Smith Micro Software, Inc. (NASDAQ:SMSI) Q1 2024 Earnings Call Transcript

Smith Micro Software, Inc. (NASDAQ:SMSI) Q1 2024 Earnings Call Transcript May 9, 2024

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Operator: Good day, and welcome to the Smith Micro First Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would like to turn the conference over to Charles Messman, Vice President of Marketing. Please go ahead.

Charles Messman: Thank you, operator, and good afternoon everyone. We appreciate you joining us today to discuss Smith Micro financial results for the first quarter ended March 31, 2024. By now you should have received a copy of our press release with the financial results. If you do not have a copy and would like one, please visit the Investor Relations section of our website at www.smithmicro.com. On today’s call, we have Bill Smith, our Chairman of the Board, President and Chief Executive Officer; and Jim Kempton, our Chief Financial Officer. Please note that some of the information you will hear during today’s discussion consists of forward-looking statements, including without limitations, those regarding the company’s future revenue and profitability, our plans and expectations, new product development and availability, new and expanded market opportunities, future product deployments, migrations and/or growth by new and existing customers, operating expenses, cost reduction efforts, and company cash reserves.

Forward-looking statements involve risks and uncertainties, which could cause actual results or trends to differ materially from those expressed or implied by our forward-looking statements. For more information, please refer to the risk factors included in our most recently filed Form 10-K. Smith Micro assumes no obligation to update any forward-looking statements, which speak to our management’s beliefs and assumptions only as of the date they are made. I want to point out that in our forthcoming prepared remarks, we will refer to specific non-GAAP financial measures. Please refer to our press release disseminated earlier today for a reconciliation of these non-GAAP financial measures. With that said, I’ll turn the call over to Bill. Bill?

Bill Smith: Thanks, Charlie. Good afternoon, and thank you for joining us today for our 2024 first quarter conference call. We appreciate your interest in Smith Micro Software. Let me start my remarks today by saying that we are focused on returning the company to growth in the near-term and have several initiatives underway to realize that target, which I will touch on throughout the presentation today. While we’re not quite there yet, we have made a lot of progress in several areas that are projected to set the stage for growth in the back half of this year. Along with our return to growth, we are also working to return to profitability on a non-GAAP basis. In conjunction with our revenue growth initiatives, we plan to bring down our cost structure to achieve that non-GAAP profitability and positive cash flow.

We’ll touch on the cost reductions a little later in our presentation. So let me begin by discussing some key milestones we achieved that have laid the foundation for revenue growth. Most significantly, we are pleased to announce today that DISH will be our first customer to launch SafePath Global. DISH is, in fact, the customer we referred to in our earlier press release announcing the signing of our first SafePath Global agreement. DISH’s forthcoming launch is particularly exciting for us as SafePath Global is a key component to our long-term strategy, allowing for fast launch that only takes a matter of weeks from contract signing to availability in the market. We believe that this deployment model is very repeatable and is an enormous difference from a more typical launch that can take several months.

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Q&A Session

DISH will also include premium visual voice mail to its value-added services, which is powered by our CommSuite platform. We see a strong and collaborative relationship coming together as we are aligned with DISH on our goals for both product success. Our other recent contract win is with our Tier 1 carrier in Europe, which is expected to launch in the second half of this year. This delivery will introduce a unique product approach to a family safety solution that is yet to be seen in the market. We believe that the launch will drive significant interest in SafePath tailored towards European customer base, leading to other opportunities in that region, which will be a bonus to the revenue expected to be generated under this contract. As far as our Tier 1 carrier partners here in the United States, we have fully completed the migration to SafePath at AT&T and made a few release updates throughout this year to further improve the user experience and reach.

More specifically, SafePath is now available to AT&T prepaid and Cricket wireless customers, also further expanding our addressable market. With those migration activities behind us, a new wave of marketing activities is underway that we expect will pay dividends in the near term. At T-Mobile, we are enjoying productive discussions, and our teams are sharing new energy and alignment, which we believe may yield mutual benefits, particularly around some of our new advancements of the SafePath platform with our expanded product road map. We are cautiously optimistic that these discussions may result in a renewed focus on expanding Family Safety offerings and result in subscriber growth over the back half of 2024. Another key milestone that we believe sets the stage for revenue growth is the launch in April of our Affiliate Influencer Program.

In addition, our Retail Store Ambassador Program will be launched very shortly. We see these programs as a tremendous opportunity to build awareness and education for our carrier partners SafePath-based Family Safety solutions. It will also help us to incentivize retail staff at both corporate and authorized resellers with a seamless program that is easily deployed and implemented. I will discuss both the affiliate and ambassador programs in more detail later in the call. With the progress that we’ve made on these several fronts, we believe we are gaining momentum for the revenue growth in the back half of this year. Following Jim’s comments, we will dig in a bit deeper and add some additional color. Let’s turn the call over to Jim now to discuss our financial results in greater detail.

Jim?

Jim Kempton: Thanks, Bill, and good afternoon, everyone. I’ll now be covering the financial details for the first quarter of 2024. Please note, all of my comments today regarding per share metrics reflect the retroactive impact of the 1 for 8 reverse stock split that was approved by our shareholders and effectuated in early April. For the first quarter, we posted revenue of $5.8 million compared to $10.9 million for the same quarter of 2023, a decrease of approximately 47%. When compared to the fourth quarter of 2023, revenue decreased by $2.8 million or 33%. During the first quarter of 2024, Family Safety revenue decreased as anticipated by approximately $4.6 million or 51% compared to the first quarter of the prior year, primarily due to our having recognized no Verizon Family Safety revenues during the first quarter of 2024 as that contract concluded in the fourth quarter of 2023, coupled with the continued decline in the legacy Sprint Safe & Found revenue.

Family Safety revenues decreased by approximately $3 million or 40% compared to the fourth quarter of 2023, driven by the conclusion of the Verizon Family Safety contract. During the first quarter of 2024, CommSuite revenue was $700,000, which decreased by approximately $200,000 compared to the first quarter of 2023. Revenue from CommSuite increased by approximately $100,000 compared to the fourth quarter of 2023. ViewSpot revenue was approximately $700,000 for the first quarter of 2024, which declined by approximately $300,000 compared to the first quarter of the prior year and increased by approximately $100,000 compared to the fourth quarter of 2023. The decline in ViewSpot revenues compared to the first quarter of 2023 was primarily due to the previously announced termination of one of our ViewSpot contracts in the second half of 2023.

In the second quarter of 2024, we are expecting consolidated revenues to be in the range of approximately $5 million to $5.5 million. This anticipated decline in revenue is driven in part by a projected decrease in ViewSpot revenues, primarily due to less variable revenue related to device launches and marketing-related activities in the second quarter of 2024 compared to the first quarter of 2024. For those of you who follow us closely, you know we only provide next quarter guidance. But as Bill stated earlier, we are focused on returning the company to growth in the near-term. For the first quarter of 2024, gross profit was $3.8 million compared to $7.6 million during the same period of the prior year, a decrease of approximately $3.8 million, primarily due to the period-over-period decline in revenues.

Gross margin was at 65.7% for the quarter compared to the 70% realized in the first quarter of 2023. The gross profit of $3.8 million in the first quarter of 2024 decreased sequentially by $2.6 million compared to the gross profit produced in the fourth quarter of 2023, driven primarily by the sequential decline in revenues quarter-over-quarter. In the second quarter of 2024, we expect gross margin to be in the range of 66% to 70%. During the first quarter of 2024, because of the sustained decrease in our stock price, we evaluated the carrying value of our goodwill and determined a noncash impairment charge of $24 million was required. As a result, GAAP operating expenses for the first quarter of 2024 were $35.3 million, an increase of $20.7 million or 142% compared to the first quarter of 2023 due to that goodwill impairment charge of $24 million, partially offset by the effect of cost reduction activities undertaken during 2023.