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Novatel Wireless, Inc. (NVTL)

Q2 2008 Earnings Call

August 19, 2008 5:00 pm ET


Julie Cunningham - Vice President, Investor Relations and Communications

Peter V. Leparulo - Chairman of the Board, Chief Executive Officer

Kenneth G. Leddon - Chief Financial Officer, Senior Vice President

George B. Weinert - President, Chief Operating Officer


George Iwanyc - Oppenheimer

Matt Hoffman - Cowen & Company

Samuel Wilson - JMP Securities

Kevin Dede - Morgan Joseph & Company

Anthony Stoss - Craig-Hallum Capital

John Bright - Avondale Partners



Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Novatel Wireless second quarter 2008 conference call. (Operator Instructions) I would now like to turn the conference over to Julie Cunningham, Vice President Investor Relations and Communications. Please go ahead, Madam.

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 of the second quarter of 2008; and Ken Leddon, Chief Financial Officer, will review our preliminary financial results for the second quarter. Also joining us on the call is Brad Weinert, our President.

As a reminder, this conference call is being broadcast today on August 19, 2008 over the phone and Internet to all interested parties. The information shared in this call is effective only 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 preliminary second quarter earnings release which is available on the investor relations page of our website at The audio replay of this call will be archived there for 30 days.

Today’s discussion contains forward-looking statements including our preliminary financial results for the second quarter and our outlook for the third quarter of 2008. 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 could differ materially. Please refer to our SEC filings for a detailed discussion of potential risks.

Additionally, as previously announced, the company’s actual results may differ materially as a result of the outcome of an ongoing accounting review as described in more detail in our preliminary earnings release.

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

Peter V. Leparulo

Thanks, Julie and thanks to all of you for joining us today. As Julie stated, we are providing preliminary financial results for the second quarter of 2008. These preliminary results are subject to change as a result of the audit committee’s ongoing review of the company’s revenue cut-off procedures, internal control, and accounting for certain customer contracts. With that in mind, revenues for the second quarter of 2008 are expected to be approximately $89.8 million. Earnings per share on a GAAP basis for the second quarter of 2008 is expected to be approximately break-even, significantly impacted by the cost of the audit committee’s ongoing accounting review.

Our preliminary second quarter results include approximately $3.4 million of revenue and approximately $131,000 of pretax net income that was previously included in our first quarter results, which were announced on May 1, 2008.

Non-GAAP EPS, which excludes stock-based compensation, is expected to be approximately $0.03 per share. Second quarter results on a pretax basis include: an inventory valuation write-down of $1.7 million in cost of goods sold; a bad debt reserve of $900,000 in G&A; and fees and expenses related to outside professionals in connection with the accounting review of $2.6 million in G&A. The non-GAAP EPS impact of these items totals approximately $0.11 per share.

Today, I would first like to give you a brief update on the status of the ongoing review by our audit committee. After that, I will walk you through some of our key initiatives, which we believe will lead us to return to growth in the fourth quarter.

As previously announced, the audit committee is conducting an expanded review into the company’s revenue cut-off procedures, internal controls, and accounting related to certain customer contracts. During the course of the review to date, six transactions have undergone further accounting review, principally as to whether revenue from these shipments was recognized in the appropriate quarter. These shipments involved aggregate revenues of $9.1 million and pretax income of $1.1 million.

The review has resulted in a preliminary determination to move approximately $3.4 million of revenues from the first quarter to the second quarter of 2008. I do want to reiterate that the accounting review is ongoing and may identify other issues.

To date, no determination has been made as to whether a restatement of our 2007 audited financial statements will be required. Upon completion of the audit committee’s review, a decision will be made as to whether a restatement is required.

Following the completion of this review, we will finalize our financial statements for the first and second quarters of 2008.

Finally, I would like to remind you that the accounting review is being conducted by our audit committee with the assistance of outside advisors. We are not therefore in a position to respond to questions regarding the status of this review beyond what is contained in the preliminary earnings release and our prepared remarks.

And now let’s turn back to discussing our business -- our preliminary second quarter results and our current outlook for the third quarter do reflect the transition in our business, as we introduce new products and open new markets for our technology. We believe our market continues to grow but we have seen a more cautious approach by many carriers, which may reflect some normal summer seasonality, along with the impact of current macroeconomic environment factors.

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