Smith Micro Software Inc (SMSI) 2012 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Smith Micro Software fourth-quarter and full-year 2012 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 also being recorded today, Wednesday, February 13, 2013. I would now like to turn the conference over to our host, Mr. Todd Kehrli with MKR Group. Please go ahead, sir.

Good afternoon, and thank you for joining us today to discuss Smith Micro Software's fourth-quarter and 2012 fiscal year 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; Andy Schmidt, Vice President and Chief Financial Officer; and Carla Fitzgerald, Vice President of Marketing.

Before we begin, I want to caution everyone that on this call, the Company will make forward looking statements that involve risks and uncertainties, including, without limitation, forward looking statements relating to the Company's financial prospects, 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 profitable by capitalizing on these new market opportunities and interests, and introducing new products and solutions.

Among the important factors that could cause actual results to differ materially from those expressed or implied in the forward looking statements are changes in demand for the Company's products from its customers and their end users; new and changing technologies; customer acceptance and timing of deployment of those technologies; new and continuing adverse economic conditions; and the Company's ability to compete effectively with our software companies. These and other factors discussed the Company's filings with the Securities and Exchange Commission, including its filings on Form 10-K, 10-Q, and 8-K, could cause actual results to differ materially from those expressed or implied by any forward looking statements.

The forward looking statements contained in this press release and call are made on the basis of the views and assumptions of management regarding future events and business practices as of the date of this call and 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, I would like to point out that in our forthcoming prepared remarks, we will refer to certain non-GAAP financial measures. Please refer back to our press release, disseminated earlier today, for reconciliation of the non-GAAP financial measures. Bill, please go ahead.

Thanks, Todd. Good afternoon, and thank you for joining our conference call to discuss earnings for the fourth quarter and fiscal year ending December 31, 2012. Total revenues for the quarter were $12 million, up 7.1% from the same period last year, and up 9.3% from the third quarter of 2012. Non-GAAP gross profit was $9.7 million for the quarter, with non-GAAP gross profit as a percentage of revenues of approximately 80.6%. Our non-GAAP operating expenses for the third quarter were $13.2 million, down 28.3% versus the same quarter last year. As a result of higher revenues and ongoing cost containment efforts, our fourth quarter non-GAAP loss per share of $0.06 was cut in half from last year's fourth quarter loss of $0.12 per share.

We were pleased to see revenues increase each quarter throughout 2012, driven largely by growth in the newer product lines, CommSuite and NetWise. As you'll hear later in the call, CommSuite helps mobile operators better capitalize on the latest visual messaging applications, while NetWise helps them manage the explosive growth of mobile data, largely driven by video traffic. Clearly, these are symbolic solutions that offer both top line and bottom line benefits to operators. Our QuickLink family is still producing meaningful, albeit declining revenues, on USB and embedded devices. But in 2012, we expanded the range of platforms that QuickLink components can support, including mobile hotspots, Windows 8 devices, and most recently, silicon chip sets.

We continue to see a need for simpler, more secure access to 3G, 4G, and Wi-Fi networks from many types of devices, from many users demographics, and our QuickLink product line is designed to help operators, enterprises and platform providers benefit from our deep expertise in broadband connectivity. I'll discuss more about these trends later in the call, after Andy Schmidt, our CFO, walks through the details of the financial results in Q4, and the 2012 fiscal year. Andy.

Thank you, Bill. First, let me go our customary introductory items. As we have in past quarters, we have provided non-GAAP results, and reconciliation of non-GAAP and GAAP results. Non-GAAP results discussed in this call net out stock compensation related expenses; non-cash tax expense or benefit; and amortization of intangibles associated with acquisitions; and goodwill; and long lived assets impairment provide comparable operating results. Accordingly, all results that are referred to in my prepared remarks for both 2012 and 2011, 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 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. Total year revenue for 2012 was $43.3 million, down from $57.8 million in 2011. Wireless revenue decreased $11.7 million, or 24% in 2012, to $37 million. Productivity in Graphics revenue decreased from $8.8 million in 2011, to $6.2 million in 2012, a reduction of 30%. From a non-GAAP perspective, total-year 2012 loss per share was $0.37 as compared to a loss per share of $0.67 in 2011. From a balance sheet perspective, our cash position closed at $32.2 million at December 31, 2012, a decrease of $13.8 million from the beginning of the year. In terms of our currently completed fourth quarter, let me provide some detail.

First, let me provide the difference between GAAP and non-GAAP P&L metrics for our fourth quarter. In terms of stock compensation for the quarter, stock comp totaled $1 million for the current period broken out as follows -- $4,000 in our cost of sales; $238,000, selling and marketing; $215,000, R & D; and $548,000 for G&A. 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 an overall reduction in tax expense. The fourth quarter of 2012 reflects a favorable non-GAAP adjustment of $0.9 million.

Moving forward, for fourth quarter, we posted revenues of $12 million, and loss per share of $0.12 GAAP, and $0.06 non-GAAP. Revenues of $12 million compared to $11.2 million for the prior year period, an increase of 7%. International revenue was approximately $1.3 million this quarter across all business groups. Our Wireless segment reported revenues for the quarter of $10.1 million, as compared to $8.7 million last year, an increase of 16%. Within the Wireless segment, connectivity and security posted revenues of $5.7 million, compared to $5.5 million last year. Voice mail, voice to text, and push to talk products posted revenues of $4.4 million for the period, as compared to $3.2 million for the prior year. Productivity and Graphics group posted revenues of $1.9 million, as compared to $2.5 million last year, a decrease of 23.5%. And finally, we reported approximately $40,000 of other revenue, which compares to approximately $51,000 for the fourth quarter 2011. Total deferred revenue at December 31, 2012, was $1.45 million. Our 10% customers for Q4 2012 include Sprint, at approximately 44%, and Verizon at 21%.

Switching to gross profit. Non-GAAP gross margin dollars were $9.7 million, an increase of $1.2 million from the same period last year. Non-GAAP gross margin, as a percentage of revenue, was approximately 80.6% for Q4 2012, compared to 75.8% for Q4 of 2011. Non-GAAP gross margins by product group were as follows -- Wireless, 83%, Productivity and Graphics, 73%. Year-over-year increase in gross margins as a percentage of revenue is primarily due to the increase in revenue covering somewhat stable fixed costs.

Switching to operating expenses. Non-GAAP operating expenses for the fourth quarter of 2012 of $13.2 million, decreased sequentially $700,000 from Q3 as a result of our cost containment efforts, and year-end accrual adjustments. From a year-over-year perspective non-GAAP engineering expense decreased 31%; selling and marketing expense decreased 13%; and administrative expenses, which include costs of facilities, decreased 11%. Total non-GAAP operating expense decreased 28% year over year. Non-GAAP net loss for the quarter was $2.2 million, or $0.06 per share as compared to a net loss of $4.2 million, or $0.12 per share last year.

Cash increased $5.2 million for the quarter, due to the receipt of a income tax refund of $7.5 million, which resulted in the year-end cash balance of $32.2 million. In terms of housekeeping, we expect to file our year end 10-K sometime next week, which will represent our final financial statement for the year. At this point, I'll turn the call back to Bill.

Thanks, Andy. While we were disappointed in our total year revenue decline in 2012, versus 2011, we are encouraged by the year-over-year increase of $6.9 million in our newer NetWise and CommSuite product lines. Yesterday, we formally announced the CommSuite platform, which is the next generation of our visual voice mail solution, we have been providing to Sprint for many years. CommSuite is designed to help operators generate new revenue through integrated rich media communications such as video mail, animated messaging, live video streaming, voice to text transcription, and social sharing of messages.

With the increasing popularity of social messaging services, operators are projected to lose billions in SMS revenues over the next few years. CommSuite addresses this market shift by revitalizing voice mail systems with the latest in visual messaging technology, while driving rapid adoption of premium apps through flexible try-and-buy deployment options. Even better, CommSuite can uniquely help operators manage the consumption of network bandwidth by video messaging apps through integration with our NetWise traffic management solution. This is an important differentiator, since mobile video traffic accounted for 51% of all mobile traffic by the end of 2012, according to reports from Cisco. ¶ The growth of mobile data, in general, continues to be a major challenge for operators. Estimates show global data growing at a rate of 1.6 extra bytes per month in 2013. For those of you who manage your mobile data plans in terms of gigabytes, an extra byte is equal to one billion gigabytes. Wi-Fi networks are now integral to relieving cellular congestion, and our NetWise traffic management solution is proving to increase Wi-Fi utilization at a rate of 9,500 connections every minute. However, Wi-Fi off load is only part of the answer. As competition increases for the market share and data related revenues, operators must develop their traffic management strategies to ensure a high quality user experience for subscribers.

In addition to seamlessly and securely moving traffic to Wi-Fi, the ability to automatically connect devices to the best access points based on cost, throughput and other dynamic network conditions, can make a significant impact on customer experience, and therefore, on customer retention. Our NetWise solution is highly differentiated from competitors in its ability to manage traffic to ensure the best possible user experience. Although we are ahead of the market in terms of deployment, the product continues to perform well in field trials, and we remain confident in the opportunities we have with NetWise in North America, and abroad.

Along with the growth of mobile data, mobile devices such as tablets and smart phones are expected to outnumber the world's population this year. Considering over 90% of tablets sold in 2012 were Wi-Fi only, operators are largely missing out on the data revenues associated with those devices. However, our QuickLink Hotspot solution provides the opportunity to take advantage of the smart phones that consumers already have in their hands, using them as mobile hotspots to connect Wi-Fi devices to 3G and 4G networks. A recent survey of Smartphone users reveals a number of issues preventing broader adoption of mobile hotspots, including costs, usability, and privacy concerns.

In addition, more than 25% of users did not pay their carrier for hotspot service, but instead, use over-the-top applications to access this feature on their smartphones, representing significant revenue leakage for the operator. Our QuickLink solution makes mobile hotspots easier to use, and more importantly, allows operators to extend their brand in services to wi-fi devices, driving greater data revenues through increased hotspot usage. In fact, T-Mobile has already launched a commercial hotspot device using our QuickLink solution, and is preparing to launch two more mobile hotspots with QuickLink over the coming months. Our QuickLink MiTile application is also now commercially available for T-Mobile and Sprint devices running Windows 8.

Further, we have recently secured a contract, with a major silicon chip maker, to use our QuickLink MBIM drivers in their new mobile chip sets. MBIM, which stands for mobile broadband interface model, is a standard that was developed for broadband connectivity in Windows 8 devices. The use of the QuickLink MBIM drivers, by chip vendors, will provide backward compatibility for new USB and embedded modems with prior versions of Windows, eliminating the need for device makers to develop costly drivers specific to each device. It also reduces support costs for operators by eliminating driver conflicts on legacy devices. We are very excited about this new-- about the new opportunities arising from integration of our software into silicon chip sets, and look forward to updating you on commercial deployments later this year.

On the enterprise side of our business, we were honored to be included in the first annual Aragon Research Globe report on enterprise mobile management software. Our solution was recognized for its standards based approach, and scalable platform, which combines device connectivity, user management, and network optimization capabilities. Mobile device management has received plenty of attention in the past year, particularly with the growing trend for employees to bring their own devices to work, often called BYOD in the media. While there are many vendors providing device management products, few share our heritage serving Tier 1 wireless operators and device makers. In fact, we have provided over-the-air device management capabilities for more than 30 million mobile devices globally.

However, device management is just one part of a total mobility strategy, and our solutions for connectivity, security, streaming video, and network optimization will help our enterprise customers maximize returns from their mobility investments. We have recently expanded our enterprise sales organization to accelerate our growth in this area. Although we are taking a very targeted approach to the profile of the customers we engage, we believe that there is a large market opportunity open to us, and we are aggressively pursuing it.

Our productivity in Graphics group saw a 34% increase in revenues from Q3 to Q4 of 2012. Sales for this business unit are generally strongest in Q4, due to the holiday shopping season. And the release of our award winning Manga Studio version 5 was a key contributor to our performance. Although sell-through at major retailers like Best Buy, [Fries] and Target showed lower than normal category performance in Q4, our channel team has made significant changes to our contract structures and go-to-market plans, resulting in lower returns, and more profitable retail business in the long run.

We are also developing new international channel partners to help increase our market presence in countries like India, the United Kingdom, France, Brazil, China and Korea, as well as augmenting our distribution partners in North America. Overall, we believe the productivity in Graphics area of our business will continue to contribute significantly to our top line in 2013.

In closing, our results in 2012 have demonstrated that our solutions continue to be relevant, and add value for mobile operators, even as we evolve our technology to extend into more markets. Our wireless product portfolio, comprised of QuickLink, NetWise, and CommSuite product families, can uniquely help our customers connect, control, and capitalize on the power of the mobile internet. While our progress is measured one quarter at a time, we are making strategic changes that will transform our business over the course of the year. We remain optimistic about our business case, and believe we can return to profitability in 2013. And with that, I'll ask the operator to open the line for questions.

Thank you, Mr. Smith. Ladies and gentlemen, we will now begin the question and answer session.

(Operator Instructions)

Rich Valera with Needham & Company

Thank you, good afternoon, gentlemen. Bill, I was wondering if you could give any sense of the relative contribution of the NetWise and CommSuite products, and that nice, roughly, $7 million year-over-year increase you cited?

Sure, this is Andy, I can help out. I gave it, but I used some different product names, instead of just the whole group, if you will. As I said in my prepared remarks, our Connectivity and Security posted revenues of $5.7 million this period, that compares to $5.5 million last year, which is really important. We've talked quite a bit about that whole product line, being between a $4 and a $5 million, as far as a floor, as we transition to new products and old USB products transition out. So that's been very consistent through the year, and it has held to what we thought it would be. Now, when you look at CommSuite, that includes our voice mail, voice text, push to talk and different products. We showed $4.4 million for the period, compared to $3.2 million last year. Again very, very strong performance and that has been a strong performer all year long.

And NetWise? (multiple speakers) Okay

We have some information on NetWise. So let me just quickly finish on NetWise. NetWise, as you know, right now, we're selling through Sprint, and, as our primary customer, and that one is going to be as we go forward. It's single customer, a little lumpy; where we have been as high as between $1.5 million and $2 million in the period, and as low as, let's say, $0.5 million in the period. That's last period, we were between $0.5 million and $1 million mark, and it just depends on the pace and what phones we're launching.

And curious, how much runway do you think is there? Do you see that as an ongoing stream with them at that, I guess, ranging from $1.5 million to $2 million to $500,000 per quarter on a longish term basis?

Actually, I'll take this one. We actually see that the revenue stream from Sprint, as well as other folks that we're working with for NetWise, should grow throughout 2013. We are in the process of implementing many new use cases for the NetWise product family, especially at Sprint, that will drive higher revenues. So I feel positive about where we're going. We started with the base case, which was wi-fi off load. I frequently have said that I see wi-fi off load as basic table stakes to enter the game for intelligent network management. But what we're seeing now are the growth of a number of different very complex use cases for intelligent network management, and this separates us from the pack.

The rest of the folks have really base level quality products, and they are not in a position to implement some of these more advanced use cases. We see that as a major differentiator,.

Great, and while we are on the topic of NetWise, any color at all on your pipeline there, Bill, or I know you don't want to use specific timing, but prospects for any additional wins in the NetWise area?

We have a number of opportunities in the pipeline, some of these opportunities are moving to the more, very advanced stages, where you start talking about contract and business terms. I got my fingers crossed, I can't give you a name yet, but I think you'll see one, but you'll just have to wait.

Can you say if that's in North America or international, any clues there?

We're actually working them both.

Okay.

And, so it is a broad--

and don't leave out LatAm either.

So we're seeing a lot of activity in the space. I think the best way to characterize what's happening in this whole area of intelligent network management is that carriers, I mean, we were out front, we were one of the first, and we have been leading this marketplace. So carriers have been pretty much going to school, on our dime, for the last year or so, as they've gone through a number of trials, lab tests and other things to understand how to utilize these tools to improve the efficiency of their overall networks. What we see now is, we believe 2013 will be a year where carriers will now start to lay bets on how they want to move forward. And I think we will get out of the tire kicking and into the contract phases, and time will only tell.

Great, that's great color. Thank you, Bill. And than last quarter you talked about an opportunity with T-Mobile with the QuickLink product, and it sounded like you were initially going to go out on pucks and tablets with potentially additional roll-out to smartphones over time. Any updates on that roll-out?

Well, as I mentioned in my comments, the first puck launched at the end of last year, and is actually shipping and you can go and pick one up at any T-Mobile store. There are two more pucks, one is very near release point, and a third one that will be, most likely, released in the first half of the year. And so they're moving forward, and all of these devices utilize our QuickLink Zero Hotspot management capability, all of them incorporate all the features, functionality of our SODA. So, we're feeling very bullish on that.

We are also working with them to develop a timetable and deployment plan to provide a hotspot capability on smartphones as well, to try to step up to some of the issues that we identified through a survey we published last week, where users are intrigued by it, but they are not signing up in big numbers. The most important point, however, of that survey, is that the best adoption of mobile hotspots is at T-Mobile, the company that's using our products.

That's helpful color, thanks, Bill. And one final one for me on the opportunity front, could you give a little more color on the AT&T opportunity, you cited the AT&T hotspot opportunity? Just a little more color, and any sense of the, I don't know, potential magnitude of that? It's hard to gauge from what you said, but would love to hear more about that opportunity.

I can't comment. I'm not following exactly where you're going with, I didn't mention AT&T in my -- (multiple speakers)

Oh, I'm sorry. Okay. I must have misheard. Sorry about that.

That's all right.

Okay. Then just moving on. One final one, if I could, Andy, just on cash flow from operations did you actually give that number?

No, I did not. Let me find that really quickly. Okay. So bear with me here a second. Okay, cash flow from operations in Q4 2012 was a positive $5.2 million, and again, that's driven primarily by the receipt of the Federal tax refund.

And how big was that?

$6.8 million in Q4 of 2012.

And how about CapEx for the quarter?

CapEx was $45,000.

Okay. And how about CapEx plans for '13?

It's going to be primarily driven by our different products, really the CommSuite products, our voice techs and so on, if we're hosting the solution or not, and likewise, with the NetWise type products, again if a customer wants us to host the solution, we will, or not. So it's a variable, but it would be tied to revenue.

Great, that's helpful. Thanks very much, gentlemen.

Mike Walkley with Canaccord Genuity.

Thank you very much for taking my questions. This is Matt Ramsay on today for Mike.

Sure, Matt.

Thanks, guys. I just wanted to dig into a few things. The first one is around your leading customer, Sprint. Obviously, they have been in the public domain with quite a lot of changes over the last six months or so, and Bill, I just wondered if you could talk about, maybe in the medium and long term, either the changes, challenges or potential opportunities for Smith Micro at Sprint following their cash infusion from Softbank, and any changes you've seen in that dynamic there? And I noticed you mentioned on your call last quarter some opportunities, potentially in Japan at some point, and I wondered if those two were related? Thanks.

Okay. This is sort of a sensitive question, so let me just try to think exactly how I want to say this. I would say generally speaking that first off, our relationship with Sprint is as good as ever, if not better. We go all the way to the top of the company, and all the way through the various layers of their business units. So, we have a fabulous relationship, we partner heavily, clearly in the visual voice mail, which is the CommSuite part of the business, the business model is a revenue share. Both companies want to see that revenue base grow, so we all are on the same tune, and it works really, really well.

Clearly, I can't speak for the management at Sprint, but if would seem obvious that the infusion of capital into the Sprint business case is going to be a great asset, and clearly something that will help them as they continue to build out their 4G network, and they have made quite a bit of progress. As far as your question in Japan, there's only so many carriers in Japan, and you probably should assume we are talking to all of them, and that's all I'm going to say on that subject.

Thanks, Bill, I appreciate that. I appreciate you answering that question, and I appreciate the strong relationship you guys have had with Sprint. I guess the nature of the question was more a positive one than a negative one, given the cash that they have received. A couple more questions for me, more related to the go-forward model. Maybe just directing these at Andy, and Bill, you can jump in if you'd like. The potential break-even revenue level, Andy, going forward through 2013, and obviously you guys aren't guiding, but any color around how you get there or when potentially you might get to that break-even point would be really helpful?

Sure. The first thing that we always say is that we will move whatever levers is necessary. As we showed, we are about $13.2 million in expenses, fourth quarter, we have dropped that consistently each quarter through 2012. And we would like to say, we use that money as investment as we look forward. So once again, if the revenue timing works to the point where we can be profitable by the year end at that expense level, we will maintain that expense level. But it looks like we have timing challenges with revenue, we will make some adjustments at that level too. I mean our whole goal, as Bill said, is to be profitable, no later than the end of the year. And we will pull whatever levers we need to reach that result.

Yes, clearly, what I've said to our board and what I've said internally, is that we will be profitable by the end of the year. There's a good way to get profitable, and that is to sell more, and there's another way to get profitable. I prefer the good way. So that's what we're all working on. We are totally dedicated to making that happen. We are going to strive to keep our expense level as flat as possible throughout the year, and to grow our revenues. And we believe that we can get it done the right way, and I certainly hope I don't have to use the wrong way.

Thanks for that, guys, that's really helpful. And Andy, maybe one more about the revenue going forward. Obviously, you're not guiding, but any kind of commentary on seasonality for Q1 would be really helpful, just to set a baseline for the year?

Oh sure, and no matter what business, there is a certain degree of seasonality, and the most extreme in our business is our P & G group, Productivity and Graphics group. That one, as Bill said, goes through the Christmas buying season in fourth quarter. Then Q1 is, often times, lower. And that's been the case year after year after year, so that product group will be lower. And then when we look at our other business groups, it can be subject to seasonality, but we will wait and see. There's always some pretty good enterprise buying at the end of the year, and than perhaps a first quarter pause. But honestly, given the type of solutions that we're launching right now, it is a bit of a wait and see for us with that possibility that Q1 and Q2 are seasonally affected.

Okay. Thank you very much for taking our questions. We look forward to meeting with Smith Micro in Barcelona. Thanks.

Let me add just a little color to that. Typically, if you look at our business, how it's gone for the last few years, the back half of the year is always stronger than the front, and I think that will hold true here. Operator, next questioner, please?

Charlie Anderson with Dougherty & Company.

Yes, good afternoon, thanks for taking my questions. You guys talked about CommSuite being kind of lumpy because it's primarily Sprint. I wondered if you could just talk about some of the opportunities to grow that beyond Sprint? And then maybe the reason why it's been primarily one customer account, and what are some of the barriers that you have to knock down to get it to some other folks?

Just as a clarification, the CommSuite is less lumpy, that one had been growing more consistently, which is, the key driver there is our voice to text solutions. The NetWise Director is the one that's more lumpy, and that one, again, is subject to device launches, and the method, in which case, we catch up with the existing universe of devices that are out there. Very complicated process that's subject to some timing differences.

Sorry. That was the one I meant to say, Andy, the NetWise. My apologies.

The NetWise tends to follow the launch of the devices. So, as the device is launched in a quarter, and typically carriers don't like to launch a whole lot of new devices in Q4 around the holiday selling season, it will have an adverse effect on the NetWise revenue during that quarter. What I see, however, going forward, as I said earlier, is that with the evolution of intelligent network management, which NetWise leads the market in, you are going to see a broader adoption of the product in broader numbers of use cases, which should result in enhanced revenues going forward.

Got it. Thanks so much. You mentioned also how 2013 was going to be a transition year, where you had a lot of hand holding, if you will, in 2012, a lot of testing, a lot of trial activity, and you're hoping to convert that in '13 here. And I wondered if you could talk about what was the breadth of the trial activity, did you hit everybody that needed to be hit in '12, and now it's just a conversion issue, or if there's still going to be quite a bit of activity around trials in '13? If there's going to be expense that you are carrying to do all those trials?

Yes, I think the way we view it is there were a number of trials. The trials, by and large, all were quite successful. They proved out the value of our software, and now the carriers are going through their process, they've now seen that it works and they are trying to figure out exactly how to implement. Now, as more carriers implement, I think you'll see the trial process from carriers who haven't even started, be a lot shorter because they are in the catch-up mode. They'll see that these number of carriers are utilizing our NetWise solution, and it's working well for them and they will probably, more likely, go to a more traditional sales model, where they can move faster.

However, all that said, keep in mind that this is a product that runs within a carrier's network. There is no more valuable asset for every carrier in the world than their network. So they will do nothing, until they are absolutely certain that the network is safeguarded, and the software will help them provide better service to their customers.

And than, last one for me, I wondered if maybe you could just provide a little bit more color on your go-to-market strategy for NetWise? Is this mostly a direct business, or are you doing some indirect deals with partners, and are you going to expand, maybe a partner program, as this grows?

Yes, it is, today, mostly a direct business, we are looking at various industry partners that we can team with. We have been teaming with a number of these folks, but we look for that to expand in 2013 and beyond.

Great, thank you so much.

(Operator Instructions)

Rich Valera with Needham & Company.

Actually my question's been answered. Thank you.

Mr. Kehrli, there are no further questions in the queue.

Thank you. And thank you for joining us today. For anyone planning on attending Mobile World Congress in Barcelona at the end of the month, please feel free to stop by and say hi. Or if you would like to set up a meeting with management, you can do so on our website. Thank you and that concludes our call.

Ladies and gentlemen, this concludes the Smith Micro Software fourth-quarter and full-year 2012 financial results. You may now disconnect and thank you for using ACT conferencing.