Good day and welcome to the Smith Micro Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions] Please also note this event is being recorded. I'd now like to turn the conference call over to Charles Messman, Vice President of Investor Relations and Corporate Development, please go ahead.

Thank you, operator, and good afternoon, everyone. We appreciate you joining us today to discuss Smith Micro Software’s financial results for the fourth quarter and year end results for fiscal year 2019 ended December 31, 2019. 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 will hear during our discussion, 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 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 in our most recently filed From 10-K. Smith Micro assumes no obligation to update any forward-looking statements, which speak to our management's belief and assumptions only as of the date that they are made. I’d like to point out that in the forthcoming prepared remarks, we'll 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 will now turn the call over to Bill. Bill?

Thanks, Charlie. Good afternoon everyone and thank you for joining us today for our 2019 fourth quarter and year-end earnings conference call. Fiscal 2019 was an extremely positive year and an exciting time at Smith Micro. I am very pleased with the overall results for our fourth quarter and fiscal year. Looking at the results, total revenues from operations for the fiscal year 2019 increased 65% to $43.4 million, when compared to the $26.3 million reported in fiscal year 2018. For the fourth quarter, revenue increased 67% to $12.3 million when compared to the $7.4 million reported in 2018. Non-GAAP net income for our 2019 fiscal year-end grew to $9.8 million or $0.26 per share. Non-GAAP net income for the fourth quarter increased to $3.3 million or $0.08 per share. During the fourth quarter, we delivered strong free cash flow of $4.3 million and for the year $8.3 million. SafePath, our family digital lifestyle, family safety platform has continued to propel the amazing growth of Smith Micro. I am sure you are aware we just recently announced the acquisition of Circle Media Labs Operator Business. Circle has been a consistent competitor in the mobile operator space and we believe that this is a transformational transaction for the company that will help catapult us to the next level by providing us with both exciting new customer relationships at both T-Mobile USA and Sky and the addition of powerful new parental control technologies that will further expand and strengthen our portfolio. The Circle opportunity is the result of the need for Circle to focus on their business execution. Trying to service both the direct-to-consumer and carrier markets is a daunting task. We believe that there are other opportunities available to us that are similar to circle, that are both accretive and transformative to the Smith Micro business case. I believe that the family digital lifestyle market is positioned for explosive growth and I believe that Smith Micro can and will provide leadership during that growth. Before, I turn the call over to Tim. I also want to mention that we believe the recently approved Sprint, T-Mobile USA merger is good for all parties and we are very excited about the opportunities it opens for Smith Micro. We also remain very optimistic about Dish networks ascension as the fourth U.S. Tier 1 carrier. Their acquisition of Boost should position Dish well for strong growth in the wireless carrier market. We welcome the opportunity to serve as both the new T-Mobile and Dish moving forward. Now let's turn the call over to Tim to review the financials in greater detail. Tim?

Thanks, Bill. As Bill mentioned, we recently announced the acquisition of the Operator Business from Circle Media Labs for $13.5 million, which included two customer contracts and a perpetual source code license to Circle's currently deployed parental control software. The purchase price was funded with the company's existing cash balance. At the end of December, the cash balance was $28.3 million. In the short-term, we will invest our 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. Now let's talk about the quarter and annual financial results. For the fourth quarter, we posted revenue of $12.3 million compared to $7.4 million for the same quarter last year, an increase of 67%. The wireless segment reported quarterly revenue of $12.2 million compared to $6.9 million last year, an increase of 77%. Our Graphics reported quarterly revenue of $97,000 compared to $482,000 last year. For the fiscal year, revenue was $43.4 million compared to $26.3 million last year, an increase of 65%. The increase in wireless revenues was primarily a result of revenue growth in the SafePath platform. During the fourth quarter of 2019 revenue from SafePath grew by 28% sequentially compared to the third quarter and exceeded our revenue guidance range of 10% to 20%, resulting in SafePath revenues of $6.7 million. We expect SafePath revenue growth to continue based on recent and expected marketing activities, which includes continued retail and call center promotions. These actions are dependent on Sprint execution. We continue to support efforts as requested. Based on the current run rates and activity, and including the Circle acquired revenue, we expect SafePath to grow in the first quarter of 2020 by approximately 10% to 20% sequentially when compared to the fourth…

Thanks, Tim. Now let's talk further about our three core product suites. As I mentioned during my presentation at the Needham Conference in January, ViewSpot delivered within our expectations for the year. However, the ViewSpot revenue for fourth quarter was impacted by competitive pressures we experienced at one of our accounts. That said, we were excited to announce a meaningful win at AT&T Mexico. Deployment of our ViewSpot product, Device Alive Mexico is proceeding well with about 80% of the retail locations and 50% of their authorized dealer locations up and operational. We see a growing pipeline for ViewSpot. I am also excited by the growth of our ViewSpot business at Verizon where the product is deployed for direct retail stores and soon we'll see expansion to indirect retail channels as well adding thousands of retail locations to the deployment. We have made significant investments in ViewSpot throughout 2019 to grow the product, expanding the roadmap by adding new functionality to fit the current needs of the market. As I mentioned on the last quarterly conference call, we are seeing different needs within the market. There remain several customers who still seek a high degree of professional services and significant testing on devices prior to campaign launches, but there are also a number of prospects that want a very highly automated process that delivers a different value proposition around faster deployments and accelerated content changes. This second approach provides quicker results at lower costs but does limit the use of power features. One new feature we are very proud of is our dynamic pricing capability that allows a carrier to adjust pricing automatically by store, by city, by region or at the national level from a single entry at a headquarters location. Overall, I am pleased with the progress made…

[Operator Instructions] Our first question comes from Scott Searle with Roth Capital. Please go ahead.

Hey, good afternoon. Thanks for talking my question. Nice quarter, guys. Nice to see a safe haven in the storm out there. To dive right in on the SafePath-Circle front, you're guiding for 10% to 20% sequential growth into the first quarter. I just wanted to clarify how much Circle it in that number to kind of recalibrate the organic SafePath growth within Sprint? And then what's the number that you're looking for, for Circle in 2020. I know they did $4 million in 2019. Is that kind of the baseline? And then, I guess, extending into that, Bill, you indicated, starting to have discussions at some point in 2020 related to per subscriber pricing. Does that mean you expect something to get done in 2020? Or we should be thinking more about 2021 and beyond? And then I had a couple of follow-ups.

Hey, Scott, thanks for the question. First off, in the guided growth of 10% to 20% sequential, there's roughly $500,000 of Circle revenue in that number, so you can build that into your model. As far as expectations for Circle as we go through the year, I think that $4 million on an annual run rate is your number until we come back and talk about a renegotiated contract and what those expectations may look like when that event happens. I'll let Bill add comments on how that time line may look from our expectations.

Yes. Scott, I think the way I'd look at it is this you have a very large installed base coming over to the new T-Mobile from Sprint. You have an installed base coming over to the new T-Mobile from the Circle side as well at T-Mobile. But the Sprint size is large. So there will be a need to reconcile these two products, I expect that there will be a strong need to come up with a single product that meets the needs of the new T-Mobile going forward. And at that time, that would also provide the opportunity to work out a different financial deal with the new T-Mobile. As far as on Sky, it's a smaller installation, but we think it has growth, and we look forward to working with them as well to try to bring some of the new technologies that we have that were not present with Circle to them. And of course, those need to be paid for. So I think that's how we kind of look at it. In both cases, I think there is a need for a single, powerful product that really speaks to the needs of the market, and we're building that. And that product will be done, and we will launch it in the second half of 2020. And obviously, we would like to be paid for what we're offering them.

Got you. Very helpful. And maybe just a follow-up, Bill. In terms of SafePath and Circle, it seems like now you're getting the best-of-breed in both worlds from location and parental controls, but there's some integration that's required, it sounds like from a source code standpoint too, to bring the platforms together. So is there a time line and expectation that you've got associated with that? Is that sometime in 2020? When should we be expecting some of those feature sets to be integrated and upgraded? And then I guess, following up on that front, given the reaction in the marketplace to the acquisition, I'm wondering what the inbound call level is that you're seeing from incremental and additional carriers? And if there are any restrictions that you've got in terms of the source code and the ability then to go out and sell to other carriers? Thanks.

Okay. First off, we have a project underway and fully staffed internally to merge the code base. We are on a course to try to have the basic fundamental work completed from a merge standpoint in the next quarter than another quarter to go through testing and integration such that we are looking to launch that product in the third quarter of this year. So that's kind of the time line. We have a very focused effort underway to make that happen. We also, at the same time – we will also then launch the SafePath Home side for the in-router capabilities, and we see that as another big growth engine that goes on top. As far as with other carriers, if there's one message that I think it drove home is that to other carriers is that we are serious. We do want to dominate this space, we want to lead, and they are open to that. There is nobody else that sits in our spot that can really effectively provide that kind of leadership. So I believe that this merger is going to significantly help us in growing our customer base, and I look forward to talking about that in 2020.

Great. Thanks, so much. Nice quarter again.

Our next question comes from Josh Nichols with B. Riley FBR. Please go ahead.

Yes. Thanks for taking my question and great to see continued strong growth, particularly of the SafePath platform in 4Q. I did want to ask, looking below the top line, with the Circle acquisition, were there – are there going to be much OpEx or expenses associated with that since you really just did acquire the operating business. I'm trying to get a handle on what the expectations are for kind of like EBITDA or EPS profitability with the Circle additional revenue?

Yes, Josh, that – good question. So Bill mentioned the code integration activities. So you should expect some higher-than-normal increases in our operating expense trends, specifically in the second and the third quarter as we invest in that code integration project. We are initially staffing that with internal resources, but we're also going to continue on our aggressive hiring front, similar to what we did last year. Also, separate, but related to the operating expense. As a reminder, in the first quarter, we do typically have higher OpEx run rate associated with different conferences. This year Mobile World Congress, for instance, would have occurred in the first quarter, it didn't. But a lot of those costs are sunk already. So just a reminder about that. And also, we participated in an extra sales conference this year, which was specific to our largest customer and sponsoring that – an event for their sales team. We were really pleased with the outcome of that event, but there will be a couple extra hundred thousand in the first quarter associated to that. So just a little extra color on OpEx. Hopefully, that was responsive.

That's very helpful. Thanks. And then I did want to talk about – to be clear, you gave some good guidance about some of the overall outlook for the three business units, but I'm assuming that the outlook that you gave also did not – it doesn't include any material new wins? And how does the company feel about their prospects going forward? And I assume that, that would cause an updated guidance at that point?

Yes. As we've done over the last year, since we turned the ship around and started moving up hill, we have not baked in new significant wins in our guidance that we provide new wins goes on top. I would say that we talked about the fact that we expect new wins on the ViewSpot side, but more importantly, I think that we are very active on the SafePath side, and we will be focused on that, and we, hopefully, will be giving you some very positive news as we move through 2020.

Great. And then last question for me. Done a great job on the SafePath with growth and then also immunizing, right, the risk going forward. But I did want to ask, could you kind of compare briefly what you think about the CommSuite Visual Voicemail offering and how that stacks up to what T-Mobile is currently using?

Yes. Okay. So on the CommSuite side, T-Mobile has – first off, T-Mobile has a customer base, which is somewhat younger, and therefore, maybe not quite as focused on things like Visual Voicemail than what Sprint has. So there's one difference. They have an offering. I actually think ours is probably stronger and better, and we'll see how that works out. We have two customers going forward with CommSuite, one being the new T-Mobile, the other being Dish. I think that for Dish, it's an opportunity to generate additional revenues, and I think we'll be well received for T-Mobile. This is one of those areas that I think we're fine for 2020, and we'll see how it develops going forward.

Thanks. That’s all from me. I will pass the baton.

[Operator Instructions] Our next question comes from Jim McIlree with Bradley Woods. Please go ahead.

Yes, thanks and good afternoon. The ViewSpot customer that you had problems with in Q4, did that occur early in Q4 or late in Q4? I'm trying to gauge how much of the impact that customer loss had in the quarter?

It was early.

Thank you. And as far as the CommSuite guidance, Tim, are you assuming that you get much of anything from Dish? Or is the guidance based on what you have in hand right now?

Yes. It's based on what we have in hand right now and current run rates.

Okay. Thanks. Can you just talk a little bit about the prices to the customer by the end user, let's say, of SafePath versus Circle, just trying to understand maybe the dynamics of what happens as the offering has merged and trying to understand the pricing that you have inherited with Circle is, obviously, can have – the prices of Circle will obviously have an impact on how you handle that renegotiation of the Circle deal.

So, Scott – I'm sorry, Jim, the Circle deal to Smith Micro now with the customers are relatively fixed in nature, right? So regardless of how they go to market. And some of them are going to market that is T-Mobile with a subscription, some of them are going to market that being Sky through a premium offering, right? The fee coming back to us is mostly fixed in nature. There's a slight variable component, but it's mostly fixed. And then to the market, one of them has it deployed – one customer has it deployed as a subscription, the other one has it deployed as a premium offering. So it's built into an additional service that they're offering their premium subscribers, basically. So there isn't necessarily a direct fee correlation to that deployment.

Yes. I think that the cost is $9.99 at T-Mobile, what they charge for their family.

It's basically the same.

Okay. So just conceptually, as we go through the year, you have that $4 million of fixed revenue coming in. At some point, let's call it, near the end of the year, maybe you start migrating to a per user type of revenue. And at that point, we'll have to figure out whether or not the customers want to pay that potentially a higher fee? I mean, who knows. But I mean, we might have a little bit of transition issues as you migrate to that new contract. Is that a fair way to look at it? Or am I being too pessimistic?

Well, it is a way to look at it. I think that – I think there is a strong desire on the part of T-Mobile to have some of the functionalities that Sprint already had and therefore, there's value there. And I think that I don't see it as necessarily being that difficult a task as long as everybody is rational. And I expect that, that's what will happen.

Got it. Also, Tim, it seems, at least on my projections, it looks like you're going to generate a healthy amount of cash this year. Is most of that targeted for additional acquisitions for the platform? Or is there no specific use that you're contemplating right now?

Yes. Nothing specific at this point, Jim. In my opening paragraph, I did acknowledge how much cash we had, the net amount, and in the short term, it's really about capital preservation and protecting that. And we would – we're constantly looking at opportunities to strategically deploy that. Obviously, the Circle transaction was one of those, in our mind, a strategic deployment to add value to the platform and generate future profits. So we'll continue to evaluate that as needed.

Actually, Jim, I think another way to think about it also is, as we get closer to a point where we can start to see additional large carriers who might want to deploy this product. There will be investment that will need to be made to support those carriers as well. So it's not just about – buying competitors is also maybe about supporting new customer growth. So it really cuts both ways.

Right. Great. Thanks for that reminder, Bill. Appreciate it. Okay, well congratulations on the quarter and the acquisition and good luck with the integration.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Charles Messman for any closing remarks.

Again, I want to thank everyone for joining us today. We'll look forward to talking to you actually quite soon on our first quarter call. I'll also note that we'll be attending the Roth conference, so if you happen to be there, please sign up, we'd love to chat with you. Till then, we'll talk later. Thanks, guys.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.