Business Wire | Aug 5, 2020 04:00PM EDT

Smith Micro Reports Second Quarter 2020 Financial Results

Aug. 05, 2020

PITTSBURGH--(BUSINESS WIRE)--Aug. 05, 2020--Smith Micro Software, Inc. (NASDAQ: SMSI) ("Smith Micro" or the "Company") today reported financial results for its second quarter ended June 30, 2020.

"I am pleased with our results for the first half of 2020, particularly with our ongoing R&D efforts as we continue to ramp product development to meet the demands of our growing customer base," said William W. Smith, Jr., President and CEO of Smith Micro. "In the second quarter, we remained profitable, generated free cash flow, readied our SafePath(r) platform for launch with a new wireless carrier, and deployed our ViewSpot(r) solution at another carrier - all while navigating the unique demands of doing business during the COVID-19 pandemic."

Second Quarter 2020 Financial Results

Smith Micro reported revenue of $12.9 million for the second quarter ended June 30, 2020, compared to $10.9 million reported in the second quarter ended June 30, 2019.

Second quarter 2020 gross profit was $11.7 million compared to $9.9 million reported in the second quarter of 2019.

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

Generally accepted accounting principles in the United States ("GAAP") net income available to common stockholders for the second quarter of 2020 was $1.4 million, or $0.03 diluted earnings per share, compared to GAAP net income available to common stockholders of $3.4 million, or $0.10 diluted earnings per share, for the second 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 second quarter of 2020 was $3.0 million, or $0.07 diluted earnings per share, compared to non-GAAP net income of $3.6 million, or $0.10 diluted earnings per share, for the second quarter of 2019.

Second Quarter Year-to-Date 2020 Financial Results

Smith Micro reported revenue of $26.3 million for the six months ended June 30, 2020, compared to $19.3 million reported in the six months ended June 30, 2019.

Gross profit for the six months ended June 30, 2020 was $23.8 million compared to $17.4 million reported for the same period in 2019.

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

GAAP net income available to common stockholders for the six months ended June 30, 2020 was $3.4 million, or $0.08 diluted earnings per share, compared to GAAP net income available to common stockholders of $3.4 million, or $0.10 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 six months ended June 30, 2020 was $7.1 million, or $0.17 diluted earnings per share, compared to non-GAAP net income of $4.3 million, or $0.13 diluted earnings per share, for the six months ended June 30, 2019.

Total cash and cash equivalents at June 30, 2020 were $23.6 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, August 5, 2020 at 4:30 p.m. EDT, to discuss the Company's second 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 6/30/20

Gross profit $ 11,664 $ - $ - $ - $ - $ - $ 11,664



Selling andmarketing 2,613 (144 ) (483 ) - - - 1,986 expenses

Research anddevelopment 4,604 (146 ) (366 ) - - - 4,092 expenses

General andadministrative 3,070 (518 ) - - - - 2,552 expenses

Restructuring - - - - - - - expense

Totaloperating 10,287 (808 ) (849 ) - - - 8,630 expenses



Income beforeprovision for 1,379 808 849 - - - 3,036

income taxes

Net incomeavailable to 1,379 808 849 - - - 3,036 commonstockholders

Earnings per 0.03 0.02 0.02 - - - 0.07 share: basic

Earnings per 0.03 0.02 0.02 - - - 0.07 share: diluted



Three Months Ended 6/30/19

Gross profit $ 9,880 $ - $ - $ - $ - $ - $ 9,880



Selling andmarketing 1,768 (61 ) (116 ) - - - 1,591 expenses

Research anddevelopment 2,743 (67 ) (152 ) - - - 2,524 expenses

General andadministrative 2,426 (205 ) - - - - 2,221 expenses

Restructuring 11 - - - - - 11 expense

Totaloperating 6,948 (333 ) (268 ) - - - 6,347 expenses



Income beforeprovision for 3,440 333 268 (483 ) - - 3,558

income taxes

Net incomeavailable tocommon 3,402 333 268 (483 ) - 34 3,554

stockholders

Earnings per 0.11 0.01 0.01 (0.02 ) - 0.00 0.11 share: basic

Earnings per 0.10 0.01 0.01 (0.01 ) - 0.00 0.10 share: diluted



Six Months Ended 6/30/20

Gross profit $ 23,814 $ - $ - $ - $ - $ - $ 23,814



Selling andmarketing 5,400 (258 ) (750 ) - - - 4,392 expenses

Research anddevelopment 8,333 (265 ) (614 ) - - - 7,454 expenses

General andadministrative 6,738 (918 ) - - (918 ) - 4,902 expenses

Restructuring 6 - - - - - 6 expense

Totaloperating 20,477 (1,441 ) (1,364 ) - (918 ) - 16,754 expenses



Income beforeprovision for 3,424 1,441 1,364 - 918 - 7,147

income taxes

Net incomeavailable to 3,424 1,441 1,364 - 918 - 7,147 commonstockholders

Earnings per 0.08 0.04 0.03 - 0.02 - 0.18 share: basic

Earnings per 0.08 0.03 0.03 - 0.02 - 0.17 share: diluted



Six Months Ended 6/30/19

Gross profit $ 17,395 $ - $ - $ - $ - $ - $ 17,395



Selling andmarketing 3,735 (114 ) (207 ) - - - 3,414 expenses

Research anddevelopment 5,425 (133 ) (258 ) - - - 5,034 expenses

General andadministrative 5,126 (541 ) - - (76 ) - 4,509 expenses

Restructuring 115 - - - - - 115 expense

Totaloperating 14,401 (788 ) (465 ) - (76 ) - 13,072 expenses



Income beforeprovision for 3,492 788 465 (483 ) 76 - 4,338

income taxes

Net incomeavailable tocommon 3,417 788 465 (483 ) 76 67 4,330

stockholders

Earnings per 0.11 0.02 0.01 (0.02 ) 0.00 0.00 0.14 share: basic

Earnings per 0.10 0.02 0.01 (0.01 ) 0.00 0.00 0.13 share: diluted



Smith Micro Software, Inc.

Consolidated Statements of Operations

(in thousands, except per share data) - unaudited



For the Three Months For the Six Months

Ended June 30, Ended June 30,

2020 2019 2020 2019

Revenues $ 12,933 $ 10,854 $ 26,255 $ 19,286

Cost of revenues 1,269 974 2,441 1,891

Gross profit 11,664 9,880 23,814 17,395



Operating expenses:

Selling and marketing 2,613 1,768 5,400 3,735

Research and development 4,604 2,743 8,333 5,425

General and administrative 3,070 2,426 6,738 5,126

Restructuring expense - 11 6 115

Total operating expenses 10,287 6,948 20,477 14,401

Operating income 1,377 2,932 3,337 2,994

Non-operating income (expense):

Interest income, net 2 31 87 30

Gain on sale of software - 483 - 483 product

Other expense, net - (6 ) - (15 )

Income before provision for 1,379 3,440 3,424 3,492 income taxes

Income tax expense - 4 - 8

Net income 1,379 3,436 3,424 3,484

Less preferred stock - (34 ) - (67 )dividends

Net income available to $ 1,379 $ 3,402 $ 3,424 $ 3,417 common stockholders



Earnings per share:

Basic $ 0.03 $ 0.11 $ 0.08 $ 0.11

Diluted $ 0.03 $ 0.10 $ 0.08 $ 0.10



Weighted average shares outstanding:

Basic 41,127 32,068 40,305 31,685

Diluted 43,079 35,308 42,346 33,365

Smith Micro Software, Inc.

Consolidated Balance Sheets

(in thousands)

unaudited audited

June 30, December 31,

2020 2019

ASSETS

Current Assets:

Cash & cash equivalents $ 23,614 $ 28,268

Accounts receivable, net 12,542 10,894

Prepaid and other assets 1,427 802

Total current assets 37,583 39,964

Equipment & improvements, net 2,063 2,109

Right-of-use assets 6,384 6,464

Deferred tax asset, net 94 94

Other assets 458 234

Intangible assets, net 15,027 4,535

Goodwill 11,493 7,797

TOTAL ASSETS $ 73,102 $ 61,197



LIABILITIES & STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable $ 3,936 $ 2,050

Accrued payroll and benefits 2,633 2,107

Current operating lease liabilities 1,381 1,221

Other accrued liabilities 241 244

Deferred revenue 1,650 98

Total current liabilities 9,841 5,720



Operating lease liabilities 5,448 5,774

Deferred rent 815 885

Other long-term liabilities 100 134

Total non-current liabilities 6,363 6,793



Stockholders' Equity:

Common stock 41 38

Additional paid in capital 278,828 274,041

Accumulated comprehensive deficit (221,971 ) (225,395 )

Total stockholders' equity 56,898 48,684

TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 73,102 $ 61,197



Smith Micro Software, Inc.

Consolidated Statements of Cash Flows

(in thousands) - unaudited

For the Three Months For the Six Months

Ended June 30, Ended June 30,

2020 2019 2020 2019

Operating activities:

Net income $ 1,379 $ 3,436 $ 3,424 $ 3,484

Adjustments to reconcilenet income to net cashprovided

by (used in) operatingactivities:

Depreciation and 1,018 360 1,662 681 amortization

Non-cash lease expense 267 287 511 481

Restructuring costs - 11 6 115

Gain on sale of software - (483 ) - (483 )product

Provision for doubtfulaccounts and otheradjustments (5 ) 17 (9 ) 8

to accounts receivable

Provision for excess and - - - 1 obsolete inventory

Loss on disposal of fixed - 7 - 6 assets

Stock based compensation 809 333 1,441 788

Changes in operating accounts:

Accounts receivable (654 ) (4,083 ) (1,637 ) (5,842 )

Prepaid expenses and other (848 ) (332 ) (633 ) (138 )assets

Accounts payable and 148 (409 ) (692 ) (526 )accrued liabilities

Deferred revenue (40 ) (51 ) 262 (136 )

Net cash provided by (used 2,074 (907 ) 4,335 (1,561 )in) operating activities

Investing activities:

Acquisition of Circle - - (12,150 ) - operator business, net

Acquisition of Smart - - - (3,974 )Retail business, net

Capital expenditures (81 ) (177 ) (852 ) (287 )

Other investing activities 11 350 (204 ) 350

Net cash provided by (used (70 ) 173 (13,206 ) (3,911 )in) investing activities

Financing activities:

Proceeds from exercise of 2,151 - 4,196 - common stock warrants

Dividends paid on - (33 ) - (67 )preferred stock

Other financing activities 3 - 21 (9 )

Net cash provided by (used 2,154 (33 ) 4,217 (76 )in) financing activities

Net increase (decrease) in 4,158 (767 ) (4,654 ) (5,548 )cash and cash equivalents

Cash and cash equivalents, 19,456 7,378 28,268 12,159 beginning of period

Cash and cash equivalents, $ 23,614 $ 6,611 $ 23,614 $ 6,611 end of period



Free cash flow:

Net cash provided by (used $ 2,074 $ (907 ) $ 4,335 $ (1,561 )in) operating activities

Capital expenditures (81 ) (177 ) (852 ) (287 )

Free cash flow $ 1,993 $ (1,084 ) $ 3,483 $ (1,848 )

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