.3 million . There is no guarantee that the Company will secure some or all of these design wins (including the time frame when such design wins may be realized) in future reporting periods.

Legal Matters

From time to time, the Company is a party to litigation and subject to claims incident to the ordinary course of business, including intellectual property claims, labor and employment claims, breach of contract claims, and other matters. Significant judgment is required when we assess the likelihood of any adverse judgments or outcomes to a potential claim or legal proceeding, as well as potential ranges of probable losses, and when the outcomes of the claims or proceedings are probable and reasonably estimable. Because of uncertainties related to these matters, we base our estimates on the information available at the time. As additional information becomes available, we reassess the potential liability related to pending claims and litigation, and may revise our estimates. Any revisions in the estimates of potential liabilities could have a material impact on the Company’s results of operations, financial position, and cash flows.

8. Long-term Debt

Loan and Security Agreement

The Company’s Amended and Restated Loan and Security Agreement with Silicon Valley Bank (“SVB”) (the “SVB Loan and Security Agreement”) included (i) term loans, (ii) a revolving line of credit, and (iii) a mezzanine loan. The mezzanine loan was canceled upon its expiration in fiscal 2017 and the revolving line of credit expired in May 2018.

- 73 -

Table of Contents

Quantenna Communications, Inc.

Notes to Consolidated Financial Statements

On December 31, 2017, the Company sought to extinguish its term loans under the SVB Loan and Security Agreement of which approximately $3.9 million (including interest and early termination fees) remained outstanding. The Company reclassified the final $3.9 million payment on December 31, 2017 to “Long-term debt, current portion” in its condensed consolidated balance sheet as of that date. The payment for the extinguishment of the term loans was processed on January 2, 2018.

9. Stockholders’ Equity

Common Stock

The Company’s Certificate of Incorporation, as amended, authorizes the Company to issue 1,000,000,000 shares of $0.0001 par value common stock. Each share of common stock is entitled to 1 vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when and if declared by the board of directors, subject to the prior rights of holders of all classes of preferred stock outstanding. The Company has never declared any dividends.

The Company had reserved shares of common stock for issuance, on an as-converted basis, as follows:



	December 30, 2018
Options issued and outstanding	4,391,548
RSUs issued and outstanding	1,868,659
Shares available for ESPP	1,245,492
Shares available for future stock awards	2,563,564
	10,069,263

10. Stock-based Compensation

We currently grant equity-based awards under the Company’s 2016 Omnibus Equity Incentive Plan, or the “2016 Plan”, which became effective concurrent with the completion of the Company’s IPO in November 2016. The 2016 Plan allows the Company to grant up to 4,100,000 shares of Company’s common stock with annual increase on the first day of each fiscal year beginning of January 1, 2018, equal to the lesser of (i) 3,400,000 shares, (ii) five percent of the outstanding shares of the Company’s common stock as of the last day of the immediately preceding fiscal year; or (iii) such other amounts as the board of directors may determine.

The 2016 Plan provides for the grant of common stock awards, including incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock and restricted stock units, performance units and performance shares to employees, directors, and consultants of the Company. All granted shares that are canceled, forfeited or expired are returned to the 2016 Plan and are available for grant in conjunction with the issuance of new equity awards. Stock options may be granted at an exercise price per share not less than 100% of the fair market value at the date of grant. If a stock option is granted to a 10% stockholder, then the exercise price per share must not be less than 110% of the fair market value per share of common stock on the grant date. Options granted are exercisable over a maximum term of 10 years from the date of grant and generally vest over a period of four years.

- 74 -

Table of Contents

Quantenna Communications, Inc.

Notes to Consolidated Financial Statements

Total stock-based compensation expense for employees and non-employees recognized in the consolidated statements of operations was as follows:



	Years Ended
	December 30, 2018		December 31, 2017		January 1, 2017
	(in thousands)
Cost of revenue	$	199	$	165	$	33
Research and development	9,676		5,616		911
Sales and marketing	2,696		1,763		248
General and administrative	4,718		3,139		1,898
Total stock-based compensation expense	$	17,289	$	10,683	$	3,090

The above stock-based compensation expense related to the following equity-based awards:



	Years Ended
	December 30, 2018		December 31, 2017		January 1, 2017
	(in thousands)
Stock options	$	4,171	$	3,539	$	3,090
RSU awards	11,187		5,368		—
ESPP shares	1,931		1,776		—
Total stock-based compensation expense	$	17,289	$	10,683	$	3,090

Unamortized compensation expense related to unvested stock awards was as follows (in thousands):



	December 30, 2018			December 31, 2017
	Unamortized Expense		Average Expected Recognition Period in Years	Unamortized Expense		Average Expected Recognition Period in Years
Stock options	$	7,697	2.2	$	9,275	2.8
RSU awards	23,206		2.3	16,272		2.7
ESPP shares	1,081		0.5	1,182		0.8
Total unamortized stock-based compensation expense	$	31,984		$	26,729

- 75 -

Table of Contents

Quantenna Communications, Inc.

Notes to Consolidated Financial Statements

Stock Option Activity

The table below summarizes stock option activity under the 2016 Plan:



	Number of Shares Available for Issuance		Number of Shares Outstanding		Weighted– Average Exercise Price		Weighted– Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)
Balances at December 27, 2015	78,975		5,062,342		$	1.77	7.4	$	11,269
Authorized	6,113,092		—
RSUs granted	(6,950	)	—
Granted (weighted–average fair value of $3.65 per share)	(2,064,982	)	2,064,982		8.99
Exercised	—		(403,769	)	2.95
Expired, forfeited or canceled	249,931		(249,930	)	3.14
Balances at January 1, 2017	4,370,066		6,473,625		3.95		7.4	91,840
Granted (weighted–average fair value of $7.91 per share)	(703,283	)	703,283		19.31
Exercised	—		(1,756,143	)	1.86
Expired, forfeited or canceled	145,813		(145,813	)	8.15
Balances at December 31, 2017	3,812,596		5,274,952		6.59		7.2	35,578
Granted (weighted–average fair value of $5.50 per share)	(666,250	)	666,250		13.06
Exercised	—		(1,293,541	)	3.23
Expired, forfeited or canceled	256,113		(256,113	)	12.55
Balances at December 30, 2018	3,402,459		4,391,548		8.21		6.6	30,148
Options vested and exercisable-December 30, 2018			2,626,213		5.57		5.8	24,411

The aggregate intrinsic value of options exercised was $16.5 million , $29.0 million and $2.6 million for the years ended December 30, 2018 , December 31, 2017 and January 1, 2017 , respectively. Upon the exercise of options, the Company issues new common stock from its authorized shares.

Stock Options Granted to Employees and Non-Employee Directors

Stock-based compensation expense is based on the grant date fair value. The Company recognizes compensation expense for all stock-based awards on a straight-line basis over the requisite service period of the awards, which is generally the option vesting term of four years.

The Company uses the Black-Scholes option valuation model, which requires the use of highly subjective assumptions to determine the fair value of stock-based awards. The assumptions used in the Company’s option-pricing model represent management’s best estimates. These estimates are complex, involve a number of variables, uncertainties and assumptions and the application of management’s judgment. If factors change and different assumptions are used, the Company’s stock-based compensation expense could be materially different in the future. The assumptions and estimates that the Company uses in the Black-Scholes model are as follows:


•	Fair Value of Common Stock . The Company determines the fair values of the shares of common stock underlying its share–based awards based upon the closing stock price on the date of grant. For all periods prior to the IPO, the fair value of common stock was determined on a periodic basis by the Company’s board of directors, with the assistance of an independent third-party valuation firm.


•	Risk-Free Interest Rate. The Company bases the risk-free interest rate used in the Black-Scholes valuation model on the implied yield available on U.S. Treasury zero-coupon issues with a term equivalent to that of the expected term of the options for each option group.

- 76 -

Table of Contents

Quantenna Communications, Inc.

Notes to Consolidated Financial Statements

•

Expected Term. The expected term represents the period that the Company’s stock-based awards are expected to be outstanding. Because of the limitations on the sale or transfer of the Company’s common stock as a privately held company (up to November 2016), the Company does not believe its historical exercise pattern is indicative of the pattern it will experience as a publicly traded company. The Company has consequently used the Staff Accounting Bulletin 110, or SAB 110, simplified method to calculate the expected term, which is the average of the contractual term and vesting period. The Company plans to continue to use the SAB 110 simplified method until it has sufficient trading history as a publicly traded company.

•

Volatility. The Company determines the price volatility based on the historical volatilities of industry peers as it has insufficient trading history for its common stock price. Industry peers consist of several public companies in the semiconductor industry with comparable characteristics, including revenue growth, operating model and working capital requirements. The Company intends to continue to consistently apply this process using the same or a similar peer group of public companies until a sufficient amount of historical information regarding the volatility of its own common stock price becomes available, or unless circumstances change such that the identified peer companies are no longer similar, in which case other suitable peer companies whose common stock prices are publicly available would be utilized in the calculation.


•	Dividend Yield. The expected dividend assumption is based on the Company’s current expectations about its anticipated dividend policy. To date, the Company has not declared any dividends, and therefore the Company has used an expected dividend yield of zero.

On January 1, 2017, the Company adopted FASB ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting . Under this guidance, the Company elected the option to no longer apply a forfeiture rate to the stock-based compensation expense, but to record forfeitures when they occur. The Company will continue to use judgment in evaluating the assumptions related to the Company’s stock-based compensation on a prospective basis. As the Company continues to accumulate additional data, it may have refinements to its estimates, which could materially impact the Company’s future stock-based compensation expense.

The following assumptions were used to calculate the fair value of options granted to employees and non-employee directors during the years indicated:



	Years Ended
	December 30, 2018	December 31, 2017	January 1, 2017
Expected term (in years)	6.08	6.0 - 6.1	5.5 - 6.6
Volatility	40%	37% - 39%	39% - 40%
Risk-free interest rate	2.4%	1.9% - 2.3%	1.1% - 2.1%
Expected dividend	—	—	—

Employee Stock Purchase Plan

The Company’s 2016 Employee Stock Purchase Plan (the “ESPP”) allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 20% of their eligible compensation, subject to any plan limitations. The ESPP generally provides for one year offering periods with purchase periods every six months, and at the end of each purchase period, employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock on the first trading day of the purchase period or on the last trading day of the offering period.

The Company issued 400,696 and 353,812 shares under the ESPP for the year ended December 30, 2018 and December 31, 2017 , respectively. Shares authorized for future purchase under the ESPP were 1,245,492 at December 30, 2018 . Compensation expense is calculated using the fair value of the employees' purchase rights under the Black-Scholes model.

- 77 -

Table of Contents

Quantenna Communications, Inc.

Notes to Consolidated Financial Statements

The following assumptions were used in estimating the fair value of employees' purchase rights under the ESPP:



	Years Ended
	December 30, 2018	December 31, 2017
Contractual term remaining (in years)	0.5 - 1.0	0.5 - 1.0
Volatility	31% - 57%	49% - 66%
Risk-free interest rate	2.1% - 2.7%	1.4 % - 1.6%
Expected dividend	—	—

Restricted Stock Unit (“RSU”) Awards

The Company grants RSUs to employees under the 2016 Plan and which typically vests ratably over a three to four year period, and are converted into shares of the Company’s common stock upon vesting on a one-for-one basis subject to the employee’s continued service to the Company over that period. The fair value of RSUs is determined using the fair value of the Company’s common stock on the date of the grant. Compensation expense is recognized on a straight-line basis over the requisite service period of each grant. Each RSU award granted from the 2016 Plan will reduce the number of shares available for issuance under the 2016 Plan by one share.

The table below summarizes RSU activity under the 2016 Plan:



	Number of Shares Outstanding		Weighted– Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)
Balances at January 1, 2017	6,950		3.9	$	126
Granted (weighted–average fair value of $17.72 per share)	1,276,940
Vested	(125,818	)
Forfeited or canceled	(57,545	)
Balances at December 31, 2017	1,100,527
Granted (weighted–average fair value of $14.93 per share)	1,541,549
Vested	(565,618	)
Forfeited or canceled	(207,799	)
Balances at December 30, 2018	1,868,659
Outstanding and expected to vest at December 30, 2018	1,868,659		1.2	$	26,423

11. Income Taxes

The components of loss before income taxes were as follows:



	Years Ended
	December 30, 2018		December 31, 2017			January 1, 2017
	(in thousands)
United States	$	3,001	$	33,451		$	16,535
Foreign	1,048		(33,981		)	(18,063		)
	$	4,049	$	(530	)	$	(1,528	)

- 78 -

Table of Contents

Quantenna Communications, Inc.

Notes to Consolidated Financial Statements

The components of the benefit (provision) for income taxes were as follows:



	Years Ended
	December 30, 2018			December 31, 2017			January 1, 2017
	(in thousands)
Federal	$	—		$	290		$	(266	)
State	(7		)	(16		)	(1		)
Foreign	(960		)	(668		)	(132		)
Total current provision for income taxes	(967		)	(394		)	(399		)

Federal	(14		)	35,303			—
State	(2		)	65			—
Foreign	17			(32		)	32
Total deferred provision	1			35,336			32
	$	(966	)	$	34,942		$	(367	)

The material components of the deferred tax assets were as follows:



	December 30, 2018			December 31, 2017
	(in thousands)
Deferred tax assets:
Accrual, reserve and other	$	1,578		$	1,471
Depreciation and amortization	(1,576		)	(1,625		)
Net operating loss and credits carry forwards	49,059			48,401
Stock based compensation	1,881			1,645
Other	252			64
Total gross deferred tax assets	51,194			49,956
Valuation allowance	(15,643		)	(14,534		)
Total net deferred tax assets	$	35,551		$	35,422

- 79 -

Table of Contents

Quantenna Communications, Inc.

Notes to Consolidated Financial Statements

A reconciliation of the Company’s effective tax rate to the statutory U.S. federal rate is as follows:



	Years Ended
	December 30, 2018		December 31, 2017		January 1, 2017
US Federal Rate	21.0	%	34.0	%	34.0	%
State income taxes, net of federal benefit	(26.2	)	867.1		—
Difference between statutory rate and foreign effective tax rate	18.5		(2,285.7	)	(437.8	)
Other permanent Items	5.5		(52.3	)	(125.2	)
Stock based compensation	(36.5	)	1,650.1		(29.2	)
Research and development credits	(77.3	)	610.3		102.2
Change in valuation allowance	27.4		8,988.6		477.6
Foreign Income	8.8		(96.1	)	(75.8	)
Foreign Tax Credit	—		—		30.7
True up	25.5		—		—
Uncertain tax position	57.2		—		—
Federal Rate Change	—		(3,128.1	)	—
	23.9	%	6,587.9	%	(23.5	)%

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Act. The Tax Act makes broad and complex changes to the U.S. tax federal and state tax laws that affected 2017, the current year and onwards, including, but not limited to, a reduction of the U.S. federal corporate tax rate from as high as 35% to 21%, a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries, net operating loss deduction limitations, and 100% disallowance of entertainment expense.

The Tax Act adds new provisions relating to “foreign derived intangible income” (“FDII”) and “global intangible low-taxed income” (“GILTI”). The Company has completed an analysis for FDII and GILTI and due to the results of the Company, there is currently an immaterial impact on the provision. In addition, the Company’s GILTI policy election is to treat GILTI as a period cost if and when incurred and does not plan on calculating the deferred impact of GILTI.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740, Income Taxes (“ASC 740”) for the year ended December 31, 2017. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. The Company has finished their analysis as of the measurement period closing of December 22,2018 after application of law changes were reviewed by the Company. There were no subsequent adjustments as the conclusions have remained the same.

As of December 30, 2018 , based on the available objective evidence, management believes it is more likely than not that the net deferred tax assets will be realized for federal and state purposes. Accordingly, in 2017, management has released its valuation allowance against its federal and states, excluding California, net deferred tax assets. With respect to California, the Company is generating more credits than its tax liability on an annual basis. Management believes it is more likely than not that the net deferred tax assets will not be realized for California purposes and thus maintained its valuation allowance against its California net deferred tax assets. The Company's operation in Australia generates more credits than its tax liability. As such, management believes it is more likely than not that the net deferred tax assets will not be realized for Australia purposes. Accordingly, management has a full valuation allowance against its Australian net deferred tax assets. Management’s evaluation as described above is made on currently available evidence and which is subject to change if additional information becomes known or changes due to facts and circumstances.

At December 30, 2018 and December 31, 2017 , the Company had federal net operating loss carryforwards of approximately $117.0 million and $120.2 million , respectively, that expire beginning in 2028, and domestic state net operating loss carryforwards

- 80 -

Table of Contents

Quantenna Communications, Inc.

Notes to Consolidated Financial Statements

of approximately $92.4 million and $104.6 million , respectively, that will begin to expire in 2028. At December 30, 2018 and December 31, 2017 , the Company also had Federal research and development credit carryforwards of approximately $14.9 million and $10.6 million , respectively, that begin to expire in 2026, and domestic state research and development credit carryforwards of approximately $13.5 million and $11.0 million , respectively, that do not expire.

Under Internal Revenue Code Section 382, our ability to utilize NOL carry-forwards or other tax attributes such as research tax credits, in any taxable year may be limited if we experience, or have experienced, an "ownership change." A Section 382 "ownership change" generally occurs if one or more stockholders or groups of stockholders, who own at least 5% of our stock, increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws.

During the year ended and December 30, 2018 , the liability for uncertain tax positions less accrued interest and penalties increased from $5.3 million for the prior year to $8.3 million . Of the total $8.3 million of unrecognized tax benefits, $5.6 million represents the amount that if recognized, would favorably affect the effective income tax rate in any future periods. The Company cannot conclude on the range of cash payments that will be made within the next twelve months associated with its uncertain tax positions.

A reconciliation of the beginning and ending unrecognized tax benefit amount is as follows:



	December 30, 2018			December 31, 2017			January 1, 2017
	(in thousands)
Beginning balance	$	5,318		$	5,221		$	4,425
Increases related to current year’s unrecognized tax benefits	3,283			1,569			888
Increases related to prior year’s unrecognized tax benefits	107			68			—
Decreases related to prior year’s unrecognized tax benefits	(442		)	(1,540		)	(92		)
Ending balance	$	8,266		$	5,318		$	5,221

The valuation allowance for deferred tax assets consisted of the following activity for the fiscal years 2018 , 2017 and 2016 :



	Balance at Beginning of Year		Additions		Reductions			Balance at End of Year
Allowance for deferred tax assets	(in thousands)
Year ended December 30, 2018	$	14,534	$	1,109	$	—		$	15,643
Year ended December 31, 2017	62,207		4,260		(51,933		)	14,534
Year ended January 1, 2017	$	67,194	$	705	$	(5,692	)	$	62,207

The Company records interest and penalties related to unrecognized tax benefits in income tax expense. For the year ended December 30, 2018 and December 31, 2017 , the Company recorded no estimated interest or estimated penalties.

The Company and its subsidiaries are subject to taxation in various jurisdictions, including federal, state and foreign. The Company’s federal and state income tax returns are generally not subject to examination by taxing authorities for fiscal years before 2014 for federal purposes and 2013 for state purposes. The exceptions to this are the net operating loss carryovers and R&D credit carryovers. These amounts are subject to audit for a period of three years after utilization for federal purposes and four years after utilization for state purposes.

The Company intends to reinvest the earnings of its non-U.S. subsidiaries in those operations. The Company has not provided for foreign withholding taxes on the earnings of foreign subsidiaries because the Company intends to reinvest such earnings offshore indefinitely. It is not practicable to estimate the amount of the deferred tax liability associated with the repatriation of cash due to the complexity of its hypothetical calculation. As of December 30, 2018 , there is approximately $9.7 million of earnings upon which foreign withholding taxes have not been provided.

- 81 -

Table of Contents

Quantenna Communications, Inc.

Notes to Consolidated Financial Statements

12. Employee Benefit Plans

Defined Contribution Plan

The Company adopted a 401(k) Plan that qualifies as a deferred compensation arrangement under Section 401 of the Internal Revenue Code. Under the 401(k) Plan, participating employees may defer a portion of their pretax earnings not to exceed the maximum amount allowable. The 401(k) Plan permits the Company to make matching contributions and profit sharing contributions to eligible participants. The Company has made matching contributions of $0.5 million and $0.5 million for the years ended December 30, 2018 and December 31, 2017 , respectively.

13. Segment Information and Operations by Geographic Area

The chief operating decision maker for the Company is the Chief Executive Officer. The Chief Executive Officer reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The Company has one business activity consisting of design, development, and marketing of advanced high-speed wireless communication solutions enabling wireless local area networking, and there are no segment managers who are held accountable for operations, operating results or plans for levels or components below the consolidated level. Accordingly, the Company has determined that it has a single reportable and operating segment structure.

The following table sets forth the Company’s revenue by geographic region, based on ship-to destinations (in thousands):



	Years Ended
	December 30, 2018				December 31, 2017				January 1, 2017
	Amount		% of revenue		Amount		% of revenue		Amount		% of revenue
Asia-Pacific	$	202,342	92	%	$	162,059	92	%	$	114,499	89	%
Europe, Middle East and Africa	17,953		8		14,015		8		14,353		11
Americas	165		—		285		—		217		—
Total	$	220,460	100	%	$	176,359	100	%	$	129,069	100	%

Long-lived assets outside the U.S. are immaterial; therefore, disclosures have been limited to revenue.

The following table sets forth revenue by country, based on ship-to destinations, for countries with 10% or more of revenue during any of the periods presented:



	Years Ended
	December 30, 2018				December 31, 2017				January 1, 2017
	Amount		% of revenue		Amount		% of revenue		Amount		% of revenue
	(Dollars in thousands)
China	$	123,383	56	%	$	119,821	68	%	$	86,107	66	%
Vietnam	56,125		25		—		—		—		—
Taiwan	19,050		9		17,780		10		13,752		11
Tunisia	17,334		8		13,410		8		13,755		11
United States	111		—		283		—		291		—
Other foreign countries	4,457		2		25,065		14		15,164		12
Total	$	220,460	100	%	$	176,359	100	%	$	129,069	100	%

- 82 -

Table of Contents

Quantenna Communications, Inc.

Notes to Consolidated Financial Statements

14. Related Party transactions

Purchases from Cadence Design Systems, Inc.

Lip-Bu Tan, a member of the Company’s board of directors since June 2015, resigned from the board in accordance with his previously announced intentions, effective June 5, 2018 in connection with the Company’s Annual Meeting of Stockholders. As a result, Mr. Tan ceased to be a related party to the Company during the second quarter of fiscal 2018 which ended on July 1, 2018. Mr. Tan is the President and Chief Executive Officer of Cadence Design Systems, Inc. (“Cadence”), an electronic design automation software and engineering services company.

Since 2012, the Company has paid licensing fees for digital and analog layout tools and simulation tools from Cadence in the ordinary course of business. In fiscal 2017, the Company entered into a software license contract with Cadence for the use of various EDA software tools used for its research and development efforts. The Company classified the software licenses as definite long-lived intangible assets in its condensed consolidated balance sheets amounting to approximately $2.4 million as of July 1, 2018, net of accumulated amortization of approximately $0.8 million . Under the terms of this arrangement, the Company amortized fees, in its condensed consolidated statements of operations, of approximately $0.5 million during the six months ended July 1, 2018, and approximately $3.0 million and $1.7 million for the year ended December 31, 2017 and January 1, 2017 , respectively.

Agreement with RUSNANO

Dmitry Akhanov, formerly a member of the Company’s board of directors, is President and Chief Executive Officer at Rusnano USA, Inc., a U.S. subsidiary of RUSNANO, one of the Company’s investors. In July 2014, the Company entered into an amended and restated letter agreement with RUSNANO in connection with RUSNANO’s investment in convertible promissory notes, which subsequently converted into shares of the Company’s Series G convertible preferred stock. Pursuant to the amended and restated letter agreement, the Company agreed, among other matters, to operate and fund the Company’s Russian operations in an aggregate amount of $13.0 million over six annual periods beginning on December 31, 2014. The annual funding requirements in period one to period six are $2.2 million , $1.7 million , $2.0 million , $2.2 million , $2.4 million , and $2.5 million , respectively. In the event that the Company fails to meet its funding obligations for any period, the Company will be required to pay RUSNANO a penalty fee of 10% on 80% of the difference between the funding obligation and the actual funding for that period, subject to a cure period of one calendar quarter after the applicable period funding deadline. As of December 30, 2018 , the Company had met the minimum funding requirements.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Item 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of December 30, 2018 , the last day of the period covered by this Annual Report on Form 10-K. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), refers to controls and procedures that are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s (the “SEC”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Based on the Company’s evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of December 30, 2018 .

- 83 -

Table of Contents

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Management of the Company has assessed the effectiveness of the Company’s internal control over financial reporting as of December 30, 2018 using the criteria described in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Based on the Company’s evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s internal control over financial reporting was effective as of December 30, 2018 .

This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm on our internal control over financial reporting due to an exemption established by the JOBS Act for “emerging growth companies.”

Remediation of Prior Material Weakness in Internal Control Over Financial Reporting

During the course of the preparation of our 2016 consolidated financial statements, we identified a control deficiency in our internal control over financial reporting. This control deficiency did not result in a misstatement of the annual or interim financial statements, however, this control deficiency could have resulted in a misstatement of the consolidated financial statements or disclosures that would have resulted in a material misstatement to the annual or interim consolidated financial statements that would not have been prevented or detected on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. Accordingly, our management had determined that this control deficiency constituted a material weakness as previously disclosed in our Prospectus and in our Annual Reports on Form 10-K for the fiscal years ended January 1, 2017 (fiscal 2016) and December 31, 2017 (fiscal 2017). The material weakness was a result of a lack of sufficient qualified personnel within the finance and accounting function who possessed an appropriate level of expertise to effectively perform the following functions commensurate with our structure and financial reporting requirements: (a) to identify, select and apply US GAAP sufficiently to provide reasonable assurance that transactions were being appropriately recorded; and (b) to assess risk and design appropriate control activities over financial and reporting processes necessary to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements.

In response to the identified material weakness, we have taken a number of steps to remediate this material weakness and improve our internal control over financial reporting. Since the beginning of fiscal 2017 and though fiscal 2018, we have increased our dedicated finance and accounting personnel, including certified public accountants and several finance support team members. We have also implemented additional internal controls, including additional workflows relating to change management, review and approval processes, and account reconciliations. We further updated our internal controls process narratives, performed additional training, conducted key control tests to ensure that our internal control processes performed as documented and enhanced the precision-level review of our controls.

The additional resources added to the finance function have enabled us to further (i) allow separate preparation and review of reconciliations and other account analysis, (ii) enable us to develop a more structured accounting and financial reporting close process, including enhancing our existing policies and procedures, to improve the completeness, timeliness and accuracy of our financial reporting, and (iii) identify and review complex or unusual transactions. These individuals possess the appropriate knowledge and capacity to help fulfill our obligations to comply with the accounting and reporting requirements. Additionally, we have further significantly improved internal controls surrounding our financial reporting process and continued to validate and test the design and operating effectiveness of our internal controls over a sustained period of financial reporting cycles and concluded that the foregoing actions have significantly improved our internal control over financial reporting.

Management tested the operating effectiveness of such designed controls and found them to be effective. As such, management concluded that the previously identified and disclosed material weakness had been remediated as of December 30, 2018 .

- 84 -

Table of Contents

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13(a)-15(d) and 15d-15(d) under the Exchange Act that occurred during the quarter ended December 30, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues within a company are detected. The inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Item 9B. OTHER INFORMATION

None.

- 85 -

Table of Contents

PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item will be contained in our proxy statement to be filed with the Securities and Exchange Commission in connection with our 2019 annual meeting of stockholders, which is expected to be filed not later than 120 days after the end of our fiscal year ended December 30, 2018 , and is incorporated in this report by reference.

Item 11. EXECUTIVE COMPENSATION

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

With the exception of the information incorporated in Items 10, 11, 12, 13, and 14 of this Annual Report on Form 10-K, our proxy statement to be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 30, 2018 is not deemed “filed” as part of this Annual Report on Form 10-K.

- 86 -

Table of Contents

PART IV

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

Documents filed as part of this report are as follows:


1.	Consolidated Financial Statements

Our Consolidated Financial Statements are listed in the “Index to Consolidated Financial Statements” under Part II, Item 8 of this Annual Report on Form 10-K.


2.	Financial Statement Schedules

Financial Statement Schedules have been omitted as information required is inapplicable or the information is presented in the consolidated financial statements and the related notes.

3. Exhibits

The documents listed in the Exhibit Index immediately preceding the signature page of this Annual Report on Form 10-K are incorporated by reference or are filed or furnished with this Annual Report on Form 10-K, in each case as indicted therein (numbered in accordance with Item 601 of Regulation S-K).

EXHIBIT INDEX



			Incorporated by Reference
Exhibit Number	Description	Form	File No.	Exhibit	Filing Date
3.1	Amended and Restated Certificate of Incorporation of the Registrant.	S-1	333-213871	3.2	September 29, 2016
3.2	Amended and Restated Bylaws of the Registrant.	8-K	001-37927	3.1	August 22, 2017
4.1	Form of common stock certificate of the Registrant.	S-1/A	333-213871	4.1	October 17, 2016
10.1 +	Form of Indemnification Agreement between the Registrant and each of its directors and executive officers.	S-1	333-213871	10.1	September 29, 2016
10.2 +	Quantenna Communications, Inc. 2016 Omnibus Equity Incentive Plan and related form agreements.	10-K	001-37927	10.2	March 1, 2017
10.3 +	Quantenna Communications, Inc. 2016 Employee Stock Purchase Plan and related form agreements.	10-K	001-37927	10.3	March 1, 2017
10.4 +	Quantenna Communications, Inc. 2016 Equity Incentive Plan and related form agreements.	S-1/A	333-213871	10.4	October 17, 2016
10.5 +	Quantenna Communications, Inc. 2006 Stock Plan and related form agreements.	S-1/A	333-213871	10.5	October 17, 2016
10.6 +	Quantenna Communications, Inc. Executive Incentive Compensation Plan.	S-1	333-213871	10.6	September 29, 2016
10.7	Amended and Restated Investors’ Rights Agreement among the Registrant and certain holders of its capital stock, dated August 29, 2014, as amended from time to time.	S-1	333-213871	10.16	September 29, 2016
10.8	Agreement Regarding Investment in Series F Preferred Stock Financing, dated April 16, 2012, between the Registrant and Open Joint Stock Company “RUSNANO,” as amended on July 9, 2014.	S-1/A	333-213871	10.17	October 17, 2016
10.9 +	Executive Change of Control Agreement between the Registrant and Sam Heidari.	S-1/A	333-213871	10.18	October 27, 2016
10.10 +	Offer Letter between the Registrant and Sam Heidari, dated May 19, 2009, and amendments thereto.	S-1	333-213871	10.23	September 29, 2016

- 87 -

Table of Contents



10.11 +	Offer Letter between the Registrant and David Carroll, dated December 20, 2012.	S-1	333-213871	10.26	September 29, 2016
10.12 +	Offer Letter between the Registrant and Jack Lazar, dated June 9, 2016.	S-1	333-213871	10.28	September 29, 2016
10.13 +	Offer Letter between the Registrant and Mark Stevens, dated June 24, 2016.	S-1	333-213871	10.30	September 29, 2016
10.14 +	Offer Letter between the Registrant and Sean Sobers, dated July 8, 2016.	S-1	333-213871	10.31	September 29, 2016
10.15 +	Quantenna Communications, Inc. Outside Director Compensation Policy.	S-1/A	333-213871	10.32	October 17, 2016
10.16 +	Amended and Restated Change of Control and Severance Agreement between the Registrant and David Carroll.	10-K	001-37927	10.33	March 1, 2017
10.17 +	Amended and Restated Change of Control and Severance Agreement between the Registrant and Sean Sobers.	10-K	001-37927	10.34	March 1, 2017
10.18	Office Lease, between the Registrant and Automation Parkway Owner, LLC, dated February 21, 2017	10-K	001-37927	10.35	March 1, 2017
10.19 +	Transition Agreement and Release, between the Registrant and Lionel Bonnot, effective as of January 24, 2018.	10-Q	001-37927	10.36	May 1, 2018
10.20 +	Consulting Agreement and Release, between the Registrant and Lionel Bonnot, effective as of December 31, 2017.	10-Q	001-37927	10.37	May 1, 2018
21.1 *	List of subsidiaries of the Registrant.
23.1 *	Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.
24.1*	Power of Attorney (included on signature page).
31.1 *	Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 *	Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 **	Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*	XBRL Instance Document.
101.SCH*	XBRL Taxonomy Extension Schema Document.
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document.

________________________


+	Indicates management contract or compensatory plan.


*	Filed herewith.

Furnished herewith. The certifications attached as Exhibit 32.1 and Exhibit 32.2 that accompany this Annual Report on Form 10-K are deemed furnished and not filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Quantenna Communications, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report on Form 10-K, irrespective of any general incorporation language contained in such filing.

E-1

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: February 28, 2019



	QUANTENNA COMMUNICATIONS, INC.

	By:	/s/ Sam Heidari
		Sam Heidari
		Chairman and Chief Executive Officer

- S-1 -

Table of Contents

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Sam Heidari and Sean Sobers, and each of them, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:



Signature	Title	Date

/s/ Sam Heidari	Chairman and Chief Executive Officer (Principal Executive Officer)	February 28, 2019
Sam Heidari		February 28, 2019

/s/ Sean Sobers	Chief Financial Officer (Principal Accounting and Financial Officer)	February 28, 2019
Sean Sobers		February 28, 2019

/s/ Edwin B. Hooper III	Director	February 28, 2019
Edwin B. Hooper III	Director	February 28, 2019

/s/ Glenda Dorchak	Director	February 28, 2019
Glenda Dorchak	Director	February 28, 2019

/s/ Harold Hughes	Director	February 28, 2019
Harold Hughes	Director	February 28, 2019

/s/ Jack Lazar	Director	February 28, 2019
Jack Lazar	Director	February 28, 2019

/s/ John Scull	Director	February 28, 2019
John Scull	Director	February 28, 2019

/s/ Mark Stevens	Director	February 28, 2019
Mark Stevens	Director	February 28, 2019

- S-2 -

Exhibit 21.1

SUBSIDIARIES OF QUANTENNA COMMUNICATIONS, INC.



Name of Subsidiary	Jurisdiction of Organization

Quantenna Communications Australia Pty Ltd	Australia

Quantenna Communications (Wuxi) Co., Ltd.	People’s Republic of China

Quantenna Communications (Shanghai) Co., Ltd.	People’s Republic of China

Quantenna Communications, L.L.C.	Russia

Quantenna Communications International Pte Ltd	Singapore

Quantenna Communications Spain S.L.	Spain

Quantenna France SARL	France

Quantenna Communications B.V.	Netherlands

Quantenna C.V.	Netherlands

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S‑8 (No. 333-214300) of Quantenna Communications, Inc. of our report dated February 28, 2019 relating to the financial statements, which appears in this Form 10‑K.

/s/ PricewaterhouseCoopers LLP
San Jose, California
February 28, 2019

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO

EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Sam Heidari, certify that:

1. I have reviewed this Annual Report on Form 10-K of Quantenna Communications, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

-2-

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO

EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Sean Sobers, certify that:

1. I have reviewed this Annual Report on Form 10-K of Quantenna Communications, Inc.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

-2-

Exhibit 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Sam Heidari, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K of Quantenna Communications, Inc. for the fiscal year ended December 30, 2018 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Quantenna Communications, Inc.



Date:	February 28, 2019	By:	/s/ Sam Heidari
		Name:	Sam Heidari
		Title:	Chief Executive Officer (Principal Executive Officer)

I, Sean Sobers, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K of Box, Inc. for the fiscal year ended December 30, 2018 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Quantenna Communications, Inc.



Date:	February 28, 2019	By:	/s/ Sean Sobers
		Name:	Sean Sobers
		Title:	Chief Financial Officer (Principal Financial Officer)