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Novatel Wireless Inc.’s (NVTL - Analyst Report) reported an adjusted loss per share of 32 cents in the third quarter of 2012, exactly in line with the Zacks Consensus Estimate.

However, on a GAAP basis, net loss in the reported quarter was $31.9 million or a loss of 97 cents per share, deteriorating from the year-ago net profit of $4.5 million or 14 cents per share. The decline in profit was primarily due to a one-time goodwill and intangible asset impairment charge of $20.5 million.

Total revenue in the reported quarter stood at $71 million, down 37.3% year over year and was below the Zacks Consensus Estimate of $79 million. The annualized downside in revenue was owing to subdued performance in both its Mobile Broadband Device and Embedded Solution segments.

Revenue by Segment

Segment-wise, Mobile Computing products generated revenue of $65.2 million, down 36.5% year over year. M2M products and solutions revenue was $5.8 million, down 44.9% year over year.

Operational Highlights

Gross margin was 20.6% in the quarter compared with 23.6% in the year-ago quarter. Operating expenses (excluding amortization and goodwill impairment charges) in the reported quarter were $46.5 million compared with $32.7 million in the prior-year quarter.

During the reported quarter, Novatel earned $0.62 million from operations as against a consumption of $9.2 million for operations in the year-ago quarter. Free cash flow was $0.18 million compared with a negative $8.1 million in the previous quarter.

At the end of the third quarter of 2012, Novatel had approximately $56.31 million in cash & marketable securities on its balance sheet compared with $75.4 million at the end of 2011. The balance sheet of Novatel remains debt free.

Financial Outlook

Management provided revenue guidance for the fourth quarter of 2012 in the range of $67–$80 million. According to management, the reduced guidance is based on the uncertainty regarding the sales volume of two of its new MiFi products and the launch timing of the third MiFi product.

Non-GAAP gross margin is expected to be between 22% and 24%. Non-GAAP earnings per share are anticipated in the band of a loss of 31 cents per share to 20 cents per share.


We believe that the continuous launch of innovative products like 4G LTE-capable MiFi Intelligent Mobile Hotspot technology with large carriers like Verizon Communication Inc. (VZ - Analyst Report) will create future growth prospects for the company.

Moreover, Novatel’s diversification into machine-to-machine (M2M) intelligent asset management solutions and newly developed insurance telematics and fleet management products will further boost its top-line growth going forward. However, the company is facing increased competition from low cost Asian manufacturers like ZTE Corp. and Huawei Technologies, who have already launched their own version of intelligent mobile hot spots.

We, thus maintain our long-term Neutral recommendation on Novatel. Currently, the company retains a Zacks #3 Rank, implying a short-term Hold rating on the stock.

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