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Smith Micro Reports Second Quarter 2018 Financial Results

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Company Achieves Non-GAAP Profitability During the Quarter

Smith Micro Software, Inc. (NASDAQ:
SMSI
), today reported financial results for its second quarter ended
June 30, 2018.

"I am encouraged by our second quarter results as we look to build upon
our positive momentum in the second half of fiscal 2018," said William
W. Smith, Jr., President and CEO of Smith Micro Software. "We achieved
operating profitability and saw continued revenue growth from our
wireless business unit, driven by our two core products, SafePath®
and CommSuite®."

"While there is still plenty of hard work ahead, I am proud of what we
have achieved with the turnaround journey that we began 18 months ago.
The company is well capitalized and positioned to build upon the
momentum achieved in the first half of the year. We will remain diligent
and focused on our strategic initiatives, expanding our revenues and
continuing our march to consistent profitability in the coming quarters."

Fiscal Second Quarter 2018 Financial Results:

Smith Micro Software reported revenue of $6.9 million for the second
quarter ended June 30, 2018, compared to $5.9 million reported in the
second quarter ended June 30, 2017.

Second quarter 2018 gross profit was $5.8 million, compared to $4.6
million reported in the second quarter of 2017.

Gross profit as a percentage of revenue was 84 percent for the second
quarter of 2018, compared to 78 percent for the second quarter of 2017.

Generally accepted accounting principles in the United States ("GAAP")
net loss available to common stockholders for the second quarter of 2018
was $2.4 million, or $0.11 loss per share, compared to a GAAP net loss
available to common stockholders of $2.0 million, or $0.15 loss per
share, for the second quarter of 2017.

Non-GAAP net income (which excludes non-cash stock-based compensation,
amortization of intangibles, debt issuance and discount costs, fair
value adjustments, preferred stock dividends, and a normalized tax
expense) for the second quarter of 2018 was $0.2 million, or $0.01 per
share, compared to a non-GAAP net loss of $0.8 million, or $0.06 loss
per share, for the second quarter of 2017.

Fiscal June Year-to-Date 2018 Financial Results:

Smith Micro Software reported revenue of $12.4 million for the six
months ended June 30, 2018, compared to $11.4 million reported for the
six months ended June 30, 2017.

Gross profit for the six months ended June 30, 2018 was $10.0 million,
compared to $8.9 million reported for the same period in 2017.

Gross profit as a percentage of revenue was 81 percent for the six
months ended June 30, 2018, compared to 78 percent for the six months
ended June 30, 2017.

GAAP net loss available to common stockholders for the six months ended
June 30, 2018 was $4.9 million, or $0.26 loss per share, compared to a
GAAP net loss available to common stockholders of $4.8 million, or $0.38
loss per share, for the same period in 2017.

Non-GAAP net loss (which excludes non-cash stock-based compensation,
amortization of intangibles, debt issuance and discount costs, fair
value adjustments, preferred stock dividends, and a normalized tax
benefit) for the six months ended June 30, 2018 was $1.2 million, or
$0.07 loss per share, compared to a non-GAAP net loss of $2.2 million,
or $0.18 loss per share, for the six months ended June 30, 2017.

Total cash and cash equivalents at June 30, 2018 were $8.7 million.

To supplement our financial information presented in accordance with
GAAP, the Company considers and has included in this press release
certain non-GAAP financial measures, including a non-GAAP reconciliation
of gross profit, income (loss) before taxes, net income (loss) available
to common stockholders, and earnings (loss) per share in the
presentation of financial results in this press release. Management
believes this non-GAAP presentation may be more meaningful in analyzing
our income generation and therefore has excluded the following non-cash
items from GAAP earnings calculations: stock-based compensation,
amortization of intangible assets, debt issuance and discount costs,
fair value adjustments, and preferred stock dividends. Additionally,
since we are in a cumulative loss position, a non-GAAP income tax
expense (benefit) was computed using a 24 percent and 38 percent tax
rate for 2018 and 2017, respectively, using the Company's normalized
combined U.S. federal, state, and foreign statutory tax rates less
various tax adjustments. This presentation may be considered more
indicative of our ongoing operational performance. The table below
presents the differences between non-GAAP net income (loss) and net loss
on an absolute and per-share basis. Non-GAAP financial measures should
not be considered in isolation from, or as a substitute for, financial
information presented in compliance with GAAP, and the non-financial
measures as reported by Smith Micro Software may not be comparable to
similarly titled amounts reported by other companies.

Investor Conference Call:

Smith Micro Software will hold an investor conference call today, July
24, 2018 at 4:30 p.m. EDT, to discuss the Company's second quarter 2018
financial results. To access the call, dial 1-877-270-2148;
international participants can call 1-412-902-6510. A passcode is not
required to join the call; ask the operator to be placed into the Smith
Micro conference. Participants are asked to call the assigned number
approximately 10 minutes before the conference call begins. In addition,
the conference call will be available on the Smith Micro website in the Investor
Relations
section.

About Smith Micro Software, Inc.:

Smith Micro develops software to simplify and enhance the mobile
experience, providing solutions to some of the leading wireless service
providers, device manufacturers, and enterprise businesses around the
world. From optimizing wireless networks to uncovering customer
experience insights, and from streamlining Wi-Fi access to ensuring
family safety, our solutions enrich today's connected lifestyles while
creating new opportunities to engage consumers via smartphones. Our
portfolio also includes a wide range of products for creating, sharing
and monetizing rich content, such as visual messaging and 2D/3D graphics
applications. For more information, visit smithmicro.com.

Forward-Looking Statements:

Certain statements in this press release are, and certain statements
on the related teleconference call may be, forward-looking statements
regarding future events or results, including without limitation,
statements relating to our financial prospects and other projections of
our performance and our future business plans, and other statements
using such words as "expect," "anticipate," "believe," "plan," "intend,"
"could," "will," and other similar expressions.
Forward-looking
statements involve risks and uncertainties, which could cause actual
results to differ materially from those expressed or implied in the
forward-looking statements.
Among the important factors that
could cause or contribute to such differences are our ability to
continue as a going concern, our ability to raise more funds to meet our
capital needs, changes in demand for our products from our customers and
their end-users, customer concentration, given that the majority of our
sales depend on a few large customer relationships, new and changing
technologies, customer acceptance and timing of deployment of those
technologies, and our ability to compete effectively with other software
and technology companies. These and other factors discussed in our
filings with the Securities and Exchange Commission, including our
filings on Forms 10-K and 10-Q, could cause actual results to differ
materially from those expressed or implied in any forward-looking
statements. The forward-looking statements contained in this release and
on the related teleconference call are made on the basis of the views
and assumptions of management regarding future events and business
performance as of the date of this release, and we do not undertake any
obligation to update these statements to reflect events or circumstances
occurring after the date of this release.

Smith Micro and the Smith Micro logo are registered trademarks or
trademarks of Smith Micro Software, Inc. All other trademarks and
product names are the property of their respective owners.

                       
Smith Micro Software, Inc.
Reconciliation of GAAP to Non-GAAP Results
(in thousands, except per share amounts) – unaudited
 
GAAP

Stock
Compensation

Intangibles
Amortization

Note
Issue/
Discount

Fair Value
Adjustments

Preferred
Stock
Dividends

Taxes

 

Non-
GAAP

Three Months Ended 6/30/18:

Gross profit $ 5,829 $ - $ - $ - $ - $ - $ - $ 5,829
Income (loss) before provision for

income taxes

(2,164 ) 247 64 66 2,085 - - 298
Net income (loss) available to

common stockholders

(2,362 ) 247 64 66 2,085 185 (59 ) 226
Income (loss) per share: basic and

diluted

(0.11 ) 0.01 0.00 0.00 0.10 0.01 (0.00 ) 0.01
 

Three Months Ended 6/30/17:

Gross profit $ 4,577 $ - $ - $ - $ - $ - $ - $ 4,577
Loss before provision for

income taxes

(1,947 ) 388 65 131 - - - (1,363 )
Net loss available to common

stockholders

(1,952 ) 388 65 131 - - 523 (845 )
Loss per share: basic and

diluted

(0.15 ) 0.03 0.00 0.01 - - 0.04 (0.06 )
 

Six Months Ended 6/30/18:

Gross profit $ 9,983 $ - $ - $ - $ - $ - $ - $ 9,983
Loss before provision for

income taxes

(4,535 ) 410 128 131 2,224 - - (1,642 )
Net loss available to common

stockholders

(4,884 ) 410 128 131 2,224 326 417 (1,248 )
Loss per share: basic and

diluted

(0.26 ) 0.02 0.01 0.01 0.12 0.02 0.02 (0.07 )
 

Six Months Ended 6/30/17:

Gross profit $ 8,870 $ - $ - $ - $ - $ - $ - $ 8,870
Loss before provision for

income taxes

(4,819 ) 834 130 261 - - - (3,594 )
Net loss available to common

stockholders

(4,832 ) 834 130 261 - - 1,379 (2,228 )
Loss per share: basic and

diluted

(0.38 ) 0.07 0.01 0.02 - - 0.11 (0.18 )
 
Note: Loss per share: basic and diluted - may be impacted by
rounding to allow rows to calculate.
     
Smith Micro Software, Inc.
Statements of Operations and Comprehensive Loss
(in thousands, except per share amounts) - unaudited
 
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2018   2017 2018   2017
Revenues $ 6,945 $ 5,862 $ 12,408 $ 11,438
Cost of revenues   1,116   1,285   2,425   2,568
Gross profit 5,829 4,577 9,983 8,870
 
Operating expenses:
Selling and marketing 1,447 1,461 3,177 3,254
Research and development 2,195 2,174 4,450 4,671
General and administrative 2,061 2,239 4,251 4,428
Restructuring expense   52   322   52   714
Total operating expenses   5,755   6,196   11,930   13,067
Operating income (loss) 74 (1,619 ) (1,947 ) (4,197 )
Non-operating expenses:
Interest expense, net (143 ) (329 ) (314 ) (613 )
Change in fair value of warrant liability (2,085 ) - (2,224 ) -
Other income (expense), net   (10 )   1   (50 )   (9 )
Loss before provision for income taxes (2,164 ) (1,947 ) (4,535 ) (4,819 )
Provision for income tax expense   13   5   23   13
Net loss (2,177 ) (1,952 ) (4,558 ) (4,832 )
Less preferred stock dividends   (185 )   -   (326 )   -
Net loss available to common stockholders $ (2,362 ) $ (1,952 ) $ (4,884 ) $ (4,832 )
 
Loss per share:
Basic and diluted $ (0.11 ) $ (0.15 ) $ (0.26 ) $ (0.38 )
 
Weighted average shares outstanding:
Basic and diluted 21,888 13,179 18,612 12,674
     
Smith Micro Software, Inc.
Consolidated Balance Sheets

(in thousands) - unaudited

 
June 30, December 31,
2018 2017
ASSETS
Current Assets:
Cash & cash equivalents $ 8,745 $ 2,205
Accounts receivable, net 6,182 5,145
Prepaid and other assets   774   576
Total current assets 15,701 7,926
Equipment & improvements, net 1,060 1,229
Deferred tax asset, net 404 404
Other assets 148 146
Intangible assets, net 359 487
Goodwill   3,685   3,685
TOTAL ASSETS $ 21,357 $ 13,877
 
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,315 $ 1,333
Accrued payroll and benefits 1,998 1,994
Related-party notes payable - 1,000
Other accrued liabilities 411 416
Deferred revenue   261   73
Total current liabilities 3,985 4,816
 
Related-party notes payable, net 1,200 1,200
Notes payable, net 1,689 1,558
Warrant liability 9,004 -
Deferred rent 846 970
Other long-term liabilities   649   766
Total non-current liabilities 13,388 4,494
 
Stockholders' Equity:
Preferred stock - -
Common stock 25 14
Additional paid in capital 241,790 237,486
Accumulated comprehensive deficit   (237,831 )   (232,933 )
Total stockholders' equity   3,984   4,567
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 21,357 $ 13,877

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