PCTEL Reports $21.6 Million in Second Quarter Revenue

BLOOMINGDALE, Ill.--(BUSINESS WIRE)--PCTEL, Inc. (Nasdaq: PCTI), a leader in Performance Critical TELecom solutions, announced its results for the second quarter ended June 30, 2018.

Highlights from Continuing Operations

• Revenue of $21.6 million in the second quarter and $43.3 million in the first half, unchanged in the quarter and down 3% in the first half compared to last year. Connected Solutions revenue was up 4% in the quarter and 3% in the half. RF Solutions revenue was down 11% in the quarter and 22% in the half.
• Gross profit margin of 36.1% in the second quarter and 36.2% in the first half, down 560 basis points in the quarter and 520 basis points in the half compared to last year. The two primary reasons for the decrease are lower revenue in the RF Solutions segment which has higher margin from its scanner products compared to antenna products, and price erosion in the small cell antenna market.
• Net loss per share of $0.07 in the second quarter and $0.12 in the first half, compared to a net loss of $0.01 per share in the quarter and break even in the half last year.
• Non-GAAP net income and adjusted EBITDA are measures the company uses to reflect the results of its core earnings. A reconciliation of those non-GAAP measures to our financial statements is provided later in the press release.

• Non-GAAP EPS of break-even in the second quarter and a net loss of $0.01 in the first half compared to net income of $0.05 in the quarter and $0.10 in the half last year.
• Adjusted EBITDA margin as a percent of revenue of 2% in the second quarter and the first half compared to 8% in the quarter and the half last year.

• $36.5 million of cash and short-term investments at June 30, 2018 and no debt.

“The Company saw revenue growth for its Connected Solutions products in the enterprise Wi-Fi market during the quarter and the half but fell short of our expectations. RF Solutions revenue was down in the North American market in the quarter and the half, due to capital budget reductions by several U.S. carriers,” said David Neumann, PCTEL’s CEO. “We believe the carriers have reduced capital spending on legacy networks to prepare for more aggressive 5G deployments in 2019. Although this will negatively affect our 2018 results, PCTEL is positioned to take advantage of the long-term growth opportunities in our targeted markets, which require both performance critical testing solutions and antennas.”

CONFERENCE CALL / WEBCAST

PCTEL’s management team will discuss the Company’s results today at 4:30 p.m. ET. The call can be accessed by dialing [phone] (U.S. / Canada) or [phone] (International), conference ID: 47850740. The call will also be webcast at http://investor.pctel.com/news-events/webcasts-presentations.

REPLAY: A replay will be available for two weeks after the call on either the website listed above or by calling [phone] (U.S./Canada), or International [phone], conference ID: 47850740.

About PCTEL

PCTEL, Inc. provides Performance Critical TELecom technology solutions. We are a leading global supplier of antennas and wireless network testing solutions. Our precision antennas are deployed in small cells, enterprise Wi-Fi access points, fleet management and transit systems, and in equipment and devices for the Industrial Internet of Things (IIoT). We offer in-house design, testing, radio integration, and manufacturing capabilities for our customers. PCTEL’s test and measurement tools improve the performance of wireless networks globally, with a focus on LTE, public safety, and emerging 5G technologies. Network operators, neutral hosts, and equipment manufacturers rely on our scanning receivers and testing solutions to analyze, design, and optimize their networks.

For more information, please visit our website at https://www.pctel.com/.

PCTEL Safe Harbor Statement

This press release and our related comments in our earnings conference call contain “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Specifically, the statements regarding our future financial performance, growth of our Connected Solutions and RF Solutions businesses, anticipated demand for certain products, our expectations regarding capital expenditures by wireless operators, the impact of tariffs on certain imports from China, and the anticipated growth of public and private wireless systems are forward-looking statements within the meaning of the safe harbor. These statements are based on management’s current expectations and actual results may differ materially from those projected as a result of certain risks and uncertainties, including the impact of data densification and IoT on capacity and coverage demand, impact of 5G, customer demand for these types of products and services generally including demand from customers in China, growth and continuity in PCTEL’s vertical markets, and PCTEL’s ability to grow its wireless products business and create, protect and implement new technologies and solutions. These and other risks and uncertainties are detailed in PCTEL's Securities and Exchange Commission filings. These forward-looking statements are made only as of the date hereof, and PCTEL disclaims any obligation to update or revise the information contained in any forward-looking statement, whether as a result of new information, future events or otherwise.

PCTEL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
	(Unaudited)
	June 30,			December 31,
	2018			2017
ASSETS
Cash and cash equivalents	$	7,603		$	5,559
Short-term investment securities		28,904			32,499
Accounts receivable, net of allowances of $164 and $319 at June 30, 2018 and December 31, 2017, respectively		17,929			18,624
Inventories, net		13,470			12,756
Prepaid expenses and other assets		1,285			1,605
Total current assets		69,191			71,043
Property and equipment, net		12,844			12,369
Goodwill		3,332			3,332
Intangible assets, net		1,532			2,113
Deferred tax assets, net		8,213			7,734
Other noncurrent assets		58			72
TOTAL ASSETS	$	95,170		$	96,663
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	8,219		$	5,471
Accrued liabilities		5,413			7,481
Total current liabilities		13,632			12,952
Long-term liabilities		453			392
Total liabilities		14,085			13,344
Stockholders’ equity:
Common stock, $0.001 par value, 100,000,000 shares authorized, 18,318,141 and 17,806,792 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively		18			18
Additional paid-in capital		134,367			134,505
Accumulated deficit		(53,250	)		(51,258	)
Accumulated other comprehensive (loss) income		(50	)		54
Total stockholders’ equity		81,085			83,319
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	95,170		$	96,663

PCTEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except per share data)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
REVENUES	$	21,582		$	21,501		$	43,313		$	44,471
COST OF REVENUES		13,783			12,539			27,650			26,055
GROSS PROFIT		7,799			8,962			15,663			18,416
OPERATING EXPENSES:
Research and development		3,053			2,667			5,993			5,383
Sales and marketing		3,075			2,912			6,102			6,165
General and administrative		3,149			3,598			6,143			6,937
Amortization of intangible assets		124			124			248			248
Total operating expenses		9,401			9,301			18,486			18,733
OPERATING LOSS		(1,602	)		(339	)		(2,823	)		(317	)
Other income, net		209			14			260			42
LOSS BEFORE INCOME TAXES		(1,393	)		(325	)		(2,563	)		(275	)
Benefit for income taxes		(167	)		(140	)		(479	)		(274	)
LOSS FROM CONTINUING OPERATIONS		(1,226	)		(185	)		(2,084	)		(1	)
NET LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX BENEFIT		0			(168	)		0			(382	)
NET LOSS	$	(1,226	)	$	(353	)	$	(2,084	)	$	(383	)
Net Loss per Share from Continuing Operations:
Basic	$	(0.07	)	$	(0.01	)	$	(0.12	)	$	0.00
Diluted	$	(0.07	)	$	(0.01	)	$	(0.12	)	$	0.00
Net Loss per Share from Discontinued Operations:
Basic	$	0.00		$	(0.01	)	$	0.00		$	(0.02	)
Diluted	$	0.00		$	(0.01	)	$	0.00		$	(0.02	)
Net Loss per Share:
Basic	$	(0.07	)	$	(0.02	)	$	(0.12	)	$	(0.02	)
Diluted	$	(0.07	)	$	(0.02	)	$	(0.12	)	$	(0.02	)
Weighted Average Shares:
Basic		17,142			16,534			17,099			16,437
Diluted		17,142			16,534			17,099			16,437
Cash dividend per share	$	0.055		$	0.05		$	0.11		$	0.10

PCTEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
	Six Months Ended June 30,
	2018			2017
Operating Activities:
Net loss from continuing operations	$	(2,084	)	$	(1	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		1,381			1,262
Intangible asset amortization		581			581
Stock-based compensation		1,786			1,797
(Gain) loss on disposal of property and equipment		(5	)		3
Restructuring costs		(20	)		(58	)
Bad debt provision		124			(7	)
Deferred tax provision		(390	)		(423	)
Changes in operating assets and liabilities:
Accounts receivable		473			1,458
Inventories		(813	)		779
Prepaid expenses and other assets		330			96
Accounts payable		2,743			(232	)
Income taxes payable		(38	)		(186	)
Other accrued liabilities		(2,107	)		(694	)
Deferred revenue		16			20
Net cash provided by operating activities		1,977			4,395
Investing Activities:
Capital expenditures		(1,519	)		(1,544	)
Proceeds from disposal of property and equipment		14			0
Purchases of investments		(22,712	)		(23,071	)
Redemptions/maturities of short-term investments		26,307			19,187
Net cash provided by (used in) investing activities		2,090			(5,428	)
Financing Activities:
Proceeds from issuance of common stock		364			867
Payment of withholding tax on stock-based compensation		(289	)		(692	)
Principle payments on capital leases		(57	)		(41	)
Cash dividends		(1,999	)		(1,752	)
Net cash used in financing activities		(1,981	)		(1,618	)
Cash flows from discontinued operations:
Net cash used in operating activities		0			(349	)
Net cash used in investing activities		0			(16	)
Net cash flows used in discontinued operations		0			(365	)
Net increase (decrease) in cash and cash equivalents		2,086			(3,016	)
Effect of exchange rate changes on cash		(42	)		36
Cash and cash equivalents, beginning of period		5,559			14,855
Cash and Cash Equivalents, End of Period	$	7,603		$	11,875

PCTEL, INC.
P&L INFORMATION BY SEGMENT - Continuing Operations (unaudited)
(in thousands)
	Three Months Ended June 30, 2018										Six Months Ended June 30, 2018
	Connected										Connected
	Solutions		RF Solutions			Corporate		Total			Solutions		RF Solutions			Corporate		Total
REVENUES	$	17,478	$	4,135		($31	)	$	21,582		$	35,243	$	8,134		($64	)	$	43,313
GROSS PROFIT		5,031		2,755		13			7,799			10,229		5,426		8			15,663
OPERATING (LOSS) INCOME	$	1,530		($398	)	($2,734	)		($1,602	)	$	3,134		($724	)	($5,233	)		($2,823	)
	Three Months Ended June 30, 2017										Six Months Ended June 30, 2017
	Connected										Connected
	Solutions		RF Solutions			Corporate		Total			Solutions		RF Solutions			Corporate		Total
REVENUES	$	16,866	$	4,661		($26	)	$	21,501		$	34,137	$	10,418		($84	)	$	44,471
GROSS PROFIT		5,731		3,223		8			8,962			11,135		7,270		11			18,416
OPERATING INCOME (LOSS)	$	2,349	$	411		($3,099	)		($339	)	$	4,095	$	1,432		($5,844	)		($317	)

Reconciliation of GAAP to non-GAAP Results - Continuing Operations (unaudited)
(in thousands except per share information)
Reconciliation of GAAP operating loss to non-GAAP operating (loss) income - Continuing Operations
		Three Months Ended June 30,						Six Months Ended June 30,
		2018			2017			2018		2017
	Operating Loss		($1,602	)		($339	)	($2,823	)		($317	)
(a)	Add:
	Amortization of intangible assets
	-Cost of revenues		167			167		333			333
	-Operating expenses		124			124		248			248
	Stock Compensation:
	-Cost of revenues		93			72		181			133
	-Engineering		159			120		297			266
	-Sales & marketing		157			126		288			246
	-General & administrative		710			770		1,021			1,152
			1,410			1,379		2,368			2,378
	Non-GAAP Operating (Loss) Income		($192	)	$	1,040		($455	)	$	2,061
	% of revenue		-0.9	%		4.8	%	-1.1	%		4.6	%
Reconciliation of GAAP net loss to non-GAAP net (loss) income - Continuing Operations
		Three Months Ended June 30,						Six Months Ended June 30,
		2018			2017			2018		2017
	Net Loss		($1,226	)		($185	)	($2,084	)		($1	)
	Adjustments:
(a)	Non-GAAP adjustment to operating loss		1,410			1,379		2,368			2,378
	Income Taxes		(168	)		(330	)	(463	)		(653	)
			1,242			1,049		1,905			1,725
	Non-GAAP Net (Loss) Income	$	16		$	864		($179	)	$	1,724
	Non-GAAP (Loss) Income per Share:
	Basic	$	0.00		$	0.05		($0.01	)	$	0.10
	Diluted	$	0.00		$	0.05		($0.01	)	$	0.10
	Weighed Average Shares:
	Basic		17,142			16,534		17,099			16,437
	Diluted		17,554			17,015		17,099			16,921

This schedule reconciles the Company's GAAP operating loss to its non-GAAP operating (loss) income. The Company believes that presentation of this schedule provides meaningful supplemental information to both management and investors that is indicative of the Company's core operating results and facilitates comparison of operating results across reporting periods. The Company uses these non-GAAP measures when evaluating its financial results as well as for internal planning and forecasting purposes. These non-GAAP measures should not be viewed as a substitute for the Company's GAAP results.

The adjustments to GAAP operating loss (a) consist of stock compensation expense and amortization of intantigible assets. The adjustments to GAAP net loss include the non-GAAP adjustments to operating loss as well as adjustments for (b) non-cash income tax expense.

Reconciliation of GAAP to non-GAAP SEGMENT INFORMATION - Continuing Operations (unaudited)
(in thousands)
		Three Months Ended June 30, 2018										Six Months Ended June 30, 2018
		Connected										Connected
		Solutions		RF Solutions			Corporate		Total			Solutions		RF Solutions			Corporate		Total
	Operating (Loss) Income	$	1,530		($398	)	($2,734	)		($1,602	)	$	3,134		($724	)	($5,233	)		($2,823	)
	Add:
	Amortization of intangible assets:
	-Cost of revenues		0		167		0			167			0		333		0			333
	-Operating expenses		39		85		0			124			78		170		0			248
	Stock Compensation:
	-Cost of revenues		51		42		0			93			96		85		0			181
	-Engineering		81		78		0			159			155		142		0			297
	-Sales & marketing		85		72		0			157			167		121		0			288
	-General & administrative		45		30		635			710			105		53		863			1,021
			301		474		635			1,410			601		904		863			2,368
	Non-GAAP Operating (Loss) Income	$	1,831	$	76		($2,099	)		($192	)	$	3,735	$	180		($4,370	)		($455	)
		Three Months Ended June 30, 2017										Six Months Ended June 30, 2017
		Connected										Connected
		Solutions		RF Solutions			Corporate		Total			Solutions		RF Solutions			Corporate		Total
	Operating (Loss) Income	$	2,349	$	411		($3,099	)		($339	)	$	4,095	$	1,432		($5,844	)		($317	)
	Add:
	Amortization of intangible assets:
	-Cost of revenues		0		167		0			167			0		333		0			333
	-Operating expenses		39		85		0			124			78		170		0			248
	Stock Compensation:
	-Cost of revenues		43		29		0			72			82		51		0			133
	-Engineering		62		58		0			120			117		149		0			266
	-Sales & marketing		79		47		0			126			165		81		0			246
	-General & administrative		46		17		707			770			89		31		1,032			1,152
			269		403		707			1,379			531		815		1,032			2,378
	Non-GAAP Operating Income (Loss)	$	2,618	$	814		($2,392	)	$	1,040		$	4,626	$	2,247		($4,812	)	$	2,061

This schedule reconciles the Company's GAAP operating (loss) income by segment to its non-GAAP operating (loss) income. The Company believes that presentation of this schedule provides meaningful supplemental information to both management and investors that is indicative of the Company's core operating results and facilitates comparison of operating results across reporting periods. The Company uses these non-GAAP measures when evaluating its financial results as well as for internal planning and forecasting purposes. These non-GAAP measures should not be viewed as a substitute for the Company's GAAP results.

The adjustments to GAAP operating (loss) income consist of stock compensation expense and amortization of intangible assets.

PCTEL, Inc.
Reconciliation of GAAP operating loss to Adjusted EBITDA - Continuing Operations
(unaudited, in thousands)
		Three Months Ended June 30,						Six Months Ended June 30,
		2018			2017			2018			2017
	Operating Loss		($1,602	)		($339	)		($2,823	)		($317	)
	Add:
	Depreciation and amortization		707			634			1,381			1,262
	Intangible amortization		291			291			581			581
	Stock compensation expenses		1,119			1,088			1,787			1,797
	Adjusted EBITDA	$	515		$	1,674		$	926		$	3,323
	% of revenue		2.4	%		7.8	%		2.1	%		7.5	%

This schedule reconciles the Company's GAAP operating loss to Adjusted EBITDA. The Company believes that this schedule provides meaningful supplemental information to both management and investors that is indicative of the Company's core operating results and facilitates comparison of operating results across reporting periods. The Company uses Adjusted EBITDA when evaluating its financial results as well as for internal planning and forecasting purposes. Adjusted EBITDA should not be viewed as a substitute for the Company's GAAP results.

Adjusted EBITDA is defined as net income before interest, income taxes, depreciation and amortization. The adjustments on this schedule consist of depreciation, amortization of intangible assets, and stock compensation expenses