Smith Micro Software, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparison is with Q1 2023. Smith Micro develops wireless-provider software, including family safety, visual voicemail and retail display solutions. Financial statements are unaudited. Share and per-share figures reflect the subsequent 1-for-8 reverse stock split.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $5.8 million | $10.9 million |
| Gross profit / margin | $3.8 million / 65.7% | $7.6 million / 70.0% |
| Operating expenses | $35.3 million | $14.6 million |
| Operating loss | $31.4 million | $6.9 million |
| Net loss | $31.0 million | $6.9 million |
| Loss per share, basic and diluted | $3.28 | $0.97 |
| Cash used in operating activities | $1.3 million | $5.3 million |
- Cash and cash equivalents were $6.2 million at March 31, 2024, down from $7.1 million at December 31, 2023. Net cash decreased $1.0 million during the quarter.
- The company reported no outstanding debt at quarter-end. Operating lease liabilities totaled $3.5 million; warrant liabilities were $0.4 million.
- Goodwill fell from $35.0 million to $11.1 million after a $24.0 million non-cash impairment charge. Total assets were $55.4 million and stockholders’ equity was $45.4 million at quarter-end.
Changes and drivers
- Revenue declined 47%, primarily after the loss of a Tier 1 carrier Family Safety contract in 2023 and declining legacy Sprint Safe & Found revenue as subscribers migrated to T-Mobile. ViewSpot revenue also decreased following a contract conclusion.
- Family Safety revenue was $4.5 million, down from $9.1 million; CommSuite was $0.7 million versus $0.8 million; ViewSpot was $0.7 million versus $1.0 million.
- Gross margin decreased to 65.7% from 70.0%. Cost of revenue fell to $2.0 million from $3.3 million, partly reflecting lower revenue and cost reductions.
- Excluding the goodwill impairment, operating expense categories generally declined: selling and marketing by about $0.9 million, research and development by $1.9 million, and general and administrative by $0.7 million. Amortization increased about $0.3 million.
- Operating cash use improved year over year, with a $3.6 million reduction in accounts receivable contributing to Q1 2024 cash flow. Patent licensing generated $0.2 million of investing cash proceeds.
- Q1 2023 included $2.3 million of net interest expense and a $0.6 million debt derecognition loss; the related convertible notes were retired at December 31, 2023.
Outlook, risks and notable items
- Going concern: Management states that substantial doubt about the company’s ability to continue as a going concern within one year from issuance remains unalleviated. The company depends on subscriber and revenue growth and/or additional capital to fund operations. Potential actions include further cost reductions, a credit line, asset or product-line sales, or licensing intellectual property; management says these actions are not assured or wholly within its control.
- Management is pursuing subscriber growth through marketing and expansion with existing carriers. Multi-year Family Safety agreements with a European Tier 1 carrier and a U.S. carrier were signed in Q4 2023 and Q1 2024, respectively, and are anticipated to launch in 2024. No quantified revenue or earnings guidance is provided.
- Three customers represented 54%, 18% and 11% of Q1 revenue. Two customers represented 51% and 21% of accounts receivable at March 31, 2024, creating material customer concentration exposure.
- The $24.0 million goodwill impairment followed a sustained decline in share price and market capitalization. The valuation used Level 3 assumptions; further impairment is possible if forecasts or valuation factors change.
- A 1-for-8 reverse stock split took effect April 10, 2024. Nasdaq notified the company on April 29, 2024 that it had regained compliance with the minimum bid-price requirement.
- Management reported disclosure controls were effective as of March 31, 2024 and no material changes in internal control over financial reporting during the quarter. The filing reports no material changes to previously disclosed risk factors.
Key facts for investors to verify
- Whether new carrier agreements launch as anticipated and produce enough subscriber growth and cash generation to offset lost Family Safety revenue.
- Cash runway, operating cash use and any financing plans or ability to raise capital on acceptable terms, given the unalleviated going-concern doubt.
- Revenue trends by customer and product line, especially the concentration in a few customers and the continuing decline in legacy Sprint-related revenue.
- Goodwill valuation assumptions and whether further impairment indicators arise.
- Ongoing Nasdaq listing compliance following the reverse split, and the potential effects of warrant repricing and future share issuance on dilution.