Welcome to the Novatel Wireless first quarter conference call. (Operator Instructions). ':

': ': During this call, non-GAAP financial measures will be discussed. Reconciliations to the most recent comparable GAAP financial measures are included in our first 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 be archived there. ': ': ': ':

': We have also returned to positive EBITDA and free cash flow. While we continue to be impacted by the slowdown in the global economy, our results significantly improved on a sequential basis, and our outlook for next quarter is for continued improvement. Overall, I believe that we are executing well in a tough environment. We are well into the leading edge of commercializing our strongest product cycle in history in all areas, including embedded, mobile Internet devices, end-to-end solutions, beginning with our MiFi product line, and our core USBs and PC ExpressCard products. Embedded and mobile Internet devices have led the way in commercialization and deployment. ': Our focus on developing mobile content partners over the past year is now coming to fruition, as our new product introductions, which will begin to have a positive impact in coming quarters. As expected, USB product sales declined in the first quarter, most notably in Europe. A slowdown in demand tied to the global economy, along with increased competition, were major factors. We also believe that certain operators are waiting for the technology shift to HSPA+, which is happening sooner than expected. We believe we are at the forefront of the shift to HSPA+ in both North America and Europe, having already demonstrated the technology and introduced our HSPA+ Ovation, MC996D USB modem. We believe that this technology shift is the next opportunity to capture the USB market share in the EMEA region. ': ': ': We developed MiFi on both EVDO and HSPA standards and have already begun shipments. We expect MiFi to launch with Verizon and Telefonica Spain as announced today, as well as a third Tier 1 carrier in the second quarter. We also expect MiFi to ramp to volume revenues in the second half of the year. ':…

': Revenues for the first quarter were $70.4 million, a decrease from the $87.8 million reported in a prior year period, and an 8% increase above last quarter. Revenue by product category is as follows; USB products accounted for $23.9 million, or 34%. Embedded products were $41 million, or 58%. PC and ExpressCards were $5.1 million, or 7% of revenues. Revenues by technology; EVDO products were 86%, and HSPA products were 13% of revenues. From a geographic perspective, domestic revenue accounted for approximately 91% of total revenues, and international revenue was 9%. During the first quarter we shipped to nine operators and nine OEMs in 20 countries. Leading customers in the quarter included, Dell Distribution, Dell, Foxconn, Sprint, Telefonica and Verizon. Gross margins were 23.1%, above our guidance range of 21% to 22%, as we benefited from a product mix shift. We expect to benefit from increasing revenues from new products in upcoming quarters, but also expect it to continue to be a highly competitive market. First quarter operating expenses were 26.5% of revenues, or $18.6 million, with the increase primarily in R&D, related to new product development. Total operating expenses in absolute dollars were up 1% compared to the prior year period. R&D expenses totaled $10.4 million, or 14.7% of revenues. Sales and marketing was $4.2 million, or 6% of revenues. And G&A was $4.1 million, or 5.8% of revenues. Including the share-based compensation charges of $1.3 million net of taxes, we reported a GAAP net loss for the first quarter of approximately $2.5 million, or $0.08 per share. On a non-GAAP basis, excluding the non-cash compensation charges, we reported a net loss of $1.1 million, or $0.04 per share. GAAP cash flow from operations was a use of $1.9 million that was driven by an increase in accounts…

We are pleased to have demonstrated significant progress during the first quarter and we continue to focus on execution. Our overall product portfolio has never been better, and we look forward to the commercial launch of MiFi with multiple Tier 1 carriers over the coming months. Now, Ken and I will answer your questions. Operator, please open it up for Q&A.

(Operator Instructions) Our first question comes from the line of Matthew Hoffman with Cowen and Company. Please go ahead.

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': There is also an optimization, because this product line is very, very flexible. As I tried to suggest in our prepared statements, there are many, many devices for connectivity-only for this product, which require optimization. And the operators really all have very different plans tapping into the flexibility of this device and want to put it on different channels, which create technology issues that need to be solved, as well as go-to-market plans, which make those operators development partners of ours as we bring those to market. So, all of those we believe put up barriers to the deployment with multiple operators. ': There is also an optimization, because this product line is very, very flexible. As I tried to suggest in our prepared statements, there are many, many devices for connectivity-only for this product, which require optimization. And the operators really all have very different plans tapping into the flexibility of this device and want to put it on different channels, which create technology issues that need to be solved, as well as go-to-market plans, which make those operators development partners of ours as we bring those to market. So, all of those we believe put up barriers to the deployment with multiple operators. ': There is also an optimization, because this product line is very, very flexible. As I tried to suggest in our prepared statements, there are many, many devices for connectivity-only for this product, which require optimization. And the operators really all have very different plans tapping into the flexibility of this device and want to put it on different channels, which create technology issues that need to be solved, as well as go-to-market plans, which make those operators development partners of ours as we bring those to market. So, all of those we believe put up barriers to the deployment with multiple operators. ': There is also an optimization, because this product line is very, very flexible. As I tried to suggest in our prepared statements, there are many, many devices for connectivity-only for this product, which require optimization. And the operators really all have very different plans tapping into the flexibility of this device and want to put it on different channels, which create technology issues that need to be solved, as well as go-to-market plans, which make those operators development partners of ours as we bring those to market. So, all of those we believe put up barriers to the deployment with multiple operators. ': ':

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Sure. In the core business, the ExpressCards and PC Cards, Matt, were about $5 million, or 7.3%. The embedded space was $41 million, or 58%. And then the Ovation products were about $24 million, or 34%.

Last question from me. As you look out to next quarter, you gave us nice top line guidance. Talk about the cash flow. Obviously (inaudible), was that late quarter business closing or was that a reflection of a bit of a challenge in actually collecting on the core business?

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And our next question comes from the line of Anthony Stoss with Craig-Hallum. Please go ahead.

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Okay. When do you expect those third-party apps to be certified, presumably Verizon and the other carriers?

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Operating expenses I think are going to be relatively flat. We will continue to invest maybe incrementally in absolute dollars in R&D in the near future as we launch additional products. We believe as the revenues ramp up, the R&D and operating expenses as a percent of revenue will drift downward again closer to our historical levels.

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And one last question for you guys. Your biggest customer in the quarter, do you expect them to be up in Q2?

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And our next question comes from the line of Charles John with Piper Jaffray. Please go ahead.

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Charles, like I said, this is not a science, and in some cases the paranoids survive. We look at this a lot. And six months is just something that we benchmarked internally, to make sure we keep the momentum going internally at Novatel. So, is that a number that we put together by any scientific method? No. ':

Okay. And then just talking about the product itself, any discussion with carriers? How are they thinking about this product and also maybe six months or a year down the line, if the pricing gets attractive, internally within the company, how are you all thinking about this product in cannibalization with some of your existing product lines? How are you approaching that issue?

': So, simply as a connectivity device, they are looking at different usage patterns. You see in the announcements from Telefonica, as well as from Verizon, that without a surcharge, up to five users will be allowed on this device. So, as a connectivity device, it will supplement the way the people currently attach to the Internet. ': ': ': ': ': ': ': ':

Thanks for that color. From the last quarter you talked about increase in the OpEx to support some of the R&D and the sales and marketing. Could you maybe give some more color on just your commitment to this launch by the carriers? Does it involve any kind of training at the store up level, or do you have any of the related expenses that we should start seeing in the next couple of quarters, if you have greater than expected ramp in unit volume for this new product?

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Ken, maybe just one for you; have you all reset company targets for the gross margin and operating margin longer term with this new product cycle, or if you can just refresh us there on those two metrics?

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And our next question comes from the line of Samuel Wilson with JMP Securities.

This is Doug Ireland for Sam. I was wondering if you could talk a little bit about your plans for third-party applications in terms of developer outreach. From your description in using your install base of MiFis as a barrier to entry with the applications, I would think you would be pursuing some form of land grab with low pricing and really trying to push these out so that you could get the developers onboard. Do you have anything to talk about that?

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(Operator Instructions) And our next question comes from the line of Tom Kucera with Avondale Partners. Please go ahead.

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Okay. And did you give a percentage of sales from that customer for the quarter?

Let me try to get you a number. 51%.

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Sure. On MiFi, we are distributing this principally through our operator partners and development partners on it. Those operators have plans in turn to go into the enterprise space with this device, both as a connectivity solution as well as a software platform in various vertical markets.

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And our next question is a follow-up from the line of Anthony Stoss from Craig-Hallum. Please go ahead.

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Ladies and gentlemen, this concludes the Novatel Wireless first quarter results conference call. Thank you for your participation and you may now disconnect.