Smith Micro Software, Inc. ( SMSI)

Q3 2011 Earnings Call

November 2, 2011 4:30 PM ET

Executives

Charles Messman – President, MKR Group, Inc.

William Smith – Chairman, President and CEO

Andrew Schmidt – CFO, Secretary and VP

Analysts

Jason North – Jefferies & Company

Scott Sutherland – Wedbush Securities

Charlie Anderson – Dougherty & Company

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Smith Micro Third Quarter Earnings Conference Call. During today’s presentation, all participants will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) Today’s conference is being recorded November 2, 2011.

I would now like to turn the conference over to Charles Messman of MKR Group. Please go ahead.

Charles Messman

Good afternoon and thank you for joining us today to discuss Smith Micro Software’s third quarter ending September 30, 2011 financial results.

By now you should have received a copy of the press release discussing our quarterly results. If you do not have a copy and would like one, please visit www.smithmicro.com or call us at 949-362-5800 and we will immediately e-mail one to you.

With me on today’s call are Bill Smith, Chairman, President and Chief Executive Officer; Andy Schmidt, Vice President and Chief Financial Officer; and Tom Matthews, Senior Vice President and Chief Strategy Officer.

Before we begin the call, I want to caution that on the call, the company will make forward-looking statements that involve risks and uncertainties, including without limitation, forward-looking statements related to the company’s financial prospects and other projections of its performance, the company’s ability to increase its business, and the anticipated timing and financial performance of its new products and potential acquisitions.

Among the important factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements are changes in demand for the company’s products from its customers and their end-users, new and changing technologies, customer acceptance of those technologies, new and continuing adverse economic conditions, and the company’s ability to compete effectively with other software companies. These and other factors discussed in the company’s filings with the Securities and Exchange Commission, including its filings on Form 10-K, 10-Q, and 8-K, could cause actual results to differ materially from those expressed or implied in any forward-looking statements.

The forward-looking statements contained in this conference call are made on the basis of the views and assumptions of management regarding future events and business performance as of the date of this conference call, and the company does not undertake any obligation to update these statements to reflect events or circumstances occurring after the date of this release and conference call.

Before I turn the call over to Bill Smith, Chairman, President, and CEO of Smith Micro, I want to point out that in our forthcoming prepared statements, we will refer to certain non-GAAP financial measures. Please refer back to our press release disseminated earlier today for reconciliation of the non-GAAP financial measures.

With that said, I’ll now turn the call over to Bill. Bill.

William Smith

Thanks, Charles. Good afternoon, everyone, and welcome to our third quarter ending September 30, 2011 earnings conference call.

Revenues for the quarter were $12.6 million with approximately $10.2 million coming from our wireless products and $2.4 million resulting from our productivity in graphics product line. Non-GAAP gross profit was $10.2 million for the quarter with gross margins up 81%.

As indicated in our preliminary announcement on October 13, we’ve recorded a charge for impairment of goodwill and other live – other long-lived assets of $112.9 million and net deferred tax asset allowance of $11.4 million. Excluding these one-time non-cash charges, non-GAAP net loss for the third quarter was approximately $9.7 million.

Clearly, we are disappointed in these results. The growing trend to access the mobile Internet through smartphones and tablets has affected our connection management software business much quicker than we had anticipated. Consumers are rapidly transitioning to smartphones devices with an embedded hotspots or mobile hotspot pucks for accessing mobile broadband services. These form factors have begun to overtake USB and embedded wireless modems as a primary means of connecting to the wireless data networks.

The accelerating rate of change in this technology transition has been the primary driver for the pressure on our revenues. We are delivering new products to capitalize on this transition and I will discuss the initial market response to these products later on this call.

We are also keenly focused on dramatically lowering our cost structure and changing our operational approach to meet new market reality in order to get back to profitability as soon as possible. We have already made good progress with a number of cost reductions and we are accelerating our efforts to restructure our operations to a significantly leaner and lower cost organization. I will get into both our restructuring efforts and new product initiatives in greater detail after I turn the call over to Andy, who will take you through the details of the financial results. Andy?

Andrew Schmidt

Thank you, Bill. First, let me go over our customary introductory items.

As we have in past quarters, we have provided non-GAAP results and a reconciliation of non-GAAP and GAAP results. The non-GAAP results discussed on this call net out amortization of intangibles associated with acquisitions, stock compensation-related expenses, and non-cash tax expense to provide comparable operating results.

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