Good day and welcome to the Novatel Wireless, Incorporated First Quarter 2013 Earnings Conference Call. All participants will be in listen-only mode. (Operator instructions) After today’s presentation, there will be an opportunity to ask questions. (Operator instructions) Please note this event is being recorded. I would now like to turn the conference over to Mr. Matthew Hunt, of The Blueshirt Group for Investor Relations. Mr. Hunt, the floor is yours sir.

Good afternoon and thank you for joining us on our first quarter 2013 conference call. We’ll begin with business overview and outlook from Chairman and CEO, Peter Leparulo followed by a financial overview and guidance from Chief Financial Officer, Ken Leddon. We’ll then open the call for questions. As a reminder, this conference call is being broadcast on Tuesday, May 07, 2013 over the phone and internet to all interested parties. The 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. A reconciliation to the most directly comparable GAAP financial measures is included in the earnings release which is available on the Investors Relations section of our website. An audio replay of this call will also be archived there. Please also be advised that 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. For a discussion of factors that could cause actual results to differ materially from expectations, please refer to the risk factors described in our Forms 10-K, 10-Q and other SEC filings which are available on our website. Now, I would like to introduce Peter Leparulo, Chairman and Chief Executive Officer of Novatel Wireless.

Thanks Matt, good afternoon and thank you for joining our call today. During the first quarter we made good progress advancing our business model. We grew revenue by double digit sequentially and improved our bottomline driven by solid demand for the next-generation products in Mobile Computing and M2M. In Mobile Computing, we have experienced healthy sales growing the MiFi segment over 30% sequentially. To provide a wider context for the market dynamic we are experiencing, we are seeing operators place heavy emphasis on wireless data now more than ever with the proliferation of 4G networks which are incredibly efficient in transferring data. The speed and availability of these networks shared data plans from operators and promotional efforts continue to drive the mobile broadband market. These trends play directly into the value proposition of our modified devices. Simple, ubiquitous broadband connectivity that allows multiple WiFi enabled devices to seamlessly access wireless networks. With that as backdrop, we are seeing a very healthy order pipeline and customer forecast for Q2 across our Mobile Computing portfolio. During the first quarter, we had a very successful product introduction of Verizon with our MiFi 5510. This device is our fifth-generation 4G LTE mobile hotspot and is positioned as the value product at the carrier. Additionally, we had a strong quarter performance from our extended battery modified 4620LE, the premium product with Verizon. Between these two products we have held a dominant position at Verizon and see increased order trends for the second quarter. Turning to progress with our MiFi 2 at AT&T, as many of you know this product, the first mobile hotspot with a touch screen and new levels of user interactivity has received very favorable product reviews in the media and from users. In the second quarter, we expect to see even greater…

Thank you, Peter. I will begin with the financial overview of the first quarter and then will provide our outlook for the second quarter of 2013. Revenue for the first quarter was $85.9 million within the range we provided last quarter. To break that revenue performance down by segment, our mobile computing revenue in the quarter was $75.6 million. This includes $64.5 million of MiFi revenues, $8.2 million of USB modems, combination cards and related products, and $2.9 million from our PC OEM business. This is up 18% from the $63.9 million in computing revenue in the last quarter. Our M2M products and solutions totaled $10.3 million, up over 51% from the $6.8 million in the prior quarter. From a geographic perspective, sales in North America accounted for approximately 95% of total revenue. Our net operating loss for the first quarter was $9.2 million and our net loss was $9.1 million or $0.27 per share. From here on I will discuss our results on a non-GAAP basis. Please see our earnings release for a reconciliation of our GAAP to non-GAAP first quarter results. The non-GAAP adjustments for the quarter totaled $1.7 million and included adjustments for share-based compensation expense, amortization of acquired intangible assets, certain income tax and liability adjustments and force reduction severance charges. Non-GAAP gross margin in the first quarter was 19.7%. This was below our guidance level of 22% to 24% due to the combination of deferred component costs, rebate recognition, unfavorable product mix and higher than expected [warning] costs that we do not believe will continue at this level. Non-GAAP operating expenses totaled $24.3 million, down from the $26.4 million in the prior quarter. This reduction was driven by synergies realized through the continuing integration of mobile computing and M2M business units and our efforts to…

Thank you very much, Ken. In summary, we are making good progress in both of our business segments, our product are moving towards integrated system level technology platforms that are increasingly leverageable with wide application usage. We have a pipeline of products and customers that has us again forecasting for sequential growth in the second quarter and are excited about our opportunities to the year. With that Ken and I would be happy to answer your questions operator please open up the call for Q&A.

We will now begin the question-and-answer session. (Operator Instructions) The first question we have comes from Mathew Hoffman of Cowen & Co. Please go ahead. Mathew Hoffman - Cowen & Co. : So I am sorry I have got a pretty poor connection here hope you can hear me okay. Pretty clear that it seems throughout your prepared remark was that you had very good visibility on the 2Q number that paraphrase, but is the book-to-bill in fact over one and can you talk through the order book, by segment as you and it was up 50% sequentially, we see some growth there, is there any embedded contribution and or is really just as push on the line by front in the near-term here? Thanks.

In terms of visibility has improved and the ordering pattern that we have seen at this point in the quarter are significantly ahead of the normal phasing of ordering cycles that we typically see throughout the quarter. And so in terms of visibility it's pretty high. We don’t generally give book to bill and it’s uneven for different products, but I can tell you we are seeing greater sell through our newly launched products on MiFi 2 in our prepared statements we spoke about how for right reasons the channel, we expect to see about 50% more revenue according our current projections from that product in Q2 in our modeling on Q1. So in terms of the revenue expansion and the channel positioning of that product it reflects the book to build for that period. In terms of the components of that, on the M2M side that we have seen a significant sequential increase on the M2M side from Q1 where about early 52% sequential increase overall in M2M. When we look at that what that has been generated by it’s been principally generated by a migration over to CDMA by new customer design wins that we earned in 2012. As we look and we see what the facing of the next inflexion point is for that growth, the initial uptakes for that but we see that in Q2 as somewhat leveling off in terms of the rate of growth, but then we are targeting for the rest of the year to have M2M growth again based on the design wins that we have in hand and the product rollout that and have a phase throughout the year. So I would put M2M growth in the second half of the year, mindful that it’s above a fairly high piece of growth that we seen at the beginning of the year. Mathew Hoffman - Cowen & Co. : Right, so let's shift here because margins. The 19%-20% on the last quarter pro forma, you are looking up sequentially which is good. You are selling a little bit of leverage as you grow the top line, but you were a little bit lower than you maybe anticipated or guided when we heard from you last and I guess this is February. So is that because you moved into the value segment on the MiFi or was your mix a little different than you had anticipated, any pricing structures out there or is this really a chance to get reestablished firmly in all these new MiFi channels.

This is Ken speaking. There were some things that impacted the margin this quarter that we really didn’t expect one of them I think I referred to as a component rebate which affected our product costs of sales contract was not signed on that until a little bit late till we grew past the quarter. So the benefit of those anticipated product costs reductions will really roll into and be recognized in Q2. We did have some significant amount of our legacy and products that were sold during the quarter as you saw our inventories fell about $9 million during the quarter, a lot of that was some of the legacy products that we are trying to clear out as they go end of life and that had kind of flattened the impact on the margins. And then lastly we did have some only costs related some couple of products that we are mitigating going forward because we are doing some components and firmware upgrades, so we expect that to face that way. So some of that was some roughness in the product launch and others and then we had the other two issues. As far as ASP compression I think it’s about what we expect. I don't think there are any surprises on pricing it on the new products, everything that we had anticipated is kind of going according to plan. Mathew Hoffman - Cowen & Co. : Two more and I'll pass it on to the next one. So your cash was up but you still took a - well because it’s probably the short bridge loan and it looks like maybe you have been a little negative otherwise with cash flow; why the short term bridge loans and is that something you took advantage to capital out there or what exactly was the thought process on taking that.

What that really is, its the margin on our securities that we have on deposit that are held for short term investment and so what we do and we have a short term cash need and those securities aren't mature. We typically can borrow it at such low rates that we try to point the transaction costs and the lots of securities that are kind of hard to replace because yields are falling since we bought them. So it’s really an attempt to access the cash without selling securities before we planned and so what we have here is you know if you take the $59 million we have and you look in your back up the loan and reserved cash and securities that would have netted us out about $54 million in cash. So it’s really just that, just really a convenience for us and in an effort to minimize transaction cost to maintain the yield on the securities we do that because as you know yields are falling almost everyday it seems. Mathew Hoffman - Cowen & Co. : Right. It makes good sense and I just wanted to, the only thing that stuck out in the balance sheet so everything else is as expected.

Yeah. And this is not a new situation for us. We've had this before. You know we draw and we pay it back. We draw and we pay it back. So that's, its kind of how we come to operate with our securities. Mathew Hoffman - Cowen & Co. : All right last one just quick housekeeping will you talk through the units, if you can talk through the absolute on the MiFi, at least talk through kind of the sequential change on units.

You are talking about Q1 to Q4? Mathew Hoffman - Cowen & Co. : Yeah.

Yeah, those definitely an increase in the units as well as revenue. Even the ASPs were a bit lower on the value part of Verizon and you know what some of the other premium is, there's definitely significant increase in units in Q1 with the Verizon the volumes increase as well as additional AT&T volumes. And we had significant volume increase also with the embedded CDMA models in the M2M business.

And next we have Mike Walkley of Canaccord Genuity.

Peter and Ken, just wanted to start out with kind of a higher level of strategic question relative to the MiFi opportunities. Obviously a big competitor in the space, had a transaction relatively recently and sold the competing business and you guys, the ramp in new carriers at the same time. I know those deals have been probably in place and then works for a while but could you talk about any potential opportunities that come from kind of a strategic shift that Sierra has taken recently and any new opportunities that you haven't yet announced or pursued that you are pretty excited about?

In terms of what we are seeing the MiFi product category. I can’t speak to the Sierra transaction, what the impact is on that. It's pretty early to tell and we haven't seen anything immediate on that. In terms of the product category for us, overall mobile computing is so growing and going fairly significantly for us and as you said, we expect to have revenue from all three major operators on 4G LTE, one we launched with Sprint in the second half of the year. So that’s a product category in a segment that we're still executing on and we still growth, profitable growth in it once we launch with all three carriers One other thing that I would also highlight in Mobile Computing is one suggested in my prepared comments that we see operators leveraging the Mobile Computing, the core Mobile Computing into additional used cases and arenas and now that 4G is becoming more and more pervasive and with the throughput and data transfer efficiency, we see the operators competing and places that they haven’t before. And one other things that I wanted to highlight was that we are placed more horizontally if you will in the center of that expansion to address those new markets than what we see from other competitors. So we see the operators that we have talked about on other earnings calls and you have heard them talk about it as well I am sure moving to in-vehicle environment, move into in-home environments, where there are a lot of problems to solve, a lot of systems level issues, if you will rather than device level issues to solve in those environments. And one other thing that the MiFi technology platform does for us is it allows us to extend out into those markets which are one eye over for us if you will, with the same core technology. We talked about on the last earnings call that we have design wins in some of these new used cases with the operators as part of Mobile Computing and we expect to be doing that in the second half of the year. The reason we are excited about those is because they are really brand new and we believe that they will be incremental and that the technology involved, the products involved in those are much higher software content products because of the types of devices that you are extracting connectivity from and because of the types of environment that you are in, which require as I said, quite a bit of system level solutions to solve to get to those environments and get data transfers and content and connectivity abstraction done more efficiently. Those are the ones that we are excited about; those are the ones that we have design wins in, and that is where we believe you will see our product portfolio begin to go to supplementing the MiFi; as a consumer product.

Thanks Peter, that’s really helpful; and it kind of led into what was going to be my next follow -up question which was on some of the things you might mentioned just now on including automotive and some other vertical markets, some might classify those as M2M opportunities and it sounds like the way that Novatel Wireless is thinking about them as more of an extension of the consumer branded MiFi product. Maybe you could just talk a little bit about your product strategy and your go-to-market strategy of how it might differ depending on how you view those opportunities because it’s a little bit different than the way that I’ve heard you referred to you before from an M2M perspective?

Sure. Let specifically take the automobile and in-vehicle solutions. We see the operators begin with 4G coverage becoming ubiquitous; we see the operators begin to go in to those markets and there have been significant announcements in each of those spaces that how the operators are going into those markets. You are absolutely right; our view of these markets, the in-vehicle market is that cost is over between Mobile Computing and M2M. And if you look at industry data in terms of to frame the growth of these markets the number of global users of Telematics applications is projected to increase significantly and then the number of M2M device connections in transportation sectors and Telematics as well is expected to increase significantly. So this divides up and crosses over between those two different segments. In terms of how we address it, it divides up for us as well into commercial M2M, such as fleet management and consumer connections. We will address this market really as an after market more than we will as an OEM space. We believe that the after market is more cost effective when we look at the data as to when consumers select after market outside of commercial arenas. When consumers select after market options, it’s typically -- what they don't typically select the OEM options. In terms of the applications on this, again it crosses over between both of that, a MiFi and a vehicle for example would not only just bring data to passengers and data to additional devices but it could allow for streaming media such as radio, (inaudible) for storage of richer media from other arenas that then are brought into vehicle environment. And then again as it crosses over with M2M, you would have on the commercial side of the in-vehicle,…

Thanks for the explanation. That clears a lot of it up. Ken, a couple simple ones hopefully, with so many other carriers ramping, would you guys be willing to share percentage of sales for Verizon in the quarter?

Verizon was still significant, I think overall it was down a bit as we had some other customers growing in relation to it during Q1, but relatively still our primary and only over 10% customer.

And then, can you talk about kind of going forward what you see OpEx doing through kind of the range or are you hearing what we should think about as the breakeven level?

Well, I think OpEx is, we are settling into level of stability, we have even dropped it a bit as we noted in the quarter due to some of the synergies we've been realized between M2M and the mobile computing business units. But I think right now like what we are seeing is as these businesses integrate and as there's more and more overlap between the M2M and MiFi platform, that we are going to see great (inaudible) out of our operating expenses especially on the R&D and engineering costs components. I think the breakeven, I think we are still somewhere -- if you looked to numbers today and the guidance and the results of most recent quarter, if we assume 21%, 22% gross margin that we're in a breakeven right around the 102 to 110 depending on the gross margin level. And we see us again I think going forward, as revenue scales we believe in later quarters especially in the M2M space as we add additional carriers to the mix when we launch the spring product, we think we can scale the revenue as well as been more efficient in the R&D and therefore I think that would drive us later in the year, hopefully to a breakeven or better situation. Even at the high end of our guidance this quarter, our models indicate that we would be right at a breakeven EBITDA at the high level of our guidance this quarter so we've made some significant progress in the last quarter and we expect to make more next quarter.

(Operator Instructions) The next question we have comes from Cobb Sadler of Catamount Advisors.

I had a question on Verizon. Can you give a rough split on 5510 versus the 4620, I mean lower end versus high end?

I can give you a qualitative split. I don’t have it exactly in front of me, but I can get back to on the exact numbers on it. The 5510 launch, we don’t have a full quarter of 5510. So it's really hard to tell the split, but my sense is, if you look at the product placements, the 4620 would be at the premium slot that would be mostly as well in the B2B channels. So that probably is 30% to 40%. I am just giving you my bare bones estimates based on channel placements and then the 55 channel would be the balance of that principally in the company owned stores and national retail channels.

Okay. It sounds like you are continuing gain share there and do you -- I mean the growth there Verizon would be both organic demand as well as share gains, it sounds like you still have a little room to run on the share side given the 5510 mid, during quarter, and early, is that correct?

Yeah. The 5510 was intended really to displace a value product. So our channel position really in terms of the premium and then the value and our channel position upon the launch of 5510 consolidated.

Okay. And moving on the AT&T and Bell Canada, I know you guys add what at least AT&T drop the prices to a nominal difference between the competing product and that happened kind of late in the quarter, so would you expect to pick up the share of AT&T in this quarter?

We believe we are picking up share and improving our channel position with AT&T in part based on the promotional slot, but frankly the promotional slots they ebb and flow but we believe that there is a longer downstream sales cycle and downstream education process if you will because of the significant differentiation in the features of that product above the competition. So because of the media center, the user experience, the downstream sales cycle was longer. We really dispatched our efforts to create education in the channel and training the channel. And with that, we have seen an uptick. So going forward, we expect that our channel position will improve and we have seen the leading edge of that based on the ordering patterns.

And do you think it probably too early to tell but Bell Canada do you think something somewhere might happen. I guess do you think the (inaudible) reprice similar to what it did to AT&T in the light of the gain a decent amount of share there.

I believe at Bell Canada that there is not a 4G competitions product currently a Bell Canada so we will see but, we will see that if we have to divide that channel up, but so far we are very please with what we seen of launch and we have also seen follow on ordering patterns at Bell since we launched.

Actually that is great. On the component those hampered you in the quarter or did it affect your guide or above?

I am sorry, could you say that again.

On the component constraint does that hamper your revenue right in the quarter or does that impact the guidance or both.

It impacted our guidance.

And then I think historically you talked about something like 50% growth but you had a huge quarter and grew 52% quarter-over-quarter. I mean do you think its sounds like 50% probably, if there is a number is it a little bit low based on just your big uptick that you saw this quarter?

I am sorry I am not following you, M2M in terms of

M2M was on fire, it was up 52% quarter-over-quarter and what is the growth rate you talked about historically, I thought it was around 15% for end market.

Sure, for the end market we see your industry reports and what we see out there is between 15% and 20% annual growth rate. Our target is on an annual basis we are targeting growing faster than the underlying market and there's really no reason that we shouldn't. We targeted high growth markets for ourselves. We will have generations skipping product portfolio. We are going direct to enterprise rather than through distribution, so we've got visibility into where the deals are and we are seeing and participating in the bigger deals and have quite a few as I tried to describe we've advanced the sales cycle almost every step of the way in each of our different targeted vertical markets. So its going to take time but our internal target is to grow on an annual basis faster than the growth of the underlying market. We should have all the tools to do it.

Sounds good and on the (inaudible) I noticed the revenue share you know can you talk about is it significant as it relates to the product sale price and its kind of the high margin I'd assume and why did they decide or why did you guys decide to ask them to enter into a model like that and also which network is it on if you can say.

Sure. The LoJack deal it really where it is LoJack has what is called the in transit platform which is for high value security and supply chain. So they monitor different elements of change of custody and environmental tracking of cargo, if you will. Our product will become part of that offering and we will get a portion of recurring revenue from the service part of that on an ongoing basis. So we entered into that deal because it’s a good template for one of the targets that we have in M2M is to generate a recurring revenue stream and we have a couple of ways to do that through our device management as that matures, our device management software and middleware initiatives as that gets growing and we put more of an emphasis on that and incorporate that into our products. This really was a deal which is consistent with that business model. It’s one of the first ones that we have, it’s hard to tell you know what it will scale to whether it becomes material or not, but nevertheless it places us in within the beginning of a business model which has recurring revenue as a part of it.

I want to jump back to the MiFi 2, so your orders were 50% above the level of revenue that you recognized in the quarter for the MiFi 2, is that right so the amount of revenue that you have in orders is [50%] above what you recognize in the core of your reporting. Is that correct?

Correct.

And then last question is on the MiFi software enhancements. You know your 50% better this time increase, that's sounds like a really big deal and do you think that it was helping you gain market share or are you decided to do a price on a premium basis or both and then the other question is can that software be licensed to other device, other companies.

See this is a software that we've developed internally and one of the things that we've done with MiFi is we essentially own the firmware, the router firmware, we don't use the router firmware of others. So we are able to optimize power management as one of the, of the key performance indicators on our own. This is a software that we developed and we are very pleased that when we deployed it we will now be able to say that a MiFi product without recharging can go two full business days. That's been one of the critical key performance indicators of MiFi, much similar to smartphones. So we’ve come a long way in terms of power optimization of it, of the device and usability of it. We're going to launch this first really as a differentiator in our products, at the high ends, so that we’ll be available to have those products, have even a greater value proposition relative to the competition that’s up there. We will see where that goes, that we can take that and make it agnostic on other devices and licenses. We look at models like that for a variety of software platforms that we developed. Bu right now, we're going to use it as a differentiator for our products. If I can just add; one thing that does is that apples-to-apples that allows us to keep the battery at a milliamp hour level which even on might be lower. We still get greater power management. So there are cost savings to be had even to get the greater performance.

Well, this ends our question-and-answer session. To access a digital replay of this conference, you may dial 1877-344-7529 or area code, 412-317-0088 beginning at 7’0 clock PM today. You will be prompted to enter a conference number, which will be 100-27-564. Again that is 100-27-564. You will be prompted to record your name and company when joining. The conference call is now concluded. We thank you all for attending today’s presentation. At this time, you may disconnect your lines. Thank you and take care everyone.