Novatel Wireless, Inc. — Q2 2012 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2012. The filing identifies the registrant as Novatel Wireless, Inc.; the request metadata names Inseego Corp.
Business context
Novatel supplied mobile hotspots and modems, embedded wireless products, and machine-to-machine (M2M) and asset-management solutions. It reported two segments: Mobile Computing Products and M2M Products and Solutions.
Financial highlights
Amounts below are in millions except per-share data. Comparisons are with the corresponding 2011 period.
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Revenue | $102.4 | $118.0 | $202.6 | $179.8 |
| Gross profit / margin | $23.3 / 22.7% | $26.2 / 22.2% | $44.2 / 21.8% | $32.2 / 17.9% |
| Operating loss | $(4.4) | $(3.1) | $(42.3) | $(25.2) |
| Net loss | $(4.5) | $(3.9) | $(42.4) | $(26.0) |
| Net loss per share | $(0.14) | $(0.12) | $(1.31) | $(0.81) |
| Operating cash flow | Not separately provided | Not separately provided | $(23.5) | $(17.5) |
- Q2 revenue fell 13.2%, primarily as mobile broadband device sales declined amid competition and M2M sales weakened during the North American transition away from 2G networks. Six-month revenue rose 12.7%, driven by 4G product rollouts, including MiFi hotspots.
- Q2 gross margin improved modestly; six-month margin increased substantially, reflecting stronger 4G product mix and lower purchased-intangible amortization.
- Six-month operating results included a $29.3 million noncash impairment charge: $22.8 million for acquired intangible assets and $6.5 million for goodwill related to the M2M business. Excluding the impairment, the reported operating loss would have been lower, but the filing does not present an adjusted measure.
Liquidity, debt and balance sheet
- At June 30, cash and cash equivalents were $15.2 million and marketable securities totaled $47.2 million, for combined liquidity of $62.4 million, down from $88.8 million at December 31, 2011.
- Working capital was $78.5 million, compared with $81.1 million at year-end. Total assets were $200.4 million; total liabilities were $72.4 million.
- The balance sheet reports no conventional borrowings at June 30. A bank margin facility is secured by cash and securities; the company drew $5.0 million in August 2012, payable on demand. Capital-lease obligations are also reported.
- Six-month investing cash outflow was $9.1 million, including $3.6 million in property and equipment purchases and net purchases of marketable securities. Cash declined by $31.9 million during the period.
Outlook, risks and contingencies
- No numerical revenue or earnings guidance was provided. Management expected to launch CDMA and 3G GSM M2M products later in 2012 and additional 4G, M2M and software products over the next 12 months.
- Management planned approximately $7.0 million of discretionary capital expenditures over the next 12 months and believed available liquidity plus anticipated operating cash flows would cover working-capital needs during that period. It cautioned that disruptions, weak product demand or failure to generate revenue could impair liquidity.
- Key risks include intense competition and selling-price pressure, customer concentration, product-transition execution, reliance on contract manufacturers and some sole-source suppliers, and litigation. The three largest customers represented 63%, 9% and 5% of Q2 revenue, respectively.
- A securities class action remained pending; trial and pretrial dates had not been reset, and the company said the outcome and potential loss could not be estimated. The company had not recorded a significant accrual. A separate shareholder derivative action settled, with final court approval in May 2012; the company’s $0.4 million share of fees had been recorded in 2011.
- The company reported a $51.0 million valuation allowance against $52.0 million of net deferred tax assets, citing cumulative losses and uncertainty about future taxable income.
- Disclosure controls were concluded effective as of June 30, 2012, with no material change in internal control over financial reporting reported during the quarter.
Most important facts to verify
- Confirm the registrant identity: this 2012 filing is for Novatel Wireless, Inc., despite the Inseego metadata.
- Track cash burn and the $5.0 million August draw, including the demand terms and collateral under the bank facility.
- Assess whether 4G growth can offset Q2 revenue contraction and whether planned next-generation M2M launches can reverse segment weakness.
- Monitor top-customer dependence, selling-price pressure, and the unresolved securities litigation and potential costs.
- Review future impairment, tax-asset realizability and warranty accrual developments.