NVTL

Novatel Wireless, Inc. (NVTL)

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Novatel Wireless, Inc. (NVTL)

Q1 2009 Earnings Call Transcript

May 7, 2009 5:00 pm ET

Executives

Julie Cunningham - VP of IR

Peter Leparulo - CEO

Ken Leddon - CFO

Analysts

Matthew Hoffman - Cowen and Company

Anthony Stoss - Craig-Hallum

Charles John - Piper Jaffray

Doug Ireland - JMP Securities

Tom Kucera - Avondale Partners

Anthony Stoss - Craig-Hallum

Presentation

Operator

Welcome to the Novatel Wireless first quarter conference call. (Operator Instructions).

I'd like to turn the conference over to Ms. Julie Cunningham, Please go ahead.

Julie Cunningham

Good afternoon, everyone. Thanks for joining us. The agenda for today's call is as follows; Peter Leparulo, our Chairman and CEO, will provide an overview of the quarter, and Ken Leddon, Chief Financial Officer, will review financial results.

As a reminder, this conference call is being broadcast on Thursday, May 7, 2009 over the phone and the Internet to all interested parties. The information shared on this call is effective as of today's date and will not be updated.

During this call, non-GAAP financial measures will be discussed. Reconciliations to the most recent comparable GAAP financial measures are included in our first quarter earnings release, which is available on the Investor Relations page of our website at www.novatelwireless.com. The audio replay of this call will be archived there.

Today's discussion may contain forward-looking statements. These forward-looking statements are not historical facts, but rather are based on the company's current expectations and beliefs. The company's actual results may differ materially. Please refer to our SEC filings for a detailed discussion of potential risks.

Now, I'd like to introduce Peter Leparulo, Chairman and CEO of Novatel Wireless.

Peter Leparulo

Thanks to all of you for joining us today. First quarter's revenues increased 8% sequentially to $70.4 million. Gross margins nearly doubled on a sequential basis, and we substantially improved our bottom line, reducing our non-GAAP and GAAP net loss to $0.04 and $0.08 per share, respectively.

We have also returned to positive EBITDA and free cash flow. While we continue to be impacted by the slowdown in the global economy, our results significantly improved on a sequential basis, and our outlook for next quarter is for continued improvement. Overall, I believe that we are executing well in a tough environment.

We are well into the leading edge of commercializing our strongest product cycle in history in all areas, including embedded, mobile Internet devices, end-to-end solutions, beginning with our MiFi product line, and our core USBs and PC ExpressCard products. Embedded and mobile Internet devices have led the way in commercialization and deployment.

Driving our performance in the first quarter was our embedded business, which accounted for over $41 million in revenues. The biggest contributor to this increase was sales to a key mobile content customer, which accounted for about 51% of our overall revenues. We were very pleased with the ramp for this customer and expect them to again be an important contributor in the second quarter, although, we don't have visibility beyond that at this time.

Our focus on developing mobile content partners over the past year is now coming to fruition, as our new product introductions, which will begin to have a positive impact in coming quarters.

As expected, USB product sales declined in the first quarter, most notably in Europe. A slowdown in demand tied to the global economy, along with increased competition, were major factors. We also believe that certain operators are waiting for the technology shift to HSPA+, which is happening sooner than expected.

We believe we are at the forefront of the shift to HSPA+ in both North America and Europe, having already demonstrated the technology and introduced our HSPA+ Ovation, MC996D USB modem. We believe that this technology shift is the next opportunity to capture the USB market share in the EMEA region.

Now, I'd like to briefly return to our key strategic focus areas for 2009, as we move forward to becoming an end-to-end provider of mobile broadband solutions.

First, we are in the midst of transforming our device product line to the emerging phase of the technology lifecycle, and we'll do this through innovative new product offerings and creating a brand install base and distribution channels around those new product offerings.

The initial spearhead of this effort is our MiFi product line, the industry's first high-speed intelligent mobile hotspot. This is a product that David Pogue of The New York Times calls remarkable for its tiny size, its sleek good looks, its 30-foot range, and the fact that it's cordless and rechargeable. Mr. Pogue goes on to say that, "It's always exciting when someone invents a new product category, and this one is a jaw-dropper."

We developed MiFi on both EVDO and HSPA standards and have already begun shipments. We expect MiFi to launch with Verizon and Telefonica Spain as announced today, as well as a third Tier 1 carrier in the second quarter. We also expect MiFi to ramp to volume revenues in the second half of the year.

We expect these carriers to launch MiFi through multiple channels, including direct sales, major retail outlets, and enterprise channels, and to couple their launches with major awareness and promotional campaigns. It's interesting to note that Verizon today announced a $15 DayPass, the first evidence we've seen of session-based pricing.

We also expect the initial launches to focus on MiFi's ease of use, flexible secure access, and universal connectivity of MiFi devices, which allow simultaneous use by up to five individuals, as well as simultaneous connectivity to multiple devices. These include cameras, laptops, music players, mobile Internet devices, and gaming consoles.

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