Smith Micro Reports First Quarter 2020 Financial Results

Smith Micro Software, Inc. (NASDAQ: SMSI) (“Smith Micro” or the “Company”) today reported financial results for its first quarter ended March 31, 2020.

“The first quarter of 2020 was another very solid quarter for the Company and I was very pleased with the strong results that delivered revenue growth, profitability and strong free cash flow,” said William W. Smith, Jr., President and CEO of Smith Micro. “In response to the current worldwide crisis caused by the COVID-19 pandemic, our global workforce transitioned seamlessly to remote operations and continues to be very productive working from home.

“Like most companies navigating current market conditions we expect some impact in the short term, but we are in the enviable position of being able to maintain our profitability and free cash flow and have a solid and growing balance sheet at hand as we work through current headwinds.”

First Quarter 2020 Financial Results

Smith Micro reported revenue of $13.3 million for the first quarter ended March 31, 2020, compared to $8.4 million reported in the first quarter ended March 31, 2019.

First quarter 2020 gross profit was $12.1 million compared to $7.5 million reported in the first quarter of 2019.

Gross profit as a percentage of revenue was 91 percent for the first quarter of 2020 compared to 89 percent for the first quarter of 2019.

Generally accepted accounting principles in the United States (“GAAP”) net income available to common stockholders for the first quarter of 2020 was $2.0 million, or $0.05 diluted earnings per share, compared to a GAAP net income available to common stockholders of $14 thousand, or $0.00 diluted earnings per share, for the first quarter of 2019.

Non-GAAP net income (which excludes stock-based compensation, amortization of intangibles, acquisitions costs, and preferred stock dividends) for the first quarter of 2020 was $4.1 million, or $0.10 diluted earnings per share, compared to a non-GAAP net income of $776 thousand, or $0.02 diluted earnings per share, for the first quarter of 2019.

Total cash and cash equivalents at March 31, 2020 were $19.5 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, 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, May 6, 2020 at 4:30 p.m. EDT, to discuss the Company’s first 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

GAAP

Stock

Compensation

Intangibles

Amortization

Acquisition

Costs

Preferred Stock

Dividends

Non-

GAAP

Three Months Ended 3/31/20

Gross profit

$

12,149

$

-

$

-

$

-

$

-

$

12,149

Selling and marketing expenses

2,787

(114

)

(267

)

-

-

2,406

Research and development expenses

3,729

(118

)

(248

)

-

-

3,363

General and administrative expenses

3,668

(400

)

-

(918

)

-

2,350

Restructuring expense

6

-

-

-

-

6

Total operating expenses

10,190

(632

)

(515

)

(918

)

-

8,125

Income before provision for income taxes

2,045

632

515

918

-

4,110

Net income available to common stockholders

2,045

632

515

918

-

4,110

Earnings per share: basic

0.05

0.02

0.01

0.02

-

0.10

Earnings per share: diluted

0.05

0.01

0.01

0.02

-

0.10

Three Months Ended 3/31/19

Gross profit

$

7,516

$

-

$

-

$

-

$

-

$

7,516

Selling and marketing expenses

1,968

(53

)

(91

)

-

-

1,824

Research and development expenses

2,682

(66

)

(105

)

-

-

2,511

General and administrative expenses

2,700

(337

)

-

(76

)

-

2,287

Restructuring expense

104

-

-

-

-

104

Total operating expenses

7,454

(456

)

(196

)

(76

)

-

6,726

Income before provision for income taxes

52

456

196

76

-

780

Net income available to common stockholders

14

456

196

76

34

776

Earnings per share: basic

0.00

0.01

0.01

0.00

0.00

0.02

Earnings per share: diluted

0.00

0.01

0.01

0.00

0.00

0.02

Note: Earnings (loss) per share: basic and diluted - may be impacted by rounding to allow rows to calculate.

Smith Micro Software, Inc.

Consolidated Statements of Operations

(in thousands, except per share data) - unaudited

For the Three Months

Ended March 31,

2020

2019

Revenues

$

13,322

$

8,432

Cost of revenues

1,173

916

Gross profit

12,149

7,516

Operating expenses:

Selling and marketing

2,787

1,968

Research and development

3,729

2,682

General and administrative

3,668

2,700

Restructuring expense

6

104

Total operating expenses

10,190

7,454

Operating income

1,959

62

Non-operating income (expense):

Interest income, net

86

Other expense, net

(10

)

Income before provision for income taxes

2,045

52

Income tax expense

4

Net income

2,045

48

Less preferred stock dividends

(34

)

Net income available to common stockholders

$

2,045

$

14

Earnings per share:

Basic

$

0.05

$

0.00

Diluted

$

0.05

$

0.00

Weighted average shares outstanding:

Basic

39,482

31,297

Diluted

42,194

31,323

Smith Micro Software, Inc.

Consolidated Balance Sheets

(in thousands)

unaudited

audited

March 31,

December 31,

2020

2019

ASSETS

Current Assets:

Cash & cash equivalents

$

19,456

$

28,268

Accounts receivable, net

11,882

10,894

Prepaid and other assets

591

802

Total current assets

31,929

39,964

Equipment & improvements, net

2,152

2,109

Right-of-use assets

6,349

6,464

Deferred tax asset, net

94

94

Other assets

458

234

Intangible assets, net

15,875

4,535

Goodwill

11,493

7,797

TOTAL ASSETS

$

68,350

$

61,197

LIABILITIES & STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable

$

3,463

$

2,050

Accrued payroll and benefits

2,285

2,107

Current operating lease liabilities

1,273

1,221

Other accrued liabilities

271

244

Deferred revenue

1,690

98

Total current liabilities

8,982

5,720

Operating lease liabilities

5,548

5,774

Deferred rent

850

885

Other long-term liabilities

117

134

Total non-current liabilities

6,515

6,793

Stockholders' Equity:

Common stock

40

38

Additional paid in capital

276,163

274,041

Accumulated comprehensive deficit

(223,350

)

(225,395

)

Total stockholders' equity

52,853

48,684

TOTAL LIABILITIES & STOCKHOLDERS' EQUITY

$

68,350

$

61,197

Smith Micro Software, Inc.

Consolidated Statements of Cash Flows

(in thousands) - unaudited

For the Three Months Ended

March 31,

2020

2019

Operating activities:

Net income

$

2,045

$

48

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization

644

321

Non-cash lease expense

244

194

Restructuring costs

6

104

Provision for doubtful accounts and other adjustments to accounts receivable

(4

)

(9

)

Provision for excess and obsolete inventory

1

Loss on disposal of fixed assets

(1

)

Stock based compensation

632

455

Changes in operating accounts:

Accounts receivable

(983

)

(1,759

)

Prepaid expenses and other assets

215

194

Accounts payable and accrued liabilities

(840

)

(117

)

Deferred revenue

302

(85

)

Net cash provided by (used in) operating activities

2,261

(654

)

Investing activities:

Acquisition of Circle operator business, net

(12,150

)

Acquisition of Smart Retail business, net

(3,974

)

Capital expenditures

(771

)

(110

)

Other investing activities

(215

)

Net cash used in investing activities

(13,136

)

(4,084

)

Financing activities:

Proceeds from exercise of common stock warrants

2,045

Dividends paid on preferred stock

(34

)

Other financing activities

18

(9

)

Net cash provided by (used in) financing activities

2,063

(43

)

Net decrease in cash and cash equivalents

(8,812

)

(4,781

)

Cash and cash equivalents, beginning of period

28,268

12,159

Cash and cash equivalents, end of period

$

19,456

$

7,378

Free cash flow:

Net cash provided by (used in) operating activities

$

2,261

$

(654

)

Capital expenditures

(771

)

(110

)

Free cash flow

$

1,490

$

(764

)

Contacts:

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

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