smsi-10q_20200930.htm

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 September 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.

Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☒

Emerging growth company	☐

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 November 5, 2020, there were 41,295,351 shares of common stock outstanding.

SMITH MICRO SOFTWARE, INC.

QUARTERLY REPORT ON FORM 10-Q

SEPTEMBER 30, 2020

TABLE OF CONTENTS

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

	September 30,			December 31,
	2020			2019
	(unaudited)			(audited)
Assets
Current assets:
Cash and cash equivalents	$	25,872		$	28,268
Accounts receivable, net of allowance for doubtful accounts and other adjustments of $84 (2020) and $253 (2019)		9,797			10,894
Prepaid expenses and other current assets		1,329			802
Total current assets		36,998			39,964
Equipment and improvements, net		2,250			2,109
Right-of-use assets		6,090			6,464
Deferred tax assets, net		94			94
Other assets		441			234
Intangible assets, net		14,186			4,535
Goodwill		11,493			7,797
Total assets	$	71,552		$	61,197
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	1,855		$	2,050
Accrued payroll and benefits		2,705			2,107
Current operating lease liabilities		1,407			1,221
Other accrued liabilities		260			244
Deferred revenue		1,561			98
Total current liabilities		7,788			5,720
Non-current liabilities:
Operating lease liabilities		5,121			5,774
Deferred rent		928			885
Other long term liabilities		83			134
Total non-current liabilities		6,132			6,793
Commitments and contingencies
Stockholders' equity:
Common stock, par value $0.001 per share; 100,000,000 shares authorized; 41,295,351 and 38,475,084 shares issued and outstanding (2020 and 2019, respectively)		41			38
Additional paid-in capital		279,401			274,041
Accumulated comprehensive deficit		(221,810	)		(225,395	)
Total stockholders’ equity		57,632			48,684
Total liabilities and stockholders' equity	$	71,552		$	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 Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenues	$	12,629	$	11,782	$	38,883	$	31,068
Cost of revenues		1,326		1,011		3,767		2,902
Gross profit		11,303		10,771		35,116		28,166
Operating expenses:
Selling and marketing		2,655		1,793		8,049		5,529
Research and development		5,446		3,063		13,774		8,487
General and administrative		2,997		2,396		9,741		7,522
Restructuring expense		9		39		19		154
Total operating expenses		11,107		7,291		31,583		21,692
Operating income		196		3,480		3,533		6,474
Other income (expense):
Interest income, net		7		87		94		117
Gain on sale of software product		—		—		—		483
Other expense		3		—		3		(15	)
Income before provision for income taxes		206		3,567		3,630		7,059
Provision for income tax expense		45		0		45		8
Net income	$	161	$	3,567	$	3,585	$	7,051

Earnings per share:
Basic	$	0.00	$	0.10	$	0.09	$	0.21
Diluted	$	0.00	$	0.09	$	0.08	$	0.20

Weighted average shares outstanding:
Basic		41,351		36,094		40,656		33,170
Diluted		43,026		39,472		42,577		35,287

Preferred dividends per share	$	—	$	70.50	$	—	$	104.58

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, June 30, 2020 (unaudited)		—	$	—		41,356		$	41	$	278,828		$	(221,971	)	$	56,898
Non-cash compensation recognized on stock options and ESPP		—		—		—			—		19			—			19
Restricted stock grants, net of cancellations		—		—		—			—		792			—			792
Cancellation of shares for payment of withholding tax		—		—		(66	)		—		(254	)		—			(254	)
Employee stock purchase plan		—		—		4			—		13			—			13
Exercise of stock options		—		—		1			—		3			—			3
Net income		—		—		—			—		—			161			161
BALANCE, September 30, 2020 (unaudited)		—	$	—		41,295		$	41	$	279,401		$	(221,810	)	$	57,632


										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		—		—		—			—		48			—			48
Restricted stock grants, net of cancellations		—		—		1,000			1		2,203			—			2,204
Cancellation of shares for payment of withholding tax		—		—		(242	)		—		(1,122	)		—			(1,122	)
Employee stock purchase plan		—		—		6			—		19			—			19
Exercise of warrants		—		—		2,047			2		4,194			—			4,196
Exercise of stock options		—		—		9			—		18			—			18
Net income		—		—		—			—		—			3,585			3,585
BALANCE, September 30, 2020 (unaudited)		—	$	—		41,295		$	41	$	279,401		$	(221,810	)	$	57,632

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, June 30, 2019 (unaudited)		1		$	—		32,042		$	32	$	262,215		$	(232,581	)	$	29,666
Non-cash compensation recognized on stock options and ESPP		—			—		—			—		10			—			10
Restricted stock grants, net of cancellations		—			—		—			—		340			—			340
Cancellation of shares for payment of withholding tax		—			—		(38	)		—		(191	)		—			(191	)
Employee stock purchase plan		—			—		2			—		6			—			6
Exercise of warrants		—			—		5,301			5		11,398			—			11,403
Exercise of stock options		—			—		10			—		38			—			38
Conversion of preferred stock to common stock		(1	)		—		1,171			1		(1	)		—			—
Preferred stock dividends		—			—		—			—		—			(52	)		(52	)
Net income		—			—		—			—		—			3,567			3,567
BALANCE, September 30, 2019 (unaudited)		—		$	—		38,488		$	38	$	273,815		$	(229,066	)	$	44,787


											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		—			—		—			—		30			—			30
Restricted stock grants, net of cancellations		—			—		1,225			1		1,108			—			1,109
Cancellation of shares for payment of withholding tax		—			—		(176	)