Smith Micro Software's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Smith Micro Software, Inc. (SMSI)

Q4 2011 Earnings Conference Call

February 22, 2012 16:30 ET

Executives

Charles Messman – MKR Group

Bill Smith – Chairman, President and Chief Executive Officer

Andy Schmidt – Vice President and Chief Financial Officer

Analysts

Mike Latimore – Northland Capital

Rich Valera – Needham and Company

Mike Walkley – Canaccord Genuity

Scott Sutherland – Wedbush Securities

Brian Swift – Security Research Associates

Charlie Anderson – Dougherty & Company

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Smith Micro Fourth Quarter and Fiscal Year 2011 Financial Results 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) This conference is being recorded today, Wednesday, February 22, 2012.

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

Charles Messman – MKR Group

Good afternoon and thank you for joining us today to discuss Smith Micro Software’s fourth quarter and total year ended December 31, 2011 financial results.

By now, you should have received a copy of the press release discussing our financial 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 and Andy Schmidt, Vice President and Chief Financial Officer.

Before we begin the call, I want to caution that on this call, the company may 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 existence of new market opportunities, and interest in the company's products and solutions, and the company’s ability to increase its revenue and regain profitability by capitalizing on these new market opportunities and interest in introducing new products and solutions.

Among the important factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements are changes in the demand for the company’s products from its customers and their end users, new and changing technologies, customer acceptance of these 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 release are made on the basis in the views and assumptions of management regarding future events and business performance as of the date of this release, 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 call.

Before I turn the call over to Bill Smith, Chairman, President, and CEO, I want to point out that in the 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 non-GAAP financial measures.

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

Bill Smith – Chairman, President and Chief Executive Officer

Thanks, Charles. Good afternoon everyone and welcome to our conference call to discuss earnings for the fourth quarter and fiscal year ended December 31, 2011.

Total revenues for the quarter were $11.2 million with approximately $8.7 million coming from our Wireless products and $2.5 million resulting from our Productivity & Graphics product line. Non-GAAP gross profit was $8.5 million for the quarter with gross margins as a percentage of revenues of 75.8%.

While these Q4, 2011 financial results are not exciting, they were in line with our internal expectations. As I described in the earnings call last quarter, we continue to steal the revenue impact of a significant technology transition from USB modems to smartphones and mobile hotspots. Our traditional USB connection manager business declined throughout 2011. The good news for us is that these new mobile hotspots have their own challenges and we are getting a renewed interest from wireless operators to help them simplify usability of these devices for consumers.

Ease of use is just becoming increasingly important to operators to reduce support costs and further monetize data services. You'll hear more about our emerging opportunities in this area later.

In our last call, we preview the first commercial deployment of our Mobile Network Director solution for managing data traffic by a Tier I carrier and that news was made official in January with the announcement of Sprint selecting Mobile Network Director also refer to MND. The initial rollout of MND at Sprint is occurring in several phases and we don’t expect to see an uptick in revenues from this deal until Q2. However, the Sprint news has garnered strong interest in our MND solution from around the world, doubling the number of new sales opportunities from last quarter and accelerating product trials with several other Tier I carriers. I will discuss the potential for these opportunities later in the call.

In addition to growing our pipeline with new solutions running our platforms, we have further reduced operational costs in Q1 to better align with current near-term revenue expectations. Just as Q4 revenues were slightly down from Q3, our current line of sight for Q1 2012 looks much the same. Therefore, we undertake as more cost containment measures ranging from headcount reductions across the board, the travel services, to office moves. The changes will reduce our non-GAAP operating expense run rate of approximately $17.5 million per quarter to between $15.5 million and $16 million per quarter.

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