Yesterday, Novatel Wireless Inc. (NVTL) declared third quarter of 2010 financial results that barely met our expectations. However, the company provided an extremely strong financial outlook for the ensuing fourth quarter, which is well above the current Zacks Consensus Estimate. As a result, in the after-market trade on NASDAQ, stock price of Novatel was up 18 cents (1.66%) to $11.00.
On a GAAP basis, net loss in the quarter was $7.1 million or a loss of 22 cents per share compared with a net income of $6.2 million or an income of 20 cents per share in the prior-year quarter. Quarterly adjusted (excluding charges for M&A activities) EPS was a loss of 19 cents, exactly in line with the Zacks Consensus Estimate.
Revenue
Total revenue of $75.6 million was down 19.8% year over year, missing the Zacks Consensus Estimate of $77 million. This reflects a significant year-over-year decline in sales for all three product lines.
Revenue by Product Category
Revenue in Core product lines declined 10.5% year-over-year to $43.6 million, including USB modems and PC cards. MiFi sales decreased 16.1% year-over-year to $31.8 million. Embedded module sales declined by $7.5 million to $0.02 million primarily due to the end of a contract to supply modules to a producer of e-reader devices.
GAAP gross margin was 17.5% compared to 31.6% in the year-ago quarter. Gross margin declined due to customer mix that reduced average selling prices and expedited freight costs as a result of component shortages. Operating expenses in the reported quarter were $19.6 million compared to $22.6 million in the prior-year quarter.
During the first nine months of 2010, Novatel generated over $13.9 million of cash from operations compared to $34.2 million in the year-ago period. Free cash flow (cash flow from operations less capital expenditures) during the same period was $8.3 million compared to $29.5 million in the prior-year period.
Balance Sheet
At the end of the quarter, Novatel had approximately $183 million of cash & marketable securities on its balance sheet compared to $148.4 million at the end of fiscal year 2009. The balance sheet of Novatel remains free of debt.
Future Financial outlook
Management has stated that the company’s fourth quarter of 2010 revenue will be in the range of $110 million to $115 million. The mid point of $112.5 million is far ahead the current Zacks Consensus Estimate of $90 million.
Gross margin will be around 19%-20%. On non-GAAP basis, fourth quarter 2010 EPS will be in the range of 2 cents to 5 cents. This is significantly above the current Zacks Consensus Estimate of a loss of 13 cents per share.
The primary reason behind this upbeat financial outlook is the recent announcement of Verizon Wireless (VZ) that it will start selling Apple Inc’s (AAPL) 3G iPad bundled with Novatel’s MiFi wireless hotspots from October 28, 2010. We maintain our long-term Neutral recommendation for Novatel. Currently it is a short-term Zacks Rank #3 (Hold) stock.
NOVATEL WIRELES (NVTL): Free Stock Analysis Report
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