Novatel Wireless Reports Fourth Quarter and Fiscal Year 2012 Preliminary Financial Results Business Wire SAN DIEGO -- February 21, 2013 Novatel Wireless, Inc. (NASDAQ: NVTL), a leading provider of intelligent wireless solutions, announced preliminary financial results for the fourth quarter and fiscal year ended December 31, 2012. Fourth quarter revenue was $70.7 million, as compared to $109.8 million in the fourth quarter of 2011. GAAP net loss in the quarter was $14.9 million, or $(0.45) per share. The GAAP net loss includes the impact of non-cash items including $1.1 million in share-based compensation expense; $1.0 million of employee stock purchase plan cancellation charges; $0.3 million of an intangible asset valuation increase; $2.6 million of depreciation and amortization expense; and, $0.3 million in deferred tax asset charges. On a non-GAAP basis, a reconciliation of which can be identified in the attached schedule, net loss for the quarter was $12.6 million, or $(0.38) per share. “We believe the fundamental progress we made on our strategic initiatives in the fourth quarter has positioned us for a stronger 2013, and currently anticipate significant sequential revenue growth and bottom line improvement in the first quarter,” said Peter Leparulo, CEO of Novatel Wireless. “Our M2M business grew sequentially by 16% in the fourth quarter due to the positive impact of our new product introductions, customer wins and the changes we made to our sales channels. We believe this business is well-poised to benefit from strong growth in key verticals for our M2M asset management solutions, and growing contributions from our M2M embedded solutions. In mobile computing, we are pleased to have introduced two new products, the MiFi® Liberate™ with AT&T and the MiFi® 5510L with Verizon Wireless, and expect to see the benefits of these in the first quarter.” Fiscal year 2012 revenue was $344.3 million. GAAP net loss for the year was $89.3 million, or $(2.72) per share. The GAAP net loss includes the impact of non-cash items including $6.5 million in share-based compensation expense; $1.0 million of employee stock purchase plan cancellation charges; $49.5 million in goodwill and intangible asset impairment charges; $12.3 million of depreciation and amortization expense; and, $0.4 million of net deferred tax asset charges. On a non-GAAP basis, a reconciliation of which can be identified in the attached schedule, net loss for the year was $28.2 million, or $(0.86) per share. Recent Business Highlights *On November 16, 2012, Novatel Wireless announced the commercial availability of the MiFi® Liberate being sold through AT&T, the first Intelligent Mobile Hotspot device with a touchscreen display, and the first launch of the Company’s MiFi® 2 next generation product.The MiFi Liberate™ 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 a DLNA-certified media center. *On January 29, 2013, Novatel Wireless announced the new MiFi 5510L Intelligent Mobile Hotspot to be launched on theVerizon Wirelessnetwork as the Verizon Jetpack™ 4G LTE Mobile Hotspot MiFi® 5510L. The device exterior is based on Verizon Wireless' new iconic design with a red translucent lens.The MiFi 5510L is a personal mobile hotspot providing Internet connectivity on the go and capable of sharing high-speed 4G LTE broadband Internet connectivity with up to 10 Wi-Fi enabled devices simultaneously. The MiFi 5510L features capacitive touch navigation keys for quick and easy access to essential device details and supports the latest security requirements that some of the strictest corporate VPNs require, includingVPN Pass-through and SPI Firewall. *Recently, Novatel Wireless announced the commercialization of its MT 3050 asset management solution on the Verizon Wireless network. The MT 3050 is a mobile tracking OBD-II device which reduces up-front costs for insurance telematics and fleet management applications with easy, plug-and-play installation and industry-leading small form factor. The new MT 3050 also features integrated disconnect alert supported by an in-device backup battery. The MT 3050 is an ideal solution for insurance telematics and fleet management providers who are looking for information on the vehicle, vehicle location or driver behavior resulting in productivity improvements and cost reductions for customers. First Quarter 2013 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 first quarter of 2013 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. We are currently forecasting sequential improvement in both our mobile computing and M2M businesses, driven by recent product launches. The relatively 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 other product launches during the quarter. First Quarter 2013 Revenue $83 - $93 million Non-GAAP Gross Margin 22% - 24% Non-GAAP EPS $(0.19) - $(0.07) 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 March 1, 2013. To hear the replay, parties in the United States may call 1- 877-344-7529 and enter conference code 100 245 86#. 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. Product lines include MiFi® Intelligent Mobile Hotspots, Ovation™ USB modems, Expedite® embedded modules, Enfora® smart M2M modules, and Enforaintegrated M2M solutions. These innovative products provide anywhere, anytime communications solutions for consumers and enterprises. Headquartered inSan Diego, California,Novatel Wirelessis listed on NASDAQ: NVTL. For more information please visitwww.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 fourth quarter ended December 31, 2012 and our outlook for the first quarter of 2013, 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) 2013 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. CONSOLIDATED BALANCE SHEETS (in thousands) December 31, December 31, 2012 2011 (Preliminary and unaudited) ASSETS Current assets: Cash and cash equivalents $ 16,044 $ 47,069 Marketable securities 38,064 28,267 Accounts receivable, net 42,652 36,849 Inventories 39,016 42,279 Deferred tax assets, net 126 2,011 Prepaid expenses and other 4,829 3,712 Total current assets 140,731 160,187 Property and equipment, net 15,229 18,496 Marketable securities 1,201 13,495 Intangible assets, net 3,163 35,702 Goodwill - 19,772 Deferred tax assets, net 584 1,023 Other assets 623 504 Total assets $ 161,531 $ 249,179 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 45,732 $ 54,030 Accrued expenses 27,800 25,044 Total current liabilities 73,532 79,074 Other long-term liabilities 2,552 4,080 Total liabilities 76,084 83,154 Stockholders' equity: Common stock 34 32 Additional paid-in capital 438,477 429,813 Accumulated other comprehensive income 14 (8 ) (loss) Accumulated deficit (328,078 ) (238,812 ) 110,447 191,025 Treasury stock at cost (25,000 ) (25,000 ) Total stockholders' equity 85,447 166,025 Total liabilities and stockholders' $ 161,531 $ 249,179 equity NOVATEL WIRELESS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Three Months Ended Twelve Months Ended December 31, December 31, 2012 2011 2012 2011 (Preliminary (Preliminary and (Unaudited) and unaudited) unaudited) Net revenues $ 70,675 $ 109,794 $ 344,288 $ 402,862 Cost of net 57,117 84,068 271,845 318,270 revenues Gross profit 13,558 25,726 72,443 84,592 Operating costs and expenses: Research and 15,440 15,875 60,422 61,392 development Sales and 6,246 7,025 27,501 29,830 marketing General and 6,607 5,050 22,668 21,600 administrative Goodwill and intangible (300 ) (237 ) 49,521 3,277 assets impairment Amortization of purchased 183 521 1,074 2,220 intangible assets Total operating 28,176 28,234 161,186 118,319 costs and expenses Operating loss (14,618 ) (2,508 ) (88,743 ) (33,727 ) Other income (expense): Interest 53 81 291 384 income, net Other income (12 ) 112 (203 ) (1,052 ) (expense), net Loss before (14,577 ) (2,315 ) (88,655 ) (34,395 ) income taxes Income tax (benefit) 335 1,089 611 (9,503 ) provision Net loss $ (14,912 ) $ (3,404 ) $ (89,266 ) $ (24,892 ) Per share data: Net loss per share: Basic and $ (0.45 ) $ (0.11 ) $ (2.72 ) $ (0.78 ) diluted Weighted average shares used in computation of net loss per share: Basic and 33,356 32,154 32,852 32,043 diluted NOVATEL WIRELESS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Three Months Ended Twelve Months Ended December 31, December 31, 2012 2011 2012 2011 (Preliminary (Preliminary and (Unaudited) and unaudited) unaudited) Cash flows from operating activities: Net loss $ (14,912 ) $ (3,404 ) $ (89,266 ) $ (24,892 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and 2,590 4,086 12,337 17,868 amortization Loss on goodwill and purchased intangible (300 ) (237 ) 49,521 3,277 assets impairment Impairment loss on equipment and software license 10 70 100 203 intangible assets Provision for 400 (19 ) 439 40 bad debts Net impairment loss on - - 39 346 marketable securities Inventory 1,180 113 2,843 689 provision Share-based compensation 2,091 1,926 7,500 5,983 expense Non-cash income tax expense 931 2,102 1,125 (9,185 ) (benefit) Changes in assets and liabilities: Accounts (2,782 ) 17,391 (6,242 ) 26,437 receivable Inventories (3,669 ) 6,756 420 122 Prepaid expenses 1 177 (1,237 ) 3,661 and other assets Accounts payable 4,741 (352 ) (10,367 ) (24,293 ) Accrued expenses, income 2,632 (3,438 ) 2,865 (1,787 ) taxes, and other Net cash provided by (used in) (7,087 ) 25,171 (29,923 ) (1,531 ) operating activities Cash flows from investing activities: Purchases of property and (514 ) (1,059 ) (4,535 ) (5,987 ) equipment Purchases of intangible (104 ) (65 ) (104 ) (284 ) assets Purchases of marketable (12,345 ) (15,626 ) (44,216 ) (36,992 ) securities Marketable securities 19,190 16,383 46,696 74,922 maturities/sales Net cash provided by (used in) 6,227 (367 ) (2,159 ) 31,659 investing activities Cash flows from financing activities: Proceeds from the issuance of short-term debt, 9,000 - 14,000 12,000 net of issuance costs Principal repayments of (9,000 ) - (14,000 ) (12,000 ) short-term debt Principal payments under - (28 ) (46 ) (109 ) capital lease obligations Proceeds from stock option exercises and ESPP net of 583 421 1,166 (196 ) taxes paid on vested restricted stock units Net cash provided by (used in) 583 393 1,120 (305 ) financing activities Effect of exchange rates (20 ) (55 ) (63 ) (129 ) on cash and cash equivalents Net increase (decrease) in (297 ) 25,142 (31,025 ) 29,694 cash Cash and cash equivalents, 16,341 21,927 47,069 17,375 beginning of period Cash and cash equivalents, end $ 16,044 $ 47,069 $ 16,044 $ 47,069 of period Novatel Wireless, Inc. Preliminary Reconciliation of GAAP Net Loss to Non-GAAP Net Loss Three Months and Twelve Months Ended December 31, 2012 (in thousands, except per share data) (Unaudited) Three Months Ended Twelve Months Ended December 31, 2012 December 31, 2012 Income Income Net Income (Loss) Net Income (Loss) (Loss) Per (Loss) Per Share, Share, Diluted Diluted GAAP net loss $ (14,912 ) $ (0.45 ) $ (89,266 ) $ (2.72 ) Adjustments: Share-based compensation 2,091 0.06 7,500 0.23 expense (a) Acquisition related 267 0.01 2,697 0.08 charges (b) Goodwill & Intangibles (300 ) (0.01 ) 49,521 1.51 impairment (c) Income tax adjustments 297 0.01 429 0.01 (d) Severance (e) - - 890 0.03 Non-GAAP net $ (12,557 ) $ (0.38 ) $ (28,229 ) $ (0.86 ) loss (a) Adjustments reflect share-based compensation expense recorded under ASC Topic 718. The adjustment in Q4 2012 includes $965k for employee stock purchase plan cancellation charges. (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 uncertain tax benefits and valuation provisions on deferred tax assets. (e) Adjustments reflect reduction in force costs. 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 December 31, 2012 (in thousands) (Unaudited) Goodwill Share-based Purchased and GAAP compensation intangibles purchased Non-GAAP expense (a) amortization intangibles (b) impairments (c) Cost of net $ 57,117 $ 204 $ 84 $ - $ 56,829 revenues Operating costs and expenses: Research and 15,440 1,010 - - 14,430 development Sales and 6,246 336 - - 5,910 marketing General and 6,607 541 - - 6,066 administrative Goodwill and intangible (300 ) - - (300 ) - assets impairment Amortization of purchased 183 - 183 - - intangibles Total operating $ 28,176 1,887 183 (300 ) $ 26,406 costs and expenses Total $ 2,091 $ 267 $ (300 ) (a) Adjustments reflect share-based compensation expense recorded under ASC Topic 718. The adjustment in Q4 2012 includes $965k for employee stock purchase plan cancellation charges. (b) Adjustments reflect amortization of purchased intangibles. (c) Includes adjusted 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. Preliminary Reconciliation of GAAP Operating Costs and Expenses to Non-GAAP Operating Costs and Expenses Twelve Months Ended December 31, 2012 (in thousands) (Unaudited) Goodwill Share-based Purchased and GAAP compensation intangibles purchased Severance Non-GAAP expense (a) amortization intangibles (d) (b) impairments (c) Cost of net $ 271,845 $ 747 $ 1,623 $ - $ 53 $ 269,422 revenues Operating costs and expenses: Research and 60,422 3,042 - - 555 56,825 development Sales and 27,501 1,403 - - 85 26,013 marketing General and 22,668 2,308 - - 197 20,163 administrative Goodwill and intangible 49,521 - - 49,521 - - assets impairment Amortization of purchased 1,074 - 1,074 - - - intangibles Total operating $ 161,186 6,753 1,074 49,521 837 $ 103,001 costs and expenses Total $ 7,500 $ 2,697 $ 49,521 $ 890 (a) Adjustments reflect share-based compensation expense recorded under ASC Topic 718. Q4 2012 includes $965k for employee stock purchase plan cancellation charges. (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 reduction in force costs. 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 and Twelve Months Ended December 31, 2012 (in thousands) (Unaudited) Three Months Ended Twelve Months Ended December 31, 2012 December 31, 2012 Loss before income taxes $ (14,577 ) $ (88,655 ) Depreciation and 2,590 12,337 amortization Goodwill & purchased (300 ) 49,521 intangibles impairment Share-based compensation 2,091 7,500 expense Severance - 890 Other expense (income) (41 ) (88 ) Adjusted EBITDA $ (10,237 ) $ (18,495 ) See "Non -GAAP Financial Measures" for information regarding our use of Non-GAAP financial measures. NOVATEL WIRELESS, INC. Segment Reporting Three and Twelve Months Ended December 31, 2012 (in thousands) Three Months Ended Twelve Months Ended December 31, December 31, 2012 2011 2012 2011 (Preliminary (Preliminary and (Unaudited) and unaudited) unaudited) Net revenues by reportable segment: Mobile Computing $ 63,888 $ 99,838 $ 312,508 $ 358,106 Products M2M Products 6,787 9,956 31,780 44,756 and Solutions Total $ 70,675 $ 109,794 $ 344,288 $ 402,862 Operating income (loss) : Mobile Computing $ (11,223 ) $ 595 $ (22,924 ) $ (13,764 ) Products M2M Products (3,395 ) (3,103 ) (65,819 ) (19,963 ) and Solutions Total $ (14,618 ) $ (2,508 ) $ (88,743 ) $ (33,727 ) December 31, December 31, 2012 2011 (Preliminary and unaudited) Identifiable assets by reportable segment: Mobile Computing $ 141,045 $ 181,180 Products M2M Products 20,486 67,999 and Solutions Total $ 161,531 $ 249,179 Contact: Investor contact: The Blueshirt Group for Novatel Wireless Chris DanneandMatthew Hunt 415-217-5865 or 415-489-2194 email@example.com firstname.lastname@example.org or Media contact: Charlotte Rubin, 858-812-3431 email@example.com
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Novatel Wireless Reports Fourth Quarter and Fiscal Year 2012 Preliminary Financial Results
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