Novatel Wireless Reports Third Quarter 2012 Financial Results Business Wire SAN DIEGO -- November 07, 2012 Novatel Wireless, Inc. (NASDAQ: NVTL), a leading provider of intelligent wireless solutions, announced financial results for the third quarter ended September 30, 2012. Third quarter revenue was $71.0 million, as compared to $113.3 million in the third quarter of 2011. During the quarter, the Company took a non-cash estimated goodwill and intangible asset impairment charge of $20.5 million resulting from an interim impairment analysis. Including this charge, GAAP net loss in the quarter was $31.9 million, or $(0.97) per share. The GAAP net loss also includes the impact of $1.8 million in share-based compensation expense, and $94,000 of income tax adjustments. On a non-GAAP basis, which excludes the estimated impairment charges, and other items identified in the attached reconciliation schedule, net loss for the quarter was $9.1 million, or $(0.27) per share. “As expected, the third quarter was a transitionary period for Novatel Wireless as we positioned the Company to return to profitability,” said Peter Leparulo, CEO of Novatel Wireless. “While it was a challenging period for legacy sales, we made fundamental progress during the quarter in the key segments and new product initiatives that will drive long term growth. Our primary focus remains on our market leading mobile broadband solutions and expanding our M2M segment. In both of these areas, we have a number of key growth drivers, including new product introductions, design wins and new customer acquisitions. During the quarter, we made the decision to change our OEM business model to focus only on new projects where our inventory and R&D investments will be adequately supported by our customers. This decision will both substantially improve our financial model and allow us to focus on our key growth areas.” Recent Business Highlights *At the end of September, Novatel Wireless announced its next-generation MiFi® Intelligent Mobile Hotspot, the first mobile hotspot with touchscreen display, soon being sold through AT&T as the MiFi® Liberate. This marks the first launch of the MiFi® 2 next generation product from Novatel Wireless, which includes a new user interface based on 2.8” multi-touch interactive color display, connectivity for up to 10 devices, 11 hours of continuous use, and other capabilities beyond pure connectivity such as on-board shared storage. *Thrifty Car Rental recently announced it has selected Novatel Wireless’s Mobile Tracking Device, the MT 2500, to manage and protect its fleet of rental vehicles against theft, damage, and loss in South Africa. The deployment will also have the capabilities to expand beyond Thrifty’s rental car fleets, providing services on new and leased vehicles as well. *Novatel Wireless recently announced it is filing an additional lawsuit against ZTE Corp., a Chinese company, and ZTE (USA), Inc. for infringing on one of its key patents related to the MiFi® family of mobile hotspots and wireless data modems. The Company built the recently announced MiFi® 2 product on its extensive portfolio of such MiFi® product related patents. Fourth 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 the reports filed by the company with the Securities and Exchange Commission. Our guidance for the fourth quarter of 2012 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. The Company is in various stages of launching three major products in its MiFi product line, one of which is going through carrier certification and two of which are new product launches. The wide guidance range is attributable to the uncertainty related to forecasting the sell-through volumes for two of the new MiFi products, and the uncertain timing of the launch of the third MiFi product currently being certified. Fourth Quarter 2012 Revenue $67 - 80 million Non-GAAP Gross Margin 22% - 24% Non-GAAP EPS $(0.31) - $(0.20) 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 November 14, 2012. To hear the replay, parties in the United States may call 1- 877-344-7529 and enter conference code 10018896#. 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 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 inSan Diego, California,Novatel Wirelessis listed on NASDAQ: NVTL. For more information please visithttp://www.novatelwireless.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 third quarter ended September 30, 2012 and our outlook for the fourth quarter 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. NOVATEL WIRELESS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) September 30, December 31, 2012 2011 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 16,341 $ 47,069 Marketable securities 39,958 28,267 Accounts receivable, net 40,270 36,849 Inventories 36,527 42,279 Deferred tax assets, net 2,005 2,011 Prepaid expenses and other 4,782 3,712 Total current assets 139,883 160,187 Property and equipment, net 14,939 18,496 Marketable securities 6,174 13,495 Intangible assets, net 3,091 35,702 Goodwill - 19,772 Deferred tax assets, net 843 1,023 Other assets 672 504 Total assets $ 165,602 $ 249,179 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 38,948 $ 54,030 Accrued expenses 25,188 25,044 Total current liabilities 64,136 79,074 Other long-term liabilities 3,759 4,080 Total liabilities 67,895 83,154 Stockholders' equity: Common stock 33 32 Additional paid-in capital 435,804 429,813 Accumulated other comprehensive income (loss) 36 (8 ) Accumulated deficit (313,166 ) (238,812 ) 122,707 191,025 Treasury stock at cost (25,000 ) (25,000 ) Total stockholders' equity 97,707 166,025 Total liabilities and stockholders' equity $ 165,602 $ 249,179 NOVATEL WIRELESS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in thousands, except per share data) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2012 2011 2012 2011 Net revenues $ 71,017 $ 113,263 $ 273,613 $ 293,068 Cost of net revenues 56,371 86,573 214,728 234,202 Gross profit 14,646 26,690 58,885 58,866 Operating costs and expenses: Research and 14,696 15,126 44,982 45,517 development Sales and marketing 6,267 7,211 21,255 22,805 General and 4,825 6,243 16,061 16,550 administrative Goodwill and intangible assets 20,484 3,514 49,821 3,514 impairment losses Amortization of purchased intangible 227 644 891 1,699 assets Total operating 46,499 32,738 133,010 90,085 costs and expenses Operating loss (31,853 ) (6,048 ) (74,125 ) (31,219 ) Other income (expense): Interest income, net 72 60 238 303 Other expense, net (45 ) (679 ) (191 ) (1,164 ) Loss before income (31,826 ) (6,667 ) (74,078 ) (32,080 ) taxes Income tax (benefit) 107 (11,165 ) 276 (10,592 ) provision Net income (loss) $ (31,933 ) $ 4,498 $ (74,354 ) $ (21,488 ) Per share data: Net income (loss) per share: Basic $ (0.97 ) $ 0.14 $ (2.28 ) $ (0.67 ) Diluted $ (0.97 ) $ 0.14 $ (2.28 ) $ (0.67 ) Weighted average shares used in computation of net income (loss) per share: Basic 33,074 32,057 32,683 32,005 Diluted 33,074 32,370 32,683 32,005 Comprehensive income $ (31,906 ) $ 4,438 $ (74,310 ) $ (21,542 ) (loss) NOVATEL WIRELESS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2012 2011 2012 2011 Cash flows from operating activities: Net income (loss) $ (31,933 ) $ 4,498 $ (74,354 ) $ (21,488 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Loss on sale/disposal of 62 - 90 - fixed asset Depreciation and 2,775 4,096 9,747 13,782 amortization Loss on goodwill and intangible assets 20,484 3,514 49,821 3,514 impairment Impairment loss on software license - 58 - 133 intangible assets Provision for bad (49 ) (64 ) 39 59 debts Net impairment loss on marketable - 192 39 346 securities Inventory provision 1,347 256 1,663 576 Share-based 1,752 1,571 5,409 4,057 compensation expense Non-cash income tax 97 (10,886 ) 194 (11,287 ) expense (benefit) Changes in assets and liabilities: Accounts receivable 7,811 (12,879 ) (3,460 ) 9,046 Inventories 1,691 737 4,089 (6,634 ) Prepaid expenses and 1,012 474 (1,238 ) 3,484 other assets Accounts payable (4,239 ) (2,976 ) (15,108 ) (23,941 ) Accrued expenses, income taxes, and (192 ) 2,226 233 1,651 other Net cash provided by (used in) operating 618 (9,183 ) (22,836 ) (26,702 ) activities Cash flows from investing activities: Purchases of property and (433 ) (1,093 ) (4,021 ) (4,928 ) equipment Purchases of - (119 ) - (219 ) intangible assets Purchases of marketable (14,341 ) (10,407 ) (31,871 ) (21,366 ) securities Marketable Securities 15,447 10,865 27,506 58,539 maturities/sales Net cash provided by (used in) investing 673 (754 ) (8,386 ) 32,026 activities Cash flows from financing activities: Proceeds from the issuance of 5,000 12,000 5,000 12,000 short-term debt, net of issuance costs Principal repayments (5,000 ) (12,000 ) (5,000 ) (12,000 ) of short-term debt Principal payments under capital lease - (26 ) (46 ) (81 ) obligations Proceeds from ESPP, stock option exercises, net of (151 ) 5 583 (617 ) taxes paid on vested restricted stock units Net cash provided by (used in) financing (151 ) (21 ) 537 (698 ) activities Effect of exchange rates on cash and 4 (128 ) (43 ) (74 ) cash equivalents Net increase 1,144 (10,086 ) (30,728 ) 4,552 (decrease) in cash Cash and cash equivalents, 15,197 32,013 47,069 17,375 beginning of period Cash and cash equivalents, end of $ 16,341 $ 21,927 $ 16,341 $ 21,927 period NOVATEL WIRELESS, INC. Reconciliation of GAAP Net Income (Loss) to Non-GAAP Net Income (Loss) Three Months and Nine Months Ended September 30, 2012 (in thousands, except per share data) (Unaudited) Three Months Ended Nine Months Ended September 30, 2012 September 30, 2012 Net Income (Loss) Net Income (Loss) Income Per Share, Income Per Share, (Loss) Diluted (Loss) Diluted GAAP net loss $ (31,933 ) $ (0.97 ) $ (74,354 ) $ (2.28 ) Adjustments: Share-based compensation 1,752 0.05 5,409 0.17 expense (a) Acquisition related charges 516 0.02 2,430 0.08 (b) Goodwill & Intangibles 20,484 0.62 49,821 1.52 impairment (c) Income tax 94 0.01 132 0.00 adjustments (d) Severance (e) - - 890 0.03 Non-GAAP net $ (9,087 ) $ (0.27 ) $ (15,672 ) $ (0.48 ) loss (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 impairments resulting from interim impairment analyses conducted during the 1st and 3rd quarters of 2012. (d) Adjustments for 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 September 30, 2012 (in thousands) (Unaudited) Goodwill Share-based Purchased and GAAP compensation intangibles purchased Non-GAAP expense amortization intangible (a) (b) impairments (c) Cost of net $ 56,371 $ 167 $ 289 $ - $ 55,915 revenues Operating costs and expenses: Research and 14,696 645 - - 14,051 development Sales and 6,267 334 - - 5,933 marketing General and 4,825 606 - - 4,219 administrative Goodwill and intangible assets 20,484 - - 20,484 - impairment losses Amortization of purchased 227 - 227 - - intangibles Total operating $ 46,499 $ 1,585 $ 227 $ 20,484 $ 24,203 costs and expenses Total $ 1,752 $ 516 $ 20,484 (a) Adjustments reflect share-based compensation expense recorded under ASC Topic 718. (b) Adjustments reflect amortization of purchased intangibles. (c) Includes impairment charges for goodwill and purchased intangibles 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 Nine Months Ended September 30, 2012 (in thousands) (Unaudited) Goodwill Share-based Purchased and GAAP compensation intangibles purchased Severance Non-GAAP expense amortization intangibles (d) (a) (b) impairments (c) Cost of net $ 214,728 $ 543 $ 1,539 $ - $ 53 $ 212,593 revenues Operating costs and expenses: Research and 44,982 2,033 - - 555 42,394 development Sales and 21,255 1,067 - - 85 20,103 marketing General and 16,061 1,766 - - 197 14,098 administrative Goodwill and intangible assets 49,821 - - 49,821 - - impairment losses Amortization of purchased 891 - 891 - - - intangibles Total operating $ 133,010 $ 4,866 $ 891 $ 49,821 $ 837 $ 76,595 costs and expenses Total $ 5,409 $ 2,430 $ 49,821 $ 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 interim impairment analyses conducted during the 1st and 3rd quarters 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 Nine Months Ended September 30, 2012 (in thousands) (Unaudited) Three Months Ended Nine Months Ended September 30, 2012 September 30, 2012 Loss before income taxes $ (31,826 ) $ (74,078 ) Depreciation and amortization 2,775 9,747 charges Goodwill & purchased intangibles 20,484 49,821 impairments Share-based compensation expense 1,752 5,409 Severance - 890 Other expense (income) (27 ) (47 ) Adjusted EBITDA $ (6,842 ) $ (8,258 ) See "Non -GAAP Financial Measures" for information regarding our use of Non-GAAP financial measures. NOVATEL WIRELESS, INC. Segment Reporting Three and Nine Months Ended September 30, 2012 (in thousands, except per share data) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2012 2011 2012 2011 Net revenues by reportable segment: Mobile Computing $ 65,189 $ 102,691 $ 248,620 $ 258,268 Products M2M Products and 5,828 10,572 24,993 34,800 Solutions Total $ 71,017 $ 113,263 $ 273,613 $ 293,068 Operating income (loss): Mobile Computing $ (7,513 ) $ 1,311 $ (11,701 ) $ (14,359 ) Products M2M Products and (24,340 ) (7,359 ) (62,424 ) (16,860 ) Solutions Total $ (31,853 ) $ (6,048 ) $ (74,125 ) $ (31,219 ) September 30, December 31, 2012 2011 Identifiable assets by reportable segment: Mobile Computing $ 148,855 $ 181,180 Products M2M Products and 16,747 67,999 Solutions Total $ 165,602 $ 249,179 Contact: Investor contact: The Blueshirt Group for Novatel Wireless Chris Danne, 415-217-5865 firstname.lastname@example.org Matthew Hunt, 415-489-2194 email@example.com or Media contact: Novatel Wireless, Inc. Charlotte Rubin, 858-812-3431 firstname.lastname@example.org
Novatel Wireless Reports Third Quarter 2012 Financial Results
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