smsi-20220630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_____________________________

FORM 10-Q

_____________________________

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-35525

_____________________________

SMITH MICRO SOFTWARE, INC.

(Exact name of registrant as specified in its charter)

_____________________________


Delaware			33-0029027
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

5800 CORPORATE DRIVE

PITTSBURGH, PA 15237

(Address of principal executive offices, including zip code)

(412) 837-5300

(Registrant’s telephone number, including area code)

_____________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

SMSI

NASDAQ

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of August 9, 2022, there were 55,102,055 shares of common stock outstanding.

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SMITH MICRO SOFTWARE, INC.

QUARTERLY REPORT ON FORM 10-Q

June 30, 2022

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PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	2
	Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021	2
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2022 and 2021	3
	Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2022 and 2021	4
	Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2022 and 2021	6
	Notes to the Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 4.	Controls and Procedures	21

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	22
Item 1A.	Risk Factors	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 6.	Exhibits	24

SIGNATURES		25

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SMITH MICRO SOFTWARE, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and par value data)


	June 30, 2022		December 31, 2021
	(unaudited)		(audited)
Assets
Current assets:
Cash and cash equivalents	$	5,357	$	16,078
Accounts receivable, net of allowance for doubtful accounts of $3 and $2 (2022 and 2021, respectively)	11,562		10,590
Prepaid expenses and other current assets	2,514		1,988
Total current assets	19,433		28,656
Equipment and improvements, net	2,129		2,698
Right-of-use assets	4,291		4,866
Other assets	541		620
Intangible assets, net	39,410		42,631
Goodwill	35,041		35,041
Total assets	$	100,845	$	114,512
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	3,774	$	3,301
Accrued payroll and benefits	3,759		4,055
Current operating lease liabilities	1,400		1,400
Other accrued liabilities	1,227		612
Total current liabilities	10,160		9,368
Non-current liabilities:
Operating lease liabilities	3,640		4,467
Deferred tax liabilities, net	117		117
Total non-current liabilities	3,757		4,584
Commitments and contingencies
Stockholders' equity:
Common stock, par value $0.001 per share; 100,000,000 shares authorized; 55,121,767 and 54,259,390 shares issued and outstanding (2022 and 2021, respectively)	55		54
Additional paid-in capital	354,641		352,779
Accumulated comprehensive deficit	(267,768)		(252,273)
Total stockholders’ equity	86,928		100,560
Total liabilities and stockholders' equity	$	100,845	$	114,512

See accompanying notes to the consolidated financial statements.

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SMITH MICRO SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenues	$	12,674	$	15,919	$	25,409	$	27,300
Cost of revenues	3,617		3,358		7,253		4,903
Gross profit	9,057		12,561		18,156		22,397
Operating expenses:
Selling and marketing	3,720		3,117		6,706		5,361
Research and development	8,213		7,063		15,615		11,936
General and administrative	4,026		4,946		8,073		8,604
Amortization of intangible assets	1,577		2,645		3,221		4,943
Total operating expenses	17,536		17,771		33,615		30,844
Operating loss	(8,479)		(5,210)		(15,459)		(8,447)
Other income (expense):
Interest income (expense), net	2		16		(2)		24
Other income, net	15		5		15		9
Loss before provision for income taxes	(8,462)		(5,189)		(15,446)		(8,414)
Provision for income tax expense	31		14		50		14
Net loss	$	(8,493)	$	(5,203)	$	(15,496)	$	(8,428)

Loss per share:
Basic and diluted	$	(0.15)	$	(0.10)	$	(0.28)	$	(0.17)

Weighted average shares outstanding:
Basic and diluted	55,183		53,017		55,844		48,219

See accompanying notes to the consolidated financial statements.

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SMITH MICRO SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)


	Common Stock			Additional Paid-in Capital		Accumulated Comprehensive Deficit		Total
	Shares	Amount
BALANCE, March 31, 2022 (unaudited)	55,156	$	55	$	353,403	$	(259,275)	$	94,183
Non-cash compensation recognized on stock options and ESPP	—	—		23		—		23
Restricted stock grants, net of cancellations	127	—		1,665		—		1,665
Cancellation of shares for payment of withholding tax	(164)	—		(452)		—		(452)
Exercise of stock options	1	—		2		—		2
Net loss	—	—		—		(8,493)		(8,493)
BALANCE, June 30, 2022 (unaudited)	55,120	$	55	$	354,641	$	(267,768)	$	86,928


	Common Stock			Additional Paid-in Capital		Accumulated Comprehensive Deficit		Total
	Shares	Amount
BALANCE, December 31, 2021 (audited)	54,259	$	54	$	352,779	$	(252,273)	$	100,560
Non-cash compensation recognized on stock options and ESPP	—	—		44		—		44
Restricted stock grants, net of cancellations	1,132	1		2,708		—		2,709
Cancellation of shares for payment of withholding tax	(285)	—		(925)		—		(925)
Employee stock purchase plan	6	—		19		—		19
Exercise of stock options	8	—		16		—		16
Net loss	—	—		—		(15,496)		(15,496)
BALANCE, June 30, 2022 (unaudited)	55,120	55		354,641		(267,768)		86,928

See accompanying notes to the consolidated financial statements.

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SMITH MICRO SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)


	Common Stock			Additional Paid-in Capital		Accumulated Comprehensive Deficit		Total
	Shares	Amount
BALANCE, March 31, 2021 (unaudited)	51,646	$	52	$	340,058	$	(224,455)	$	115,655
Non-cash compensation recognized on stock options and ESPP	—	—		21		—		21
Restricted stock grants, net of cancellations	100	—		1,258		—		1,258
Cancellation of shares for payment of withholding tax	(90)	—		(484)		—		(484)
Costs associated with common stock offering	—	—		(188)		—		(188)
Common shares issued in connection with Avast Family Safety Mobile acquisition, net	1,460	1		8,380				8,381
Exercise of common stock warrants	451	1		(1)		—		—
Exercise of stock options	9	—		33		—		33
Net loss	—	—		—		(5,203)		(5,203)
BALANCE, June 30, 2021 (unaudited)	53,576	54		349,077		(229,658)		119,473


	Common Stock			Additional Paid-in Capital		Accumulated Comprehensive Deficit		Total
	Shares	Amount
BALANCE, December 31, 2020 (audited)	41,233	$	41	$	279,905	$	(221,230)	$	58,716
Non-cash compensation recognized on stock options and ESPP	—	—		39		—		39
Restricted stock grants, net of cancellations	1,070	1		2,254		—		2,255
Cancellation of shares for payment of withholding tax	(211)	—		(1,309)		—		(1,309)
Employee stock purchase plan	4	—		15		—		19
Common shares issued in stock offering, net of offering costs	9,521	10		59,701		—		59,711
Common shares issued in connection with Avast Family Safety Mobile acquisition, net	1,460	1		8,380				8,381
Exercise of common stock warrants	484	1		39		—		40
Exercise of stock options	15	—		53		—		53
Net loss	—	—		—		(8,428)		(8,428)
BALANCE, June 30, 2021 (unaudited)	53,576	54		349,077		(229,658)		119,473

See accompanying notes to the consolidated financial statements.

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SMITH MICRO SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	For the Six Months Ended June 30,
	2022		2021
	(unaudited)		(unaudited)
Operating activities:
Net loss	$	(15,496)	$	(8,428)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	3,902		5,481
Non-cash lease expense	673		618
Provision for doubtful accounts	—		(3)
Provision for excess and obsolete inventory	—		(97)
Stock based compensation	2,754		2,295
Changes in operating accounts:
Accounts receivable	(975)		3,640
Prepaid expenses and other assets	(527)		(225)
Accounts payable and accrued liabilities	(1,812)		(1,077)
Deferred revenue	(146)		(708)
Net cash (used in) provided by operating activities	(11,627)		1,496
Investing activities:
Acquisitions, net	—		(56,865)
Capital expenditures	(112)		(336)
Other investing activities	83		69
Net cash used in investing activities	(29)		(57,132)
Financing activities:
Proceeds from common stock offering, net of offering expenses	—		59,711
Proceeds from exercise of common stock warrants	—		40
Proceeds from financing arrangements	1,291		—
Repayments of financing arrangements	(391)		—
Other financing activities	35		67
Net cash provided by financing activities	935		59,818
Net (decrease) increase in cash and cash equivalents	(10,721)		4,182
Cash and cash equivalents, beginning of period	16,078		25,754
Cash and cash equivalents, end of period	$	5,357	$	29,936

Supplemental disclosures of cash flow information:
Cash paid for income taxes	$	174	$	63

Non-cash investing and financing activities:
Issuance of common stock in connection with acquisition	$	—	$	8,381

See accompanying notes to the consolidated financial statements.

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SMITH MICRO SOFTWARE, INC.

Notes to the Consolidated Financial Statements

(Unaudited)

1. The Company

Smith Micro Software, Inc. (“Smith Micro” or “the Company”) develops software to simplify and enhance the mobile experience, providing solutions to some of the leading wireless and cable service providers around the world. From enabling the family digital lifestyle to providing powerful voice messaging capabilities, the Company strives to enrich today’s connected lifestyles while creating new opportunities to engage consumers via smartphones and consumer Internet of Things (“IoT”) devices. Smith Micro’s portfolio includes a wide range of products for creating, sharing, and monetizing rich content, such as visual voice messaging, retail content display optimization and performance analytics on various product sets.

Smith Micro’s solution portfolio is comprised of proven products that enable its customers to provide:

•In-demand digital services that connect today’s digital lifestyle, including family location services, parental controls, and consumer IoT devices to mobile consumers worldwide;

•Easy visual access to voice messages on mobile devices through visual voicemail and voice-to-text transcription functionality; and

•Strategic, consistent, and measurable digital demonstration experiences that educate retail shoppers, create awareness of products and services, drive in-store sales, and optimize retail experiences with actionable analytics derived from in-store customer behavior.

2. Accounting Policies

Basis of Presentation

The accompanying interim consolidated balance sheet as of June 30, 2022, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the three and six months ended June 30, 2022 and 2021, are unaudited. The unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, therefore, certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been omitted.

In the opinion of management, the accompanying unaudited consolidated financial statements for the periods presented reflect all adjustments which are normal and recurring, and necessary to fairly state the financial position, results of operations, and cash flows of the Company. These unaudited consolidated financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on March 11, 2022.

Intercompany balances and transactions have been eliminated in consolidation. Certain amounts in the prior period consolidated financial statements have been reclassified for comparative purposes principally to conform to the presentation of the current year period.

Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending December 31, 2022.

New Accounting Pronouncements

In June 2016, FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." This updated guidance sets forth a current expected credit loss model based on expected losses. Under this model, an entity recognizes an allowance for expected credit losses based on historical experience, current conditions and forecasted information rather than the current methodology of delaying recognition of credit losses until it is probable a loss has been incurred. This guidance becomes effective for the Company beginning in interim periods starting in fiscal year 2023. The impact of adopting the new standard is not anticipated to have a material impact on the Company's consolidated financial statements.

Reclassifications

Certain reclassification have been made to the prior year financial statements to conform to the current presentation.

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3. Credit Facility

On March 31, 2022, the Company and its wholly-owned subsidiary, Smith Micro Software, LLC, as co-borrowers entered into a credit agreement with Wells Fargo Bank, National Association providing for a $7.0 million secured revolving credit facility (the “Credit Facility”) that can be utilized to finance the Company’s working capital requirements and other general corporate purposes, and of which up to $0.5 million is available for letters of credit.

The Credit Facility will mature on March 31, 2023. The loans under the Credit Facility bear interest at the secured overnight financing rate plus 2%. The Credit Facility allows voluntary repayment of outstanding loans at any time without premium or penalty. The Credit Facility is secured by substantially all of the property of the borrowers.

The Credit Facility contains representations and warranties, affirmative and negative covenants and events of default customary for financings of this type, including negative covenants that, among other things, limit the ability of the borrowers to incur liens, limit the ability of the borrowers to make certain fundamental changes and limit the ability of the borrowers to incur other indebtedness, in each case subject to exceptions and qualifications. The Credit Facility also contains a current asset coverage ratio covenant for any quarter in which the Credit Facility has an outstanding balance. This covenant requires the ratio of (i) the sum of cash plus marketable securities, plus accounts receivable to (ii) the principal balance outstanding of the Credit Facility to not be less than 2.0 to 1.0. As of June 30, 2022, there were no borrowings outstanding under the Credit Facility and there were no instances of noncompliance with covenants.

In connection with the transactions described further in Note 12, the Credit Facility was terminated on August 11, 2022.

4. Goodwill and Intangible Assets

In accordance with FASB ASC Topic No. 350, Intangibles-Goodwill and Other, Smith Micro reviews the recoverability of the carrying value of goodwill at least annually or whenever events or circumstances indicate a potential impairment. The Company’s impairment testing will be performed annually on December 31. Recoverability of goodwill is determined by comparing the fair value of the Company’s reporting unit to the carrying value of the underlying net assets in the reporting unit. If the fair value of a reporting unit is determined to be less than the carrying value of its net assets, goodwill is deemed impaired and an impairment loss is recognized to the extent that the carrying value of goodwill exceeds the difference between the fair value of the reporting unit and the fair value of its other assets and liabilities. The Company determined that there were no goodwill impairment indicators at June 30, 2022 and December 31, 2021.

The components of the Company’s intangible assets were as follows for the periods presented:


	June 30, 2022							December 31, 2021
	(unaudited, in thousands, except for useful life data)							(audited, in thousands, except for useful life data)
	Weighted Average Remaining Useful Life (in Years)	Gross		Accumulated Amortization		Net Book Value		Weighted Average Remaining Useful Life (in Years)	Gross		Accumulated Amortization		Net Book Value
Purchased technology	7	$	13,529	$	(4,804)	$	8,725	8	$	13,529	$	(3,764)	$	9,765
Customer relationships

SEC Form 10-Q filed by Smith Micro Software Inc.