MIFI Novatel Wireless, Inc. (MM)

Novatel Wireless, Inc. (NASDAQ:NVTL), a leading provider of wireless broadband access solutions, today reported financial results for the fourth quarter and full fiscal year ended December 31, 2009.

    Fourth Qtr     Fourth Qtr     Third Qtr '09 '08 '09 Revenues $88.6M $65.1M $94.3M GAAP Net Income (Loss) $1.0M $(3.0M) $6.2M GAAP EPS (Loss) $0.03 $(0.10) $0.20 Non-GAAP Net Income $2.3M $(1.8M) $7.7M Non-GAAP EPS $0.07 $(0.06) $0.24   FY2009 FY2008 Revenues $337.4M $321.0M GAAP Net Income (Loss) $3.9M $(1.2M) GAAP EPS (Loss) $0.13 $(0.04) Non-GAAP Net Income $9.5M $3.8M Non-GAAP EPS $0.30 $0.12  

“While revenues decreased from the third quarter, they increased 36% year-over-year due to steady demand for our core USB modems and revolutionary MiFi Intelligent Mobile Hotspot products, which have now launched commercially with 17 operators around the globe,“ said Peter Leparulo, chairman and CEO of Novatel Wireless. “During the fourth quarter, we introduced two next generation HSPA+ products, which are now available at Bell Mobility and Virgin Mobile in Canada and Telefonica in Spain. We are focused on leading the industry in wireless data products based on 4G technologies. We recently completed the first data transmissions by any company on Dual-carrier HSPA+, LTE and WiMax.”

“Fourth quarter revenues hit the mid-point of our guidance and GAAP and non-GAAP gross margins of 26.2% and 26.4%, respectively, were impacted by product mix,” said Ken Leddon, chief financial officer of Novatel Wireless. “We reported non-GAAP EPS of $0.07 per diluted share for the fourth quarter and $0.30 per diluted share for the year, and we have $5.56 per share in cash and investments with no debt.”

Recent Highlights

• Announced License with Qualcomm for Wearable Module Devices
• Completed 18 Mbps WiMax Call with MiFi Intelligent Mobile Hotspot
• Won GSMA Global Mobile Award for MiFi 2352 “Best Connected Device”
• Completed first HSPA+ Dual Carrier and LTE Data Transmissions based on Qualcomm’s MDM8220 chipset
• Launched MiFi 2352 and Broadband2Go Data Stick with Virgin Mobile Canada
• Announced MiFi Intelligent Mobile Hotspot software platform readiness
• Won a 2009 Pogie award by David Pogue of the NY Times for the MiFi 2200
• Selected MiFi as one of the world’s “Top 25 Technology Gadgets in 2009” by TIME Magazine
• Rolled out MC998 HSPA+ Turbo Stick and MiFi 2372 Intelligent Mobile Hotspot with Bell Mobility in Canada
• Entered M2M market through partnership with Cinterion Wireless to launch co-branded CDMA M2M modules
• Launched MiFi 2352 Intelligent Mobile Hotspot with Orange Spain
• Recognized MiFi 2200 as “Super Star” in Mobile Star Awards
• Launched MiFi 2352 Intelligent Mobile Hotspot with Zain in Kuwait
• Launched MC996D HSPA+ high speed USB data modem with Telefonica Spain
• Launched MiFi 2200 Intelligent Mobile Hotspot with Centennial in Puerto Rico

First Quarter 2010 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 these risk factors is included in the reports filed by the Company with the Securities and Exchange Commission (SEC).

The following summarizes the Company’s financial guidance for the first quarter of 2010, which is based on the Company’s current business outlook as of the date of this press release.

The Company currently expects first quarter 2010 revenues to be approximately flat compared to the year ago period and lower than the fourth quarter of 2009, with decreased revenues attributed to core products due to lower average selling prices (ASP) and lower seasonal sales volumes. The Company currently expects sales in the first quarter of 2010 from its MiFi Intelligent Mobile Hotspot products to increase compared to the fourth quarter of 2009, despite the impact of a $3 million reduction in revenues related to MiFi marketing and promotional campaigns with certain operator customers.

    First Qtr 2010 Revenues (in millions)

$70

 

Gross Margin

24%   GAAP Loss Per Share $(0.13)  

Adjustment:

Stock-based compensation expense $0.06 Income Taxes (20%) $(0.01) Non-GAAP Loss Per Share $(0.08)  

Conference Call Information

The Company will host a conference call and live webcast for analysts and investors at 5:00 p.m. EST on Thursday, February 25, 2010. During the call, management will discuss the Company’s results for the fourth quarter and full year ended December 31, 2009 and the outlook for the first quarter of 2010. Parties in the United States and Canada may call 877-941-8416 to access the conference call. International parties can access the call at 480-629-9808.

Novatel Wireless will offer a live webcast of the conference call, which will include forward-looking information. The webcast will be accessible from the “Investor Relations” section of the Company’s website at www.novatelwireless.com. The webcast will be archived for a period of 30 days. A telephonic replay of the conference call will also be available for two days beginning two hours after the call. To hear the replay, parties in the United States and Canada should call 800-406-7325 and enter pass code 4200077. International parties should call 303-590-3030 and enter pass code 4200077.

ABOUT NOVATEL WIRELESS

Novatel Wireless, Inc. is a leader in the design and development of innovative wireless broadband access solutions based on 3G and 4G wireless technologies. Novatel Wireless' Intelligent Mobile Hotspot products, software, USB modems and embedded modules enable high-speed wireless Internet access on leading wireless data networks. The Company delivers specialized wireless solutions to carriers, distributors, OEMs and vertical markets worldwide. Headquartered in San Diego, California, Novatel Wireless is listed on NASDAQ: NVTL. For more information please visit www.novatelwireless.com. (NVTLE)

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 outlook for the first quarter of 2010 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 new 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 impact of the current 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 net income and diluted earnings per share exclude stock-based compensation expenses, net of income taxes. Non-GAAP net income and diluted earnings per share assume a tax rate which management believes reflects its long-term effective tax rate.

Non-GAAP net income, diluted earnings per share 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, gross margin or any other performance measure determined in accordance with GAAP. We present non-GAAP net income, diluted earnings per share 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 net income and diluted earnings per share, management excludes stock-based compensation expenses 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 net income and diluted earnings per share also facilitates a comparison of Novatel Wireless’s 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 net income and diluted earnings per share have limitations as an analytical tool, and you should not consider these measures in isolation or as substitutes for GAAP net income and diluted 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 net income and diluted earnings per share are:

• Other companies, including other companies in our industry, may calculate non-GAAP net income and diluted 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 net income and diluted 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 net income, diluted 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) 2010 Novatel Wireless. All rights reserved. The Novatel Wireless name, logo and MiFi 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)         As of December 31, December 31, 2009 2008 (Unaudited) ASSETS   Current assets:   Cash and cash equivalents $ 100,025 $ 77,733 Marketable securities 27,664 58,536 Accounts receivable, net 36,299 40,072 Inventories 24,973 23,229 Deferred tax assets, net 6,831 7,513 Prepaid expenses and other   5,532     9,923   Total current assets 201,324 217,006   Property and equipment, net 14,911 20,225   Marketable securities 48,355 6,962   Intangible assets, net 1,513 1,860   Deferred tax assets, net 16,277 14,402   Other assets   316     276   $ 282,696   $ 260,731       LIABILITIES AND STOCKHOLDERS' EQUITY   Current liabilities:   Accounts payable $ 27,460 $ 23,225 Accrued expenses   23,236     20,628   Total current liabilities 50,696 43,853   Capital lease obligations, long-term 184 269 Other long-term liabilities   20,661     18,647     Total liabilities   71,541     62,769     Stockholders' equity:   Common stock 31 30 Additional paid-in capital 416,579 407,252 Accumulated other comprehensive income 15 62 Accumulated deficit   (180,470 )   (184,382 ) 236,155 222,962 Treasury stock at cost   (25,000 )   (25,000 ) Total stockholders' equity   211,155     197,962     $ 282,696   $ 260,731     NOVATEL WIRELESS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)          

Three Months Ended

Year Ended

December 31,

December 31,

2009 2008 2009 2008 (unaudited) (unaudited) (unaudited)   Net revenues $ 88,636 $ 65,115 $ 337,422 $ 320,973 Cost of revenues   65,395   57,425     249,764   252,231   Gross margin   23,241   7,690     87,658   68,742     Operating costs and expenses: Research and development 11,473 7,171 44,892 34,740 Sales and marketing 5,040 3,469 19,857 18,195 General and administrative   5,922   3,346     20,159   21,550   Total operating costs and expenses   22,435   13,986     84,908   74,485     Operating income (loss) 806 (6,296 ) 2,750 (5,743 )   Other income (expense): Interest income and expense, net 252 769 1,374 4,282 Other income (expense), net   144   (591 )   315   (729 )   Income (loss) before income taxes 1,202 (6,118 ) 4,439 (2,190 )   Provision (benefit) for income taxes 250 (3,136 ) 527 (947 )         Net income (loss) $ 952 $ (2,982 ) $ 3,912 $ (1,243 )   Per share data:   Net income (loss) per share: Basic $ 0.03 $ (0.10 ) $ 0.13 $ (0.04 ) Diluted $ 0.03 $ (0.10 ) $ 0.13 $ (0.04 )    

Weighted average shares used in computation of net income (loss) per share:

Basic 30,973 30,322 30,648 31,159 Diluted 31,657 30,322 31,224 31,159   Reconciliation of GAAP Net Income to Non-GAAP Net Income Three Months Ended December 31, 2009 (in thousands, except per share data) (unaudited)       Earnings Per Share, Net Income Diluted   GAAP $ 952 $ 0.03   Adjustment: Share-based compensation expense (a) $ 1,847   Income tax expense (28%) (b)   (517 ) 1,330 0.04     Non-GAAP net income $ 2,282 $ 0.07  

(a) Adjustments reflect share-based compensation expense recorded under ASC Topic 718

(b) Income tax expense associated with share-based compensation expense is computed based on the tax effect of the Company's non-qualified stock options and restricted stock units.

See "Non -GAAP Financial Measures" for information regarding our use of Non-GAAP financial measures.

Reconciliation of GAAP Net Income to Non-GAAP Net Income Year Ended December 31, 2009 (in thousands, except per share data) (unaudited)       Earnings Per Share, Net Income Diluted   GAAP $ 3,912 $ 0.13   Adjustment: Share-based compensation expense (a) $ 6,882   Income tax expense (19%) (b)   (1,304 ) 5,578 0.17     Non-GAAP net income $ 9,490 $ 0.30  

(a) Adjustments reflect share-based compensation expense recorded under ASC Topic 718

(b) Income tax expense associated with share-based compensation expense is computed based on the tax effect of the Company's non-qualified stock options and restricted stock units.

See "Non -GAAP Financial Measures" for information regarding our use of Non-GAAP financial measures.

Reconciliation of GAAP Gross Margin to Non-GAAP Gross Margin Three Months Ended December 31, 2009 (in thousands, except per share data) (unaudited)     Gross Margin GM %   GAAP $ 23,241 26.2 %   Adjustment: Share-based compensation expense (a) 163 0.2 %     Non-GAAP gross margin $ 23,404 26.4 %  

(a) Adjustments reflect share-based compensation expense recorded under ASC Topic 718

See "Non -GAAP Financial Measures" for information regarding our use of Non-GAAP financial measures.

Novatel Wireless, Inc. Reconciliation of GAAP Income before Income Taxes to EBITDA and Free Cash Flow Three Months and Year Ended December 31, 2009 (in thousands) (unaudited)     Three Months Ended Twelve Months Ended December 31, 2009 December 31, 2009   Income before income taxes $ 1,202 $ 4,439 Depreciation, amortization and impairment charges 2,839 13,086 Share-based compensation expense 1,847 6,882 Other expense (income)   (396 )   (1,689 ) EBITDA 5,492 22,718   Capital expenditures   (2,086 )   (6,836 ) Free cash flow $ 3,406   $ 15,882