Smith Micro Software, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual report; the filing does not provide a standalone fourth-quarter results summary. Smith Micro develops mobile software, including family safety (SafePath), visual voicemail (CommSuite) and retail display management (ViewSpot), primarily for wireless and cable service providers.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $40.9 million | $48.5 million |
| Gross profit / margin | $30.3 million / 74.2% | $34.3 million / 70.7% |
| Operating expenses | $48.4 million | $65.2 million |
| Operating loss | $18.1 million | $30.9 million |
| Net loss | $24.4 million | $29.3 million |
| Basic and diluted loss per share | $0.38 | $0.53 |
| Cash used in operating activities | $7.0 million | $19.3 million |
| Cash and cash equivalents at year-end | $7.1 million | $14.0 million |
| Debt at year-end | None | $9.0 million net carrying amount of convertible notes |
FY2023 operating margin was approximately negative 44.2%, versus negative 63.7% in FY2022. Year-end current assets were $16.9 million and current liabilities $7.6 million. Total assets were $85.6 million; goodwill and net intangible assets totaled $64.6 million. Warrant liabilities were $0.6 million.
Material changes versus FY2022
- Revenue declined 16%, mainly due to lower Family Safety revenue (about $5.3 million) and CommSuite revenue (about $2.0 million). The company cited migration of legacy Sprint subscribers to T-Mobile and the termination of a U.S. Tier 1 Family Safety contract.
- The terminated contract ended June 30, 2023, with transition services through November. It represented approximately 36% of FY2023 revenue; the company expects no further revenue from it in 2024.
- Operating expenses fell approximately $16.9 million, including a $12.2 million decrease in research and development, reflecting workforce reductions and substantially completed SafePath migrations. The company eliminated approximately 26% of its global workforce and reported a 26% reduction in operating expenses.
- Cash used in operations improved by approximately $12.3 million year over year, but cash on hand also fell by $6.9 million during FY2023.
- The $15 million original-principal convertible notes matured and were retired on December 31, 2023. Repayment and settlement involved 17.1 million shares valued at approximately $19.1 million; the year-end balance was zero. Common shares outstanding increased from 56.2 million to 74.8 million.
- ViewSpot revenue declined about $0.4 million. The company disclosed ViewSpot contract terminations or non-renewals and accelerated $0.9 million of amortization; it reported no goodwill or intangible asset impairment.
Outlook, risks and unusual items
- Going concern: Management and the independent auditor reported substantial doubt about the company’s ability to continue as a going concern within one year after issuance of the financial statements. Management cited recurring losses, projected cash needs and dependence on subscriber and revenue growth and/or additional capital. Management’s plans include growing subscribers, acquiring customers and potentially raising capital, reducing costs, obtaining a credit line, disposing of product lines, or selling or licensing intellectual property. The filing says these plans do not alleviate the substantial doubt because they are not assured or wholly within the company’s control.
- Business outlook: The company expects to launch a new multi-year Family Safety agreement with a major European Tier 1 carrier in 2024. It plans SafePath Global and SafePath OS launches in 2024 and seeks subscriber growth with existing carrier customers. No numerical revenue, earnings or cash-flow guidance is provided.
- Customer concentration: Three customers represented 41%, 35% and 13% of FY2023 revenue, respectively. The loss of a major customer or slower customer launches could materially affect revenue and profitability.
- Nasdaq listing: The company received notice that its share price had been below the $1.00 minimum bid requirement for 30 consecutive business days. It had until June 24, 2024 to regain compliance, subject to Nasdaq rules; a further compliance period may be available. Delisting, dilution or a reverse stock split are risks discussed in the filing.
- Financing and dilution: The company had no debt at year-end but may need additional financing. Warrants remain outstanding, and their exercise could dilute shareholders. Restrictions associated with the retired 2022 financing may also limit certain equity transactions for a period.
- Other exposures: Risks include cybersecurity and privacy obligations, software defects and service interruptions, dependence on third-party platforms and application stores, competition, and potential impairment of goodwill or intangible assets. Management said pending legal matters were not expected to have a material adverse effect, while noting litigation is inherently unpredictable. Certain contractual indemnities and guarantees have no recorded liability.
- Unusual accounting items: FY2023 included a $4.0 million loss on debt derecognition, $6.4 million net interest expense and a $4.2 million favorable change in fair value of warrant and derivative liabilities. The auditor issued an unqualified opinion on the financial statements and identified revenue recognition and impairment estimates as critical audit matters.
Important facts for investors to verify
- Whether the company can fund operations over the next twelve months without financing, further cost reductions or asset sales.
- How revenue, cash generation and subscriber counts develop after the terminated carrier contract’s contribution ends, and whether customer concentration increases.
- Whether the European carrier agreement and planned SafePath launches occur on schedule and generate material revenue.
- The company’s progress toward Nasdaq’s minimum bid-price requirement and any resulting capital-structure action.
- The potential dilution from shares issued to retire the notes and from outstanding warrants, and the carrying value and impairment sensitivity of goodwill and intangible assets.
- Whether ViewSpot customer losses, ongoing restructuring and any additional cost actions affect future revenue, margins or product execution.