Good day. And welcome to the Smith Micro Software Third Quarter 2015 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Todd Kehrli, of the MKR Group. Please go ahead, sir.

Thank you, operator and good afternoon. Thank you for joining us today to discuss Smith Micro Software's financial results for the third quarter of 2015. 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 www.smithmicro.com or call us at 949-362-5800 and we will email one to you. On today's call, we have Bill Smith, Chairman, President and Chief Executive Officer of Smith Micro; Steve Ziggy Yasbek, Chief Financial Officer; and Carla Fitzgerald, Chief Marketing Officer. Please note that some of the information you will hear during our discussion today will consist of forward-looking statements, including without limitation those regarding the company's future revenues and profitability, new product development and new market opportunities, operating expenses and the company's cash reserves. Actual results or trends could differ materially from our forecast due to a variety of factors. For more information, please refer to risk factors discussed in Smith Micro's Form 10-K. Smith Micro assumes no obligation to update any forward-looking statements or information which speak only as of the respective dates. Before I turn the call over to Bill Smith, I want to point out that in our forth coming 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 Bill, please go ahead.

Thanks, Todd. As stated in our preliminary earnings announced, our ability to close deals and grow revenue in a timeframe we previously projected has been hampered by the consolidation and restructuring that was taking place in the carrier and cable operator market. As a result, revenues for the third quarter of 2015 were $9.6 million, which represent a slight increased both sequentially and year-over-year but is not the growth we were hoping to achieve. We have therefore adjusted our guidance and now expect revenues for the year to be in the range of $39 million to $40 million versus $37 million last year. I will talk more about the impact of delayed deals, our operating plan after Ziggy presents the detailed financial results for Q3. Ziggy?

Thank you, Bill. I first want to 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 stock based compensation related expenses and normalizes our tax expense or benefit to provide comparable operating results. Accordingly, all results that I refer to in my prepared remarks for both 2015 and 2014 are non-GAAP amounts. Our earnings release which will be furnished to the SEC on form 8-K contains a presentation of selected GAAP financial measures and related non-GAAP financial measures and a reconciliation of the differences between the two. The earnings release can also be found in the investors relations section of our website at www.smithmicro.com. September year-to-date revenues for 2015 were $29.5 million, up $3.1 million from September year-to-date 2014, an increase of 11.6%. Wireless revenues were $25.4 million, an increase of $3.2 million or 14.4%. Productivity and graphics revenues were $4.1 million, a decrease or $100,000 or 3%. From the non-GAAP perspective, the September year-to-date 2015 earnings per share was zero or essentially breakeven as compared to a September year-to-date 2014 loss per share of $0.14. In terms of our currently completed third-quarter let me provide some detail. For the financial modelers let me provide the differences between GAAP and non-GAAP P&L metrics. In terms of stock compensation, stock comp totaled $544,000 for the current period, broken out as follows; $3000 cost of sales, $87,000 selling and marketing, $159,000 R&D and $295,000 G&A. While we showed no GAAP tax benefit for the period due to fully reserving the tax benefit, we are showing $89,000 a pro forma or normalized tax benefit. For the third quarter we posted revenues of $9.6 million and a loss of…

Thanks, Ziggy. As you’ve just heard, our operating costs are well under control and cash is up by $1.1 million versus last quarter. So our financial position is very stable. I would also like to point out that our revised guidance is not the result of any lost deals. We have sales cycles with several large operators and cable providers still in play, and we remain confident in our ability to close these deals, albeit later than expected. Furthermore, our relationship with Sprint, our largest customer remains strong, and we continue to build our business with our second largest customer, Comcast, having delivered multiple projects successfully over the past few months. Our CTO Greg Sterling, recently presented a Comcast case study at the Wi-Fi Global Congress, describing how our NetWise solution is making Wi-Fi connectivity simpler, safer and smarter for their subscribers. With more than 11 million hotspots nationwide, Comcast offers us tremendous upside, and we have just scratched the surface on this account. As we add new platforms and apps to our deployment and Comcast increases marketing efforts with their enhanced Wi-Fi connectivity, we expect revenues from this account to grow significantly. We also expect our success at Comcast positively influence deals with other cable companies. However, each of these companies will have their own brand goals that were intricacies and system inspiration needs. This means we will need to increase our engineering headcount to ensure that we can customize, test and deploy our software as rapidly as possible after contracts get signed. We are making a conscious decision to hire ahead of revenue for our new NetWise business and if we succeed in filling our open positions in Q4, we will end the year at a slight operating loss. Let me be clear, our goal is to have…

Thank you. [Operator Instructions] And our first question will come from Rich Valera with Needham & Company.

Thank you. Bill, question on the timing and the magnitude of your preannouncement. So from the low end of your prior guidance, you took it down by $5 million to $6 million of revenue, which is really significant for you guys. Your typical deal -- a big deal for you is probably a million dollars. So it seems like an awful lot had to go wrong in a very short period of time for you to take down the full year by that amount. So just trying to understand what happened there and how that timing worked out?

Okay. I think the challenges that we faced come in two areas. First off, it has taken longer than expected to close contracts, but we are still very positive that these contracts will be closed to the extent that as were saying, we will higher ahead of revenue but after the contracts are signed, we should be I think seeing as a positive indicator that we have new business on its way. Additionally, it has been a tough year for our largest customer Sprint. And as such, some of the growth that we would have expected at Sprint hasn’t really materialized. Both of those things put together brought us in materially below where we said we would be, but I feel very confident that the numbers we've revised to are very makeable. So that’s the best answer I can give you. And actually, let me add one more thing to it. And I think the other part that probably was more troubling was that the deployment at Comcast has gone a lot slower than we expected; as we worked with Comcast to try to make sure that the product offering that they were putting forth was of the highest quality. And we have done that, and we expect that they will move forward with their marketing effort in the near future.

And just wanted to get sense of the pipeline of deals and potential timing. We do conclude that you would expect to get some within 4Q, within 1Q or are you willing to talk about at this point?

Yes, if we’re hiring in 4Q which is what our plan says, that means we’ll have contracts in 4Q. We also believe there are deals for the first part of 2016 as well, but the statement that I made, that we would go ahead and hire is based on contracts that are well underway and we expect to have signed, and therefore we’re going to need the people in Q4. We also say though that we don't expect any real revenue out of these until early 2016.

[Operator Instructions]. And our next question will come from Kevin Dede with Rodman.

Ziggy, I kind of missed some of the numbers that you offered. I missed revenue on productivity I'm sorry on wireless and on the graphic side? I think I got 81 and 73 is the gross margin. I just want to make sure I have those numbers right?

Let’s see. Wireless was 71, yes, and P&G was 73.

Okay, those were the gross margins?

Yes.

I thought you had 81, no?

Yes, 81.

Oh, 81 and 73, okay. How about revenue?

Revenue was 8.3 for wireless, and 1.3 for P&G.

Okay. Then apologies, just a really shaky connection. So sorry about that. I had -- just on the non-GAAP stock comp adjustment, I had $87,000 for sales and marketing, $150,000 for R&D and $295,000 for G&A.

It was $3,000 for cost of sales, $87,000 for sales and marketing, $159,000 for R&D, and $295,000 for G&A.

Okay. So can you peel the onion back and give us some insight on the some of the initiatives that you think are coming down the pike? I know that in past calls you've talked a little bit about adding location based supplement through NetWise and maybe offering an outbound messaging component to the M&A tap. I'm just wondering some of the things that you think are coming that might add some depth to your expectations for this quarter and next?

Okay. Heavy focus on NetWise, and that's all the different flavors of NetWise. And so you’ve talked about proximity marketing. That’s our Captivate product and we expect to have that product ready for trials this quarter. We don’t expect to announce a signed contract until the early part of 2016 but there is a lot of interest and we feel pretty bullish about that. From the standpoint of our efforts in working with wireless carriers, and then also with cable providers, we see an extending roll for NetWise in both of those market segments and so we look for deals in either Q4 or Q1, that come from one of both of those. So the NetWise product is moving along strong. On the messaging part, we are working on an Avatar 2.0 release, and we are heavily focused on that. We have a lot of interest in what we're doing. Clearly the Facebook announcement is what we hope will only be the start of our relationship as far as being part of the Facebook messenger app. And so there is a lot of work being done there. On the CommSuite side, for visual voicemail, our efforts continue with Converse. We don’t expect Converse to have any deal signed by the end of the year, but we do expect that they should have some really good groundwork done. So actually we can see some deals in the early part of 2016 as well as going forward after that. So that's kind of a quick rundown but come back at me if you have further questions.

Right, okay, no thanks, Bill, very helpful. So, on the Avatar 2.0 release, what's sort of your timeframe there?

The other end [ph] in the market place and let’s just say in the first half of 2016, with a desire to make it in the first quarter.

Very good, thanks. On the CommSuite side with converse in particular, how was the marketing being conducted there? Are your people going hand-in-hand with Converse people on sales calls or do you have sales engineering follow ups? How is that working?

First off, I guess we all should use the right name. It’s now called Zura [ph], not Converse and I'm the one that got it wrong first. So I'll take the hit. We are working with their people. Then we had a meeting here in Southern California last week, where some of their folks came out and so there is a lot of planning going on. They will lead the sales of it. We’re building the product; they are selling the product. We recognize that in the first few deals we may have to become more involved in the sales effort than we expect after that, but earnings will be fine.

Okay. Has the horizon shifted working with them; as it as with say Tomcat and Sprint? Do you think things kind of pushed to the right there just on account of that carrier spending?

Yes. As you are well aware, Zura [ph] just concluded a major merger and as such I think part of their focus probably should have been was on that not -- some of the other initiatives that they were working on and that showed up. It was something that obviously we had no visibility to, and so, that does impact our overall plan schedule.

Okay. Just a little more detail on expense expectations going forward. We got pretty good read on revenue this year. Just in light of your comments of increasing the headcount, I'm wondering if you can calibrate that a little bit for us in terms of numbers. Where were you at the end of September and what do you think you’d be at the end of the year, and how does that impact your OpEx?

I can’t cover that, but I think just to give out a rough order of magnitude, we are looking at growing OpEx somewhere in the range of $300,000 to $400,000 in Q4 so.

And our pro-forma numbers for the third quarter were $7.9 million. So it should go by $300,000 to $400,000.

Okay fair enough. What was your headcount at the end of September, Zig?

It was flat with end of June. So our overall headcount was still at 195. So we had no net new adds.

Okay. And are you people prepared to quantify how many you think you might add or a range, or what are you thinking along those terms?

We’re thinking we are going to add somewhere in the five to eight heads over what we ended with Q3.

And do you think that's -- is that Pittsburg or Croatia or is it?

Serbia.

It would probably be half-and-half?

Yes.

Okay. So if you were to take that 20,000-foot new build, and I know it's months ahead of the time that you are comfortable talking about 2016 but, what do you think is -- given that you have better visibility than we do, what do you think is a good way for us to think about how next year might shape up.

We’re actually quite bullish about It. We think that the markets that we are operating in have started to really gel. We have our products in good shape and product roadmaps in place as to how we move these products forward. And we’re clearly seeing a lot of positive interest from the key market segments that we market to. So all in all, we think 2016 looks like it could be a good year. Yes, I’m not prepared at this time to give you any numbers. We’ll do that as we normally do at the start of the year. But I feel really good that we’re in the right place at the right time. Disappointed obviously that 2015 didn't come out as we planned it to come out and want to make sure that, that doesn't happen again.

Can we just talk about the competitive environment just a tad? I am wondering if you’ve seen -- given everybody has so much more interest in Wi-Fi, just in sort of relieving the spectrum burden, I'm just wondering what you may have seen tangentially in competitive offerings on the NetWise front?

In some cases, we don't see really competitive offerings, but the competitors that we face are the usual ones we see first Wordstep [ph], we see Itson [ph], we see WeeFi [ph] and the first two mostly in the carrier markets and WeeFi [ph] in the cable markets. And so that part hasn't changed. As far as in the Captivate area, where we’re really focused on proximity marketing and how to help large enterprisers as well as our more traditional carrier customers market to the users in a more effective and meaningful way, where we see ourselves is being pretty far out in front. We don't see a whole lot of competition in that area. And then I guess one that I didn't mention is in the area of quality of service, where we've done lot of work with our NetWise product to try to help the carrier or the Wi-Fi, or the cable provider -- help them ensure the best possible connection for their customers and therefore increased their overall customer satisfaction. We also see ourselves way out in front there. We do not see any competitors ready to really go up against us, and that’s been borne out field trials and things that we've done so far. So all in all, I think we have the right technology at the right time, and we need to catch a few breaks and not have any more consolidations that upset the applecart. And we should be fine.

[Operator Instructions]. And our next question will come from Brian Smith with Security Research Associates.

What was your percent contribution from Sprint? You usually give us that number on your quarterly calls?

Yes, Brian, it was -- for the quarter it was 67.5%, and for the September year-to-date number, it’s 73%.

Okay. And other than the comments you already made in terms of that -- maybe you would have thought other than 0.5 million rebate that you did last quarter, that you would have expected Sprint revenues to be a little bit better than they are. Is there anything that we should read into that? Or...

Nothing that’s not already in public hands. It’s clear from the public statements that Sprint has made that they're dealing with some fairly significant business issues on their own. And as such that has an impact on us. So I don't think they're seeing some of the growth that they had hoped for. And that’s just sort all true to us as well.

Okay. So you're just not seeing the growth. It’s not like here. You have different programs that are shrinking. So revenue sharing contract, as I understand it. And….

It is -- that’s actually a big help to us, because the CommSuite side of the business is a rent share. So we're a profit center, not a cost center. And it's no secret that they’re just trying to shed those much cost as we possibly can and so the biggest part of our business with them should be in really solid shape, and we just extended the contract this year. We feel very good about it. But on the other hand I would feel better if our largest customer felt a little bit more healthy.

Okay and how long is that contract -- the new contract good for?

I don't think we publically disclose it but it is for a number of years.

Okay. And the second question was about Comcast. When I do the math it seems like you don't really have any number -- another buy from Comcast in Q4. Is that because you have gotten some new information from them in terms of what you should be expecting or are you just being conservative? Because it seems like the last quarter you were anticipating there would be something coming in Q4. So I just want to see whether or not something’s changed there?

I think our revenues from Comcast will be somewhere in the million-dollar range in Q4 and that's a good quarter with them. Do I expect a large buy of licenses? No, I don't. But then I’ve been surprised both ways before. So we'll wait and see.

So you haven't really done they’re big marketing push yet, Brian. So that should happen this quarter, I guess. So we did $300,000 in Q3 and we're going to do about $1 million with them in Q4.

Okay, so let’s see. So the normal seasonality in the graphic side of the business and in an extra $700,000 from Q3 to Q4, it seems like you’re -- the number that you are giving for the full-year seems to be a little on the light side. Is there something some other part of the business that you're expecting not to be there in Q4 that was in Q3?

Well, I think that yes, we’re being conservative but we also we are trying to be very rational because we don't want to disappoint the street again. So -- I think we've done our fair share of that this year. Enough is enough. So if we can do better, we're going to work on that. And I’d just like to leave it at that.

Okay. Well, we all would like to see you do -- have a quarter that comes out higher than the….

Yes.

Which would be novel but….

Yes.

We look forward to that, okay. Thank you.

[Operator Instructions] We have no further questions in the queue and I would like to turn the conference back over to management for any additional or closing remarks today.

Okay. Thank you, operator and thank you everyone for joining us today. We look forward to updating you on our progress of the coming months, and of course if anyone has any follow-up questions, please feel free to contact me and I'll be happy to answer them for you. Thanks again, and this concludes our call. Have a great day.

And once again that does conclude today's conference. Thank you for your participation.