Form 8-K

SAN DIEGO, Aug. 7, 2012 /PRNewswire/ -- Novatel Wireless, Inc. (NASDAQ: NVTL), a leading provider of intelligent wireless solutions, announces financial results for the second quarter ended June 30, 2012.

"During the second quarter our financial results were near or above the top of our guidance range for all three key metrics – revenue, non-GAAP gross margin, and non-GAAP EPS," said Peter Leparulo, CEO of Novatel Wireless. "Revenue increased by approximately $2.2 million from the first quarter, to $102.4 million, driven by strong sales of our mobile broadband devices.

"In our M2M segment, we are in the process of launching new integrated solutions that will significantly expand our addressable market. This includes the addition of key CDMA and HSPA capabilities into our M2M devices, as well as enhanced provisioning and management software that simplifies the adoption and deployment of integrated solutions for our customers.

"We continue to focus on diversifying our markets, customer base and product lines. We are planning a number of new product launches over the next year to further these objectives. Although we expect a temporary revenue decline at our largest customer in the third quarter due to the impact of a competing product, our new product rollouts and new customer wins should restore revenue growth and positive EBITDA in the fourth quarter."

Operating Results

Revenues by major product category were as follows:

Gross margin was 22.7 percent of revenue on a GAAP basis. On a non-GAAP basis, gross margin was 23.2 percent, exceeding our previous guidance of 22 to 23 percent.

Progress in ongoing cost reduction efforts contributed to a reduction in the net loss compared to the first quarter of 2012. On a non-GAAP basis, which excludes the items identified in the attached reconciliation schedule, net loss for the quarter was $2.2 million, or 7 cents per share, a significant improvement from a loss of 14 cents per share in the first quarter.

Adjusted EBITDA (see "Reconciliation of GAAP Earnings before Income Taxes to Adjusted EBITDA") was $0.3 million, versus a loss of $1.7 million in the first quarter.

Non-GAAP EPS Summary

The following adjustments are included in the second quarter 2012 non-GAAP earnings per share.

Second Quarter Segment Results

GAAP financial results by operating segment were as follows:

Recent Business Highlights

• TIESSE SpA, a leading Italian Telemetry device manufacturer, will integrate Novatel Wireless Enabler modules into its Levanto routers. These routers will provide one of the largest Italian utilities with upgraded communications for automatic meter reading concentrators.
• In June, the Enabler® HS 3001 was certified for use on the Verizon Wireless network. This module supports CDMA 800 and 1900 MHz and a rich on-board N4A Communication and Management Software agent to provide speedy market introduction of M2M deployments on Verizon Wireless' CDMA Network.
• Novatel Wireless added the SA-G+ to its Enfora portfolio of simple, yet powerful, plug-and-play wireless telemetry devices. The new SA-G+ device is targeted at remote asset monitoring and control applications where critical and timely data is needed. Examples include industrial automation, vending machines, oil & gas pipelines and energy and smart grid applications. With support for CDMA2000 1X or GSM/GPRS connectivity for global deployments, the SA-G+ has been designed to enhance visibility into remotely-located fixed assets.
• On June 26, 2012, the United States Patent and Trademark Office granted Novatel Wireless a key patent for the MiFi Intelligent Mobile Hotspot. This patent, entitled "Systems and methods for multi-mode wireless modem," is a core invention covering Intelligent Mobile Hotspot products, home automation gateway devices, fixed mobile convergence routers and general machine-to-machine solutions involving wireless gateway implementation.

Third 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 reports filed with the Securities and Exchange Commission.

Our guidance for the third quarter of 2012 reflects current business indicators and expectations as of the date of this release. MiFi revenues in the third quarter may be constrained by competitive pressure at our largest customer. However, we anticipate that in the fourth quarter and beyond, new product introductions and new customer wins should restore revenue growth and positive EBITDA. All figures are approximations based on management's beliefs and assumptions as of the date of this release.

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
• In Canada, call 1-866-605-3852
• 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 August 14. To hear the replay, parties in the United States may call 1-877-344-7529 and enter conference code 10015445. International parties may call 1-412-317-0088.

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 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 second quarter ended June 30, 2012 and our outlook for the third and fourth quarters 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.