Smith Micro Software Inc (SMSI) 2005 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the Smith Micro Software second quarter 2005 financial results conference call. At this time, all lines have been placed in a listen only mode. Following today's presentation, instructions will be given for the question and answer session. If anyone needs operator assistance, press the star followed by zero.

I would now like to turn the call over to Bruce Quigley, Vice President of Investor Relations.

Good afternoon. Thank you for joining Smith Micro's discussion of its second quarter 2005 financial results for the quarter ending June 30, 2005. By now you should have received a copy of the news release. If you do not have a copy of the release, you may acquire it either at the Company's web site, www.smithmicro.com, or by calling 949-362-5800 and we will fax or e-mail one to you immediately.

On today's call are Bill Smith, President and Chief Executive Officer; Andy Schmidt, Senior Vice President and Chief Financial Officer; and myself.

During the course of this conference call, we may make forward-looking statements regarding future events or the future performance of the Company. Actual events or results, of course, could differ materially. These forward-looking statements speak only as of today's date and are based upon the information currently available to the Company.

The Company disclaims any intent to update publicly and any such forward-looking statements whether in new response to new information, future events, or otherwise. We refer you to the documents the Company files from time-to-time with the Securities and Exchange Commission, specifically the Company's most recent Form 10-Q, available today, and 10-K filings. These documents contain and identify important factors that could cause actual results to differ materially from those contained in any forward-looking statements.

At this time I would like to turn the call over to Bill Smith.

Thanks, Bruce. And thank you to everyone dialed in today. I, too, want to welcome you to our second quarter 2005 earnings conference call. As always, I will give you an overview of the results before Andy gets into the financial details. I will then come back and provide some overall details on the current market opportunities, and then we'll open the call for questions.

The results that follow do not include the recent acquisition of Allume Systems as the deal closed on July 1st, 2005. As a result, combined company results will be reported in the third quarter conference call this fall.

As we expected, the second quarter of 2005 was a good quarter for us, with net revenues coming in at 3.3 million, a 7% increase versus second quarter 2004 when we recorded revenues of 3.1 million. And more importantly, a 65% increase over the first quarter of 2005 when we reported revenues of $2 million.

The net income for the second quarter of 2005 was $764,000, resulting in an EPS of $0.03 per fully diluted share, versus net income of 634,000 or $0.04 per fully diluted share in the same quarter of last year. I should note that our share count increased to 23 million common and common equivalence shares versus 18 million in the second quarter of 2004.

On a sequential quarter comparison, net income for the second quarter of 2005 was $764,000 compared to the first quarter of 2005 net loss of $128,000. EPS of $0.03 per fully diluted share for second quarter 2005 was also up from a (negative) -$0.01 per fully diluted share in the first quarter of 2005. We entered into the 2005 third quarter with a backlog of 1.3 million, up 500,000 from the second quarter, and the Company finished the quarter with cash and cash equivalence of $30 million.

As we previously indicated, one of the main reasons we raised money earlier this year was to make synergistic acquisitions. On July 1st we made our first such acquisition by purchasing Allume Systems, an industry leading provider of compression software solutions known widely as StuffIt. Allume's well recognized expertise in compression technologies and its new patent pending J-Peg compression technology fits nicely to expand our robust wireless software solutions to our carrier and handset customers.

The agreement called for Smith Micro to pay $11 million in cash and 397,547 shares of restricted Smith Micro common stock valued at 1.75 million. We purchased all of the outstanding shares of Allume Systems from International Microcomputer Software, Inc., stock symbol IMSI.

We believe that the acquisition will be immediately accretive to Smith Micro as we anticipate Allume revenues to remain on track and to report approximately 10.5 million in revenue for the calendar year 2005 which will add to Smith Micro's bottom line in the third and fourth quarters. We are obviously excited about the acquisition and look forward to additional future product offerings which we have already started working on. I will discuss the potential of Allume Systems and their exciting technology a bit later in the call.

Looking at the second quarter, I am pleased that we have returned to revenue growth. It was a busy and exciting quarter for us, and I am very happy that we were able to achieve year-over-year growth while simultaneously causing the acquisition of Allume Systems. Following Andy's detailed financial discussion of the quarter, I will go into more detail regarding what we saw from our customers in the second quarter and the industry outlook.

Speaking of Andy, during the second quarter, we made a strong addition to our management team here at Smith Micro. In June, we announced that we hired a new CFO, Andy Schmidt. Andy has a strong financial and acquisition based background with both private and public companies. We did not give him much time to rest after coming on-board as he quickly assisted with the recent acquisition of Allume Systems, the Sarbanes-Oxley process, and the end of the second quarter. Andy brings a wealth of experience to us, and we are happy to have him on the Smith Micro team.

With that said, I'd like to turn the call over to Andy Schmidt, our CFO, to describe the second quarter financial results in more detail. Go ahead, Andy.

Thanks, Bill. Let me provide some additional detail to the summary financial information Bill shared with you thus far. Once again, net revenues for the quarter was 3.3 million. Segment revenues for Q2 of 2005 are reflected in our consolidated financial statements and are as follows.

Wireless and OEM products posted revenues of approximately 2.96 million. Our Internet and direct solutions line posted revenues of approximately $370,000. Wireless and OEM revenues in the second quarter of 2005 increased approximately 14% or $350,000 compared to the first quarter of 2004.

This increase is the result of our expected increased shipments to Verizon. The Internet and direct solutions revenue declined year-on-year approximately $140,000 or 27% to end the second quarter of 2005 with revenues of approximately $370,000. This decrease is attributed to lower consulting revenue for the current period.

Switching to gross margin. Overall gross margins are very strong and a key indicator to the potential of our business model. As revenues have returned to what we considered expected levels, gross margins have continued to outperform our yearly results and created significant operating margin. Total gross profit percentage in the first quarter of 2005 was 83.6%. This is up 7.1 points compared with the first quarter 2004.

Product gross profit percentages in the first quarter of 2005 increased 7 points to 85% compared to with the first quarter 2004. This is reflective of the reduction of lower margin data kit sales as compared to higher margin PC card product sales. Service gross profit percentages in the first quarter of 2005 decreased 8 points to 54% compared with the first quarter 2004. This is the result of changes in the product and consultant mix.

Operating expenses for second quarter 2005 increased by $486,000 or 20% compared with the first quarter of 2004. The increase is in G&A and is related to severance costs associated with our prior CFO, audit fees related to our change in audit firms, Sarbanes-Oxley consulting fees, and legal expenses related to SEC filings and other general stewardship activities.

In all, the significant variance in G&A is not driven by a permanent increase in infrastructure or head count, but rather is one time in nature. Having made this comment, we have just completed an acquisition and expect to expense integrated related costs in our third quarter of 2005.

Other high points of our quarter include returning to precash flow positive status, having generated approximately $335,000 in precash flow compared to free cash flow of 61,000 in the first quarter of 2004.

Finally, let me cover a few key balance sheet items. Our cash balance at June 30th, 2005 is 30 million or approximately 19 million net of the July 1 Allume acquisition transaction. Accounts receivable is very solid and current at 2.7 million. Accounts payable is current. Inventory levels are nominal. And of course there's no long-term debt.

In closing, our second quarter 2005 was a good quarter. The quarter has very strong fundamentals. Our revenue is back on track. Our gross margins are excellent. Our free cash flow is positive and our balance sheet its very strong. Once again, I encourage everyone to read our second quarter 10-Q, which has been filed today with the SEC, this includes additional disclosure in regard to our acquisition of Allume, the recent private placement, and of course, our current period of results. This concludes the review of our second quarter financial results. Now let me turn it back to Bill.

Thanks, Andy. In the second quarter of 2005, we saw a strong recovery from the challenges we faced in the first quarter. That situation has corrected itself. We continue to believe that we will see a return to the momentum started in 2004 throughout the balance of the second half of 2005.

Moving forward, we see our near term drivers as being the following: Verizon Wireless has continued to roll out it's wireless broadband access or EVDO wireless data service. Verizon Wireless continued to expand its high speed wireless service geographically to a total of more than 50 metropolitan areas by adding more than 15 added cities this past June as well as expanding the footprint in 37 previously supported metropolitan areas. They also now have EVDO service in 51 airports nationwide.

This will continue to be an important factor for Smith Micro as we are the sole source provider for Verizon Wireless' data connectivity kits and PC card software. We believe the strong performance of 3G wireless data is a significant market driver for consumer adoption of wireless services. We believe the continued service enhancements will also drive demand in the enterprise market and also see increased sales of PC cards as customers are able to connect at dramatically higher speeds than had previously been offered.

We are therefore very excited about the opportunities that lie ahead for Smith Micro and our wireless customers throughout 2005 as they continue to expand their high speed wireless data service areas.

The Allume acquisition will also help us in the near term. Allume Systems has an industry leading utility software business that not only generates increasing revenues but is also capable of delivering growing profit as well. As I mentioned earlier, we expect the Allume acquisition to be immediately accretive.

As an expert in the compression market with the StuffIt product line, Allume Systems has been very successful in taking their significant market lead on the Mac platform and leveraging that position to gain quite a solid position in the Windows platform as well. They contributed 2.5 million to IMSI's revenue line in the first quarter of 2005 and are on track to produce 10.5 million for all of 2005.

They produced 60% of their revenues through online sales, 30% through distribution, and 10% through international sales. Their contribution to Smith Micro on the go-forward, provides us a stabilizing influence by helping us to become less dependent on our largest customer as well as provide us a predictable revenue base that bolsters both our top and bottom lines.

Turning to the midterm drivers, we are aggressively working towards adding more carriers to our customer base both domestically but more importantly internationally, as we see this as an area of growth for us. Let me simply say that we are currently working with a still unannounced international carrier and, when they announce their new program, we anticipate being able to talk about it. All I can say is that this should happen in short order, but the announcement schedule is out of our control.

Having said this, we continue to vigorously work toward adding other international carriers as well. Another midterm driver is the continuing effort to add complimentary product offerings for our customers. We are constantly having conversations with our customers and industry experts to gauge where we should go to stay in our current leadership role. We believe we have a clear vision and are working with our bankers to identify high quality acquisition opportunities.

Finally, the longer term growth opportunities fall into two strategic focuses. The first opportunity is built around the recent acquisition of Allume Systems and the deployment of the exciting new StuffIt Wireless technology. We believe we can leverage our excellent business relationships with our current carrier customers as well as those carriers that are not yet on-board and offer each of them what we believe will be a must-have technology.

We also see an exciting play for the handset manufacturers to meet the need for more robust handsets with the inclusion of StuffIt Wireless. The handset of today is much more than a wireless phone. Functions in technology are evolving quickly, and the market is growing and recognizing that most handsets are already capable of processing still photos, JPEG files, display full motion video, MPEG files, and in the near future will be competing with the iPod and other similar devices playing high quality music, MP3 files. Performing all these multi-media functions requires storage of large amounts of data with the limited form factor of a wireless handset.

Our largest customer, Verizon Wireless, says that customers sent or received more than 40 million picture messages in the first half of 2005, up from 30 million in the last quarter of 2004. We believe that is a great testament to the need for the StuffIt Wireless product. With the StuffIt Wireless technology, we will be able to give our customers both carriers and handset manufacturers a product that will allow the consumer the ability to store up to 30% more JPEG files on their handsets and free up to 30% bandwidth requirements over the wireless data networks for transmitting these files.

In the future, we plan on expanding the product offering to include compression of MPEG and MP3 files as well. We plan on launching an aggressive marketing and sales campaign before the end of the quarter. This campaign will reach out to carriers and handset manufacturers both domestic and international. We believe the success in this campaign should lead to StuffIt Wireless revenues beginning in the second half of 2006 and growing further into 2007 and beyond.

The second longer term focus area is the enterprise sales of our QuickLink Mobile enterprise offering. Last year we announced the enterprise initiative and began a sales and marketing effort at that time. As of today, we have our first enterprise customer whose name we cannot disclose other than to say they're a very large U.S. insurance company based out of the southwest. They have ordered twice, once in the second quarter and again in the third quarter, which means we have shipped enough seats of QuickLink Mobile Enterprise for them to conduct a significant test before deploying enterprise wide.

As I said when we first announced the initiative, we anticipated the enterprise program to be a 2006, 2007 play. Anything before that would be surprise upside. So we are very pleased to have secured our first customer and look forward to growing what we believe is another significant sector for Smith Micro.

To wrap things up, the high speed wireless data market is gaining more and more attention with every service provider out there. While it's early in its deployment, it is simply an exciting place to be right now. Our sole source arrangement with Verizon Wireless, the leading wireless carrier in North America, Alltel, TELUS, and Dobson among others, continues to stand as a great endorsement for the Company as we attempt to add new carriers and continue to grow our revenue and our bottom line.

I would like to finish by touching on our anticipated 2005 results. Although this year began a little lumpy, we maintained our strong positive outlook for the rest of the year, and we continue to expect year-over-year growth in both revenues and profitability. We are very pleased about the continued execution across the board by everyone at Smith Micro and look forward to delivering impressive results throughout the remainder of 2005.

With that, I'd like to turn the call over for questions. Operator?

Thank you, sir. Ladies and gentlemen, at this time, we will begin the question and answer session. If you'd like to ask a question, please press the star followed by the 1 on your push button phone. If you'd like to decline from the polling process, please press the star followed by a 2.

Your questions will be polled in the order they are received. If you're using speaker equipment, we do ask that you please lift your handset before pressing the numbers. One moment please for our first question.

Our first question comes from Rich Church. Please state your company affiliation followed by your question.

Unterberg. Bill, regarding the comment on the full year, are you saying that including Allume, or do you mean prior?

I think including -- yes. Definitely including Allume, but I think we're just very bullish on the balance of 2005 and the Allume transaction definitely is going to help both our top and bottom lines, so yes.

Is there anymore color you could give us with regard to third quarter given the 1.3 million backlog and the inclusion of Allume? Maybe what the impact is on the operating expenses or any other color.

Operating expenses should remain fairly consistent. The one area that Andy touched upon was in the G&A area where we did have some extraordinary expenses that we view as more of a one time event. He did say that we will probably have some integration expenses in the third quarter. But in general, G&A should come down. You want to add something to that?

Sure. Rich, this is Andy. And also keep in mind that part of the Allume acquisition, we're bringing their infrastructure in into ours which is primarily engineering based, so it's certainly not lumping revenues on top of our existing infrastructure. They do come with a certain amount of infrastructure, but it's not G&A based, it's engineering based.

Bill, with regards to the PC card versus data kit mix, can you give us an update on where Verizon stands on having data kits for EVDO?

The mix looked pretty much like we've kind of been guiding people. We definitely see a growth on the PC card side over the percentage of the business that's data kits. And as far as on the EVDO side, that's still a work in process for the data kit. We still see very strong data kit sales, however even though those are basically just RTT data kits, we look to see that EVDO issue resolved in short order, but it will be sometime over the summer. That's kind of where we're sort of holding to.

And can you give us the 10% customers? I'm just wondering if Alltel reached 10% or if anybody else other than Verizon.

That's just Verizon.

Could you give us any color on Alltel at this point? Are they kind of going through a lumpy period as well?

Well, no. Actually there was two things that happened at Alltel. At you're well-aware, they just closed the acquisition of Western Wireless, and they went through a rebranding with their logo, et cetera, which actually kind of slowed down some of our shipments to Alltel in the second quarter. We would expect to see a return to normalcy with Alltel then in the third quarter as the acquisition's now behind them and they can focus more on their day-to-day business as well as the rebrandings over.

One last thing. On the enterprise when -- how many other prospects do you think are in the pipeline or are you --

Let me just say this, I don't want to get into exact numbers here, but I would say your net takeaway is that our pipeline is growing and growing nicely. Our marketing and sales team have worked hard at developing tools to reach out and find the enterprises that are the early adaptors, and that seems to be working. We're generally very fairly impressed with the status of things.

I think that it's going to be a very strong sector for us. I still stand by what I said before. I think it's one of the longer term drivers in our business case. I think it's really an '06, '07 play. We've already surprised ourselves by bringing our first paying customer in, and I guess I wouldn't be totally surprised if we can't find another one before the end of the year, but that's really not part of our plan.

Thank you and congratulations on a great quarter.

Thanks, Rich.

Thank you. Your next question comes Ed James. Please state your company affiliation followed by your question.

Most of my questions have been answered. The Allume Systems integration, when will that be finally complete?

That's kind of a tough question. We should see the brunt of it in third quarter, but there will probably still be some items we're figuring out in fourth quarter. And again, the accounting rules are, you expense as you incur these expenses.

On the backlog, can you give us some more color as to is most of the backlog going to new regions that Verizon is opening or how much is it for the existing cities that they are expanding into?

I can't give you color on that, 'cause I don't necessarily have full visibility. I can say that the guidance we're getting from Verizon is very upbeat. They have some very strong goals for themselves. I tend to be a little bit more conservative about these things. I think everything's looking just fine. And let's see what we get to tell you about at the end of third quarter. If the numbers really jump, well, that's a wonderful experience.

Great. And I notice that Sprint has come out and said they're actually targeting the same type of enterprise base on their EVDO broadband. Have you guys made the sales call there yet?

You can rest assured that we have a strong dialogue with Sprint our enterprise client supports 182 networks world wide, one of which is Verizon. One of the others is Sprint . It's something that we see as a major catalyst for the growth of our enterprise software sector as we believe there will be a number of corporate entities that want to sign up for service from both carriers but will want a single client that supports both. Clearly Verizon's not going to provide a client that will work with Sprint nor is Sprint going to provide a client that works with Verizon.

Thanks, guys.

Our next question comes from Kevin Dede. Please state your company affiliation followed by your question.

Kevin Dede at Merriman Curhan Ford & Company. Thanks very much for taking the questions, and congrats on a nice quarter, gentlemen.

Thanks, Kevin.

Would you mind, Bill, giving us your take on Alltel's EVDO rollout and what you're seeing and what you think they might hit integrating Western Wireless?

Well, Western Wireless gives them a whole new geographic reach that's stronger than what they had before, so obviously that's very positive for us. I wish I could say that they were in markets the same as Verizon, but that's just not the case right now. I think that they have committed to spending the money to grow their EVDO network.

We need to be patient, they just closed a major acquisition, and I look forward to seeing them rolling out more cities between now and the end of 2005. Clearly their rollout is going to roll into 2006 based on what's been going on there with this merger.

So I'm still very bullish on the Alltel opportunity. I think they're a wonderful company. They're very well managed. They have a clear focus on where it is they want to go. We're just really pleased to be able to call them a customer.

I've gotten the impression -- correct me if I'm wrong -- that they're trying to shift their marketing effort toward the high-end consumer. Do you see them focusing more on the enterprise opportunity and maybe that consumer who would be interested in that high speed connectivity kit that you guys offer?

Well, you know, I really can't -- that's a question you ought to ask Alltel . I really don't want to speak for them as to what their strategies are. Clearly they are working on executing a wireless data business case. They've gotten off to a start by launching their first cities with EVDO and they've got a lot of footprints still to cover. I think that getting this merger behind them -- and I think it took a lot of energy to get it done, and now they're going through their integration phase. It will be positive, and I think we'll see a lot more out of Alltel before the end of the year.

Can you give us your view into the backlog in terms of product breakdown and how fast you expect it to turn over?

Well, the backlog -- first off, by definition, when we talk about backlogs, those are binding orders that are received for shipment in the following quarter. When I say there's a $1.3 million backlog, that's all for shipment in the third quarter, and we expect all of that to ship plus a lot more. That is if we're going to make the targets you guys have set for us.

How about product mix, Bill? Can you go into that at all?

Clearly Verizon is the largest customer. It's heavily -- the QuickLink Mobile product or easy access product both for PC cards and for data kits. Data kit shipments last quarter returned to a normalized flow. We were very happy with the rate of purchasing that Verizon gave us on the data kit side. And clearly the PC card sales are definitely accelerating.

You mentioned stepping up in marketing and sales campaign for StuffIt this quarter. I was wondering what you think the costs associated with that might be.

It's a fixed cost because all the halves are in place. It's a people driven thing. We have to go out and talk to employers in the industry that we know very well. It's a matter of presenting a solid, lucid case as to how they can integrate StuffIt Wireless into the phones with the carrier, explain the merits of why or how they're going to get back 30% of the usage for the transmission of JPEG files, and how they could then by mandating the StuffIt Wireless be included in all handsets that they order can realize that from the handset guy's perspective, it's a very straightforward story.

You can take out the JPEG compression, put in the StuffIt Wireless compression, and you will get 30% more storage in your handset without adding additional hardware and maybe just as important, without adding 30% more power to power the hardware you might need otherwise. This is not about cost. This is about delivering a strong, clear, well thought out message that results in people placing orders, making changes to their development strategy to include StuffIt Wireless in their handsets instead of the standard JPEG compression.

I guess I'm just wondering about the folks delivering that message. That's the existing Smith Micro team. You just have to get them trained up on the --

They are already going through that process, and we are actually -- this is not something we're just going to wait until the day we turn on the switch. We're actively working it now. But we're going to have a very concerted effort to reach all the major players worldwide.

So I'm correct in taking Andy's comments to heart that you've acquired about 35 folks there, but they're all really in R&D.

That's the majority. Now, keep in mind that there is a breadth of sales experience, marketing experience. The people who actually started this business are coming over. So I think what Bill's trying to get to is we already had the expertise in-house to actually go out and accomplish that which you're asking. It's not going to be some unusual one-time expense to actually go through this.

The last thing I'll say about that, Bill and folks here have commented that the Allume transaction is accretive. The business model that's in place where we make that comment, already has these costs baked in.

Got it. Okay. So on a consolidated -- from a consolidated perspective for the third quarter, Andy, what do you think your R&D line goes to from the 700 K level?

Boy, I can't give you that number right now. I apologize. Once we're all the way through the integration and have a better idea what ends up in their nonrecurring engineering and so on, on the revenue line, it gets pretty complex. After third quarter we'll have a baseline to base future estimates.

Last question for you, Bill. If you were a guessing man, where would you put Verizon's EV -- how about their consolidated total of wireless data subscribers?

That's a great question to ask Verizon. I do know that Verizon, when they announced the added cities in June, I believe said that they had a half million subscribers at that point, but I don't know how dated that is. I don't know where it stands. That's a number that even if I knew I couldn't answer. So I really -- that would be a wild guess.

Thanks for that, and congrats on a great quarter, guys.

Thanks.

Our next question comes from Steve Dryer [ph] with Craig-Hallum. Please go ahead with your question.

Hi Guys, nice quarter. I'm wondering if you can give me a sense of what kind of gross margins you're thinking about going forward.

We're not giving particular guidance but, as you've seen, we're right now at the 83% level. The acquisition we did of course is of a software company which has similar type if you want to put it software margins. So I think you're going to see more of the same.

Okay. And then with respect to the European customer, have you recorded any revenue from actual software shipments or has it strictly just been NRE revenue to date.

It's all NRE to date. We have not shipped product.

Next I'm wondering if you can comment on the deals you struck with Nokia and Kyocera. Are they providing any material revenue or how do you view those?

There's no material revenue that's shown up yet. I view them as opportunities. Deals are in place. Our relationship with Kyocera and Nokia is very warm, and clearly that's going to be very beneficial to us when we are talking with them even more about StuffIt Wireless on the go-forward. Those are obviously some pretty strong targets for us.

Okay, great. Thanks.

Thank you. Our next question comes from Mark Shelton with Dorset Management.

It's actually Matt Campbell. How are you?

We're doing good.

I just had to jump from another call. Looks like you've put things in process. You've gotten these lumpy quarters behind you.

Not quarters. We only had one.

I had a quick question regarding that. What processes have you put in place so that you don't have such a situation occur again? Specifically your relationship with your largest customer.

Well, you know, we're very careful in how we deal with Verizon. We monitor their inventories to the level that they allow us to see them, which is pretty good. We see the sell through. It doesn't serve us any benefit whatsoever to have them have more inventory than they need, but I will tell you that they are very bullish about their wireless business for data, and they believe that they're going to be seeing a lot of growth. So we just have to kind of react and be responsive.

Matt, also keep in mind something that Bill commented to earlier with the acquisition. Just real broad strokes, Verizon will drop from around a 70% driver to the business to somewhere in the 40s. So once again, the acquisition helps commute out any unusual activity from one primary customer.

And just a follow-up. This yet to be announced international operator, if you looked out a year from now, what would you foresee their revenue being as a percentage of your overall?

You know, I don't know. At this point, I think it's almost been a year I've been talking about it, so I'm gun shy of saying too much of anything.

Obviously the launch has taken a lot longer than had been planned or anticipated, and all those factors really have nothing to do with Smith Micro. We have executed flawlessly for them. They're very pleased with us. They think we're a great supplier. And we're doing our job. All we can do is try to be helpful, work with them to try to get their program launched, and then we'll see.

Great. My last question, you talked about growth, and you focused more not on the domestic market but more on garnering more international carriers. About how many more international carriers are there left to win?

There's the whole world's worth of them. I don't mean to be facetious, but there's more carriers in the rest of the world than there are here in North America. So it's a broad market. But I think, when we talk about winning carriers, we're talking about winning carriers now with the QuickLink Mobile product.

As we now look also at the StuffIt Wireless, we start with a whole new view. StuffIt Wireless is a patent pending technology you can only get from Smith Micro. So we hold the keys to the special sauce, and so we're out there, and we're going to be out there talking not only to our current customers who are anxious to talk about it, but also to the customers or the people that we'd like to be customers who we're not selling to now. It's a whole new ball game. It's just part of what I think is a very rich business case.

We're having some fun around here, and we're working hard, but it's all about execution now, and we need to get our StuffIt Wireless customers signed up. We need to continue to expand the coverage that we have from a customer standpoint for our QuickLink Mobile products while at the same time we expand our other businesses. Enough said, I guess.

To put it a different way, what would you say -- domestically, you have a competitor in PCTEL, but between the two of you how many of the carriers have been landed in the U.S. relative to the rest of the world?

Well, most of the carriers in the U.S. are either buying from PCTEL or from us. There's one notable exception, that being Sprint who builds their own software. The rest of the world, you see there are a few smaller competitors in Europe. They're not a very strong force. We see the rest of the world as being probably a little bit more open.

Thank you very much.

Thank you. Ladies and gentlemen, if there are additional questions at this time, please press the star followed by the 1. If you are using speaker equipment, we do ask that you please lift the handset before pressing the numbers.

Our next question is a follow-up from Kevin Dede with Merriman.

Just on share count, Andy, where do you think that falls out in September?

You know what? We're right now at a weighted average share count of 21.5 million for the 3 month ended. We're kind to start after knowledging up here towards 22-point -- total outstanding shares right now are -- let me get you the exact number here. 21,605. We're going to start averaging up to that number pretty quickly. So for modeling, I would choose to use 21.5.

Thanks, guys.

That's not fully diluted.

That's basic. Right?

Add the 1.8 million for options, you get the fully dill lighted.

Got it. Great job. Thanks, guys.

Thank you, sir. At this time we appear to have no further questions in the queue. If you'd like to conclude with any comments, please feel free to make those comments at this time.

I would like to thank everyone for being on this call. We look forward to our next call which would be our third quarter 2005 financial results conference call in October.

Should any of you have any additional questions, please feel free to contact us or your investor relations firm -- our investor relations firm, the NKR Group. For those of you that will be in San Francisco tomorrow, Bill will be presenting at the Techfest 2005 conference sponsored by C. E. Unterberg and the Security Research Associates. That will be tomorrow, and we would be very pleased to meet with any of you if you happen to be there. Bill's presentation will be at 10:30 in the morning.

With that, I'd like to thank you once again and look forward to speaking with you in the next couple months.

Thank you. Ladies and gentlemen, at this time we will conclude today's teleconference. Thank you for your participation. You may now disconnect, and please have a pleasant day.