Zacks_Analysts' Blog : Novatel Beats Zacks Estimates - Analyst Blog

Novatel Wireless Inc. (NVTL) declared its second-quarter 2011 financial results after the closing bell yesterday, easily beating the Zacks Consensus Estimate. However, Novatel is still suffering from net losses and management is yet to provide any timeframe when Novatel will again attain profitability.

EPS

On a GAAP basis, net loss in the second quarter of 2011 was $3.9 million or a loss of 12 cents per share compared with a net loss of $22 million or 70 cents per share in the prior-year quarter. Quarterly adjusted (excluding special items) EPS was a loss of 7 cents per share, well below the Zacks Consensus Estimate of a loss of 10 cents per share.

Revenue

Total revenue in the second quarter of 2011 was $118 million, up by a whopping 64.3% year over year, surpassing the Zacks Consensus Estimate of $114 million. This significant increase in revenue was primarily attributable to huge market traction of Novatel’s newly launched 4G-enabled products, especially the 4G MiFi intelligent hotspots and 4G Expedite embedded solutions.

Revenue by Product Category

Revenue from Mobile Broadband Devices was $101.3 million, up 42.9%. Embedded Solutions revenue was $11.8 million, up 55.3% year over year. Solutions & Services revenue was $4.9 million, down 44.3% year over year.

Margins

GAAP gross margin was 22.2% compared with 18.9% in the year-ago quarter. Operating expenses, in the reported quarter, were $29.3 million compared with $21.6 million in the prior-year quarter. However, quarterly operating loss was just $3.1 million compared with an operating loss of $8 million in the prior-year quarter.

Cash Flow

During the second quarter of 2011, Novatel generated approximately $19 million of cash from operations compared with a cash consumption of $6 million in the prior-year quarter. Free cash flow (cash flow from operations excluding capital expenditures) at the end of the reported quarter was $16.5 million compared with a negative $8.8 million in the previous quarter.

Balance Sheet

At the end of second quarter of 2011, Novatel had approximately $75.2 million of cash & marketable securities on its balance sheet compared with $17.4 million at the end of fiscal 2010. The balance sheet of Novatel remains debt free.

Future Financial outlook

Management provided revenue guidance for the third quarter of 2011 in the range of $105 million–$120 million. Non-GAAP gross margin is expected at 23%. Non-GAAP loss per share is anticipated in the band of 10 cents to a break-even.

Recommendation

We believe the recent acquisition of Enfora and a solid financial outlook augur well for the company in the lucrative wireless machine-to-machine (M2M) markets. From May 2011, Novatel started selling 4G LTE-capable Expedite embedded solutions with Verizon Wireless (VZ). We thus maintain our long-term Neutral recommendation onNovatel. Currently, Novatelhas a Zacks #3 Rank, implying a short-term Hold rating on the stock.