Loss Narrows at Novatel Wireless - Analyst Blog

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Novatel Wireless Inc. ( NVTL ) reported adjusted loss per share of one cent in the fourth quarter of 2011, narrower than the Zacks Consensus Estimate of a loss of 8 cents and the prior-year quarter loss of 6 cents per share.

On a GAAP basis, net loss in the reported quarter was $3.4 million or 11 cents per share compared with a net loss of $0.9 million or 3 cents per share in the prior-year quarter.

Total revenue in the reported quarter stood at $109.8 million, down 8% year over year and also below the Zacks Consensus Estimate of $114 million. The year-over-year decline in total revenue was mainly attributable to slowdown in revenue across all its major product portfolios.

Revenue by Product Category

Revenue from Mobile Broadband Devices was $93.9 million, down 11% year over year. Embedded Solutions revenue was $7.8 million, down 29.7% year over year. Asset Management Solutions & Services revenue was also down 12.9% year over year to 8.1 million.

Operational Highlights

Gross margin was 24.5% in the quarter compared with 19.9% in the year-ago quarter. Operating expenses (excluding amortization and Goodwill impairment charges) in the reported quarter were $25.8 million compared with $27.4 million in the prior-year quarter.

During the reported quarter, Novatel generated negative cash flow of $25.2 million from operations compared with a cash consumption of $7.7 million in the year-ago quarter. Free cash flow at the end of fourth quarter 2011 was negative $24.1 million compared with $2.5 million in the previous quarter. At the end of the fourth quarter of 2011, Novatel had approximately $75.4 million in cash & marketable securities on its balance sheet compared with $77.2 million at the end of fiscal 2010. The balance sheet of Novatel remains debt free.

Financial outlook

Management provided revenue guidance for the first quarter of 2012 in the range of $85 million-$110 million. Non-GAAP gross margin is expected to be between 24% and 25%. Non-GAAP EPS is anticipated in the band of a loss of 18 cents per share to profit of 6 cents per share.

Recommendation

Despite beating the Zacks Consensus Estimate, Novatel continues to incur losses. We believe that delay in product launch, stiff competition from Low-cost Asian manufacturers such as ZTE and Huawei Technologies coupled with weak customer base are responsible for such dismal performance. So, in order to recover lost ground, the company is offering innovative products like 4G LTE-capable MiFi Intelligent Mobile Hotspot technology and the world's thinnest 4G LTE-enabled USB modem called Ovatio MC679 to large carriers like Verizon Communication Inc. ( VZ ) and TELUS Corporation ( TU ). Such new product development coupled with a strong product pipeline will create more opportunities for the company going forward.

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

Based in San Diego, CA, the company wireless connectivity services to different devices like PC and smartphones. The company gained popularity mainly due to its MiFi product lines.

 

 


 
NOVATEL WIRELES ( NVTL ): Free Stock Analysis Report
 
VERIZON COMM ( VZ ): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: NVTL , VZ

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