Novatel Wireless Q3 Loss Narrows Y/Y, Revenues Decline

Novatel Wireless Inc. (MIFI) posted dismal financial results for the third quarter of 2014. On a GAAP basis, net loss in the reported quarter came in at $8.8 million or a loss of 23 cents per share compared with a net loss of $5.1 million or a loss of 15 cents in the year-ago quarter. However, adjusted loss per share of 7 cents was significantly narrower than the third-quarter 2013 loss of 63 cents.

Total revenue in the reported quarter stood at $44.3 million, down 52.2% year over year. Segment wise, Mobile Computing Products generated revenues of $34.8 million, down 58.6% from the year-ago quarter. M2M Products and Solutions revenues totaled $9.5 million, highlighting a fall of 10.5% year over year.

Quarterly gross margin stood at 23.7% compared with 22% in the year-ago quarter. Operating expenses, in the reported quarter, were $14.4 million against $25.2 million in the year-earlier quarter. Quarterly operating loss was $3.9 million versus $4.9 million in the prior-year quarter.

During the third quarter, Novatel consumed was $10.5 million of cash from operations compared with $10.7 million in the year-ago quarter. Free cash flow was a negative $10.8 million against a cash consumption of $12 million in the prior-year quarter. At the end of the third quarter, Novatel had approximately $25.3 million in cash and marketable securities on its balance sheet compared with $19.5 million at the end of 2013. Notably, the balance sheet of Novatel remains debt free.

Financial outlook

For the fourth quarter of 2014, management expects revenues within $50–$55 million. Non-GAAP gross margin is projected between 23% and 25% while non-GAAP operating expenses are estimated to remain flat with the prior quarter. Moreover, non-GAAP adjusted EBITDA is likely to range from $0.0–$1 million. Non-GAAP earnings per share are anticipated in the band of a loss of 3 cents to a breakeven.

Our Take

Novatel supplies LTE-based MiFi devices to the top three carriers in the U.S., namely, Verizon Communication Inc. (VZ), AT&T, Inc. (T) and Sprint Corp. (S). In an attempt to drive Mi-Fi usage, the company is continuously upgrading its software and launching innovative devices.

However, the company is facing stiff competition from Asian manufacturers like ZTE and Huawei Technologies who provide low-cost devices. Moreover, in recent times, most smartphones have in-built hotspot facilities, thus completely bypassing the need for a Mi-Fi modem.