NVTL » Topics » Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007

These excerpts taken from the NVTL 10-K filed Mar 16, 2009.

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

Revenue. Revenue for the year ended December 31, 2008 decreased $108.9 million, or 25.3%, to $321.0 million compared to $429.9 million for 2007. The decrease in revenue was primarily attributable to decreases in sales for our EV-DO products partially offset by an increase in our High Speed Packet Access, or HSPA, products. The decrease in EV-DO product sales for the year ended December 31, 2008 compared to 2007 was approximately $126.6 million, primarily due to lower unit shipments of our Merlin Express and PC Cards, and Ovation USB Modems and the effects of a lower average sales prices for such products due to competitive pricing pressures and the slowdown of global economies. Our HSPA product sales increased by approximately $17.7 million during 2008 compared to 2007, primarily as a result of the increase in unit shipments of our Ovation USB Modems and Expedite Embedded Modules. Overall, EV-DO revenue, which consists primarily of North American products, represented approximately 58% of revenue in 2008 compared to 73% in 2007 while HSDPA/HSUPA products represented approximately 42% of revenue in 2008 compared to 27% in 2007.

This trend of increasing HSDPA/HSUPA product sales as a percent of revenue is not expected to continue in the near term due to increased competitive pressures in the European market. This revenue decline is expected to be offset by increased revenues from new embedded module product sales to a content delivery device customer. However, we expect European sales to continue to be an important component of our total revenue.

Cost of revenue. Cost of revenue for the year ended December 31, 2008 was $252.2 million, or 78.6% of revenue, as compared to $299.1 million, or 69.6% of revenue in 2007. The increase in cost of revenue as a percentage of revenue in 2008 was primarily related to the rate of decrease in the average per unit selling prices for products exceeding the rate of decrease in the average per unit cost of revenues and other market driven factors. Cost of revenue included $8.2 million of inventory write down to the lower of cost or market due to the effects of lower than expected demand for certain products, the effects of the falling valuation of the Euro, and poor macro economic conditions. In addition, we recorded impairment charges of approximately $830,000 related to technology licenses, production fixtures, and tooling equipment. As more fully discussed in Note 3 in

 

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the accompanying notes to the Consolidated Financial Statements, management performed an impairment analysis of the assets in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), and concluded that certain assets were not fully recoverable and an impairment loss was recognized in the year ended December 31, 2008.

The global economic crisis and related increased competitive pressures may continue to negatively impact the average sales prices of our products. This may require us in future periods to record additional inventory write downs to reflect lower of cost or market adjustments and revalue certain assets that may become impaired.

Cost of revenue for the year ended December 31, 2008 included a $2.3 million benefit due to a change in the Company’s assessment of its contingent liability related to intellectual property claims. Based on developments to date, the Company does not believe that it is probable that the Company will incur a loss relating to these intellectual property claims.

Cost of revenue for the year ended December 31, 2008 included share-based compensation expense of approximately $600,000, compared to approximately $700,000 in 2007. Cost of revenue as a percentage of revenue is expected to fluctuate in future quarters depending on the mix of products sold, competitive pricing, new product introduction costs and other factors.

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%">Revenue. Revenue for the year ended December 31, 2008 decreased $108.9 million, or 25.3%, to $321.0 million compared to
$429.9 million for 2007. The decrease in revenue was primarily attributable to decreases in sales for our EV-DO products partially offset by an increase in our High Speed Packet Access, or HSPA, products. The decrease in EV-DO product sales for the
year ended December 31, 2008 compared to 2007 was approximately $126.6 million, primarily due to lower unit shipments of our Merlin Express and PC Cards, and Ovation USB Modems and the effects of a lower average sales prices for such products
due to competitive pricing pressures and the slowdown of global economies. Our HSPA product sales increased by approximately $17.7 million during 2008 compared to 2007, primarily as a result of the increase in unit shipments of our Ovation USB
Modems and Expedite Embedded Modules. Overall, EV-DO revenue, which consists primarily of North American products, represented approximately 58% of revenue in 2008 compared to 73% in 2007 while HSDPA/HSUPA products represented approximately 42%
of revenue in 2008 compared to 27% in 2007.

This trend of increasing HSDPA/HSUPA product sales as a percent of revenue is not expected to
continue in the near term due to increased competitive pressures in the European market. This revenue decline is expected to be offset by increased revenues from new embedded module product sales to a content delivery device customer. However, we
expect European sales to continue to be an important component of our total revenue.

Cost of revenue. Cost of revenue
for the year ended December 31, 2008 was $252.2 million, or 78.6% of revenue, as compared to $299.1 million, or 69.6% of revenue in 2007. The increase in cost of revenue as a percentage of revenue in 2008 was primarily related to the rate of
decrease in the average per unit selling prices for products exceeding the rate of decrease in the average per unit cost of revenues and other market driven factors. Cost of revenue included $8.2 million of inventory write down to the lower of cost
or market due to the effects of lower than expected demand for certain products, the effects of the falling valuation of the Euro, and poor macro economic conditions. In addition, we recorded impairment charges of approximately $830,000 related to
technology licenses, production fixtures, and tooling equipment. As more fully discussed in Note 3 in

 


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the accompanying notes to the Consolidated Financial Statements, management performed an impairment analysis of the assets in accordance with SFAS
No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), and concluded that certain assets were not fully recoverable and an impairment loss was recognized in the year ended
December 31, 2008.

The global economic crisis and related increased competitive pressures may continue to negatively impact the
average sales prices of our products. This may require us in future periods to record additional inventory write downs to reflect lower of cost or market adjustments and revalue certain assets that may become impaired.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Cost of revenue for the year ended December 31, 2008 included a $2.3 million benefit due to a change in the Company’s assessment of its
contingent liability related to intellectual property claims. Based on developments to date, the Company does not believe that it is probable that the Company will incur a loss relating to these intellectual property claims.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Cost of revenue for the year ended December 31, 2008 included share-based compensation expense of approximately $600,000, compared to approximately
$700,000 in 2007. Cost of revenue as a percentage of revenue is expected to fluctuate in future quarters depending on the mix of products sold, competitive pricing, new product introduction costs and other factors.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Gross margin. Gross margin for the year ended December 31, 2008 was $68.7 million, or 21.4% of revenue, as compared to $130.8
million, or 30.4% of revenue in 2007. The decrease was primarily attributable to the changes in revenue and cost of revenue as discussed above.

FACE="Times New Roman" SIZE="2">We currently believe that our gross margins can be sustained in the range of 21% to 22% of revenue in the near term based on the currently expected product and customer mix. However, actual results may differ
substantially if, among other reasons, the economic environment and market conditions deteriorate further.

Research and development
expenses.
 Research and development expenses for the year ended December 31, 2008 were $34.7 million, or 10.8% of revenue compared to $37.6 million, or 8.7% of revenue in 2007. This decrease in expenses reflected a decrease of $3.6
million in consulting and outside service fees and the favorable impact of development cost reimbursements from a vendor totaling $1.7 million. This decline was partially offset by a $1.4 million increase in payroll related expenditures for ongoing
research and development activities. Research and development expenses in 2008 included share-based compensation of approximately $2.1 million, compared to approximately $2.5 million in 2007. Research and development expenses as a percentage of
revenue are expected to fluctuate in future quarters depending on the amount of revenue recognized, and potential variation in the costs associated with the development of the Company’s products, including the number and complexity of the
products under development and the progress of the development activities with respect to those products. However, we expect to maintain or increase our investment in research and development to continue to provide innovative products and services.

Sales and marketing expenses. Sales and marketing expenses for the year ended December 31, 2008 were
$18.2 million, or 5.7% of revenue, compared to $20.9 million, or 4.9% of revenue in 2007. The reduction in expense was primarily attributable to a decrease of approximately $1.0 million related to marketing expenses. Sales and marketing
expenses in 2008 included share-based compensation of approximately $1.0 million, compared to approximately $1.9 million in 2007. While managing sales and marketing expenses relative to revenue, we expect to continue to make selected investments in
sales and marketing as we introduce new products, market existing products, expand our distribution channels and focus on key customers around the world.

FACE="Times New Roman" SIZE="2">We currently believe that our sales and marketing expenses in the near term may trend higher as a percent of revenue as we introduce new products in 2009.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">General and administrative expenses. General and administrative expenses for the year ended December 31, 2008 were $21.6 million,
or 6.7% of revenue, compared to $18.9 million, or 4.4% of revenue in

 


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2007. During the year, the Company incurred approximately $4.0 million in professional fees and expenses related to an internal review of the Company’s
revenue cut-off procedures, internal controls and accounting related to certain customer contracts. General and administrative expenses in 2008 included share-based compensation of $2.6 million, compared to $4.7 million in 2007.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">While we are closely monitoring and undertaking to control general and administrative costs, these costs will be negatively impacted by legal fees
incurred by the Company to defend claims described in Note 8 to our Consolidated Financial Statements included elsewhere in this report.

SIZE="2">Interest income (expense). Interest income, net decreased by approximately $1.3 million for the year ended December 31, 2008 compared to 2007 primarily due to a decrease in the average yields realized on our marketable
securities and cash balances during the year, which resulted in lower income as compared to 2007.

Other income
(expense).
 Other income (expense) for the year ended December 31, 2008 decreased by approximately $1.2 million, to $729,000 of expense compared to $479,000 of income in 2007. This decrease was primarily due to the foreign exchange
losses on our Euro denominated accounts receivable and cash balances.

Income tax expense (benefit). We recorded an income
tax benefit of approximately $947,000 for the year ended December 31, 2008, which represents an effective tax benefit rate of 43%. The difference between the federal and state statutory combined rate of 36% and our effective tax rate for 2008
is primarily due to the impact of domestic and foreign tax credits for research and development expenses and the impact of accounting for share-based compensation, for which certain share-based awards are treated as permanent differences.

During 2008, management evaluated our deferred tax valuation allowance and determined that the valuation allowance related to our U.S.
deferred tax assets should not be significantly revised. Approximately $1.4 million of deferred tax valuation allowance relating to the Company’s Canadian subsidiary was established based on the uncertainty associated with the Canadian
subsidiary’s ability to utilize the increased deferred tax assets. This determination was based on available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income and
recent financial operations. This determination required significant judgment about the forecasts of future taxable income and is consistent with the plans and estimates we are using to manage the underlying business. The tax benefit for the year
ended December 31, 2008 was $2.3 million excluding the valuation allowance adjustment. The tax expense for the year ended December 31, 2007 was $21.6 million excluding the valuation allowance adjustment in 2007.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">In accordance with SFAS No. 123(R), Share Based Payment (“SFAS No. 123(R)”), we recognize a tax benefit upon expensing certain
share-based awards granted under equity incentive compensation plans, including nonqualified stock options and restricted stock, but cannot recognize a tax benefit currently for those share-based compensation expenses associated with incentive stock
options and employee stock purchase plan shares (qualified stock options). For qualified stock options that vested after our adoption of SFAS No. 123(R), we recognize a tax benefit in the period when disqualifying dispositions of the underlying
stock occur, and for qualified stock options that vested prior to our adoption of SFAS No. 123(R), the tax benefit is recorded directly to additional paid-in capital. During 2008, we recorded a tax benefit of approximately $1.1 million
associated with share-based compensation. The impact of share-based compensation permanent items resulted in a decrease of 38.5 percentage points in our annual effective tax benefit rate. Because we cannot recognize the tax benefit for share-based
compensation expense associated with qualified stock options until the occurrence of future disqualifying dispositions of the underlying stock and because a portion of that tax benefit may be recorded directly to additional paid-in capital, our
future quarterly and annual effective tax rates will be subject to greater volatility and, consequently, our ability to reasonably estimate our future quarterly and annual effective tax rates is diminished.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Net income (loss). For the year ended December 31, 2008, we reported a net loss of $1.2 million, as compared to net income of
approximately $38.8 million in 2007. The decrease in net income was due to a decrease in revenue and overall profitability of the Company as discussed above.

 


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This excerpt taken from the NVTL 10-Q filed Nov 17, 2008.

Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007

Revenue. Revenue for the nine months ended September 30, 2008 was $255.9 million compared to $311.9 million for the same period in 2007. The overall decline in revenue was primarily attributable to a decrease in sales for our EV-DO products, partially offset by an increase in our High Speed Packet Access, or HSPA, products. The decrease in EV-DO product sales for the nine months ended September 30, 2008 compared to the same period in 2007 was approximately $83.6 million. The increase in our HSPA product sales for the nine months ended September 30, 2008 compared to the same period in 2007 was approximately $27.4 million. The mix of revenue by technology is expected to continue to depend primarily upon, among other things, the geographic region of our sales and demand by our customers.

Cost of revenue. Cost of revenue for the nine months ended September 30, 2008 was $194.8 million, or 76.1% of revenue, as compared to $216.3 million or 69.3% of revenue for the same period in 2007. The increase in cost of revenue as a percentage of revenue was primarily related to the rate of decrease in the average per unit selling prices for products exceeding the rate of decrease in the average per unit cost of revenues. Cost of revenue for the nine months ended September 30, 2008 was negatively impacted by a $4.5 million lower of cost or market inventory adjustment primarily related to changing market demand for the Company’s ExpressCard products. Cost of revenue for the nine months ended September 30, 2008 included share-based compensation expense of approximately $433,000, compared to approximately $515,000 for the same period in 2007. Cost of revenues as a percentage of revenues are expected to fluctuate in future quarters depending on the mix of products sold, competitive pricing, new product introduction costs and other factors.

 

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This excerpt taken from the NVTL 10-Q filed Nov 10, 2008.

Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007

Revenue. Revenue for the three months ended March 31, 2008 was $87.8 million compared to $109.8 million for the same period in 2007. The overall decline in revenue was primarily attributable to a decrease in sales for our EV-DO ExpressCards, USB Modems, and our EV-DO FMC products, partially offset by an increase in our High Speed Packet Access, or HSPA, products. The decrease in EV-DO product sales for the three months ended March 31, 2008 compared to the same period in 2007 was approximately $37.1 million. The increase in our HSPA product sales for the three months ended March 31, 2008 compared to the same period in 2007 was approximately $15.6 million. The mix of revenue by technology is expected to continue to depend primarily upon, among other things, the geographic region of our sales and demand by our customers.

Cost of revenue. Cost of revenue for the three months ended March 31, 2008 was $66.1 million, or 75.3% of revenue, as compared to $75.9 million or 69.1% of revenue for the same period in 2007. The increase in cost of revenue as a percentage of revenue was primarily related to the rate of decrease in the average per unit selling prices for products exceeding the rate of decrease in the average per unit cost of revenues. Cost of revenue was negatively impacted by a $3.6 million lower of cost or market inventory adjustment primarily related to changing market demand for the Company’s ExpressCard products. Cost of revenue for the three

 

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months ended March 31, 2008 included share-based compensation expense of approximately $100,000, compared to approximately $200,000 for the same period in 2007. Cost of revenues as a percentage of revenues are expected to fluctuate in future quarters depending on the mix of products sold, competitive pricing, new product introduction costs and other factors.

This excerpt taken from the NVTL 10-Q filed Nov 10, 2008.

Six Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007

Revenue. Revenue for the six months ended June 30, 2008 was $177.5 million compared to $207.3 million for the same period in 2007. The overall decline in revenue was primarily attributable to a decrease in sales for our EV-DO products, partially offset by an increase in our High Speed Packet Access, or HSPA, products. The decrease in EV-DO product sales for the six months ended June 30, 2008 compared to the same period in 2007 was approximately $57.8 million. The increase in our HSPA product sales for the six months ended June 30, 2008 compared to the same period in 2007 was approximately $28.4 million. The mix of revenue by technology is expected to continue to depend primarily upon, among other things, the geographic region of our sales and demand by our customers.

Cost of revenue. Cost of revenue for the six months ended June 30, 2008 was $133.1 million, or 75.0% of revenue, as compared to $142.7 million or 68.8% of revenue for the same period in 2007. The increase in cost of revenue as a percentage of revenue was primarily related to the rate of decrease in the average per unit selling prices for products exceeding the rate of decrease in the average per unit cost of revenues. Cost of revenue was negatively impacted by a $4.1 million lower of cost or market inventory adjustment primarily related to changing market demand for the Company’s ExpressCard products. Cost of revenue for the six months ended June 30, 2008 included share-based compensation expense of approximately $280,000, compared to approximately $380,000 for the same period in 2007. Cost of revenues as a percentage of revenues are expected to fluctuate in future quarters depending on the mix of products sold, competitive pricing, new product introduction costs and other factors.

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