Novatel Wireless Reports Third Quarter 2016 Financial Results
SaaS, Software and Services Revenues Increased at an Annualized Rate of 36% during the Third Quarter
Improved Adjusted EBITDA Achieved for Fourth Consecutive Quarter
Subscribers for Ctrack® Fleet Management Telematics Solutions Grew at an Annualized Rate of 20% during the Third Quarter
SAN DIEGO—November 3, 2016 -- Novatel Wireless, Inc. (NASDAQ: MIFI), a leading provider of solutions for the Internet of Things (“IoT”), including software-as-a-service (“SaaS”) solutions for the fleet telematics market, announced financial results for the third quarter ended September 30, 2016.
“Novatel Wireless has been on an incredible journey over the past 12 months. With the pending sale of our MiFi business expected to close in the first quarter of 2017, the Company’s transformation into a provider of comprehensive IoT solutions is nearly complete. We now have approximately 590,000 subscribers to the Company’s high-margin SaaS, software and services offerings, with 20% annualized growth in subscribers to the Company’s Ctrack fleet management telematics solutions during the third quarter,” said Sue Swenson, Chair and CEO of Novatel Wireless. “With another record quarter for SaaS, software and services revenues driving the Company to a fourth consecutive quarter of improved adjusted EBITDA, I look forward to a brighter future as we move beyond our hardware roots and emerge as a pure-play IoT solutions provider.”
Third Quarter 2016 Financial Highlights
The Company announced the following U.S. GAAP (“GAAP”) financial results for the third quarter of 2016:
| • | Revenue increased by 12.2% to $60.9 million in the third quarter of 2016, compared to $54.3 million in the third quarter of 2015. |
| • | Revenue from SaaS, software and services increased to $14.8 million in the third quarter of 2016, from $2.2 million in the third quarter of 2015, as the Company continued its focus on IoT SaaS and services solutions, including the Ctrack® telematics solutions (“Ctrack”) that the Company acquired in the fourth quarter of 2015. Revenue from SaaS, software and services increased to a record 24.3% of the Company’s total revenue in the third quarter of 2016, compared to 4.1% of total revenue in the third quarter of 2015. |
| • | Revenue from hardware products was $46.1 million in the third quarter of 2016, a decrease of 11.3% from $52.0 million in the third quarter of 2015, as the Company continues to strategically de-emphasize lower margin hardware-only sales in favor of bundled solutions that include higher-margin SaaS, software and services offerings. |
| • | Revenue from Ctrack products, which include a mix of hardware and SaaS, software and services sold as a bundled telematics solution, was $16.6 million in the third quarter of 2016. |
| • | Net loss was ($18.6 million), or ($0.34) per share, in the third quarter of 2016, compared to a net loss of ($20.8 million), or ($0.38) per share, in the third quarter of 2015. Net loss in the third quarter of 2016 includes a $2.8 million legal settlement entered into by the Company in September 2016 in connection with a breach of contract claim related to the Company’s hardware products, a $2.4 million reduction in the gain recognized in the second quarter associated with the Company’s divestiture of certain hardware modules and related assets in April 2016, $2.6 million of impairment charges primarily related to certain developed technologies acquired with Feeney Wireless (“FW”) in March 2015, and $3.3 million of other charges related to the Company’s acquisition and divestiture activities. |
| • | As of September 30, 2016, the Company had cash and cash equivalents of $17.2 million, with no amounts drawn down on its revolving credit facility with Wells Fargo Bank. |
The Company also announced the following non-GAAP financial results for the third quarter of 2016. A reconciliation of these non-GAAP financial measures to the Company’s GAAP financial results is included in the tables accompanying this news release:
| • | Non-GAAP gross profit increased by 56.7% to $23.5 million in the third quarter of 2016, from $15.0 million in the third quarter of 2015, driven by a combination of increased total revenues and the contribution from the Company’s Ctrack and FW-branded SaaS, software and services revenues. Ctrack and FW were both acquired by the Company during 2015. |
1
Overall non-GAAP gross margin increased to a record 38.7% in the third quarter of 2016, compared to 27.7% in the third quarter of 2015, as the Company continued its transition toward an improved mix of higher-margin IoT solutions with significant SaaS and recurring revenue components.
| • | Non-GAAP gross margin on SaaS, software and services was 67.3% in the third quarter of 2016, compared sequentially to 74.2% in the second quarter of 2016, primarily driven by revenues from high-margin SaaS and software solutions delivered by Ctrack and FW, partially offset by increased revenues from larger telematics customers. SaaS, software and services revenues were not a meaningful contributor to the Company’s revenues in the third quarter of 2015, as the Ctrack acquisition did not occur until the fourth quarter of 2015. |
| • | Non-GAAP gross margin on hardware products increased to 29.5% in the third quarter of 2016, compared to 25.4% in the third quarter of 2015, primarily as a result of reduced sales of lower-margin legacy hardware products in the third quarter of 2016. |
| • | The Company’s Ctrack telematics solutions which include a mix of hardware, SaaS, software and services, generated non-GAAP gross margins of 63.3% in the third quarter of 2016, continuing to drive the Company’s overall gross margin expansion since the Company’s acquisition of Ctrack in the fourth quarter of 2015. |
| • | Non-GAAP operating expenses were $23.3 million in the third quarter of 2016, compared to $16.3 million in the third quarter of 2015, an increase of 42.9%, primarily due to the acquisition of Ctrack in the fourth quarter of 2015. During the third quarter of 2016, the Company implemented restructuring initiatives intended to improve its strategic focus on its most profitable business lines while de-prioritizing certain hardware-only product lines to non-carrier customers. |
| • | Adjusted EBITDA increased to $2.3 million in the third quarter of 2016, compared sequentially to $1.7 million in the second quarter of 2016, and also compared year-over-year to ($0.3 million) in the third quarter of 2015. Adjusted EBITDA improved in the third quarter of 2016 due to the Company’s emphasis on growing SaaS, software and services revenue, while also rationalizing the costs associated with its hardware business, in an effort to generate improved performance across multiple areas of the Company. Adjusted EBITDA contributed by Ctrack’s telematics solutions was $2.7 million in the third quarter of 2016. |
| • | Non-GAAP net loss for the third quarter of 2016 was ($1.8 million), or ($0.03) per share, compared sequentially to ($3.4 million), or ($0.06) per share, in the second quarter of 2016, and also compared year-over-year to ($1.9 million), or ($0.04) per share, in the third quarter of 2015, as the Company continues to integrate its acquisition of Ctrack and transition toward an improved mix of higher-margin IoT solutions with significant SaaS and recurring revenue components. |
Other Key Metrics
| Q3-2016 | Q2-2016 | Q3-2015 | |||||||
| Revenue | |||||||||
| SaaS, Software and Services Revenue | $14.8 million | $13.7 million | $2.2 million | ||||||
| Non-GAAP Gross Margin | 67.3% | 74.2% | 79.9% | ||||||
| Hardware Revenue | $46.1 million | $49.1 million | $52.0 million | ||||||
| Non-GAAP Gross Margin | 29.5% | 27.8% | 25.4% | ||||||
IoT Revenue(1) | $23.1 million | $23.9 million | $17.1 million | ||||||
| Non-GAAP Gross Margin | 58.5% | 57.8% | 33.7% | ||||||
MiFi Revenue(1) | $37.8 million | $38.9 million | $37.1 million | ||||||
| Non-GAAP Gross Margin | 26.5% | 25.7% | 26.3% | ||||||
| Subscribers | |||||||||
| Ctrack Fleet Subscribers | 182,000 | 174,000 | n/a | ||||||
| Ctrack Non-Fleet Subscribers | 229,000 | 215,000 | n/a | ||||||
| FW Subscribers | 179,000 | 168,000 | 159,000 | ||||||
| Total Consolidated Subscribers | 590,000 | 557,000 | 159,000 | ||||||
_____________________________________________________
| (1) | The Company currently places primary emphasis on its mix of SaaS, software and services revenues as compared to its hardware revenues. However, since the Company has historically reported its mix of MiFi (or mobile computing) revenues as compared to its IoT (or M2M) revenues, these metrics are presented as well. |
2
Inseego Corp.
The Company also announced today that it plans to reorganize its business by creating a new holding company structure in connection with its agreement to sell the Novatel Wireless broadband business to T.C.L. Industries Holdings (H.K.) Limited (“TCL”). Effective November 9, 2016, the Company will be known as Inseego Corp. (“Inseego”), the name of the new holding company. The new corporate name is part of a branding initiative focused on the Company’s IoT strategy and product roadmap, including its SaaS solutions for the fleet telematics market, after the sale of the Company’s mobile broadband business (including its MiFi® branded hotspots and USB modem product lines) to TCL. The divestiture to TCL is expected to close in the first quarter of 2017.
As part of its branding initiative, the Company will trade as “INSG” on the Nasdaq Global Select Market, effective at the start of trading on November 9, 2016.
Fourth Quarter and Future Business Outlook
The following statements are forward-looking and actual results may differ materially. Please see the section titled “Cautionary Note Regarding Forward-Looking Statements” at the end of this news release. A more detailed description of risks related to our business is included in the reports filed by the Company with the Securities and Exchange Commission (the “SEC”).
Our guidance for the fourth quarter of 2016 reflects current business indicators and expectations as of the date of this news release, including current exchange rates for foreign currencies.
| Fourth Quarter 2016 Outlook | |
| Revenue | $58 million - $63 million |
| Non-GAAP Gross Margin | 36.5% - 38.5% |
| Non-GAAP Operating Expenses | $21.0 million - $23.0 million |
| Adjusted EBITDA | $3.5 million - $4.5 million |
| Non-GAAP Net Loss Per Share | $(0.03) - $0.00 |
| Weighted-Average Shares Outstanding | approximately 55 million |
Our consolidated fourth quarter outlook above is inclusive of the following anticipated contribution from Ctrack:
| Revenue | $15.5 million - $17.5 million |
| Non-GAAP Gross Margin | 62% - 67% |
| Adjusted EBITDA | $2.2 million - $3.2 million |
In addition, commencing in the first quarter of 2017, after the expected closing of the transaction with TCL, we anticipate that the Company will be generating approximately $90 million in annualized revenues, with non-GAAP gross margin of more than 60% and adjusted EBITDA margin of approximately 10%.
Conference Call Information
Novatel Wireless will host a conference call and live webcast for analysts and investors today at 5:00 p.m. ET. To access the conference call:
| • | In the United States, call 1-844-881-0135 |
| • | International parties can access the call at 1-412-317-6727 |
Novatel Wireless will offer a live audio webcast of the conference call, which will be accessible from the “Investors” section of the Company's website at www.novatelwireless.com. An audio replay of the conference call will also be available beginning one hour after the call, through November 17, 2016. To hear the replay, parties in the United States may call 1-877-344-7529 and enter access code 10094743#. International parties may call 1-412-317-0088 and enter the same code.
About Novatel Wireless, Inc. (Inseego Corp.)
Novatel Wireless, Inc., will be an Inseego Corp. company effective November 9, 2016. Inseego is a leading global provider of software-as-a-service (SaaS) and solutions for the Internet of Things (IoT). Inseego sells its telematics solutions under the
3
Ctrack brand, including its fleet management, asset tracking and monitoring, stolen vehicle recovery, and usage-based insurance platforms. Inseego also sells business connectivity solutions and device management services through Novatel Wireless, Inc. and Feeney Wireless (FW). With over 30 years of experience, Inseego provides customers with secure and insightful solutions and analytics, with approximately 590,000 global subscribers, including 182,000 fleet management subscribers. The Company is headquartered in San Diego, California. www.novatelwireless.com and www.inseego.com @inseego (Twitter)
(currently Nasdaq:MIFI) (Nasdaq:INSG as of November 9, 2016)
Cautionary Note Regarding Forward-Looking Statements
Some of the information presented in this news release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In this context, forward-looking statements often address expected future business and financial performance and often contain words such as “may,” “estimate,” “anticipate,” “believe,” “expect,” “intend,” “plan,” “project,” “will” and similar words and phrases indicating future results. The information presented in this news release related to our outlook for the fourth quarter ending December 31, 2016 and our future business outlook, the future demand for our products, the expected impact of acquisition, divestiture and restructuring activities, statements made by Sue Swenson, the Company’s plans to reorganize its business by creating a new holding company structure, including the timing thereof and the benefits expected to be realized from the new structure, as well as other statements that are not purely statements of historical fact, are forward-looking in nature. These forward-looking statements are made on the basis of management's current expectations, assumptions, estimates and projections and are subject to significant risks and uncertainties that could cause actual results to differ materially from those anticipated in such forward-looking statements. We therefore cannot guarantee future results, performance or achievements. Actual results could differ materially from our expectations.
Factors that could cause actual results to differ materially from the Company’s expectations are set forth as risk factors in the Company's SEC reports and filings and include (1) the future demand for wireless broadband access to data and fleet management software and services, (2) the growth of wireless wide-area networking and fleet management software and services, (3) customer and end-user acceptance of the Company's current product and service offerings and market demand for the Company's anticipated new product and service offerings, (4) increased competition and pricing pressure from participants in the markets in which the Company is engaged, (5) dependence on third party manufacturers and key component suppliers worldwide, (6) the success of the Company’s corporate development activities, including integration of Ctrack and FW and divestitures of lines of business that are not essential to the Company’s strategy, (7) unexpected liabilities or expenses, (8) the Company's ability to introduce new products and services in a timely manner, (9) litigation, regulatory and IP developments related to our products or components of our products, (10) dependence on a small number of customers for a significant portion of the Company’s revenues and (11) the Company's plans and expectations relating to acquisitions, divestitures, strategic relationships, international expansion, software and hardware developments, personnel matters and cost containment initiatives, including restructuring activities.
These factors, as well as other factors described in the reports filed by the Company with the SEC (available at www.sec.gov), could cause actual results to differ materially from those expressed in the Company’s forward-looking statements. The Company assumes no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future, except as otherwise required pursuant to applicable law and our on-going reporting obligations under the Securities Exchange Act of 1934, as amended.
Non-GAAP Financial Measures
Novatel Wireless, Inc. has provided financial information in this news release that has not been prepared in accordance with GAAP. Non-GAAP gross profit, gross margin, operating expenses, adjusted EBITDA, net loss and net loss per share exclude restructuring charges, share-based compensation expense, amortization of the debt discount and debt issuance costs associated with the Company’s convertible notes, a legal settlement in September 2016 related to the Company’s hardware products, a reduction in the gain recognized in the second quarter of 2016 associated with the Company’s divestiture of certain hardware modules and related assets in April 2016, impairment charges primarily related to certain developed technologies acquired with FW in March 2015, and other charges related to the Company’s acquisition and divestiture activities. Adjusted EBITDA also excludes interest, taxes, depreciation and amortization (unrelated to acquisitions and the convertible notes), and foreign currency transaction gains and losses.
Non-GAAP gross profit, gross margin, operating expenses, adjusted EBITDA, net loss and net loss per share are supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. These non-GAAP financial measures have limitations as an analytical tool and are not intended to be used in isolation or as a substitute for gross profit, gross margin, operating expenses, net loss, net loss per share or any other performance measure determined in accordance with
4
GAAP. We present non-GAAP gross profit, gross margin, operating expenses, adjusted EBITDA, net loss and net loss per share because we consider each to be an important supplemental measure of our performance.
Management uses these non-GAAP financial measures to make operational decisions, evaluate the Company's performance, prepare forecasts and determine compensation. Further, management believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing the Company's performance when planning, forecasting and analyzing future periods. Share-based compensation expenses are expected to vary depending on the number of new grants issued to both current and new employees and changes in the Company's stock price, stock market volatility, expected option term and risk-free interest rates, all of which are difficult to estimate. In calculating non-GAAP gross profit, gross margin, operating expenses, adjusted EBITDA, net loss and net loss per share, management excludes certain non-cash and one-time items in order to facilitate comparability of the Company's operating performance on a period-to-period basis because such expenses are not, in management's view, related to the Company's ongoing operating performance. Management uses this view of the Company’s operating performance for purposes of comparison with its business plan and individual operating budgets and in the allocation of resources.
The Company further believes that these non-GAAP financial measures are useful to investors in providing greater transparency to the information used by management in its operational decision-making. The Company believes that the use of non-GAAP gross profit, gross margin, operating expenses, adjusted EBITDA, net loss and net loss per share also facilitates a comparison of our underlying operating performance with that of other companies in our industry, which use similar non-GAAP financial measures to supplement their GAAP results.
In the future, the Company expects to continue to incur expenses similar to the non-GAAP adjustments described above, and exclusion of these items in the presentation of our non-GAAP financial measures should not be construed as an inference that these costs are unusual, infrequent or non-recurring. Investors and potential investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. The limitations of relying on non-GAAP financial measures include, but are not limited to, the fact that other companies, including other companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting their usefulness as a comparative tool.
Investors and potential investors are encouraged to review the reconciliation of our non-GAAP financial measures contained within this news release with our GAAP financial results.
(C) 2016 Novatel Wireless, Inc. All rights reserved. The Novatel Wireless, Inseego, Ctrack and FW names and logos are trademarks of Novatel Wireless, Inc.
Additional Information and Where to Find It
Following the planned reorganization, the stockholders of Inseego will be asked to approve the sale of the Company’s mobile broadband business to TCL. In order to solicit this approval, Inseego will file documents with the SEC, including a definitive proxy statement relating to the proposed sale. The definitive proxy statement will also be mailed to Inseego’s stockholders in connection with the proposed sale. Investors and security holders are urged to read these documents when they become available because they will contain important information about Inseego, the mobile broadband business and the proposed sale. Investors and security holders may obtain free copies of these documents and other related documents when they are filed with the SEC at the SEC’s web site at www.sec.gov or by directing a request to Inseego, c/o Novatel Wireless, Inc., 9645 Scranton Road, Suite 205, San Diego, California 92121, Attention: Stockholder Services.
Inseego and its directors and executive officers may be deemed participants in the solicitation of proxies from the stockholders of Inseego in connection with the proposed sale. Information regarding the interests of these directors and executive officers in the proposed transaction will be included in the definitive proxy statement when it is filed with the SEC. Additional information regarding the directors and executive officers of Inseego is also included in Novatel Wireless, Inc.’s Annual Report on Form 10‑ K for the year ended December 31, 2015, which was filed with the SEC on March 15, 2016 and the definitive proxy statement relating to Novatel Wireless, Inc.’s 2016 Annual Meeting of Stockholders, which was filed with the SEC on April 29, 2016. These documents are available free of charge at the SEC’s web site at www.sec.gov and from Stockholder Services at Novatel Wireless, as described above.
###
5
Investor Relations Contact:
Michael Sklansky
(858) 431-0792
msklansky@nvtl.com
Source: Novatel Wireless, Inc.
6
NOVATEL WIRELESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2016 | 2015 | 2016 | 2015 | ||||||||||||
| Net revenues: | |||||||||||||||
| Hardware | $ | 46,096 | $ | 52,049 | $ | 149,402 | $ | 154,332 | |||||||
| SaaS, software and services | 14,785 | 2,219 | 41,234 | 5,097 | |||||||||||
| Total net revenues | 60,881 | 54,268 | 190,636 | 159,429 | |||||||||||
| Cost of net revenues: | |||||||||||||||
| Hardware | 32,768 | 39,155 | 109,395 | 115,753 | |||||||||||
| SaaS, software and services | 5,189 | 645 | 13,896 | 1,251 | |||||||||||
| Total cost of net revenues | 37,957 | 39,800 | 123,291 | 117,004 | |||||||||||
| Gross profit | 22,924 | 14,468 | 67,345 | 42,425 | |||||||||||
| Operating costs and expenses: | |||||||||||||||
| Research and development | 7,942 | 7,687 | 24,248 | 28,135 | |||||||||||
| Sales and marketing | 7,953 | 3,948 | 24,062 | 12,403 | |||||||||||
| General and administrative | 14,551 | 9,110 | 34,744 | 23,462 | |||||||||||
| Amortization of purchased intangible assets | 1,008 | 273 | 2,912 | 1,096 | |||||||||||
| Impairment of purchased intangible assets | 2,594 | — | 2,594 | — | |||||||||||
| Restructuring charges, net of recoveries | 794 | 953 | 1,685 | 789 | |||||||||||
| Total operating costs and expenses | 34,842 | 21,971 | 90,245 | 65,885 | |||||||||||
| Operating loss | (11,918 | ) | (7,503 | ) | (22,900 | ) | (23,460 | ) | |||||||
| Other income (expense): | |||||||||||||||
| Non-cash change in acquisition-related escrow | — | (10,533 | ) | — | (10,317 | ) | |||||||||
| Interest expense, net | (3,877 | ) | (2,407 | ) | (11,712 | ) | (3,319 | ) | |||||||
| Other income (expense), net | (3,560 | ) | (359 | ) | 986 | (658 | ) | ||||||||
| Loss before income taxes | (19,355 | ) | (20,802 | ) | (33,626 | ) | (37,754 | ) | |||||||
| Income tax provision (benefit) | (799 | ) | 45 | (478 | ) | 139 | |||||||||
| Net loss | (18,556 | ) | (20,847 | ) | (33,148 | ) | (37,893 | ) | |||||||
| Less: Net income attributable to noncontrolling interests | (11 | ) | — | (24 | ) | — | |||||||||
| Net loss attributable to Novatel Wireless, Inc. | $ | (18,567 | ) | $ | (20,847 | ) | $ | (33,172 | ) | $ | (37,893 | ) | |||
| Per share data: | |||||||||||||||
| Net loss per share: | |||||||||||||||
| Basic and diluted | $ | (0.34 | ) | $ | (0.38 | ) | $ | (0.62 | ) | $ | (0.73 | ) | |||
| Weighted-average shares used in computation of net loss per share: | |||||||||||||||
| Basic and diluted | 53,876,795 | 55,180,537 | 53,584,410 | 51,647,970 | |||||||||||
7
NOVATEL WIRELESS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
| September 30, 2016 | December 31, 2015 | ||||||
| (Unaudited) | |||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 17,165 | $ | 12,570 | |||
| Accounts receivable, net | 27,497 | 35,263 | |||||
| Short-term investments | — | 1,267 | |||||
| Inventories | 39,970 | 55,837 | |||||
| Prepaid expenses and other | 12,390 | 6,039 | |||||
| Total current assets | 97,022 | 110,976 | |||||
| Property, plant and equipment, net | 7,820 | 8,812 | |||||
| Rental assets, net | 6,582 | 6,155 | |||||
| Intangible assets, net | 41,007 | 43,089 | |||||
| Goodwill | 33,117 | 29,520 | |||||
| Other assets | 36 | 201 | |||||
| Total assets | $ | 185,584 | $ | 198,753 | |||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
| Current liabilities: | |||||||
| Accounts payable | $ | 32,397 | $ | 35,286 | |||
| Accrued expenses and other current liabilities | 37,091 | 25,613 | |||||
| DigiCore bank facilities | 2,702 | 3,313 | |||||
| Total current liabilities | 72,190 | 64,212 | |||||
| Long-term liabilities: | |||||||
| Convertible senior notes, net | 88,796 | 82,461 | |||||
| Revolving credit facility | — | — | |||||
| Deferred tax liabilities, net | 3,453 | 3,475 | |||||
| Other long-term liabilities | 13,386 | 18,142 | |||||
| Total liabilities | 177,825 | 168,290 | |||||
| Stockholders’ equity: | |||||||
| Common stock | 54 | 53 | |||||
| Additional paid-in capital | 506,141 | 502,337 | |||||
| Accumulated other comprehensive loss | (1,868 | ) | (8,507 | ) | |||
| Accumulated deficit | (496,623 | ) | (463,451 | ) | |||
| Total stockholders’ equity attributable to Novatel Wireless, Inc. | 7,704 | 30,432 | |||||
| Noncontrolling interests | 55 | 31 | |||||
| Total stockholders’ equity | 7,759 | 30,463 | |||||
| Total liabilities and stockholders’ equity | $ | 185,584 | $ | 198,753 | |||
8
NOVATEL WIRELESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2016 | 2015 | 2016 | 2015 | ||||||||||||
| Cash flows from operating activities: | |||||||||||||||
| Net loss | $ | (18,556 | ) | $ | (20,847 | ) | $ | (33,148 | ) | $ | (37,893 | ) | |||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||||||||||
| Depreciation and amortization | 3,603 | 1,505 | 10,836 | 4,484 | |||||||||||
| Amortization of acquisition-related inventory step-up | — | — | 1,829 | 765 | |||||||||||
| Provision for bad debts, net of recoveries | (38 | ) | 105 | 96 | 62 | ||||||||||
| Provision for excess and obsolete inventory | 1,027 | 511 | 2,580 | 810 | |||||||||||
| Share-based compensation expense | 1,115 | 1,254 | 3,437 | 3,227 | |||||||||||
| Amortization of debt discount and debt issuance costs | 2,112 | 2,112 | 6,335 | 2,581 | |||||||||||
| Gain on divestiture and sale of other assets, net of loss on disposal of assets | 2,598 | — | (4,290 | ) | — | ||||||||||
| Loss on impairment of purchased intangible assets | 2,594 | — | 2,594 | — | |||||||||||
| Non-cash change in acquisition-related escrow | — | 10,533 | — | 10,317 | |||||||||||
| Deferred income taxes | (527 | ) | — | (735 | ) | — | |||||||||
| Non-cash earn-out compensation expense | 2,109 | — | 2,109 | — | |||||||||||
| Unrealized foreign currency transaction loss, net | 967 | — | 3,038 | — | |||||||||||
| Other | (712 | ) | — | 183 | — | ||||||||||
| Changes in assets and liabilities, net of effects from acquisitions and divestiture: | |||||||||||||||
| Accounts receivable | 5,423 | (832 | ) | 9,881 | (6,664 | ) | |||||||||
| Inventories | (8,635 | ) | (1,100 | ) | 3,757 | 6,039 | |||||||||
| Prepaid expenses and other assets | (5,713 | ) | (1,339 | ) | (6,186 | ) | (574 | ) | |||||||
| Accounts payable | 10,139 | 1,048 | (7,077 | ) | (13,868 | ) | |||||||||
| Accrued expenses, income taxes, and other | 3,313 | 149 | 4,812 | 4,417 | |||||||||||
| Net cash provided by (used in) operating activities | 819 | (6,901 | ) | 51 | (26,297 | ) | |||||||||
| Cash flows from investing activities: | |||||||||||||||
| Acquisition-related escrow | — | — | — | (88,274 | ) | ||||||||||
| Acquisitions, net of cash acquired | (1,875 | ) | — | (3,750 | ) | (9,063 | ) | ||||||||
| Purchases of property, plant and equipment | (382 | ) | (383 | ) | (875 | ) | (996 | ) | |||||||
| Proceeds from the sale of property, plant and equipment | 247 | — | 392 | — | |||||||||||
| Proceeds from the sale of divested assets | 2,050 | — | 11,300 | — | |||||||||||
| Proceeds from the sale of short-term investments | — | — | 1,210 | — | |||||||||||
| Purchases of intangible assets and additions to capitalized software costs | (774 | ) | — | (2,092 | ) | (224 | ) | ||||||||
| Net cash provided by (used in) investing activities | (734 | ) | (383 | ) | 6,185 | (98,557 | ) | ||||||||
| Cash flows from financing activities: | |||||||||||||||
| Gross proceeds from the issuance of convertible senior notes | — | — | — | 120,000 | |||||||||||
| Payment of issuance costs related to convertible senior notes | — | — | — | (3,540 | ) | ||||||||||
| Proceeds from the exercise of warrant to purchase common stock | — | — | — | 8,644 | |||||||||||
| Net repayments of DigiCore bank facilities | (1,010 | ) | — | (965 | ) | — | |||||||||
| Net repayments of revolving credit facility | — | — | — | (5,158 | ) | ||||||||||
| Payoff of acquisition-related assumed liabilities | — | — | — | (2,633 | ) | ||||||||||
| Principal payments under capital lease obligations | (272 | ) | — | (722 | ) | — | |||||||||
| Principal payments on mortgage bond | (63 | ) | — | (175 | ) | — | |||||||||
| Proceeds from stock option exercises and employee stock purchase plan, net of taxes paid on vested restricted stock units | 39 | (58 | ) | 368 | 257 | ||||||||||
| Net cash provided by (used in) financing activities | (1,306 | ) | (58 | ) | (1,494 | ) | 117,570 | ||||||||
| Effect of exchange rates on cash and cash equivalents | (155 | ) | (352 | ) | (147 | ) | (350 | ) | |||||||
| Net increase (decrease) in cash and cash equivalents | (1,376 | ) | (7,694 | ) | 4,595 | (7,634 | ) | ||||||||
| Cash and cash equivalents, beginning of period | 18,541 | 17,913 | 12,570 | 17,853 | |||||||||||
| Cash and cash equivalents, end of period | $ | 17,165 | $ | 10,219 | $ | 17,165 | $ | 10,219 | |||||||
9
NOVATEL WIRELESS, INC.
Reconciliation of GAAP Net Income (Loss) to Non-GAAP Net Income (Loss)
(In thousands, except per share data)
(Unaudited)
| Three Months Ended September 30, 2016 | Nine Months Ended September 30, 2016 | ||||||||||||||
| Net Income (Loss) | Income (Loss) Per Share | Net Income (Loss) | Income (Loss) Per Share | ||||||||||||
| GAAP net loss | $ | (18,556 | ) | $ | (0.34 | ) | $ | (33,148 | ) | $ | (0.62 | ) | |||
| Adjustments: | |||||||||||||||
Share-based compensation expense(a) | 1,115 | 0.02 | 3,437 | 0.06 | |||||||||||
Purchased intangibles amortization(b) | 1,570 | 0.03 | 4,516 | 0.08 | |||||||||||
Acquisition- and divestiture-related charges(c) | 5,916 | 0.11 | 9,403 | 0.18 | |||||||||||
| Convertible senior notes discount and issuance costs amortization | 2,112 | 0.04 | 6,335 | 0.12 | |||||||||||
| Restructuring charges | 794 | 0.01 | 1,685 | 0.03 | |||||||||||
Legal settlement(d) | 2,800 | 0.05 | 2,800 | 0.05 | |||||||||||
| Loss (gain) on divestiture of certain hardware modules and related assets | 2,446 | 0.05 | (4,500 | ) | (0.08 | ) | |||||||||
| Non-GAAP net loss | $ | (1,803 | ) | $ | (0.03 | ) | $ | (9,472 | ) | $ | (0.18 | ) | |||
| (a) | Includes share-based compensation expense recorded under ASC Topic 718. |
| (b) | Includes amortization of intangible assets purchased through acquisitions. |
| (c) | Includes professional fees, including legal, due diligence and other related charges for acquisitions and divestitures, as well as the amortization of the step-up to fair value of finished goods acquired through acquisitions and impairment charges primarily related to certain developed technologies acquired with FW. |
| (d) | Includes a legal settlement entered into by the Company in September 2016 in connection with a breach of contract claim related to its hardware products. |
See “Non-GAAP Financial Measures” for information regarding our use of Non-GAAP financial measures.
10
NOVATEL WIRELESS, INC.
Reconciliation of GAAP Operating Costs and Expenses to Non-GAAP Operating Costs and Expenses
Three Months Ended September 30, 2016
(In thousands)
(Unaudited)
| GAAP | Share-based compensation expense (a) | Purchased intangibles amortization (b) | Restructuring charges | Legal settlement (c) | Acquisition- and divestiture-related charges (d) | Non-GAAP | |||||||||||||||||||||
| Cost of net revenues | $ | 37,957 | $ | 49 | $ | 562 | $ | — | $ | — | $ | — | $ | 37,346 | |||||||||||||
| Operating costs and expenses: | |||||||||||||||||||||||||||
| Research and development | 7,942 | 201 | — | — | — | — | 7,741 | ||||||||||||||||||||
| Sales and marketing | 7,953 | 170 | — | — | — | — | 7,783 | ||||||||||||||||||||
| General and administrative | 14,551 | 695 | — | — | 2,800 | 3,322 | 7,734 | ||||||||||||||||||||
| Amortization of purchased intangible assets | 1,008 | — | 1,008 | — | — | — | — | ||||||||||||||||||||
| Impairment of purchased intangible assets | 2,594 | — | — | — | — | 2,594 | — | ||||||||||||||||||||
| Restructuring charges | 794 | — | — | 794 | — | — | — | ||||||||||||||||||||
| Total operating costs and expenses | $ | 34,842 | 1,066 | 1,008 | 794 | 2,800 | 5,916 | $ | 23,258 | ||||||||||||||||||
| Total | $ | 1,115 | $ | 1,570 | $ | 794 | $ | 2,800 | $ | 5,916 | |||||||||||||||||
| (a) | Includes share-based compensation expense recorded under ASC Topic 718. |
| (b) | Includes amortization of intangible assets purchased through acquisitions. |
| (c) | Includes a legal settlement entered into by the Company in September 2016 in connection with a breach of contract claim related to its hardware products. |
| (d) | Includes professional fees, including legal, due diligence and other related charges for acquisitions and divestitures, as well as impairment charges primarily related to certain developed technologies acquired with FW. |
See “Non-GAAP Financial Measures” for information regarding our use of Non-GAAP financial measures.
11
NOVATEL WIRELESS, INC.
Reconciliation of GAAP Operating Costs and Expenses to Non-GAAP Operating Costs and Expenses
Nine Months Ended September 30, 2016
(In thousands)
(Unaudited)
| GAAP | Share-based compensation expense (a) | Purchased intangibles amortization (b) | Restructuring charges | Legal settlement (c) | Acquisition- and divestiture-related charges (d) | Non-GAAP | |||||||||||||||||||||
| Cost of net revenues | $ | 123,291 | $ | 156 | $ | 1,604 | $ | — | $ | — | $ | 1,829 | $ | 119,702 | |||||||||||||
| Operating costs and expenses: | |||||||||||||||||||||||||||
| Research and development | 24,248 | 662 | — | — | — | — | 23,586 | ||||||||||||||||||||
| Sales and marketing | 24,062 | 593 | — | — | — | — | 23,469 | ||||||||||||||||||||
| General and administrative | 34,744 | 2,026 | — | — | 2,800 | 4,980 | 24,938 | ||||||||||||||||||||
| Amortization of purchased intangible assets | 2,912 | — | 2,912 | — | — | — | — | ||||||||||||||||||||
| Impairment of purchased intangible assets | 2,594 | — | — | — | — | 2,594 | — | ||||||||||||||||||||
| Restructuring charges | 1,685 | — | — | 1,685 | — | — | — | ||||||||||||||||||||
| Total operating costs and expenses | $ | 90,245 | 3,281 | 2,912 | 1,685 | 2,800 | 7,574 | $ | 71,993 | ||||||||||||||||||
| Total | $ | 3,437 | $ | 4,516 | $ | 1,685 | $ | 2,800 | $ | 9,403 | |||||||||||||||||
| (a) | Includes share-based compensation expense recorded under ASC Topic 718. |
| (b) | Includes amortization of intangible assets purchased through acquisitions. |
| (c) | Includes a legal settlement entered into by the Company in September 2016 in connection with a breach of contract claim related to its hardware products. |
| (d) | Includes professional fees, including legal, due diligence and other related charges for acquisitions and divestitures, as well as the amortization of the step-up to fair value of finished goods acquired through acquisitions and impairment charges primarily related to certain developed technologies acquired with FW. |
See “Non-GAAP Financial Measures” for information regarding our use of Non-GAAP financial measures.
12
NOVATEL WIRELESS, INC.
Reconciliation of GAAP Loss before Income Taxes to Adjusted EBITDA
(In thousands)
(Unaudited)
| Three Months Ended September 30, 2016 | Nine Months Ended September 30, 2016 | ||||||
| Loss before income taxes | $ | (19,355 | ) | $ | (33,626 | ) | |
Depreciation and amortization(a) | 3,603 | 10,836 | |||||
Share-based compensation expense(b) | 1,115 | 3,437 | |||||
| Restructuring charges | 794 | 1,685 | |||||
Legal settlement(c) | 2,800 | 2,800 | |||||
Acquisition- and divestiture-related charges(d) | 5,916 | 9,403 | |||||
Interest expense, net(e) | 3,877 | 11,712 | |||||
Other expense (income), net(f) | 3,560 | (986 | ) | ||||
| Adjusted EBITDA | $ | 2,310 | $ | 5,261 | |||
| (a) | Includes depreciation and amortization charges, including amortization of intangible assets purchased through acquisitions. |
| (b) | Includes share-based compensation expense recorded under ASC Topic 718. |
| (c) | Includes a legal settlement entered into by the Company in September 2016 in connection with a breach of contract claim related to its hardware products. |
| (d) | Includes professional fees, including legal, due diligence and other related charges for acquisitions and divestitures, as well as the amortization of the step-up to fair value of finished goods acquired through acquisitions and impairment charges primarily related to certain developed technologies acquired with FW. |
| (e) | Includes the amortization of the convertible senior notes discount and issuance costs. |
| (f) | For the three months ended September 30, 2016, primarily includes a decrease in the gain recognized in the second quarter of 2016 related to the Company’s sale of certain hardware modules and related assets, as well as unrealized foreign currency losses on an outstanding intercompany loan between Ctrack and one of its wholly-owned foreign subsidiaries, which is re-measured at each reporting period. For the nine months ended September 30, 2016, primarily includes the gain on the Company’s sale of certain hardware modules and related assets, partially offset by unrealized foreign currency losses on an outstanding intercompany loan between Ctrack and one of its wholly-owned foreign subsidiaries, which is re-measured at each reporting period. |
See “Non-GAAP Financial Measures” for information regarding our use of Non-GAAP financial measures.
13