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Novatel Wireless Inc. (NVTL - Analyst Report) posted dismal financial results for the third quarter of 2013. On a GAAP basis, net loss in the reported quarter was $5.1 million or a loss of 15 cents per share compared with the year-ago net loss of $31.9 million or a loss of 97 cents. However, adjusted loss per share of 7 cents is narrower than the Zacks Consensus Estimate of a loss of 14 cents per share.

Increased competition and a weaker outlook for the upcoming quarter have hurt its stock price. Following the result declaration, stock price fell by 76 cents or 26.12% to $2.15, during the aftermarket trade.

Total revenue in the reported quarter stood at $92.7 million, up 30.6% year over year but below the Zacks Consensus Estimate of $95 million. Segment wise, Mobile Computing Products generated revenues of $84.1 million, down 29% from the year-ago quarter. M2M Products and Solutions revenues were $8.6 million, up 48.3% year over year.

Quarterly gross margin was 22% compared with 20.6% in the year-ago quarter. Operating expenses in the reported quarter were $25.2 million against $46.5 million in the year-ago quarter. Quarterly operating loss was $4.9 million versus $31.9 million in the prior-year quarter.

During the third quarter of 2013, Novatel consumed $10.7 million of cash from operations compared with cash generation of $0.6 million in the year-ago quarter. Free cash flow was a negative $12 million compared with $0.2 million in the prior-year quarter. At the end of the third quarter of 2013, Novatel had approximately $40.1 million in cash and marketable securities on its balance sheet compared with $54.1 million at the end of 2012. The balance sheet of Novatel remains debt free.
Financial outlook

Management provided revenue guidance for the third quarter of 2013 of $66–$78 million. Non-GAAP gross margin is expected to be between 21% and 23%. Non-GAAP earnings per share are anticipated in the band of a loss of 14 cents per share to break-even.

Our Take

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

However, the company is facing stiff competition from Asian manufacturers like ZTE and Huawei Technologies, which provide economical devices. Moreover, in recent times, most smartphones have in-built hotspot facilities, thus completely bypassing the need for any MiFi modem.


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