Smith Micro Software, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Smith Micro develops wireless software, including family safety, visual voicemail, and retail solutions. Amounts below are in U.S. dollars; financial statement figures are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $12.735 | $11.381 |
| Gross profit / margin | $9.098 / 71.4% | $9.836 / 86.4% |
| Operating expenses | $16.077 | $13.073 |
| Operating loss | $(6.979) | $(3.237) |
| Net loss | $(7.002) | $(3.225) |
| Basic and diluted loss per share | $(0.13) | $(0.07) |
| Net cash from (used in) operating activities | $(6.589) | $3.700 |
- Cash and cash equivalents were $9.831 million at March 31, down from $16.078 million at December 31, 2021. Investing activities used $0.051 million; financing activities provided $0.393 million.
- Current assets were $24.086 million and current liabilities $9.342 million. The company reported no borrowings under its new revolving credit facility. The $7.0 million secured facility matures March 31, 2023; $27,000 of letters of credit left $6.973 million net availability. Total available funding capacity, including cash, was reported as $16.804 million.
- The facility bears interest at SOFR plus 2%, is secured by substantially all borrower property, and includes a 2.0-to-1.0 current asset coverage covenant when drawn.
- Operating lease liabilities totaled $5.473 million. The filing does not identify other material funded debt outstanding; cash-flow statements show $0.541 million of proceeds from financing arrangements and $0.181 million of repayments.
Material changes versus Q1 2021
- Revenue increased 12%, primarily from the April 2021 acquisition of the Family Safety Mobile Business. SafePath revenue rose to $10.366 million from $6.267 million; CommSuite fell to $1.429 million from $4.128 million, largely as T-Mobile winds down the legacy Sprint voicemail service.
- Cloud-based usage fees increased to $9.878 million from $4.963 million, while hosted-environment usage fees declined to $1.429 million from $4.141 million.
- Gross margin fell 15.0 percentage points to 71.4%, reflecting acquired-business costs and maintaining multiple family safety platforms during migration. Research and development expense rose to $7.402 million from $4.873 million, primarily due to acquired-business staffing and SafePath development.
- Operating cash flow shifted from $3.700 million provided to $6.589 million used, reflecting the net loss, higher receivables, and decreases in accounts payable and accrued liabilities. Q1 2021 financing cash flow included $59.898 million net proceeds from a stock offering; there was no comparable offering in Q1 2022.
- Weighted-average shares increased to 54.501 million from 43.368 million. The filing reports 55.156 million shares outstanding at March 31, 2022.
Outlook, commentary, and risks
- No quantified revenue or earnings guidance is provided. Management expects family safety platform revenue to increase, citing its position with U.S. Tier 1 carriers. It targeted completion of migrations for its largest customers over the following year and expects development and platform costs to decline, supporting higher gross margins, after migration is complete.
- Management expects the CommSuite deployment at the legacy Sprint business to reach end-of-life sometime in 2022. The pace of subscriber migration and the decline in legacy services may affect results.
- Three customers represented 40%, 37%, and 10% of Q1 revenue. Four customers represented 36%, 35%, 12%, and 11% of accounts receivable at quarter-end, presenting significant customer and collection concentration.
- Other stated risks include competition, customer and carrier relationships, hiring and retention, security and privacy incidents, service interruptions, product defects, acquisition integration, technology changes, regulation, and the ability to raise capital, achieve profitability, and remain a going concern.
- The company maintained a valuation allowance against U.S. deferred tax amounts of $57.3 million. It reported no goodwill impairment, no material changes in contractual obligations, and no specific litigation outcome expected by management to materially affect results; the filing notes litigation remains inherently unpredictable.
- Management assessed disclosure controls as effective at March 31, 2022, and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether SafePath migrations complete on schedule and deliver the anticipated gross-margin and expense benefits.
- How quickly CommSuite revenue declines as the legacy Sprint service is wound down, and whether SafePath growth offsets that loss.
- Customer concentration, receivables collection, and operating cash burn relative to cash and available credit.
- Credit-facility covenant compliance and the terms and balance of financing arrangements, which the filing text does not clearly state at quarter-end.
- Future share issuance and equity compensation, given the higher weighted-average share count and 1.2 million restricted shares granted during the quarter.