Smith Micro Software Inc (SMSI) 2022 Q2 法說會逐字稿

Good day, and welcome to the Smith Micro Second Quarter 2022 Earnings Conference Call. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference 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 our second quarter ended June 30, 2022.

By now, you should have received a copy of the press release with the financial results. If you don't have one 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'll hear during today's discussion consist of forward-looking statements, including without limitations those regarding the company's future revenue and profitability; our future plans; new product development; new and expanded market opportunities; future product development, migration and growth by our new and existing customers; operating expenses; company cash reserves; and the expected impact of last year's acquisition of Avast Family Safety Mobile business on our business strategy, operations and financial positions going forward. Forward-looking statements involve risks and uncertainties, which could cause actual results or trends to differ materially from those expressed or implied by forward-looking statements. For more information, please refer to the risk factors included in our most recent filing, Form 10-K, and in our subsequent filings on Form 10-Q. Smith Micro assumes no obligation to update any forward-looking statements, which speaks to our management's beliefs and assumptions only as of the date they are made.

I want to point out, in forthcoming prepared remarks, we'll refer to specific non-GAAP financial measures. Please refer to our press release disseminated earlier today for a reconciliation of these non-GAAP financial measures.

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

Thanks, Charlie. Good afternoon, and thank you for joining us today for our 2022 second quarter conference call.

Over 2 years ago, in February of 2020, Smith Micro embarked on a mission to take over absolute industry leadership in the delivery of digital family lifestyle solutions for wireless carriers around the world. The first step of this journey was the acquisition of Circle Media's carrier business through which we gained contracts with T-Mobile U.S. and Sky in the U.K. A little over a year later in April of 2021, we concluded a second acquisition. This time, we have acquired Avast Family Safety business, securing additional contracts with Verizon, AT&T and Wind Tre, a Hutchinson property in Italy, as well as additional business with T-Mobile US. While the additional contracts significantly expanded our business space, the acquisitions also provided significant intellectual properties, which afforded us the opportunity to leapfrog our product offering to be the absolute best available.

As we have discussed on prior investor conference calls, when we set out to consolidate the best features of the acquired technology into our SafePath digital family lifestyle platform, we had to significantly grow our engineering teams to meet that goal. The exciting news is that we are quickly approaching the completion of our mission. In March of this year, we completed the integration of the best of the Circle code base, which culminated in our launch of the first release of SafePath 7. We are now about to complete the integration of the best of the Avast code base into SafePath 7 as well. This has been a massive undertaking for our engineering teams, and the successful completion will allow us to migrate all of our customers to the same SafePath platform going forward.

The achievement of the migration will also result in another profound effect on our business as it allows us to significantly reduce our operating expenses beginning in the current third quarter. We expect that the full effect of the cost optimization will be realized by the start of the second quarter of 2023.

As we have stated during our previous earnings calls, since the acquisition from Avast, we also anticipate a rebound of our gross margins into the 80% to 90% range after all customers are fully migrated. The resultant profit margin should fall in the mid-20% range.

None of this is new, as we've stated this consistently since the acquisition from Avast. What is new is that we are at a point in time when the mission is virtually complete, and the acquisition synergies can start to be realized. We expect to release the last build of the legacy Avast Ring platform in Q4 of this year with the required updates to support the latest Android and Apple iOS releases. There will be no new releases of the legacy Circle platform. And we will officially end of life the Avast platform in mid-year 2023, by which time we will have no remaining customers on the platform. This means that all customers will be operating on the SafePath platform. Overall, we are anticipating that these synergies would result in a core operating expense reduction of over $3 million versus Q2 2022 by the end of Q1 2023.

Now a quick recap of our Q2 quarterly results. Revenue of $12.7 million for the quarter came in relatively flat when compared to Q1 2022. This revenue softness represents the continued decline of legacy Sprint revenues from both the CommSuite and Safe & Found product families. Sprint CommSuite revenues will essentially end in Q3 2022. The non-GAAP loss was slightly higher than guidance due to additional contract engineering being deployed to complete the migrations to SafePath.

As you can tell, we have been quite focused, and we are very excited to begin the next phase as a company, a period that should bring strong recovery of operating results and exciting growth for the company's business case.

Now let me turn the call over to Jim to detail our second quarter results. Jim?

Thanks, Bill, and good afternoon, everyone. As a reminder, we acquired the Avast Family Safety Mobile business in April of 2021, which impacts the period-over-period comparisons that I'll be covering today.

Now I'll cover the financial details of the second quarter of 2022. For the second quarter, we posted revenue of $12.7 million compared to $15.9 million for the same quarter last year, a decrease of approximately 20% as a result of the decline in CommSuite revenues coupled with a decrease in Family Safety revenues. When compared to the first quarter of 2022, revenue was essentially flat.

Year-to-date revenues through June 30, 2022, were $25.4 million versus $27.3 million through the second quarter of last year. The $1.9 million decrease is due to the decline in CommSuite revenues offset by the increase in Family Safety revenues resulting from the acquisition from Avast in April 2021.

During the second quarter of 2022, Family Safety revenue decreased by about $1 million or 9% compared to the second quarter of last year, primarily as a result of the reduction of the legacy Safe & Found platform revenue related to the continued attrition of legacy Sprint subscribers driven by T-Mobile's acquisition of Sprint. Family Safety revenues decreased 2% sequentially compared to the first quarter of 2022.

During the second quarter of 2022, CommSuite revenue was $1.4 million, which decreased approximately $2.5 million compared to the $3.9 million in revenue produced in the second quarter of last year. Revenue from CommSuite was essentially flat sequentially compared to the prior quarter. As we've discussed on prior calls, the decline in legacy Sprint subscribers on the CommSuite platform is driven by those subscribers having the option to move from Sprint to the T-Mobile network for voice services. As more and more subscribers transition off to Sprint network, CommSuite revenues have continued to decline. Given the current revenue trends for this subscriber base, we are expecting very modest amounts of revenue from the legacy Sprint subscribers in the third quarter, after which we would anticipate this revenue stream would be essentially exhausted.

Boost, formerly owned by Sprint, is now part of DISH. With the contract that we executed with DISH during the first quarter, we are expanding our relationship with DISH on the CommSuite platform, with the goal to increase CommSuite subscribers over time. Boost spot revenue was approximately $1.1 million for the second quarter of 2022, which increased by approximately $300,000 compared to the second quarter of last year and up approximately 16% compared to the first quarter of 2022. Boost spot revenue is comprised of both fixed and variable components. The fixed portion of the revenue is related to license fees and is generally the recurring component of the revenue. The variable portion of the revenue is related to device and promotional campaigns, and the timing and volume associated with this portion of the revenue stream is less predictable.

With the launch of SafePath 7 in the first quarter at one of the Tier 1 U.S. wireless carriers and the expected migration of another Tier 1 U.S. carrier to this platform later this year, we believe that we have a significant opportunity to grow the subscriber bases at our U.S. Tier 1 carrier customers in the coming quarters. However, while we are seeing pockets of marketing efforts at certain carriers, we are not expecting a significant increase in subscribers in the third quarter given the activity to date. We continue to expect that growth will be aligned with the timing of several marketing initiatives which we will anticipate will be initiated by our carrier customers later this year. As such, we expect consolidated revenue for the third quarter to be lower by 5% to 10% compared to the second quarter of 2022.

For the second quarter, gross profit was $9.1 million compared to $12.6 million during the same period last year. Gross margin was 71.5% for the second quarter compared to 78.9% in the second quarter of last year. The gross profit of $9.1 million in the second quarter was flat with the gross profit produced in the first quarter of 2022.

In the third quarter, we expect gross margin to be down by 1% to 2% from the current run rate due to the anticipated decline in revenue. Our longer-term goal for the gross margin is to be back in the range of 80% to 90%. To achieve this goal, we will optimize third-party applications and service contracts used by the combined business upon the migration of our Family Safety carrier customers onto a single Family Safety platform. Once we can fully transition all the carriers off the Avast Ring platform onto our SafePath platform, we expect to be able to realize synergies that will help us drive our gross margins towards our targeted gross margin. Given the revised time line of one of the migrations that Bill will be discussing in his commentary, we expect that these synergies will likely not be fully realized until the second half of 2023.

For the year-to-date period ended June 30, 2022, gross profit was $18.2 million compared to $22.4 million during the corresponding period last year. Gross profit was 71.5% for the June 30, 2022, year-to-date period.

GAAP operating expenses for the second quarter were $17.5 million, a decrease of approximately $200,000 or 1% compared to the second quarter of last year. The decrease was driven by a decline in amortization expense and acquisition costs as the acquisition of the Avast Family Safety Mobile business was completed in the second quarter of 2021, partially offset by the increase in contractor costs associated with the SafePath migration and the increase in severance costs in the second quarter of 2022.

GAAP operating expenses for the year-to-date period ended June 30, 2022, was $33.6 million, an increase of $2.8 million or 9% compared to last year.

Non-GAAP operating expenses for the second quarter were $14.1 million compared to $12.9 million in the second quarter of 2021, an increase of approximately $1.3 million or 10%. Sequentially, non-GAAP operating expenses increased by 6% from $13.4 million in the first quarter of 2022 due to the increase in contractor costs related to the SafePath migrations. As a frame of reference, the contractor costs associated with the migrations was approximately $1.4 million during the second quarter. We expect third quarter 2022 non-GAAP operating expenses to decrease from the second quarter by 4% to 6% because, as Bill had mentioned, we anticipate completing the development related to our SafePath migrations this quarter and anticipate eliminating substantially all of the development contractor resources by the end of this quarter. We have already begun ramping down the resources associated with the migrations and released a portion of these resources in June and July. We also anticipate a much more significant decline in operating expenses in the fourth quarter as a result of the completion of these development activities.

Non-GAAP operating expenses for the year-to-date period through June 30, 2022, was $27.5 million, an increase of $5.5 million, or 25% compared to last year, primarily driven by the addition of the Avast business in April 2021.

The GAAP net loss for the second quarter was $8.5 million or $0.15 loss per share compared to a GAAP net loss of $5.2 million or $0.10 loss per share in the second quarter of last year. The non-GAAP net loss for the second quarter was $5.1 million or a $0.09 loss per share compared to a non-GAAP loss of approximately $300,000 or $0.01 loss per share in the second quarter of last year.

The GAAP net loss for the year-to-date period was $15.5 million, a $0.28 loss per share compared to a GAAP net loss of $8.4 million or $0.17 loss per share for the prior year-to-date period. The non-GAAP net loss for the year-to-date period ended June 30, 2022, was $9.4 million or $0.17 loss per share compared to a non-GAAP net income of approximately $400,000 or $0.01 of diluted earnings per share last year.

Within today's press release, we have provided a reconciliation of our non-GAAP metrics to the most comparative GAAP metric. For the second quarter, the reconciliation includes adjustments for intangible asset amortization of $1.6 million; stock compensation expense of $1.1 million; and severance-related costs of approximately $700,000, including approximately $600,000 of additional stock-based compensation expense.

For the year-to-date period, the reconciliation includes adjustments for intangible asset amortization of $3.2 million; stock compensation expense of $2.2 million and a severance-related costs of approximately $700,000.

Due to our cumulative net losses over the past few years, our GAAP tax expense is primarily due to certain state and foreign income taxes. For non-GAAP purposes, we utilize a 0% tax rate for 2022 and 2021. The resulting non-GAAP tax expense reflects the actual income taxes expensed during each period.

From a balance sheet perspective, we reported $5.4 million of cash and cash equivalents as of June 30, 2022, and no borrowings under our line of credit, which had a maximum funding capacity of $7 million. Earlier today, in order to supplement our liquidity, we announced the closing of a $15 million convertible note transaction, primarily with Iroquois Capital Management, a longtime shareholder of Smith Micro. We've also entered into an agreement to complete a $3 million equity offering off the shelf with Iroquois again as a key participant. These transactions will provide additional liquidity to the company as we complete the migrations to SafePath and bridge the company to the expected ramp in revenues that we're anticipating in the fourth quarter of this year and in 2023. In conjunction with entering into the convertible note transaction, we terminated the Wells Fargo revolving credit facility.

The key terms of the convertible note transaction include a December 31, 2023, maturity, coupled with amortization payments beginning April 1, 2023; amortization that can be paid either via cash or equity at the company's election. If paid in cash, the repayment is at 103% of the amortization installment. If paid in equity, the equity is subject to a discount from the market price during the amortization period. The notes bear interest at 6% and are paid quarterly. The conversion feature is at $3.35 per share, which represents a 12% premium to the average of the last 5 closing prices of the stock through August 10. Warrants were issued in conjunction with the notes with the strike price also at $3.35 per share. These warrants have a 5-year term and represent 50% coverage on the notes.

Regarding the equity transaction, we're expecting the transaction to close tomorrow, subject to customary closing conditions. From the agreement, we will sell in the aggregate of $3 million of common stock at $2.65 per share, together with an equivalent number of warrants with a strike price of $2.65 per share. Similar to the capital raise from the notes transaction, we expect to use the proceeds of the equity offering for general, corporate and working capital purposes. For additional information, please refer to the 8-K filed earlier today related to these transactions.

This concludes my financial review, now back to Bill.

Thanks, Jim. So I started out by talking about how we are progressing on our plans to consolidate the very best of our acquired technologies into our SafePath platform and the resultant streamlining of operations to reduce our overall operating expenses. Our drive to profitability requires both cost containment as well as customer revenue growth.

Now let's focus in on how we plan to grow our revenues going forward. Industry data indicates that all 3 Tier 1 carriers in the U.S. had between $15 million and $20 million multiline family plan subscribers. While there are thousands of other subscribers in each carrier's universe that are interested in a digital family solution, let's just focus in on the multiline users first since we believe this group represents the most likely source for SafePath subscribers.

Based on our customer discovery efforts, we believe that a SafePath subscriber population in the range of 3 million to 5 million subscribers seems to be attainable for each of our 3 Tier 1 customers by 2025. To achieve this ambitious goal, we have built out a strong marketing team at Smith Micro to develop best practices for promoting SafePath. This team works with our carrier customers to develop coordinated marketing campaigns that are multifaceted by design to grow each customer's SafePath user base. We see this as a very important service that we provide to our customers. It also feeds the enabling engine to meet our goals.

Additionally, we have developed a strong product road map designed to deliver new innovative capabilities to the SafePath platform going forward. Much like SafePath Drive and SafePath Home, these new features will deliver new platform services to an already best-in-class solution. the SafePath platform today and extending into the future supplies a group of turnkey family offerings that, when deployed properly, can deliver impressive revenue growth.

Now let's take a look at an updated project status by customer. As we discussed on our last call, we've launched the first version of SafePath 7 at T-Mobile in late March of this year, which was a successful migration effort from the legacy Circle product onto our SafePath platform. We continue to partner closely with our counterparts and this customer as we prepare for the next phase, during which we will enhance the product with more features and functionality to fuel growth of subscribers. While this phase has not moved forward as quickly as we had anticipated, the launch of these product enhancements should help drive the subscriber growth that we envision. We also completed some additional work around the legacy Safe & Found product to bring it up onto the SafePath 7 platform, which we expect will help reduce the churn we have been experiencing over the past few years and stabilize the revenue streams associated with this product offering.

As we look at Verizon, we remain focused on our efforts to migrate the solution to the SafePath platform. Since our last call, we have been requested by the customer to add an additional feature to the code base, not required for migration, which is going to push the launch of Verizon on SafePath to late Q1 or early Q2 2023. However, the core SafePath development efforts related to this client are nearing completion, which will allow us to reduce our investment and resources as I noted in my opening remarks. While I'm disappointed that we're not able to launch this product into the market by the end of the year, I am satisfied with where we are in the process.

On the marketing side, we continue to push forward with new initiatives to build out a long-term multichannel approach to drive new subscriber growth. Throughout the quarter, we have rolled out several different types of campaigns to raise awareness of Smart Family not only to potential new subscribers but also to the Verizon employee base. These campaigns are a critical step in our marketing plan as we gain more visibility across the entire Verizon organization, particularly as we look to take advantage of Verizon infrastructure already in place, such as retail stores, care organization, CRM and digital. For example, a back-to-school campaign is presently being promoted across several channels simultaneously through different groups within Verizon. There is still work to be done, but we are making good progress as we identify the different Verizon teams, get to know their internal processes and execute different initiatives. This will help us prioritize the Smart Family platform throughout the entire Verizon organization, which we expect to help drive subscriber growth.

From an AT&T perspective, we remain very bullish on the opportunities ahead. First, the progress of the migration efforts remains on target as we work toward a successful launch before the end of 2022. Our core SafePath development efforts are nearing completion, which should allow us to significantly reduce our operating expenses over the coming quarters. We also are continuing our awareness activities throughout different organizations within AT&T that can assist marketing efforts, delivering promotional budgeting and assist in training the support organizations.

Okay, let me briefly talk about ViewSpot. Now that the development phase of ViewSpot Studio is complete and we've upgraded our current customers onto the platform, we can shift our focus to growing ViewSpot revenues going forward with a new feature set. This new feature set delivers a more fluid user experience for rolling out new retail campaigns as well as a wealth of new analytical features for real-time reporting of carrier retail operations.

As Jim mentioned in his prepared remarks, our CommSuite solution at Sprint continues to decline as we had anticipated. The revenue decline from the legacy business is virtually complete. On the DISH front, we continue to push forward as they roll out their new network offerings, which we see as future upside potential for the product in 2023 and beyond.

Before I conclude my comments, let me speak briefly about the capital raise that we announced earlier today. Iroquois Capital Management has been a meaningful shareholder of Smith Micro for many years. This raise, as Jim said, is comprised of $3 million of equity funding and $15 million of convertible debt and provides the company the opportunity to bridge our capital resources into 2023 when we expect to resume the creation of free cash flow. At the same time, this funding has replaced the $7 million revolving line of credit that we had established with Wells Fargo Bank, which we terminated in connection with the capital raise. We are thankful once again for the support of Iroquois Capital as we believe the capital raise positions us for a breakout growth in 2023.

In conclusion, this is an exciting time for Smith Micro, our customers, employees and shareholders as we complete a massive consolidation project and now move forward as the leader in the family digital lifestyle market servicing wireless carriers around the world. There is an enormous opportunity in front of us not only with the big 3 in the U.S. but with other Tier 1 carriers in Europe and elsewhere in the world. Now we move to the revenue growth phase that, coupled with the cost reduction efforts that we discussed today, should drive profitability and the generation of strong free cash flow in 2023.

With that said, let's open the call for questions. Operator?

(Operator Instructions) The first question comes from Josh Nichols with B. Riley.

Thanks for elaborating on the status for all the different carriers. In your comments, you did mention that you were pretty optimistic that you're going to see a nice bump back to growth in the fourth quarter. Any visibility you could provide into what's going on in terms of the marketing campaign specifically at T-Mobile, and what gives you confidence that the company is going to flip back to growth before the end of this year?

Actually, it's a combination of both T-Mobile and the efforts going on at AT&T. So it's not a single carrier-driven event. I would say that we are working closely with both carriers. They have some strong plans in place, and we believe they will be successful. As I said in my prepared remarks, there was already ongoing marketing efforts underway at Verizon and we also expect those to bear fruit going forward as well. So that's basically how I'd answer that.

And then last question, so I think you've kind of hit on the top line and the opportunities there. On the OpEx side, so the company is going into cost reduction mode now that most of the development work is done. Can you kind of just elaborate a little bit on the timing? I think you said like $3 million or something by mid next year. Is that $3 million a quarter that you're expecting to reduce operating expense from the 2Q run rate? Or how much is OpEx going to come down over the next 12 months?

Yes. Again, in my prepared comments, Josh, everything is in excess of $3 million off of the OpEx run rate that we have for Q2. And it would be fully in effect, we believe, by the end of Q1 to 2023.

Got it. And then last question, just as it was mentioned in the press release, I think you've talked about the 3 U.S. carriers a lot. But you did also kind of hit on Tier 1 operators in Europe as well. Any updates on that front?

There's a lot of that activity. As soon as we have something done, we will raise it to the market and let you know. But it doesn't seem we can talk about today.

The next question comes from Eric Martinuzzi with Lake Street Capital Markets.

This is [Kevin] on for Eric. Kind of piggybacking off of Josh's question, I know the Tier 1 guys have a big marketing push in the second half. Could you kind of help us to better understand the timing around that? Is that kind of maybe a Black Friday thing? And then overall, maybe just generally, what are you hearing from the carriers in terms of the health of the good consumer and the appetite for family plan given inflation and whatever else they're battling right now?

It's a great question, but I'm not sure how I can answer it. It really is a question you should be asking the carrier. But let me try to give some color. I would say that our approach to marketing for SafePath going forward is a multifaceted approach. In other words, we want to see activity in the stores, in the care organizations, online, digital, et cetera. So it's a multipronged overall approach. This is really based on history. We've seen this in the past. It was a technique that we saw developed during this very successful growth of the Sprint business a few years ago and we believe that it will work very, very well going forward. As far as the overall state of the industry, all the carriers have reported their earnings and all pretty much talk to this. So I don't know that I can add anything to your question there.

The next question comes from Jim McIlree with Dawson James.

In times past, you've talked about the carriers in Q4 focusing on subscriber additions rather than signing customers up for new services. I was wondering if you could talk about that dynamic relative to the AT&T launch as well as getting more aggressive with T-Mobile in Q4.

That's a good question, Jim. And I would say this that the primary focus of the carriers, especially at the retail point, is focused on customer acquisition and the selling of new plans and new handsets. That said, we still believe that there's a lot of work that can be done now on selling a value-added service like what we're talking about with SafePath. When we now talk about, and I've given you some numbers for the first time, where we're looking at an installed base of 3 million to 5 million subs per carrier for the big 3 here in the U.S., you're now reaching a very meaningful number. If you look at the Street price for the SafePath offering, it's about $10 per month recurring. You add in other add-on services, like Home and Drive, that goes on top as well as IoT. So we're not talking about a small amount of money. You can run the numbers yourself. If you're sitting with 5 million subs times $10 times 12, this is a meaningful number for any one of our 3 Tier 1 carriers. So this is something to stay focused on.

Okay. And secondly, you talked a lot about migrating the technology all to one platform but you still have separate marketing and revenue contracts with the carriers. Do those need to be renegotiated as well as part of that technology migration? Or is that a completely separate discussion?

These are conversations that are ongoing with all of our customers. As we start to move forward and as we have now expanded out some of our service offerings like all the added marketing service for best practices and things like that, there is an opportunity to look for additional revenue growth there as well. This is a process that will be ongoing. I don't think that anything that I talked about as far as the growth of revenue in Q4 or in the beginning parts of 2023 are really dependent upon that. The revenue growth in these earlier periods are going to be driven off the fact that we now have all the customers on a much better product offering with SafePath 7 that gives them a lot more to sell to their customers. And we've already seen the response from customers. At T-Mobile, they love the new product. So it's just a matter now of getting the marketing efforts to go along with all the positives.

Okay. And my last one, Jim, can you clarify what you said about CommSuite revenues? I thought you said that they go to 0 in Q4, but don't you still have Boost revenues from CommSuite?

No. I was speaking specifically about the legacy Sprint, T-Mobile revenue stream. So based on where we saw the run rates, especially coming out of June, we're expecting that to ramp down in Q3 and be very nominal, if anything, in Q4. But that's specific to the T-Mobile, Sprint revenue stream. The DISH side, we feel that that's going to continue at its current rate. And we anticipate that in future periods, we'll have an opportunity to actually grow that revenue stream.

The next question comes from Scott Searle with ROTH Capital.

Maybe, Jim, just to quickly follow up on Jim's question as it relates to CommSuite. So T-Mobile and Sprint coming out of the equation, but how big was that in the second quarter? Just to help us calibrate with that baseline number. I thought we were kind of getting close to it in the past couple of quarters as it was.

And then, Bill, a clarification, the 3 million to 5 million number or figure that you gave per carrier, was that account? Or was that subscribers that you thought were addressable? I just want to clarify that if that was accounts or subscribers that were addressable with each carrier.

Jim, why don't you go first, then I'll follow.

I would answer it this way, Scott, in terms of what we saw as the exit run rate in June for this legacy Sprint T-Mobile was under $100,000. So that gives you a pretty good sense of the decline that we were seeing coming out of the quarter. And again, we expect that to be down to nothing or next to nothing by the fourth quarter.

Okay. Then, Scott, go back, restate your question to make sure that I got it.

Oh, I'm sorry. I just wanted to clarify, Bill, when you were talking about the opportunity of 3 million to 5 million per carrier, that's accounts or is that subscribers? I was assuming it was accounts, but I wasn't sure.

Yes. The way we look at it is a family is a subscription. So when we are talking about 3 million to 5 million, we're looking at a family coverage on a go-forward basis. And quickly, let me add, as I stated, we think this is attainable by 2025. So we're going to go into a growth spurt as we go through '23 and '24 to get to that. So it doesn't happen all at once.

Got you. Perfect. And if I could, I'm not sure if I missed this, but in terms of a little bit of a pickup into the fourth quarter, did you give any idea as to the magnitude of how you expect that to pick up in terms of SafePath revenues as we go from September to December?

We'll try to talk about that more as we get closer to the fourth quarter.

Got you. And then lastly, if I could. Jim, in terms of the OpEx coming down at $3 million per quarter, given where you're expecting gross margins to respond to, I just want to make sure I'm thinking about this correctly, that your breakeven then from an operating basis is in the $13 million to $14 million range and you're expecting then to generate positive free cash flow in 2023, so we're ramping above and beyond that as we get into the second half of next year. Is that the right way to be thinking about this?

Yes. That's spot-on.

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

Thank you, operator, and thanks, everybody, for joining today. We look forward to speaking to you on our next call. If you have any questions, please feel free to reach out to us at Smith Micro, and I hope everyone has a great day. Thanks again.

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