SMITH MICRO SOFTWARE, INC. Q1 FY2025 earnings call

• SafePath 8 will introduce AI-centric features like social media intelligence, a dynamic age-aware platform, the ability to block AI chatbots for kids, family AI assistance, and a digital wellness resource website.
• Carrier activity: Positive shift in conversations with customers; excited about SafePath Kids solution with Orange Spain, new trials planned with European operators after Mobile World Congress, ongoing work with AT&T and Boost, and broadening partnership with T-Mobile.
• Focus on product innovation and expanding portfolio to align with customers' long-term strategies.

In the first quarter of 2025, Family Safety revenues were $3.8 million, a decrease of approximately $700,000 or 15% compared to the first quarter of the prior year, and essentially flat compared to the fourth quarter of 2024. CommSuite revenue was approximately $700,000 in the first quarter of 2025, an increase of approximately $100,000 compared to the first quarter of 2024 but a decrease of approximately $400,000 compared to the fourth quarter of 2024. ViewSpot revenue was approximately $100,000 for the first quarter of 2025, a decline of approximately $600,000 compared to the first quarter of the prior year but a nominal increase compared to the fourth quarter of 2024.

• Q2 2025 consolidated revenues expected to be in the range of approximately $4.4 million to $4.8 million.
• Q2 2025 gross margin expected to be in the range of 72% to 75%.
• Q2 2025 non-GAAP operating expenses expected to decrease by 1% to 4% compared to the first quarter of 2025.

• Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially.
• Selling, contracting, and launching new offerings with mobile operators can take longer than expected due to the size and complexity of customer organizations.

Q: Hey, good afternoon. Thanks for taking my questions. Exciting to hear some of the new features coming along with SafePath 8. Bill, maybe to dive in, starting with TuYo, I'm wondering if there are any metrics that you're willing to share in terms of how that's been going so far year-to-date. It's been up and running now for a couple of months. Also wondering how you think about that in terms of ultimate success and penetration? What kind of penetration can we get into that use installed base?

A: Yes, Scott, I think the way to think about TuYo is off to a strong start. They're getting some pretty good adoption. They think that they will get better adoption as we get into the summer and the back-to-school period. So they actually said launching in -- right after the first of the year was probably one of the more difficult times to launch a product like this and get the – we still are seeing some very meaningful success and growth. The product itself is being received well. We are working through different issues that come up with a new product launch, and we're working in the spirit of teamwork and it's been very, very positive. So all in all, I would say we're very happy with what’s coming, and we think it's going to get even more meaningful as we move forward.

Q: Thank you. I guess 2 questions. One, with SafePath 8 and AI, and you talked about use of AI for homework and all that. It feels like you're getting a lot more that's germane to devices beyond smartphones into tablets and all that regulating the social media activity. How do you see that as an increasingly important extension? And then I guess in the nature is a vacuum category and probably unmet demand for something like family, safety of [indiscernible] even more. How are guys who are not using you who are kind of fumbling around, trying to do something in-house, or looking at other alternatives faring? I know you don't want to be too specific on Verizon. But what are you seeing in terms of capabilities that do not stem from Smith Micro? Thanks.

A: Historically, we've always had meaningful business with Verizon. So I would welcome the opportunity to do business with them in the future. Clearly, when you see the kind of development that we're working on with SafePath OS for kids, SafePath OS for seniors, bringing out all these AI features, we're moving the envelope. These are big time development efforts. This is not for the sideline business. This is something that is core to what we do. And I think as carriers look at this, it makes it just that much more daunting and effort for them to say, gee, I guess we'll just go build our own version of this. That's a tough swallow. And everything that we're doing is not going to make it any easier. It's going to be -- everything we're doing is making it tougher, and the important part though is while it's making it tough for those who maybe want to save a little bit and try to do it on their own or whatever the driver is, the important part is for their customers, for the families that they want to embrace that they want to pull into the tent with them. The families want these features, being a parent in the digital age, I'm a little older and I didn't have to experience it, but I would think it's pretty scary. And to be able to use the power of AI as an assistant as a help in the whole parenting process, I just think it's what it's all about. And I go back to the premise that I've said on a number of calls in the past. There is no more valuable sub that a carrier can attract than a family sub. Families are willing to -- they're much more loyal. They don't churn. They're willing to spend a little extra money because they have some things in mind that they really want to help with, and keeping the family safe has got to be one of the bases of this. So, if I was a carrier and I knew that the best customers I could get are family-subs, I'd be doing business with Smith Micro. I wouldn't be trying to save a few bucks. I wouldn't be trying to try some start-up gross-up or something like that. I'd want to go with somebody who actually knows what they're doing. I want to make sure that the product is safe, is carrier-grade and it is intuitive and is helpful to the preps. I know I'm preaching a little bit, but this is my shot -- you asked the question.