Smith Micro Software, Inc.

was 1.8 million or 4 cents per share. We delivered strong cash flow from operations of 3.9 million during the quarter, ending with a cash balance of approximately $26 million. Overall, I am pleased with these results. The company remains cash flow positive and continues to deliver profitable quarterly results despite the sequential decline in revenues and our aggressive investment in R&D. Later in this call, I will provide more color on our three main product lines, as well as provide you with an update on our expectations for the last quarter of 2020. But for now, let's turn the call over to Tim for a more detailed review of the third quarter financial results. Tim?

Thanks, Bill. For the third quarter, we posted revenue of $12.6 million compared to $11.8 million for the same quarter last year, an increase of 7%. When compared to the second quarter of this year, revenue was down 2%, which was within the guidance range provided. For the third quarter year to date, revenue was $38.9 million compared to $31.1 million last year. an increase of 25%. The increase in revenues compared to same quarter last year and year to date was a result of SafePath platform revenue growth. Also contributing to the results, both the comm suite and view spot performance was relatively consistent. During the third quarter of 2020, SafePath increased 30% to 6.8 million compared to the third quarter of last year. Revenue from the SafePath platform decreased 8% sequentially compared to the second quarter of this year. This decrease was slightly outside of the guidance range provided. The primary reason for the sequential decrease in revenue was related to a reduction of in-store marketing initiatives due to merger activities between Sprint and T-Mobile. Earlier this year, COVID-19 caused most Sprint stores to shut down, and when those stores reopened, the marketing initiatives did not focus on Sprint-based products. We also believe that the general unemployment related to COVID-19 has caused a reduction in the number of subscribers. In the coming quarter, based on the current status of the marketing initiatives within stores and the current subscriber activity in October, we expect SafePath to be down 7 to 12% compared to the third quarter. This guidance assumes the current subscriber trending continues throughout the fourth quarter. We remain excited about new SafePath opportunities and are encouraged by continued progress around a launch of a new T-Mobile product. During the third quarter of 2020, CompSuite revenue was $4.5 million, down 1 percent compared to the third quarter of last year. Revenue from the ComSuite platform increased 5 percent sequentially compared to the second quarter of this year. This increase was higher than expected and outperformed the guidance provided. The current quarter increase was due to base subscriber stability and growth in both Sprint and Boost subscribers. Boost is now part of DISH, and comprised approximately 25% of the CompSuite revenue in the third quarter. We continue to navigate the Sprint T-Mobile merger as subscribers now have an option to move from Sprint to the T-Mobile network for voice services. Additionally, we are excited to work with DISH to increase the Boost CompSuite subscriber base. Consequently, we expect Comp Suite revenue to be flat to down for the fourth quarter of 2020 compared to the third quarter. Revenue for Comp Suite advertising during the third quarter was approximately $260,000, which was relatively consistent with the second quarter of this year and less than the third quarter of last year. The current quarter amount was in line with expectations. As a reminder, this is a variable revenue stream and dependent on third-party activities. We expect the fourth quarter of 2020 Comp Suite advertising revenue to be between $150,000 and $250,000. USPOT revenue was approximately $1.2 million for the third quarter of 2020, down 8% compared to the third quarter of last year, and up 19% compared to the second quarter of this year. This increase was higher than expected and outperformed the guidance provided primarily due to a high volume of variable revenue activity with our tier one US customer. As discussed last quarter, during the second quarter of this year, we added a new view spot customer, which contributed to the increase in our view spot revenue base. This was the second new customer to be added in 2020. and we look forward to additional wins in the coming quarters. As a reminder, we separate view spot revenue into two categories, fixed and variable. The 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 bursts of activity resulting in revenue and the volume is less predictable. Based on our outlook, we expect view spot revenues to be approximately 10 to 15 percent higher in the fourth quarter compared to the third quarter. This increase is primarily related to our near-term visibility of variable revenue. Overall, for the reasons discussed, we expect the fourth quarter total revenues to be flat to down by 5% compared to the third quarter of this year. For the third quarter, gross profit was 11.3 million compared to 10.8 million during the same period last year. Gross margin was 90% for the third quarter compared to 91% last year. For the third quarter year to date, gross profit was 35.1 million compared to $28.2 million during the same period last year. Gross margin was 90% for the third quarter year to date, compared to 91% last year. Gap operating expenses for the third quarter was $11.1 million, an increase of $3.8 million, or 52% compared to last year. Gap operating expense for the third quarter year to date was $31.6 million, an increase of $9.9 million or 46% compared to last year. Non-GAAP operating expenses for the third quarter was $9.5 million, an increase of $2.8 million or 41% compared to last year, and an increase of $800,000 compared to the second quarter of this year. Non-GAAP operating expenses for the third quarter year to date was $26.5 $2 million, an increase of $6.4 million compared to last year. The increase in non-GAAP quarterly operating expense compared to last year is primarily related to an increase of $1.8 million for compensation and employee-related expenses as headcount increased 40% year-over-year, resulting in 257 total employees at the end of the third quarter. and an increase of $1.1 million for third-party contract development costs. These costs are variable and allow flexibility to increase or decrease the number of engaged resources. The sequential quarter increase in non-GAAP operating expenses compared to the second quarter was slightly higher than the guidance provided and was primarily due to higher third-party contract development costs. As previously discussed and to provide additional comments around operating expenses, we continue to recruit and hire resources in all of our markets and currently expect to add approximately 12 to 15 employees in the fourth quarter of 2020. We will continue to engage the third party contract development firm as needed. These additional internal and external costs were and are necessary to accelerate the SafePath roadmap by adding features and functionality sooner than originally expected and support the pursuit of new customers. As discussed at length last quarter, we operate in a highly competitive environment and timing of customer opportunities is very critical. We are currently pursuing multiple opportunities to sell our SafePath platform for both family and IOT. Although there is no guarantee this effort will result in additional revenue, we are optimistic enough to make the investment and pursue the win. Based on this activity, we expect fourth quarter non-GAAP operating expenses to be relatively equal to the third quarter. This expectation includes a reduction of third party contract development costs, and an increase of employee run rate costs as we continue to hire new employees through the quarter. During this time of investment, we expect to remain profitable and cash flow positive. The non-GAAP net income for the third quarter was $1.8 million, or $0.04 diluted earnings per share, compared to a non-GAAP net income of $4.2 million, or $0.11 earnings per share last year. The non-GAAP net income for the third quarter year to date was $9 million, or $0.21 diluted earnings per share, compared to a non-GAAP net income of $8.5 million, or $0.24 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 third quarter, the reconciliation includes the following adjustments. stock compensation expense of $811,000, and intangible amortization of $841,000, all of which are non-cash. For the third quarter year to date, the reconciliation includes the following adjustments, stock compensation expense of $2.3 million, intangible amortization of $2.2 million, and acquisition costs of $918,000, some of which are non-cash. Due to our 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 a 0% tax rate for 2020 and 2019. The resulting non-GAAP tax expense reflects the actual income taxes expensed during each period. To wrap up my financial review, I will add some comments around capital. We closed the third quarter of 2020 with $25.9 million of cash. During the quarter, we generated $3.9 million of cash flow from operations. In the short term, we will continue to invest the excess cash balance to preserve capital. In the mid to long term, the company will continue to evaluate strategic alternatives for utilization of capital to maximize shareholder return. This concludes my financial review bill. Now back to you.

Thanks, Tim. Now let's talk about our three main products, starting with Viewspot, our retail display management platform. As Tim has already discussed, Viewspot revenues came in above expectations for the quarter, which is very encouraging considering the current state of the global retail marketplace. While many people are still wary of shopping in brick and mortar stores, because of the ongoing threat of the COVID-19 pandemic, wireless carriers continue to aggressively promote new services and capabilities through both pervasive advertising campaigns and in-store promotions. The recent surge in 5G-related advertising and promotions tied to Apple's launch of the iPhone 12 just last month is a perfect example. In a very crowded marketplace with many different service options, carriers are hungry to differentiate their offerings and capitalize on the buzz created by 5G. Smith Micro benefits from these promotions as they generate additional professional service revenues for ViewSpot as carriers develop complimentary in-store campaigns to support their out-of-store advertising efforts. As I discussed on last quarter's call, we developed new view spot functionality to assist our carrier customers in adapting their retail environments to meet customer concerns related to COVID. This patent pending technology singularly leverages the embedded sensors available on all smartphones and tablets to detect a human face and launch on device promotions without any physical interaction required. We also augmented the ViewSpot-powered attract loops with dynamic device sanitization notifications that notify in-store shoppers whether a demo device has been sanitized. Our product development team continues to explore how other technologies, such as QR codes and near-field communication, could further enhance the touchless capabilities of the ViewSpot platform. Like ViewSpot, our CommSuite product line performed above expectations in the third quarter. Our legacy CommSuite subscriber base at Sprint and Boost Mobile continue to generate revenue and profit for the company. As I have discussed before, the ongoing merger of T-Mobile and Sprint creates some uncertainty for CompSuite revenues, but generally I am pleased with our current position. This is especially true with DISH, which acquired Boost back in July. I am very bullish regarding the overall potential of this new relationship as DISH seeks to compete and win market share as the newest Tier 1 carrier in the US. As an established partner, We are very well positioned with DISH while they look to build boost overall customer base and launch a post-paid service offering in the future. We have a great knowledge base to support them, particularly when it comes to how to market and grow value added services, such as visual voicemail and voice to text transcription. The fact that our market leading SafePath platform is also deployed to the boost prepaid subscriber base is an added benefit. All of these factors are working in our favor as we continue to build a relationship with DISH and explore additional partnership opportunities. Now let's discuss SafePath, Smith Micro's flagship product. Monday's SafePath 7 announcement was a major milestone for our connected lifestyle vision and for the company as a whole. This release was the culmination of thousands of hours of development and integration work. It includes several new features as well as all of the parental control functionality that we gained through the acquisition of Circle's operator business back in February. What's more, all of these features are available for both Android and iOS. Full feature parity between operating systems has long been a goal of ours and is now a reality with SafePath 7. Now let's take a look at the highlights of the release. SafePath 7 introduces several new location-based features, such as a real-time tracking location history and breadcrumbs, and a pick-me-up feature that enables users to request a ride with one click. With real-time location tracking, parents can see exactly where their children and other family members are on the Safe Pass family map. The location history feature provides an event-based view of family location activity. so parents can use Safe Path to quickly see important location events, such as when their child arrived at school or when they left an after-school activity. The breadcrumbs feature enables Safe Path users to drill down on specific location events to view the path a child traveled between two locations. This feature provides enhanced visibility to parents and provides them with greater peace of mind as they will know if their child made an unplanned stop en route. With the integration of the circle functionality complete, SafePath now provides robust parental control functionality on par with the location-based features that have long been the strength of our offering. New SafePath features, such as age-based content filters screen time limits, bedtime mode, and the ability to schedule offline time are all features that are in high demand as parents everywhere seek tools to help manage screen time, block inappropriate online content, and improve the digital wellbeing of their children. The social restrictions imposed by COVID-19 19 have only made digital parenting challenges more acute as kids have been forced to rely on connected devices for socialization, entertainment, and education. According to a survey that we conducted in August, seven out of 10 parents feel helpless when it comes to limiting their kids' screen time during the pandemic. while 69% of parents agree that online schooling has made them more concerned about the internet safety of their children. The new parental control functionality that we have added with Safe Path 7 directly addresses these concerns. When discussing these new features, it is also important to note that with our Safe Path Home, Parental controls are available on in-home connected devices, such as gaming consoles, smart TVs, laptops, and tablets, as well as connected devices used outside the home on cellular networks. This is an important differentiator for Smith Micro in the family safety space, as we are the only white label solution provider to provide extensive parental controls both inside and outside of the home from the same mobile app. People are spending more time than ever at home. The fact that our family safety solution enables parents to extend powerful parental controls to all kinds of connected devices within the same app interface is powerful and reinforces our leadership position in the space. When these components are considered holistically, it's easy to get excited about the untapped potential of SafePath. We continue to make great progress with SafePath-related sales discussions on several fronts as carriers in many parts of the world have shown interest in deploying our solution to their respective subscriber bases. We will continue to work closely with our carrier partners to explore new features and use cases for SafePath that will further enhance its value proposition and enable us to continue the progress of our diverse sales efforts. We will continue to invest in R&D initiatives for the balance of 2020. While we hired more than 70 people during the first nine months of the year and have aggressively invested in sales and marketing initiatives, our cash flow and profits remain healthy. Through three quarters, we have generated $8 million in cash flow from operations and have approximately $26 million in cash reserves. We are extremely well positioned for growth as we prepare to launch our solutions with additional carriers which should make for a fantastic 2021. Overall, These are exciting times for both Smith Micro and its shareholders. While the global economic impact of COVID-19 and the merger of our largest customer has tempered short-term growth, the company remains profitable, our sales pipeline is healthy, and our products are in demand. With that said, operator, I'd like to open the call for questions.