Novatel Wireless Reports Third Quarter 2006 Results

SAN DIEGO, Calif., Oct 24, 2006 (BUSINESS WIRE) -- Novatel Wireless, Inc. (Nasdaq:NVTL), a leading provider of wireless broadband access solutions, today reported financial results for the third quarter ended September 30, 2006.

Revenues for the third quarter increased 32% to $55.6 million compared to revenues of $42.1 million reported in the same period last year. Third quarter GAAP net loss was $856,000 or $0.03 per diluted share, compared to GAAP net income of $5.5 million, or $0.18 per diluted share (including $0.08 per diluted share related to certain deferred tax assets) in the prior year period. Our 2006 third quarter GAAP results reflect the fiscal year 2006 adoption of Statement of Financial Accounting Standards No.123R resulting in the expensing of $2.7 million of non-cash share-based compensation, or $1.9 million, net of related taxes. Excluding the effect of these charges, non-GAAP net income was $1.1 million or $0.04 per diluted share.

"Third quarter sales reached the highest level in Company history, driven by record order flow on new product introductions which accounted for approximately 50% of revenues," said Peter Leparulo, executive chairman of Novatel Wireless. "Importantly, Novatel Wireless recognized significant revenue from 11 different products and from each prong of our diversification strategy, with embedded products and fixed mobile convergence solutions contributing over 20% of revenues combined. This positive momentum gives us confidence that our diversification strategy is working and will set the stage for continued growth in 2007."

"Our third quarter results yielded healthy revenue growth of 32% year-over-year and 22% over the second quarter of 2006. Additionally, we showed sequential improvement across all the major metrics on our income statement and balance sheet, pointing to the future operating leverage in our business model. Gross margins improved incrementally in the third quarter and operating expenses decreased as a percentage of sales despite a tight component market and the costs of new product introductions. We expect these general trends to continue in Q4 but the ramp in demand on our new products has been above forecast and manufacturing lead times remain exceptionally tight so that we will not recognize the full efficiencies of volume production on these new products until the early part of 2007," said Dan Halvorson, chief financial officer of Novatel Wireless.

Fourth Quarter 2006 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 press release for a description of risks. Please see our quarterly and annual reports on file with the Securities and Exchange Commission (SEC) for a more detailed description of risk factors.

The following table summarizes our financial guidance for the period ending December 31, 2006. These estimates are based on our current business outlook as of the date of this press release.

Revenues                                          $61-$63 million

GAAP Earnings Per Share, Diluted                  $0.02 - $0.04

Non-GAAP Earnings Per Share, Diluted              $0.06 - $0.07

Third Quarter and Subsequent Highlights:

-- Launched the first EV-DO Rev. A-capable Mobile Broadband PC Card with Sprint to support its nationwide network footprint covering an expected 200 million people by the end of 2006.

-- Shipped our industry-leading EV-DO Rev. A embedded module to leading OEM customers.

-- Announced the commercial availability of the industry's first EV-DO ExpressCard with Verizon Wireless and the industry's first HSDPA ExpressCard with leading operators in Europe and Asia.

-- Announced that our MobiLink(TM) communications software suite is being pre-installed in over 30 laptop platforms of tier-1 laptop manufacturers through June 2007. The Vista-ready connection manager provides key features such as intelligent power management, local customization, over-the-air provisioning and SMS.

-- Launched the MCD3000 EV-DO USB product, the latest generation of our fixed mobile convergence Ovation line of products, with a major North American carrier. The MCD3000 features downlink data speeds of up to 3.1 Mbps, wireless assisted global positioning capabilities and incorporates an advanced dual-band antenna system.

-- Announced next generation design wins for both HSDPA and EV-DO Rev. A with one of our leading laptop customers, ensuring that we will be designed into laptops shipping in the first quarter of 2007.

-- Panasonic and Cingular introduced Panasonic(R) Toughbook(R) CF-29 notebooks with built-in 3G-based Broadband Connect service using our HSDPA embedded modules.

Conference Call Information

We will host a conference call for analysts and investors to discuss our quarterly results today at 4:30 p.m. ET. A live webcast of the conference call will also be accessible from the "Investor Relations" section of our website at www.novatelwireless.com. Following the live webcast, an archived version will be available on our website.

About Novatel Wireless

Novatel Wireless, Inc. is revolutionizing wireless communications. The company is a leader in the design and development of innovative wireless broadband access solutions based on 3G WCDMA (HSDPA & UMTS), CDMA and GSM technologies. Novatel Wireless' Merlin(TM) PC Cards and ExpressCards, Expedite(R) Embedded Modules, MobiLink(TM)Communications Software Suite, Ovation(TM) Fixed Mobile Convergence Products and Conversa(TM) Software Suite enable high-speed wireless access. The company delivers innovative 3G solutions to operators, distributors and vertical markets worldwide. Headquartered in San Diego, California, Novatel Wireless is listed on NASDAQ:NVTL. For more information, visit www.novatelwireless.com. (NVTLG)

Cautionary Note Regarding Forward-Looking Statements

The financial results for 2006 are preliminary and are unaudited. Some of the information presented in this release constitutes forward-looking statements based on management's current expectations, assumptions, estimates and projections. 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. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated in such forward-looking statements. The Company therefore cannot guarantee future results, performance or achievements.

Factors that could cause actual results to differ materially from Novatel Wireless' expectations are set forth as risk factors in the Company's SEC reports and filings and include, without limitation, future demand for access to wireless data and factors affecting that demand; the future growth of wireless wide area networking and factors affecting that growth; changes in commercially adopted wireless transmission standards and technologies; growth in 3G infrastructure spending; the sufficiency of our capital resources; the effect of changes in accounting standards and in aspects of our critical accounting policies; the utilization of our net operating loss carryforwards; and our general business and strategy, including plans and expectations relating to technology, product development, strategic relationships, customers, manufacturing, service activities and international expansion.

These factors, as well as other factors detailed from time to time in the Company's SEC reports and filings (available at www.sec.gov), could cause actual results to differ materially. Novatel Wireless 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 our on-going reporting obligations under the Securities Exchange Act of 1934, as amended.

(C)2006 Novatel Wireless. All rights reserved. The Novatel Wireless logo, Merlin, Expedite, MobiLink, Ovation and Conversa are trademarks of Novatel Wireless, Inc. Other product or service names mentioned herein are the trademarks of their respective owners.

                        NOVATEL WIRELESS, INC.
                     CONSOLIDATED BALANCE SHEETS
                            (in thousands)
                             (unaudited)

                                                   As of
                                      September 30,     December 31,
                                           2006             2005
                                     ---------------- ----------------

ASSETS

Current assets:

Cash and cash equivalents            $        33,712  $        36,653
Marketable securities                         45,231           47,075
Accounts receivable, net                      39,566           28,121
Inventories                                   16,850           23,132
Deferred tax assets, net                       9,618            5,253
Other current assets                           4,501            9,821
                                     ---------------- ----------------
Total current assets                         149,478          150,055

Property and equipment, net                   15,419           13,865

Marketable securities                          1,174            6,611

Intangible assets, net                         2,748            3,459

Deferred tax assets, net                       1,849            1,849

Other assets                                     231              225
                                     ---------------- ----------------
                                     $       170,899  $       176,064
                                     ================ ================


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable                     $        28,329  $        34,226
Accrued expenses                              13,688           11,888
Line of credit                                     -            5,000
Capital lease obligation                           -            3,891
                                     ---------------- ----------------
Total current liabilities                     42,017           55,005


Stockholders' equity:

Common stock                                      30               29
Additional paid-in capital                   353,346          343,738
Accumulated other comprehensive
 income                                          (43)            (364)
Accumulated deficit                         (224,451)        (222,344)
                                     ---------------- ----------------
Total stockholders' equity                   128,882          121,059
                                     ---------------- ----------------

                                     $       170,899  $       176,064
                                     ================ ================

                        NOVATEL WIRELESS, INC.
                CONSOLIDATED STATEMENTS OF OPERATIONS
                (in thousands, except per share data)
                             (unaudited)

                               Three months ended   Nine months ended
                               ------------------- -------------------
                                  September 30,       September 30,
                               ------------------- -------------------
                                  2006      2005     2006      2005
                               ---------- -------- --------- ---------

Revenue                        $  55,551  $42,129  $141,364  $113,053

Cost of revenue                   41,095   28,991   106,481    77,431

                               ---------- -------- --------- ---------
     Gross margin                 14,456   13,138    34,883    35,622
                               ---------- -------- --------- ---------

Operating costs and expenses:

Research and development           8,714    5,200    22,549    13,163
Sales and marketing                3,724    1,912     9,919     5,197
General and administrative         3,685    1,913    11,415     5,557
                               ---------- -------- --------- ---------
Total operating expenses          16,123    9,025    43,883    23,917

Operating income (loss)           (1,667)   4,113    (9,000)   11,705

Other income (expense):

Interest income and expense,
 net                                 751      632     1,917     1,652
Other, net                          (302)    (207)    1,229      (288)
                               ---------- -------- --------- ---------

Income (loss) before income
 taxes                            (1,218)   4,538    (5,854)   13,069

Income tax expense (benefit)        (362)    (912)   (3,747)    2,074

                               ---------- -------- --------- ---------
Net income (loss)              $    (856) $ 5,450  $ (2,107) $ 10,995
                               ========== ======== ========= =========

Per share data:

Net income (loss) per common
 share:
Basic                          $   (0.03) $  0.19  $  (0.07) $   0.38
Diluted                        $   (0.03) $  0.18  $  (0.07) $   0.36


Weighted average shares used
 in computation of per share
 calculation:
Basic                             29,672   29,186    29,532    29,076
Diluted                           29,672   30,333    29,532    30,275

       Reconciliation of GAAP Net Income to Non-GAAP Net Income
                Three Months Ended September 30, 2006

                                 GAAP     Adjustments (a)   Non-GAAP
                              ----------- --------------- ------------

Revenue                       $   55,551                  $    55,551

Cost of revenue                   41,095  $         (149)      40,946

                              ----------- --------------- ------------
     Gross margin                 14,456             149       14,605
                              ----------- --------------- ------------

Operating costs and expenses:

Research and development           8,714            (598)       8,116
Sales and marketing                3,724            (531)       3,193
General and administrative         3,685          (1,468)       2,217
                              ----------- --------------- ------------
Total operating expenses          16,123          (2,597)      13,526

Operating income (loss)           (1,667)          2,746        1,079

Other income (expense):

Interest income and expense,
 net                                 751                          751
Other, net                          (302)                        (302)
                              ----------- --------------- ------------

Income (loss) before income
 taxes                            (1,218)          2,746        1,528

Income tax expense (benefit)        (362)            818          456

                              ----------- --------------- ------------
Net income                    $     (856) $        1,928  $     1,072
                              =========== =============== ============

Per share data:

Net income per common share:
Basic                         $    (0.03)                 $      0.04
Diluted                       $    (0.03)                 $      0.04


Weighted average shares used
 in computation of per share
 calculation:
Basic                             29,672                       29,672
Diluted                           29,672                       29,954

(a) Adjustments reflect stock-based compensation expense recorded
 under SFAS 123R, and its effect on taxes.

SOURCE: Novatel Wireless, Inc.

Novatel Wireless
Julie Cunningham, 858-320-8837 (Investor Relations)
[email protected]
or
The Blueshirt Group
Chris Danne, 415-217-7722 (Investor Relations)
[email protected]
Rakesh Mehta, 415-217-7722 (Investor Relations)
[email protected]

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