Business Context and Reporting Period
Company: Smith Micro Software, Inc. (NASDAQ: SMSI)
Filing Date: March 8, 2021
Event: Entry into a Material Definitive Agreement to acquire the Avast Family Safety Mobile Business.
Key Financial Metrics and Transaction Terms
This filing details a strategic acquisition rather than reporting standard quarterly financial results for Smith Micro. Key transaction metrics include:
- Total Consideration: Approximately $66 million.
- Payment Structure: Cash and Smith Micro common stock (effective price of $6.85 per share).
- Escrow Holdback: $4.95 million held for at least 12 months for indemnification obligations.
- Earn-Out Potential: Up to $14.0 million contingent on renewing a specific US tier-one customer contract within one year of closing.
- Revenue Sharing: 75% of gross revenues from the specific tier-one contract shared with Avast during the earn-out period.
- Assets Acquired: Mobile parental controls services (location, content filtering, screen time), source code, patent portfolio, and five mobile operator contracts (including US tier-one).
- Liabilities Assumed: Certain specified liabilities related to the business.
Material Changes and Operational Impact
The acquisition represents a significant expansion of Smith Micro's portfolio and geographic footprint:
- Workforce Expansion: Acquisition of approximately 160 employees from Avast.
- Geographic Growth: New strategic locations established in the Czech Republic and Slovakia, in addition to existing US and Serbia operations.
- Contract Portfolio: Inclusion of one large, recently renewed US tier-one contract and several legacy contracts with declining revenue.
- Strategic Partnership: A preferred partner agreement with Avast to collaborate on future carrier tenders requiring family mobile safety and IoT/digital security services.
Outlook, Risks, and Contingencies
Closing Timeline: Expected to occur in mid-April 2021.
Conditions: Subject to customary closing conditions, including accuracy of disclosures and continued operation of the business in the ordinary course.
Risks and Contingencies:
- Earn-Out Risk: The $14.0 million earn-out is subject to a time-decay mechanism, reducing by $2.0 million each month after the six-month anniversary if the contract is not renewed.
- Revenue Decline: Some acquired legacy product contracts are noted to have declining revenue.
- Legal Disclaimer: Representations and warranties in the Purchase Agreement are for risk allocation and should not be relied upon as factual statements.
Investor Verification Checklist
- Verify the final closing date and any adjustments to the $66 million purchase price.
- Monitor the status of the specific US tier-one customer contract renewal to determine earn-out eligibility.
- Review the audited abbreviated financial statements of the acquired business (Exhibit 99.3) for historical revenue and expense data.
- Assess the integration progress of the 160 new employees and the new European operational hubs.
- Confirm the mix of cash versus stock used in the final settlement of the transaction.