Novatel Wireless Reports Third Quarter 2014 Financial Results
Revenues Increase 19% from Second Quarter of 2014
Net Loss Narrows Significantly from Second Quarter of 2014
The Company announced the following GAAP results for the third quarter of 2014:
- Revenue was
$44.3 million in the third quarter, up 19% compared to$37.3 million in the second quarter of 2014. Revenue from mobile computing products was$34.8 million in the third quarter, compared with$27.5 million in the second quarter of 2014, driven by continued strong sales of the MiFi® 5510 and initial sales in September from the product launch of the new Verizon Jetpack® Mobile Hotspot 4G LTE/XLTE MiFi® 6620L. Revenue from M2M products was$9.5 million in the third quarter compared to$9.8 million in the second quarter of 2014.
- Net loss was
$8.8 million , or$0.23 per share, in the third quarter compared to a net loss of$17.4 million , or$0.51 per share, in the second quarter of 2014. The net loss for the third quarter of 2014 included approximately$1.1 million in restructuring charges and a$4.8 million charge for the change in fair value of a Company-issued warrant to purchase common stock. Net loss in the second quarter of 2014 included approximately$5.3 million in restructuring charges.
"We made excellent progress in the third quarter of 2014 as we executed our strategy of driving momentum in our MiFi® business while rationalizing our expenses," said
The Company also announced the following non-GAAP results for the third quarter of 2014. A reconciliation of GAAP to non-GAAP measures is included in the tables accompanying this news release:
- Non-GAAP gross profit was
$10.6 million in the third quarter, an increase of 159% from$4.1 million in the second quarter of 2014, while non-GAAP gross margin was 23.9% in the third quarter compared to 11.0% in the second quarter of 2014. Non-GAAP gross margin on mobile computing products increased to 23.1% in the third quarter from 11.9% in the second quarter of 2014, and non-GAAP gross margin on M2M products increased to 26.6% in the third quarter from 8.2% in the second quarter of 2014. Non-GAAP margin improvements in the third quarter were primarily driven by an improved mix of higher margin product sales in the third quarter and a significant write-down of inventory that occurred in the second quarter of 2014, combined with ongoing cost rationalization activities.
- Non-GAAP operating expenses declined to
$12.8 million in the third quarter, compared to$15.2 million in the second quarter of 2014, due primarily to lower compensation expenses and reduced legal expenses in the third quarter as a result of ongoing cost containment initiatives.
- Non-GAAP adjusted EBITDA was
$(0.6 million) in the third quarter compared to$(9.5 million) in the second quarter of 2014. This improvement was due to the combination in the third quarter of increased revenue, improved non-GAAP gross margin and reduced non-GAAP operating expenses. Non-GAAP adjusted EBITDA excludes restructuring charges, charges associated with a change in fair value of a Company-issued warrant to purchase common stock, share-based compensation expense, interest, taxes, depreciation and amortization.
- Non-GAAP net loss for the third quarter was
$2.4 million , or$0.06 per share, compared to a net loss of$11.2 million , or$0.33 per share, in the second quarter of 2014. Non-GAAP net loss improved during the third quarter due to the combination of increased revenue, improved non-GAAP gross margin and reduced non-GAAP operating expenses. Non-GAAP net loss excludes restructuring charges, charges associated with a change in fair value of a Company-issued warrant to purchase its common stock, share-based compensation expense and amortization associated with a historic acquisition.
Quarterly Highlights
The Company's business and organizational highlights since the beginning of the third quarter include:
- The launch of the new Verizon Jetpack® Mobile Hotspot 4G LTE/XLTE MiFi® 6620L, with availability starting on
September 29, 2014 . The MiFi 6620L is the first Verizon Wireless Jetpack that securely connects up to 15 devices to the Verizon XLTE network supporting up to 20 hours of use on a single charge, and in some cases more. The MiFi 6620L is Global ready, supporting a number of bands for connectivity in over 200 countries.
- A strategic investment in the Company of up to approximately
$23.7 million by HC2 Holdings, Inc. ("HC2"). HC2 purchased a combination of common stock, warrants and convertible preferred stock for an initial cash investment of approximately$14.4 million , which was funded onSeptember 8, 2014 , with up to another$9.3 million being funded in the future if the warrants are exercised for cash.
- Along with the investment from HC2, the appointment to the Company's Board of Directors of
Philip Falcone , Chairman and CEO of Harbinger Group Inc., andRobert Pons , Executive Vice President of Business Development of HC2.
- The Company solidified its management team with today's announcement of
Alex Mashinsky as permanent CEO of the Company, as well as the appointment ofMichael Newman onSeptember 2, 2014 as the Company's Executive Vice President and Chief Financial Officer.
- On
October 15, 2014 , the Company changed its NASDAQ ticker symbol to "MIFI" to align with the Company's expanded vision for its MiFi® technology.
- On
October 31, 2014 , the Company obtained a$25.0 million revolving credit facility withWells Fargo Bank .
Revolving Credit Facility
The Company also announced today in a separate news release that on
Alex Mashinsky Appointed as Permanent CEO
In a separate news release today, the Company announced that
Fourth Quarter 2014 Business Outlook
The following statements are forward-looking and actual results may differ materially. Please see the section titled, "Cautionary Note Regarding Forward-Looking Statements" at the end of this news 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 2014 reflects current business indicators and expectations as of the date of this release. All figures are approximations based on management's beliefs and assumptions as of the date of this release.
| Fourth Quarter 2014 Outlook | |
| Revenue | |
| Non-GAAP Gross Margin | 23% - 25% |
| Non-GAAP Operating Expenses | approximately the same as the third quarter of 2014 |
| Non-GAAP Adjusted EBITDA | |
| Non-GAAP Earnings Per Share | |
| Weighted Average Shares Outstanding | approximately 45 million |
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 may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 outlook for the Company's fourth quarter ending
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
Non-GAAP gross profit, gross margin, operating expenses, adjusted EBITDA, net loss and net loss per share 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 non-GAAP gross profit, gross margin, operating expenses, adjusted EBITDA, net loss and net loss per share 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 gross profit, gross margin, operating expenses, adjusted EBITDA, net loss and net loss per share, management excludes restructuring charges, charges associated with a change in fair value of a Company-issued warrant to purchase common stock, share-based compensation expenses, and amortization of intangibles associated with a historic acquisition, in order 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 gross profit, gross margin, operating expenses, adjusted EBITDA, net loss and net loss per share also facilitates a comparison of
Calculating non-GAAP gross profit, gross margin, operating expenses, adjusted EBITDA, net loss and net loss per share have limitations as an analytical tool, and you should not consider these measures in isolation or as substitutes for GAAP metrics. 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. Limitations in relying on non-GAAP financial measures include, but are not limited to, the fact that other companies, including other companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting their usefulness as a comparative tool.
Investors and potential investors are encouraged to review the reconciliation of non-GAAP financial measures contained within this press release with our GAAP financial results.
(C) 2014
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||
| (In thousands, except per share data) | ||||
| Three Months Ended | Nine Months Ended | |||
| 2014 | 2013 | 2014 | 2013 | |
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |
| Net revenues | $ 44,330 | $ 92,673 | $ 129,884 | $ 269,718 |
| Cost of net revenues | 33,844 | 72,290 | 105,343 | 213,463 |
| Gross profit | 10,486 | 20,383 | 24,541 | 56,255 |
| Operating costs and expenses: | ||||
| Research and development | 7,006 | 12,438 | 24,164 | 39,267 |
| Sales and marketing | 2,790 | 5,129 | 9,816 | 16,739 |
| General and administrative | 3,381 | 5,128 | 12,881 | 19,209 |
| Amortization of purchased intangible assets | 141 | 141 | 421 | 422 |
| Restructuring and severance charges | 1,064 | 2,411 | 7,480 | 2,411 |
| Total operating costs and expenses | 14,382 | 25,247 | 54,762 | 78,048 |
| Operating loss | (3,896) | (4,864) | (30,221) | (21,793) |
| Other income (expense): | ||||
| Change in fair value of warrant liability | (4,788) | -- | (4,788) | -- |
| Interest income (expense), net | (63) | 31 | (28) | 109 |
| Other income (expense), net | (61) | 59 | (118) | (83) |
| Loss before income taxes | (8,808) | (4,774) | (35,155) | (21,767) |
| Income tax provision | 24 | 319 | 73 | 340 |
| Net loss | $ (8,832) | $ (5,093) | $ (35,228) | $ (22,107) |
| Per share data: | ||||
| Net loss per share: | ||||
| Basic and diluted | $ (0.23) | $ (0.15) | $ (0.99) | $ (0.65) |
| Weighted average shares used in computation of net loss per share: | ||||
| Basic and diluted | 38,167 | 34,070 | 35,568 | 33,902 |
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||
| (In thousands) | ||
| 2014 | 2013 | |
| (Unaudited) | ||
| ASSETS | ||
| Current assets: | ||
| Cash and cash equivalents | $ 20,163 | $ 2,911 |
| Marketable securities | 5,097 | 16,612 |
| Restricted marketable securities | -- | 2,566 |
| Accounts receivable, net | 27,257 | 39,985 |
| Inventories | 28,139 | 27,793 |
| Deferred tax assets, net | 100 | 100 |
| Prepaid expenses and other | 4,020 | 5,662 |
| Total current assets | 84,776 | 95,629 |
| Property and equipment, net | 5,778 | 9,901 |
| Marketable securities | 261 | 3,443 |
| Intangible assets, net | 1,527 | 2,131 |
| Deferred tax assets, net | 81 | 81 |
| Other assets | 622 | 280 |
| Total assets | $ 93,045 | $ 111,465 |
| LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY | ||
| Current liabilities: | ||
| Accounts payable | $ 29,881 | $ 24,538 |
| Accrued expenses | 20,714 | 23,271 |
| Current portion of litigation settlement | 7 | 4,326 |
| Short-term margin loan facility | -- | 2,566 |
| Total current liabilities | 50,602 | 54,701 |
| Warrant liability | 9,727 | -- |
| Other long-term liabilities | 1,615 | 1,848 |
| Non-current portion of litigation settlement | 5,000 | 10,000 |
| Total liabilities | 66,944 | 66,549 |
| Commitments and Contingencies | ||
| Convertible Series C preferred stock | 940 | -- |
| Stockholders' equity: | ||
| Common stock | 44 | 34 |
| Additional paid-in capital | 456,836 | 441,368 |
| Accumulated other comprehensive income | -- | 5 |
| Accumulated deficit | (406,719) | (371,491) |
| 50,161 | 69,916 | |
| Treasury stock at cost | (25,000) | (25,000) |
| Total stockholders' equity | 25,161 | 44,916 |
| Total liabilities, convertible preferred stock and stockholders' equity | $ 93,045 | $ 111,465 |
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||
| (In thousands) | ||||
| Three Months Ended | Nine Months Ended | |||
| 2014 | 2013 | 2014 | 2013 | |
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |
| Cash flows from operating activities: | ||||
| Net loss | $ (8,832) | $ (5,093) | $ (35,228) | $ (22,107) |
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||
| Depreciation and amortization | 1,848 | 2,230 | 5,889 | 6,774 |
| Provision for bad debts, net of recoveries | 78 | 623 | 187 | 1,005 |
| Provision for excess and obsolete inventory | -- | 1,246 | 3,033 | 3,069 |
| Share-based compensation expense | 377 | 959 | 1,616 | 2,848 |
| Change in fair value of warrant liability | 4,788 | -- | 4,788 | -- |
| Non-cash income tax benefit | -- | 314 | -- | 266 |
| Changes in assets and liabilities: | ||||
| Accounts receivable | (2,641) | (8,584) | 11,600 | (5,895) |
| Inventories | (2,117) | 626 | (3,379) | 8,922 |
| Prepaid expenses and other assets | (870) | (1,561) | 1,300 | (2,169) |
| Accounts payable | 3,013 | (1,490) | 5,500 | 2,832 |
| Accrued expenses, income taxes, and other | (6,165) | 47 | (4,790) | 273 |
| Net cash used in operating activities | (10,521) | (10,683) | (9,484) | (4,182) |
| Cash flows from investing activities: | ||||
| Purchases of property and equipment | (272) | (1,323) | (1,513) | (5,048) |
| Purchases of intangible assets | (143) | -- | (143) | -- |
| Purchases of marketable securities | (429) | (12,577) | (1,255) | (22,238) |
| Marketable securities maturities/sales | 8,568 | 17,215 | 18,513 | 31,731 |
| Net cash provided by investing activities | 7,724 | 3,315 | 15,602 | 4,445 |
| Cash flows from financing activities: | ||||
| Proceeds from the issuances of Series C preferred and common stock, net of issuance costs | 14,163 | -- | 14,163 | -- |
| Proceeds from the issuance of short-term debt, net of issuance costs | -- | 3,400 | -- | 13,400 |
| Principal repayments of short-term debt | -- | (2,525) | (2,566) | (10,969) |
| Taxes paid on vested restricted stock units, net of proceeds from stock option exercises | (91) | (254) | (375) | (515) |
| Net cash provided by financing activities | 14,072 | 621 | 11,222 | 1,916 |
| Effect of exchange rates on cash and cash equivalents | (37) | 22 | (88) | (85) |
| Net increase (decrease) in cash and cash equivalents | 11,238 | (6,725) | 17,252 | 2,094 |
| Cash and cash equivalents, beginning of period | 8,925 | 24,863 | 2,911 | 16,044 |
| Cash and cash equivalents, end of period | $ 20,163 | $ 18,138 | $ 20,163 | $ 18,138 |
| 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 | |||
| Net Income (Loss) |
Income (Loss) Per Share, Diluted |
Net Income (Loss) |
Income (Loss) Per Share, Diluted |
|
| GAAP net loss | $ (8,832) | $ (0.23) | $ (35,228) | $ (0.99) |
| Adjustments: | ||||
| Share-based compensation expense (a) | 377 | 0.01 | 1,616 | 0.05 |
| Acquisition related charges (b) | 224 | 0.01 | 671 | 0.02 |
| Restructuring and severance charges (c) | 1,064 | 0.02 | 7,480 | 0.21 |
| Change in fair value of warrant liability (d) | 4,788 | 0.13 | 4,788 | 0.13 |
| Non-GAAP net loss | $ (2,379) | $ (0.06) | $ (20,673) | $ (0.58) |
| (a) Adjustments reflect share-based compensation expense recorded under ASC Topic 718. | ||||
| (b) Adjustments reflect amortization of purchased intangibles. | ||||
| (c) Adjustments reflect restructuring and severance charges. | ||||
| (d) Adjustments reflect change in fair value of warrant liability. | ||||
| See "Non-GAAP Financial Measures" for information regarding our use of Non-GAAP financial measures. | ||||
| Reconciliation of GAAP Operating Costs and Expenses to Non-GAAP Operating Costs and Expenses | |||||
| (In thousands) | |||||
| (Unaudited) | |||||
| Three Months Ended |
|||||
GAAP |
Share-based compensation expense (a) |
Purchased intangibles amortization (b) |
Restructuring charges (c) |
Non-GAAP |
|
| Cost of net revenues | $ 33,844 | $ 12 | $ 83 | $ -- | $ 33,749 |
| Operating costs and expenses: | |||||
| Research and development | 7,006 | 190 | -- | -- | 6,816 |
| Sales and marketing | 2,790 | (21) | -- | -- | 2,811 |
| General and administrative | 3,381 | 196 | -- | -- | 3,185 |
| Amortization of purchased intangibles assets | 141 | -- | 141 | -- | -- |
| Restructuring and severance charges | 1,064 | -- | -- | 1,064 | -- |
| Total operating costs and expenses | $ 14,382 | 365 | 141 | 1,064 | $ 12,812 |
| Total | $ 377 | $ 224 | $ 1,064 | ||
| (a) Adjustments reflect share-based compensation expense recorded under ASC Topic 718. | |||||
| (b) Adjustments reflect amortization of purchased intangibles. | |||||
| (c) Adjustments reflect restructuring and severance charges. | |||||
| See "Non-GAAP Financial Measures" for information regarding our use of Non-GAAP financial measures. | |||||
| Reconciliation of GAAP Operating Costs and Expenses to Non-GAAP Operating Costs and Expenses | |||||
| (In thousands) | |||||
| (Unaudited) | |||||
| Nine Months Ended |
|||||
GAAP |
Share-based compensation expense (a) |
Purchased intangibles amortization (b) |
Restructuring charges (c) |
Non-GAAP |
|
| Cost of net revenues | $105,343 | (7) | 250 | -- | $ 105,100 |
| Operating costs and expenses: | |||||
| Research and development | 24,164 | 448 | -- | -- | 23,716 |
| Sales and marketing | 9,816 | 200 | -- | -- | 9,616 |
| General and administrative | 12,881 | 975 | -- | -- | 11,906 |
| Amortization of purchased intangibles assets | 421 | -- | 421 | -- | -- |
| Restructuring and severance charges | 7,480 | -- | -- | 7,480 | -- |
| Total operating costs and expenses | $ 54,762 | 1,623 | 421 | 7,480 | $ 45,238 |
| Total | $ 1,616 | $ 671 | $ 7,480 | ||
| (a) Adjustments reflect share-based compensation expense recorded under ASC Topic 718. | |||||
| (b) Adjustments reflect amortization of purchased intangibles. | |||||
| (c) Adjustments reflect restructuring and severance charges. | |||||
| See "Non -GAAP Financial Measures" for information regarding our use of Non-GAAP financial measures. | |||||
| Reconciliation of GAAP Loss before Income Taxes to Adjusted EBITDA | ||
| Three and Nine Months Ended |
||
| (In thousands) | ||
| (Unaudited) | ||
| Three Months Ended | Nine Months Ended | |
| 2014 | 2014 | |
| Loss before income taxes | $ (8,808) | $ (35,155) |
| Depreciation and amortization | 1,848 | 5,889 |
| Share-based compensation expense | 377 | 1,616 |
| Restructuring and severance charges | 1,064 | 7,480 |
| Change in fair value of warrant liability | 4,788 | 4,788 |
| Other expense | 124 | 146 |
| Adjusted EBITDA | $ (607) | $ (15,236) |
| See "Non-GAAP Financial Measures" for information regarding our use of Non-GAAP financial measures. | ||
| Segment Reporting | ||||
| Three and Nine Months Ended |
||||
| (In thousands) | ||||
| Three Months Ended | Nine Months Ended | |||
| 2014 | 2013 | 2014 | 2013 | |
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |
| Net revenues by reportable segment: | ||||
| Mobile Computing Products | $ 34,788 | $ 84,067 | $ 98,483 | $ 240,510 |
| M2M Products and Solutions | 9,542 | 8,606 | 31,401 | 29,208 |
| Total | $ 44,330 | $ 92,673 | $ 129,884 | $ 269,718 |
| Operating loss by reportable segment: | ||||
| Mobile Computing Products | $ (1,704) | $ (953) | $ (20,076) | $ (9,801) |
| M2M Products and Solutions | (2,192) | (3,911) | (10,145) | (11,992) |
| Total | $ (3,896) | $ (4,864) | $ (30,221) | $ (21,793) |
| 2014 | 2013 | |||
| (Unaudited) | (Unaudited) | |||
| Identifiable assets by reportable segment: | ||||
| Mobile Computing Products | $ 80,551 | $ 96,516 | ||
| M2M Products and Solutions | 12,494 | 14,949 | ||
| Total | $ 93,045 | $ 111,465 | ||
CONTACT: Investor Relations Contact:
Michael Sklansky
(858) 431-0792
msklansky@nvtl.com
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