smsi-10q_20200630.htm

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10‑Q

(Mark One)

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

For the quarterly period ended June 30, 2020

☐	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 ☒ No ☐

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 ☒ No ☐

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.

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. ☐

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

As of August 6, 2020, there were 41,355,673 shares of common stock outstanding.

SMITH MICRO SOFTWARE, INC.

QUARTERLY REPORT ON FORM 10-Q

JUNE 30, 2020

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	2
	Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019	2
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019	3
	Consolidated Statement of Stockholders’ Equity for the Three and Six Months Ended June 30, 2020 and 2019	4
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019	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	20

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 6.	Exhibits	23

SIGNATURES		24

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,			December 31,
	2020			2019
	(unaudited)			(audited)
Assets
Current assets:
Cash and cash equivalents	$	23,614		$	28,268
Accounts receivable, net of allowances for doubtful accounts and other adjustments of $242 (2020) and $253 (2019)		12,542			10,894
Prepaid expenses and other current assets		1,427			802
Total current assets		37,583			39,964
Equipment and improvements, net		2,063			2,109
Right-of-use assets		6,384			6,464
Deferred tax assets, net		94			94
Other assets		458			234
Intangible assets, net		15,027			4,535
Goodwill		11,493			7,797
Total assets	$	73,102		$	61,197
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	3,936		$	2,050
Accrued payroll and benefits		2,633			2,107
Current operating lease liabilities		1,381			1,221
Other accrued liabilities		241			244
Deferred revenue		1,650			98
Total current liabilities		9,841			5,720
Non-current liabilities:
Operating lease liabilities		5,448			5,774
Deferred rent		815			885
Other long term liabilities		100			134
Total non-current liabilities		6,363			6,793
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $0.001 per share; 5,000,000 shares authorized; 5,500 shares issued (2020 and 2019); 0 shares outstanding (2020 and 2019)		—			—
Common stock, par value $0.001 per share; 100,000,000 shares authorized; 41,355,673 and 38,475,084 shares issued and outstanding (2020 and 2019, respectively)		41			38
Additional paid-in capital		278,828			274,041
Accumulated comprehensive deficit		(221,971	)		(225,395	)
Total stockholders’ equity		56,898			48,684
Total liabilities and stockholders' equity	$	73,102		$	61,197

See accompanying notes to the consolidated financial statements.

SMITH MICRO SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

	For the Three Months Ended					For the Six Months Ended
	June 30,					June 30,
	2020		2019			2020		2019
	(unaudited)		(unaudited)			(unaudited)		(unaudited)
Revenues	$	12,933	$	10,854		$	26,255	$	19,286
Cost of revenues		1,269		974			2,441		1,891
Gross profit		11,664		9,880			23,814		17,395
Operating expenses:
Selling and marketing		2,613		1,768			5,400		3,735
Research and development		4,604		2,743			8,333		5,425
General and administrative		3,070		2,426			6,738		5,126
Restructuring expense		—		11			6		115
Total operating expenses		10,287		6,948			20,477		14,401
Operating income		1,377		2,932			3,337		2,994
Other income (expense):
Interest income, net		2		31			87		30
Gain on sale of software product		—		483			—		483
Other expense		—		(6	)		—		(15	)
Income before provision for income taxes		1,379		3,440			3,424		3,492
Provision for income tax expense		—		4			—		8
Net income	$	1,379	$	3,436		$	3,424	$	3,484

Earnings per share:
Basic	$	0.03	$	0.11		$	0.08	$	0.11
Diluted	$	0.03	$	0.10		$	0.08	$	0.10

Weighted average shares outstanding:
Basic		41,127		32,068			40,305		31,685
Diluted		43,079		35,308			42,346		33,365

Preferred dividends per share	$	—	$	25.01		$	—	$	50.01

See accompanying notes to the consolidated financial statements.

SMITH MICRO SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

										Additional			Accumulated
	Series B Preferred Stock				Common Stock					Paid-in			Comprehensive
	Shares		Amount		Shares			Amount		Capital			Deficit			Total
BALANCE, March 31, 2020 (unaudited)		—	$	—		40,383		$	40	$	276,163		$	(223,350	)	$	52,853
Non-cash compensation recognized on stock options and ESPP		—		—		—			—		17			—			17
Restricted stock grants, net of cancellations		—		—		—			—		791			—			791
Cancellation of shares for payment of withholding tax		—		—		(66	)		—		(296	)		—			(296	)
Exercise of warrants		—		—		1,038			1		2,150			—			2,151
Exercise of stock options		—		—		1			—		3			—			3
Net income		—		—		—			—		—			1,379			1,379
BALANCE, June 30, 2020 (unaudited)		—	$	—		41,356		$	41	$	278,828		$	(221,971	)	$	56,898


										Additional			Accumulated
	Series B Preferred Stock				Common Stock					Paid-in			Comprehensive
	Shares		Amount		Shares			Amount		Capital			Deficit			Total
BALANCE, December 31, 2019 (audited)		—	$	—		38,475		$	38	$	274,041		$	(225,395	)	$	48,684
Non-cash compensation recognized on stock options and ESPP		—		—		—			—		30			—			30
Restricted stock grants, net of cancellations		—		—		1,000			1		1,410			—			1,411
Cancellation of shares for payment of withholding tax		—		—		(176	)		—		(868	)		—			(868	)
Employee stock purchase plan		—		—		2			—		5			—			5
Exercise of warrants		—		—		2,047			2		4,194			—			4,196
Exercise of stock options		—		—		8			—		16			—			16
Net income		—		—		—			—		—			3,424			3,424
BALANCE, June 30, 2020 (unaudited)		—	$	—		41,356		$	41	$	278,828		$	(221,971	)	$	56,898

See accompanying notes to the consolidated financial statements.

SMITH MICRO SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

										Additional			Accumulated
	Series B Preferred Stock				Common Stock					Paid-in			Comprehensive
	Shares		Amount		Shares			Amount		Capital			Deficit			Total
BALANCE, March 31, 2019 (unaudited)		1	$	—		32,065		$	32	$	261,990		$	(235,984	)	$	26,038
Non-cash compensation recognized on stock options and ESPP		—		—		—			—		10			—			10
Restricted stock grants, net of cancellations		—		—		—			—		323			—			323
Cancellation of shares for payment of withholding tax		—		—		(35	)		—		(108	)		—			(108	)
Exercise of warrants		—		—		3			—		—			—			—
Conversion of preferred stock to common stock		—		—		9			—		—			—			—
Preferred stock dividends		—		—		—			—		—			(34	)		(34	)
Other		—		—		—			—		—			1			1
Net income		—		—		—			—		—			3,436			3,436
BALANCE, June 30, 2019 (unaudited)		1	$	—		32,042		$	32	$	262,215		$	(232,581	)	$	29,666


										Additional			Accumulated
	Series B Preferred Stock				Common Stock					Paid-in			Comprehensive
	Shares		Amount		Shares			Amount		Capital			Deficit			Total
BALANCE, December 31, 2018 (audited)		1	$	—		28,242		$	28	$	256,626		$	(236,091	)	$	20,563
Non-cash compensation recognized on stock options and ESPP		—		—		—			—		18			—			18
Restricted stock grants, net of cancellations		—		—		1,225			1		769			—			770
Cancellation of shares for payment of withholding tax		—		—		(138	)		—		(315	)		—			(315	)
Employee stock purchase plan		—		—