Smith Micro Software Inc (SMSI) 2011 Q4 法說會逐字稿

Ladies and gentlemen thank you for standing by, and welcome to the Smith Micro Fourth-Quarter and Fiscal-Year 2011 Financial Results Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions.

(Operator Instructions)

This conference is being recorded today, Wednesday, February 22, of 2012. I would now like to turn the conference over to Charles Messman of the MKR Group. Please go ahead, sir.

Good afternoon, and thank you for joining us today to discuss Smith Micro Software's fourth quarter and total year ended December 31, 2011, financial results. By now, you should have received a copy of the press release discussing our financial results. If you do not have a copy and would like one, please visit www.smithmicro.com or call us at (949)362-5800 and we will immediately e-mail one to you.

With me on today's call are Bill Smith, Chairman, President, and Chief Executive Officer; and Andy Schmidt, Vice President and Chief Financial Officer. Before we begin the call, I want to caution that on this call the Company may make forward-looking statements that involve risk and uncertainties, including without limitation, forward-looking statements related to the Company's financial prospect, and other projections of its performance.

The existence of new market opportunities and interest in the Company's products and solutions; and the Company's ability to increase its revenue and regain profitability by capitalizing on these new market opportunities; and interest in introducing new products and solutions.

Among the important factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements are changes in the demand for the Company's products from its customers and their end users; new and changing technology; customer acceptance of these technologies; new and continuing adverse economic conditions; and the Company's ability to compete effectively with other software companies.

These and other factors discussed in the Company's filings with the Securities and Exchange Commission, including its filing on forms 10-K, 10-Q, and 8-K, could cause actual results to differ materially from those expressed or implied in any forward-looking statement.

The forward-looking statements contained in this release are made on the basis and the views and assumptions of Management regarding future events and business performance as of the date of this release, and the Company does not undertake any obligation to update these statements to reflect events or circumstances occurring after the date of this release and call.

Before I turn the call over to Bill Smith, Chairman, President, and CEO, I want to point out that in the forthcoming prepared statements, we will refer to certain non-GAAP financial measures. Please refer back to our press release disseminated earlier today for reconciliation of non-GAAP financial measures. That said, I'll now turn the call over to Bill. Bill?

Thanks, Charles. Good afternoon everyone, and welcome to our conference call to discuss earnings for the fourth quarter and fiscal year ended December 31, 2011. Total revenues for the quarter were $11.2 million, with approximately $8.7 million coming from our wireless products, and $2.5 million resulting from our productivity and graphics product line.

Non-GAAP gross profit was $8.5 million for the quarter, with gross margins as a percentage of revenues of 75.8%. While these Q4 2011 financial results are not exciting, they were in line with our internal expectations.

As I described in the earnings call last quarter, we continue to feel the revenue impact of a significant technology transition from USB modems to smartphones and mobile hot spots. Our traditional USB connection manager business declined throughout 2011.

The good news for us is that these new mobile hot spots have their own challenges and we are getting renewed interest from wireless operators to help them simplify usability of these devices for consumers. Ease of use is becoming increasingly important to operators to reduce support cost and further monetize data services. You'll hear more about our emerging opportunities in this area later.

In our last call, we previewed the first commercial deployment of our Mobile Network Director solution for managing data traffic by a Tier 1 carrier. That news was made official in January with the announcement of Sprint selecting Mobile Network Director, also referred to as MND. The initial rollout of MND at Sprint is occurring in several phases, and we don't expect to see an up-tick in revenues from this deal until Q2.

However, the Sprint news has garnered strong interest in our MND solution from around the world, doubling the number of new sales opportunities from last quarter, and accelerating product trials with several other Tier 1 carriers. I'll discuss the potential for these opportunities later in the call.

In addition to growing our pipeline with new solutions running on new platforms, we have further reduced operational costs in Q1 to better align with current near-term revenue expectations. Just as Q4 revenues were slightly down from Q3, our current line of sight for Q1 2012 looks much the same. Therefore, we've undertaken more cost containment measures, ranging from head count reductions across the board, to travel services, to office moves.

These changes will reduce our non-GAAP operating expense run rate of approximately $17.5 million per quarter to between $15.5 million and $16 million per quarter. Compare this to the $23.3 million of non-GAAP operating expense we were incurring a year ago in Q1 of 2011, and it's clear that the belt has not only been tightened, it's been lopped off several inches along the way.

Now I'll turn the call over to Andy to take you through the details of Q4 and the total year-end financial results, and our latest, and hopefully final, restructuring activities prior to the turnaround of our business case. Andy?

Thank you, Bill. First, let me go over our customary introductory items. As we have in past quarters, we have provided non-GAAP results and a reconciliation of non-GAAP and GAAP results.

Non-GAAP results discussed in this call net out amortization of intangibles associated with acquisitions, stock-compensation-related expenses, goodwill and long-lived assets impairment, and non-cash tax expense to provide comparable operating results. Accordingly, all results that I refer to in my prepared remarks from both 2011 and 2010 and prior years are non-GAAP amounts.

Our earnings release, which will be furnished to the SEC on Form 8-K, contains a presentation of the most directly comparable GAAP financial measures, and a reconciliation of the difference between each non-GAAP financial measure provided in the press release and the most directly comparable GAAP financial measure. The earnings release can also be found in the Investor Relations section of our website at www.smithmicro.com.

In review of fiscal year 2011, we saw a significant decrease in our wireless revenues. This is primarily due to a shift in technology highlighted by the introduction and market acceptance of mobile hot spot devices, tablets, and smartphones capable of functioning as a wireless WAN hot spot.

Demand in our North American marketplace for our core connection management products decreased significantly in 2011, and while we launched new wireless products that addressed the new marketplace, they launched late in the year and were not revenue-producing in 2011. Total year revenues for 2011 decreased from $130.5 million to $57.8 million, a decrease of 56%. Wireless revenues decreased $70 million, or 59%, in 2011.

As a result of our significantly decreased revenues, we launched a series of cost containment measures, including a restructuring plan in Q3 and Q4. Similarly, we made adjustments to our balance sheet to reflect the transitional nature of our business. In Q3, we recorded an impairment of goodwill and other long-lived assets charge of $112.9 million, effectively writing off all of our goodwill and intangible assets. Today we sit with a cleaner balance sheet, and significantly reduced cost structure.

From a non-GAAP perspective, total year 2011 loss per share was $0.67, as compared to earnings per diluted share of $0.98 in 2010. From a balance sheet perspective, our cash position closed at $46 million at December 31, 2011, a decrease of $26.6 million from the beginning of the year.

In terms of our currently completed quarter, Q4, let me provide some detail. First, let's talk about the difference between GAAP and non-GAAP P&L metrics for the first fourth quarter. In terms of stock compensation for the quarter, stock comp totaled $1.7 million for the current period, broken out as follows -- $4,000 for cost of sales, $283,000 for selling and marketing, $203,000 for R&D, $750,000 for G&A, and $415,000 related to restructuring.

In terms of amortization, there was none in the fourth quarter, since all intangible assets were impaired in third quarter. As has been the case in past years, we prepared a revised tax provision at year end, which based on the total-year loss resulted in overall reduction in tax expense. The fourth quarter of 2011 reflects a favorable non-GAAP adjustment of $3.7 million, or $0.10 per share for taxes.

Moving on, for fourth quarter we posted revenues of $11.2 million, and a diluted loss per share of $0.27 GAAP and $0.12 non-GAAP. Revenues of $11.2 million compare with $35.3 million for the prior-year period. Current period revenue is down 68% year over year, due to continued softness in our base connection manager business.

International revenue was approximately $1.7 million this quarter across all business groups. Our wireless segment reported revenues quarter of $8.7 million, as compared to $32.1 million last year, a decrease of 73%.

Within the wireless segment, connectivity and security posted revenues of $5.5 million, compared to $27.6 million last year, a decrease of 80%. Voice mail, messaging, push-to-talk, mobile device products posted revenues of $3.2 million for the period, as compared to $4.5 million for the prior year. The productivity and graphics group posted revenues of $2.5 million, as compared to $3.1 million last year, a decrease of 20%.

Finally, we reported approximately $51,000 of other revenue which compares with approximately $118,000 for fourth quarter of 2010. Total deferred revenue at December 31, 2011, was $878,000.

Switching to gross profit, non-GAAP gross margin dollars were $8.5 million, a decrease of $24.1 million from the same period last year. Non-GAAP gross margin as a percentage of revenue was approximately 75.8% for Q4 2011, compared to 92.3% for Q4 of 2010. Non-GAAP gross margins by product group were as follows -- wireless, 78%; productivity and graphics, 73%; and other, 50%.

As we've noted before, our margins are driven strictly by product mix and volume. The year-over-year decrease in gross margins as a percentage of revenue was driven by lower wireless sales covering a relatively fixed cost of sales.

Switching to operating expenses, non-GAAP operating expenses for the fourth quarter of 2011 of $18.5 million decreased $3.5 million from Q3 as a result of our cost reduction and restructuring plans. From a year-over-year perspective, non-GAAP engineering expense decreased 27%, selling and marketing expenses decreased 28%, and administrative expense, which includes cost of facilities, remained essentially flat. Total non-GAAP operating expense decreased 22% year over year, excluding restructuring charges.

Non-GAAP net loss for the fourth quarter was $4.2 million, or $0.12 per share, as compared to net income of $13 million, or $0.37 per diluted share. Cash decreased $8.1 million for the quarter ended, which resulted in a year-end $46.0 million in cash. In terms of housekeeping, we expect to file our year-end 10-K this week, which will represent our final financial statements for the year. At this point, I'll turn the call back to Bill.

Thanks, Andy. Despite the fact that our quarterly revenues were lackluster, there is plenty of light at the end of this dark tunnel. The first commercial deployment of our Mobile Network Director software validates our ability to help operators address the critical global problem of congested mobile networks, which is not easily solved.

Using an intelligent device client with a centralized policy server to make proactive decisions about where data traffic should run, gives a level of control operators -- to operators not previously available. It also eliminates the burden from end users to manually switch between 3G, 4G, and wi-fi networks in order to receive the best possible mobile experience.

While there will be competitive approaches to managing data traffic, we firmly believe that our approach is technically superior in many ways, and this is a direct result of our expertise in embedded connectivity software, device integration, and wide-scale carrier deployment experience. We believe we are leading the way in providing innovative solutions that can solve the problem of congested mobile networks and the need for an enhanced user experience.

The number of trials under way and planned with operators for Mobile Network Director is a strong indicator that the market opportunities are large, and have the potential to be converted to contracts within the foreseeable future.

This software is not trivial to develop or to deploy, and operator commitment to allocate their resources to these trials is significant. There is a definite sense of urgency to evaluate the technology and understand how it can help them with various traffic issues, including data off-loads to wi-fi, automatic connection to preferred roaming partners, on-loading traffic to LTE net works, and several others.

These trials do take time, as does contract execution and commercial deployment, but the volume of devices that can be managed by MND are huge and growing, so the potential payback looks very promising.

Our success with Mobile Network Director is also opening up new opportunities to partner with other wireless industry leaders. We have already completed testing between our MND client and gateway server solutions from Cisco and Stoke, and interoperability certification with several other network solution providers is planned.

These vendors are bringing us into new sales opportunities as a result of the value add in extending data off-load strategies down to the device, which is essential to secure seamless delivery of multimedia content over un-trusted wi-fi networks.

But traffic management is not the only area in which Smith Micro is offering a compelling solution. Mobile hot spots, and smartphone-based hot spots in particular, are introducing new challenges for operators and consumers alike. ¶ For example, an Android device -- on Android devices, wi-fi tethering plans can be easily circumvented using over-the-top applications from the Android market. This results in hundreds of millions of dollars lost by operators due to unauthorized data tethering.

We will be introducing a new solution that helps operators recoup these dollars by managing application entitlement in real time, and providing a convenient way to convert hot spot freeloaders to paying customers. Sales efforts for this new solution have been under way for some time.

From a subscriber perspective, mobile hot spot features on smartphones can be difficult to activate, configure, and secure. Since these are sharable devices, the risk of consuming more data than expected is high, and there have been numerous reports of outrageous data bills, also known as bill shock, associated with data tethering. Several operators are now engaging us to help make mobile hot spots more user friendly, and easier to lock down through our Hot Spot Manager solution.

In addition, we are investing a significant amount of time and expertise contributing to the development of industry standards related to mobile connectivity. Our announcement today regarding the preview of a new mobile connectivity solution that supports Windows 8 highlights our efforts to extend industry standards, such as the broadband -- the mobile broadband interface model being adopted by Microsoft and other platform providers.

We expect that the extensions offered by Smith Micro will enable advanced features such as usage metering, diagnostics, and security controls, which can be implemented by operators to differentiate their services.

By driving and extending industry standards, Smith Micro continues to help reduce the cost and complexity of supporting fragmented mobile platforms and operating systems, while ensuring a consistent connectivity experience for subscribers running Windows 8, or Windows 7, as well as Android, IOS, and other popular operating systems.

As always, the majority of our new revenue opportunities are coming from carrier customers, both existing and new. We are also getting traction in the enterprise market, with new customers in North America and Europe, ranging from banking to utilities, to hospitality, and government agencies.

Recent federal legislation pertaining to private broadband spectrum has created new budgets for public safety agencies across the country, and our connectivity and traffic management solutions are well-suited to facilitate these deployments.

To help us engage these agencies, we have signed agreements with government resellers, which should open the door to new opportunities where secure mobile connections are needed over the government's private wireless networks. We hope to announce new enterprise deals for our QuickLink mobility solution over the coming weeks and months.

On the consumer side of the business, the PNG group has shifted away from the lower-margin utility and publishing products, and is now focused largely on our growing and profitable graphics tools. 2011 culminated in a return to health and profits as the division benefited from the right-sizing of staff, and from the success of several key releases in the graphics portfolio.

Poser and Anime Studio, both developed in-house, continued to grow share in their respective markets in 2011. The team is invested heavily in advancing our position as the provider of new cutting-edge tools that can turn the imaginations of artists into digital art.

Finally, last quarter we reported that the Board of Directors had approved the buy-back of up to 5 million shares of Smith Micro common stock. The re-purchase was contingent upon the completion of the Sprint contract for MND. Now that the contingency has been met, the Board of Directors does intend to initiate the re-purchase over the coming months, which I see as a show of confidence in the future recovery of our business case.

Before I turn the call over for questions, I'd like to close by reiterating that our ongoing cost containment efforts, combined with the revenue opportunities that we believe we can execute on, should allow us to get back to profitability before the end of 2012. Of course, as the business and economic environment changes, we will make appropriate adjustments and report back on our progress. With that, operator, I'd like to turn the call over for questions.

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions)

Mike Latimore, Northland Capital.

Great, thanks, Mike Latimore. Thanks for the time. In terms of the Sprint deal, can you provide just a little more clarity around how that deployment is going? Do you think you'll get in, say, most of the current users of the phones, the Android phones implemented in the second quarter, just a little more color on the deployment timeline there would be great.

Okay, Mike. I guess the way to look at it is this. We expect to still launch the first deployments of the software to Sprint users beginning late this quarter. It will go through at least probably about a six-week period of slow roll-out before it then expands into a more rapid expansion. We are initially deploying our software on all of the HTC-built handsets at Sprint. We will then be working on additional handsets after that. This will provide a very significant base of many millions of users utilizing our software during the current year. Hopefully that answers your question.

Yes, that's great. Would you, for some of the other deals that you're working on or that are in trials, would you expect the deployment timeframes to be similar on those, or is Sprint somewhat of a unique situation?

No, actually, I think because Sprint is the first, it's not -- it's the first for us, obviously. It takes a little bit longer, because I think for a Tier 1 carrier, there's a lot of testing, a lot of reviewing to make sure that they are going to get the results that they are looking for. That has already been proven. That was a very lengthy, about six-month trial. We are going a little slower on the deployment than originally expected, primarily to make sure that there aren't any unexpected problems created for the networks. Again, it's the first time it's ever been deployed. Sure, we'd love to have seen it deployed faster, but in all honesty, we are as exposed as Sprint. We want to make sure that this thing goes very well, and so, a more measured approach does seem prudent.

And just last question. Bill, you mentioned you think the first quarter is looking similar to the fourth. Did you mean in terms of absolute dollar numbers, or in terms of the -- kind of the change that you saw fourth quarter versus third quarter?

Yes, I think it's really looking similar in terms of trends. So, I would look for flat to slightly down for first quarter, and then as the launch goes on in second quarter we can start to build things back up.

Okay, great. Thank you.

Rich Valera, Needham & Company.

Thank you, good afternoon. Bill, I was wondering if you would be willing to give us any sense of how much revenue you think you might be able to recognize from Sprint in this calendar year for the Mobile Network Director deployment?

No, I can't give you an absolute number. Clearly, we've got to get the deployment rolling. We've got to make sure that there are no hiccups along the way, and then based on that, if everything goes smoothly, it's going to have a very profound effect on our numbers. But I think I've made this point a number of times at various conferences and everything, that this deal is just the first deal. This is where we get started and building our business case back. It by itself is not large enough to recover back to the level we were at in 2010.

What we need to continue to do is to close additional deals, either for Mobile Network Director or Hot Spot Manager or some of our other technologies; and all of this is in process. I wish I had the perfect crystal ball, and I could tell you exactly when these deals will hit, but I don't. The good news is that we have a very full pipeline. The good news is we have a lot of carriers literally around the world that are either trialing or about to trial some of our software. All of this bodes well for the future. Obviously, it isn't done until it's done. We've got to get the contract signed.

Fair enough. With respect to OpEx for the first quarter, can we assume you'll actually be at that $15.5 million to $16 million level in the first quarter, or will you still be approaching that level?

I think you should look at about the $17.5 million, and then it will drop down to the $15.5 million to $16 million in second quarter.

Okay, that's helpful. Then just one question on the bigger picture. Architectural approach to wi-fi offload or cellular offload, you guys actually have -- obviously, have a client, maybe, focused approach with the centralized policy server. I think some folks are working on more of a core network approach, which, at least in theory, would seem ideal, but perhaps some practice turns out to not work as well. I'm sure you guys have looked at that, just wondering what you can say about the different types of architectural approaches to doing cellular offload?

Actually, I'm kind of glad you asked that question. Let me kind of step it through, because I think it's a very strong story. When you look at a client server approach, which is what we have. Whether the -- in all cases, the client's ours, but whether the server is ours, or whether it's coming from the likes of a Cisco or Stoke, there's certain things you can do when you have a client-server approach that you cannot do on a server- or a network-based approach only.

For one thing, if you just look at the biggest numbers, somewhere between 80% and 95% of our trial data suggests that at about that percentage of time the average user spends in either his home or in his office. A network-based solution cannot offload to wi-fi in the home or the office. Therefore, it cannot even have an effect on 80% to 95% of the usage that a user has. A client server-based approach can take care of that, and does take care of that, and therefore, allows for much more effective offload to wi-fi.

The other thing is that these devices use wi-fi, they use 3G, they use 4G, so you have to have the ability to turn the various radios on and off, to establish a transitional connection, let's say, to wi-fi from 3G. Well, you make the hookup to wi-fi before you break the line for 3G. Network-based solutions can't do that either.

There's a lot of really compelling arguments to be made for a client-server base. You put intelligence at the point the user is at, that intelligence can then detect what various networks are available. If a network is having a problem, you don't try to change them to a network that's going to cause a poor user experience. All these are the reasons why client server-based applications are the right way to go, and are the way we believe over time will win out.

Okay. Thanks for that, Bill. Good luck.

Mike Walkley, Canaccord Genuity.

Great, thank you. Bill, just maybe building on some of the earlier questions, with the revenues flat to slightly down, you have to get to almost a double in revenue to get back to profitability exiting the year. Could you just walk us through the thought process to get there, one? And maybe another way to ask it is -- how long did the Sprint trial go, and what's the expectation on trials -- how long they might last until it generates into a contract with some of your Tier 1 potential clients?

Let me take the last part first and try to work into the first part. If I don't answer it all, come back at me. The Sprint contract or the trials were lengthy. It was about six months. And then we're going to launch at a slower pace than we initially thought we would do, just to make sure that we don't have any negative effect on the network, which we don't expect to have happen, by the way. I think this is really a phenomenon because they're first. This type of technology has never been deployed at a carrier before, and so, everybody is trying to be very cautious about how we go to market.

Now, when we look at other carrier opportunities, and we have a number of them in the pipeline, and when the number of trials that are ongoing, a lot of the trials are because they see us already gone through the trial process at Sprint, they're willing to accept a much shorter trial period. So, our fond hope is that the trials will go a lot shorter, and eventually there will not be a need for trials at all, as we have more and more carriers deploying our software. That's the first thing about the trial, and how we see trials going.

Now, let me talk for a second about the revenue build-up. The revenue build-up for the Sprint deal is a significant growth over the first 12 months of deployment. That alone is going to have a strong effect in the outer quarters on what we can build up as far as revenues. But we expect to have other deals, either done or being completed, that will hit in third or fourth quarter, that will have a similar effect. In doing so, that will bring us back to the point where we can be profitable.

Keep in mind that our gross margin percentage is low right now, because there are many costs that are fixed, and we don't have enough overall revenue to allocate those costs across. As we recover our revenue base, our gross margin percentage should improve. That also will make it easier then to get to profitability. It's all about execution, and that's what we're all focused on here.

Did I answer your question, Mike?

Yes, no, that did. That's helpful. Just building on that, as you work with companies such as HTC, is it on a -- does it matter on the OS, on the smartphone, is it mainly Android that you're working with today, or can it work with IOS of Apple and other ecosystems going forward?

At the present time, we are focused on Android, and that's the platform that we work with. We are working on a couple different approaches to provide somewhat of the same service level to IOS users. Unfortunately, because of the fact that the IOS environment and Apple are not particularly open about various things that we need to gain access to, we can't build a product that does everything that we can for Android. By and large, our prospects and our customers going forward though, are satisfied by what we can do in the IOS area, and are more than willing to move forward with us.

Okay, great. Maybe you can just discuss maybe some of the other opportunities, such as your connectivity solution with carriers in India? Just trying to rank order. I mean, clearly it looks like the MND solution is the big revenue driver, but have you layer in other areas to get back to a profitability? How do you rank order some of your other opportunities?

As we look at our pipeline for MND opportunities, assuming that we can be successful in a large majority of cases, that on its own could probably get us back in to a profitable spot. We have other opportunities that are also very exciting. I talked about them in my script, one being we are really focused on what we can do to make the whole mobile hot spot experience a lot easier on the consumer, and how we can reduce costs for the carriers. Then number two, our application control product that I've talked about really helps build a fence to cut down on those folks that are freeloading on a carrier's wireless data service without paying them, and giving them a way to regain a lot of the revenue that was lost.

Then lastly, based on the release we put out this morning, we see some new plays for expanding our role in the connectivity space with our QuickLink Zero product. This product is a zero install. Everything resides on the USB device. There are no drivers. It is a particularly simple approach to getting users up and on the air, and we see traction there as well.

Actually, I think when you really look at it, there's probably four different product focuses, all of which can have a strong impact on our revenues. I say that not because I want to diminish the impact of products like visual voicemail or push-to-talk, or some of the other products like device management. They also have opportunities, and we see some of these that will close. I think there's a lot of plays. It's all about execution.

I can't fix what happened in 2011. The market changed. What we can do though, is leverage on all the investment we made in R&D over the last few years by delivering these new technologies that carriers seem to want to buy, and clearly the MND one is fully validated now with the Sprint contract. We hope to be able to validate the others with contracts, and then, I think the question about how do we get back to profitability becomes a lot easier for all of you out there to gain the same confidence that I might have.

Okay, thanks, Bill. Andy, just a quick question for you, and I'll pass it on. How should we think about tax rate for 2012 given the transitional business? Any expectations for CapEx during the year? Thank you.

Sure. At this point, I'd model a 37% tax rate. Everything we've been talking about has been -- how do you get to profitability in Q4? That's just a single quarter, so expect the year to be at a loss, so then that would be a 37% tax rate against the loss.

CapEx -- we're not forecasting significant CapEx at this particular time, but it's subject to how these new deals roll out. As you're well aware, we have a number of trials under way, and depending where these trials are located, there's question and a decision between Smith Micro and our customers on how these deployments are hosted. To the extent that we host any of these roll-outs, there will be a CapEx spend, and to the extent that the customer does, there isn't. So, that's something that we'll stay tuned to.

Okay. Good luck, gentlemen. Thank you very much.

Scott Sutherland, Wedbush Securities.

Great, thank you, good afternoon. When you guys look at some of the potential deals or trials in the pipeline, are there any competitive solutions that those carriers are looking at as well? If not, what are the alternatives for the carriers to manage all these devices and the data that they use?

Well, Scott, I think the earlier question about the difference between a client server-based solution, or a server-only network-based solution, is one particular area where we see some competitive issues. We do see a couple smaller competitors, like BirdStep at some of our carrier opportunities, but they don't seem to be particularly strong competitors. I think the ones that probably can create the most fun and challenge for us are the large iron guys that are trying to push a server-only answer. But I think we have such a strong answer for that, and the carriers see that quickly, that I just don't see that as a really big issue.

One of the other things that I didn't mention about the difference between clients- and server-based solutions is, when you have a client involved, there are many times where the user will never even touch the wireless carrier's infrastructure. They'll just be placed onto the wi-fi that's available. You can't do any of those kinds of things with a server-only answer. You have to have a client.

We are working closely with a lot of the big iron guys, where we are the client and they provide the server, and I think that really is the future. Now, you saw the Stoke press release we put out probably two or three weeks ago, and clearly it's very complementary. Our client offering with the iron guys' server offering. I think there's ways to work with them and mitigate the pressure from competitors.

When you look at Mobile Network Director as the market develops, how should we think about the business model versus your connection manager? Would pricing per unit be down, but there would be a lot more units in your traditional connection manager model?

Okay, the pricing per unit may be less, but you're right, you're looking at all of the Android-based phones to begin with. And then following on as we come out with our IOS-based solution, we can add that to it. Clearly, you're talking about, even at a mid-size Tier 1, millions and millions of units. Well, that's a number far larger than was ever seen in our prior business case of providing wireless data access for PCs and Macintoshes.

Okay. When you talk about wanting to get to profitability exiting this year, is that based on an OpEx run rate of $15.5 million to $16 million, thus you need revenue growth and gross margin expansion to get there? Is that how you're looking at it?

Yes, why don't you -- that's a good place to look at it.

Okay. Lastly, Andy, what was the CapEx in the quarter, and international revenue?

Sure. Okay, international was, I believe I said here $1.7 million for the quarter. And let me get you some CapEx. CapEx for the period, it's about $331,000. Total CapEx for 2011 was about $13.4 million.

Okay, great. Thank you, gentlemen.

Brian Swift, Security Research Associates.

Yes. Most of my questions have been answered except -- could you give a little color on the Stoke announcement that was made a week or so ago, just from the standpoint of -- should we view that more of a reference type of an account, or can it get you into some areas, some companies that you haven't been in before? Just how do you view, or how should we view that relationship?

Sure. The Stoke answer, as well as the interoperability testing we've done with Cisco, are both similar. Obviously, Cisco is much larger. Where this has an impact is where certain carriers want to go with a hardware answer for the server side, and then they use our client. Now, in many cases, the server, the carriers in question, already have a business relationship with us, so we don't necessarily view Stoke or Cisco as potentially being a customer as much as being a partner in building the final solutions.

Okay. Are there any other -- does it open up opportunity to get to some other customers?

Of course; it does. There are certain carriers where all of these folks are bidding, and in most cases they're all bidding using our client. I mean, that's a very compelling situation to have.

Okay, thank you.

Okay, thank you.

(Operator Instructions)

Charlie Anderson, Dougherty and Company.

Good afternoon, thanks for taking my questions. Just to piggy-back on the earlier question about IOS and Android, I think you said there were maybe some limitations, some things you couldn't do in IOS that you could do in Android. I wonder if you could maybe provide a little bit more color there?

Well, the most obvious one is really fairly straightforward. In the IOS case, Apple does not provide us with the APIs to turn radios on and off as needed. That's something that's really important to doing a couple things. You don't run down the battery on the device as fast because you don't have more radios on than you need to have on.

That also allows us, like I said earlier, you could be online with a data call, and let's say you're in 3G or 4G, and you want to move to wi-fi that's just become available to you. We will make the wi-fi connection before we break the 3G or 4G connection, and that guarantees a seamless hand-over for the user, totally transparent to the user. And in doing so, it provides not only the most effective use of the various wireless networks available at the time, it also provides the most cost-effective approach for the user.

Got it. Thanks for the color. Just a couple housekeeping questions. If I look at your core connectivity business, it took a couple legs down earlier in there, but it seems to have found a level around $5.5 million. I wonder if we're steady on that level for a while, given how some of those contracts are structured, or just how I should view the trajectory of that line item?

Yes, that's a good assessment, and probably what you'll see more than anything else is, some accounts are going to continue to decline, while we're also picking up new accounts in this offshore. As Bill pointed out, the zero install is part of that whole evolution of that product line, so I would say we found a floor.

Good. Then Andy, have you guys bought any stock back in Q1, here?

We've not bought back any stock at this point, but as Bill announced, we've got approval now to do so, and we anticipate taking a hard look at that over the next couple months.

Actually, the reason for that's quite simple. The trading window does not open up for a couple more days after this call, and the Company must abide by the trading window just like other insiders have to do.

Got it. Thanks so much.

Thank you. At this time, I'm showing no further questions in the queue. I'd like to turn the conference back over to management for closing comments.

Thank you again for joining us today. Again, if you should have any other questions, please feel free to give us a call in the office. We'll look forward to updating you on our first-quarter conference call, which will be in late April. Also, I'd like to invite anyone that's attending the mobile congress next week in Barcelona to please come stop by and say hello at our booth. Thanks now.

Ladies and gentlemen, this does conclude our conference for today. We thank you for your participation. At this time, you may now disconnect.