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SM

SMITH MICRO SOFTWARE, INC. (SMSI)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 revenue of $4.35M declined 6% YoY and 2% sequential, missing the company’s prior Q3 guidance ($4.4–$4.8M) due to a delayed contract signature for a new SafePath feature; GAAP EPS improved to $(0.25) vs $(0.54) YoY, while non-GAAP EPS was $(0.12), a beat versus Street consensus of $(0.23).*
  • Gross margin expanded to 73.9% (vs 71.6% YoY; ~73.5% in Q2), supported by cost reductions; CFO guided Q4 gross margin to 74–76% and targeted 78–80% margins in 2026 with a long-term goal of 85%.
  • The company implemented an October workforce reorganization (~30% of staff) yielding ~$7.2M annualized cost savings and expects to be profitable in mid-2026; non-GAAP OpEx guided down ~15% sequentially in Q4.
  • Financing: CEO Bill Smith committed $1.5M in a private placement as part of ~$2.65–$2.7M aggregate gross proceeds across two offerings (shares and warrants at ~$0.67), bolstering liquidity amid quarter-end cash of $1.4M.

What Went Well and What Went Wrong

What Went Well

  • Cost actions materially reduce run-rate: October workforce reorg impacting ~30% of employees to save ~$7.2M annually; management sees breakeven/profitability by mid-2026. “These changes were a necessary and meaningful step forward toward enhancing organizational efficiencies.”
  • Margin expansion and expense control: Gross margin rose to 73.9% (Q3) from 71.6% YoY and ~73.5% in Q2; non-GAAP OpEx down YoY and guided down another ~15% in Q4.
  • CommSuite growth: CommSuite revenue increased ~$148K YoY to $0.79M and rose ~$15K sequentially; Family safety product roadmap advancing with SafePath OS for kids/seniors and expanded AT&T reach.

What Went Wrong

  • Top-line miss vs guidance and Street: Q3 revenue $4.35M missed prior $4.4–$4.8M guidance due to an unfinalized customer contract; consensus revenue was ~$4.6M.*
  • Family Safety pressure persists: Q3 family safety revenue fell ~$410K YoY and ~$97K sequentially, driven by legacy Sprint Safe & Found decline.
  • Liquidity tight and EBITDA below Street: Cash was $1.4M at quarter end; Street EBITDA est. was $(2.1)M vs actual $(3.14)M., with a noted non-GAAP net loss of $(2.58)M.

Financial Results

P&L and EPS (GAAP and Non-GAAP)

MetricQ1 2025Q2 2025Q3 2025
Revenues ($USD Millions)$4.621 $4.420 $4.347
Gross Profit ($USD Millions)$3.363 $3.249 $3.211
Gross Margin %72.8% 73.5% 73.9%
GAAP Net Loss ($USD Millions)$(5.178) $(15.062) $(4.535)
GAAP Diluted EPS ($USD)$(0.28) $(0.78) $(0.25)
Non-GAAP Net Loss ($USD Millions)$(2.863) $(2.754) $(2.578)
Non-GAAP Diluted EPS ($USD)$(0.16) $(0.14) $(0.12)

Actual vs Street (Q3) and Company Guidance vs Street (Q4)

MetricQ3 2025 ConsensusQ3 2025 ActualSurprise
Revenue ($USD Millions)$4.600*$4.347 Miss
Primary EPS ($USD)$(0.23)*$(0.12) Beat
EBITDA ($USD Millions)$(2.10)*$(3.137)*Miss
MetricQ4 2025 GuidanceQ4 2025 ConsensusContext
Revenue ($USD Millions)$4.2–$4.5 $4.300*Midpoint ~in-line
Primary EPS ($USD)—$(0.19)*Street expects smaller loss
EBITDA ($USD Millions)—$(1.30)*Street implies OpEx/margin benefits

Note: Asterisked values retrieved from S&P Global.

Segment Breakdown (Q3 2025)

SegmentQ3 2025 Revenue ($USD Millions)YoYSeq
Family Safety$3.5 Down ~$0.41M Down ~$0.097M
CommSuite$0.792 Up ~$0.148M Up ~$0.015M
ViewSpot$0.026 Down ~$0.039M — (product sold Jun 3)

KPIs and Balance Sheet

MetricQ1 2025Q2 2025Q3 2025
Cash and Cash Equivalents ($USD Millions)$2.288 $1.401 $1.394
Non-GAAP Operating Expenses ($USD Millions)$6.136 $5.914 $5.705
Cash From Operations YTD ($USD Millions)$(0.602) $(2.870) (6M) $(5.007) (9M)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ3 2025$4.4–$4.8M (from Q2 call) Actual $4.35M Miss vs prior guide
RevenueQ4 2025—$4.2–$4.5M New guide issued
Gross Margin %Q4 202572–75% (Q2 outlook) 74–76% Raised range
Gross Margin %FY 2026 target—78–80%; LT target 85% New targets
Non-GAAP OpExQ4 2025—~15% decline vs Q3 Cost-down acceleration
ProfitabilityMid-2026—Expect profitability New timeline
Cost SavingsOngoing—~$7.2M annualized; ~30% workforce affected Structural reduction

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
AI/Technology InitiativesAnnounced SafePath 8 AI features: social media intelligence, age-aware engine, AI blocking, AI assistant SafePath 8 core development complete; expanded SafePath OS for kids/seniors; trials underway in NA/EU Strengthening
Customer/Carrier FocusOrange Spain Tuyo rollout; engagements across Orange Europe; AT&T Secure Family marketing; Boost and T-Mobile discussions AT&T Secure Family now available to non-AT&T users; Orange Spain next phase; broader Orange engagements; T-Mobile working group expansion Broadening
Supply/MacroNot a primary focusNot discussedNeutral
Product PerformanceCommSuite growth YoY; SafePath OS for seniors slated CommSuite up YoY; SafePath seniors and kids in trials Improving
Cost StructureCost reduction progress; Q2 goodwill impairment October reorg; ~$7.2M annual savings; non-GAAP OpEx down Q4 Improving
Financing/LiquidityJuly follow-on ~$1.5M November private placement + registered offering ~$2.65–$2.7M gross proceeds; CEO invests $1.5M Strengthening
Regulatory/LegalRoutine filings (S-8/S-1) Not highlightedStable

Management Commentary

  • “We believe… building on key customer opportunities to set the stage for future growth… I believe the renewed family focus occurring in the carrier market worldwide creates a substantial opportunity for Smith Micro Software.” — William W. Smith Jr.
  • “These cost reduction measures will save the company approximately $7.2 million in annualized costs… With these initial changes complete, we believe we will be very close to breakeven and expect to be profitable in mid-2026.” — Bill Smith
  • “Q3 revenue slightly missed guidance… The reason… is directly related to… an additional SafePath feature… The contract… did not get finalized as expected.” — Tim Huffmyer
  • “Secure Family is now available to any family, regardless of their mobile carrier… This expansion not only broadens our addressable market but also unlocks new cross-promotion opportunities.” — Bill Smith

Q&A Highlights

  • No questions were taken in Q3; call ended without Q&A.
  • CFO clarified revenue miss drivers (contract timing) and provided explicit Q4 guidance ranges for revenue and margins.

Estimates Context

  • Versus consensus, Q3 revenue missed ($4.35M vs $4.60M*), while non-GAAP/Primary EPS beat ($(0.12) vs $(0.23)), and EBITDA was weaker ($(3.14)M vs $(2.10)M). Bold indicates material surprises. *
  • Street modeling implies modest Q4 revenue around $4.30M* and an EPS loss of $(0.19), consistent with management’s revenue range and cost-down trajectory.
  • Near-term estimate revisions likely: EPS upward (smaller loss) on margin improvements; EBITDA downward near-term given Q3 variance; revenue trajectory modestly lower on customer timing risk.*

Note: Asterisked values retrieved from S&P Global.

Key Takeaways for Investors

  • Execution risk on carrier feature launches remains the swing factor; the Q3 revenue miss was contract timing, not demand—watch Q4 launch and revenue conversion cadence.
  • Cost actions materially de-risk the path to breakeven; margin guidance rising (74–76% in Q4) with 2026 margin targets (78–80%) and LT 85% suggests structural improvements.
  • Liquidity bolster via ~$2.65–$2.7M offerings and CEO’s $1.5M commitment is supportive near-term, but cash remains tight at $1.4M; monitor burn and capital needs.
  • Product/market catalysts: AT&T Secure Family’s expanded addressable market, Orange Spain roadmap, and SafePath OS for seniors open new vectors for growth.
  • CommSuite resilience provides diversified revenue contribution, offsetting family safety headwinds from legacy Sprint wind-down.
  • Medium-term thesis hinges on SafePath 8 adoption and senior/kids OS trials converting into deployments; estimate revisions could favor EPS on cost trends while revenue remains timing-sensitive.*
  • Near-term trading: stock likely reacts to confirmation of Q4 feature launch, margin delivery, and any new carrier wins; downside risk if customer prioritization delays persist.