Novatel Reports Q1 Loss as Expected - Analyst Blog

Novatel Wireless Inc. NVTL posted dismal financial results for the first quarter of 2014. On a GAAP basis, net loss in the reported quarter was $9 million or a loss of 26 cents per share compared with a net loss of $9.1 million or a loss of 27 cents in the year-ago quarter. However, adjusted loss per share of 22 cents was in line with the Zacks Consensus Estimate.

Total revenue in the reported quarter stood at $48.3 million, down 77.8% year over year and also below the Zacks Consensus Estimate of $52 million. Segment wise, Mobile Computing Products generated revenues of $36.2 million, down 108.8% from the year-ago quarter. M2M Products and Solutions revenues totaled $12.1 million, up 14.9% year over year.

Quarterly gross margin was 20.9% compared with 19.5% in the year-ago quarter. Operating expenses in the reported quarter were $19 million against $26 million in the year-earlier quarter. Quarterly operating loss was $8.9 million versus $9.2 million in the prior-year quarter.

During the first quarter of 2014, Novatel consumed $5.4 million of cash from operations compared with $1.9 million in the year-ago quarter. Free cash flow was a negative $4.9 million against a cash consumption of $1 million in the prior-year quarter. At the end of the first quarter, Novatel had approximately $26.8 million in cash and marketable securities on its balance sheet compared with $19.5 million at the end of 2013. The balance sheet of Novatel remains debt free.
 
Financial outlook

For the second quarter of 2014, management expects revenues within $37–$43 million while Mobile Computing and M2M revenues are anticipated in the range of $27–$32 million and $10–$11 million, respectively. Non-GAAP gross margin is projected to be between 21% and 23%. Non-GAAP earnings per share are anticipated in the band of a loss of 22 to 15 cents a share.

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 MiFi 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 MiFi modem.

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