SMITH MICRO SOFTWARE INC

Previous wording

In the third quarter of 2024, our revenues declined by 58% to $4.6 million compared to the third quarter of 2023, primarily drivenby a $5.2 million decrease in our Family Safety product line, coupled with a $1.0 million decrease in ViewSpot revenues. These revenue declines primarily resulted fromthe losses of a Family Safety contract with a Tier 1 carrier during 2023 and two ViewSpot contracts coupled with decreases associated with legacy Sprint Safe & Found revenue as subscribers migrate to the T-Mobile network. As a result of the decline in revenues, our gross profit decreased during the third quarter of 2024 to $3.3 million, representing a decrease of $5.1 million as compared to thethird quarter of the prior year. Our operating expenses decreased during the third quarter of 2024 compared to the third quarter of 2023 by approximately $0.8 million, primarily due to quarter-over-quarter reductions in sales and marketing expenses coupled with a decline in general and administrative costs. The net loss for the third quarter of 2024 was $6.4 million, resulting in a net lossof $0.54 per basic and diluted share.

Current wording

In the first quarter of 2025, our revenues declined by 20% to $4.6 million compared to the first quarter of 2024, primarily drivenby a $0.7 million decrease in our Family Safety product line, coupled with a $0.6 million decrease in ViewSpot revenues. These revenue declines primarily resulted fromthe loss of a ViewSpot contract with a Tier 1 carrier during 2024 coupled with decreases associated with legacy Sprint Safe & Found revenue as subscribers migrate to the T-Mobile network. As a result of the decline in revenues, our gross profit decreased during the first quarter of 2025 to $3.4 million, representing a decrease of $0.4 million as compared to thefirst quarter of the prior year. Our operating expenses decreased during the first quarter of 2025 compared to the first quarter of 2024 by approximately $26.7 million, primarily due to a goodwill impairment charge of $24.0 million recognized in the first quarter of 2024 coupled with quarter-over-quarter reductions in sales and marketing and research and development expenses due to cost reduction initiatives undertaken during 2024. The net loss for the first quarter of 2025 was $5.2 million, resulting in a net lossof $0.28 per basic and diluted share.

Previous wording

We currently provide white label Family Safety applications to two Tier 1 wireless carriers in the United States and believe that we remain strategically positioned to offer our market-leading family safety platform to the majority of U.S. mobile subscribers. We believe that we have an opportunity to increase the respective subscriber bases, and in turn, grow the revenues associated with these Tier 1 carriers. Further, we executed new, multi-year Family Safety agreements with a Tier 1 carrier in Europe in the fourth quarter of 2023 and a U.S.-based carrier in the first quarter of 2024. The new Family Safety solution with the U.S. based carrier launched on our SafePath Global platform during the second quarter of 2024, and associated marketing activities for that product have begun. Additionally, the Family Safety solution for the Tier 1 European carrier is expected to launch in the near term, and we are anticipating this carrier to conduct robust marketing activities related to that solution.

Current wording

We believe that we remain strategically positioned to offer our market-leading family safety platform to the majority of U.S. mobile subscribers, as we currently provide white-label Family Safety applications to two Tier 1 wireless carriers operating in the United States. Further, a Tier 1 carrier in Europe launched a new SafePath-based family safety solution in the fourth quarter of 2024 and began conducting robust marketing activities related to that solution during the first quarter of 2025. In addition, with the recent expansion of our SafePath product line, most notably with SafePath Kids and SafePath OS, we believe that we are well-positioned to grow our Family Safety revenues more broadly with these Tier 1 carriers as well as with other operators in our industry. We believe that we have an opportunity to increase the respective subscriber bases, and in turn, grow the revenues associated with these Tier 1 carriers.

Previous wording

Refer to the section titled "Liquidity and Capital Resources" for discussion of material changes in cash, Note 4 of our Notes to the Consolidated Financial Statements for discussion regarding the changes related to Common Stock, Note 5 for discussion regarding changes related to the warrant liabilities, Note 7 for discussion regarding changes to goodwill.

Current wording

Refer to the section titled "Liquidity and Capital Resources" for discussion of material changes in cash, Note 4 of our Notes to the Consolidated Financial Statements for discussion regarding the changes related to Common Stock, Note 5 for discussion regarding changes related to the warrant liabilities and Note 7 for discussion regarding changes to goodwill.

Previous wording

The table below sets forth certain statements of operations and comprehensive loss data expressed as a percentage of revenues for the three and nine months ended September 30, 2024 and 2023. Our historical results are not necessarily indicative of the operating results that may be expected in the future.

Current wording

The table below sets forth certain statements of operations and comprehensive loss data expressed as a percentage of revenues for the three months ended March 31, 2025 and 2024. Our historical results are not necessarily indicative of the operating results that may be expected in the future.

Previous wording

Revenues. Revenues were $4.6 million and $11.0 million for the three months ended September 30, 2024 and 2023, respectively, representing a decrease of $6.4 million, or 58%. This decrease was primarily related to declines associated with our Family Safety product line of $5.2 million, which was primarily resulting from the loss of revenue from a Family Safety contract with a Tier 1 carrier that concluded during the fourth quarter of 2023 and the legacy Sprint Safe & Found revenue declining as legacy Sprint subscribers migrated to the T-Mobile network coupled with a decline in ViewSpot revenue of$1.0 million that wasprimarily due to two of our contracts that concluded since September 2023.

Current wording

Revenues. Revenues were $4.6 million and $5.8 million for the three months ended March 31, 2025 and 2024, respectively, representing a decrease of $1.2 million, or 20%. This decrease was primarily related to declines associated with our Family Safety product line of $0.7 million, which was most significantly driven by Sprint Safe & Found revenue declining as legacy Sprint subscribers migrated to the T-Mobile network, coupled with a decline in ViewSpot revenue of$0.6 million that wasprimarily due to a contract that concluded during 2024.

Previous wording

Cost of revenues. Cost of revenues were $1.3 million and $2.5 million for the three months ended September 30, 2024 and 2023, respectively. This decrease of $1.2 million was primarily due to the period-over-period decline in revenue coupled with cost reduction efforts.

Current wording

Cost of revenues. Cost of revenues were $1.3 million and $2.0 million for the three months ended March 31, 2025 and 2024, respectively. This decrease of $0.7 million was primarily due to the period-over-period decline in revenue coupled with the impact of cost reduction efforts undertaken during 2024.

Previous wording

Gross profit. Gross profit was $3.3 million, or 71.6% of revenues, for the three months ended September 30, 2024, compared to $8.5 million, or 77.0% of revenues, for the three months ended September 30, 2023. The decrease of approximately $5.1 million in gross profit was primarily driven by the period-over-period decline in revenue volume.

Current wording

Gross profit. Gross profit was $3.4 million, or 72.8% of revenues, for the three months ended March 31, 2025, compared to $3.8 million, or 65.7% of revenues, for the three months ended March 31, 2024. The decrease of approximately $0.4 million in gross profit was driven by the period-over-period decline in revenue volume.

Previous wording

Selling and marketing. Selling and marketing expenses were $2.1 million and $2.4 million for the three months ended September 30, 2024 and 2023, respectively. This decrease of approximately $0.4 million was primarily due to decreases in personnel related costs due to cost reduction activities undertaken by the Company.

Current wording

Selling and marketing. Selling and marketing expenses were $1.6 million and $2.6 million for the three months ended March 31, 2025 and 2024, respectively. This decrease of approximately $1.0 million was primarily due to decreases in personnel related costs due primarily to cost reduction activities undertaken by the Company during 2024.

Previous wording

Research and development. Research and development expenses were $3.6 million and $3.7 million for the three months ended September 30, 2024 and 2023, respectively. Decreases in personnel related costs of $0.3 million were partially offset by increases in severance related costs of $0.2 million.

Current wording

Research and development. Research and development expenses were $2.9 million and $4.0 million for the three months ended March 31, 2025 and 2024, respectively. This decreases of approximately $1.1 million was primarily due to decreases in personnel related costs due to cost reduction activities undertaken by the Company during 2024.

Previous wording

General and administrative. General and administrative expenses were $2.7 million and $2.9 million for the three months ended September 30, 2024 and 2023, respectively. This decrease of approximately $0.2 million was primarily related to declines in personnel related costs of approximately $0.1 million and decreases in stock-based compensation of approximately $0.1 million.

Current wording

General and administrative. General and administrative expenses were $2.7 million and $2.8 million for the three months ended March 31, 2025 and 2024, respectively. This decrease of approximately $0.1 million was primarily related to declines in personnel-related costs of approximately $0.2 million partially offset by increases in stock-based compensation of approximately $0.1 million.

Previous wording

Depreciation and amortization. Depreciation expense was $0.1 million for both the three months ended September 30, 2024 and 2023. Amortization expense was $1.3 million and $1.5 million for the three months ended September 30, 2024 and 2023, respectively. Amortization expense is recognized based on the pattern of economic benefit expected to be generated from the use of the intangible assets, and as such itdecreased by approximately$0.2 million period-over-period.

Current wording

Depreciation and amortization. Depreciation expense was $0.1 million for both the three months ended March 31, 2025 and 2024. Amortization expense was $1.3 million and $1.8 million for the three months ended March 31, 2025 and 2024, respectively. Amortization expense is recognized based on the pattern of economic benefit expected to be generated from the use of the intangible assets, and as such itdecreased by approximately$0.5 million period-over-period.

Previous wording

Goodwill impairment. The impairment charge for the nine months ended September 30, 2024 occurred during the first quarter of 2024 and was based on a quantitative valuation which led to the conclusion that that the carrying value of our single reporting unit exceeded its fair value by $24.0 million.

Current wording

Goodwill impairment. The impairment charge for the three months ended March 31, 2024 was triggered by the sustained decrease in our common stock share price and overall market capitalization during the quarter, which led to an analysis whereby we concluded that the carrying value of our single reporting unit exceeded its fair value by $24.0 million. We did not have a similar charge for the three months ended March 31, 2025.

Previous wording

Change in fair value of warrant and derivative liabilities. Change in fair value of warrant and derivative liabilities was$0.2 million and$0.1 million for thethree months ended September 30, 2024 and 2023, respectively. The total increase in income of approximately $0.1 million resulted from valuation related impacts to the warrant and derivative liabilities in the respective periods.

Current wording

Change in fair value of warrant liabilities. Change in fair value of warrant liabilities was$0.1 million and$0.2 million for thethree months ended March 31, 2025 and 2024, respectively. The total decrease in income of approximately $0.1 million resulted from valuation related impacts to the warrant liabilities in the respective periods.

Previous wording

Interest (expense) income, net. Interest expense, net was nominal for the three months ended September 30, 2024 and $1.4 million for the three months ended September 30, 2023. The period-over-period change of $1.4 million was primarily related to the amortization of the discount and debt issuance costs and stated interest expense related to the Notes, which were fully retired effective December 31, 2023.

Current wording

Interest (expense) income, net. Interest expense, net was nominal for the three months ended March 31, 2025 and interest income, net was $0.1 million for the three months ended March 31, 2024.

Previous wording

Other (expense) income, net. Other income, net was $0.1 million for the nine months ended September 30, 2024 and Other expense, net was $0.1 million for the nine months ended September 30, 2023. The period-over-period change was primarily related to income derived from the licensing of several of our patents in February 2024.

Current wording

Other (expense) income, net. Other expense, net was $0.1 million for the three months ended March 31, 2025 and Other income, net was $0.2 million for the three months ended March 31, 2024. The period over period change was primarily related to the licensing of several of our patents in February 2024.

Previous wording

The Company’s principal sources of liquidity are its existing cash and cash equivalents, and cash generated by operations.

Current wording

The Company’s principal sources of liquidity are its existing cash and cash equivalents, and cash generated by operations. As of March 31, 2025, the Company's cash and cash equivalents were approximately $2.3 million.

Previous wording

This adverse impact on liquidity does not trigger a violation of any covenants in our material agreements, particularly as all our outstanding debt was retired as of December 31, 2023. The availability of sufficient funds will depend to an extent on the timing of subscriber growth and the related cash generation thereof, and/or the ability to obtain the necessary capital to meet our obligations and fund our working capital requirements to maintain normal business operations. To meet future cash needs, the Company may determine to take additional actions, as noted in the Risk Factor appearing in our 2023 Form 10-K under the heading, "If we are unable to meet our obligations as they become due over the next twelve months, the Company may not be able to continue as a going concern." There can be no assurance that any such potential actions will be available or will be available on satisfactory terms. Our ability to obtain additional financing in the debt and equity capital markets is subject to several factors, including market and economic conditions, our performance and investor sentiment with respect to us and our industry. As a result of these uncertainties, and notwithstanding management's plans and efforts to date, we have been unable to alleviate substantial doubt about our ability to continue as a going concern within one year from the date that thefinancial statements are issued.

Current wording

This adverse impact on liquidity does not trigger a violation of any covenants in our material agreements, particularly as all of our outstanding debt was retired as of December 31, 2023. The availability of sufficient funds will depend to an extent on the existence and timing of subscriber growth and the related cash generation thereof, and/or the ability to obtain the necessary capital to meet our obligations and fund our working capital requirements to maintain normal business operations. To meet future cash needs, the Company may determine to take additional actions, as noted in the Risk Factor appearing in our 2024 Form 10-K under the heading, "If we are unable to meet our obligations as they become due over the next twelve months, the Company may not be able to continue as a going concern." There can be no assurance that any such potential actions will be available or will be available on satisfactory terms. Our ability to obtain additional financing in the debt and equity capital markets is subject to several factors, including market and economic conditions, our performance and investor sentiment with respect to us and our industry. As a result of these uncertainties, and notwithstanding management's plans and efforts to date, we have been unable to alleviate substantial doubt about our ability to continue as a going concern within one year from the date that thefinancial statements are issued.

Previous wording

Net cash used in operating activities was $9.4 million for the nine months ended September 30, 2024. The primary uses of operating cash were a net loss of $44.3 million less non-cash expenses totaling $31.7 million, including a goodwill impairment charge of $24.0 million, depreciation and amortization of $4.9 million and stock compensation expense of $3.5 million, coupled with a decrease in accounts payable and accrued liabilities of $1.4 million primarily due to the timing and change in payments for accounts payable and payroll, partially offset by a decrease in accounts receivable of $4.5 million due to the timing of cash collections from customers.

Current wording

Net cash used in operating activities was $0.6 million for the three months ended March 31, 2025. The primary uses of operating cash were a net loss of $5.2 million less non-cash expenses totaling $2.5 million, including depreciation and amortization of $1.4 million and stock compensation expense of $1.1 million, coupled with a decrease in accounts payable and accrued liabilities of $0.3 million, primarily due to the timing and change in payments for accounts payable and payroll, partially offset by a decrease in accounts receivable of $2.4 million due to the timing of cash collections from customers.

Previous wording

Net cash used in operating activities was $6.0 million for the nine months ended September 30, 2023. The primary uses of operating cash were the net loss of $17.7 million less non-cash expenses totaling $13.0 million, and a decrease in accounts payable and accrued liabilities of $2.2 million partially offset by an increase in other liabilities of $0.6 million, a decrease in accounts receivable of $0.2 million and a decrease in prepaid expenses and other assets of $0.2 million.

Current wording

Net cash used in operating activities was $1.3 million for the three months ended March 31, 2024. The primary uses of operating cash were a net loss of $31.0 million less non-cash expenses totaling $26.5 million, driven by a goodwill impairment charge of $24.0 million, and a decrease in accounts payable and accrued liabilities of $0.5 million partially offset by an decrease in accounts receivable of $3.6 million.

Previous wording

Net cash provided by investing activities of $0.2 million for the nine months ended September 30, 2024 was primarily attributable to the net proceeds from licensing several of our patents in February 2024. Net cash provided by investing activities for nine months ended September 30, 2023 was $0.1 million.

Current wording

Net cash used in investing activities for three months ended March 31, 2025 was nominal. Net cash provided by investing activities of $0.2 million for the three months ended March 31, 2024 was primarily attributable to the net proceeds from licensing several of our patents in February 2024.

Previous wording

Net cash provided by financing activities of $3.6 million for the nine months ended September 30, 2024 was primarily attributable to the net cash proceeds of $3.4 million from the Registered Direct Offering and Private Placement conducted in May 2024 and borrowings of $1.0 million less repayments of $0.8 million from short-term insurance premium financing arrangements.

Current wording

Net cash provided by financing activities was $0.1 million the three months ended March 31, 2025, and $0.2 million for the three months ended March 31, 2024, and was primarily attributable to the timing of borrowings and repayments from short-term insurance premium financing arrangements.