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Edited Transcript of SMSI earnings conference call or presentation 9-May-18 8:30pm GMT

Thomson Reuters StreetEvents

Q1 2018 Smith Micro Software Inc Earnings Call

ALISO VIEJO May 17, 2018 (Thomson StreetEvents) -- Edited Transcript of Smith Micro Software Inc earnings conference call or presentation Wednesday, May 9, 2018 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Charles Messman

Smith Micro Software, Inc. - VP of IR & Corporate Development

* Timothy C. Huffmyer

Smith Micro Software, Inc. - VP & CFO

* William W. Smith

Smith Micro Software, Inc. - Co-Founder, Chairman of the Board, CEO & President

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Conference Call Participants

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* James Patrick McIlree

Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Industrial and Consumer Technology

* Mark Gomes

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Presentation

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Operator [1]

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Good afternoon, and welcome to the Smith Micro Q1 2018 Earnings Call and Webcast. (Operator Instructions) Please also note, today's event is being recorded.

At this time, I would like to turn the conference call over to Mr. Charles Messman with Smith Micro. Sir, please go ahead.

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Charles Messman, Smith Micro Software, Inc. - VP of IR & Corporate Development [2]

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Thank you, operator, and good afternoon, everyone. Thank you for joining us today to discuss Smith Micro Software's financial results for the first quarter of 2018 fiscal year ended March 31, 2018. By now, you should have received a copy of the press release with the financial results. If you do not have a copy and would like one, please visit the Investor Relations section of our website at www.smithmicro.com, or call us at (949) 362-5800, and we will e-mail one to you immediately. On today's call, we have Bill Smith, Chairman of the Board, President and Chief Executive Officer of Smith Micro; and Tim Huffmyer, Chief Financial Officer.

Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements, including without limitation, those regarding the company's future revenue and profitability, new product development, new market opportunities, operating expenses and company cash reserves. Forward-looking statements involve risk and uncertainties, which could cause actual results or trends to differ materially from those expressed or implied by our forward-looking statements. For more information, please refer to our risk factors discussed in Smith Micro's most recently filed 10-K form. Smith Micro assumes no obligation to update any forward-looking statements, which speak to our management's beliefs and assumption only as of the date they are made. Before I turn the call over to Bill, I want to point out that in our forthcoming prepared remarks, we'll refer to certain non-GAAP financial measures. Please refer back to our press release disseminated earlier for reconciliation of the non-GAAP financial measures.

That said, I'll now turn the call over to Bill. Bill?

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William W. Smith, Smith Micro Software, Inc. - Co-Founder, Chairman of the Board, CEO & President [3]

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Thank you, Charlie. Good afternoon, everyone, and thank you for joining us today for our 2018 first quarter earnings conference call.

Overall, I'm encouraged with the progress made during the quarter across several areas of the organization. The first quarter results were in line with our internal expectations, as we continue to build momentum with the launch of our SafePath platform at Sprint. This brings to mind some exciting news in the mobile world with the recent announcement regarding the proposed merger of T-Mobile and Sprint. Later in this call, I will share some thoughts on how this deal could impact us, and how I view it as an opportunity for growth, particularly with our 2 leading products, SafePath Family and CommSuite.

Now let's talk about the quarter. 2018 first quarter revenue came in at $5.5 million, which was nearly flat to the fourth quarter of 2017. Gross profit was $4.2 million with a non-GAAP loss of $1.5 million or $0.10 loss per share. I should note that seasonally, Q1 tends to be our lowest quarter for revenue and our highest expense quarter due to participation in Mobile World Congress in Barcelona.

Before I turn the call over to Tim, I also want to address our recent private placement that was announced last week. We believe this is very positive for the company, strengthening our balance sheet, allowing us to accelerate our product road maps and M&A activity for 2018. Tim will provide more detail of the transaction in his remarks.

So with that, I will turn the call over to Tim.

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Timothy C. Huffmyer, Smith Micro Software, Inc. - VP & CFO [4]

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Thanks, Bill. As Bill just mentioned, let me start with a summary of our recently completed private placement of common stock and warrants. The funding was completed on May 3, and provided $6.3 million of net cash to support the business, as we evaluate our product road maps, M&A opportunities and as the Sprint SafePath platform continues to grow subscribers. The newly issued common stock was priced above market at $2.21, and included the issuance of a warrant for each share purchased for total proceeds of $7 million. In addition to these securities purchase agreement, the company also entered into a registration rights agreement. Upon filing of the company's first quarter Form 10-Q, we will take the necessary steps to complete our obligations under the registration rights agreement. We are extremely excited with this new round of funding, as we continue our journey back to revenue and profit growth.

Now let's review the numbers for the first quarter. For the first quarter, we posted revenue of $5.5 million compared to $5.6 million for the same quarter last year. The wireless segment reported quarterly revenue of $4.8 million compared to $4.4 million last year. The increase in the wireless revenue was the result of growth in both SafePath and CommSuite revenues as customer adoption rates increased for both product families, offset by lower revenues from the legacy QuickLink connection manager contract that came to end of life.

During the fourth quarter of 2017, we rolled out CommSuite product enhancements, which we've now seen positive results from, and we do expect will contribute to 2018 revenue growth. Revenue from the Sprint SafePath launch is expected to accelerate based on recent and expected Sprint actions. These actions, though, are completely dependent on Sprint execution. We continue to support those efforts as required. As a reminder, the Sprint launch is unique in that Sprint has existing base of subscribers using a legacy product. The legacy product was originally due to sunset in the first quarter of 2018, but has subsequently been delayed for several months. This change was based solely on Sprint operations and was not a result of the SafePath application or change of our contract status.

Our graphics segment reported quarterly revenues of $650,000 compared to $1.2 million last year. The decrease in the graphics revenue was a result of the termination of the CLIP STUDIO distribution agreement and lower unit sales of legacy products. We recently launched a new product and expect additional product launches later this year. Bill will discuss this activity in more detail in just a few minutes.

For the first quarter, gross profit was $4.2 million compared to $4.3 million during the same period last year. Gross margin was 76% for the first quarter compared to 77% last year. Operating expense for the first quarter was $6.2 million, a decrease of $700,000 or 10% compared to last year. In the near term, we expect our quarterly operating expense to be approximately $6 million, which excludes any unannounced restructuring plans.

The non-GAAP operating loss for the first quarter was $1.9 million compared to a non-GAAP operating loss of $2.2 million last year. The non-GAAP net loss for the first quarter was $1.5 million or $0.10 loss per share compared to a non-GAAP net loss of $1.4 million or $0.11 loss per share last year.

Within the previously mentioned press release, we have provided a reconciliation of our non-GAAP metrics to the most comparable GAAP metric. For the first quarter, the reconciliation includes the following noncash charges: stock compensation expense of $163,000; intangible amortization of $64,000; amortization of debt discount and issuance cost of $65,000; and a warrant fair value adjustment of $139,000. Due to our cumulative net losses over the past few years, our GAAP tax expense is primarily due to foreign income taxes. For non-GAAP purposes, we utilized a 24% tax rate for 2018. The resulting first quarter non-GAAP tax benefit was $476,000.

This now concludes my financial review. Now back to Bill.

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William W. Smith, Smith Micro Software, Inc. - Co-Founder, Chairman of the Board, CEO & President [5]

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Thanks, Tim. Before we drill into the details about the first quarter, I want to reaffirm our strategic direction of providing our carrier customers and prospects with software that enhances their users' experience and satisfaction. Strategies to boost customer loyalty and reduce subscriber churn remain a high priority for all mobile service providers. Of course, one of the most effective ways to combat subscriber churn and create stickier customer relationships is through value-added services like our SafePath Family platform and our CommSuite messaging platform.

Let's start off by talking about our SafePath implementation at Sprint, known as Safe & Found. Subscribers of the new Safe & Found service at Sprint continue to grow in correlation with the carriers' increased marketing efforts. New subscribers are added each and every day, 7 days a week. Plus Sprint continues to transition users of its legacy service to Safe & Found, there are several initiatives underway to acquire new users for the service as well. For example, Sprint is rolling out a new MMS-based acquisition campaign this month targeted at its wider subscriber base. To support this initiative, they will also launch a retail-based campaign to build service awareness. To promote the Safe & Found service, Sprint is training and compensating retail associates and will be launching additional new promotional activities throughout the year. These new marketing initiatives will coincide with some significant upgrades planned for the core SafePath Family platform.

For obvious reasons, I don't want to share too much about the product road map until features are formally announced, but I think it is important to talk about the general direction of the product from a strategic perspective. Currently in development, the next major release of SafePath will introduce a new family-centric user experience that further extends the platform beyond a location-focused service. With the next release, SafePath will evolve to a digital lifestyle management platform for the entire family that will provide enhanced location services, easy-to-use parental controls, powerful web filtering functionality and built-in support for new IoT products and services. This improved platform will extend the product's capabilities to support a multitude of new consumer-oriented use cases around wearable locators, pet trackers, onboard diagnostic devices and home automation platforms. As you can see, there are some exciting things on the horizon for SafePath.

It is also important to note the functional superiority of our SafePath platform on iOS devices versus the legacy service we're focused on replacing. For instance, some large carriers such as T-Mobile who still use the legacy platform do not even offer an iOS version of their family location app. This lack of an iOS application leaves a significant portion of the user community without the access to a family safety platform. We see Sprint's decision to replace the old service with SafePath Family as a strong indicator that our vision for Family Safety services is directly on target.

Now let's talk about other core solutions. On the CommSuite front, I'm happy to report the revenues from the Sprint VVM service continue to grow with the expansion of premium Visual Voicemail subscribers. This subscriber growth can be attributed to the backend product enhancements we implemented late last year. As a value-added service platform, our premium Visual Voicemail enhances the overall Android experience for mobile voicemail users by providing valuable, time-saving features such as voice-to-text transcription and message forwarding. It also delivers strong revenue channels through the proven service model, as carriers realize revenue from both premium service subscriptions and in-app advertising.

As I mentioned on the last call, we are actively developing integration pathways within our Visual Voicemail product to tie in with other voice-centric devices, such as Amazon Alexa and Google Home. This expanded functionality will increase the relevancy of the platform with voicemail users of all ages.

Later this year, several new features currently in development will launch, continuing the theme of delivering a better personalized voicemail experience to a wide range of mobile consumers. With this strategy, we are confident that our market opportunity will expand throughout the rapidly changing voice messaging universe.

Next, let's talk about our QuickLink IoT platform, which continues to grow and evolve. The continued expansion of the IoT market has created emerging use cases that we are well positioned to address through our portfolio of proven wireless solutions. Having robust device management and edge computing functionality for connected devices continues to grow in importance as low latency IoT use cases proliferate. It is an important competitive differentiator for Smith Micro in the IoT space, as our lightweight M2M client can operate with intelligence on very constrained IoT devices.

We're currently in conversations with several device and chipset OEMs as well as IoT solution providers and operators who have active interest in using our lightweight M2M client to add substantial management functionality to these resource-constrained devices.

In the coming quarters, our QuickLink IoT product development team will continue their effort to reduce the size and resource consumption of our client, which will increase our competitive advantage in this attractive and growing market.

Now for a bit about our Wi-Fi optimization and management solution, NetWise. In terms of license count, the number of installed instances of our NetWise client continues to grow across our 3 major customers. Additionally, during the first quarter, we also saw growth in policy counts. This is a positive and solid indicator of the utility and effectiveness of our NetWise solution as an enabling technology in the emerging market of Wi-Fi-first mobile service. We see a fresh upside with NetWise, as we expand our market presence on new device types. We also enhanced our analytics engine during the first quarter to better capture important data metrics central to network planning, cost-saving strategies and in-depth understanding of Wi-Fi usage trends in large device populations. From these developments, it's evident that the cost-saving benefits and strategic insight, enabled by our NetWise solution, continues to have value across the mobile services industry.

I'm very pleased with the progress of our graphics group across several fronts. We achieved some key milestones in the first quarter, as we continue to build upon the changes made last year. First, we implemented some significant and much-needed upgrade to our backend e-commerce infrastructure and digital content marketplace. And by adding an exciting new product to our portfolio, we expanded our existing graphics product lineup. As I mentioned in the last earnings call, this activity is central to the long-term strategic vision of this business unit, as it supports the expansion of the customer base and helps reengage the incredibly loyal users of our core graphics products, Poser, Moho and MotionArtist. As I'm sure you saw, we announced our strategic relationship with Escape Motions a few weeks ago. Under this partnership, we will resell 4 award-winning graphics products. Rebelle 3, a market-leading digital painting application is the first product we've added to our graphics portfolio as part of this agreement. I urge you to visit our online store, my.smithmicro.com, to take a look at Rebelle. It is an amazing product. Rebelle 3 also works very well with our other graphics products, such as Motion Artist and Moho, as digital artists can use these applications to bring their work to life with movement and sound.

Our graphics portfolio will continue to grow throughout 2018, as several more releases are planned. These additional releases will further energize our market expansion, as we seek to transform our graphics portfolio into a comprehensive toolkit for digital artists. There are some exciting content-based opportunities emerging for our graphics business in the expansive online universe of digital comics and the emerging virtual-reality market. Needless to say, there are exciting changes on the horizon within our graphics lineup, so stay tuned for future announcements.

Now let's discuss the proposed merger of T-Mobile and Sprint, as this will be a major change within the wireless world. First off, we have seen mergers many times over the years, understand the process and know how to develop and position our wireless solutions to take advantage of new opportunities as they arrive. In terms of the future of our business, I view this proposed merger as a stimulating and energizing opportunity. As you know, Smith Micro has always been very opportunistic, and I believe our ability to adapt and respond to the ever-evolving wireless marketplace is an advantage.

Our strength in balance sheet will allow us to select our road map development for both CommSuite and SafePath, products presently sold to Sprint. By executing on the strategy, we can markedly expand our competitive advantages and ensure our success with a combined carrier. Additionally, we have strong relationships with both Sprint and T-Mobile. Both carriers know our solutions and are confident in our ability to deliver valuable service offerings. As such, should Sprint and T-Mobile complete their merger, we are confident in our ability to leverage our relationships to expand our market position and support theirs.

With that said, I look forward to an exciting 2018. It promises to be a year of expanded revenues and a return to profitability in the coming quarters.

Now operator, we can open the call up for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today comes from Jim McIlree from Chardan Capital.

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James Patrick McIlree, Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Industrial and Consumer Technology [2]

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In round numbers or in a range, how much was SafePath revenue this quarter?

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Timothy C. Huffmyer, Smith Micro Software, Inc. - VP & CFO [3]

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Jim, it was measured in several hundreds of thousands of dollars.

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James Patrick McIlree, Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Industrial and Consumer Technology [4]

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Great, that's helpful. And I think, Bill, a couple of times you said that Sprint has legacy customers that you'd hope will migrate. Can you size that in terms of how big that customer base is? And what you think is a reasonable expectation for you to get of those legacy customers?

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William W. Smith, Smith Micro Software, Inc. - Co-Founder, Chairman of the Board, CEO & President [5]

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Yes. In past calls, we've talked about this. When that customer base is transitioned to our platform, we expect to see a total revenue of about $3.5 million per quarter. I don't want to get into the exact headcounts. That's really Sprint's business. But I would say that we expect a reasonable transition to reach that goal, but definitely not 100%. There will be breakage. Sprint knows that as well. So it is a rational number.

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James Patrick McIlree, Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Industrial and Consumer Technology [6]

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Okay. And as far as CommSuite goes, I think you said you're expecting growth from that for the rest of the year. Is that a steady modest growth? Or is that -- are you expecting some big step-function upwards?

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William W. Smith, Smith Micro Software, Inc. - Co-Founder, Chairman of the Board, CEO & President [7]

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I guess, I'd look at it this way. We expect to see a steady growth throughout the year. I don't think it's a monumental growth. I think -- but I think it's a good reasonable expected, steady growth.

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James Patrick McIlree, Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Industrial and Consumer Technology [8]

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Okay. And then my last one on OpEx. I think you mentioned $6 million OpEx. Is that what you think it will be on a quarterly basis for the foreseeable future?

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Timothy C. Huffmyer, Smith Micro Software, Inc. - VP & CFO [9]

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Yes, Jim.

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James Patrick McIlree, Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Industrial and Consumer Technology [10]

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Or is that referring to a different time period?

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Timothy C. Huffmyer, Smith Micro Software, Inc. - VP & CFO [11]

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No, that's sort of some directional guidance for you. We've been running in $5.9 million to $6 million range. So that's there for the future.

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Operator [12]

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(Operator Instructions) Our next question comes from Mark Gomes from Pipeline Data.

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Mark Gomes, [13]

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Just to kick off, what I understand about 5G, it will enable wearables to more cheaply be connected to the network. Can you tell us a little bit about how 5G will assist in this effort? And what that might mean for Safe & Found's future to track things like pets, cars, bicycles, and basically anything that a customer might deem valuable?

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William W. Smith, Smith Micro Software, Inc. - Co-Founder, Chairman of the Board, CEO & President [14]

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I don't think we have to wait for 5G. I think, wearables work just as fine under 4G as well. But I think the -- probably the most important thing that we need to point out is the fact that SafePath provides a platform for which all wearable devices can be commonly connected to the carriers' network. So that's a major differentiator between SafePath and many of the competitive offerings that are out there is that when SafePath was designed, it was designed with this in mind.

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Mark Gomes, [15]

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Okay. So looking at the pricing for Safe & Found, they're priced at $7 for 5 devices, versus $10 for 10 devices for all of the other carriers. My research has found that you have some significant functional advantages over the competition, which would justify the additional cost per device. But is the 5 device pricing designed to kind of set the customers up for more upsells when the wearables become available?

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William W. Smith, Smith Micro Software, Inc. - Co-Founder, Chairman of the Board, CEO & President [16]

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Well, first off, the pricing is set by our customer, that's not really up to us. So this might be a question it would be better for you to ask Sprint. Yes, the concept is that with wearable devices, that would be another device in the family plan. So I don't really know how to answer your question beyond that.

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Operator [17]

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[Operator Instructions] And we do have a follow-up from Mark Gomes from Pipeline Data.

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Mark Gomes, [18]

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Okay. Good enough. So when you talk about the $3.5 million at full transition, what kind of profitability would you expect? Can you give us some color on how that might look?

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Timothy C. Huffmyer, Smith Micro Software, Inc. - VP & CFO [19]

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Yes, Mark. The profit range for this product is set around 80%. So there -- we've talked in the past about us not having to add much cost structure, necessarily to accommodate the scaling of this platform. So I think that probably will give you some good directional input from a modeling standpoint.

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Mark Gomes, [20]

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Okay. So nothing's changed there in the last several months?

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Timothy C. Huffmyer, Smith Micro Software, Inc. - VP & CFO [21]

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Correct.

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Mark Gomes, [22]

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Great. Okay. And then looking at the recent rates the $7 million, when might we hear a little bit more about more details about your M&A initiatives? What that use of funds might be?

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Charles Messman, Smith Micro Software, Inc. - VP of IR & Corporate Development [23]

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Mark, it's Charles. I think it's fair to say that the company has been quite acquisitive. So as soon as we have things to talk about, we'll announce that. I think this does put us in a much stronger position for all the different things that we're working on as far as with that money raise. Hope that answers your question.

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Mark Gomes, [24]

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Absolutely. So shifting gears for a second, I have a number of questions, and I'll get back into the queue just to give anybody else a chance and kind of aggregate it from investors. So looking at your -- the business that you do with Comcast is pretty well known that Comcast and Charter Communications work closely together. So what can you tell us about the recent initiatives at Charter and how that might be able to affect you positively in the coming quarters?

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William W. Smith, Smith Micro Software, Inc. - Co-Founder, Chairman of the Board, CEO & President [25]

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Well, I think it's intriguing to watch the growth of the wireless business at the cable MSOs. Comcast is a long-term customer. We have added a cable customer as well here in the U.S. of very large size. So we have a lot invested in the sector, I think the activities that are going on between Comcast and Charter only serve to move this along, and we see this as a good opportunity. And we're here to really focus in and help them move their business case forward.

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Mark Gomes, [26]

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Okay. Looking at Safe & Found, the Google Play reviews have risen from 2.5 -- 2.1 stars before April to closer to 2.7 for the month of April, and now over 3 for the month of May. To what can we attribute this?

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Charles Messman, Smith Micro Software, Inc. - VP of IR & Corporate Development [27]

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Mark, I think there's several initiatives that we have ongoing with the operating. I think that we expect this trend to continue. There's a lot of -- we're bringing much -- as far as some changes. We're taking the input that the people using the product and really making changes in the product itself to better serve them, that's one aspect of it, being extremely proactive with all reviews. And a lot of it is actually teaching them and showing them how to use the product more so. I mean, I think, the most important thing is also just getting more reviews. There is a very small number of reviews, and I think you'll see that going forward. It is a very big focus of the company across the board. So there's several initiatives underway to get that moving in the right direction. Hope that answers your question.

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Mark Gomes, [28]

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Yes. So along similar lines, I do notice that the Location Labs' Family Locator products have still been getting frequent updates despite Sprint telling -- it's customer service organization has been telling customers that the product's already been "decommissioned" and could "stop working at any time". Is there any indication on your side of it that these updates are simply notifications that Family Locator is being sunset-ed in decline?

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William W. Smith, Smith Micro Software, Inc. - Co-Founder, Chairman of the Board, CEO & President [29]

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That's again one of those questions to be -- probably better to ask Sprint. I think that it is very clear from Sprint that they want to get to a single platform, and it's just a matter of time to get people to move across. I don't think anything's changed on that. I think some of the marketing work that you're going to be seeing coming out from Sprint, only reinforces what I just said. So as far as Location Labs has updated the app, that I guess is really up to Location Labs, but I don't think anything's changed at Sprint at all.

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Mark Gomes, [30]

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Okay. So you talk about moving your development M&A initiatives, kind of acceleration in those efforts. Is that a direct result of the success you're seeing at Sprint or the happiness of the customer giving you confidence to accelerate the road map there?

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William W. Smith, Smith Micro Software, Inc. - Co-Founder, Chairman of the Board, CEO & President [31]

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Yes, I think this is one of those moments where you have a great opportunity to seize the marketplace and really move beyond what any of the competition is up to. I think that really is something that works for both SafePath and CommSuite. I think these are 2 products that we make a lot of our revenue off of. And we see that both of these products being significant revenue providers for us in the coming quarters. And we just would really like to get so far out in front of the competitors that there's just no way anybody would look to anybody else but us.

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Mark Gomes, [32]

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Great. One last question before I jump in back in the queue. Along those lines, you folks have been engaged with numerous carriers, some of which you assigned to various degrees of letters of understanding and what have you. I'm wondering if you could give us an update on that, what's happening in Latin America and Europe, and Asia, with various carriers. At what point do you say, we've got the process down with Sprint so well that now we can replicate that and start ramping some of these others opportunities?

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William W. Smith, Smith Micro Software, Inc. - Co-Founder, Chairman of the Board, CEO & President [33]

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Well, I think that the Sprint implementation being the first Tier 1 carrier to roll out our software offering has been a great opportunity for us to learn more about what it takes to compete, to fine-tune our product, to fine-tune our offerings, to understand the go-to-market strategies, to understand what the user base is really looking for and we're leveraging off of that. And then we're going to take those learnings to other Tier 1 carriers, be that in the other part of the Americas or in Europe or in Asia-Pac, where we already have presence and really try to grow this offering. I think Family Safety as a subject area is one that's near and dear to the hearts of people no matter where you live in the world. These are scary times. There are strange things happening and being able to monitor the safety of your loved ones is really critical. So I think it's a great opportunity, and we intend to seize it. We have been fortunate in raising additional capital that makes that even more possible, and we're going to move forward.

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Mark Gomes, [34]

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Great. Well, it's interesting. CNBC right now is showing a segment on whether or not there should be less screen time available for mobile devices for children. So very refreshing.

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Charles Messman, Smith Micro Software, Inc. - VP of IR & Corporate Development [35]

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Got it, Mark. There's no -- you can have the other one. We're going to -- I think that's -- you are the last one that's lined out. So if you have any other one, let's pound through them.

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Mark Gomes, [36]

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Okay. Sounds good. Based on your experience, do you have any indications or internal expectations on what the lifetime value might be for Safe & Found for customers?

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Charles Messman, Smith Micro Software, Inc. - VP of IR & Corporate Development [37]

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So I think it's -- we do have it. We think it's a little too early at this stage, but it's something that we obviously track going forward. And I think it will be a good metric, but we want more data.

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Mark Gomes, [38]

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Okay. And it's safe to say that it's incumbent upon Sprint primarily to be marketing the product in terms of expense responsibility?

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William W. Smith, Smith Micro Software, Inc. - Co-Founder, Chairman of the Board, CEO & President [39]

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Yes. I mean, Sprint owns the customer and so therefore, the actual marketing to their user base really has to come from them. We can help wherever they will let us, and we're more than willing to do so.

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Charles Messman, Smith Micro Software, Inc. - VP of IR & Corporate Development [40]

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And the other thing I think is important that just -- as far as timing updates around the app and some of that nature, we obviously are working very closely with Sprint, so that we can maximize when they are actually running these campaigns. I think Bill spoke of the retail store campaign as an example.

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Mark Gomes, [41]

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Great. And what are you folks seeing in terms of the dollars? You talk about your advantage on iOS. What do you see in terms of uptake from the Sprint customer base on Android versus iOS?

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Charles Messman, Smith Micro Software, Inc. - VP of IR & Corporate Development [42]

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It's a pretty interesting spot. I think you're seeing -- Android is actually stronger than iOS as far as downloads. That's kind of the split, but it's actually quite good on both. Obviously, iOS under the legacy platform was very, very, very small.

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Mark Gomes, [43]

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Okay. So the --- okay. So relatively speaking, is what you're talking about. Any insight into new activations as opposed to existing customers?

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Charles Messman, Smith Micro Software, Inc. - VP of IR & Corporate Development [44]

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Yes, I don't think we're going to get into specifics on that, but we're actually happy with -- we actually have a very strong conversion upon people trying the app and using it through the free trial. We're actually pleased with that at this stage.

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Mark Gomes, [45]

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Okay. And is there anything you could share with us in terms of your sense of what needs to happen at least from your end, specifically, for Sprint to hold fast with whatever their current sunset date is?

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Charles Messman, Smith Micro Software, Inc. - VP of IR & Corporate Development [46]

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So I think that there's a game plan in place for that. Again, it is tied to Sprint. And I think it's our efforts to keep executing and adding new ads and we'll pull the trigger when they decide it's time to pull the trigger, and you can probably assume there's some sort of a marketing event around that. So -- but I can't get into the specific time at this stage.

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Mark Gomes, [47]

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Okay. I believe my last question on Safe & Found. You mentioned home automation that, kind of, perked my curiosity. Can you give us a little more color on what it means if Safe & Found becomes -- or SafePath becomes more of a digital lifestyle platform, what kind of home automation can be incorporated into that?

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Charles Messman, Smith Micro Software, Inc. - VP of IR & Corporate Development [48]

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So we can't really get too deep into it, but if you start to think about some of the voice-centric devices, you can start thinking about the television. There's all sorts of ways that can go, but I think you just have to wait to see how we launch the upgrades going forward. We think it's a really good opportunity, as the app, again, could expand into lots of different areas. Hopefully that's a little.

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Mark Gomes, [49]

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Any update on the divestitures that have been discussed previously?

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Charles Messman, Smith Micro Software, Inc. - VP of IR & Corporate Development [50]

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Yes, I think -- on this level, what Tim has talked about on the last call was really that we are looking strategically at all of our different product lines and remaining profitability but that's all -- it's just a continued process with us going forward.

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Mark Gomes, [51]

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Okay. And in one of those product lines, you have that Rebelle 3 product and the announcement that went along with that. What can you tell us -- any color you can provide on that in terms of how material should we view this and the my.smithmicro site in general?

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William W. Smith, Smith Micro Software, Inc. - Co-Founder, Chairman of the Board, CEO & President [52]

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I think this is an exciting new product when you see what it's actually capable of doing. It's just amazing. I mean, it's really bringing painting to life on a PC screen and it looks just the same. And if you're doing watercolor painting, you actually see the paint run as it would on in real life. So it's a very exciting product. This is a product that will build over time. You start with the base and as you get more and more users, it will expand. We think this is a very hot product though. And we think that it has great upside, and we just have to give it time to grow in into that.

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Mark Gomes, [53]

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What kind of operating leverage do you see in that side of the business? Is this something where you feel like you could discover new products from around the world and become kind of -- or are you already in your mind, a premier distributor of these types of products?

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Charles Messman, Smith Micro Software, Inc. - VP of IR & Corporate Development [54]

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Mike, it's Charles. I think that we are the premier. We have 2 lead products that are -- they're very, very well received in the market. I think that we have traveled all over the world to find these products, and I think we can continue to do that. And it really just builds on this idea of having a digital portfolio for artists. And I think what you'll see is a complementary group of products being slowly brought on board more and more, as we build out our network for different things, not only for what -- our products and support those, but also expanding the actual market. Some of our products can be very, very high end. And I think that you'll start -- you're going to start to see where Rebelle basically anyone can use. So I think that's another avenue where we want to expand the actual overall reach of where these products go to. And we think this is a great step in the right direction, so I think, as you see us roll out more products throughout the year. And yes, that will be a theme.

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Mark Gomes, [55]

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Okay. Fantastic. And I've seen the trailer for Rebelle 3. It was stunning, to say the least. Very impressive product. So one late-breaking question that just rolled into me. Is there any color that you folks can provide with regard to the ramp you've seen on Safe & Found and how it's tracking from March, April to May? And how you feel about the progression there?

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Timothy C. Huffmyer, Smith Micro Software, Inc. - VP & CFO [56]

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Mark, the marketing activities in the quarter, the first quarter were substantially more significant than they were in the fourth quarter. So we're pretty pleased with the ramps that we saw in the first quarter. We still have a ways to go, and as I referenced earlier, I was measuring the activity in the hundreds of thousands. We, obviously, have again a ways to go there. But Bill -- as Bill addressed in his prepared comments, there are a number of events that are scheduled here that we're excited about. And we think we're on track and have a good handle on how that's going to ramp the rest of the year.

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Charles Messman, Smith Micro Software, Inc. - VP of IR & Corporate Development [57]

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Okay, everybody. I think that we want to thank everyone for being on the call today. We think it's an exciting time for Smith Micro. Please feel free to give us a call if you have further questions. And we look forward to updating you on our next conference call. Thanks, and hope everybody has a great day, and go download Rebelle. It's a great product. Thanks.

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Operator [58]

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Ladies and gentlemen, that does conclude today's conference call. Thank you for attending. You may now disconnect your lines.