Good day, and welcome to the Smith Micro Fourth Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Charles Messman, Vice President and Marketing. Please go ahead.

Thank you, operator and good afternoon to everyone. We appreciate you joining us today to discuss Smith Micro Software's financial results for the fourth quarter and year ended December 31, 2024. 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, our Chairman of the Board, President, and Chief Executive Officer; and Jim Kempton, our Chief Financial Officer. Please note that some of the information you will hear during today's discussion consists of forward-looking statements, including without limitations, those regarding the company's future revenue and profitability, our plans and expectations, new product development and availability, new and expanded market opportunities, future product developments, migrations and/or growth by new and existing customers, operating expenses, and company cash reserves. Forward-looking statements involve risk 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 included in our most recently filing Form 10-K. Smith Micro assumes no obligation to update any forward-looking statements, which speak to the management’s beliefs and assumptions only as the date they are made. I want to point out that in our forthcoming prepared remarks, we will refer to specific non-GAAP financial measures. Please refer to our press release disseminated earlier today for reconciliation of these non-GAAP financial measures. With that said, I'll turn the call over to Bill.

Thanks, Charlie. Good afternoon, and thank you for joining us today for our fourth quarter and fiscal year 2024 conference call. We appreciate your interest. Let me begin by looking back at 2024 and reviewing some of the significant changes we made to position the company to return to a state of growth and profitability. I'll also speak a little about the substantial shift in focus, we are making as a company to move us even further ahead. Throughout the history of Smith Micro, the company has been recognized as a leading business partner with mobile operators around the world. We have distinguished ourselves by offering white label over the top applications with our SafePath and CommSuite platforms, which we have traditionally sold as value-added services through our mobile partners. More recently, our latest innovations in the SafePath platform focus instead on aligning with mobile operators' core business, meeting them with solutions that support what they sell best. With our latest innovations in SafePath Kids and SafePath OS, carriers can now leverage the strength of our SafePath solutions to offer devices and rate plans aimed at creating a safer mobile experience. That is value-added services, but is an integral component of the carrier's core offerings. When we launched SafePath Kids with Orange Spain's TuYo solution during the fourth quarter, we made our first significant deployment under this renewed focus. SafePath Kids is a new and innovative SafePath solution. The first of its kind to launch that aligns extremely well with our customers' vision of offering a rate plan just for kids aimed at a safer first mobile user experience. With this deployment, SafePath is not offered as a value-added service, but is integrated directly into the carrier's offering. Every device on the TuYo rate plan is sold with our built-in…

Thanks, Bill, and good afternoon, everyone. I'll now be covering the 2024 financial results for the fourth quarter and full year. During the fourth quarter, we recognized revenue of $5 million compared to $8.6 million for the same quarter of 2023, a decrease of approximately 42%. When compared to the third quarter of 2024, revenue increased by approximately $300,000 or 7%. Revenues for 2024 were $20.6 million versus $40.9 million in 2023. The 50% decline compared to the prior year is primarily due to the conclusion of the Verizon Family Safety Contract in the fourth quarter of 2023, coupled with a decline in Safe and Found Family Safety revenue related to the continued attrition of legacy Sprint subscribers driven by T-Mobile's acquisition of Sprint. During the fourth quarter of 2024, Family Safety revenues were $3.8 million, which decreased by approximately $3.7 million or 49% compared to the fourth quarter of the prior year, primarily due to the conclusion of the Verizon Family Safety Contract in the fourth quarter of 2023, coupled with the continued decline in legacy Sprint Safe and Found revenue as was expected. Family Safety revenues decreased by approximately $100,000 or 3% compared to the third quarter of 2024. During the fourth quarter of 2024, CommSuite revenues were $1.1 million, which increased by approximately $600,000 compared to the fourth quarter of 2023. Revenue from CommSuite increased by approximately $500,000 compared to the third quarter of 2024, due to a favorable adjustment to revenue recognized during the fourth quarter, coupled with continued subscriber growth on the Boost CommSuite Premium Visual Voicemail platform. ViewSpot revenue was nominal for the fourth quarter of 2024 and declined by approximately $500,000 compared to the fourth quarter of the prior year. The decline in ViewSpot revenues compared to the fourth quarter of 2023 was…

Thanks, Jim. Our path forward is clear. We will focus a significant portion of our sales efforts on three family safety offerings. First, we will focus on SafePath Kids, our unique deployment model that enables carriers to offer child focused rate plans, which has already been successfully launched at Orange Spain. Second, we will devote significant effort to the marketing of SafePath OS for kids phones. And finally, we will leverage SafePath OS to enable carriers to deploy a senior safety phone aimed at capturing another expansive market opportunity for Smith Micro. Let's discuss the opportunity provided by SafePath OS to deliver a senior safety phone in more detail. Over the coming months, we plan on launching SafePath OS for seniors, which will target a largely untapped, underserved market and which we believe promises great upside. Our research today clearly indicates the senior safety market is one of the fastest growing segments as the population aged 65 is growing up to 4 times faster than the younger population growth, both here in the U.S. And across Europe. We also see rapid paradigm shifts in the senior market as their preferences move from purchasing traditional flip phones to upgrading to smartphones. With increases in new seniors purchasing smartphones up to 90% of the time, it is apparent that flip phones are far less desired as a phone of choice today. We believe flip phones will gradually become a micro niche product. Personally, I don't believe the term elderly properly defines the targeted market of 65 plus, nor do I believe current phones on the market named elderly phones align with the current market demands. And it is a diverse market that ranges from very active independent seniors to those who want a little extra support to those who want or need…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question will come from Scott Searle with Roth Capital. Please go ahead.

Hey, good afternoon. Thanks for taking the questions. Seems like you had a lot of good things going on as we enter 2025, Bill. Maybe to start on Tuyo, I had the opportunity to see the booth in the level of activity there. I'm wondering while it's still early, if you could help us kind of frame how you guys are going to think about success as we look out towards the end of this year into ‘26. I think in the first 18 months of the initial launch at Sprint, you got the 7% penetration. Is this the same type of magnitude of opportunity? And in terms of other customers, I'm wondering if you could help us understand the number of carriers maybe that you're talking to. It sounds like Orange is going to roll it out into additional markets, but I'm wondering how quickly you can bring up new customers on a Tuyo type service?

Okay. Let me try to tackle that. First off, there was a lot of positive interest throughout Europe now that is being driven by Tuyo. I mean, all the other carriers are watching what's going on. And there's some numbers that I think are really compelling. For instance, of the sign ups that Orange Spain has been able to track so far, it's approaching half of those sign-ups are coming from competitors. These are families that did not buy from Orange Spain. They were buying from somebody else and this is an exciting number for carriers. And when they can see that kind of penetration, this is a very good sign for them. I would say that overall penetration in Spain, we look to be very strong. We think that they have hit on a real need. I think parents recognize the fact that there is a need for online safety for children and that they are able to claim the opportunity to be the first one to have an answer. And I think they're really trying to capitalize on that. I also think it was not lost on other Orange properties. The success that Spain has had is very positive. So I think we should look to see further growth that way. Another part of your question, you want to come back at me on that?

Just Bill, in terms of the timeline, how long does it take to bring up a new carrier?

Yeah. Okay. You actually asked a question, I assume one of you guys would ask and that is, well, just how many opportunities are you working with? Well, if you use the fingers on both your hands, you wouldn't have enough fingers. And you might borrow somebody else's hands and you might be able to get pretty close. So that gives you an idea of the magnitude of what we're talking about. There is a strong interest among carriers to be able to launch a product for back-to-school. So that's a summer launch and that's what we are really busy on. Now we have been doing a lot of demos, we've done a lot of trials, we've in-house use with a number of these carriers and they come to us with things that they would like to see added before launch, it just make it that much more of a complete offering. So we are really busy right now getting that done, but our goal is to have everything done so launches could happen this summer. And so that should give you some sort of a rational look at how this can roll out. It is a lot of work and the team is being stressed. But what, we've had some tough years. This is good stress. And so the upside is there and the future should be very bright.

Very good. That's very helpful. And maybe if shifting to the aging in place opportunity, this is certainly a nice adjacency that makes a lot of sense. But how far along is the product? When could we expect commercialization and the first customer to go along with it? It's a huge market. I think the numbers are $40 million to $50 million that are directly addressable in the United States. So if you could frame maybe the TAM for us and then the timeline to this reaching commercialization with your first customer?

Well, it is a big opportunity and the market is grossly underserved. This is a senior market that really covers a broad spectrum of people. I mean you've got a lot of really active seniors that are out and about, and they just are looking for ways to establish a safety net network between them and their family and their friends where they can each all -- all take care of each other. And so the core SafePath OS product does all that. It's already there. What you don't need for synergies is, you don't need parental to (ph) controls. So we just take that out and we add in the drive and crash detection because those are the other things that the seniors, I am one of those people. So I kind of know what this is all about. And this is a very exciting market. We're getting very strong reaction from not only carriers that are primarily focused on the senior market, but also from some of the large carriers that just have no offering for seniors at the present time. So not only are we talking to them about, okay, let's launch SafePath OS for kids, but while you're at it, why don't you also launch SafePath OS for seniors. And I just think it's an incredible opportunity for our future.

Great. And maybe one last one and I'll get back in the queue. In terms of returning to growth sequentially, we saw a little bit of that in the fourth quarter. I'm wondering if you adjusted for the guidance in the first quarter for the one-time catch up in CommSuite, are we up sequentially? And then just as we look out into the second quarter, there are a lot of positive trends that are developing, whether it's Orange Tuyo or others that could be coming on shortly. Do you expect going forward then from March to June, we should start to return to periods of sequential growth? Thanks.

Yeah, I think so. I think what we're looking for is in the back half of the year showing some very nice growth based on the launching of various customer offerings as we've spoken about. We had to take a pause on this quarter because we can't bring on these new users yet or new customers yet because we had to finish some of these product issues that we needed to just really address. So it's a little bit of a slowdown but it's just to push out that there's no other issues that anybody should take from this. I think that you'll see the growth, you'll see the return to profitability and the generation of free cash flow in the back half of the year.

Great. Thank you.

Thanks, Scott.

[Operator Instructions] Our next question will come from Matthew Harrington with Benchmark. Please go ahead.

Thank you. My questions were already largely addressed, but I had a couple at least one dangling. The Black Sea Verizon, which caused a lot of the dislocation over the last two years, I mean, they're -- I know they have kind of an institutional imperative to try to do everything in-house. But what's your sense for how they're faring and who's out there as far as competition? Because clearly, there's manifestly a very nice TAM both on the youth side and then the senior side, as I think is also a great opportunity. And then do you have any -- I know everything's kind of lumpy in step function, but do you have any vision for where you'd like to be five years from now in the sense of where you are on revenues without providing any guidance for ‘25 or even ‘26? Thank you.

Okay. Well, five years is a long time, I have to say. I got to think that one through. Look, we've had some periods in our history that have just been unbelievably successful. There was a period where we did over $100 million in sales in a year, well over that. We were generating free cash flow like hand over fist. I believe this business case can do that again. And I think that's the course that we're on. I think that it was disappointing that we weren't able to really grow the value-add service side to the level I thought we could. I think making this pivot and going more in line with how the carriers think about things and really their whole focus is adding subs. So they want to grab these kids with their first phone. They want to offer a peace of mind offering for seniors. These are things that can really help their overall business case. It's not like a value-added service, its core, it's mainstream. It's the stuff they're in business to do. And that way we're more aligned with I think where the real growth is. So I can't overstate this. I mean, I just think there's a bright future and we're working diligently on it and we're going to get it done.

And what's your sense for how I mean, clearly, Verizon has to have a product in the category because as you said, they'd be implied, they'd be hamstrung and because what's your sense? And is there even a -- I guess not Black Swan, but White Swan chance that they could come back to you? I mean, I know you can't answer that explicitly, but just thinking about is there any real alternative that's viable for them either what they're doing in-house on the software of the app or -- and in other words, who did you – you almost never mess your competitors and clearly in Europe, I would assume that people are either having to do things in-house or there's someone else who's also showing up in Barcelona trying to attract folks.

Yeah. Look, I think we have the strength in this servicing carriers that nobody else has. So I think if there's somebody that's going to win as a carrier, it's most likely going to be us. In the case of Verizon, they built their own product. They took it in, in-house and they created their own product. Go look at the app ratings on all the SafePath products that are out there, whether it's at T-Mobile or with AT&T or with Boost Family Guard and now even Tuyo. I mean, our app ratings are about as high as you could find. I don't know that others that try to do it themselves are able to achieve that. There are people that build great apps and there are people that run great carriers and maybe there's a role for both of us. When we talk about SafePath OS, where we're operating at the operating system level, there's some other carriers, but none of them are really focused on the -- there are some other competitors, but none are really focused heavily on the carrier market. So I think whether you're talking about a kid's phone or a senior safety phone, these are unique opportunities that we can lean on.

Great, Bill. It's great, great, great on the apps. I look forward to particularly the second half of this year. Thanks.

Thanks, Matt.

[Operator Instructions] And this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Charles Messman for any closing remarks. Please go ahead, sir.

Thanks everybody for joining us today. As always, we appreciate your interest. If anyone has any questions or comments that they'd like to chat with us about, please feel free to reach out to us. We also will be attending the ROTH conference next week. So if anyone is there, please come say hello to us and have a great afternoon. Thanks, everybody.

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