TMCNet:  Novatel Wireless Second Quarter 2012 Financial Results

[August 07, 2012]

Novatel Wireless Second Quarter 2012 Financial Results

SAN DIEGO, Aug. 7, 2012 /PRNewswire via COMTEX/ -- Novatel Wireless, Inc. (NASDAQ: NVTL), a leading provider of intelligent wireless solutions, announces financial results for the second quarter ended June 30, 2012.

2Q 2012 2Q 2011 1Q 2012 Revenue $ 102.4M $ 118.0M $ 100.2M GAAP Net Loss $ (4.5M) $ (3.9M) $ (37.9M) GAAP EPS (Loss) $ (0.14) $ (0.12) $ (1.17) Non-GAAP Loss $ (2.2M) $ (0.9M) $ (4.4M) Non-GAAP EPS (Loss) $ (0.07) $ (0.03) $ (0.14) "During the second quarter our financial results were near or above the top of our guidance range for all three key metrics - revenue, non-GAAP gross margin, and non-GAAP EPS," said Peter Leparulo, CEO of Novatel Wireless. "Revenue increased by approximately $2.2 million from the first quarter, to $102.4 million, driven by strong sales of our mobile broadband devices.


"In our M2M segment, we are in the process of launching new integrated solutions that will significantly expand our addressable market. This includes the addition of key CDMA and HSPA capabilities into our M2M devices, as well as enhanced provisioning and management software that simplifies the adoption and deployment of integrated solutions for our customers.

"We continue to focus on diversifying our markets, customer base and product lines. We are planning a number of new product launches over the next year to further these objectives. Although we expect a temporary revenue decline at our largest customer in the third quarter due to the impact of a competing product, our new product rollouts and new customer wins should restore revenue growth and positive EBITDA in the fourth quarter." Operating Results Revenues by major product category were as follows: Revenue by Product Category 2Q 2012 2Q 2011 1Q 2012 Mobile Broadband Devices $ 87.1M $ 101.3M $ 85.6M Embedded Solutions $ 9.1M $ 11.8M $ 5.8M Asset Management Solutions & Services $ 6.2M $ 4.9M $ 8.8M Total $102.4M $ 118.0M $100.2M Gross margin was 22.7 percent of revenue on a GAAP basis. On a non-GAAP basis, gross margin was 23.2 percent, exceeding our previous guidance of 22 to 23 percent.

Progress in ongoing cost reduction efforts contributed to a reduction in the net loss compared to the first quarter of 2012. On a non-GAAP basis, which excludes the items identified in the attached reconciliation schedule, net loss for the quarter was $2.2 million, or 7 cents per share, a significant improvement from a loss of 14 cents per share in the first quarter.

Adjusted EBITDA (see "Reconciliation of GAAP Earnings before Income Taxes to Adjusted EBITDA") was $0.3 million, versus a loss of $1.7 million in the first quarter.

Non-GAAP EPS Summary The following adjustments are included in the second quarter 2012 non-GAAP earnings per share.

GAAP EPS (Loss) $(0.14) Adjustments: Stock-based compensation expense 0.05 Acquisition-related charges 0.02 Non-GAAP EPS $(0.07) Second Quarter Segment Results GAAP financial results by operating segment were as follows: 2Q 2012 2Q 2011 1Q2012 Revenue Mobile Computing Products $ 92.5M $105.8M $ 90.9M M2M Products and Solutions $ 9.9M $ 12.2M $ 9.3M Total $102.4M $ 118.0M $100.2M Operating Income (Loss) Mobile Computing Products $ (0.7M) $ 1.0M $( 3.5M) M2M Products and Solutions $ (3.7M) $( 4.1M) $(34.3M) Total $ (4.4M) $( 3.1M) $(37.8M) Recent Business Highlights TIESSE SpA, a leading Italian Telemetry device manufacturer, will integrate Novatel Wireless Enabler modules into its Levanto routers. These routers will provide one of the largest Italian utilities with upgraded communications for automatic meter reading concentrators.

In June, the Enabler® HS 3001 was certified for use on the Verizon Wireless network. This module supports CDMA 800 and 1900 MHz and a rich on-board N4A Communication and Management Software agent to provide speedy market introduction of M2M deployments on Verizon Wireless' CDMA Network.

Novatel Wireless added the SA-G+ to its Enfora portfolio of simple, yet powerful, plug-and-play wireless telemetry devices. The new SA-G+ device is targeted at remote asset monitoring and control applications where critical and timely data is needed. Examples include industrial automation, vending machines, oil & gas pipelines and energy and smart grid applications. With support for CDMA2000 1X or GSM/GPRS connectivity for global deployments, the SA-G+ has been designed to enhance visibility into remotely-located fixed assets.

On June 26, 2012, the United States Patent and Trademark Office granted Novatel Wireless a key patent for the MiFi Intelligent Mobile Hotspot. This patent, entitled "Systems and methods for multi-mode wireless modem," is a core invention covering Intelligent Mobile Hotspot products, home automation gateway devices, fixed mobile convergence routers and general machine-to-machine solutions involving wireless gateway implementation.

Third Quarter 2012 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 reports filed with the Securities and Exchange Commission.

Our guidance for the third quarter of 2012 reflects current business indicators and expectations as of the date of this release. MiFi revenues in the third quarter may be constrained by competitive pressure at our largest customer. However, we anticipate that in the fourth quarter and beyond, new product introductions and new customer wins should restore revenue growth and positive EBITDA. All figures are approximations based on management's beliefs and assumptions as of the date of this release.

Third Quarter 2012 Revenue $76 - $84 million Non-GAAP Gross Margin 22% - 24% Non-GAAP EPS $(0.33) - $ (0.21) 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 In Canada, call 1-866-605-3852 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 August 14. To hear the replay, parties in the United States may call 1-877-344-7529 and enter conference code 10015445. International parties may call 1-412-317-0088.

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 providing wireless connectivity. The company delivers specialized wireless solutions to carriers, distributors, retailers, OEMs and vertical markets worldwide. Novatel Wireless' Intelligent Mobile Hotspot products, software, USB modems, embedded modules and smart M2M modules provide innovative anywhere, anytime communications solutions for consumers and enterprises.

Headquartered in San Diego, 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 second quarter ended June 30, 2012 and our outlook for the third and fourth quarters of 2012, 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 and cost containment initiatives.

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 income and earnings per share exclude stock-based compensation expenses, charges and benefits related to M&A activities, acquisition-related intangible-asset amortization, a litigation accrual, and merger integration costs. Non-GAAP net income and earnings per share for the full year also exclude the impact of establishing a valuation allowance related to deferred tax assets and assume a tax rate which management believes reflects its long-term effective tax rate.

Adjusted EBITDA and Non-GAAP net income, earnings 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 income, earnings 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 income and earnings per share, management excludes stock-based compensation expenses and charges related to M&A activity 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 income and earnings 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 income and earnings per share are: Other companies, including other companies in our industry, may calculate non-GAAP operating expenses, net income and earnings 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 income and earnings 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 income, earnings per share and gross margin. For more information, see the consolidated statements of operations and the "Reconciliation of GAAP Net Income (Loss) to Non-GAAP Net Income" contained in this press release.

(C) 2012 Novatel Wireless. All rights reserved. MiFi, Expedite, Enabler, Enfora, N4A, and the Novatel Wireless name and logo are trademarks of Novatel Wireless, Inc. Other product or service names mentioned herein are the trademarks of their respective owners.

Investor contact: Media contact: William A. Walkowiak, CFA Charlotte Rubin Novatel Wireless Novatel Wireless (858) 431-3711 (858) 812-3431 ir@nvtl.com crubin@nvtl.com NOVATEL WIRELESS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) June 30, December 31, 2012 2011 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 15,197 $ 47,069 Marketable securities 36,391 28,267 Accounts receivable, net 48,033 36,849 Inventories 39,565 42,279 Deferred tax assets, net 2,005 2,011 Prepaid expenses and other 5,835 3,712 Total current assets 147,026 160,187 Property and equipment, net 16,886 18,496 Marketable securities 10,820 13,495 Intangible assets, net 10,896 35,702 Goodwill 13,225 19,772 Deferred tax assets, net 937 1,023 Other assets 631 504 Total assets $ 200,421 $ 249,179 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 43,168 $ 54,030 Accrued expenses 25,375 25,044 Total current liabilities 68,543 79,074 Other long-term liabilities 3,866 4,080 Total liabilities 72,409 83,154 Stockholders' equity: Common stock 33 32 Additional paid-in capital 434,203 429,813 Accumulated other comprehensive income (loss) 9 (8) Accumulated deficit (281,233) (238,812) 153,012 191,025 Treasury stock at cost (25,000) (25,000) Total stockholders' equity 128,012 166,025 Total liabilities and stockholders' equity $ 200,421 $ 249,179 NOVATEL WIRELESS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in thousands, except per share data) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2012 2011 2012 2011 Net revenues $ 102,446 $ 118,021 $ 202,596 $ 179,805 Cost of net revenues 79,195 91,839 158,357 147,629 Gross profit 23,251 26,182 44,239 32,176 Operating costs and expenses: Research and development 14,457 14,832 30,286 30,391 Sales and marketing 7,310 8,210 14,988 15,594 General and administrative 5,702 5,714 11,236 10,307 Goodwill and intangible assets impairment losses - - 29,337 - Amortization of purchased intangible assets 227 527 664 1,055 Total operating costs and expenses 27,696 29,283 86,511 57,347 Operating loss (4,445) (3,101) (42,272) (25,171) Other income (expense): Interest income, net 83 85 166 243 Other expense, net (153) (607) (146) (485) Loss before income taxes (4,515) (3,623) (42,252) (25,413) Income tax (benefit) provision (15) 275 169 573 Net loss $ (4,500) $ (3,898) $ (42,421) $ (25,986) Per share data: Net loss per share: Basic $ (0.14) $ (0.12) $ (1.31) $ (0.81) Diluted $ (0.14) $ (0.12) $ (1.31) $ (0.81) Weighted average shares used in computation of net loss per share: Basic 32,674 32,048 32,485 31,979 Diluted 32,674 32,048 32,485 31,979 Comprehensive loss $ (4,507) $ (3,794) $ (42,404) $ (25,980) NOVATEL WIRELESS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2012 2011 2012 2011 Cash flows from operating activities: Net loss $ (4,500) $ (3,898) $(42,421) $(25,986) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Loss on sale/disposal of fixed asset 41 - 28 - Depreciation and amortization 2,979 4,778 6,972 9,686 Loss on goodwill and intangible assets impairment - - 29,337 75 Provision for bad debts 50 101 88 123 Net impairment loss on marketable securities 39 154 39 154 Inventory provision 65 200 316 320 Share-based compensation expense 1,823 1,191 3,657 2,486 Non-cash income tax expense (benefit) (14) 257 97 (401) Changes in assets and liabilities: Accounts receivable 1,713 2,519 (11,271) 21,925 Inventories 3,645 5,033 2,398 (7,371) Prepaid expenses and other assets (385) 495 (2,250) 3,010 Accounts payable (8,186) 4,961 (10,869) (20,965) Accrued expenses, income taxes, and other (2,501) 3,165 425 (575) Net cash provided by (used in) operating activities (5,231) 18,956 (23,454) (17,519) Cash flows from investing activities: Purchases of property and equipment (2,418) (2,423) (3,588) (3,835) Purchases of intangible assets - (100) - (100) Purchases of marketable securities (6,385) (81) (17,530) (10,959) Marketable Securities maturities/sales 6,585 2,030 12,059 47,674 Net cash provided by (used in) investing activities (2,218) (574) (9,059) 32,780 Cash flows from financing activities: Principal payments under capital lease obligations (17) (27) (46) (55) Proceeds from ESPP, stock option exercises, net of taxes paid on vested restricted stock units 945 (54) 734 (622) Net cash used in financing activities 928 (81) 688 (677) Effect of exchange rates on cash and cash equivalents (62) (1) (47) 54 Net increase (decrease) in cash (6,583) 18,300 (31,872) 14,638 Cash and cash equivalents, beginning of period 21,780 13,713 47,069 17,375 - - Cash and cash equivalents, end of period $ 15,197 $32,013 $ 15,197 $ 32,013 Novatel Wireless, Inc.

Reconciliation of GAAP Net Income (Loss) to Non-GAAP Net Income (Loss) Three Months and Six Months Ended June 30, 2012 (in thousands, except per share data) (Unaudited) Three Months Ended Six Months Ended June 30, 2012 June 30, 2012 Net Income (Loss) Income (Loss) Per Share, Diluted Net Income (Loss) Income (Loss) Per Share, Diluted GAAP net loss $ (4,500) $ (0.14) $ (42,421) $ (1.31) Adjustments: Share-based compensation expense (a) 1,823 $ 0.05 3,657 $ 0.11 Acquisition related charges (b) 516 $ 0.02 1,914 $ 0.06 Goodwill & Intangibles impairment (c) - - 29,337 $ 0.91 Income tax adjustments (d) (26) (0.00) 38 $ 0.00 Severance (e) (30) (0.00) 890 $ 0.03 Non-GAAP net loss $ (2,217) $ (0.07) $ (6,585) $ (0.20) (a) Adjustments reflect share-based compensation expense recorded under ASC Topic 718.

(b) Adjustments for the three and six months ended June 30, 2012 reflect amortization of purchased intangibles.

(c) Adjustments reflect goodwill and purchased intangibles impairments resulting from an interim impairment analysis conducted during the 1st quarter of 2012.

(d) Adjustments for the three months ended June 30, 2012, caused by certain deferred tax valuation activity and an income tax effect of Q1 2012 goodwill impairment.

(e) Adjustments reflect the cost of a reduction in force.

See "Non -GAAP Financial Measures" for information regarding our use of Non-GAAP financial measures.

Novatel Wireless, Inc.

Reconciliation of GAAP Operating Costs and Expenses to Non-GAAP Operating Costs and Expenses Three Months Ended June 30, 2012 (in thousands) (Unaudited) GAAP Share-based compensation expense (a) Purchased intangibles amortization (b) Severance (c) Non-GAAP Cost of net revenues $ 79,195 $ 182 $ 289 $ - $ 78,724 Operating costs and expenses: Research and development 14,457 693 - (104) 13,868 Sales and marketing 7,310 371 - 72 6,867 General and administrative 5,702 577 - 2 5,123 Amortization of purchased intangibles 227 227 - Total operating costs and expenses $ 27,696 1,641 227 (30) $ 25,858 Total $ 1,823 $ 516 $ (30) (a) Adjustments reflect share-based compensation expense recorded under ASC Topic 718.

(b) Adjustments reflect amortization of purchased intangibles.

(c) Includes charges for a reduction in force.

See "Non -GAAP Financial Measures" for information regarding our use of Non-GAAP financial measures.

Novatel Wireless, Inc.

Reconciliation of GAAP Operating Costs and Expenses to Non-GAAP Operating Costs and Expenses Six Months Ended June 30, 2012 (in thousands) (Unaudited) GAAP Share-based compensation expense (a) Purchased intangibles amortization (b) Goodwill and purchased intangibles impairments (c) Severance (d) Non-GAAP Cost of net revenues $158,357 $ 376 $ 1,250 $ - $ 53 $ 156,678 Operating costs and expenses: Research and development 30,286 1,388 - - 555 28,343 Sales and marketing 14,988 733 - - 85 14,170 General and administrative 11,236 1,160 - - 197 9,879 Goodwill and intangible assets impairment losses 29,337 - - 29,337 - - Amortization of purchased intangibles 664 - 664 - - - Total operating costs and expenses $ 86,511 3,281 664 29,337 837 $ 52,392 Total $ 3,657 $ 1,914 $ 29,337 $ 890 (a) Adjustments reflect share-based compensation expense recorded under ASC Topic 718.

(b) Adjustments reflect amortization of purchased intangibles.

(c) Adjustments reflect goodwill and purchased intangibles impairment resulting from an interim impairment analysis conducted during the 1st quarter of 2012.

(d) Includes charges for a reduction in force.

See "Non -GAAP Financial Measures" for information regarding our use of Non-GAAP financial measures.

Novatel Wireless, Inc.

Reconciliation of GAAP Loss before Income Taxes to Adjusted EBITDA Three and Six Months Ended June 30, 2012 (in thousands) (Unaudited) Three Months Ended Six Months Ended June 30, 2012 June 30, 2012 Loss before income taxes $ (4,515) $ (42,252) Depreciation and amortization charges 2,979 6,972 Goodwill & Purchased Intangibles impairments - 29,337 Share-based compensation expense 1,823 3,657 Severance (30) 890 Other expense (income) 70 (20) EBITDA $ 327 $ (1,416) See "Non -GAAP Financial Measures" for information regarding our use of Non-GAAP financial measures.

SOURCE Novatel Wireless, Inc.

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