NVTL

Novatel Wireless, Inc. (NVTL)

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Novatel Wireless Inc. (NVTL)

Q2 2010 Earnings Call

August 3, 2010 5:00 pm ET

Executives

Bill Wachovia – VP, IR

Peter Leparulo - Chairman and CEO

Ken Leddon - SVP and CFO

Analysts

Matthew Hoffman – Callan and Company

Anthony Staff – Craig Hallum

Bob Sales – LMK Capital Management

Presentation

Operator

Good afternoon, Ladies and Gentlemen. Thank you for standing by. Welcome to the Novatel Wireless Second Quarter 2010 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)

I would now like to turn the conference over to Bill Wachovia, Vice President of Finance and Investor Relations. Please go ahead.

Bill Wachoiva

Good afternoon. And thank you for joining us on our call today. Today’s call will include a business overview from Peter Leparulo, Chairman and CEO; and a financial overview with third quarter guidance from Ken Leddon, Chief Financial Officer.

As a reminder, the conference call is being broadcast on Tuesday, August 3rd, 2010, over the phone and the internet to all interested parties. Information shared in this call is effective as of today’s date, and will not be updated.

During this call, non-GAAP financial measure will be discussed. Reconciliations to the most directly 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 will 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 filing for a detailed discussion of potential risks.

And now, I’d like to turn the call over to Peter Leparulo, Chairman and Chief Executive Officer of Novatel Wireless.

Peter Leparulo

Thanks very much, Bill.

I’d like to begin with a quick recap of our second quarter 2010 results, and then talk about our recent development and future plans.

Revenues for the quarter were 71.8 million, a slight sequential quarter decrease, but above our guidance. Gross margins were 19.2% with a non-GAAP loss of $0.14 per share. Gross margin happened under pressure principally due to customer mix as well as other factors, such as higher than expected freight charges related to comp runs and shortages.

In spite of competitive pressures, we continue to expand our market penetration, and had our best quarter ever in terms of unit shipments.

As discussed in our press release, our financial results were also impacted by a write down of deferred tax assets. And our participation in the auction for Centurion wireless modules. We participated in this auction because Centurion, as the number one producer of M-to-M modules, would have been an excellent strategic fit with our existing business. And would have expanded our addressable market.

While we are certainly disappointed with the outcome, we were only comfortable with the economics that we proposed, and have no regrets. We always look at opportunities in this area, and will continue to be disciplined in seeking the right fit that broadens our reach and growth potential while benefiting our bottom line.

Moving on to our business update, we continue to focus on our key strategies. And during the quarter, it made significant progress on each.

First, we continue to move forward in developing a solution-based approach to the market. With our open software platforms providing better customers stickiness and barriers to entry.

Second, we are moving aggressively as we migrate our entire product portfolio to prepare for the upgrade to fourth generation error interfaces.

And third, we are securing design wins that will return our embedded module business to a significant revenue contributor.

We expect significant improvement in our financial results once our new products begin to launch in the fourth quarter and beyond.

We continue to be very encouraged by the growing market acceptance of our MiFi intelligent mobile hotspots. MiFi continues to gain traction in the industry. We are proving that this new product category is viable and meets a real market need.

MiFi is gaining acceptance as the best connectivity option for new portable MiFi-enabled devices, such as the iPad, Kindle, Tablet PCs, and MP3 players, and gaming devices; allowing consumers to stay connected with up to five devices simultaneously.

For the past year, we have focused on establishing an installed base of MiFi devices. And expanding the overall availability of the MiFi platform. We have now shipped more than 1 million MiFi units. And at our largest customers, MiFi sell through continues to reach new records.

And we continue to make progress in adding new carriers and retail distributors worldwide. Some of which are mentioned in our press release.

The MiFi platform is an important part of our strategy for the future as we move this product category beyond connectivity.

Last quarter, we emphasized that our focus was on certifying our MiFi operating system on the next generation open-development platform. The MiFi OS, which powers the onboard application processing, storage, and rich functionality will bring the capability to download software applications.

I’m happy to announce that we have received the first carrier certification of the MiFi OS, which we expect to launch later this year.

As our user trials and demonstrations have shown the value proposition of the MiFi OS, operators are recognizing the potential of our strategy. The platform is an enabler, capable of creating new usage patterns by end users that open revenue opportunities for the operators.

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