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Novatel Wireless Reports First Quarter Fiscal 2014 Financial Results

Novatel Wireless, Inc. (NASDAQ: NVTL), a leading provider of intelligent wireless solutions, announced financial results for the first quarter ended March 31, 2014.

Revenue in the first quarter was $48.3 million. GAAP net loss in the quarter was $9.0 million, or $(0.26) per share. On a non-GAAP basis, net loss for the quarter was $7.1 million, or $(0.21) per share. Adjusted EBITDA in the first quarter was a loss of $5.2 million. A reconciliation of GAAP to non-GAAP measures is included in the accompanying tables.

“During the first quarter, we continued to make solid progress in our M2M business, growing sequential revenue by approximately 45%, launching with new customers, advancing major prospects by integrating with their platforms, and building our sales pipeline,” said Peter Leparulo, CEO of Novatel Wireless. “Our targeted vertical approach in M2M, our investments in product innovation, sales, and integration are beginning to produce meaningful results. We are at the center of what we believe are high growth verticals, have the right products and sales and service infrastructure in place, and continue to execute on our high impact growth initiatives.

“In mobile computing, we made progress on our strategy to retrench this business, moving it toward a more targeted product development approach with a more variable operating model. Relatedly, we furthered our restructuring initiatives in the quarter, which we expect to yield annualized cost savings of approximately $10 million beginning in the second quarter. Mobile computing revenue in the quarter was largely driven by sales of our MiFi 5510, which would have been an even larger contributor but was muted by a supply chain component shortage.”

“As we move through 2014, we have a substantial, growing pipeline of opportunities in M2M. We will be expanding our partner relationships as we deepen our presence in our targeted verticals. In mobile computing, we will begin to see our targeted channel approach play out as we focus our development investments on products that we are confident will achieve our required returns, while certain products currently in the channel will come to the end or the long-tail of their planned life cycle. Beyond that, we continue to see opportunities in mobile computing which we will selectively evaluate with our new variable cost model. We have launch plans for a carrier aggregation product release in the second half of the year, as well as other opportunities we are pursuing for 2015, all of which meet our rigid criteria for returns on our development investments. Lastly, we will continue to evaluate our cost structure, commensurate with our opportunities, and remain focused on returning to profitability,” concluded Leparulo.

Second Quarter 2014 Business Outlook

The following statements are forward-looking and actual results may differ materially. Please see the section titled, “Cautionary Note Regarding Forward-Looking Statements” at the end of this press release. A more detailed description of risks related to our business is included in the reports filed by the Company with the Securities and Exchange Commission.

Our guidance for the second quarter of 2014 reflects current business indicators and expectations as of the date of this release. All figures are approximations based on management’s beliefs and assumptions as of the date of this release.

      Second Quarter 2014

Total Revenue

$37 - $43 million

Mobile Computing Revenue

$27 - $32 million

M2M Revenue

$10 - $11 million

 
Non-GAAP Gross Margin 21% - 23%
 
Non-GAAP EPS $(0.22) - $(0.15)

Conference Call Information

Novatel Wireless will host a conference call and live webcast for analysts and investors today at 5:00 p.m. ET. To access the conference call:

  • In the United States, call 1-877-317-6789
  • International parties can access the call at 1-412-317-6789

Novatel Wireless will offer a live webcast of the conference call, which will be accessible from the "Investors" section of the Company's website at www.NVTL.com. A telephonic replay of the conference call will also be available one hour after the call and will run through May 15, 2014. To hear the replay, parties in the United States may call 1-877-344-7529 and enter conference code 100 452 57#. International parties may call 1-412-317-0088 and enter the same code.

ABOUT NOVATEL WIRELESS

Novatel Wireless, Inc. is a leader in the design and development of intelligent wireless solutions based on 2G, 3G and 4G technologies. The Company delivers specialized wireless solutions to carriers, distributors, retailers, OEMs and vertical markets worldwide. Product lines include MiFi® Intelligent Mobile Hotspots, Ovation™ USB modems, Expedite® embedded modules, Mobile Tracking Solutions, Asset Tracking Solutions, and Enabler smart M2M modules. These innovative products provide anywhere, anytime communications solutions for consumers and enterprises. Headquartered in San Diego, California, Novatel Wireless is listed on NASDAQ: NVTL. For more information please visit www.nvtl.com. (NVTLF)

Cautionary Note Regarding Forward-Looking Statements

Some of the information presented in this release constitutes forward-looking statements based on management’s current expectations, assumptions, estimates and projections. In this context, forward-looking statements often address expected future business and financial performance and often contain words such as “may,” “estimate,” “anticipate,” “believe,” “expect,” “intend,” “plan,” “project,” “will” and similar words and phrases indicating future results. The information presented in this release related to our financial results for the first quarter ended March 31, 2014, our outlook for the second quarter of 2014, our outlook for fiscal year 2014, as well as statements regarding new product launches, are forward-looking. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated in such forward-looking statements. The Company therefore cannot guarantee future results, performance or achievements. Actual results could differ materially from the Company’s expectations.

Factors that could cause actual results to differ materially from Novatel Wireless' expectations are set forth as risk factors in the Company's SEC reports and filings and include (1) the future demand for wireless broadband access to data, (2) the growth of wireless wide-area networking, (3) changes in commercially adopted wireless transmission standards and technologies including 3G and 4G standards, (4) continued customer and end user acceptance of the Company's current products and market demand for the Company's anticipated new product offerings, (5) increased competition and pricing pressure from current or future wireless market participants, (6) dependence on third party manufacturers in Asia and key component suppliers worldwide, (7) unexpected liabilities or expenses, (8) the Company’s ability to introduce new products in a timely manner, (9) litigation, regulatory and IP developments related to our products or component parts of our products, (10) the outcome of pending or future litigation, including the current class action securities litigation, (11) the continuing impact of the recent global credit crisis on the value and liquidity of the securities in our investment portfolio, (12) dependence on a small number of customers, (13) the effect of changes in accounting standards and in aspects of our critical accounting policies and (14) the Company's plans and expectations relating to strategic relationships, international expansion, software and hardware developments, personnel matters, cost containment initiatives, and operating strategies.

These factors, as well as other factors described in the reports filed by the Company with the SEC (available at www.sec.gov), could cause actual results to differ materially. Novatel Wireless assumes no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future, except as otherwise required pursuant to applicable law and our on-going reporting obligations under the Securities Exchange Act of 1934, as amended.

Non-GAAP Financial Measures

Novatel Wireless has provided in this release financial information that has not been prepared in accordance with GAAP. Non-GAAP operating expenses, net loss and loss per share exclude stock-based compensation expenses, acquisition-related intangible-asset amortization, and restructuring and other severance charges.

Adjusted EBITDA and Non-GAAP net loss, loss per share, operating expenses, and gross margin are supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. These non-GAAP financial measures are not intended to be used in isolation and, moreover, they should not be considered as a substitute for net income, diluted earnings per share, operating expenses, gross margin or any other performance measure determined in accordance with GAAP. We present adjusted EBITDA and non-GAAP net loss, loss per share, operating expenses, and gross margin because we consider each to be an important supplemental measure of our performance.

Management uses these non-GAAP financial measures to make operational decisions, evaluate the Company's performance, prepare forecasts and determine compensation. Further, management believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing the Company's performance when planning, forecasting and analyzing future periods. The stock-based compensation expenses are expected to vary depending on the number of new grants issued to both current and new employees, and changes in the Company’s stock price, stock market volatility, expected option life and risk-free interest rates, all of which are difficult to estimate. In calculating non-GAAP operating expenses, net loss and loss per share, management excludes stock-based compensation expenses, acquisition-related intangible-asset amortization, and restructuring and other severance charges to facilitate comparability of the Company's operating performance on a period-to-period basis because such expenses are not, in management's review, related to the Company's ongoing operating performance. Management uses this view of its operating performance for purposes of comparison with its business plan and individual operating budgets and allocation of resources.

We further believe that these non-GAAP financial measures are useful to investors in providing greater transparency to the information used by management in its operational decision making. We believe that the use of non-GAAP operating expenses, net loss and loss per share also facilitates a comparison of Novatel Wireless’ underlying operating performance with that of other companies in our industry, which use similar non-GAAP financial measures to supplement their GAAP results.

Calculating non-GAAP operating expenses, net income and earnings per share have limitations as an analytical tool, and you should not consider these measures in isolation or as substitutes for GAAP operating expenses, net income and earnings per share. In the future, we expect to continue to incur expenses similar to the non-GAAP adjustments described above, and exclusion of these items in the presentation of our non-GAAP financial measures should not be construed as an inference that these costs are unusual, infrequent or non-recurring. Investors and potential investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. Some of the limitations in relying on non-GAAP operating expenses, net loss and loss per share are:

  • Other companies, including other companies in our industry, may calculate non-GAAP operating expenses, net loss and loss per share differently than we do, limiting their usefulness as a comparative tool.
  • The Company's income tax expense will be ultimately based on its GAAP taxable income and actual tax rates in effect, which may differ significantly from the effective tax rate used in our non-GAAP financial measures.

In addition, the adjustments to our GAAP operating expenses, net loss and loss per share reflect the exclusion of stock-based compensation expenses that are recurring and will be reflected in the Company's financial results for the foreseeable future. The Company compensates for these limitations by providing specific information regarding the GAAP amount excluded from the non-GAAP financial measures. The Company further compensates for the limitations of our use of non-GAAP financial measures by presenting comparable GAAP measures more prominently. The Company evaluates the non-GAAP financial measures together with the most directly comparable GAAP financial measures.

Investors and potential investors are encouraged to review the reconciliation of non-GAAP financial measures contained within this press release with our GAAP operating expenses, net loss, loss per share and gross margin. For more information, see the consolidated statements of operations and the "Reconciliation of GAAP Net Loss to Non-GAAP Net Loss" contained in this press release.

(C) 2014 Novatel Wireless, Inc. All rights reserved. The Novatel Wireless name and logo are trademarks of Novatel Wireless, Inc.

 
NOVATEL WIRELESS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
           
March 31, December 31,
  2014     2013  

(Preliminary and

unaudited)

ASSETS
 
Current assets:
 
Cash and cash equivalents $ 11,827 $ 2,911
Marketable securities 15,040 16,612
Restricted marketable securities 298 2,566
Accounts receivable, net 30,028 39,985
Inventories 25,129 27,793
Deferred tax assets, net 100 100
Prepaid expenses and other   2,792     5,662  
Total current assets 85,214 95,629
 
Property and equipment, net 8,246 9,901
 
Marketable securities 720 3,443
 
Intangible assets, net 1,879 2,131
 
Deferred tax assets, net 81 81
 
Other assets   731     280  
Total assets $ 96,871   $ 111,465  
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
 
Accounts payable $ 23,187 $ 24,538
Accrued expenses 21,141 23,271
Current portion of contingent loss for litigation 4,326 4,326
Short-term margin loan facility   298     2,566  

Total current liabilities

48,952 54,701
 
Other long-term liabilities 1,723 1,848
Long-term portion of contingent loss for litigation   10,000     10,000  
 
Total liabilities   60,675     66,549  
 
Stockholders' equity:
 
Common stock 34 34
Additional paid-in capital 441,628 441,368
Accumulated other comprehensive income 6 5
Accumulated deficit   (380,472 )   (371,491 )
61,196 69,916
Treasury stock at cost   (25,000 )   (25,000 )
Total stockholders' equity   36,196     44,916  
 
Total liabilities and stockholders' equity $ 96,871   $ 111,465  

             
NOVATEL WIRELESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 
 

Three Months Ended

March 31,

  2014     2013  

(Preliminary and

unaudited)

(Unaudited)
 
Net revenues $ 48,284 $ 85,921
Cost of net revenues   38,216     69,073  
Gross profit   10,068     16,848  
 
Operating costs and expenses:
Research and development 8,618 13,811
Sales and marketing 3,995 5,756
General and administrative 5,076 6,326
Amortization of purchased intangible assets 140 140
Restructuring charges   1,166     -  
Total operating costs and expenses   18,995     26,033  
 
Operating loss (8,927 ) (9,185 )
 
Other income (expense):
Interest income, net 15 57
Other expense, net   (44 )   (77 )
 
Loss before income taxes (8,956 ) (9,205 )
 
Income tax provision (benefit) 25 (83 )
   
Net loss $ (8,981 ) $ (9,122 )
 
Per share data:
 
Net loss per share:
Basic and diluted $ (0.26 ) $ (0.27 )
 
 
Weighted average shares used in computation of net loss per share:
 
Basic and diluted   34,172     33,717  

             
NOVATEL WIRELESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
 
Three Months Ended
March 31,
  2014     2013  

(Preliminary and

unaudited)

(Unaudited)
Cash flows from operating activities:
Net loss $ (8,981 ) $ (9,122 )
 
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 2,125 2,310
Provision for bad debts 30 156
Inventory provision 180 65
Share-based compensation expense 477 949
Non-cash income tax benefit (6 ) (120 )
Changes in assets and liabilities:
Accounts receivable 9,928 (1,026 )
Inventories 2,484 8,761
Prepaid expenses and other assets 2,418 55
Accounts payable (1,175 ) (644 )
Accrued expenses, income taxes, and other   (2,085 )   499  
 
Net cash provided by operating activities   5,395     1,883  
 
Cash flows from investing activities:
Purchases of property and equipment (513 ) (2,852 )
Purchases of marketable securities - (3,754 )
Marketable securities maturities/sales   6,564     3,159  
 
Net cash provided by (used in) investing activities   6,051     (3,447 )
Cash flows from financing activities:
Proceeds from the issuance of short-term debt, net of issuance costs - 7,000
Principal repayments of short-term debt (2,268 ) (2,178 )
Restricted cash related to short-term debt - (661 )
Proceeds from stock option exercises and ESPP net of taxes paid on vested restricted stock units
  (217 )   (304 )
Net cash provided by (used in) financing activities (2,485 ) 3,857
Effect of exchange rates on cash and cash equivalents   (45 )   (65 )
 
Net increase in cash and cash equivalents 8,916

 

2,228
Cash and cash equivalents, beginning of period   2,911     16,044  
Cash and cash equivalents, end of period $ 11,827  

 

$ 18,272  

             
Novatel Wireless, Inc.
 
Preliminary Reconciliation of GAAP Net Loss to Non-GAAP Net Loss
Three Months Ended March 31, 2014
(in thousands, except per share data)
(Unaudited)
 
 
Three Months Ended

March 31, 2014

 

Net

Income

(Loss)

 

Income (Loss)

Per Share,

Diluted

 
GAAP net loss $ (8,981 ) (0.26 )
 
Adjustments:
Share-based compensation expense (a) 477 0.01
 
Acquisition related charges (b) 224 0.01
 
Restructuring and other severance charges (c)   1,166     0.03  
Non-GAAP net loss $ (7,114 ) $ (0.21 )
 
(a) Adjustments reflect share-based compensation expense recorded under ASC Topic 718.
 
(b) Adjustments reflect amortization of purchased intangibles.
 
(c) Adjustments reflect restructuring and other reduction in force charges.
 
See "Non-GAAP Financial Measures" for information regarding our use of Non-GAAP financial measures.

                       
Novatel Wireless, Inc.
 
Preliminary Reconciliation of GAAP Operating Costs and Expenses to Non-GAAP Operating Costs and Expenses
Three Months Ended March 31, 2014
(in thousands)
(Unaudited)
 
 
GAAP

Share-based

compensation

expense

(a)

 

Purchased

intangibles

amortization

(b)

 

Restructuring

charges (c)

  Non-GAAP
 
Cost of net revenues $ 38,216 $ (30 ) $ 84 $ - $ 38,162
 
Operating costs and expenses:
Research and development 8,618 47 - - 8,571
Sales and marketing 3,995 79 - - 3,916
General and administrative 5,076 381 - - 4,695
Amortization of purchased intangibles assets 140 - 140 - -
Restructuring and other severance charges   1,166   -     -   1,166   -
Total operating costs and expenses $ 18,995   507     140   1,166 $ 17,182
 
Total $ 477   $ 224 $ 1,166
 
 
(a) Adjustments reflect share-based compensation expense recorded under ASC Topic 718.
 
(b) Adjustments reflect amortization of purchased intangibles.
 
(c) Adjustments reflect restructuring and other reduction in force charges.
 
See "Non-GAAP Financial Measures" for information regarding our use of Non-GAAP financial measures.

       
Novatel Wireless, Inc.
Preliminary Reconciliation of GAAP Loss before Income Taxes to Adjusted EBITDA
Three Months Ended March 31, 2014
(in thousands)
(Unaudited)
 
Three Months Ended
March 31, 2014
 
Loss before income taxes $ (8,956 )
Depreciation and amortization 2,125
Share-based compensation expense 477
Restructuring and other severance charges 1,166
Other expense   29  
Adjusted EBITDA $ (5,159 )
 
 
See "Non -GAAP Financial Measures" for information regarding our use of Non-GAAP financial measures.

           
NOVATEL WIRELESS, INC.
Segment Reporting
Three Months Ended March 31, 2014 and 2013
(in thousands)
 
 

Three Months Ended

March 31,

  2014     2013  

(Preliminary and

unaudited)

(Unaudited)

Net revenues by reportable segment:

Mobile Computing Products $ 36,198 $ 75,620
M2M Products and Solutions   12,086     10,301  
Total $ 48,284   $ 85,921  
 

Operating loss by reportable segment:

Mobile Computing Products $ (6,126 ) $ (5,500 )
M2M Products and Solutions   (2,801 )   (3,685 )
Total $ (8,927 ) $ (9,185 )
 
 
 
 

March 31,

December 31,
2014 2013

(Preliminary and

unaudited)

 

Identifiable assets by reportable segment:

Mobile Computing Products $ 80,235 $ 96,516
M2M Products and Solutions   16,636     14,949  
Total $ 96,871   $ 111,465  

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