Business Wire | Nov 4, 2020 04:00PM EST

Smith Micro Reports Third Quarter 2020 Financial Results

Nov. 04, 2020

PITTSBURGH--(BUSINESS WIRE)--Nov. 04, 2020--Smith Micro Software, Inc. (NASDAQ: SMSI) ("Smith Micro" or the "Company") today reported financial results for its third quarter ended September 30, 2020.

"Our third quarter was extremely productive and I am pleased that our financial results came in above street expectations," said William W. Smith, Jr., President and CEO of Smith Micro Software. "During the quarter, we invested in R&D as well as sales and marketing initiatives, and will continue to do so throughout the remainder of 2020. I am very pleased that we remain profitable and cash-flow positive, as the company generated $8 million of cash in the first three quarters of 2020. Moving into 2021, we remain well-positioned for growth and continued profitability as we look to launch our solutions with multiple carrier customers."

Third Quarter 2020 Financial Results

Smith Micro reported revenue of $12.6 million for the third quarter ended September 30, 2020, compared to $11.8 million reported in the third quarter ended September 30, 2019.

Third quarter 2020 gross profit was $11.3 million compared to $10.8 million reported in the third quarter of 2019.

Gross profit as a percentage of revenue was 90 percent for the third quarter of 2020 compared to 91 percent for the third quarter of 2019.

Generally accepted accounting principles in the United States ("GAAP") net income available to common stockholders for the third quarter of 2020 was $161 thousand, or $0.00 diluted earnings per share, compared to GAAP net income available to common stockholders of $3.5 million, or $0.09 diluted earnings per share, for the third quarter of 2019.

Non-GAAP net income (which excludes stock-based compensation, amortization of intangibles, transaction gains, acquisitions costs, and preferred stock dividends) for the third quarter of 2020 was $1.8 million, or $0.04 diluted earnings per share, compared to non-GAAP net income of $4.2 million, or $0.11 diluted earnings per share, for the third quarter of 2019.

Third Quarter Year-to-Date 2020 Financial Results

Smith Micro reported revenue of $38.9 million for the nine months ended September 30, 2020, compared to $31.1 million reported in the nine months ended September 30, 2019.

Gross profit for the nine months ended September 30, 2020 was $35.1 million compared to $28.2 million reported for the same period in 2019.

Gross profit as a percentage of revenue was 90 percent for the nine months ended September 30, 2020 compared to 91 percent for the nine months ended September 30, 2019.

GAAP net income available to common stockholders for the nine months ended September 30, 2020 was $3.6 million, or $0.08 diluted earnings per share, compared to GAAP net income available to common stockholders of $6.9 million, or $0.20 diluted earnings per share, for the same period in 2019.

Non-GAAP net income (which excludes stock-based compensation, amortization of intangibles, transaction gains, acquisition costs, and preferred stock dividends) for the nine months ended September 30, 2020 was $9.0 million, or $0.21 diluted earnings per share, compared to non-GAAP net income of $8.5 million, or $0.24 diluted earnings per share, for the nine months ended September 30, 2019.

Total cash and cash equivalents at September 30, 2020 were $25.9 million.

To supplement our financial information presented in accordance with GAAP, the Company considers and has included in this press release certain non-GAAP financial measures, including a non-GAAP reconciliation of gross profit, income before taxes, net income available to common stockholders, and earnings per share in the presentation of financial results in this press release. Management believes this non-GAAP presentation may be more meaningful in analyzing our income generation and has therefore excluded the following items from GAAP earnings calculations: stock-based compensation, amortization of intangibles, transaction gains, acquisition costs, and preferred stock dividends. Additionally, since the Company currently has federal and state net operating loss carryforwards that can be utilized to reduce future cash payments for income taxes, these non-GAAP adjustments have not been tax effected and the resulting income tax expense reflects actual taxes paid or accrued during each period. This presentation may be considered more indicative of our ongoing operational performance. The table below presents the differences between non-GAAP net income and net income on an absolute and per-share basis. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and the non-financial measures as reported by Smith Micro may not be comparable to similarly titled amounts reported by other companies.

Investor Conference Call

Smith Micro will hold an investor conference call today, November 4, 2020 at 4:30 p.m. ET, to discuss the Company's third quarter 2020 financial results. To access the call, dial 1-844-701-1164; international participants can call 1-412-317-5492. A passcode is not required to join the call; ask the operator to be placed into the Smith Micro conference. Participants are asked to call the assigned number approximately 10 minutes before the conference call begins. In addition, the conference call will be available on the Smith Micro website in the Investor Relations section.

About Smith Micro Software, Inc.

Smith Micro develops software to simplify and enhance the mobile experience, providing solutions to some of the leading wireless service providers and cable MSOs around the world. From enabling the family digital lifestyle to providing powerful voice messaging capabilities, our solutions enrich today's connected lifestyles while creating new opportunities to engage consumers via smartphones and consumer IoT devices. The Smith Micro portfolio also includes a wide range of products for creating, sharing and monetizing rich content, such as visual voice messaging, optimizing retail content display and performing analytics on any product set. For more information, visit www.smithmicro.com.

Smith Micro and the Smith Micro logo are registered trademarks or trademarks of Smith Micro Software, Inc. All other trademarks and product names are the property of their respective owners.

Forward-Looking Statements

Certain statements in this press release are, and certain statements on the related conference call may be, forward-looking statements regarding future events or results, including statements related to our financial prospects and other projections of our outlook or performance and our future business plans, and statements using such words as "expect," "anticipate," "believe," "plan," "intend," "could," "will" and other similar expressions. Forward-looking statements involve risks and uncertainties, which could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Among the important factors that could cause or contribute to such differences are customer concentration, given that the majority of our sales depend on a few large customer relationships, the impact of the COVID-19 pandemic on our business and financial results, changes in demand for our products from our customers and their end-users, changes in requirements for our products imposed by our customers or by the third party providers of software and/or platforms that we use, our ability to effectively integrate, market and sell acquired product lines, new and changing technologies, customer acceptance and timing of deployment of those technologies, and our ability to compete effectively with other software and technology companies. These and other factors discussed in our filings with the Securities and Exchange Commission, including our filings on Forms 10-K and 10-Q, could cause actual results to differ materially from those expressed or implied in any forward-looking statements. The forward-looking statements contained in this release are made on the basis of the views and assumptions of management, and we do not undertake any obligation to update these statements to reflect events or circumstances occurring after the date of this release.

Smith Micro Software, Inc.

Reconciliation of GAAP to Non-GAAP Results

(in thousands, except per share data) - unaudited



Stock Intangibles Gain on Preferred Non- GAAP Sale of Acquisition Stock Compensation Amortization Software Costs Dividends GAAP Product

Three Months Ended 9/30/20

Gross profit $ 11,303 $ - $ - $ - $ - $ - $ 11,303



Selling andmarketing 2,655 (146 ) (475 ) - - - 2,034 expenses

Research anddevelopment 5,446 (147 ) (366 ) - - - 4,933 expenses

General andadministrative 2,997 (518 ) - - - - 2,479 expenses

Restructuring 9 - - - - - 9 expense

Totaloperating 11,107 (811 ) (841 ) - - - 9,455 expenses



Income beforeprovision for 206 811 841 - - - 1,858 income taxes

Net incomeavailable to 161 811 841 - - - 1,813 commonstockholders

Earnings per 0.00 0.02 0.02 - - - 0.04 share: basic

Earnings per 0.00 0.02 0.02 - - - 0.04 share: diluted



Three Months Ended 9/30/19

Gross profit $ 10,771 $ - $ - $ - $ - $ - $ 10,771



Selling andmarketing 1,793 (65 ) (88 ) - - - 1,640 expenses

Research anddevelopment 3,063 (72 ) (152 ) - - - 2,839 expenses

General andadministrative 2,396 (214 ) - - - - 2,182 expenses

Restructuring 39 - - - - - 39 expense

Totaloperating 7,291 (351 ) (240 ) - - - 6,700 expenses



Income beforeprovision for 3,567 351 240 - - - 4,158 income taxes

Net incomeavailable to 3,515 351 240 - - 52 4,158 commonstockholders

Earnings per 0.10 0.01 0.01 - - 0.00 0.12 share: basic

Earnings per 0.09 0.01 0.01 - - 0.00 0.11 share: diluted



Nine Months Ended 9/30/20

Gross profit $ 35,116 $ - $ - $ - $ - $ - $ 35,116



Selling andmarketing 8,049 (404 ) (1,225 ) - - - 6,420 expenses

Research anddevelopment 13,774 (412 ) (980 ) - - - 12,382 expenses

General andadministrative 9,741 (1,436 ) - - (918 ) - 7,387 expenses

Restructuring 19 - - - - - 19 expense

Totaloperating 31,583 (2,252 ) (2,205 ) - (918 ) - 26,208 expenses



Income beforeprovision for 3,630 2,252 2,205 - 918 - 9,005 income taxes

Net incomeavailable to 3,585 2,252 2,205 - 918 - 8,960 commonstockholders

Earnings per 0.09 0.06 0.05 - 0.02 - 0.22 share: basic

Earnings per 0.08 0.05 0.05 - 0.02 - 0.21 share: diluted



Nine Months Ended 9/30/19

Gross profit $ 28,166 $ - $ - $ - $ - $ - $ 28,166



Selling andmarketing 5,529 (179 ) (295 ) - - - 5,055 expenses

Research anddevelopment 8,487 (205 ) (410 ) - - - 7,872 expenses

General andadministrative 7,522 (755 ) - - (76 ) - 6,691 expenses

Restructuring 154 - - - - - 154 expense

Totaloperating 21,692 (1,139 ) (705 ) - (76 ) - 19,772 expenses



Income beforeprovision for 7,059 1,139 705 (483 ) 76 - 8,496 income taxes

Net incomeavailable to 6,932 1,139 705 (483 ) 76 119 8,488 commonstockholders

Earnings per 0.21 0.03 0.02 (0.01 ) 0.00 0.00 0.26 share: basic

Earnings per 0.20 0.03 0.02 (0.01 ) 0.00 0.00 0.24 share: diluted



Smith Micro Software, Inc.

Consolidated Statements of Operations

(in thousands, except per share data) - unaudited

For the Three Months

For the Nine Months

Ended September 30,

Ended September 30,

2020

2019

2020

2019

Revenues

$

12,629

$

11,782

$

38,883

$

31,068

Cost of revenues

1,326

1,011

3,767

2,902

Gross profit

11,303

10,771

35,116

28,166

Operating expenses:

Selling and marketing

2,655

1,793

8,049

5,529

Research and development

5,446

3,063

13,774

8,487

General and administrative

2,997

2,396

9,741

7,522

Restructuring expense

9

39

19

154

Total operating expenses

11,107

7,291

31,583

21,692

Operating income

196

3,480

3,533

6,474

Non-operating income (expense):

Interest income, net

7

87

94

117

Gain on sale of software product

-

-

-

483

Other expense, net

3

-

3

(15

)

Income before provision for income taxes

206

3,567

3,630

7,059

Income tax expense

45

-

45

8

Net income

161

3,567

3,585

7,051

Less preferred stock dividends

-

(52

)

-

(119

)

Net income available to common stockholders

$

161

$

3,515

$

3,585

$

6,932

Earnings per share:

Basic

$

0.00

$

0.10

$

0.09

$

0.21

Diluted

$

0.00

$

0.09

$

0.08

$

0.20

Weighted average shares outstanding:

Basic

41,351

36,094

40,656

33,170

Diluted

43,026

39,472

42,577

35,287

Smith Micro Software, Inc.

Consolidated Statements of Operations

(in thousands, except per share data) - unaudited



For the Three Months For the Nine Months

Ended September 30, Ended September 30,

2020 2019 2020 2019

Revenues $ 12,629 $ 11,782 $ 38,883 $ 31,068

Cost of revenues 1,326 1,011 3,767 2,902

Gross profit 11,303 10,771 35,116 28,166



Operating expenses:

Selling and marketing 2,655 1,793 8,049 5,529

Research and development 5,446 3,063 13,774 8,487

General and administrative 2,997 2,396 9,741 7,522

Restructuring expense 9 39 19 154

Total operating expenses 11,107 7,291 31,583 21,692

Operating income 196 3,480 3,533 6,474

Non-operating income (expense):

Interest income, net 7 87 94 117

Gain on sale of software - - - 483 product

Other expense, net 3 - 3 (15 )

Income before provision for 206 3,567 3,630 7,059 income taxes

Income tax expense 45 - 45 8

Net income 161 3,567 3,585 7,051

Less preferred stock - (52 ) - (119 )dividends

Net income available to $ 161 $ 3,515 $ 3,585 $ 6,932 common stockholders



Earnings per share:

Basic $ 0.00 $ 0.10 $ 0.09 $ 0.21

Diluted $ 0.00 $ 0.09 $ 0.08 $ 0.20



Weighted average shares outstanding:

Basic 41,351 36,094 40,656 33,170

Diluted 43,026 39,472 42,577 35,287

Smith Micro Software, Inc.

Consolidated Balance Sheets

(in thousands)

unaudited

audited

September 30,

December 31,

2020

2019

ASSETS

Current Assets:

Cash & cash equivalents

$

25,872

$

28,268

Accounts receivable, net

9,797

10,894

Prepaid and other assets

1,329

802

Total current assets

36,998

39,964

Equipment & improvements, net

2,250

2,109

Right-of-use assets

6,090

6,464

Deferred tax asset, net

94

94

Other assets

441

234

Intangible assets, net

14,186

4,535

Goodwill

11,493

7,797

TOTAL ASSETS

$

71,552

$

61,197

LIABILITIES & STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable

$

1,855

$

2,050

Accrued payroll and benefits

2,705

2,107

Current operating lease liabilities

1,407

1,221

Other accrued liabilities

260

244

Deferred revenue

1,561

98

Total current liabilities

7,788

5,720

Operating lease liabilities

5,121

5,774

Deferred rent

928

885

Other long-term liabilities

83

134

Total non-current liabilities

6,132

6,793

Stockholders' Equity:

Common stock

41

38

Additional paid in capital

279,401

274,041

Accumulated comprehensive deficit

(221,810

)

(225,395

)

Total stockholders' equity

57,632

48,684

TOTAL LIABILITIES & STOCKHOLDERS' EQUITY

$

71,552

$

61,197

Smith Micro Software, Inc.

Consolidated Balance Sheets

(in thousands)

unaudited audited

September 30, December 31,

2020 2019

ASSETS

Current Assets:

Cash & cash equivalents $ 25,872 $ 28,268

Accounts receivable, net 9,797 10,894

Prepaid and other assets 1,329 802

Total current assets 36,998 39,964

Equipment & improvements, net 2,250 2,109

Right-of-use assets 6,090 6,464

Deferred tax asset, net 94 94

Other assets 441 234

Intangible assets, net 14,186 4,535

Goodwill 11,493 7,797

TOTAL ASSETS $ 71,552 $ 61,197



LIABILITIES & STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable $ 1,855 $ 2,050

Accrued payroll and benefits 2,705 2,107

Current operating lease liabilities 1,407 1,221

Other accrued liabilities 260 244

Deferred revenue 1,561 98

Total current liabilities 7,788 5,720



Operating lease liabilities 5,121 5,774

Deferred rent 928 885

Other long-term liabilities 83 134

Total non-current liabilities 6,132 6,793



Stockholders' Equity:

Common stock 41 38

Additional paid in capital 279,401 274,041

Accumulated comprehensive deficit (221,810 ) (225,395 )

Total stockholders' equity 57,632 48,684

TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 71,552 $ 61,197



Smith Micro Software, Inc.

Consolidated Statements of Cash Flows

(in thousands) - unaudited

For the Three Months

For the Nine Months

Ended September 30,

Ended September 30,

2020

2019

2020

2019

Operating activities:

Net income

$

161

$

3,567

$

3,585

$

7,051

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

1,014

316

2,676

997

Non-cash lease expense

294

249

805

730

Restructuring costs

13

39

19

154

Gain on sale of software product

-

-

-

(483

)

Provision for doubtful accounts and other adjustments to accounts receivable

(50

)

119

(59

)

127

Provision for excess and obsolete inventory

-

-

-

1

Loss on disposal of fixed assets

-

-

-

6

Stock based compensation

811

351

2,252

1,139

Changes in operating accounts:

Accounts receivable

2,796

1,811

1,159

(4,031

)

Prepaid expenses and other assets

103

190

(530

)

52

Accounts payable and accrued liabilities

(1,112

)

(175

)

(1,804

)

(701

)

Deferred revenue

(89

)

(78

)

173

(214

)

Net cash provided by operating activities

3,941

6,389

8,276

4,828

Investing activities:

Acquisition of Circle operator business, net

(1,350

)

-

(13,500

)

-

Acquisition of Smart Retail business, net

-

-

-

(3,974

)

Capital expenditures

(360

)

(537

)

(1,212

)

(824

)

Other investing activities

11

13

(193

)

363

Net cash used in investing activities

(1,699

)

(524

)

(14,905

)

(4,435

)

Financing activities:

Proceeds from exercise of common stock warrants

-

11,403

4,196

11,403

Dividends paid on preferred stock

-

(52

)

-

(119

)

Other financing activities

16

43

37

34

Net cash provided by financing activities

16

11,394

4,233

11,318

Net increase (decrease) in cash and cash equivalents

2,258

17,259

(2,396

)

11,711

Cash and cash equivalents, beginning of period

23,614

6,611

28,268

12,159

Cash and cash equivalents, end of period

$

25,872

$

23,870

$

25,872

$

23,870

Free cash flow:

Net cash provided by operating activities

$

3,941

$

6,389

$

8,276

$

4,828

Capital expenditures

(360

)

(537

)

(1,212

)

(824

)

Free cash flow

$

3,581

$

5,852

$

7,064

$

4,004

View source version on businesswire.com: https://www.businesswire.com/news/home/20201104005400/en/

CONTACT: IR INQUIRIES: Charles Messman Investor Relations 949-362-5800 IR@smithmicro.com