Novatel Wireless Reports Third Quarter 2013 Financial Results
Revenue in the third quarter was
"In the third quarter, we had an improved performance in our mobile computing business and continued to make important progress in our M2M business," said
"As we look to the fourth quarter, we expect to see the impact of an increasing level of competition at a customer in the mobile hotspot category. However, we continue to see substantial opportunities in our mobile computing business and are planning to address this business segment with a much leaner, more efficient R&D cost structure, including a higher component of variable development resources. We believe this is possible for several reasons. We expect that going forward, network upgrade cycles among our leading operator customers will be more staggered than they have been, which in turn will allow us to stagger the various stages of our product development cycles. During the quarter we announced the restructuring of a substantial portion of our operations, taking meaningful costs out of the model where we saw synergies across our product portfolio. Lastly, a larger component of our R&D investments will be platform products which are extensible to multiple applications and markets. We are confident these changes will optimize our cost structure and meaningfully lower our breakeven point, as we remain focused on target long-term profitability."
Recent Business Highlights
Novatel Wireless recently announced it would be supplying DigiCore, a leading provider of advanced machine-to-machine (M2M) communication and telematics solutions, with various versions of its MT3060 cellular OBDII devices to be included in DigiCore's Ctrack® telematics solutions and services.Novatel Wireless introduced MiFi Home™, a powerful all-in-one solution that replaces wired voice and Internet options for fast, easy phone and 4G LTE Internet connectivity in the home, small office, and remote work station. It has launched this product category first with Verizon with their 4G LTE Broadband Router with Voice, which became commercially available onSeptember 25, 2013 .- On
September 9, 2013 ,Novatel Wireless announced it was implementing restructuring initiatives designed to refine its business operations and capitalize on synergies in its target markets with the goal of driving long-term profitability. In connection with the restructuring plan, Novatel Wireless made strategic organizational changes across some of its Mobile Computing and Machine-to-Machine (M2M) business operations to streamline its research and development resources and consolidate several global manufacturing activities to drive efficiencies. - During the quarter,
Novatel Wireless andRAC Motoring Services , one of theUK's most progressive motoring organizations, announced that they signed a long term Supply and License Agreement. Under the agreement,Novatel Wireless is supplying RAC with its MT 3060 device, customized for the RAC Advance solution.
Fourth 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
Our guidance for the fourth 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.
| Fourth Quarter 2013 | |||
| Revenue | |||
| Non-GAAP Gross Margin | 21% - 23% | ||
| Non-GAAP EPS |
Conference Call Information
- In
the United States , call 1-877-317-6789 - International parties can access the call at 1-412-317-6789
ABOUT
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
Factors that could cause actual results to differ materially from
These factors, as well as other factors described in the reports filed by the Company with the
Non-GAAP Financial Measures
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
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
| (in thousands) | ||||||||
| 2013 | 2012 | |||||||
|
(Preliminary and |
||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 18,138 | $ | 16,044 | ||||
| Marketable securities | 21,991 | 38,064 | ||||||
| Restricted marketable securities | 2,441 | - | ||||||
| Accounts receivable, net | 47,542 | 42,652 | ||||||
| Inventories | 27,025 | 39,016 | ||||||
| Deferred tax assets, net | 70 | 126 | ||||||
| Prepaid expenses and other | 7,342 | 4,829 | ||||||
| Total current assets | 124,549 | 140,731 | ||||||
| Property and equipment, net | 11,895 | 15,229 | ||||||
| Marketable securities | 5,316 | 1,201 | ||||||
| Intangible assets, net | 2,383 | 3,163 | ||||||
| Deferred tax assets, net | 70 | 584 | ||||||
| Other assets | 280 | 623 | ||||||
| Total assets | $ | 144,493 | $ | 161,531 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 46,509 | $ | 45,732 | ||||
| Accrued expenses | 27,960 | 27,800 | ||||||
| Short-term bridge loan facility | 2,441 | - | ||||||
| Total current liabilities | 76,910 | 73,532 | ||||||
| Other long-term liabilities | 1,932 | 2,552 | ||||||
| Total liabilities | 78,842 | 76,084 | ||||||
| Stockholders' equity: | ||||||||
| Common stock | 34 | 34 | ||||||
| Additional paid-in capital | 440,812 | 438,477 | ||||||
| Accumulated other comprehensive income (loss) | (10 | ) | 14 | |||||
| Accumulated deficit | (350,185 | ) | (328,078 | ) | ||||
| 90,651 | 110,447 | |||||||
| Treasury stock at cost | (25,000 | ) | (25,000 | ) | ||||
| Total stockholders' equity | 65,651 | 85,447 | ||||||
| Total liabilities and stockholders' equity | $ | 144,493 | $ | 161,531 | ||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
| (in thousands, except per share data) | ||||||||||||||||
|
Three Months Ended |
Nine Months Ended |
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|
|
|
|||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
|
(Preliminary and |
(Unaudited) |
(Preliminary and |
(Unaudited) | |||||||||||||
| Net revenues | $ | 92,673 | $ | 71,017 | $ | 269,718 | $ | 273,613 | ||||||||
| Cost of net revenues | 72,290 | 56,371 | 213,463 | 214,728 | ||||||||||||
| Gross profit | 20,383 | 14,646 | 56,255 | 58,885 | ||||||||||||
| Operating costs and expenses: | ||||||||||||||||
| Research and development | 12,438 | 14,696 | 39,267 | 44,982 | ||||||||||||
| Sales and marketing | 5,129 | 6,267 | 16,739 | 21,255 | ||||||||||||
| General and administrative | 5,128 | 4,825 | 19,209 | 16,061 | ||||||||||||
| Goodwill and intangible assets impairment | - | 20,484 | - | 49,821 | ||||||||||||
| Amortization of purchased intangible assets | 141 | 227 | 422 | 891 | ||||||||||||
| Restructuring charges | 2,411 | - | 2,411 | - | ||||||||||||
| Total operating costs and expenses | 25,247 | 46,499 | 78,048 | 133,010 | ||||||||||||
| Operating loss | (4,864 | ) | (31,853 | ) | (21,793 | ) | (74,125 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income, net | 31 | 72 | 109 | 238 | ||||||||||||
| Other income (expense), net | 59 | (45 | ) | (83 | ) | (191 | ) | |||||||||
| Loss before income taxes | (4,774 | ) | (31,826 | ) | (21,767 | ) | (74,078 | ) | ||||||||
| Income tax provision | 319 | 107 | 340 | 276 | ||||||||||||
| Net loss | $ | (5,093 | ) | $ | (31,933 | ) | $ | (22,107 | ) | $ | (74,354 | ) | ||||
| Per share data: | ||||||||||||||||
| Net loss per share: | ||||||||||||||||
| Basic and diluted | $ | (0.15 | ) | $ | (0.97 | ) | $ | (0.65 | ) | $ | (2.28 | ) | ||||
|
Weighted average shares used in computation of net loss per share: |
||||||||||||||||
| Basic and diluted | 34,070 | 33,074 | 33,902 | 32,683 | ||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||||||||
| (in thousands) | |||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | ||||||||||||||
|
(Preliminary and |
(Unaudited) |
(Preliminary and |
(Unaudited) | ||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net loss | $ | (5,093 | ) | $ | (31,933 | ) | $ | (22,107 | ) | $ | (74,354 | ) | |||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||||||||
| Loss on sale/disposal of fixed asset | - | 62 | 18 | 90 | |||||||||||||
| Depreciation and amortization | 2,230 | 2,775 | 6,774 | 9,747 | |||||||||||||
| Loss on goodwill and purchased intangible assets impairment | - | 20,484 | - | 49,821 | |||||||||||||
| Provision for bad debts | 623 | (49 | ) | 1,005 | 39 | ||||||||||||
| Net impairment loss on marketable securities | - | - | - | 39 | |||||||||||||
| Inventory provision | 1,246 | 1,347 | 3,069 | 1,663 | |||||||||||||
| Share-based compensation expense | 959 | 1,752 | 2,848 | 5,409 | |||||||||||||
| Non-cash income tax expense | 314 | 97 | 266 | 194 | |||||||||||||
| Changes in assets and liabilities: | |||||||||||||||||
| Accounts receivable | (8,584 | ) | 7,811 | (5,895 | ) | (3,460 | ) | ||||||||||
| Inventories | 626 | 1,691 | 8,922 | 4,089 | |||||||||||||
| Prepaid expenses and other assets | (1,561 | ) | 1,012 | (2,169 | ) | (1,238 | ) | ||||||||||
| Accounts payable | (1,490 | ) | (4,239 | ) | 2,832 | (15,108 | ) | ||||||||||
| Accrued expenses, income taxes, and other | 47 | (192 | ) | 255 | 233 | ||||||||||||
| Net cash used in operating activities | (10,683 | ) | 618 | (4,182 | ) | (22,836 | ) | ||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Purchases of property and equipment | (1,323 | ) | (433 | ) | (5,048 | ) | (4,021 | ) | |||||||||
| Purchases of marketable securities | (12,577 | ) | (14,341 | ) | (22,238 | ) | (31,871 | ) | |||||||||
| Marketable securities maturities/sales | 17,215 | 15,447 | 31,731 | 27,506 | |||||||||||||
| Net cash provided by (used in) investing activities | 3,315 | 673 | 4,445 | (8,386 | ) | ||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Proceeds from the issuance of short-term debt | 3,400 | 5,000 | 13,400 | 5,000 | |||||||||||||
| Principal repayments of short-term debt | (2,525 | ) | (5,000 | ) | (10,969 | ) | (5,000 | ) | |||||||||
| Principal payments under capital lease obligations | - | - | - | (46 | ) | ||||||||||||
|
Proceeds from stock option exercises and ESPP net of taxes paid on vested restricted stock units |
(254 | ) | (151 | ) | (515 | ) | 583 | ||||||||||
| Net cash provided by (used in) financing activities | 621 | (151 | ) | 1,916 | 537 | ||||||||||||
| Effect of exchange rates on cash and cash equivalents | 22 | 4 | (85 | ) | (43 | ) | |||||||||||
| Net increase (decrease) in cash | (6,725 | ) |
|
1,144 | 2,094 | (30,728 | ) | ||||||||||
| Cash and cash equivalents, beginning of period | 24,863 | 15,197 | 16,044 | 47,069 | |||||||||||||
| Cash and cash equivalents, end of period | $ | 18,138 |
|
$ | 16,341 | $ | 18,138 | $ | 16,341 | ||||||||
| Preliminary Reconciliation of GAAP Net Loss to Non-GAAP Net Loss | ||||||||||||||||
| Three and Nine Months Ended |
||||||||||||||||
| (in thousands, except per share data) | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
|
|
|
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|
Net |
Income (Loss) |
Net |
Income (Loss) |
|||||||||||||
| GAAP net loss | $ | (5,093 | ) | (0.15 | ) | $ | (22,107 | ) | $ | (0.65 | ) | |||||
| Adjustments: | ||||||||||||||||
| Share-based compensation expense (a) | 959 | 0.03 | 2,848 | 0.08 | ||||||||||||
| Acquisition related charges (b) | 224 | 0.00 | 672 | 0.02 | ||||||||||||
| Income tax adjustments (c) | 254 | 0.01 | 201 | 0.01 | ||||||||||||
| Restructuring and other severance (d) | 2,411 | 0.07 | 3,074 | 0.09 | ||||||||||||
| Non-GAAP net loss | $ | (1,245 | ) | $ | (0.04 | ) | $ | (15,312 | ) | $ | (0.45 | ) | ||||
| (a) Adjustments reflect share-based compensation expense recorded under ASC Topic 718. | ||||||||||||||||
| (b) Adjustments reflect amortization of purchased intangibles. | ||||||||||||||||
| (c) Adjustments for certain deferred tax valuation activity. | ||||||||||||||||
| (d) Adjustments reflect restructuring and other reduction in force charges. | ||||||||||||||||
| See "Non -GAAP Financial Measures" for information regarding our use of Non-GAAP financial measures. | ||||||||||||||||
| Preliminary Reconciliation of GAAP Operating Costs and Expenses to Non-GAAP Operating Costs and Expenses | ||||||||||||||||
| Three Months Ended |
||||||||||||||||
| (in thousands) | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| GAAP |
Share-based |
Purchased |
Restructure |
Non-GAAP | ||||||||||||
| Cost of net revenues | $ | 72,290 | $ | (7 | ) | $ | 83 | $ | - | $ | 72,214 | |||||
| Operating costs and expenses: | ||||||||||||||||
| Research and development | 12,438 | 329 | - | - | 12,109 | |||||||||||
| Sales and marketing | 5,129 | 215 | - | - | 4,914 | |||||||||||
| General and administrative | 5,128 | 422 | - | - | 4,706 | |||||||||||
| Amortization of purchased intangibles | 141 | - | 141 | - | - | |||||||||||
| Restructuring charges | 2,411 | - | - | 2,411 | - | |||||||||||
| Total operating costs and expenses | $ | 25,247 | 966 | 141 | 2,411 | $ | 21,729 | |||||||||
| Total | $ | 959 | $ | 224 | $ | 2,411 | ||||||||||
| (a) Adjustments reflect share-based compensation expense recorded under ASC Topic 718. | ||||||||||||||||
| (b) Adjustments reflect amortization of purchased intangibles. | ||||||||||||||||
| (c) Adjustments reflect restructuring charges. | ||||||||||||||||
| See "Non -GAAP Financial Measures" for information regarding our use of Non-GAAP financial measures. | ||||||||||||||||
| Preliminary Reconciliation of GAAP Operating Costs and Expenses to Non-GAAP Operating Costs and Expenses | |||||||||||||||
| Nine Months Ended |
|||||||||||||||
| (in thousands) | |||||||||||||||
| (Unaudited) | |||||||||||||||
| GAAP |
Share-based |
Purchased |
Restructure |
Non-GAAP | |||||||||||
| Cost of net revenues | $ | 213,463 | $ | 49 | $ | 250 | $ | 40 | $ | 213,124 | |||||
| Operating costs and expenses: | |||||||||||||||
| Research and development | 39,267 | 908 | - | 433 | 37,926 | ||||||||||
| Sales and marketing | 16,739 | 618 | - | 185 | 15,936 | ||||||||||
| General and administrative | 19,209 | 1,273 | - | 5 | 17,931 | ||||||||||
| Amortization of purchased intangibles | 422 | - | 422 | - | - | ||||||||||
| Restructuring charges | 2,411 | - | - | 2,411 | - | ||||||||||
| Total operating costs and expenses | $ | 78,048 | 2,799 | 422 | 3,034 | $ | 71,793 | ||||||||
| Total | $ | 2,848 | $ | 672 | $ | 3,074 | |||||||||
| (a) Adjustments reflect share-based compensation expense recorded under ASC Topic 718. | |||||||||||||||
| (b) Adjustments reflect amortization of purchased intangibles. | |||||||||||||||
| (c) Restructuring and other reduction in force charges. | |||||||||||||||
| See "Non -GAAP Financial Measures" for information regarding our use of Non-GAAP financial measures. | |||||||||||||||
| Preliminary Reconciliation of GAAP Loss before Income Taxes to Adjusted EBITDA | ||||||||
| Three & Nine Months Ended |
||||||||
| (in thousands) | ||||||||
| (Unaudited) | ||||||||
| Three Months Ended | Nine Months Ended | |||||||
| Loss before income taxes | $ | (4,774 | ) | $ | (21,767 | ) | ||
| Depreciation and amortization | 2,230 | 6,774 | ||||||
| Share-based compensation expense | 959 | 2,848 | ||||||
| Restructuring and other severance charges | 2,411 | 3,074 | ||||||
| Other expense (income) | (90 | ) | (26 | ) | ||||
| Adjusted EBITDA | $ | 736 | $ | (9,097 | ) | |||
| See "Non -GAAP Financial Measures" for information regarding our use of Non-GAAP financial measures. | ||||||||
| Segment Reporting | ||||||||||||||||
| Three & Nine Months Ended |
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| (in thousands) | ||||||||||||||||
|
Three Months Ended |
Nine Months Ended |
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| 2013 | 2012 | 2013 | 2012 | |||||||||||||
|
(Preliminary and |
(Unaudited) |
(Preliminary and |
(Unaudited) | |||||||||||||
|
Net revenues by reportable segment: |
||||||||||||||||
| Mobile Computing Products | $ | 84,067 | $ | 65,189 | $ | 240,510 | $ | 248,620 | ||||||||
| M2M Products and Solutions | 8,606 | 5,828 | 29,208 | 24,993 | ||||||||||||
| Total | $ | 92,673 | $ | 71,017 | $ | 269,718 | $ | 273,613 | ||||||||
|
Operating loss by reportable segment: |
||||||||||||||||
| Mobile Computing Products | $ | (953 | ) | $ | (7,513 | ) | $ | (9,801 | ) | $ | (11,701 | ) | ||||
| M2M Products and Solutions | (3,911 | ) | (24,340 | ) | (11,992 | ) | (62,424 | ) | ||||||||
| Total | $ | (4,864 | ) | $ | (31,853 | ) | $ | (21,793 | ) | $ | (74,125 | ) | ||||
| 2013 | 2012 | |||||||||||||||
|
(Preliminary and |
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|
Identifiable assets by reportable segment: |
||||||||||||||||
| Mobile Computing Products | $ | 128,111 | $ | 141,045 | ||||||||||||
| M2M Products and Solutions | 16,382 | 20,486 | ||||||||||||||
| Total | $ | 144,493 | $ | 161,531 | ||||||||||||
Investor contact:
Chris Danne, 415-217-5865
chris@blueshirtgroup.com
matt@blueshirtgroup.com
or
Media contact:
crubin@nvtl.com
Source:
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