Q4 2021 Smith Micro Software Inc Earnings Call

[music].

Good afternoon, and welcome to the Smith micro software fourth quarter and fiscal year 2021 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions.

To ask a question you May press Star then one on your telephone keypad to withdraw your question. Please press Star then two.

Please note this event is being recorded.

I would now like to turn the conference over to Charles Messman. Please go ahead.

Thank you operator, and good afternoon, everyone. We appreciate you joining us today to discuss Smith micro software's financial results for the fourth quarter and year end December 31, 2021, right. Now you should have received a copy of the press release with the financial results.

You do not have a copy and would like one please visit the investor relations sections of our website at Www Dot Smith micro dot com.

On today's call, we have Don Smith, Chairman of the Board President and Chief Executive Officer of Smith, Micro and Jim Kempton Chief Financial Officer.

Please note that some of the information you'll hear today during our discussion consist of forward looking statements, including without limitations those regarding the company's future revenue and profitability, our future plans new product development.

New and expanded market opportunities future product deployment migration and or growth by new existing customers operating expense company cash reserves.

The expected impact of last year's acquisition.

Bass family safety mobile business on our business strategy operations and financial positions going forward.

Forward looking statements involve risks and uncertainties, which could.

Cause actual results or trends to differ materially from those expressed or implied by forward looking statements.

For more information please refer.

To the risk factors included in our most recently filed Form 10-K , and our final prospectus filed with respect to our public offering last year.

Cause micro assumes no obligation to update any forward looking statements, which speak to our management's beliefs and assumptions only as of date. They are made.

I want to point out that in the forthcoming prepared remarks, we'll refer to certain non-GAAP financial measures.

Afraid of our press release disseminated earlier today for a reconciliation of these non-GAAP financial measures.

With that I'll turn the ball they both do.

Thanks, Charlie and good afternoon to everyone and thank you for joining us today for 2021 fourth quarter and year end earnings conference call to start I sincerely hope that everyone. On this call today is doing well given the unique challenges. We are all faced over the past couple of years and know exactly.

Rebated by the conflict in Ukraine.

Despite all that we've been challenged with much was accomplished at Smith micro during 2021 and I'm looking forward to discussing our progress with you. This afternoon.

This past year as we stated before.

A truly transformational year for Smith micro.

We accomplished several strategic initiatives that has positioned us very well for success in 2022 and beyond.

We enhanced the functionality of safe task by successfully integrating circles code base into our platforms a huge accomplishment for our team did it resulted in us having the most comprehensive family safety offering on the market for wireless carriers. In addition.

Last spring, we acquired our largest competitor in the White label family safety space with the acquisition of a boss family safety Mobile business. This was the largest acquisition in Smith Micros history.

Not only did it add several tier one carrier customers to our global family safety client base. It also got more than 150 highly experienced professionals to our company. We are clearly now the leader in the White label family safety space with a dedicated.

<unk>, an experienced team focused on executing our growth strategies and advancing our safe Paas platform.

With contracts in place with multiple carriers, we expect our historical customer concentration issues are behind us I.

I couldn't be happier with the growth potential we have in front of us.

Before looking back at our financial results for 2021.

I must share just how proud I am of the Smith micro's teams preparation for the launch of safe past seven at T mobile, which should occur in the next few weeks with the apps already having been submitted and approved by the Google play and Apple App stores.

As we have completed all of the requirements under the T mobile contract for the migration, we were now able to recognize the revenue from that contract under the new variable pricing model, which is more in line with our traditional SaaS model that I spoke of on the last call the.

Launch of T mobile will mark the first cure deployment of safe TACE seven into the market and will set the stage for future deployments.

The platform with our other tier one customers in the U S and Europe .

That at least completed migration activities related to the T. Mobile lunch, we are well positioned to migrate both Verizon and AT&T overshoot, the safe test platform, which is one of our key initiatives for 2022.

In fact, we've seen an increase in urgency from our carrier customers to accelerate their migration efforts.

So they can offer a broader more lucrative family safety offering to their respective customer bases. We continue to work very closely with our partners on the best strategy and timing behind these migration efforts, while also building momentum on the subscribers.

Growth front I.

I believe this dual pronged approach positions us strongly to drive revenue growth as 2022 progresses.

Now, let's take a quick look at the financial results for the fourth quarter and full year of 2021.

For our 2021 fiscal year total revenues increased 13, 9%.

$58 $4 million.

Paired to 51.3 million reported in fiscal year 'twenty 'twenty.

For the fourth quarter of 2021 revenue increased 18, 2% to four.

$14.7 million when compared to the $12 $4 million generated in the fourth quarter of 2020.

non-GAAP net loss for our 2021 fiscal year was $2 $1 million or four cents per diluted share.

And for the fourth quarter non-GAAP net loss was $2 $3 million or four cents per diluted share.

We ended the year with a cash balance of $16 $1 million.

Overall revenue for the quarter came in slightly below expectations communicated on our last earnings call.

As Jim will review in more detail shortly the decline in revenues is primarily related to the reduction in subscribers.

The legacy Com sweet deployment at sprint, which accelerated more quickly than expected during the fourth quarter.

We've known for quite some time that revenues associated with this legacy visual voicemail deployment would decline once T. Mobile completed the migration of acquired sprint customers onto its own network.

Well at the end of the revenue stream is in sight, we were focused on other growth areas. We recently signed a contract with dish wireless for Comm suite that represents a healthy growth potential for our comm suite product line as.

As they work to deploy their network.

We can now turn the attention of our comp suite teams to supporting our new customer and deploying a premium voice.

Messaging solution that generates sustainable recurring revenue for both Smith micro and dish.

Now, let's turn the call over to Jim for a more.

More in depth analysis of the 2021 financial results Jim.

Thanks, Bill and good afternoon, everyone.

As a reminder, we acquired the Avast family food safety mobile business in the second quarter of 2021, which impacts the period over period comparisons that I'll be covering today.

As such I'll be highlighting the sequential changes as well to provide some additional context on our quarterly results.

With that let me cover the financial details of the fourth quarter and fiscal year 2021.

For the fourth quarter, we posted revenue of $14 7 million compared to $12 4 million for the same quarter last year, an increase of 18%.

The result of the loss family safety acquisition.

When compared to the third quarter of this year revenue was down approximately 11% driven primarily by decreases in revenues associated with our comm suite product line.

For the fiscal year revenue was $58 4 million compared to $51 3 million last year, an increase of 14%.

The increase in revenues compared to last year was as a result of the family safety growth related to the business we acquired from my boss.

Really offset by the decline in clumps wheat revenue.

During the fourth quarter of 2021 family safety revenue increased 90% to $11.6 million compared to the fourth quarter of last year as a result of the additional family safety customers acquired through our acquisition from a bass.

Safety revenues decreased 3% sequentially compared to the third quarter of this year.

The primary reasons for the sequential decrease in family safety revenue was related to the legacy Avast Sprint family Locator product being discontinued in October and the continued reduction of the legacy safe and pumps platform revenue related to declining sprint subscribers.

For fiscal year 2021 family safety revenue increased 46% to 41 million in 2021 from 28 million in 2020.

We remain excited about opportunities to grow the subscriber bases in all three of our U S tier one carrier customers in the coming quarters, but we expect that the growth will be aligned with the timing of several marketing initiatives undertaken by the carrier partners.

We are encouraged by the upcoming launch of T mobile on the safe power platform and the recent conversion of the.

Pricing under this contract to a variable pricing model.

We believe that this change in fee structure in conjunction with the anticipated marketing efforts to add subscribers should drive revenue increases on the family mode offering in the coming quarters.

During the fourth quarter of 2021 comp suite revenues were $2 2 million, which declined $2 6 billion compared to the $4 8 million in revenue produced in the fourth quarter of last year.

Revenue from comps, we decreased 37% sequentially compared to the third quarter of this year due to the continued attrition of the legacy visual voicemail subscribers, leaving the platform during the quarter.

The decline in legacy sprint subscribers, it's driven by those subscribers, having the option to move from sprint to the T Mobile network for voice services.

As more and more subscribers transition off the sprint network comp suite revenues will continue to decline.

For fiscal year, 2021 comp suite revenues decreased 25% from $18 2 million in 2020 to $13 7 million in 2021.

We continue to navigate the T mobile sprint merger as subscribers now have an option to move from sprint to Tina will not work for voice services.

As these subscribers transition from the sprint network, we expected natural decrease in sprint com suites subscribers to continue as.

As we have stated in the past the decline in revenues is very difficult for us to predict as we do not have visibility to when a customer switches over to a new Sim when the T Mobile network.

As a reminder, boost formerly owned by Sprint is now part of dish and comprised slightly over half of our comp suite revenue in the fourth quarter.

As Bill had mentioned with the contract that we executed with dish subsequent to year end, we are expanding our relationship with dish on the comm suite platform with the goal to increase boots Com suite subscribers.

You're spot revenue was approximately 800000 for the fourth quarter of 2021, a decline of approximately 600000 compared to the fourth quarter of last year and down 13% compared to the third quarter of this year.

For fiscal year 2021, you're spot revenue was $3 6 million versus $4 2 million in 2020.

As a reminder, we separate you spot revenue into two categories fixed and variable.

Fixed portion of the revenue is related to license fees and is generally the recurring component of the revenue.

The variable portion of the revenue is related to device and promotional campaigns, which are short burst of activity, resulting in revenue and the volume is less predictable.

In total we expect consolidated revenue for the first quarter of 2022 to be lower by approximately 13% to 18% compared to the fourth quarter of 2021.

This decline is expected to be driven primarily from the continued attrition of sprint subscribers off the comp suite and the states and found family safety platforms.

For the fourth quarter gross profit was $10 6 million compared to $11 million during the same period last year.

Gross margin was 72% for the fourth quarter compared to 89% in the fourth quarter of last year.

Our longer term goal for gross margin is to be in the range of 80 to 90 per cent to achieve at a school, we will optimize third party applications and service contracts used by the combined business and execute on other cost synergy opportunities upon the migration of our family safety carrier customers want to.

A single family safety platform.

In the short term, we expect gross margin to be near this current run rate until we were able to transition all of the carriers also the legacy avast ring platform onto our safe path platform.

At that point, we expect to be able to realize synergies.

Will help to drive our gross margins towards our targeted gross margin.

Given the timeline of the migrations, we expect that these synergies will likely not be fully realized until the first quarter of 2023.

For the fiscal year gross profit was $45 7 million compared to $46 1 million during the same period last year.

Gross margin was 78% for 2021 compared to 90% last year.

GAAP operating expenses for the fourth quarter were $14 6 million, an increase of $3 6 million or 33% compared to last year.

The increase was primarily driven by compensation and employee related expenses due to our acquisition of the Avast family safety mobile business.

non-GAAP operating expenses for the fourth quarter were 13 million compared to $9 5 million in 2020, an increase of $3 5 million or 36% compared to last year.

GAAP operating expenses for the fiscal year were $76 7 million versus $42 6 million and.

An increase of $34 1 million or <unk> 80 per cent compared to last year.

The increase in GAAP operating expenses for the year ended December 31, 2021 compared to last year is primarily related to a charge of $12 9 million due to the change in fair value of contingent consideration related to our acquisition from a bust.

An increase of $13 2 million for compensation and employee related expenses, primarily related to the acquisition as head count increased 46% year over year, resulting in 373 employees at the end of 2021 compared to 255 at the end of 2020.

This increase is inclusive of an increase in stock based compensation expense of $1 8 million.

We also had an increase in amortization of $5 2 million, primarily driven by our acquisition from a boss.

Also had an increase in acquisition cost of approximately 750000 and CFO transition costs of approximately 300000.

And we also had costs related to the acquisition of certain non development intellectual property of a million dollars.

non-GAAP operating expenses for the fiscal year were $47 9 million versus $35 7 million in 2020, an increase of $12 2 million compared to last year.

Driven primarily by the increase in compensation and employee related expenses, principally attributable to our acquisition of the boss family safety mobile business.

We expect first quarter 2022, non-GAAP operating expenses to be relatively consistent with the fourth quarter of 2021, as we continue to invest in our development resources to migrate our family safety carrier customers to deceive path platform.

non-GAAP net loss for the fourth quarter was $2 4 million or four cents loss per share compared to a non-GAAP net income of $1 4 million or three cents diluted earnings per share last year.

The non-GAAP net loss for the fiscal year was $2 2 million or four cents loss per share compared to a non-GAAP net income of $10 4 million or <unk> 24 cents diluted earnings per share last year.

Within the recently issued press release, we have provided a reconciliation of our non-GAAP metrics to the most comparable GAAP metric.

For the fourth quarter. The reconciliation includes the following adjustments stock compensation expense of $1 2 million.

Total amortization of 142000, CFO transition cost of 179000 and acquisition related cost of 81000.

For the year the.

The reconciliation includes the following adjustments stock compensation expense of $4 8 million.

Tangibles amortization of $8 1 million.

Acquisition cost of $14 5 million, including the $12 9 million change in fair value contingent consideration recognized in the third quarter.

Non development intellectual property cost of $1 million and CFO transition costs of 322000.

Sundar accumulate Keith.

Cumulative net losses over the past few years, our GAAP tax expense is primarily due to certain state and foreign income taxes.

For non-GAAP purposes, we utilize zero percent tax rate for 2021 and 2020.

The resulting non-GAAP tax expense reflects the actual income taxes expense during each period.

From a balance sheet perspective, we reported $16 1 million of cash and cash equivalents as of December 31 2021.

As we noted on the last earnings call. We have paid the remaining portions of the euro not two of us during the fourth quarter and the amount of $13 6 million, which includes the $12 9 million charge for the change in contingent consideration recognized in operating expenses in the third quarter.

I would also note that the company completed the Avast family safety mobile business purchase price allocation during the fourth quarter, which resulted in an increase in intangible assets recognized in a decrease in the goodwill balance as compared to the preliminary estimates.

The finalization of the purchase price allocation also resulted in an adjustment to amortization expense for the quarter.

Noting a net amortization expense of 142000.

In 2022, we are anticipating amortization expense to be approximately $1 6 million quarterly.

This concludes my financial review now back to Bill.

Thanks, Jim as I previously mentioned I believe the upcoming launch of safe past seven at T. Mobile will be a major achievement that will set the stage for driving increased revenue growth at this key customer.

It will also provide a blueprint for successful deployments of the safe past seven platform at both Verizon and AT&T.

The hard won experience we gained during the T. Mobile project will help us accelerate safe path migration efforts at the other two carriers, which is a very high priority for our company. This this year.

I am truly excited about the growth plans, we have in place for T mobile as well as the exciting opportunities. We have ahead for us at this carrier.

We are looking forward to growing the family mode subscriber base, while we work with T mobile on the strategy to unify all of his family safety apps onto a single platform.

We have a fantastic team in place that is working collaboratively with T mobile to execute on these strategic initiatives, which I am confident will result in driving revenue growth for both Smith micro and T mobile.

Turning our attention to Verizon.

We've made some great progress since we last spoke in November not only with the migration efforts, but also on the relationship building front.

We continue to branch out with in the Verizon ecosystem with the goal of finding new ways to collaborate with the carrier.

In fact, just recently the carrier rolled out the first marketing campaign to promote Verizon smart family and its corporate owned retail stores across the country.

We work closely with Verizon to develop the product marketing assets for this campaign.

I believe this is just the first step and utilizing the extensive new retail marketing efforts, which have already proven to be effective in growing this the subscriber base and profitability of carrier provided family safety services.

Increasingly this initiative is also quite strategic for Smith micro as for Horizon is also leveraging our view spot platform to deliver the smart family promotional content across its footprint of retail stores.

This multi product collaboration not only helps train Verizon retail associates and builds awareness of smart family. It also expands our reach throughout the carriers internal organization I.

Leave this approach is critical to our overall growth strategy at horizon.

As part of our multichannel marketing efforts with Verizon, we continue to optimize the smart family digital advertising campaigns through increased targeting and use your base segmentation.

This enables us to serve specific messaging and AD creative to different subsets of Verizon subscriber base.

For example, we are targeting smart family basic subscribers to promote the premium tier of service.

As the smart family premium includes several additional features such as family location services and driver safety monitoring this.

This digital marketing strategy illustrates that we're using all channels and tactics at our disposal to grow revenue at horizon.

Overall, our main Verizon related priorities during 2022 will be to grow revenues, while successfully migrating the carriers smart family service to our safe SaaS platform.

We are laser focused on both initiatives and I am very confident that our current plan will result in a successful migration as well as increased ROI for this cornerstone accounts.

As I mentioned earlier T. Mobile's launch unsafe past seven provides us with a migration blueprint to follow it.

Well horizon as well as at AT&T <unk>.

AT&T is eager to rollout a new family safety service based on say staff because of the significant enhanced feature set.

And in App notifications functionality this migration will unlock.

Retaining AT&T as a family safety customer was one of the company's major successes last year as the carrier has every intention of winding down its service prior to our acquisition of the Airbus family safety business.

Because of the efforts of our team and selling the same path vision. However, digital family safety is now a renewed focus with this tier one customer.

I am very pleased with the progress we have made up to this point with AT&T.

The carrier has been extremely receptive to our ideas and is committed to growing the number of subscribers of secure family.

Yeah.

To help the carrier grow secure family subscriptions in the short term we are developing a multi channel strategy that would consist of targeted digital advertising campaigns stiff incentive programs for both retail and support representatives as well as a large awareness campaign to spur.

Read the word about secure family within the AT&T employee base.

Sure.

Treme tremendous support we received from the carrier up to this point, coupled with the exponential growth potential of the relatively small secure families subscriber base is just the tip of the iceberg at AT&T.

The upside potential for this account is truly a mems for Smith micro.

Okay, let's move on to our smart retail platform do you spot.

We have continued to improve the platform with a key goal of broadening the total addressable market and utility of abuse, but within the dynamic retail space.

As I discussed during our last earnings call. These features are focused on enhancing do use bus functionality in creating deploying and managing the digital content assets that comprise the in store promotions. They play on demo devices.

Since our last call, we were able to extend contracts with two of our key do you spot customers Verizon and cricket.

Both new contracts include our abuse, but studio feature which provides enhanced content management capability for our customers. This feature should also decrease our costs associated with this product overtime, allowing for decrease operating expenses really.

Waiting to do spot.

We are also continuing to explore strategic partnerships with established retail technology vendors.

To extend view spots footprint and functionality since we last spoke.

Two more successful abuse spot trials have been completed in Europe , which bodes well for future product line growth.

Now, let's talk a bit about our voice messaging platform comp suite of product that continues to bring values to Smith micro.

Even though revenues associated with the legacy visual voicemail deployment at sprint or winding down we are positioned well to launch.

Comp suite powered premium visual voicemail and voice to text services at dish wireless later this year.

We look forward to leveraging our experience and success with boost mobile carriers prepaid brand to build a successful and profitable partnership with America's newest tier one carrier and to extend the life of the comp suite platform.

Looking ahead I believe we have the strongest foundation on which to build our future success that I can remember.

The 40 year history of Smith, micro and that truly excites me.

I believe that 2022 will be a transitional year.

Early in the first half, while we work with our tier one carrier partners to get their respective families safe deployments migrated to our platform.

It is our priority to get these migrations done as soon as possible to eliminate the extra costs of running concurrent platforms and to position our carrier customers to take advantage of the other benefits safe times has to offer.

As I've spoken about many times our vision for the family digital lifestyle extends far beyond mobile apps to the connected devices that comprise our digital lifestyles, including consumer Iot devices and in home connected devices.

Getting all of our customers up and running a safe path.

Locks was vision for Smith micro.

Growing consumer adoption of the Iot and smart home technologies paired with the market trend towards carrier provided home Internet connectivity based on five G networks is creating fresh demand for single pane of glass solutions that address.

Multiple family safety challenges simultaneously.

Based on these market conditions I look for carrier deployments are both safe path home Msas task I O T to activate new revenue streams for us soon.

I am confident that the migration plans, we have in place at both AT&T and Verizon provide us with a clear path to moving both carriers over the finish line and on to safe task. This year.

We will continue to build the momentum and grow revenues as we strive to return gross margins to be in the range of 80% to 90%.

This will result in the business generating significant free cash flow.

We have the right team in place to achieve these goals and I am very excited about Smith micro <unk>.

Short and long term profile.

With that said I will open the call to questions operator.

Thank you we will now begin the question and answer session.

To ask a question you May press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

And the first question will come from Josh Nichols with B Riley. Please go ahead.

Yeah. Thanks for taking my question I'm glad to hear some updates on the timing it seems like the apps have already been approved for Google and Apple is there anything else that needs to be done or a major items before the anticipated launch with T mobile and then could you.

Elaborate a little bit on any type of specific marketing plans that the company has in place and how long it will take for that business to start generating material customers.

Yeah, Josh look I think at the present time, everything's well set up and ready for the launch so I don't anticipate any other issues.

As far as there the marketing.

Programs that T mobile will use.

I think I'd, rather leave that to them to talk about.

Because that's really more how they wanted to go to market. So I'm gonna have to kind of duck that question.

Fair enough and then just because you talked about a little bit and the ATT right. So you know a customer that was thought to be leaving the platform and now coming back on.

You paid the earn out so I know that you must have pretty high expectations for this carrier is going to be doing like what are you kind of assuming that what's built into the model for a T. T now and based on your discussions with the opportunity to grow that business off the relatively low base as of today.

Yeah.

We believe that AT&T like T mobile and Verizon.

Ken.

And they're very similar number of subs over time Adam.

We believe that we have an excellent relationship there and that they are very excited about what.

Family safety could could bring them and you know as we've talked in the past family subs here some of the most treasured subs to the carrier can Ken.

Can attract.

They churn less.

They tend to be much more loyal and as such I think that.

All of a sudden done.

We will see similar.

User bases and all three carriers as far as the number of subs.

Thanks, and then last question for me.

Just drilling in for the guidance for the first quarter.

Understand Tom suites can be down, but I'm just looking if you could provide a little bit color on the family safety business I assume that's going to be down.

5%, 10% sequentially is that driven by.

Some chunky legacy customers from sprint migrate over or what's the expectation that you're thinking of for for the.

Family safety business.

We are expecting the family safety business to be down couple.

Couple of reasons for that one.

We do expect the continued attrition related to the seafood found platform.

As those legacy sprint subscribers transition off.

The other thing I would mention and we touched on this last quarter, but there was a pick up in Q4, there was a one time related to the execution of the T Mobile Amendment.

And that would be nonrecurring as we go into Q1.

Got it thanks.

Yep.

Thank you and the next question will come from Scott Searle with loss capital. Please go ahead.

Hey, good afternoon. Thanks for taking my questions Hey, guys. Just a quick clarification looking into the guidance for the first quarter.

You know in terms of that range of 12 to $12 7 million is that assuming basically that there was no contribution for T mobile from Comm suite and it's almost all of our T mobile safe path out of the numbers at that point in time.

There's a there's a modest very modest amount of T mobile.

Comp suite revenue baked into that.

Obviously, there's some variability to that but it's again very modest amount.

We have baked into the Q1 estimate.

Okay helpful.

And.

Just to follow up in terms of the Verizon commentary around.

Smart family or those New addition to the marketing campaign built around the safe path seven point out or is that still adding two legacy location labs platform.

Hey, Scott, it's Charlie batteries actually for the legacy.

Two is to grow through.

Through the transition.

Hopefully that helps answer the question.

And also on the dish run it sounds like you're starting to develop a stronger relationship with their there are I think a big chunk of the existing contract revenue with boost but.

But how would you expect dish to transition over the course of this year will that be growing on a sequential basis throughout 2022.

We have a very modest amount of growth built into the dish.

First sign of Comm suite I would leave it at that.

Yeah, I would say when you when you look at when you look at dish. They they have the boost business. They have their M. D&O business, that's running on T. T mobile they announced that they will also have an M D N a relationship with.

AT&T and of course, they've got the rollout of five five G on their own network.

All of this.

Is a major undertaking.

Yeah, it's kind of hard for us to give you a whole lot of help on that because there's so many moving moving parts what they're working on okay, and lastly, if I could there's been a lot of talk out of both our Verizon and T mobile as it relates to their five year fixed wireless access initiatives you guys I think had referenced some of that in the past.

<unk> is an opportunity for you to be integrated into the router or other.

You know extension in terms of home opportunities for you guys. So I'm wondering what the latest thoughts are on that front and maybe if you could kind of wrap up some iot comments around that as well. Thanks.

Yes I.

I would say this I would say that.

The first step is to be very focused on getting them launched unsafe then once they're launched unsafe safe path.

Yes, I think you'll see a lot of interest around the safe path home opportunity of putting the firm firm. We're in the five G routers and I think that that goes for a number of carriers that we're talking with.

From an Iot stand standpoint, there's a lot of interest there and again all of these things kick in once they're unsafe past. So that's the main driver to get everybody over to get everybody off of the legacy of off ring net service offering and that's why.

It is all about this is a very focused execution here.

Great. Thanks.

Okay.

And the next question comes from Eric March Newsy with Lake Street. Please go ahead.

Yes, I would.

Dribbling as fast as I could but I didn't quite catch your comment regarding the migration versus launch on T. Mobile, obviously and we got the contract signed in mid Q4.

It sounds like the technologies and bullet proof tested them and it all in their hands or is there anything left for you guys to do as far as getting that program going.

Yeah, the only thing left for us to do is to fully.

Support them as they they hit the launch button. So yeah, we are.

We're ready we're excited.

Eric I would add as we noted on the call. We have done everything that we needed to to transition to the new variable pricing model in terms of the delivery.

Our objectives that we needed to make so.

We've delivered everything we needed to associated with the migration from that perspective.

Okay.

And then when I, just kind of rest of the P&L based on your guidance for Q1 here.

That's roughly $12 5 million at 72% gross margin with $13 million of Opex, we're looking at about a $4 million.

Yeah.

Dollar negative operating margin here is that.

Is my math correct first of all and then.

Do we do we have any issue here with getting.

Getting a little bit tight on the working capital to support the three major carrier rollout.

Your math is directionally correct, and we are not anticipating any issues from delivering.

When these rollouts.

Okay.

To say that Q1, you would expect to be the.

Biggest.

Alright, let me let me ask the question.

Where are we where do we reach maximum burn here in <unk> and 2022 what quarter.

We're projecting right now that would be Q1.

Although we're not expecting a substantial uplift in Q2.

Okay. That's helpful.

Lastly, Bill you talked about critical lessons learned in 2020 one.

Or what are an example of one or two examples of those critical lessons learned.

I guess, the I think the.

It's just very difficult sometimes to.

Forecast and set schedules with tier tier one carriers.

It's a lesson I think I've had a lot of years now to learn and it just got reinforced but.

This is where having great relationships at the executive level help.

Cause if you were able to kind of smooth out some of the bumps in the road. So we just have to stay focused we have to keep our heads down.

And we have to execute and our entire team understands that.

They're totally tied to it.

And I think that's that's that's really the way to view it.

Okay. Thanks for taking my question.

Thank you Sir.

Yes.

And the next question will come from Jim Macquarie with Dawson James. Please go ahead.

Thank you good afternoon.

For the domestic carriers would you expect all of them to have all of their subscribers unsafe Pat seven by the end of this year.

That would be our fond hope I can't guarantee you that because that's in their hands, though Jim so.

They they get the final vote, but I would I would definitely be looking to have.

All three of them moved over and have all their subscribers they'll deliver as well.

I mean is there something you can do or would do in order to incentivize them to go quicker or is it it's completely in there.

At their discretion and you're just going to have to accept what their decisions.

Well look I I don't view us as a victim here I view us as a helpful partner, but we have to understand that we're dealing with very large corporate entities.

Have a lot of their own rules and they like to make their own decisions.

Yes.

We know how to play the game and we will work with them and hopefully be able to get all of their bases over to say say staff before the end of the year.

And then is there any human or technological capacity issues that you have that would.

Prevent you from.

Moving all of them over on the exact same day or is.

Is that not an issue.

That's not an issue.

Okay.

And then you.

You mentioned.

You mentioned some international initiatives.

Is that something that is likely to happen this year customer announcements this year or or is this you're going to be mostly focused on on the domestic market and then.

As those as that as that migration takes place then you can start focusing internationally.

We talked about that when I was talking about these spot and yes.

There's a good likelihood that we could see some some new customers and that is that we will be able to talk about during 2022.

But as you recognized clearly you know.

The revenue coming from these spot is smaller than the revenue coming from family safety. So it doesn't have the same impact or effect I will say, however that we will be working diligently to move both wind tre and as well as Vodafone check both customers that came to us.

Through the vast transaction.

He will get be working with them to get them moved over to safe to safe path as well.

That that movement to say that it might be early first first quarter, but all the work will be done.

By the end of the year.

Alright.

Very good. Thank you that's it for me and thanks for the answers.

Sure.

Okay.

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

So thank you everybody for joining us today, and I look forward that put a little in the future.

Do you have any questions. Please feel free to reach out to us directly thanks have a great day.

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

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Okay.

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Yes.