Novatel Tops in Q3, Outlook Dismays

 |  About: Novatel Wireless Inc. (MIFI)
by: Zacks Investment Research

Novatel Wireless Inc. (NVTL) declared encouraging third quarter 2009 financial results but its fourth quarter outlook remains lackluster due to weak sales prediction for its innovative MiFi Intelligent Mobile Hotspot platforms.

The reported quarter’s total revenue of $94.3 million was up 20.3% year-over-year and was an improvement of 12.1% sequentially. Quarterly revenue was also better than the Zacks Consensus Estimate of $93 million. This significant top-line improvement was primarily due to massive contribution from MiFi product line. In the reported quarter, MiFi generated $37.9 million or 40.2% of total revenue.

On a GAAP basis, net income in the quarter was $6.2 million or an income of 20 cents per share compared to a net loss of $1.1 million or 3 cents per share in the prior-year quarter and a net loss of $0.8 million or 3 cents per share in the previous quarter. However, adjusted EPS (excluding 4 cents per share of tax benefit) in the reported quarter was 16 cents, well above the Zacks Consensus Estimate of 11 cents.

Quarterly gross margin was 31.6% compared to 21.3% in the year-ago quarter and 22.3% in the previous quarter. Operating expenses in the same quarter were $22.6 million compared to $19.1 million in the prior-year quarter and $19.9 million in the previous quarter.

At the end of the quarter, Novatel had approximately $174.9 million of cash & marketable securities on its balance sheet compared to $143.2 million at the end of the previous year and $146 million at the end of the previous quarter. The company maintains a debt free balance sheet.

Financial Outlook

Management has guided the company’s fourth quarter 2009 revenue to be within the range of $85 million − $95 million. This is below the Zacks Consensus Estimates of $97 million. The main reason for this disappointing revenue outlook is an expected sequential demand weakness for the company’s MiFi product line. Gross margin is forecasted to remain around 28% − 30%. EPS, on a GAAP basis, is forecasted in the range of 4 cents to 12 cents including share-based compensation expenses of 3 cents per diluted share, net of taxes. EPS guidance is also below the Zacks Consensus Estimate of 12 cents.