Good day and welcome to the Novatel Wireless Inc. First Quarter 2014 Earnings Conference Call. All participants will be in a 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 call over to Mr. Matthew Hunt, 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 fiscal 2014 conference call. We will begin with a business overview and outlook from CEO, Peter Leparulo followed by 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 Wednesday, May 7, 2014 over the phone and 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. A reconciliation to the most directly comparable GAAP financial measures is included in the earnings release, which is available on the Investors' section of our 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 Forms 10-K, 10-Q and other SEC filings which are available on our web site. Now, I would like to introduce Peter Leparulo, Chief Executive Officer of Novatel Wireless.

Good afternoon and thank you for joining our call today. We closed the first quarter with total revenue of $48.3 million, of which M2M represented $12.1 million, an increase in M2M of app 45% sequentially. Adjusted EBITDA was a loss of $5.2 million. I spent a good amount of time on our last call, setting forth in detail, how we were transforming the business, reviewing our strategy in M2M. The steps we are taking to transform mobile computing for a more profitable approach, and providing targets on our progress. Today I will update our progress against that plan. Overall in the quarter, we continue to make significant progress in M2M, integrating with our lead partners in each of our targeted verticals, on what we believe are high impact growth initiatives, as well as launching with new customers. More importantly, our strategy of penetrating anchor tenants in each vertical is working. In each vertical, our dual pipeline expansion has been dramatic. In Mobile Computing, we were executing on our acquisition [ph] strategy to a more targeted approach to our channels. Operationally, we remained laser focused on controlling expenses in the first quarter, and we took steps to further our restructuring initiatives. These reductions are expected to yield annualized cost savings of approximately $10 million beginning in Q2. The restructuring initiatives we have undertaken are aimed to align our expenses with revenue and opportunities and are consistent with the skill sets and the business model we are targeting, as we transform the company. Accordingly, we will continue to valuate our cost structure. In M2M, our targeted vertical approach, our investments in product innovation, sales and integrations, are beginning to surface into our results. We meaningfully grew our total backlog and contract commitments on a sequential basis, and based on our progress, we…

Thank you, Peter. I will begin with a financial overview of the first quarter, and then we will provide details regarding our outlook. For the first quarter, revenue was $48.3 million, breaking that revenue performance down by business segment, our Mobile Computing revenue in the quarter was $36.2 million. This includes $33.5 million of MiFi revenues, $1.2 million of USB modems, combination cards and related products, and $1.5 million from our PC OEM and other business. Our M2M products and solutions revenue totaled $12.1 million and were up 17.3% from the same quarter last year. From a geographic perspective, sales in North America accounted for approximately 92% of total revenue. Net operating loss for the first quarter was $8.9 million and our net loss was $9 million, or a $0.26 loss per share. GAAP operating loss in the quarter includes $477,000 in share based compensation expense, $224,000 in amortization of intangibles, and $1.2 million in restructuring charges. From here on, I will discuss our results on a non-GAAP basis, unless otherwise noted. Please see our earnings release for a reconciliation of our GAAP to non-GAAP first quarter results. Non-GAAP gross margin in the first quarter was 21%. Non-GAAP operating expenses totaled $17.2 million, down from $17.5 million in the prior quarter, and $24.3 million in the same quarter last year. This reduction was driven primarily by our restructuring efforts, which we initiated in September. We implemented further restructuring initiatives in the quarter, that will be reflected in our second quarter financials. We expect these initiatives to provide $10 million of annualized cost savings. Looking at operating expense by category; R&D expenses were $8.6 million compared to prior quarter of $8.8 million. Sales and marketing expenses were $3.9 million, compared to $4.1 million in the prior quarter. Our G&A expenses were…

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions). The first question we have comes from Sid Sinha of Canaccord Genuity. Please go ahead.

Hi. Thanks for taking my question. Solid results in the M2M business segment in the first quarter. Just with respect to the Q2 guide Peter, it seems down a bit. I mean, do you see how that had solid customer wins across all the key verticals? So just perhaps an indication of some of the lumpiness in the order patterns for some of these contracts?

Sid, are you talking about on the M2M side or consolidated on M2M?

On the M2M side, yeah.

Sure. That really reflects two things. First, there is a little seasonality in our core security business that tends to favor Q1, and naturally on the embedded module side. But I think, more importantly, on the new programs. It's really the ramp trajectory of the new programs. Some of these were at the end of the quarter, so we are waiting to see what the trajectory is with new customers, and with what, really our new programs in fleet and insurance telematics.

Okay, great. And then just based on the first half guidance for the M2M business, to get to that 30% plus of year-on-year growth, this would imply a very -- a much stronger second half versus the first half. I mean, just wanted your take on what gives you confidence for this stronger second half? Is it just the deals and the sales orders that are already in the bank, or potential deals in the pipeline?

Yes. We are in a very-very different place in M2M where we were last year, which gives us that confidence. If you look at things like backlog on the first day of each quarter, last year versus this year. If you look at contractual commitments, volume commitments and contracts, the first day of each quarter, last year versus this year, it’s a dramatic change. I agree with you, there is an underlying assumption that these are new rollouts, sometimes new programs like RAC, which is a brand new program that is going to be in North America, as well as Europe. Some of these new programs, they can shift, and we can't entirely predict the ramp trajectory. But overall, if you look at our backlog, our contractual commitments, the forecast that are much more capable of being qualified and our customer and design wins and conversions of those. Again, we are in a dramatically different place this year from last year.

Thanks. And just one last from me and I will pass it on. On the Mobile Computing side, I mean, you're moving to a variable cost model and good job on cutting the OpEx on to a more streamlined investment philosophy. Just given the Q2 guidance and the end of life commentary, my question is, how do you get the top line of the segment to grow in the second half when you launch new products? And you have talked about dual sourcing and short product lifecycles being a challenge. So I mean, in the second half of this year, do you target particular channels in the enterprise where you don't face these challenges, or may be get better contracts from some of the carriers or channel partners you're supplying to?

I think it’s the first one. We have been in Mobile Computing for a long time, and we have seen which channels really get greater uptake, have more stability associated with them. So those are the channels that we are selecting to target our products, and in fact, those are the channels that we have our design wins in. These channels tend to be ones, where there is a more predictable uptake, where there are more barriers to entry created by branding, where there is higher level of reliability and performance of our products is more meaningful. There are also channels where the downstream business model, such as whole subsidies, we are highly confident that those elements that create challenge stability, as well as uptake of those products, that's where we are spending our R&D dollars.

So I think we can anticipate that that will not have the same volatility that we have seen in other channels, in the mobile computing space, and that's where we are managing the business too and spending the R&D dollars on.

And just to finish that out Sid, with a more variable model, we can react to changes in any revenue volatility fairly quickly now because of that.

Great. Thanks for taking my question. I will pass the line.

Thank you.

Next, we have Bryan Prohm of Cowen.

Hey good afternoon Peter and Ken. How are you doing? Thanks for taking my questions.

Our pleasure Bryan.

So first, on the business transition in Mobile Computing, how much further can this business retrench ahead of the next product cycle? Is there any risk may be in the shelf space shrinking, given how critical the next product cycle is going to be, in order to grow the business, 2H over 1H?

The channels that we have selected Bryan, we are pretty comfortable with what the volumes that those channels historically have produced. So what you are getting at is, do we see the possibility of a shrinkage in those channels, we don't right now. We think that those channels will provide the ROI that we are targeting, and provide them with a higher level of confidence, because the business -- the ROIs for those channels have a lot less sensitivity around them, both in the R&D dollars, as well as the revenue dollars.

Okay. So, just a couple of follow-ons to that then; what's your current view on VoLTE implementation in the U.S.? Have timelines moved up, or have they slipped since we last spoke?

So we see VoLTE in the U.S. as around Q3, and with something as important as VoLTE, you want to make sure that the user experience is really high caliber, when we roll it out. So we see it taking place in Q3 right now, is what we are benchmarking.

Okay. So that's largely unchanged from last time we spoke?

That's right.

So then following on then -- so the $10 million in annualized cost savings you announced today, is that going to impact breakeven run-rate in Mobile Computing? Is it going to bring it lower? I think last quarter it was somewhere in the $57 million range?

Yeah Bryan this is Ken. Yeah we will bring it lower, [indiscernible] lower. We were let's say, breakeven on this business as a whole, because they are so integrated now, its kind of hard to come up with a Mobile Computing breakeven, versus a M2M breakeven. So right now, based upon the Q2 cost structure that we are guiding to the breakeven EBITDA, it leaves about $62 million for all product lines.

Okay, interesting. And then can you quantify, Ken, the revenue impact of the supply constraints on the 5510 in the quarter?

Yeah, you know, we estimate it was over $5 million in Q1, given what we felt were the sell-through opportunities we have we just couldn't take advantage of. I mean, that's -- I think that's our best estimate of it.

No. But that would have put you in the midpoint in guidance on revenue --

Yeah exactly.

So it's mid to above. Is that revenue lost or could it come back in the quarter, current quarter, as those constraints abate somewhat?

It's generally difficult Bryan to recoup [ph] that revenue unfortunately, because of the challenge that it goes into.

That's fair. Last question; based on your comments previously on the M2M pipeline. I think you previously have cited expectations or growth objectives of 30% plus basically in line and better than the overall market and a breakeven run rate in that business by year end. Is that still the plan?

Yes.

Okay. Very good. That's all my questions. I will pass it on. Thanks guys. Good luck.

Thanks Bryan.

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