Good afternoon and welcome to the Novatel Wireless Fourth Quarter and Full Fiscal Year 2015 Financial Results 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’d now like to turn the conference over to Anette Gaven. Please go ahead.

Thank you, operator. We’d like to remind all listeners that 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 section of the Company’s Web site. 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 Form 10-K, 10-Q and other SEC filings, which are available on our Web site. I’d now like to turn the call over to Sue Swenson, Chief Executive Officer.

Thank you, Anette, and good afternoon, everyone. And thank you all for calling in to today’s call. We look forward to sharing the progress and results of our business transformation that has taken place over the past several months. As you recall from our last call, we’re transforming our hardware only business to one that offers complete solution, serving the Telematics and Telemetry IoT space as a result of the Ctrack and FW acquisitions. Consistent with our strategy, today we announced the sale of the hardware portion of our Telematics business to Micronet Enertec for $24 million. For some of you this may come as a bit of a surprise given our focus on the Telematics vertical of IoT, which currently includes our fleet management, stolen vehicle recovery, lot management and usage based insurance. We believe this transaction makes abundant sense enabling us to do a couple of things. Number one, focus on developing the best SaaS offerings for our customers from improved features and functionality, ease of use of the interfaces, great customer support and expansion to new regions. Number two, leverage the hardware design manufacturing expertise and scale of Micronet and other third-party hardware providers. Number three, continue to focus key resources against specific initiatives with our MiFi mobile broadband business and eliminate redundancies. And number four, eliminate any concerns from our customers in the Telematics hardware space because of the acquisition of Ctrack, creating potential competitive situations which did not exist before or this hasn’t impacted our business over the last few quarters, we believe this could be a longer term inhibitor to growth. You may have seen the announcement today that we signed the multi-year supply agreement with Micronet which in addition to providing us with competitive hardware pricing and business continuity, specifies a roadmap of…

Thanks Sue, and thanks to everyone for joining us on this call. I’m sorry, if my voice sounds a bit strange today, but I’ve been healed [ph] so please bear with me. The fourth quarter was a breakthrough quarter for Novatel Wireless. After years of working to join the emergence of the internet of things, Novatel Wireless has finally transformed into an IoT company. As Sue mentioned, in the fourth quarter nearly half of our total revenues were generated by our IoT products and solutions. It feels great to take this giant leap forward with our Ctrack acquisition and our high margin recurring IoT SaaS and services revenues. The Company’s fourth quarter performance was led by our Ctrack offerings. I know many of you were watching the currency exchange rates over the fourth quarter and wondering how we’d spare with the weakening South African rand? As we’ve said, the Ctrack business is a vibrant business with 30 years of history and they’ve some natural hedges in place against bottom line currency risk. This was proven in the fourth quarter as Ctrack generated $16.6 million in revenue and $2.5 million in adjusted EBITDA both at the high-end of the guidance ranges that we provided on our last earnings call. This was despite the rand weakening by more than 10% against the U.S dollar over the course of the quarter. We were very pleased with Ctrack’s fourth quarter performance and it is precisely what we expected from Ctrack when we sought to acquire them last year. FW, our other 2015 acquisition was also instrumental to our fourth quarter IoT performance. Remember that like Ctrack, 100% of FW’s revenues are from IoT products and solutions and FW’s talented employees continue to transition the FW product portfolio towards subscriber growth and the associated recurring…

Thank you. [Operator Instructions] Our first question comes from Mike Walkley at Canaccord Genuity.

Oh great, thank you. Just a couple of clarifications. If you look at your guidance, does that include any of the hardware sold to Micronet and could you give us a run rate of that revenue for 2015 that’s coming out of the model?

So our Q1, what we obviously read, we don’t expect well -- I shouldn’t say obviously, we just announced a little while ago. We expect the Micronet transaction to close at the end of Q1. So our Q1 guidance includes revenue from business that’s being divested to Micronet. When we speak of our Q3 and Q4 EBITDA of $7 million or more per quarter, that assumes the closure of the Micronet transaction which is what will allows us to really streamline our hardware business towards our more profitable IoT areas and our MiFi business to Verizon.

And are you willing to share how much revenue that was in 2015 that’s coming out of the model?

No, you know what -- that’s a really good question, and Mike I’m sorry. It’s just not something that we’ve disclosed before. So we’re not going to disclose it now. Obviously when we get into Q2 guidance, we’ll let you know where we stand as things move around.

Okay, great. And then just in hitting your, if you hit these $7 million adjusted EBITDA run rate in the back half of the year. Can you give an idea of where you think operating expenses would be at that point in time on a run rate basis?

Yes I think, if you to get to that EBITDA on the back half of the year, if you look at Ctrack business that even with its current operating spend structure is generating that $2 million to $2.5 million of adjusted EBITDA per quarter, and obviously that can rise a little bit over the course of the year assuming we at least get a stabilization of the rent. We don’t really need the rent to strengthen. Frankly it helps us from a cost standpoint that’s where it is, we just like it to stabilize. But yes, a lot of the additional EBITDA is not going to come -- is not expected to come from revenue growth, because we are pursing enhanced high margin revenues. And like we announced, we’re obviously selling off some revenues, yet we expect our EBITDA to go up. So we do assume continued cost rationalization activities whether it’s through Novatel employees will be part to join the Micronet business or other opportunities we have then to streamline the hardware business towards the profitable segments including MiFi. I don’t expect to answer your question on operating expenses which I’m certainly dancing around I guess. I don’t expect operating expenses to increase over the course of the year. They should remain flat to decrease. Actually they should decrease, but I don’t really want to put out any guidance right there. We’ve got to get through Q1, get through the closing of this transaction, and that will give you better outlook in Q2. But we would expect the operating expenses to decline obviously.

Okay, thanks. And then, just on the MiFi business and with that ticking up into Q1. How should we think about modeling that maybe on an annual basis given its concentrated with one customer that’s kind of lumpy quarter-to-quarter, but can you maybe give us a feel for your visibility into annual sales for 2016?

Yes, I mean, I think that when we look ahead we -- at the MiFi sales, it’s a very stable revenue business. We’ve got our slot and drives in for the hotspots for instance, and among the three slots that we have and some more they’re on their way. And even when that slot expires, we’ve got the next generation MiFi hotspot that replaces it. The challenge of the business has always been exactly as you said is that’s very lumpy. And what we need to do, it’s very profitable that businesses run properly. What we need to do is make sure that the cost structure is aligned to deal with that lumpiness. As we saw in Q4, we had a dip in sales to Verizon in Q4, and that caused us to go 100-K negative. Had we not had that dip in sales which obviously we would have been positive EBITDA as a company in Q4? And so, we need to align the cost structure to ensure that Novatel, even now Ctrack is profitable so that we can enjoy the benefits of that Verizon relationship. I think as you look out over the year, you should take a look at our Q1 -- I think it’s going to step up a little bit in Q1, as I mentioned our MiFi sales. And I think that’s probably the level it will stay out for the year. I don’t know Sue, if you have any other comments?

No, I agree with, Mike. I think there’s stability there. I think as we talk about working with Verizon on a strategic basis, there maybe some things that we’re working with them on that have more value than MiFi hotspot. I think that’s a pretty stable business. But Verizon is transforming their business and their strategy, and obviously we’re very close with them on a strategic basis on their roadmap. So, don’t know enough yet for sure, but I think stability is at least -- is something that we foresee as a minimum.

Okay, great. One last question, I’ll pass it on. Just looking at your total subscriber growth was about 10,000 in the quarter. Is that but what you expected, and how do you see that, that trending throughout the year? And if you look at the mix of your target areas, how do you think arpu might trend for the year also?

Yes, we actually expect subscriber growth to pick up over the course of the year from what you saw in Q4. If you think about Q4, I mean, we were very pleased with the subscriber growth in Q4. We knew it was going to be a tough quarter for them, because of so much that was going on. Remember the Ctrack was acquired on October 5. So their whole business was acquired in the month of October and that created disruption for them in October. And then of course the month of December is a holiday month which is always difficult with B-to-B sales. So, in Q4 they really only had one sort of normal solid month of sales and that was November. So I think as we look into 2016, we expect that growth rate of subscribers to pick up and be more consistent with the 20% CAGR growth rates that we’re seeing across the globe in this industry. That being said, we are quite pleased with what they did in Q4. As I said there was a lot of disruption for them early in the quarter, and it’s really the testament to the strength of their management team that they executed so well during such a transitional quarter.

Right. And I would just add Mike, that -- I agree with Mike’s comments, but additionally I think you’ve seen some of our announcements recently on some of the wins. And so, as you know, as we look at the pipeline that Ctrack has we’re really pretty encouraged about what's coming. Some of those are shorter cycles -- sales cycles and some are longer, and so, some of those are coming to provision. So you should expect to see continued communication of wins in the marketplace.

Great. Thank you.

Our next question is from Josh Nichols at B. Riley.

Since you were just speaking about a good number of wins the company has announced here. Anything -- any details that you could provide as far as the opportunities, as far as the number of subscriptions. This could lead to I see, there’s airports, there’s another with Mercedes Benz, and then there is potential police deal going on. Any commentary?

Yes, I mean, I guess, the way I would react to that, is that I think you can see the breadth of the offering that Ctrack has. I mean, they -- if you think about consumer all the way up to very large fleet, and I think you’ve seen that probably in some of the announcements. So there’s a range and with some of those larger deals you obviously have one big customer but lots of subscribers and those come on over time. So, we’re taking a look at that forecast. But like I said, I’m pretty excited about what I see coming and I -- and talking with the management team, Mike mentioned the quality of the management team, that’s a very experienced management team that’s been in the market for a long time and they know where to target their effort. So, I think you’ll continue to see growth in this business, and as Mike said, you’ll see growth that’s better than what you saw in Q4, just as a result of the acquisition and in the holiday period. But you’ll start to see, as we start to report this on a more ongoing basis, I think you’ll see what the growth looks like as we move forward.

And, I mean, two acquisitions are now, I mean, today's announcement that there was a divestiture. It looks like the company has made some good progress on the integration front. Could you talk for a little bit about, what's left to do?

Yes, and I appreciate you raising that, because the integration was really important. We just really completed the integration of FW into the total business, and you heard my comments about the focus there of really leveraging their expertise in the areas that they have, really being connected to the main Novatel Wireless team, I think is already -- we’re seeing some benefits from that. We will now turn our attention to Ctrack and see what kinds of integration we want to do there. They are a very self-contained organization, but we do think there is opportunities there to connect that more fully with the Novatel Wireless business. But having been around several integrations and different companies and watched it from a board perspective, we want to be really thoughtful about that, particularly with an established company and a different culture, we want to be really mindful of that because speed, you may do it quickly, but yet not get very good results. So, we will work very closely with the Ctrack management team to make those integrations at the right time.

And then, I mean, with the company projected to do $7 million in EBITDA, the quarterly run rate in those back half, and some cash coming in; do you have any plans for the capital as far as maybe debt pay down or anything else?

No, always with -- first of all, its going to be wonderful to have what I would call as excess cash for a change, in order to have the opportunity to think about that for a change so we’re pretty excited about that. And anytime you have cash on the balance sheet, I think you always have to weigh, what's the best use of that cash? Is it for investing in growth of the business and initiatives to grow this business perhaps to expand regionally? I mentioned the SMB effort and the SMB focus somewhere around the globe in 2016. So we’ll wait -- as we always would and we’ll probably discuss it with our board in terms of the use of excess capital. But Mike, I don’t know if you would add anything to that.

Yes, I mean, as you might imagine, we had some restrictions in our credit facility as to the uses of cash due the $48 million Wells Fargo credit facility, and while nothing is drawn down on it now, as you might imagine it would require amending that or getting their consent to buyback stock or debt. I mean, obviously these are things that we would look at and we would discuss with them if we thought it made sense and they thought it made sense for the business, but it would be a hurdle to cross.

Right.

And last question for me, is bringing Ctrack over, start bringing the offerings over to the States and moving it outside of the South Africa where 60% of the revenues current reside. Any updates on that front?

As I said, we really looked around the globe to see where we want to expand. And we think there are several opportunities around the globe, North America being one of them. The advantage that we have is that, obviously they’ve been in the business, they have the product. And so, it’s just really -- we’re really looking at what we want to customer experience to be. I mean, I think its pretty clear what features and functionality this particular segment requires. I think we’re pretty clear about that. And so, I said, at some point this year, you’ll see us launch somewhere around the world and expand that because we think as we’ve said before, this is a relatively low penetrated opportunity with great growth and a product that, and particularly for this particular segment keeping it really simple and easy to use, I think is a value proposition that’s important. And it becomes a very sticky product for this particular segment. I have some experience with the small business segment in a prior job. And so, I’m somewhat familiar with how simple you need to make this to make it really valuable and sticky. So, we’re looking forward to launching this somewhere else in the globe this year.

Thank you.

Our next question is from Rahul Bhan at DG Capital Management.

Hi, couple of questions. So one; getting from the $1 million of EBITDA to the $7 million. I was hoping you could perhaps bridge that on a more quantitative level from just simply the adjustment of the transaction. So things like growth in Telemetry MiFi Telematics versus simply the translation of the Micronet sale transaction? That’s my first question.

Yes, it’s mostly the delta between where we are, and that $7 million is learning the MiFi business and our security IoT business profitably. Those are both high volume profit generating businesses once we streamline things down. So, like I said, I think you said walk from $1 million which is the guidance range for Q1. But I’d probably turn it this way and I would say, you’re looking at $2.5 million of EBITDA -- from $2.5 million to $3 million of EBITDA from Ctrack. You’re looking at positive EBITDA from FW. And then you’re looking at $4 million to $5 million of EBITDA from MiFi business. And so a lot of it is, rationalizing expenses and just targeting them towards those things. Remember we did do two acquisitions this year and we ballooned up to 1,400 employees. We’re little less than that right now, and obviously the Micronet business will reduce our cost profile. But there are other things in the works as well to streamline that cost profile where we -- but we’ve only been close to Ctrack just three months ago, and those things are on the way. I don’t think that -- what I don’t want to do is put in your head that, its revenue growth from Telemetry or something else that drives that EBITDA number. That’s actually probably upside to that EBITDA more than anything. We think we can execute and operate the business as it is towards that number with growth as an upside. I don’t know, Sue, if you want to comment further on that.

No, I would agree. I mean, I think the focus that the organization has had over the past couple of months getting really, really clear that where the opportunities are aligning the organization on key priorities, and having everyone so to speak putting their hands on the ores in the same direction makes a very big difference, and I think really being targeted on those opportunities. We have the product and the offering. It’s just the matter of really targeting those efforts. And I think with that kind of focus, there is potential upside to what we’re talking about here. But we want to be, this is new territory, we want to be practical in terms of how we’re approaching this, and our goal is to not only meet what we’re sharing with you now, but hopefully exceed some expectations. So that’s really what …

Great. And then my second question is more of a reference to the last conference call in which you outlined your strategy for the company, and commented in response to a question about the potential sale of the MiFi business essentially. Is that an option that’s still on the table or do you think that this sort of three tiered or three legged approach to the business strategy is the most appropriate way to structure the company?

I appreciate the question. I think laying out the strategy I thought was important and obviously the MiFi business is attractive in terms of its current structure because of focus and because of streamlining. I think the -- I will repeat what I said before and that is, is that, and I think based on the Micronet transaction, I think people maybe now understand what I mean about getting a compelling offer. I mean, it’s a great business. And if I got a compelling offer, I would certainly entertain it, not only because I’m obligated to, because it’s a public company, that only -- but because I think it makes sense longer term. So, we will see how that pans out. In the meantime we’ll run that business. We will continue to work strategically with Verizon towards not only the current product, but future products on their roadmap, and we’ll just see how this plays out. But at least we’ve now restructure the business in a way that we can actually achieve what we said. And I think that’s the important thing, that’s an important milestone that we needed to achieve as an organization to demonstrate to not only all of you on the phone, but all of our investors and shareholders that we are really serious about doing what we say. And so, I think it’s a pretty good structure at this point, and we’ll see how the business evolves.

Sorry, just one last question, and I appreciate the answers you’ve given me so far.

Okay.

So finally just in terms of capital allocation. Thinking about the proceeds and then, also the cash that you’ll generate in the future. According to my pricing indications that convertible bonds traded at a fairly attractive yield to maturity or yield to worst or whatever metric you want to use. And I don’t need to spill that out to you or the board that, that represents a guaranteed return. And I was just wondering, when you’re thinking about other uses of capital like acquisitions or investing in some kind of R&D for future projects, what is your return hurdle or can you frame that opportunity such that, you would disregard the very attractive opportunity of buying back your public bonds with a guaranteed 20 plus percent return?

So I’ll tell you, it’s a good question. When you look at the bonds that we have out there and the rate that we have neither to say, we’re obviously not only aware of our stock price, but the price at which the bonds trade and our view is the business is helping strong and they shouldn’t be down there. We’re going to add this $12 million to the balance sheet. It’s going to take our cash which was $12 million at the end of last quarter up another $12 million. I think that, it is something that we and our board will consider in terms of trying to whether or not we are to repurchase some of those bonds. But we also have to consider whether it, it can be better spent to drive entry into the U.S. or otherwise and I -- I don’t want to -- this is just a premature discussion. We just announced this transaction today. We hope to receive that money and that transaction closes on March 31, and we’re obviously happy to take up this conversation again at, in future points, but rest assured that we are really scoping out every possibility in every opportunity.

Yes. I consider -- like I said before, it’s nice too after a relatively short period of time having a high class problem like that to consider, what to do with the cash. And like I said, it’s a really good question; we will give it obviously serious consideration depending on what the circumstances are at the time. So, obviously that’s a question that’s been asked by a number of people and we’ll take it under consideration.

Great. And we appreciate your sense of urgency with executing your strategy so far. So, thanks very much.

Good. I appreciate the question.

[Operator Instructions] There are no further questions, and this concludes the question-and-answer session. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.