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Edited Transcript of SMSI.OQ earnings conference call or presentation 4-Nov-20 9:30pm GMT

·34 min read

Q3 2020 Smith Micro Software Inc Earnings Call ALISO VIEJO Nov 11, 2020 (Thomson StreetEvents) -- Edited Transcript of Smith Micro Software Inc earnings conference call or presentation Wednesday, November 4, 2020 at 9:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Charles B. Messman Smith Micro Software, Inc. - VP of IR & Corporate Development * Timothy C. Huffmyer Smith Micro Software, Inc. - VP, CFO, Treasurer & Secretary * William W. Smith Smith Micro Software, Inc. - Co-Founder, Chairman of the Board, CEO & President ================================================================================ Conference Call Participants ================================================================================ * Eric Martinuzzi Lake Street Capital Markets, LLC, Research Division - Head of Research & Senior Research Analyst * James Patrick McIlree Bradley Woods & Co. Ltd., Research Division - Analyst * Michael Joshua Nichols B. Riley Securities, Inc., Research Division - Senior Analyst of Discovery Group * Scott Wallace Searle ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good evening, and welcome to the Smith Micro Third Quarter 2020 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Charles Messman. Please go ahead. -------------------------------------------------------------------------------- Charles B. Messman, Smith Micro Software, Inc. - VP of IR & Corporate Development [2] -------------------------------------------------------------------------------- Thank you, operator, and good afternoon, everyone. We appreciate you joining us today to discuss Smith Micro Software financial results for the third quarter of 2020 fiscal year ended September 30, 2020. 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. 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 the company's cash reserves. Forward-looking statements involve risks 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 the risk factors included in our most recently filed Form 10-K. Smith Micro assumes no obligation to update any forward-looking statements, which speak to our management's belief and assumption only as of the date they are made. I'd like to point out that in our forthcoming prepared remarks, we will refer to certain non-GAAP financial measures. Please refer back to our press release disseminated earlier today for a reconciliation of the non-GAAP financial measures. With that said, I'll now turn the call over to Bill. Bill? -------------------------------------------------------------------------------- William W. Smith, Smith Micro Software, Inc. - Co-Founder, Chairman of the Board, CEO & President [3] -------------------------------------------------------------------------------- Thanks, Charlie. Good afternoon, everyone, and thank you for joining us today for our 2020 third quarter earnings conference call. I hope that you are all well and are staying safe during these unique and challenging times. Overall, the third quarter was extremely productive for Smith Micro. Our efforts led to a significant milestone, as announced earlier this week with the launch of SafePath 7, the latest and greatest version of our connected lifestyle platform. This was and continues to be an enormous undertaking for the entire company. I couldn't be more pleased with the hard work and dedication of our team, who has created the industry-leading application for family safety. Going forward, SafePath 7 is the standard to be used to measure any computing application. As we spoke about at length on the last call, we continue to focus on the deployment of a number of new carrier customers for both SafePath and ViewSpot. Our efforts are all proceeding forward with the full support of these new customers. As we have said previously, in order to make all of this a reality, we knew it would require some heavy investment in additional R&D resources. That investment has now been made, and we are turning our attention to the mission of staffing a growing number of customer deployments. These deployments also include moving both T-Mobile and Sky off of the Circle product to SafePath 7 in the first half of 2021. While there is much work still to be done, these are exciting times at Smith Micro, and I look forward to what the future holds. Now let's take a look at the quarter. From a revenue standpoint, the third quarter came in at $12.6 million, which was ahead of Street expectations. When compared to our revenue for the same quarter last year, revenues increased by $800,000 from $11.8 million. Gross profit for the quarter was $11.3 million compared to $10.8 million for the same quarter last year. Non-GAAP net income for the third quarter was $1.8 million or $0.04 per share. We delivered strong cash flow from operations of $3.9 million during the quarter, ending with a cash balance of approximately $26 million. Overall, I am pleased with these results. The company remains cash flow positive and continues to deliver profitable quarterly results despite the sequential decline in revenues and our aggressive investment in R&D. Later in this call, I will provide more color on our 3 main product lines as well as provide you with an update on our expectations for the last quarter of 2020. But for now, let's turn the call over to Tim for a more detailed review of the third quarter financial results. Tim? -------------------------------------------------------------------------------- Timothy C. Huffmyer, Smith Micro Software, Inc. - VP, CFO, Treasurer & Secretary [4] -------------------------------------------------------------------------------- Thanks, Bill. For the third quarter, we posted revenue of $12.6 million compared to $11.8 million for the same quarter last year, an increase of 7%. When compared to the second quarter of this year, revenue was down 2%, which was within the guidance range provided. For the third quarter, year-to-date, revenue was $38.9 million compared to $31.1 million last year, an increase of 25%. The increase in revenues compared to same quarter last year and year-to-date was a result of SafePath platform revenue growth. Also contributing to the results, both the CommSuite and ViewSpot performance was relatively consistent. During the third quarter of 2020, SafePath increased 30% to $6.8 million compared to the third quarter of last year. Revenue from the SafePath platform decreased 8% sequentially compared to the second quarter of this year. This decrease was slightly outside of the guidance range provided. The primary reason for the sequential decrease in revenue was related to a reduction of in-store marketing initiatives due to merger activities between Sprint and T-Mobile. Earlier this year, COVID-19 caused most Sprint stores to shut down. And when those stores reopened, the marketing initiatives did not focus on Sprint-based products. We also believe that the general unemployment related to COVID-19 has caused a reduction in the number of subscribers. In the coming quarter, based on the current status of the marketing initiatives within stores and the current subscriber activity in October, we expect SafePath to be down 7% to 12% compared to the third quarter. This guidance assumes the current subscriber trending continues throughout the fourth quarter. We remain excited about new SafePath opportunities and are encouraged by continued progress around a launch of a new T-Mobile product. During the third quarter of 2020, CommSuite revenue was $4.5 million, down 1% compared to the third quarter of last year. Revenue from the CommSuite platform increased 5% sequentially compared to the second quarter of this year. This increase was higher than expected and outperformed the guidance provided. The current quarter increase was due to base subscriber stability and growth in both Sprint and Boost subscribers. Boost is now part of DISH and comprised approximately 25% of the CommSuite revenue in the third quarter. We continue to navigate the Sprint-T-Mobile merger as subscribers now have an option to move from Sprint to the T-Mobile network for voice services. Additionally, we are excited to work with DISH to increase the Boost-CommSuite subscriber base. Consequently, we expect CommSuite revenue to be flat to down for the fourth quarter of 2020 compared to the third quarter. Revenue for CommSuite advertising during the third quarter was approximately $260,000, which was relatively consistent with the second quarter of this year and less than the third quarter of last year. The current quarter amount was in line with expectations. As a reminder, this is a variable revenue stream and dependent on third-party activities. We expect the fourth quarter of 2020 CommSuite advertising revenue to be between $150,000 and $250,000. ViewSpot revenue was approximately $1.2 million for the third quarter of 2020, down 8% compared to the third quarter of last year and up 19% compared to the second quarter of this year. This increase was higher than expected and outperformed the guidance provided, primarily due to a high volume of variable revenue activity with our Tier 1 U.S. customer. As discussed last quarter, during the second quarter of this year, we added a new ViewSpot customer, which contributed to the increase in our ViewSpot revenue base. This was the second new customer to be added in 2020, and we look forward to additional wins in the coming quarters. As a reminder, we separate ViewSpot revenue into 2 categories: fixed and variable. The fixed portion of the revenue is related to license fees and is generally the recurring component of the revenue. The variable portion of the revenue is related to device and promotional campaigns, which are short bursts of activity resulting in revenue, and the volume is less predictable. Based on our outlook, we expect ViewSpot revenues to be approximately 10% to 15% higher in the fourth quarter compared to the third quarter. This increase is primarily related to our near-term visibility of variable revenue. Overall, for the reasons discussed, we expect the fourth quarter total revenues to be flat to down by 5% compared to the third quarter of this year. For the third quarter, gross profit was $11.3 million compared to $10.8 million during the same period last year. Gross margin was 90% for the third quarter compared to 91% last year. For the third quarter year-to-date, gross profit was $35.1 million compared to $28.2 million during the same period last year. Gross margin was 90% for the third quarter year-to-date compared to 91% last year. GAAP operating expenses for the third quarter was $11.1 million, an increase of $3.8 million or 52% compared to last year. GAAP operating expense for the third quarter year-to-date was $31.6 million, an increase of $9.9 million or 46% compared to last year. Non-GAAP operating expenses for the third quarter was $9.5 million, an increase of $2.8 million or 41% compared to last year and an increase of $800,000 compared to the second quarter of this year. Non-GAAP operating expenses for the third quarter year-to-date was $26.2 million, an increase of $6.4 million compared to last year. The increase in non-GAAP quarterly operating expense compared to last year is primarily related to an increase of $1.8 million for compensation and employee-related expenses as headcount increased 40% year-over-year, resulting in 257 total employees at the end of the third quarter, and an increase of $1.1 million for third-party contract development costs. These costs are variable and allow flexibility to increase or decrease the number of engaged resources. The sequential quarter increase in non-GAAP operating expenses compared to the second quarter was slightly higher than the guidance provided and was primarily due to higher third-party contract development costs. As previously discussed and to provide additional comments around operating expenses, we continue to recruit and hire resources in all of our markets and currently expect to add approximately 12 to 15 employees in the fourth quarter of 2020. We will continue to engage the third-party contract development firm as needed. These additional internal and external costs were and are necessary to accelerate the SafePath road map by adding features and functionality sooner than originally expected and support the pursuit of new customers. As discussed at length last quarter, we operate in a highly competitive environment, and timing of customer opportunities is very critical. We are currently pursuing multiple opportunities to sell our SafePath platform for both family and IoT. Although there is no guarantee this effort will result in additional revenue, we are optimistic enough to make the investment and pursue the win. Based on this activity, we expect fourth quarter non-GAAP operating expenses to be relatively equal to the third quarter. This expectation includes a reduction of third-party contract development costs and an increase of employee run rate costs as we continue to hire new employees through the quarter. During this time of investment, we expect to remain profitable and cash flow positive. The non-GAAP net income for the third quarter was $1.8 million or $0.04 diluted earnings per share compared to a non-GAAP net income of $4.2 million or $0.11 earnings per share last year. The non-GAAP net income for the third quarter year-to-date was $9 million or $0.21 diluted earnings per share compared to a non-GAAP net income of $8.5 million or $0.24 earnings per share last year. Within the recently issued press release, we have provided a reconciliation of our non-GAAP metrics to the most comparable GAAP metric. For the third quarter, the reconciliation includes the following adjustments: stock compensation expense of $811,000; and intangible amortization of $841,000, all of which are noncash. For the third quarter year-to-date, the reconciliation includes the following adjustments: stock compensation expense of $2.3 million; intangible amortization of $2.2 million; and acquisition costs of $918,000, some of which are noncash. Due to our cumulative net losses over the past few years, our GAAP tax expense is primarily due to certain state and foreign income taxes. For non-GAAP purposes, we utilize a 0% tax rate for 2020 and 2019. The resulting non-GAAP tax expense reflects the actual income taxes expensed during each period. To wrap up my financial review, I will add some comments around capital. We closed the third quarter of 2020 with $25.9 million of cash. During the quarter, we generated $3.9 million of cash flow from operations. In the short term, we will continue to invest the excess cash balance to preserve capital. In the mid to long term, the company will continue to evaluate strategic alternatives for utilization of capital to maximize shareholder return. This concludes my financial review, Bill. Now back to you. -------------------------------------------------------------------------------- William W. Smith, Smith Micro Software, Inc. - Co-Founder, Chairman of the Board, CEO & President [5] -------------------------------------------------------------------------------- Thanks, Tim. Now let's talk about our 3 main products, starting with ViewSpot, our retail display management platform. As Tim has already discussed, ViewSpot revenues came in above expectations for the quarter, which is very encouraging considering the current state of a global retail marketplace. While many people are still wary of shopping in brick-and-mortar stores because of the ongoing threat of the COVID-19 pandemic, wireless carriers continue to aggressively promote new services and capabilities through both pervasive advertising campaigns and in-store promotions. The recent surge in 5G-related advertising and promotions tied to Apple's launch of the iPhone 12 just last month is a perfect example. In a very crowded marketplace with many different service options, carriers are hungry to differentiate their offerings and capitalize on the buzz created by 5G. Smith Micro benefits from these promotions as they generate additional professional service revenues for ViewSpot as carriers develop complementary in-store campaigns to support their out-of-store advertising efforts. As I discussed on last quarter's call, we developed new ViewSpot functionality to assist our carrier customers in adapting their retail environments to meet customer concerns related to COVID. This patent-pending technology singularly leverages the embedded sensors available on all smartphones and tablets to detect a human face and launch on-device promotions without any physical interaction required. We also augmented ViewSpot-powered Attract Loops with dynamic device sanitization notifications that notify in-store shoppers whether a demo device has been sanitized. Our product development team continues to explore how other technologies such as QR codes and near-field communication could further enhance the touchless capabilities of the ViewSpot platform. Like ViewSpot, our CommSuite product line performed above expectations in the third quarter. Our legacy CommSuite subscriber base at Sprint and Boost Mobile continue to generate revenue and profit for the company. As I have discussed before, the ongoing merger of T-Mobile and Sprint creates some uncertainty for CommSuite revenues. But generally, I am pleased with our current position. This is especially true with DISH, which acquired Boost back in July. I am very bullish regarding the overall potential of this new relationship as DISH seeks to compete and win market share as the newest Tier 1 carrier in the U.S. As an established partner, we are very well positioned with DISH while they look to build Boost's overall customer base and launch a postpaid service offering in the future. We have a great knowledge base to support them, particularly when it comes to how to market and grow value-added services such as Visual Voicemail and voice to text transcription. The fact that our market-leading SafePath platform is also deployed to the Boost prepaid subscriber base is an added benefit. All of these factors are working in our favor as we continue to build a relationship with DISH and explore additional partnership opportunities. Now let's discuss SafePath, Smith Micro's flagship product. Monday's Safepath 7 announcement was a major milestone for our connected lifestyle vision and for the company as a whole. This release was the culmination of thousands of hours of development and integration work. It includes several new features as well as all of the parental control functionality that we gained through the acquisition of Circle's operator business back in February. What's more, all of these features are available for both Android and iOS. Full-feature parity between operating systems has long been a goal of ours and is now a reality with SafePath 7. Now let's take a look at the highlights of the release. SafePath 7 introduces several new location-based features such as a real-time tracking, location history and bread crumbs and a pick-me-up feature that enables users to request a ride with one click. With real-time location tracking, parents can see exactly where their children and other family members are on the SafePath Family map. The location history feature provides an event-based view of family location activity so parents can use SafePath to quickly see important location events such as when their child arrived at school or when they left an after-school activity. The bread crumbs feature enables SafePath's users to drill down on specific location events to view the path of child travel between 2 locations. This feature provides enhanced visibility to parents and provides them with greater peace of mind as they will know if their child made an unplanned stop en route. With the integration of the Circle functionality complete, SafePath now provides robust parental control functionality on par with the location-based features that have long been the strength of our offering. New SafePath features such as age-based content filters, screen time limits, dead time mode and the ability to schedule off-line time are all features that are in high demand as parents everywhere seek tools to help manage screen time, block inappropriate online content and improve the digital well-being of their children. The social restrictions imposed by COVID-19 have only made digital parenting challenges more acute as kids have been forced to rely on connected devices for socialization, entertainment and education. According to a survey that we conducted in August, 7 out of 10 parents feel helpless when it comes to limiting their kids' screen time during the pandemic, while 69% of parents agree that online schooling has made them more concerned about the Internet safety of their children. The new parental control functionality that we have added with SafePath 7 directly addresses these concerns. When discussing these new features, it is also important to note that with our SafePath Home, parental controls are available on in-home connected devices such as gaming consoles, smart TVs, laptops and tablets as well as connected devices used outside the home on cellular networks. This is an important differentiator for Smith Micro in the family safety space as we are the only white-label solution provider to provide extensive parental controls both inside and outside of the home from the same mobile app. People are spending more time than ever at home. The fact that our Family Safety solution enables parents to extend powerful parental controls to all kinds of connected devices within the same app interface is powerful and reinforces our leadership position in the space. When these components are considered holistically, it's easy to get excited about the untapped potential of SafePath. We continue to make great progress with SafePath-related sales discussions on several fronts as carriers in many parts of the world have shown interest in deploying our solution to their respective subscriber bases. We will continue to work closely with our carrier partners to explore new features and use cases for SafePath that will further enhance its value proposition and enable us to continue the progress of our diverse sales efforts. We will continue to invest in R&D initiatives for the balance of 2020. While we hired more than 70 people during the first 9 months of the year and have aggressively invested in sales and marketing initiatives, our cash flow and profits remain healthy. Through 3 quarters, we have generated $8 million in cash flow from operations and have approximately $26 million in cash reserves. We are extremely well positioned for growth as we prepare to launch our solutions with additional carriers, which should make for a fantastic 2021. Overall, these are exciting times for both Smith Micro and its shareholders. While the global economic impact of COVID-19 and the merger of our largest customer has tempered short-term growth, the company remains profitable, our sales pipeline is healthy and our products are in demand. With that said, operator, I'd like to open the call for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) The first question will be from Scott Searle of ROTH Capital. -------------------------------------------------------------------------------- Scott Wallace Searle, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [2] -------------------------------------------------------------------------------- I hope you and your families and team are doing well in the current environment, and nice job on the quarter. Real quickly to start. I missed one of the numbers on CommSuite. Looking at the fourth quarter, what was the sequential guidance as it related to CommSuite? And if I could dig a little bit in on that front, the Boost mix, I thought you said was around 25% of the mix. How did that do in terms of the growth perspective in the third quarter? What's the outlook for those to get that in the fourth quarter? And then to clarify on the DISH front, does this mean now you have a formal relationship for DISH outside of the MVNO with Boost as they start to roll out their 5G network in the 2021, 2022 time period? And then I had a couple of follow-ups on SafePath. -------------------------------------------------------------------------------- William W. Smith, Smith Micro Software, Inc. - Co-Founder, Chairman of the Board, CEO & President [3] -------------------------------------------------------------------------------- Okay. Listen, let's let Tim handle the numbers, then I'll come back in and talk about the relationship. -------------------------------------------------------------------------------- Timothy C. Huffmyer, Smith Micro Software, Inc. - VP, CFO, Treasurer & Secretary [4] -------------------------------------------------------------------------------- Thanks. The guidance related to CommSuite for next quarter was basically flat to down for the fourth quarter off of the third quarter. So flat to down, low single digits, maybe down. As you know -- and as the T-Mobile population may migrate -- I'm sorry, the Sprint population may migrate to T-Mobile, that could speed up at some point. But based on our visibility, that's the way we see it. -------------------------------------------------------------------------------- Scott Wallace Searle, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [5] -------------------------------------------------------------------------------- Okay. And on the SafePath front, congrats. Now that you've got SafePath 7 out, a big milestone for you guys. You mentioned T-Mobile and Sky and onboarding them in the first half of this year. I was wondering if you could put some more color around that in terms of the number of subscribers maybe related to that transition. How quickly that's going to occur? And then, I guess, as part of that, Bill, the pricing model as it relates to T-Mobile, does this actually then indicate that there is a formal transition now from the previous Circle Media Labs relationship and fixed fee and moving more to a subscription-based model? -------------------------------------------------------------------------------- William W. Smith, Smith Micro Software, Inc. - Co-Founder, Chairman of the Board, CEO & President [6] -------------------------------------------------------------------------------- Yes. All of that is in the works. I really can't comment about it as it is being discussed between us and both of these companies. So all we can say is that we are working on plans with the carriers. They set the schedule, not us. We have to respond to them. They're the boss. So we're looking at a transition away from the Circle code base in the first half of the year for both of these customers, which will end the use of the Circle code base, and they will be moved to SafePath 7. In the case of T-Mobile, it's a little bit more complicated because you also have a very large base of users that are on Safe & Found as the Sprint product, and they will also need to be transitioned to the SafePath 7 product offering from T-Mobile. The good news, obviously, once this is complete is there will be a single-family safety product that can be marketed to all T-Mobile customers going forward, whether they are original T-Mobile users or acquired Sprint customers. And some marketing and efforts like that can really start to kick in. So we're quite excited about the opportunity to get this done, and we're very focused. You asked a question earlier that we didn't answer. And yes, we are working on a very strong relationship with DISH. We do plan on working with DISH in all facets, both from the prepaid side but also from the postpaid side as well. -------------------------------------------------------------------------------- Scott Wallace Searle, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [7] -------------------------------------------------------------------------------- Great. If I could, and then I'll get back in the queue. Just in terms of the pipeline for SafePath, it sounds like there's a lot of activity around it. I was wondering if there was any other way to quantify or qualify some of your comments related to geographies, number of carriers, number of subscribers maybe that are represented by the carriers that you're engaging with. -------------------------------------------------------------------------------- William W. Smith, Smith Micro Software, Inc. - Co-Founder, Chairman of the Board, CEO & President [8] -------------------------------------------------------------------------------- Yes. I can answer a part of that. I can say that, by and large, the new customers will come from North America, from Europe and from the Middle East. So those are the geos where we have the primary focus. And as far as the number of subs that -- and things like that, I have to kind of hold off on that until we can either -- if we're allowed to, we will be able to tell you who the new customers are. In some cases, we won't be able to do that. So we'll just have to deal with it on a case-by-case basis. -------------------------------------------------------------------------------- Operator [9] -------------------------------------------------------------------------------- The next question is from Eric Martinuzzi of Lake Street. -------------------------------------------------------------------------------- Eric Martinuzzi, Lake Street Capital Markets, LLC, Research Division - Head of Research & Senior Research Analyst [10] -------------------------------------------------------------------------------- Congrats on the quarter. I had a question regarding your largest customer. On a pro forma basis for Q2, I think we had -- I was modeling -- or you had disclosed 86%, I think, was the number for T-Mobile in Q2. And then the DISH transaction with Boost happened on July 1. So is it safe to say we're kind of 78% plus 8% equals 86%? Or is the number significantly different from that for the Q3? -------------------------------------------------------------------------------- William W. Smith, Smith Micro Software, Inc. - Co-Founder, Chairman of the Board, CEO & President [11] -------------------------------------------------------------------------------- That's reasonable -- that's a reasonable assumption, correct. -------------------------------------------------------------------------------- Eric Martinuzzi, Lake Street Capital Markets, LLC, Research Division - Head of Research & Senior Research Analyst [12] -------------------------------------------------------------------------------- Okay. All right. And then right now, we're talking about an outlook at $12.3 million at the midpoint. You just printed a quarter at $12.6 million. It feels like we're basing, but I understand there's a lot of puts and takes. You are talking about commercialization of the SafePath 7 in the first half. Are you anticipating Q1 as kind of a revenue troughing with all those puts and takes weighed in? Or is it too soon to predict that? -------------------------------------------------------------------------------- William W. Smith, Smith Micro Software, Inc. - Co-Founder, Chairman of the Board, CEO & President [13] -------------------------------------------------------------------------------- Yes. I think that some of this is all -- will be guided by the schedules that we can deploy at -- with the various carriers in question. I would say that that's our best hope, that Q1 would be the troughing and then you start to see some growth. [But] until we know the exact schedules and we can staff to that, it's difficult to answer that question for certainty. -------------------------------------------------------------------------------- Eric Martinuzzi, Lake Street Capital Markets, LLC, Research Division - Head of Research & Senior Research Analyst [14] -------------------------------------------------------------------------------- Okay. And then on the expense side, knowing that there's unpredictability on the revenue troughing but also knowing that at some point, we're going to get the announcement of these carriers, I would assume there's going to be at least 3 to 6 months of -- we really can't throttle back on the R&D investments that we've made with outside contractors. But what should we anticipate for kind of getting back to a normalized R&D number? I guess it's asking 2 questions at the same time, but what's the delta in number of months where we can start to throttle back on the expense side? -------------------------------------------------------------------------------- William W. Smith, Smith Micro Software, Inc. - Co-Founder, Chairman of the Board, CEO & President [15] -------------------------------------------------------------------------------- I guess I would kind of look at that in this way. With the completion of all the heavy lifting around SafePath -- and we're still doing more because there's other features that are required that we have not announced yet that are being completed as well. These are features that are required for other new accounts and things like that. You'll still see a heavy investment for the balance of the year, as I said. We will look in the first quarter at a point in time where we might be able to reduce some of the outside expenses, but this will also be driven by the number of deployments that we need to get done in the first and second quarters. So that's going to require people as well. I mean there's a cost that comes with a growing business. And this -- you'll soon be able to see this is very much a growing business. -------------------------------------------------------------------------------- Eric Martinuzzi, Lake Street Capital Markets, LLC, Research Division - Head of Research & Senior Research Analyst [16] -------------------------------------------------------------------------------- And then lastly, I'm anxiously awaiting the announcement of those new customers. You've talked pretty confidently about at least a couple in the next 30 days, perhaps a third one by year-end. Do you recommit to that same number of carrier -- new customer signings in 2020? -------------------------------------------------------------------------------- William W. Smith, Smith Micro Software, Inc. - Co-Founder, Chairman of the Board, CEO & President [17] -------------------------------------------------------------------------------- That's our game plan. -------------------------------------------------------------------------------- Operator [18] -------------------------------------------------------------------------------- The next question is from John Nichols (sic) [Josh Nichols] of B. Riley. -------------------------------------------------------------------------------- Michael Joshua Nichols, B. Riley Securities, Inc., Research Division - Senior Analyst of Discovery Group [19] -------------------------------------------------------------------------------- Congrats on the SafePath 7 release. I know that was a big undertaking. I had a follow-up. I know alluded to on an earlier question about the transition from T-Mobile and Sky off Circle to the new SafePath platform in the first half of next year. Is it fair to assume -- I guess, the timing of a potential new agreement with T-Mobile, would that be announced like beforehand, concurrently? Or what would be the expectation? Would you start to move those customers on to the platform without a new agreement? Or what should we expect? -------------------------------------------------------------------------------- William W. Smith, Smith Micro Software, Inc. - Co-Founder, Chairman of the Board, CEO & President [20] -------------------------------------------------------------------------------- No. We would expect a new deal to be signed and executed. So that's the answer to that question. As far as the actual launch of the new product, obviously, that will be driven by the commentary from T-Mobile and Sky as they move forward. We are working very closely with them on a lot of their marketing plans and things like that. So we are heavily invested in these overall efforts. -------------------------------------------------------------------------------- Michael Joshua Nichols, B. Riley Securities, Inc., Research Division - Senior Analyst of Discovery Group [21] -------------------------------------------------------------------------------- And then, Bill, just to follow up on the marketing efforts. I know there's a little bit of a lag, right, or it'd take some of the carriers some time to ramp up their marketing efforts, train all the individual retail staff. Any additional color that you could provide on how quick it takes to really start getting these carriers to ramp up and start selling through this new SafePath offering once you have an agreement in place? -------------------------------------------------------------------------------- William W. Smith, Smith Micro Software, Inc. - Co-Founder, Chairman of the Board, CEO & President [22] -------------------------------------------------------------------------------- Well, we can look at history. It's usually probably the best place to go. And if you look at when Sprint launched, it took about 12 months before they started to go into a really strong growth curve, and they were able to maintain that until the merger. So I think that's one way to look at it. However, that said, in some cases, some of the new carriers will be bringing people over from competitive platforms, which will give us the opportunity to start with a larger base at the get-go. So there is 2 different -- you really are going to have to wait until we can get the names of the carriers into the public hands, and then I think it'll be easier to try to evaluate the growth rates. I know what you're trying to do, and it's not easy right now. -------------------------------------------------------------------------------- Michael Joshua Nichols, B. Riley Securities, Inc., Research Division - Senior Analyst of Discovery Group [23] -------------------------------------------------------------------------------- All right. Understood. Last question for me, and then I'll hop back on the queue. Any additional info you can provide? I know you mentioned that you're still looking to roll out a couple of new features as well that are requested from some of the company's current or potential customer base. Anything you'd talk about, about what those features may be or at least how long until those features are all done and completed? -------------------------------------------------------------------------------- William W. Smith, Smith Micro Software, Inc. - Co-Founder, Chairman of the Board, CEO & President [24] -------------------------------------------------------------------------------- I don't think you're going to have to wait a long time to learn about it. So stay tuned, and we'll get some things into public hands via formal releases. -------------------------------------------------------------------------------- Operator [25] -------------------------------------------------------------------------------- The next question is from Jim McIlree of Bradley Woods. -------------------------------------------------------------------------------- James Patrick McIlree, Bradley Woods & Co. Ltd., Research Division - Analyst [26] -------------------------------------------------------------------------------- Can you talk about seasonality with the ViewSpot? And I'm focused mostly on what happens in Q1 relative to Q4, if that's -- if it's reasonable to think about any seasonal impact Q1 versus Q4. -------------------------------------------------------------------------------- William W. Smith, Smith Micro Software, Inc. - Co-Founder, Chairman of the Board, CEO & President [27] -------------------------------------------------------------------------------- Jim, I -- we're going to finish the year pretty strong from a ViewSpot perspective. I would expect that to be sequentially down there in the first quarter and then ramp up through the summer, second and third quarter. And then typically, in the fourth quarter, we do see that down this fourth quarter. Based on our near-term visibility in the projects in the works, we're going to be up. So that's a little bit of color as you model that through 2021. -------------------------------------------------------------------------------- James Patrick McIlree, Bradley Woods & Co. Ltd., Research Division - Analyst [28] -------------------------------------------------------------------------------- Okay. And I'm trying to understand the decline in SafePath. This is going to be the third quarter of sequential declines. And is that -- is there any price involved? Is it mostly -- I know this has been a weird year with COVID and the stores shutting down and the merger. So I mean, maybe it's hard to disaggregate the sources of the decline, but I was hoping you could take a stab at it. -------------------------------------------------------------------------------- William W. Smith, Smith Micro Software, Inc. - Co-Founder, Chairman of the Board, CEO & President [29] -------------------------------------------------------------------------------- Yes, Jim, it's a good question. And I think there's a rather straightforward answer. The product that we sell today to T-Mobile that came over from Sprint, that product can only be sold to customers that are on the Sprint billing system. So that limits, number one, the market that they can go after. It also makes it very difficult for them to really promote the service offering because they have 2 different service offerings. They're both from us, but the one from Circle does -- the more people you put on it doesn't really help us from a financial standpoint yet. But in the case of Safe & Found, it's very difficult to grow that base until we get to the new product, a product that can be sold to all new T-Mobile customers. And you don't have to worry about whether you're -- you have a yellow SIM in your phone or a magenta SIM in your phone. It's all the same. And that's really been the causal factor for the decline, and it is also now something to look forward to because you can see where all this trend will switch over. Now at the same time, as we launch new customers, and we've told you we are launching new customers, you will see the opportunity to sell to these new carriers' customer bases. And that will also provide us with an opportunity to start to grow our overall SafePath revenue. So it's a moment in time and we're kind of limited as to what we can do to remedy it. And it's just -- it's unfortunate, but that's where we are. Hopefully, that helps. -------------------------------------------------------------------------------- James Patrick McIlree, Bradley Woods & Co. Ltd., Research Division - Analyst [30] -------------------------------------------------------------------------------- No, that does. And from a simplistic standpoint, you need 2 things to happen in order to grow again with T-Mobile. One is SafePath 7, and that's done. But now you need an agreement for the -- for migrating Circle or for -- make -- and that's still to come, to be announced when it's announced. Is that fair enough? -------------------------------------------------------------------------------- William W. Smith, Smith Micro Software, Inc. - Co-Founder, Chairman of the Board, CEO & President [31] -------------------------------------------------------------------------------- Yes, I think that's the way to think about that. I would say that everything is in the works now. We're not waiting any longer. We're having meaningful discussions, and I think we can drive through this now. -------------------------------------------------------------------------------- Operator [32] -------------------------------------------------------------------------------- (Operator Instructions) Seeing no further questions, I would now like to turn the conference back over to Charles Messman for any closing remarks. -------------------------------------------------------------------------------- Charles B. Messman, Smith Micro Software, Inc. - VP of IR & Corporate Development [33] -------------------------------------------------------------------------------- Thanks, everybody. I appreciate you taking the time to listen to us today. We look forward to updating you in 2021. Should you have any further questions, please feel free to reach out to us directly. Stay safe, and thanks, everybody. Have a great day. -------------------------------------------------------------------------------- Operator [34] -------------------------------------------------------------------------------- Thank you. The conference has now concluded. Thank you all for attending today's presentation. You may now disconnect. Have a great day.