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Novatel Wireless Inc., (NVTL)

Q3 2010 Earnings Conference Call

October 28, 2010 05:00 pm ET

Executives

Bill Wachovia - Vice President of Finance and Investor Relations

Peter Leparulo - Chairman and Chief Executive Officer

Ken Leddon - Chief Financial Officer

Analysts

Mike Walkley - Canaccord Genuity

Matthew Hoffman - Cowen and Company

Anthony Stoss - Craig-Hallum

Presentation

Operator

Good afternoon ladies and gentlemen, thank you for standing by. Welcome to the Novatel Wireless Third Quarter 2010 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will 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 sir.

Bill Wachovia

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

As a reminder, this conference call is being broadcast today Thursday, October 28, 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 measures will be discussed. Reconciliations to the most directly comparable GAAP financial measures are included in our Third 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 introduce Peter Leparulo, Chairman and Chief Executive Officer of Novatel Wireless.

Peter Leparulo

Good afternoon everyone.

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

Revenues for the third quarter was 75.6 million, a 5.3% sequential quarterly increase and within our guidance range. We generated cash flow from operations of 9.2 million, bringing total year-to-date cash flow from operations to 13.9 million. The GAAP loss per share was $0.22 and was better than the range that we had forecast. Although the non-GAAP loss was $0.01 more than our forecast at $0.14 per share.

However, our unit sales are higher than ever for core products and MiFi 2372 Intelligent Mobile hotspots.

In Q3, we also set the stage for strong year-over-year growth and positive EBITDA in Q4. We are currently projecting a more than 45% sequential increase in revenues in the fourth quarter. Importantly, the fourth quarter will be primarily driven by our 3G technologies even as we begin to introduce next generation products across our full product portfolio. These will [indiscernible] growing backlog of orders from multiple channels.

Moving now to our business update for the third quarter, we continue to focus on our C strategies and during the quarter, they made significant progress. First, we are moving aggressively to prepare for the upgrade by the major carriers to support the next generation inter-phases. These include dual [indiscernible] and Wi-Max. This development initiative continues across our entire product portfolio, from USEs to PC cards to MiFi 2372 Intelligent Mobile hotspots. We are working closely with lead operator development partners across each pair interphase and have made significant progress in R&D programs for each one factor.

Our products will be on the leading edge in terms of the dramatic increase in speed and bandwidth that we’ll provide, and our technology will maximize these capabilities. We are in various stages of commercializing a number of next generation products, many of which are now nearing completion or the certification process with our customers. In the fourth quarter, we expect the first launches of our next generation products.

We will continue to launch new 4G products in 2011, with products continuing throughout the year. We also have been successful in securing a number of design wins for several LTE variance of our 4G embedded model. We are undertaking a significant joint development effort in cooperation with these partners including leading manufacturers of PCs, netbooks and other mobile internet devices.

We expect sales of embedded modules to pick up significantly towards 2011 as these OEMs begin to ramp up production of 4G enabled platforms in both North America and Europe. We look forward to announcing product launches with our partners beginning in the first quarter of 2011. As a result, the embedded module category will once again become a meaningful revenue contributor over the next year.

We also continue to move forward in developing a solutions based approach to the market with our intelligent software platforms, providing better customer stickiness and barriers to entry. This includes the next generation MiFi product lines that will incorporate the MiFi operating system and MiFi applications tool. This platform is an important part of our strategy for the future as we move the product category beyond connectivity.

As we demonstrated at the recent CTIA Trade Show in San Francisco, our MiFi OS will power onboard application processing and rich functionality, including the capability to download software applications. We’re expecting to do some MiFi OS with carrier partners starting in the fourth quarter. We’re also very excited that our first operator launch of the MiFi OS software platform will include MiFi home, our browser based web user interphase that could provide seamless access to MiFi resources and widgets. Virtually any WiFi enabled device will also have access to mobile broadband applications in content which can pit onboard to MiFi. MiFi home will enable operators also to offer mobile content and applications that are personalized and customizable.

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