NVTL

Novatel Wireless, Inc. (NVTL)

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Novatel Wireless, Inc. (NVTL)

Q2 2009 Earnings Call

July 30, 2009 05:00 PM ET

Executives

Julie Cunningham - Vice President of Investor Relations

Peter V. Leparulo - Chairman and Chief Executive Officer

Kenneth Leddon - Senior Vice President and Chief Financial Officer

Analysts

Matthew Hoffman - Cowen and Company

T. Michael Walkley - Piper Jaffray

Samuel Wilson - JMP Securities

John F. Bright - Avondale Partners

Anthony Stoss - Craig-Hallum Capital

Presentation

Operator

Good afternoon ladies and gentlemen. Thank you for standing by welcome to the Novatel Wireless Second Quarter 2009 Earnings Conference Call. During today's presentation all parties will be in a listen-only mode.

Following the presentation the conference will be open for questions. (Operator Instructions). This conference call is recorded today, Thursday, July 30 of 2009.

I would now like turn the conference over to Julie Cunningham, VP of Investor Relations. Please go ahead

Julie Cunningham

Good afternoon everyone and thanks for joining us. The agenda for today's call is as follows: Peter Leparulo, Chairman and CEO, will provide an overview on the quarter and Ken Leddon, Chief Financial Officer will review the second quarter 2009 financial results.

As a reminder, this conference call is being broadcast on Thursday July 30th, 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 comparable GAAP financial measures are included in our second 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 also 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 V. Leparulo

Thanks to all of you for joining us today. Second quarter revenues increased 19% sequentially 84.1 million driven by a rebound in North American USB sales and strong demand by a newly introduced MiFi products.

With this introduction two months ago, we have received over $100 million in MiFi orders. This provides clear evidence of the demand for MiFi and we believe it is shaping up to be the best and most important product introduction in our history. Even now many technology companies are still reporting double-digit year-over-year revenue declines we're even approached by your outlook moving forward.

We currently expect third quarter revenues to increase from 7% to 13% sequentially, and from 14% to 21% year-over-year based on orders already received. We expect gross margins reached their highest level since 2007 and we expect to generate strong bottom line result.

I want to spend the majority of today's call talking about how we believe the MiFi ecosystem has transformed to Novatel Wireless. But first, I need to address the recent turn of events in our embedded business.

Our most significant OEM customer in the first half of this year has decided to move to a direct component and sourcing model in an effort to reduce cost. Currently, we expect only nominal revenues from this relationship in Q3 and are somewhat surprise about the speed of this transition.

However I do think it is a strong testament to the innovation with the MiFi product line that we are able to smoothly absorb the impact of this decision in our outlook for Q3.

Longer term, we believe that embedded revenues can grow again with the addition of two recent eBook reader design wins that will begin to contribute in 2010 and will compliment our laptop OEM customers.

Now we'd like to return to our three main focus areas, beginning with our core business. In Q2, we launched two new core products the USB1000 is the first to combine both EV-DO Rev A and HSPA technologies into one single USB product allowing operators to market true global roaming on a USB device.

Already we have seen global services offered with this device including access to corporate email in U.S. and abroad, access the voice and data abroad without rental fees and discount on lines used in U.S. end destinations.

We also recently announced the introduction of the PC770 2-in-1 PC card and express card at Verizon. The product includes an adapter so the PC770 can be used with an express card or PC peripheral interface slot and is compatible with both PC and Mac notebook computers.

This makes the ideal format for an enterprise looking for flexibility to support both form factors and for individuals looking to use the technology on older generation laptops while preserving our ability to transition to the newer express slot format. The PC770 also allows operators to reduce the number of skews and vendors that they support.

Additionally, we launched our new 760 modem, the smallest USB device available in Canada with Dell, which has largest 3G network in the country.

In Q2, we also introduced our MC760 product called Broadband2Go product with Virgin Mobile USA. This is one of the first prepaid broadband mobile data products available in the U.S. Finally, we continue to target being first to market in technology upgrade cycles to both HSPA and CDMA, our band modes, where significant market exists.

To summarize our core business, I would say that we are in the midst of transitioning our traditional device product line to the emerging phase of the technology lifecycle. We are doing this by innovative new product offerings and creating a brand and install base and distribution channels around these new product offering.

Read the rest of this transcript for free on seekingalpha.com