Smith Micro Software Inc (SMSI) 2005 Q4 法說會逐字稿

Good afternoon ladies and gentlemen and welcome to Smith Micro Software fourth quarter financial earnings. At this time, all participants are in a listen only mode. Following today's presentation, instructions will be given for the question and answer session. (Operator Instructions). At this time, I would like to turn the conference over to Bruce Quigley, Vice President of Investor Relations. Please go ahead, sir.

Thank you. Good afternoon and thank you returning as today to discuss Smith Micro's financial results for the 2005 fourth quarter and full year ended December 31, 2005. By now, you should have received a copy of the news release. If you do not have a copy and would like one, you may acquire it at Smith Micro's web site at www.smithmicro.com or by calling 949-362-5800 and we will fax or e-mail one to you immediately.

With me today on the call are Bill Smith, President and Chief Executive Officer and Andy Schmidt, Senior Vice President and Chief Financial Officer.

During the course of this conference call, we may make forward-looking statements regarding future events and 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 information currently available to the Company. The Company disclaims any intent to update publicly any such forward-looking statements, whether in 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 filed last November 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'd like to turn the call over to Bill Smith, Chairman and CEO of Smith Micro. Bill?

Thanks, Bruce. Good afternoon and thank you for joining us today for our fourth quarter and year end earnings conference call. We appreciate your interest in Smith Micro. Before Andy takes you through our fourth quarter and year end financial results in detail, I would like to share with you the highlights of the quarter and the year as a whole. Following Andy's, remarks I will come back and make some final comments and then turn the call over for question and answer.

For the year ended December 31, 2005, we've posted topline revenue of $20.3 million, an increase of 52% over 2004 when revenues totaled $13.3 million. As revenues grew, so did profits. For the year, we've posted $0.21 profit per diluted share, up from $0.19 per diluted share in 2004.

Now let's talk about the fourth quarter. We are pleased to report strong fourth-quarter results. We generated a record debt revenue of $8 million, nearly double the 4.2 million reported in the fourth quarter of 2004 and up 16% over the 6.9 million reported in the third quarter of 2005. Pro forma net income for the fourth quarter, which excludes amortization of intangibles associated with the Allume acquisition, was $2.6 million resulting in an EPS of $0.11 per fully diluted share. This represents a 59% increase over the 1.6 million or $0.09 per share for the same quarter of 2004. You should note that this comparison does not take into account the significant increase in the Company's share count year-over-year.

As of December 31, 2005, our fully diluted shares outstanding increased to 23.9 million versus 19.1 million shares in the fourth quarter of 2004. Therefore, we were able to achieve pro forma EPS of $0.11 this quarter with approximately 5 million additional shares being used in the EPS calculations. Cash and cash equivalents as of December 31, 2005 were 21.2 million, an increase of 12.6 million, or 146% from the 8.6 million at the end of 2004.

We believe our solid fourth-quarter financial results clearly demonstrate that our business plan is firmly on track. There is also strong momentum going forward. We entered the first quarter of 2006 with a record backlog of $4 million, up 100% from the previous quarter's record backlog of $2 million. We continue to broaden our wireless software product offerings to more fully participate in the strong momentum of the wireless broadband data marketplace with initiatives such as StuffIt Wireless and our recently announced involvement in Verizon's V CAST music service. We have been talking for months about the need to exploit the growth of wireless multimedia technology deployment. Our involvement with Verizon and deploying handset-based music services is extremely exciting.

Later, I will go into more detail on this and what we saw from our wireless connectivity customers in the quarter as well as provide greater insight into our other business groups which we are also very positive about for 2006. With that said, I would like to turn the call over to Andy Schmidt, our CFO, to describe the fourth quarter and full year financial results in more detail. Go ahead, Andy.

Thank you, Bill. I'll first talk about fourth quarter financial results and then recap the year.

The biggest news for the quarter was the introduction of the new Music Essentials Kits. This new product offering helped us post record net revenues of $8 million and record net earnings of $2.2 million for the quarter. More importantly, this product offering helps us continue to reduce our high revenue concentration of our dominant Connection Manager products. In the first half of the year, revenues from the Connection Manager product sold to Verizon represented 65% of total revenues. In fourth quarter, that concentration has dropped to 35%. By continuing to manage product and customer concentration, we managed the risk profile of our stock, which in turn will help us drive our stock value.

Total revenues of 8 million is a 3.8 million or a 93% increase from the same period last year. Revenues consisted of 5.1 million from our Wireless and OEM segment, 2.6 million from our Consumer Products segment which was formerly Allume Systems and $335,000 from our Internet and Direct Solutions group.

Switching to gross profit. As we mentioned during our last conference call, we manage our business from a gross margin dollar perspective, rather than a gross margin percentage of revenues perspective. Gross margin dollars of 6 million increased 2.6 million or 70% from the same period last year. In addition, gross margin dollars increased approximately 300,000 or 5% from our third quarter. Gross margin as a percentage of revenue was 74.4%, which is lower than previous periods due to the launch of the new music kits. From a pro forma perspective netting out amortization of intangibles associated with the acquisition of Allume, gross margin as a percentage of revenue was 77.7%. Again, kits include hardware components which result in a lower gross margin percentage but produce a similar gross margin dollar per unit as a data download or a PC card software sale. So while cosmetically the gross margin percentage for the quarter is lower than the previous quarter, the gross margin dollar, operating profit and net profit are at record levels.

Okay, operating expenses for the fourth quarter of 2005 decreased $82,000 from third quarter 2005 as a result of a very successful integration of the Allume business. The lower operating costs combined with an increased gross margin dollar equated to a 25.8% operating margin for the period as compared to 25.6% for the third quarter of 2005. Again, a great metric to demonstrate our business plan continues to improve as we bring new products to market and revenues increase. Pro forma net income for the fourth quarter was $2.6 million, or $0.11 per diluted share, as compared to $1.6 million, or $0.09 per share diluted last year and $0.10 for pro forma diluted earnings for Q3. Again, pro forma results exclude amortization of intangibles to provide a meaningful year-on-year comparison. It should be noted that the number of diluted shares for fourth quarter 2004 was 19.9 million -- 19.1 million, excuse me -- as compared to 23.9 million this year.

In addition, fourth quarter diluted shares increased 700,000 shares from third quarter 200 [of] 23.2 million. The difference in diluted shares from fourth quarter to third quarter of 2005 is primarily driven by the average market share price for the quarter. The average share price for third quarter was $5.05 versus $6.67 in fourth quarter, a 32% increase quarter-to-quarter. While this dynamic increases the number of diluted shares used in our EPS calculation and, hence, reduces our diluted EPS assuming all other variables held constant, we were very pleased to see our share price increase and are working hard to continue that trend.

From a balance sheet perspective, our earnings drive our cash position as we added $800,000 to our cash balance from Q3 to Q4 of 2005. Accounts receivable also increased 2 million, or 41% from quarter-to-quarter as a result of our significant ramp in revenues the past two quarters. Net working capital was 25.3 million and the end of the fourth quarter, an increase of 3 million or 13% from third quarter alone.

Now recapping the year. Obviously it was an awesome year. Revenues increased to 20.3 million from 13.3 million, a 52% increase. Pro forma operating margin increased from 3.5 million to 4.9 million, a 42% increase. Pro forma net income increased 2 million to 5.5 million, a 59% increase, which obviously exceeds our 52% increase in revenue, a very important indicator of a positively leveraged business. Pro forma earnings per diluted share increased to $0.24 for 2005 from $0.19 in 2004 based on 22.8 million weighted average shares versus 18.5 million of weighted averages in 2004.

From a balance sheet perspective, netting out cash raised by the February pipe and cash used in the July Allume transaction, we've created approximately 2.5 million in free cash flow in 2005.

Looking forward to 2006, we expect to continue our revenue growth and to continue building the Company. As previously noted, we expect our growth to occur in a step function rather than a nice linear curve. And once again, we manage our business from a gross margin dollar perspective. We expect to continue to introduce new products and customers to our lineup and to continue to diversify our revenue stream. As we sit today with the introduction of the music kits, our gross margin models in the low 70% range dependent on product mix for a given period. This will change as we add new products. From an expense perspective, our goal is to ramp up our R&D and infrastructure headcount as efficiently as possible to take advantage of the great product opportunities that lie ahead. This will add operating expense, but we expect our gross margin dollar increases to outpace our incremental operating expenses, thus improving our operating margin from our 2005 level.

In addition, along with all other public companies, we will be expensing our stock option compensation in 2006. We will provide pro forma tables with our quarterly and yearly earnings announcements to provide meaningful year-on-year financial comparison given this change in accounting treatment.

Finally, we have approximately 3.8 million outstanding options that are in the money. As our stock price increases, our diluted shares will increase nominally.

In summary, we are thrilled to be looking back on a record year and record quarter, a very strong balance sheet and a $4 million backlog which is double our best 2005 quarter-ending backlog and has all substantially shipped to date to launch our 2006 year. With that, I will turn it back to Bill.

Thank you, Andy. Let me update you now on our three business operations, each of which we believe is a strong, stable platform with tremendous opportunity for growth. As we define our business entering 2006, the three operations are our OEM and wireless software business, our enterprise software business and our consumer software business.

Now let's first talk about our OEM software business. Our relationship with Verizon Wireless remains very strong and we are very excited about the ongoing opportunity to expand our wireless software product reach as they continue to roll out their wireless broadband service. Additionally, as Verizon continues to roll out new product offerings, such as their V CAST music service, which capitalizes on our position as the leading wireless broadband service provider, we've continued to be the software supplier of choice. In January, we announced with Verizon Wireless the V CAST Essentials Music Kit. The Music Essentials Kit, which enables Verizon customers to manage and transfer music files to their V CAST music phones from their PC illustrates our ability to provide value-added software and services to our wireless carrier customers. Although the announcement came out last month, we did recognize revenue during the fourth quarter as we built and shipped the kits for Verizon Wireless' launch in January.

Moving onto other wireless business, we saw Alltel launch an EVDO PC card in 13 additional handsets. We believe this shows that Alltel has returned implementing their EVDO network. Sales to Alltel improved significantly in the second half of 2005.

Now let's discuss StuffIt Wireless. As mentioned earlier, we continue to broaden our wireless software product offerings and intellectual property portfolio to capitalize on the strong wireless broadband data marketplace. This past year, we made a significant step forward on both fronts with the acquisition of Allume Systems and we're making considerable progress in integrating and developing new products using the patent pended compression technology. We have commitments from both a large handset manufacturer and a large carrier to develop prototypes, including StuffIt Wireless technology, and test the effectiveness and the actual cost savings to be derived from integrating StuffIt Wireless. This is a major step in our effort to deploy StuffIt Wireless in every handset. All tests performed to date indicate that StuffIt Wireless will perform at levels equal to or better than our stated performance goals.

The development work on MP3 music and MPEG full-motion video are progressing as well. The deployment of wireless music services by both of Verizon Wireless and Sprint enhance the need for StuffIt Wireless to include enhanced compression of music as well. While we see StuffIt Wireless as being a 2007 and beyond play, we are very pleased by the progress we have made to date.

Turning to our enterprise sales opportunity. We continue to add to the pipeline and are close to closing some large deals. We now have over five major enterprises in the latter stages of testing and preparation of beginning final contract discussions. While we did not close the target account that was possible for fourth quarter, we are in an excellent position to bring this one to closure shortly. The enterprise community clearly understands the need for control over wireless access to their internal networks. The enterprises are also clearly moving forward with a strategy to deploy wireless service via multiple carriers and to do so with a global deployment strategy. We believe this will be an exciting sector in 2006 and beyond and you should look for growth throughout the year.

Now the third part of our business, the consumer sector. As I mentioned earlier, the Allume acquisition and integration went much better than we had hoped. The consumer business is performing as we had anticipated. It has provided a highly predictable revenue base to the rest of our business. It is also contributing to profits while also growing at a forecasted rate of 10% per year. 64% of the business came from direct online sales, 30 from the reseller channel and the balance from international activities.

So far during the current quarter, we have shown at Mac World, had a good presence at CES and will have a strong showing at CTIA Las Vegas in April. From an IR point of view, we presented at the Needham conference in January, we'll participate at an Unterberg conference in Park City, Utah this week, present at the Montgomery Conference in March and present at the AEA Micro Cap conference in May.

I would like to finish by providing some outlook on anticipated 2006 results. We are very pleased about the continued execution across the board by everyone at SmithMicro and look forward to continuing our strong momentum into 2006 and capitalizing on the significant opportunities ahead. While we don't provide specific guidance on a quarterly basis, we would like to share our vision for 2006. We believe we can show strong growth throughout 2006. However, we believe we cannot give clear guidance without sell-through data for the Music Essentials kit, which we see as a significant catalyst for growth in 2006. This sell-through data will take a quarter or two to develop.

We do believe growth on both the top and bottom lines that we have demonstrated between Q3 and Q4 of 2005 should be viewed as a possible leading indicator. You should expect that we will add to our growing portfolio of wireless technologies throughout 2006 which should provide strong growth going forward into 2007.

Smith Micro continues to be a business case built around extreme revenue growth while at the same time delivering expanding profits. We strongly believe that as good as the results for 2005 have been, the best is yet to come. With that, I would like to turn the call over for questions. Operator?

(Operator Instructions). Rich Church, Unterberg Advisors.

Thanks, and congratulations on a strong quarter. Can you give us the percentage of revenue from Verizon Wireless for the quarter?

Yes, sure. It's about 52%.

Okay. And I don't know -- could you provide any more color on within the wireless business, the split between kits versus PC cards?

Sure, kits about 40% of the business, [CD] is about 60%.

Okay, great. And with regards to the gross margins, Andy, could you tell us what -- I know you had provided some of the non-GAAP breakout, but what was the product and service gross margin adjusting for that?

The consumer group, 72% without adjustments for pro forma, about 75% with adjustments; OEM about 76%.

Okay, great. And then, Bill, could you just elaborate a little bit on when you talk about the StuffIt Wireless with these commitments from large handset and large carrier, what does that really mean? Does that mean committed to developing and testing it, what would be sort of the timeframe of a deployment for that?

Okay. I think the way to look at it is, it's step number one. We will incorporate the StuffIt Wireless into an operational handset built by this very large handset manufacturer. We will then test that handset with StuffIt Wireless operating over the wireless network of this large carrier which will also imply that we will incorporate StuffIt Wireless into the central office systems. All of this is a very significant step. It's a definite commitment of resources by both the handset manufacturer and the carrier to this program to validate that all of the test that we have mutually run together to this point will actually hold water and will result in the better utilization of the bandwidth from a carrier perspective, the quicker upload and download from a user perspective and better use of the memory available on the handset from a handset manufacturer perspective. All of this is real world, real life kind of stuff, not laboratory testing, and something that is absolutely mandatory for the carrier to give the green light to move forward to full rollout.

And over what timeframe do you expect that testing to be done?

I think at the present time, I would say we should be done some time at the end of the second quarter, third quarter time frame.

Excellent. And then just one last question. With regards to the commentary on the outlook and also related to Andy's comments about step versus linear, traditionally we see telecom companies with some lumpiness and first quarter tends to be down sequentially. Do you expect that kind of seasonality, or do you think given the strong backlog that you will grow sequentially in Q1?

You really want me to give guidance for first quarter. Well, I won't give you numbers, but I would say you should look for an uptick quarter. How's that?

I'll take that. Thank you very much.

Chad Bennett, MJSK.

Just a couple of questions regarding guidance following up on Rich's questions. Bill, you indicated we should look at '06 guidance, and I don't have it verbatim, similar to what you saw in Q3 and Q4 of this year in terms of both top and bottom line, I believe you said, correct me if I'm wrong. But anyway, if I look at top and bottom line, in the respective quarters, you grew top line roughly double year-over-year and you grew earnings-per-share at about half that rate

No, wait a minute. I think what I said was you should look at the performance of the Company in Q3 2004 versus Q4 -- excuse me -- Q3 2005 versus Q4 of 2005 -- I'll get it right yet -- and that kind of growth is the kind of growth that you should maybe view as a leading indicator when you're building the models for 2006 and 2007.

Oh, sequential growth you're talking? I don't understand.

Yes, you have it. Look at it from a sequential growth perspective Q3 to Q4.

Okay. Then a couple of questions. What have you seen thus far in terms of the shift with the few laptop OEM players that have embedded into their laptops EVDO service -- how has that affected your business model and what are you seeing there early on?

It's a good question, but unfortunately, we don't have data to really answer it with, other than to say that the one vendor that was shipping an embedded module in Q4 of 2005, the ship rate or the attach rate was not particularly high. We don't think they shipped that much either. So you cannot really draw any numbers out of that. You won't see Dell ship until the end of the quarter. HP I think is just about to ship, so I don't think they've shipped yet at either. You have a number of other players that have now, are now coming on, it's just too early. I cannot help you on that one.

The key is, it does not affect our business model. So in other words, if it's sales to the embedded module channel or through PC cards or downloads, what have you, it's all the same to us.

Yes, I'm just wondering if there was of [effect] from a timing standpoint, and have you seen people kind of shy away from PC cards and blah, blah, blah?

We still see fairly strong shipments of software for PC cards, so I see no indication of that at all.

Okay, Andy, a couple of housekeeping questions here. You gave the revenue breakdown for the quarter between OEM, consumer and the other segments. Can you give me the relative or comparable number of the last year?

Let me dig that up for you. Obviously, the consumer last year was zero. We didn't have the Alluma acquisition finished. And for fourth quarter of last year, the [web] page in front of me, we did (indiscernible). Chad, you threw us a curve.

(indiscernible) I didn't mean to do that. I can go onto the other question. (MULTIPLE SPEAKERS). That's fine. You talked a little bit about I think directionally where you thought OpEx would be, Andy, going into next year. Is there any way you can kind of give us a run rate, whether it's I guess quarterly run rate on where you would see OpEx throughout the year?

The key drive is going to be headcount. We right now at the end of the fourth quarter ended with 90 heads. We're going to try to add 20 to 30 heads. And again, we have to do this efficiently. Odds are again we won't be able to go as fast as we'd like to. Q3 and Q4, if you look at the operating margin, we are pretty consistent. And so again, that's kind of setting the benchmark for how we're going to start 2006.

So that's a good benchmark to kind of work with?

Yes. I think we've established two quarters, I think we're getting repeatable.

Good, fair enough. Then just touching receivables with relative to revenue increase decently in the quarter. I assume it was related to the music kit and what not, which I think you said. Is there any way to give us kind of where DSOs are going to be at the end of the quarter in Q1 or maybe how well you have done in collections quarter to date?

Collections in our business are actually quite easy in that, again, OEM business is a slam-dunk. We don't even reserve for bad debt in that channel. When we look at the retail side, as Bill mentioned, 60% of that business are downloads, which is basically a cash transaction. So long story short, the only reason why we have DSOs stretch out is just frankly dealing with administrative issues with large companies. So at this point, we really don't view DSOs as being a meaningful metric. Like I said, we just don't have any bad debt.

Okay. That's all I have for now. Thank you.

Kevin Dede, Merriman.

Congrats guys on a strong quarter. I guess the last question sort of gave us an idea on target margin. Can you give us an idea on where you think R&D and SG&A will sort of break out as a percentage longer-term -- while not longer-term, Andy, but just sort of for modeling purposes for '06?

Right now, when I was speaking to the increase in heads, that primarily would be in the R&D area. So once again, we see our increases being there. We're not going to get specific as far as dollars, we're just working on operating margin. As far as gross margins, as I quickly mentioned, right now with the current product mix, we can estimate low 70s. But again, we hope to add new customers and new products as quickly as possible and actually skew that number again on you. So it's going to be a moving target. But right now, we're just working internally with what we have today, which is in the low 70s.

Can you give us an update on the tax situation now?

Sure. Once again, we have a significant NOL, which is near 20 million. We also have significant R&D tax credits. In that matter, we expect 2006 to model that at a 2% tax rate.

Okay. So '06 is still good at 2%?

2 to 4.

2 to 4. And then, what if you were to go farther than that?

Well, we're going to see how profitable we are in '06. Again, we would like to use that NOL up in '06, but we will do our best.

We look forward to seeing that. Can you give us a breakdown on the backlog, the 4.0 million in backlog (MULTIPLE SPEAKERS) music and data kits, et cetera?

We can't really give that kind of number right now. Our customer is a bit sensitive with the product launch of the music kits and so. And so we're being sensitive to the requests that we stay a bit quiet on being specific about that product.

I think probably the strongest thing that we can give you that might be helpful about the backlog is that almost all of it shipped as we sit here now. So it's all going out this quarter.

Okay. Then if we were to look at the 5.1 million in wireless, can you give us an indication within that what is music versus --?

That's exactly where we're being very sensitive. Again, new product launch for Verizon and so on, they're being very quite about it. But it is a significant number, let's just put it that way.

On the music side?

Yes, It is.

Okay. And [right] no indication yet on a tax rate, not for a couple of quarters?

There's none that we can talk about. We can say that they're very happy, which -- and we share that joy and they're doing a very good job on moving the kits out. So the sell-through is strong.

So far that you can see?

Yes. And we have pretty good visibility, because we build them, so they tell us pretty much what they have.

Okay. Then can you speak to how -- what you are seeing on the data kit side? I understand that was sort of a new or reintroduced product in December or thereabouts.

We are seeing what you would expect to see as far as sell-through of the data kits. We still have some EVDO handsets that do have data turned back on yet because it was turned off because of the problem that was fixed over the summer. So that is holding us back just a tad, but it's not a significant or relevant thing I think in the overall picture.

Okay. And Andy, when do you suspect you will begin to add the 20 to 30 heads? When should we start looking for them?

Well, we added eight in first quarter of 2006, and again, that's our primary goal is to efficiently at these heads, so we're working hard at it.

Okay their R&D effort will be focused on what part of your development?

You're getting good. I think you will see us spending a lot of effort on stuff at wireless side, on the other enhanced compression technologies that need to go into StuffIt Wireless for music and full motion video. You will also see a lot of work being done on meeting the needs of our growing list of enterprise prospects who I believe will become customers in due order. They all have a lot of unique requirements that's part of the enterprise business and we have to tweak the product to match their needs. And you will continue to see us working on adding in more support for all of the new hardware coming to the market, all the new handsets, all the new data cards, all the new embedded modules. It's a nontrivial task, it consumes manpower. And one of the reasons that our customers like us that we are very proactive and we get the job done in a very timely and orderly manner.

So it's all about growing the business and we need more resources and we're going to go out and get it. But I think as Andy pointed out, our profits will grow faster than we're going to spend on that in headcount, so it's all about good news.

Bill, can you give us some insight onto the compression algorithms that Verizon is running on their 1X network now and where you think (MULTIPLE SPEAKERS)?

All of the networks have some compression and there is like three prime providers of it between a handset or a remote device let's say and the central office. This compression does a pretty good job, but it does nothing for multimedia files. They cannot compress a multimedia file, either JPEG or music or full motion video without damaging the data, so it cannot do any good. That's where StuffIt Wireless comes in. StuffIt Wireless is a better way of doing things that allows you to compress the multimedia data to reduce the bandwidth requirements, increase the speed from the user perspective and increase the memory space available in a handset. So, yes, there is compression in the network now; it just does not do anything for the kind of data that we're talking about. And that happens to be some of the most voluminous data out there, so it's a very exciting time.

Thank you for entertaining my questions, gentlemen, and congratulations again.

Quickly, Chad, to answer your question on the revenue break out in the prior year, I apologize. Wireless (indiscernible) this year was 5 million as compared to 3.8 million fourth quarter last year. The Internet and Direct segment we stated it was about 340,000 this year; last year, it was about 400,000, and of course, consumer product, the Allume division did not exist last year.

Ed Ching, Rodman & Renshaw.

Good afternoon, guys. This is [Ahmet Bell] speaking on behalf of Ed Ching. Most of my questions have already been answered. I was just wondering if there is any interest from other areas for the StuffIt and the other initiatives that you guys are undertaking?

Well, (indiscernible) who the carrier is, I think you're sort of implying that you know who the carrier is. Yes, there's interest from a number of carriers. And we've said at conferences and everything that prior to this that we were focused heavily on the big three here in North America. We're obviously also focused on some of the major carriers overseas as well. But yes, your net takeaway is that this is a multicarrier sales effort and they're all moving along just fine.

Alright, thanks.

Joe Hudak, Wachovia Securities.

Not to (indiscernible) sound redundant, but not only a nice quarter, but a great year guys. And just about everything has been asked. Also, a great job to my predecessors. But on the share count, do you have a basic range of where you see the diluted shares for next year?

That's a good question, and that's going to be driven by our share price. If you look at Q3 to Q4, it went from 23.2 million to 23.9. If you expect share price to continue to increase as it did Q3 to Q4, then you would incrementally go up obviously 4 or 500,000 shares per quarter. And that of course is holding all other variables static, such as any option or restricted stock issuances.

Okay. Anything in the works to buy back shares with any cash?

Not at this time. We have too many great opportunity to buy technology.

Okay, great job guys.

Tony Tristani, Astro Capital.

Hi, thank you, congratulations on a great year and quarter also. A couple of questions. On the enterprise business, it seems like that may be picking up a little bit ahead of where you thought it would be at this point with maybe five larger customers. Can you talk about what the size of a large enterprise kind of deal would be? Is it 10 to 20,000 employees, or may be just size it. I think I have a rough idea of the where the ASP is?

That's a good question. I think you should view the rollout or deployment in a large enterprise as being a step function. You will see the initial buy of maybe 1000, 2000 seats, they'll work that through their system, then they will just keep expanding. We have one particular client that could take as many as 80,000 seats. We have others in the 7 to 10,000 seat range that we're talking with. So they cover a broad spectrum. They're all fairly sizable. The neat part about it is they buy the seats, they then pay an annual maintenance fee that's running around 20% of what they've paid for the seats per annum, so they get all of the updates throughout the year. That's really mandatory because the hardware is not static, it's constantly changing and so you constantly have to get updates to the clients out to the user base to support all of the new PC cards, let's say, or embedded modules or other devices that we have not even thought about yet that will be coming down the pike.

So, yes, it's gaining momentum. We think that 2006, we're going to start to see some meaningful numbers, and we think it's just a start. We think it rolls right into 2007 and beyond.

In the past, you have talked about that this business could be as large as like the EVDO business, et cetera, over time. Do you still feel that way with the deals you're looking at and the other risks to the market that you could maybe penetrate?

Absolutely. Now that also, if the OEM business keeps growing at the rate it has been growing, it's going to make me you think me hard to make those words happen sometimes. But, yes, I think it will happen.

Next question is on stuff at wireless. People have come up with estimates of an ASP per handset, et cetera. Do you feel that you're starting to prove the value proposition as you're doing testing that the product works, et cetera? We have talked about ranges in the past of what that could be per handset. Do you feel like you're moving towards proving out the value proposition on that where people will pay you whatever the number is less than $1, more than $0.20 or something, per handset --are you proving out that value proposition?

So far, absolutely, and that's the purpose of this actual live test is to actually get it baked into a phone. It will be totally resident in the phone, get it baked into the network so meaningful test data in real-life kind of an environment can be generated to prove out the point for once and we -- to lead into the full rollout.

Meaning, is you guys keep progressing as you are, is there potential for revenue in the second half of '06?

As I've always said, there is always that chance, and I've also always said, if there was, it would probably be NRE type revenue, getting ready kind of stuff. I still think it's an '07 play and my crystal ball is not as good as some of you guys have. So I am not sure exactly what in '07, but I think it's an '07 play.

Thank you very much.

(Operator Instructions). Kevin Dede.

Hi Andy. Could you just sort of highlight some of the comments you made with regard to stock comp -- how are you going to show that going forward?

I would be glad to. And just for some benchmarks, certainly we can go to our Q3 release. Stock comp was about 376,000 for the Q3 of 2005. What we will do is certainly break out a pro forma table where we net out the stock comp to show what we consider to be comparable numbers with 2005 and 2004, which of course was without stock comp. Now according to GAAP, we also will be presenting our 2005 data, they will call it as restated, to include what would have been stock comp in those years. But once again, we will always provide pro forma tables to give you an idea of apples-to-apples, how is the business performing in 2006 versus the 2005 people have come accustomed to seeing.

So you said 376,000 in the September quarter?

That's correct.

Can you give us the December quarter number?

We have not gotten that through audit yet as we are building our 10-K as we speak, but what I will do in the 10-K in the MD&A section, given the parameters that are in place as of 12/31, I will provide what 2006 will look like for those particular options that are outstanding; in other words, the stock comp expense, so that people have an idea of what that looks like in '06.

Very well, thank you very much.

Thank you. Management, there are no further questions. I will turn the conference back to you for any closing comments you may have.

Thank you. I would like to thank everyone for being on this call. We look forward to our next call, which will be our first quarter financial results conference call following the end of the quarter. Should you have any additional questions, please feel free to contact us or our investor relations, the MKR Group. Thanks again, have a great day.

Thank you. Ladies and gentlemen, that does conclude today's teleconference. Once again, thank you for your participation and at this time, you may disconnect.