Novatel Wireless (MIFI) to Sell Mobile Broadband Business in $50M Deal; Will Undertake Restructuring

Novatel Wireless (Nasdaq: MIFI) announced that it has entered into an agreement with T.C.L. Industries Holdings, a Hong Kong company (“TCL”), whereby Novatel Wireless will sell to TCL its mobile broadband business (including its MiFi® branded hotspots and USB modem product lines) for a cash payment of US $50,000,000 payable at closing. The closing of the transaction is subject to the receipt of various regulatory authority approvals, as well as the approval of Novatel Wireless’s stockholders and convertible noteholders. The closing of the transaction is expected to occur in the first quarter of 2017.

“The sale of Novatel Wireless’s mobile broadband business to TCL is the most transformative event in Novatel Wireless’s history, and punctuates our period of metamorphosis,” said Sue Swenson, Chair of the Board and Chief Executive Officer of Novatel Wireless. Ms. Swenson added, “Upon the closing of the transaction with TCL, Novatel Wireless will no longer sell any products it sold at the beginning of 2015. We will have transitioned the company from a hardware-only business with approximately 80% of revenues tied to one customer into a predominantly SaaS, services and solutions business with thousands of customers generating recurring revenues. Going forward, we will deepen our focus on our recurring revenue IoT solutions such as our Ctrack telematics solutions, including fleet management and asset tracking & monitoring, and our Feeney Wireless (“FW”) business connectivity solutions, such as our recently launched Ignite offering.”

As of June 30, 2016, Novatel Wireless had 557,000 subscribers for its Ctrack and FW SaaS and services solutions, including 389,000 subscribers to its Ctrack telematics products. After the closing of the transaction, Ctrack is expected to account for approximately 70% of total corporate revenue. Since acquiring Ctrack in October of 2015, the company’s subscriber growth has increased in each successive quarter, highlighted with a 24% annualized growth rate for its Ctrack fleet management subscribers in the second quarter of 2016. In connection with the sale of Novatel Wireless’s mobile broadband business to TCL, Novatel Wireless plans to create a new public holding company (“Newco”) and a new operating structure. The management of Novatel Wireless is currently considering several names and logos to be adopted by Newco going forward.

“The restructuring of the company’s various business units into a new public holding company with a new operating structure will enable us to streamline the infrastructure of the ongoing organization, make more efficient use of our existing management talent, and allow us to more closely track the performance of our various business units and support our business initiatives,” said Michael Newman, Chief Financial Officer of Novatel Wireless. “Commencing in the first quarter after the closing of the transaction with TCL, we estimate that Newco 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%,” added Mr. Newman.

Restructuring into New Public Holding Company

Novatel Wireless intends to undertake a holding company restructuring (the “Restructuring”), which will result in Newco, a newly-formed wholly-owned subsidiary of Novatel Wireless, owning all of the capital stock of Novatel Wireless. Pursuant to the proposed Restructuring, a newly-formed, direct, wholly-owned subsidiary of Newco and an indirect wholly-owned subsidiary of Novatel Wireless (“Merger Sub”) will be merged with and into Novatel Wireless, with Novatel Wireless surviving as a direct wholly-owned subsidiary of Newco. Each share of the common stock of Novatel Wireless issued and outstanding immediately prior to the merger of Novatel Wireless with Merger Sub will automatically convert into an equivalent corresponding share of the common stock of Newco, having the same designations, rights, privileges, qualifications and limitations as the corresponding share of Novatel Wireless common stock being converted. Accordingly, upon consummation of the Restructuring, Novatel Wireless’s current stockholders will become stockholders of Newco, and the current directors and senior executive management team of Novatel Wireless will be the directors and senior executive management team of Newco.

The stockholders of Novatel Wireless will not recognize any gain or loss for U.S. federal income tax purposes upon conversion of their shares of Novatel Wireless common stock into Newco common stock in the proposed Restructuring. Following the proposed Restructuring, the former shares of common stock of Novatel Wireless will continue to trade on the NASDAQ Stock Market as shares of common stock of Newco.

Houlihan Lokey Capital, Inc. served as financial advisor and Paul Hastings LLP served as outside legal counsel to Novatel Wireless for this transaction with TCL.

Conference Call Information

Novatel Wireless will host a conference call 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

An audio replay of the conference call will also be available beginning one hour after the call, through October 6, 2016. To hear the replay, parties in the United States may call 1-877-344-7529 and enter access code 10093090. International parties may call 1-412-317-0088 and enter the same code.

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