Please standby, we are about to begin. Good day. And welcome to the Smith Micro Software First Quarter 2015 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Todd Kehrli of MKR Group. Please go ahead, sir..
Good afternoon. And thank you for joining us today to discuss Smith Micro Software's financial results for the first 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 the risk factors discussed in Smith Micro's Form 10-K. Smith Micro assumes no obligation to update any forward-looking statements or information which speaks only as of the respective date.
Before I turn the call over to Bill Smith, I want to point out that in our forth coming prepared statements 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. Bill, please go ahead..
Thank you, Todd, and good afternoon, everyone. We are pleased to share very positive results for the first quarter of 2015. First, revenues were up almost 25% year-over-year compared to the first quarter of last year coming in at $10.5 million.
Not only did we meet our revenue guidance for the quarter, but we were able to maintain essentially flat revenues from Q4 to Q1, which is a significant accomplishment considering the historical seasonality of our business.
The increase in revenues year-over-year was largely driven by the new NetWise business at Comcast, the large multiple service operator or MSO that I have mentioned in previous calls. We also continue to generate strong revenues from NetWise and CommSuite products at Sprint. We were non-GAAP profitable for the second consecutive quarter.
We also increased cash for the third consecutive quarter, putting us on a very solid footing for the rest of the year. As you can see we are off to a very good start in 2015. Ziggy will now present the detailed financial results for Q1 and I will follow with some insights into how we see the business developing for the remainder of the year.
Ziggy?.
wireless was 81% and productivity and graphics was 75%. Switching now to operating expenses. Non-GAAP operating expenses for the first quarter of 2015 were $7.8 million, a decrease of $2.6 million or 25% compared to the first quarter of last year.
From a year-on-year perspective, selling and marketing expenses decreased 29%, engineering has decreased 22%, and G&A expenses decreased to 25%. Non-GAAP operating income for Q1 was $611,000, as compared to a loss of $4.3 million in the first quarter of last year.
Non-GAAP net income for the first quarter was $378,000 or $0.01 earnings per diluted share, as compared to a loss of $2.7 million or a $0.07 loss per share last year. Cash increased for the third consecutive quarter, ending at $13.8 million at March 31, 2015. Now regarding guidance.
As I mentioned previously, we had $1.1 million of revenue from our new MSO business. We do not expect that to repeat in the second quarter due to the inherent lumpiness of that business as previously discussed. So our revenues will be down sequentially from Q1, but will be up on a year-over-year basis.
That said, we reiterate our total year revenue to be in the $45 million to $49 million range. In terms of housekeeping, we expect to file our quarter end 10-Q by the end of the week, which will represent our final financial statements for the period. And at this point, I'll turn the call back over to Bill..
Thanks, Ziggy. As you’ve just heard, Comcast represented more than 10% of our revenues for the quarter. We have recently completed the first commercial launch of NetWise with Comcast. There are several additional phases in this opportunity while we expect revenues to grow over time with Comcast.
As I have stated in previous calls and briefings, the revenue stream will be lump based on the fact that cable providers do not preload software on mobile devices, so adoption is less predictable and new licenses are purchased and charged as needed.
We are excited about our relationship with Comcast and see it as a catalyst for growth this year and for years to come. Our progress at Comcast has also increased momentum with other MSO prospects. We are currently preparing for a trial with another large MSO in North America, which we hope to convert to new business mid year.
And we have active opportunities with MSOs in Europe as well. As these companies look for new ways to extend their services beyond the home and pressure from over-the-top content providers increases, it becomes critical to track and manage quality of experience over any network on any device.
Our NetWise solution continues to prove superior to competitive products in achieving this goal.
In fact, we have recently completed a trial with a leading mobile network operator, demonstrating our unique capabilities to dynamically adjust connectivity behavior in real-time to maintain a vast connected experience when Wi-Fi access points become congested or fail.
To illustrate this dynamic capability, imagine that you are about to meet a colleague at a restaurant within the range of an operator’s Wi-Fi hotspot. Your colleague arrives 10 minutes before you do, connects to the hotspot and begins to experience poor network performance due to congestion.
With the typical Wi-Fi offload solution in place, every device within the range will attempt to access their hotspot until the operator manually changes the policy for all devices.
However, using NetWise, your colleague’s experience causes NetWise to dynamically create a geo-fence around that hotspot, so that any device inside the geo-fence will ignore that hotspot until the problem is resolved.
As a result, when you arrived at the restaurant, your device stays connected to 3G or 4G and does not try to access the congested hotspot. In this way operators can truly minimize the negative impact of also networks on their subscribers and each subscribers experience is the best they can possibly be.
We are in the final stages of the sales cycle with this operator and although I cannot guarantee a close deal, I can say that we are in a great position from both the technical and relationship perspective and it is our hope that the compelling business case we have demonstrated will result in a new commercial contract in the near term.
Speaking those compelling business cases, I am happy to report that we have recently extended our CommSuite relationship with Sprint for another three years. We will continue to work together to bring innovative new services to market using the CommSuite platform, which will help us to continue to drive strong revenue.
For many years CommSuite has been a proven multimillion dollar revenue engine for Smith Micro and we continue to enhance our visual messaging service to improve quality while making it easier for subscribers to try and buy new content and features.
Further our recent relationship with Comverse is opening the door to new opportunities for CommSuite with additional North American international operators. We are currently focused on enabling the Comverse sales team to represent our solution to the customers and we look forward to updating you on the progress of these engagements later this year.
We are extremely proud that our strong track record of innovation, reliability, and support has paved the way for new CommSuite services to be delivered to a growing market of smartphone users around the world. Channel sales are important drive for Smith Micro’s business on many fronts, including our productivity and graphics business.
We recently announced that our Anime Studio and Poser graphics products are now available on Amazon WorkSpaces. A managed desktop computing service in the cloud that makes it easy for customer to find and purchase software is in the AWS marketplace.
We expect this new channel to open the door to a new enterprise customer base providing cloud-based access to our leading industry 2D and 3D animation solutions used in advertising, publishing, industrial design, education and many other markets.
Diversifying our markets is a key objective with the NetWise Captivate solution we announced last quarter. The mobile marketing space is hot, particularly in the area of location-based services and proximity triggered promotions.
The millennial generation has changed the perspective on mobile devices from being the third screen consumers look at each day after TV and their computers to being the first screen they see all day everyday.
The personal and pervasive nature of smartphones makes them the ideal channel to engage consumers, but there are still a number of challenges companies faced in trying to do so. For example, the vast majority of mobile offers are still driven by demographic data, which is only a minor improvement over sending spam to funnels.
By incorporating location detections through beacons and other sensors, marketers can give proximity help make offers more targeted but without sufficient device intelligence, true personalization is still a far-off goal.
Our NetWise captivate solution build these gaps by adding our powerful rules engine to smartphones, allowing marketers to understand much more about consumer shopping habits, including how much time they spend in the particular area both in and out of the store, what kind of apps are installed on their devices and what action they take in response to mobile offers.
In Q1, we successfully completed the trial with the mobile operator who is bringing location-based services to the enterprise customers. We are now preparing for an in-market trial with that operator and a very large retailer, which we hope to turn them to a wide scale commercial deployment later this year.
We are also directly engage with a variety enterprise customers who are looking for more intelligence to deliver more relevant and timely mobile services and offers to the customers.
While this is still a very early market launch for Smith Micro, we are seeing a lot of interest from big name companies and we look forward to updating you on our progress as the year progress.
As you can see, we continue to expand our markets, enhance our product portfolio and pursue additional new deals that will bring us a predictable and growing base of business. At the same time, we are keeping our expenses under control and carefully managing our cash.
As such, we are reiterating our previously announced guidance for fiscal 2015 of revenues between $45 million and $49 million and we expect to be non-GAAP profitable for the year. At this point, we can address any questions.
Operator?.
Thank you. [Operator Instructions] And we’ll take our first question from Rich Valera of Needham & Company..
Thank you. I wanted to get a little more color on the second quarter revenue expectations. You mentioned you wouldn't have Comcast particularly which is a little over $1 million.
Do you expect to be down sequentially by the full amount of Comcast or might there be some other business that could offset some of that Comcast quarter-over-quarter decline?.
Yeah. Rich, it’s Bill. Yeah. I think it would not be the full amount. I think it would be a part of that. But, nonetheless, it does look lumpy and we wanted to call that fact out now just so everybody sets their expectations correctly..
Fair enough. So, I mean, maintaining the full year that’s going to imply a second half averaging looks like $12 million-ish or more per quarter.
Do you have anything in hand at this point that wins in hand that should be driving that growth or is that predicated on some of these other trials you’ve talked about one with another MSO and I think one with the telco that you hope to convert over the next quarter or two?.
We have a number of opportunities that we believe we are going to close. We are looking for a strong second half. We also look for additional revenues from Comcast in the second half. It just will be -- it will just look lumpy based on the nature of how they purchase licenses.
But net-net as historically is always the case, we believe our second half will be very strong and will bring us into the range that we said that we would be in..
Okay.
And OpEx, should we expect them flattish from this level or will there be some bit of creep in there?.
Richard, this is Ziggy. There would be some creep in the -- in the second quarter. So we are still hiring some, so it will go up slightly in Q2..
Good.
Are we talking maybe a couple hundred K something of that magnitude?.
I’d say maybe more likely the $500,000 range..
Okay.
And then sustaining at that level as we move through the year?.
If it goes up, it will be very little as we add a few heads here and there but if we start to see softer revenues or if they push out then we’ll slow down the hiring..
Right, right. And then Bill, I just wondered if you could maybe dig in to these couple of big trials that sounds like you have one with another MSO beside Comcast.
What needs to happen to get that one over the finish line in any technical issues or is it just down to kind of business agencies, any color on that one?.
Yeah. I think from the standpoint of how MSO is viewed as they want to see that the benefits that they believe they are going to get are realized during the trials. So then they can move forward with a certain degree of confidence.
The mere fact that the largest MSO in North America is now our customer but really pleased that Comcast allow us to identify as such. Also it’s a great vote of confidence and I think will also help us in the MSO marketplace.
As far as the other trial that we just completed this is a -- this is kind of a big deal into quality of service question is a very strong driver to retention of customers. And so every carrier, everywhere in the world, it’s focused on how do we hold on to subs we got.
And this product offering with a dynamic change in the policies on the fly really speaks to that need and delivers the best possible connectivity for the curious customer. So we’re very bullish about that. We are way out in front of competition in this field.
And we look for this to service well then only the rest of this year, we’re going into 2016 as well..
Hey, Rich, this is Ziggy. We are also expecting some second half business from our relationship with Comverse. So we are looking for something out of that also..
That’s helpful. I was actually going to ask about that Comverse.
So you’ve add identified some opportunities through Comverse on the CommSuite side, and you’re hoping to get some business from that in the second half?.
Yes..
That’s great. Those are my questions. Thank you, gentlemen..
Thanks..
[Operator Instruction] And we’ll take our next question from Kevin Dede of H.C. Wainwright..
Yeah. Thank you, gentlemen. Congrats and nice job..
Thank you..
Let me just sort of…..
Kevin, I think we lost you..
That caller did just disconnect..
Okay. We can re-queue him when he dials back in..
Yeah. Let him to go ahead and repoll operator..
[Operator Instruction] And there are no questions, at this time..
Okay. Thank you, Operator. Thank you for joining everyone today. We look forward to updating everyone on our progress over the coming months. And of course, if anyone has any follow-up questions, please feel free to contact me and I will be happy to answer them for you. Thanks again and this concludes our call. Have a great day..
This does conclude today’s conference. We thank you for your participation. You may now disconnect..