Form 8-K

SAN DIEGO, Nov. 1, 2011 /PRNewswire/ -- Novatel Wireless, Inc. (NASDAQ: NVTL), a leading provider of wireless broadband access solutions, today reported preliminary financial results for the third quarter ended Sept. 30, 2011.

"Our third quarter results reflect the significant progress we are making in our business," said Peter Leparulo, CEO of Novatel Wireless. "We are diversifying our product lines with M2M Asset Management Solutions and Services, as well as Embedded Solutions for both our mobile computing and M2M businesses. In the third quarter, these product categories accounted for more than $20 million, or 17.7 percent, of consolidated revenue.

"Market demand for MiFi® intelligent mobile hotspots also was strong in the quarter. Our MiFi intelligent mobile hotspots continue to be the market and product leader, as end-user recognition builds around the total MiFi presentation, from the MiFi user experience to best-in-class performance and brand.

"With the launches of our Spider MT 3000 for the transportation market and our N4A CMS 3.0 service delivery platform, we are focused on establishing leadership in higher-margin Asset Management Solutions and Services to further diversify our revenue base and improve our bottom line."

Operating Results

Third quarter revenue was $113.3 million, solidly within our guidance range of $105 to $120 million. This 50 percent revenue increase from the prior year was primarily due to the continued market reception of our 4G LTE mobile broadband devices and the acquisition of Enfora, as well as significant revenue from embedded solutions provided to original equipment manufacturers.

Sales by major product category were as follows:

Gross margin was 23.6 percent of revenue on a GAAP basis. On a non-GAAP basis, gross margin was 24.3 percent, exceeding our guidance of 23 percent.

GAAP net income was $4.5 million and includes a tax benefit of $11.2 million primarily related to the release of uncertain tax positions for certain years for which the statutes of limitations have expired. GAAP net income also includes the impact of a non-cash and non-operational goodwill impairment charge of $3.5 million related to the acquisition of Enfora. This charge is our current estimate and our analysis will be finalized during the fourth quarter.

On a non-GAAP basis, which excludes the tax benefit, impairment charge, and other items identified in the attached reconciliation schedule, net income for the quarter was breakeven, versus a loss of $4.3 million in the comparable quarter in 2010.

Non-GAAP EPS Summary

The following adjustments are included in the third quarter non-GAAP earnings per share (EPS).

Segment Results

GAAP financial results by operating segment were as follows:

Recent Business Highlights

• On September 22, the Novatel Wireless Ovation™ MC 679 USB LTE modem was launched on Bell Mobility's new 4G LTE network. Bell's LTE network covers some of Canada's most populous areas including the Waterloo region innovation hub and the country's largest wireless market in the Toronto area.
• Novatel Wireless and ACAL BFi signed a distribution agreement covering the UK, Italy and Germany to sell, and provide local specialist technical support for Enfora's N4A wireless connectivity platform and low-power 2G and 3G modules and devices.
• In September, the MiFi 3352 Intelligent Mobile Hotspot with DLNA Capabilities became available across Europe through four distributors.
• The company's Enfora subsidiary was named by Connected World as one of the most innovative technology providers of M2M solutions.
• In October, Enfora introduced its next generation N4A Communication and Management Software (CMS) 3.0 platform built for its carrier and enterprise customers.
• Novatel Wireless showcased its extensive line of Expedite® and Enabler™ mobile computing and M2M embedded modules at CTIA in San Diego in October. Novatel Wireless demonstrated its 2G, 3G and 4G intelligent embedded module portfolio under the theme Internet of Things with innovative partners such as VGo and Consert, highlighting how today's inter-connected world and intelligent devices can improve processes and enhance quality of life.
• Novatel Wireless announced that shipments of MiFi Intelligent Mobile Hotspots have surpassed three million devices since being introduced in 2009.

Fourth Quarter 2011 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 2011 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.

Our guidance incorporates our current assessment of supply-chain disruptions caused by the flooding in Thailand. We have taken steps to remediate the impact, which continues to be uncertain, but which we currently estimate to be approximately $3 to $4 million of reduced revenue in the fourth quarter. We will continue to monitor the impact on us and our customers.

Conference Call Information

Novatel Wireless will host a conference call and live webcast for analysts and investors today at 5:00 p.m. ET. For parties in the United States and Canada, call 1-800-762-8779 to access the conference call. International parties can access the call at 1-480-629-9771.

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 two hours after the call and will run for two weeks. To hear the replay, parties in the United States and Canada should call 800-406-7325 and enter pass code 4448643. International parties should call 303-590-3030.

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 Enfora integrated M2M solutions. These innovative products provide anywhere, anytime communications solutions for consumers and enterprises. Headquartered in San Diego, Novatel Wireless is listed on NASDAQ: NVTL. For more information please visit www.nvtl.com. (NVTLF)

Cautionary Note Regarding Forward-Looking Statements

Some of the information presented in this release constitutes forward-looking statements based on management's current expectations, assumptions, estimates and projections. In this context, forward-looking statements often address expected future business and financial performance and often contain words such as "may," "estimate," "anticipate," "believe," "expect," "intend," "plan," "project," "will" and similar words and phrases indicating future results. The information presented in this release related to our financial results for the third quarter ended September 30, 2011 and our outlook for the fourth quarter of 2011, 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, 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.

Non-GAAP net income, diluted 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 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) 2011 Novatel Wireless. All rights reserved. MiFi, Expedite, Ovation, Enfora, N4A, and the Novatel Wireless name and logo are trademarks of Novatel Wireless, Inc. Other product or service names mentioned herein are the trademarks of their respective owners.

Investor contact:

William A. Walkowiak, CFA
Novatel Wireless
(858) 431-3711
ir@nvtl.com

Media contact:

Charlotte Rubin
Novatel Wireless
(858) 812-3431
crubin@nvtl.com