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Novatel Q4 Loss Wider than Expected; Shares Dip

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Novatel Wireless Inc. posted dismal financial results for the fourth quarter of 2013. On a GAAP basis, net loss in the reported quarter was $21.3 million or a loss of 63 cents per share compared with net loss of $14.9 million or a loss of 45 cents in the year-ago quarter. However, adjusted loss per share of 18 cents is wider than the Zacks Consensus Estimate of a loss of 15 cents per share.

Increased competition, higher operating expenses and a slashed outlook for the upcoming quarter have hurt its stock price. Following the result declaration, stock price fell by 53 cents or 18.6% to $2.32, during the aftermarket trade.

Total revenue in the reported quarter stood at $65.3 million, down 7.6% year over year and also below the Zacks Consensus Estimate of $75 million. Segment wise, Mobile Computing Products generated revenues of $57 million, down 10.8% from the year-ago quarter. M2M Products and Solutions revenues were $8.3 million, up 22.1% year over year.

Quarterly gross margin was 18.4% compared with 19.2% in the year-ago quarter. Operating expenses in the reported quarter were $33.5 million against $28.2 million in the year-earlier quarter. Quarterly operating loss was $21.4 million versus $14.6 million in the prior-year quarter.

During the fourth quarter of 2013, Novatel consumed $22.3 million of cash from operations compared with $7 million in the year-ago quarter. Free cash flow was a negative $22.4 million against $7.6 million in the prior-year quarter. At the end of the fourth quarter of 2013, Novatel had approximately $19.5 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

For the first quarter of 2014, management expects revenues to be within $50–$54 million while Mobile Computing and M2M revenues are anticipated to be in the range of $39–$42 million and $11–$12 million, respectively. Non-GAAP gross margin is expected to be between 21% and 22%. Non-GAAP earnings per share are anticipated in the band of a loss of 22 to 15 cents per share.

Our Take

Novatel supplies its LTE-based MiFi devices to the top three carriers in the U.S., namely, Verizon Communication Inc. (VZ - Free Report) , AT&T, Inc. (T - Free Report) and Sprint Corp. (S - Free 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 who provide reasonably-priced devices. Moreover, in recent times, most smartphones have in-built hotspot facilities, thus completely bypassing the need for a MiFi modem.

Currently, Novatel carries a Zacks Rank #3 (Hold).

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