Revenue Performance - In 2023, the company's revenues declined by 16% to $40.9 million, primarily due to a $5.3 million decrease in Family Safety revenues and a $2.0 million decline in CommSuite revenues [129]. - The termination of a Family Safety contract with a Tier 1 customer resulted in a loss of approximately 36% of total revenues for 2023, with no further revenues expected from this contract in 2024 [128]. - The ViewSpot product line's revenues decreased by approximately $0.4 million due to a decrease in device launches in 2023 [140]. Financial Results - The net loss for 2023 was $24.4 million, equating to a net loss of $0.38 per basic and diluted share [129]. - Gross profit for 2023 was $30.3 million, representing 74.2% of revenues, compared to $34.3 million or 70.7% of revenues in 2022 [142]. Operating Expenses and Cash Flow - Operating expenses decreased by 26% in 2023 compared to 2022, primarily due to a $12.2 million reduction in Research and Development expenses [128]. - Cash and cash equivalents as of December 31, 2023, were approximately $7.1 million, with cash flow used in operations amounting to $7.0 million for the year [151]. - Net cash used in operating activities was $7.0 million for the year ended December 31, 2023, compared to $19.3 million in 2022, indicating a decrease in cash outflow [154][155]. - The primary use of operating cash in 2023 included a net loss of $24.4 million, offset by non-cash expenses of $17.8 million and a decrease in accounts receivable of $2.6 million [154]. Debt and Interest Expenses - Interest expense increased to $6.4 million in 2023 from $2.7 million in 2022, primarily due to the amortization of debt issuance costs related to the August 2022 Notes and Warrants Offering [149]. Restructuring and Workforce - The company undertook restructuring efforts that resulted in the elimination of approximately 26% of its global workforce [128]. Investments and Financing Activities - Net cash provided by investing activities remained stable at $0.1 million for both 2023 and 2022 [156]. - Net cash used by financing activities was $0.1 million in 2023, a significant decrease from $17.1 million provided in 2022, which was primarily due to proceeds from Notes and Warrants Offering [157][158]. Commitments and Financial Position - The company has made various indemnities and commitments, which may not provide limitations on future payment obligations, indicating potential financial exposure [159]. - The company has no off-balance sheet arrangements as of December 31, 2023, indicating a straightforward financial position [162]. Revenue Recognition and Compensation - Revenue recognition follows FASB ASC Topic No. 606, with various revenue streams including software licenses, consulting services, and usage-based revenue [176][177]. - Stock-based compensation is accounted for based on fair values and recognized as compensation expense over the vesting period [180]. Corporate Structure - The corporate headquarters is located in Pittsburgh, Pennsylvania, with a lease expiring on April 30, 2026, and additional leases in California, Serbia, Sweden, and Portugal [160]. Future Agreements - The company executed a new multi-year Family Safety agreement with a major Tier 1 carrier in Europe, anticipated to launch in 2024 [130].

Smith Micro Software, Inc. (NASDAQ:SMSI) Q4 2023 Earnings Conference Call February 22, 2024 4:30 PM ET Company Participants Charles Messman - VP of IR and Corporate Development Bill Smith - Chairman, President and CEO Jim Kempton - CFO Conference Call Participants Josh Nichols - B. Riley Jim McIlree - Dawson James Scott Searle - ROTH MKM Operator Good day, and welcome to the Smith Micro Software Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I ...

Exhibit 99.1 IR INQUIRIES: Charles Messman Investor Relations 949-362-5800 IR@smithmicro.com Smith Micro Reports Fourth Quarter and Fiscal Year 2023 Financial Results PITTSBURGH, PA, February 22, 2024 – Smith Micro Software, Inc. (Nasdaq: SMSI) ("Smith Micro" or the "Company") today reported financial results for its fourth quarter and fiscal year ended December 31, 2023. "Looking back at 2023, we faced some challenges and implemented decisive changes to build a new path forward for the Company," said Willi ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _____________________________ FORM 10-Q _____________________________ (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2023 OR o 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 re ...

Financial Data and Key Metrics Changes - The company reported revenue of $11 million for Q3 2023, a decrease of approximately 6% compared to $11.7 million in Q3 2022, but an increase of 6% from the previous quarter [56][31] - Non-GAAP pretax profit for Q3 2023 was approximately $700,000, compared to a non-GAAP net loss of approximately $4.9 million in Q3 2022 [59][60] - Gross margin improved to 77% in Q3 2023 from 69% in Q3 2022, with gross profit increasing to $8.5 million from $8.1 million year-over-year [58][34] Business Line Data and Key Metrics Changes - Family Safety revenue decreased by approximately $500,000 or 5% year-over-year, primarily due to a reduction in Sprint Safe & Found revenue, but increased by $400,000 sequentially from Q2 2023 [26][31] - CommSuite revenue was $700,000 in Q3 2023, down by approximately $300,000 compared to Q3 2022, attributed to a decline in DISH revenue and legacy Sprint deployment [35] - ViewSpot revenue grew to approximately $1.1 million in Q3 2023, an increase of $100,000 year-over-year and $200,000 sequentially, driven by a new contract with a U.S. mobile virtual network operator [36] Market Data and Key Metrics Changes - Year-to-date revenues through September 30, 2023, were $32.3 million, down from $37.1 million in the same period last year, primarily due to declines in legacy Safe & Found Family Safety revenue [34] - The company expects consolidated revenues to decrease by 18% to 23% in Q4 2023, largely due to the decline in Verizon Family Safety revenues as the contract concludes [57] Company Strategy and Development Direction - The company is focusing on leveraging AI and machine learning to enhance family safety solutions and simplify SafePath deployments to capture broader market segments [32][46] - A new global deployment model, SafePath Global, is being introduced to accelerate penetration among Tier 2 and Tier 3 providers, particularly in high ARPU markets in Europe [67] - The strategic focus remains on family safety, with plans to introduce SafePath Premium in 2024, which will include features to monitor and alert parents about harmful content on social media [81][82] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future growth, particularly with the AT&T relationship, and indicated that significant marketing initiatives are planned for 2024 [79][78] - The company is observing increased demand for consolidated super apps and anticipates that more than half of the global population will be daily users of such applications in the coming years [80] - Management noted that the macro family safety market is evolving due to rising concerns about safety and security, both online and offline [45][46] Other Important Information - The company reported cash and cash equivalents of $8 million as of September 30, 2023, with cash flows from operations of approximately $1.5 million during the quarter [43] - GAAP operating expenses for Q3 2023 were $10.7 million, a decrease of 35% compared to Q3 2022, reflecting the company's aggressive cost-cutting measures [39] Q&A Session Summary Question: What is the expected revenue trajectory in Q4? - Management expects a decline in revenue due to the end of the Verizon contract, with no revenue anticipated from that contract in December [10][57] Question: Can you provide insights on the ViewSpot contracts? - One ViewSpot contract was terminated immediately, resulting in a loss of several hundred thousand dollars in revenue for Q4, while another contract will continue until the end of the year with a transition period [73] Question: What are the expectations for the AT&T relationship moving into 2024? - Management is very bullish about the AT&T relationship, with several initiatives planned for 2024 that are either approved or in the final approval process [79] Question: How is the company addressing competition in the family safety space? - Management noted an increased awareness in the family safety space rather than direct competition, as carriers are required to enhance their offerings due to regulatory pressures [106]

Financial Performance - Revenues for Q2 2023 were $10.3 million, a decrease of 18% compared to $12.7 million in Q2 2022, primarily due to declines in the Family Safety and CommSuite product lines [94][101]. - The net loss for Q2 2023 was $5.7 million, resulting in a net loss of $0.09 per basic and diluted share [94]. - Revenues for the six months ended June 30, 2023, were $21.3 million, a decrease of $4.1 million or 16% compared to $25.4 million for the same period in 2022 [113]. - Gross profit was $15.4 million, representing 72.4% of revenues for the six months ended June 30, 2023, compared to $18.2 million or 71.5% of revenues for the same period in 2022 [115]. Cost Management - Operating expenses decreased by approximately $6.4 million in Q2 2023 compared to Q2 2022, driven by a $4.4 million reduction in Research & Development expenses [94]. - The company eliminated approximately 26% of its global workforce in response to the termination of the Family Safety contract, resulting in over $4 million of quarterly cost savings in Q2 2023 [96]. - Research and development expenses decreased by approximately $5.8 million to $9.6 million for the six months ended June 30, 2023, primarily due to a decline in personnel-related costs [117]. - Selling and marketing expenses were $6.2 million for the six months ended June 30, 2023, down from $6.7 million in 2022, reflecting a decrease in personnel-related costs [116]. - Cost of revenues decreased to $5.9 million for the six months ended June 30, 2023, from $7.3 million in 2022, due to revenue decline and cost reduction efforts [114]. Liquidity and Cash Flow - Net cash used in operating activities was $7.5 million for the six months ended June 30, 2023, compared to $11.6 million for the same period in 2022 [126][127]. - As of June 30, 2023, the company's cash and cash equivalents were approximately $6.4 million, indicating sufficient liquidity to meet financial obligations [125]. Interest and Debt - Interest expense for Q2 2023 was $2.0 million, primarily due to the amortization of the discount and debt issuance costs related to financing transactions [110]. - Interest expense was $4.3 million for the six months ended June 30, 2023, primarily related to the amortization of the discount and debt issuance costs [122]. - The loss recognized on derecognition of debt in Q2 2023 was $0.8 million, resulting from installment payments made on convertible notes [109]. - The loss recognized on derecognition of debt for the six months ended June 30, 2023, was $1.4 million, resulting from installment payments made on convertible notes [121]. Product and Market Developments - The Family Safety contract with a Tier 1 customer terminated effective June 30, 2023, accounting for approximately 34% of total revenues for the six-month period ended June 30, 2023 [95]. - The company expects to launch the SafePath platform for another U.S. Tier 1 carrier in Q3 2023, which is anticipated to improve gross margins [95]. Valuation Adjustments - The change in fair value of warrant and derivative liabilities was $0.4 million for Q2 2023, reflecting valuation impacts [108]. - Change in fair value of warrant and derivative liabilities was $3.4 million for the six months ended June 30, 2023, reflecting valuation impacts [120].

Smith Micro Software, Inc. (NASDAQ:SMSI) Q2 2023 Earnings Conference Call August 9, 2023 4:30 PM ET Company Participants Bill Smith - Chairman, President, Chief Executive Officer Jim Kempton - Chief Financial Officer Charles Messman - Vice President of Marketing Conference Call Participants Scott Searle - ROTH MKM Josh Nichols - B. Riley FBR Jim McIlree - Dawson James Operator Good day, and welcome to the Smith Micro Second Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. ...

| --- | --- | |----------------------------------------------------|-------| | | | | | | | Smartphones and other screens offer more | | | communication and entertainment opportunities | | | | | | than ever; but with those opportunities certain | | | threats become more visible. | | | Parents want security and ease. Kids want autonomy | | ® SafePath® Direct Marketing/CRM Store Collateral/Employee Training Education Segment | --- | --- | |-----------------------------------|-------| | | | | | | | … ACHIEVING ...

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) Presents unaudited consolidated financial statements for Q1 2023 and 2022, including balance sheets, operations, equity, cash flows, and notes [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets%20as%20of%20March%2031%2C%202023%20and%20December%2031%2C%202022) | Metric | March 31, 2023 (in millions) | December 31, 2022 (in millions) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Cash and cash equivalents | $8.724 | $14.026 | | Total current assets | $23.233 | $26.510 | | Total assets | $98.258 | $103.581 | | Total current liabilities | $20.249 | $20.731 | | Total non-current liabilities | $4.125 | $6.471 | | Total stockholders' equity | $73.884 | $76.379 | - Total assets decreased from **$103.581 million** at December 31, 2022, to **$98.258 million** at March 31, 2023[9](index=9&type=chunk) - Cash and cash equivalents decreased by **$5.302 million** from **$14.026 million** to **$8.724 million**[9](index=9&type=chunk) [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations%20for%20the%20Three%20Months%20Ended%20March%2031%2C%202023%20and%202022) | Metric | Three Months Ended March 31, 2023 (in millions) | Three Months Ended March 31, 2022 (in millions) | | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Revenues | $10.930 | $12.735 | | Gross profit | $7.648 | $9.098 | | Operating loss | $(6.935) | $(7.038) | | Change in fair value of warrant and derivative liabilities | $2.984 | — | | Interest expense, net | $(2.260) | $(0.004) | | Net loss | $(6.887) | $(7.002) | | Basic and diluted loss per share | $(0.11) | $(0.13) | - Revenues decreased by **14.1%** year-over-year, from **$12.735 million** in Q1 2022 to **$10.930 million** in Q1 2023[11](index=11&type=chunk) - Net loss improved slightly from **$(7.002) million** in Q1 2022 to **$(6.887) million** in Q1 2023, partly due to a **$2.984 million** gain from the change in fair value of warrant and derivative liabilities[11](index=11&type=chunk) [Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity%20for%20the%20Three%20Months%20Ended%20March%2031%2C%202023%20and%202022) | Metric | December 31, 2022 (in millions) | March 31, 2023 (in millions) | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Total Stockholders' Equity | $76.379 | $73.884 | | Additional Paid-in Capital | $357.875 | $362.262 | | Accumulated Comprehensive Deficit | $(281.552) | $(288.439) | | Common shares issued in settlement and prepayment of notes payable | — | $3.649 | - Total stockholders' equity decreased by **$2.495 million** from **$76.379 million** at December 31, 2022, to **$73.884 million** at March 31, 2023[14](index=14&type=chunk) - Common shares issued in settlement and prepayment of notes payable contributed **$3.649 million** to equity in Q1 2023[14](index=14&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20Three%20Months%20Ended%20March%2031%2C%202023%20and%202022) | Cash Flow Activity | Three Months Ended March 31, 2023 (in millions) | Three Months Ended March 31, 2022 (in millions) | | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Net cash used in operating activities | $(5.335) | $(6.589) | | Net cash provided by (used in) investing activities | $0.003 | $(0.051) | | Net cash provided by financing activities | $0.030 | $0.393 | | Net decrease in cash and cash equivalents | $(5.302) | $(6.247) | | Cash and cash equivalents, end of period | $8.724 | $9.831 | - Net cash used in operating activities decreased by **$1.254 million**, from **$(6.589) million** in Q1 2022 to **$(5.335) million** in Q1 2023[18](index=18&type=chunk) - Cash and cash equivalents at the end of the period decreased to **$8.724 million** as of March 31, 2023, from **$14.026 million** at the beginning of the period[18](index=18&type=chunk) [Notes to the Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) [Note 1. The Company](index=8&type=section&id=Note%201.%20The%20Company) - Smith Micro Software, Inc. develops software to simplify and enhance the mobile experience for wireless and cable service providers globally[20](index=20&type=chunk) - The company's portfolio includes digital services for family safety (location, parental controls, IoT), visual voice messaging, and retail content display optimization[20](index=20&type=chunk)[25](index=25&type=chunk) [Note 2. Accounting Policies](index=8&type=section&id=Note%202.%20Accounting%20Policies) - The unaudited consolidated financial statements are prepared in accordance with SEC rules and US GAAP, omitting certain disclosures normally included in annual statements[21](index=21&type=chunk) - The adoption of ASU 2016-13, 'Financial Instruments - Credit Losses (Topic 326),' effective in fiscal year 2023, did not have a material impact on the financial statements[24](index=24&type=chunk) [Note 3. Equity Transactions](index=9&type=section&id=Note%203.%20Equity%20Transactions) - In August 2022, the company completed a registered direct offering, selling **1,132,075 shares** of common stock and warrants, raising net cash proceeds of **$2.8 million**[26](index=26&type=chunk) - During Q1 2023, **1,644,738 shares** were issued to settle a **$1.5 million** convertible notes installment, and **1,592,359 shares** were prefunded for a May 2023 installment[28](index=28&type=chunk) [Note 4. Debt and Warrants Transactions](index=9&type=section&id=Note%204.%20Debt%20and%20Warrants%20Transactions) - On August 11, 2022, the company sold **$15.0 million** in senior secured convertible notes and warrants to acquire **2,238,806 shares**[29](index=29&type=chunk) - The notes accrue **6.0%** annual interest (**15.0%** upon default) and mature on December 31, 2023, with monthly amortization payments[30](index=30&type=chunk) - Warrants and embedded derivative features are classified as liability instruments, with fair value changes recognized in the consolidated statements of operations[31](index=31&type=chunk)[32](index=32&type=chunk) | Metric | Amount (in millions) | | :-------------------------- | :-------------------- | | Gross Balance as of March 31, 2023 | $13.500 | | Unamortized Discount | $(3.658) | | Unamortized Issuance Costs | $(0.218) | | Net Balance as of March 31, 2023 | $9.624 | [Note 5. Fair Value of Financial Instruments](index=11&type=section&id=Note%205.%20Fair%20Value%20of%20Financial%20Instruments) | Financial Liability | March 31, 2023 (in millions) | | :-------------------------------- | :----------------------------- | | Notes and Warrants Offering Derivative | $0.532 | | Warrants | $0.830 | | Additional Warrants | $0.524 | | Total at March 31, 2023 | $1.886 | - The change in fair value for these liabilities resulted in a gain of **$2.984 million** for the three months ended March 31, 2023[40](index=40&type=chunk) [Note 6. Goodwill and Intangible Assets](index=11&type=section&id=Note%206.%20Goodwill%20and%20Intangible%20Assets) - A U.S. Tier 1 customer agreement termination in February 2023 triggered an interim quantitative impairment analysis for goodwill and long-lived assets[42](index=42&type=chunk) - The impairment analysis concluded no impairment for goodwill or the Customer Relationships intangible asset as of February 28, 2023[44](index=44&type=chunk)[45](index=45&type=chunk) | Intangible Asset | Net Book Value (March 31, 2023, in millions) | | :-------------------- | :------------------------------------------ | | Purchased technology | $7.257 | | Customer relationships | $22.382 | | Customer contracts | $1.198 | | Software license | $3.667 | | Patents | $0.343 | | Total | $34.847 | - Intangible asset amortization expense was **$1.5 million** for the three months ended March 31, 2023, compared to **$1.6 million** in the prior year period[47](index=47&type=chunk) [Note 7. Earnings Per Share](index=13&type=section&id=Note%207.%20Earnings%20Per%20Share) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net loss (in millions) | $(6.887) | $(7.002) | | Weighted average shares outstanding – basic (in thousands) | 61,646 | 54,501 | | Basic and diluted net loss per common share | $(0.11) | $(0.13) | - **8,032 thousand** anti-dilutive shares (convertible notes, stock options, and warrants) were excluded from the diluted net loss per share calculation for Q1 2023[51](index=51&type=chunk) [Note 8. Stock-Based Compensation](index=14&type=section&id=Note%208.%20Stock-Based%20Compensation) - The company granted **1.4 million shares** of restricted stock under its 2015 Omnibus Equity Incentive Plan during Q1 2023[52](index=52&type=chunk) | Expense Category | Three Months Ended March 31, 2023 (in millions) | Three Months Ended March 31, 2022 (in millions) | | :-------------------------- | :------------------------------------------ | :------------------------------------------ | | Sales and marketing | $0.162 | $0.083 | | Research and development | $0.224 | $0.261 | | General and administrative | $0.559 | $0.721 | | Total non-cash stock compensation expense | $0.945 | $1.065 | - As of March 31, 2023, there was approximately **$8.3 million** in unrecognized compensation costs related to non-vested stock options and restricted stock[57](index=57&type=chunk) - **2,627 thousand** unvested restricted stock awards were outstanding as of March 31, 2023[59](index=59&type=chunk) [Note 9. Revenues](index=16&type=section&id=Note%209.%20Revenues) - The company recognizes revenue based on a five-step analysis, primarily from usage-based fees for perpetual licenses, hosted environment transactions, advertisement placements, and cloud-based services[60](index=60&type=chunk) | Revenue Type | Three Months Ended March 31, 2023 (in millions) | Three Months Ended March 31, 2022 (in millions) | | :-------------------------- | :------------------------------------------ | :------------------------------------------ | | License and service fees | $1.000 | $0.828 | | Hosted environment usage fees | $0.819 | $1.429 | | Cloud based usage fees | $8.677 | $9.878 | | Consulting services and other | $0.434 | $0.600 | | Total revenues | $10.930 | $12.735 | [Note 10. Segment, Customer Concentration and Geographical Information](index=17&type=section&id=Note%2010.%20Segment%2C%20Customer%20Concentration%20and%20Geographical%20Information) - The company operates as a single primary business unit: Wireless, which includes Family Safety (SafePath®), CommSuite®, and ViewSpot® products[64](index=64&type=chunk) | Product Line | Three Months Ended March 31, 2023 (in millions) | Three Months Ended March 31, 2022 (in millions) | | :-------------------------- | :------------------------------------------ | :------------------------------------------ | | Family Safety | $9.089 | $10.366 | | CommSuite | $0.826 | $1.430 | | ViewSpot | $1.015 | $0.939 | | Total Wireless revenues | $10.930 | $12.735 | - Three customers accounted for **37%**, **37%**, and **14%** of total revenues for Q1 2023[66](index=66&type=chunk) - Revenues from the Americas totaled **$10.511 million** in Q1 2023, down from **$12.193 million** in Q1 2022[68](index=68&type=chunk) [Note 11. Commitments and Contingencies](index=18&type=section&id=Note%2011.%20Commitments%20and%20Contingencies) - Management does not believe the ultimate disposition of potential legal proceedings will have a material adverse impact on the company's consolidated results[69](index=69&type=chunk) - The company has various indemnities, commitments, and guarantees, for which no liability has been recorded in the consolidated balance sheets[70](index=70&type=chunk) [Note 12. Leases](index=18&type=section&id=Note%2012.%20Leases) | Metric | Three Months Ended March 31, 2023 (in millions) | Three Months Ended March 31, 2022 (in millions) | | :-------------------------- | :------------------------------------------ | :------------------------------------------ | | Lease cost | $0.410 | $0.434 | | Sublease income | — | $(0.018) | | Total lease cost | $0.410 | $0.416 | - The present value of operating lease liabilities was **$4.046 million** as of March 31, 2023[74](index=74&type=chunk) - The weighted average remaining lease term was **2.85 years**, with a weighted average discount rate of **6.2%** as of March 31, 2023[75](index=75&type=chunk) [Note 13. Income Taxes](index=19&type=section&id=Note%2013.%20Income%20Taxes) - The company maintains a valuation allowance against its U.S.-based deferred tax amounts, totaling **$62.7 million** as of March 31, 2023, due to a historical cumulative loss position[78](index=78&type=chunk) - There were no outstanding tax audits from federal or state authorities as of March 31, 2023[79](index=79&type=chunk) [Note 14. Subsequent Events](index=20&type=section&id=Note%2014.%20Subsequent%20Events) - Subsequent events have been evaluated as of the filing date, and no further disclosures are required[81](index=81&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion and analysis of Q1 2023 financial condition, operations, liquidity, capital resources, and risks [Overview](index=22&type=section&id=Overview) - Q1 2023 revenues declined by **14%** to **$10.9 million**, primarily due to decreases in the Family Safety and CommSuite product lines[90](index=90&type=chunk) - Net loss for Q1 2023 was **$6.9 million**, or **$0.11** per basic and diluted share[90](index=90&type=chunk) - One U.S. Tier 1 customer terminated its Family Safety contract effective June 30, 2023, leading to a workforce reduction of approximately **26%** and anticipated quarterly cost savings of **$4 million** by Q2 2023[91](index=91&type=chunk) - The company expects development costs to decline and gross margins to increase as customer migrations to the SafePath platform are completed[91](index=91&type=chunk) [Results of Operations](index=23&type=section&id=Results%20of%20Operations) | Metric (as % of Revenues) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Revenues | 100.0 % | 100.0 % | | Cost of revenues | 30.0 % | 28.6 % | | Gross profit | 70.0 % | 71.4 % | | Operating loss | (63.4) % | (55.3) % | | Net loss | (63.0) % | (55.0) % | [Three Months Ended March 31, 2023 Compared to the Three Months Ended March 31, 2022](index=23&type=section&id=Three%20Months%20Ended%20March%2031%2C%202023%20Compared%20to%20the%20Three%20Months%20Ended%20March%2031%2C%202022) - Revenues decreased by **$1.8 million** (**14%**) to **$10.9 million**, primarily due to declines in Family Safety (**$1.3 million**) and CommSuite (**$0.6 million**) related to T-Mobile's subscriber migration[94](index=94&type=chunk) - Gross profit decreased by **$1.5 million** to **$7.6 million**, driven by lower revenue volume and **$0.2 million** in severance costs[96](index=96&type=chunk) - Research and development expenses decreased by **$1.4 million** to **$5.9 million**, mainly due to lower personnel and contractor costs, partially offset by **$0.5 million** in severance costs[98](index=98&type=chunk) - Interest expense, net, increased significantly by **$2.3 million** to **$2.3 million**, primarily due to amortization of debt discount and issuance costs from the August 2022 financing[103](index=103&type=chunk) - A **$3.0 million** income was recognized from the change in fair value of warrant and derivative liabilities in Q1 2023[101](index=101&type=chunk) [Liquidity and Capital Resources](index=24&type=section&id=Liquidity%20and%20Capital%20Resources) - The company's principal sources of liquidity are existing cash and cash equivalents, and cash generated by operations[105](index=105&type=chunk) - Cash and cash equivalents were approximately **$8.7 million** as of March 31, 2023[105](index=105&type=chunk) - Management believes the company will be able to meet its financial obligations over the next twelve months[105](index=105&type=chunk) [Operating activities](index=24&type=section&id=Operating%20activities) - Net cash used in operating activities was **$5.3 million** for Q1 2023, an improvement from **$6.6 million** used in Q1 2022[106](index=106&type=chunk)[107](index=107&type=chunk) - Primary uses of operating cash in Q1 2023 included a net loss of **$6.9 million**, an increase in accounts receivable of **$0.7 million**, and a decrease in accounts payable and accrued liabilities of **$0.4 million**[106](index=106&type=chunk) [Investing activities](index=25&type=section&id=Investing%20activities) - Net cash provided by investing activities was nominal for Q1 2023, compared to **$0.1 million** used in Q1 2022[109](index=109&type=chunk) [Financing activities](index=25&type=section&id=Financing%20activities) - Net cash provided by financing activities was nominal for Q1 2023, down from **$0.4 million** in Q1 2022, primarily due to the timing of borrowings and repayments from short-term insurance premium financing[110](index=110&type=chunk) [Recent Accounting Guidance](index=25&type=section&id=Recent%20Accounting%20Guidance) - Refer to Note 2 of the Notes to the Consolidated Financial Statements for information regarding recent accounting guidance[111](index=111&type=chunk) [Critical Accounting Policies and Estimates](index=25&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - The preparation of financial statements requires management to make estimates and judgments that affect reported amounts, based on historical experience and reasonable assumptions[112](index=112&type=chunk) - Detailed information on critical accounting policies and estimates is available in Note 1 of the company's 2022 Form 10-K[112](index=112&type=chunk) [Item 4. Controls and Procedures](index=25&type=section&id=Item%204.%20Controls%20and%20Procedures) Assesses disclosure controls, management's financial statement responsibility, and internal control changes [Evaluation of disclosure controls and procedures](index=25&type=section&id=Evaluation%20of%20disclosure%20controls%20and%20procedures) - Management, including the CEO and CFO, determined that disclosure controls and procedures were effective as of March 31, 2023[113](index=113&type=chunk) [Management's responsibility for financial statements](index=25&type=section&id=Management%27s%20responsibility%20for%20financial%20statements) - Management is responsible for the integrity and objectivity of all information presented in this Report, with consolidated financial statements prepared in conformity with U.S. GAAP[114](index=114&type=chunk) - The Audit Committee of the Board of Directors reviews accounting, financial reporting, internal control, and audit matters[115](index=115&type=chunk) [Changes in internal control over financial reporting](index=26&type=section&id=Changes%20in%20internal%20control%20over%20financial%20reporting) - There have been no material changes in internal controls over financial reporting during the quarter ended March 31, 2023[117](index=117&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=27&type=section&id=Item%201.%20Legal%20Proceedings) Addresses potential legal proceedings, with no material adverse impact on financial position or results anticipated - Management does not believe the ultimate disposition of various legal proceedings will have a material adverse impact on the company's consolidated results of operations, cash flows, or financial position[120](index=120&type=chunk) [Item 1A. Risk Factors](index=27&type=section&id=Item%201A.%20Risk%20Factors) Refers to 2022 Form 10-K risk factors and Item 2, confirming no material changes to previously disclosed risks - Readers should consider risk factors discussed in Part I, Item 1A of the 2022 Form 10-K and factors identified at the beginning of Part I, Item 2 of this Report[121](index=121&type=chunk) - There have been no material changes to the risk factors included in the 2022 Form 10-K for the year ended December 31, 2022[121](index=121&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=27&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Details Q1 2023 equity security repurchases, primarily for withholding taxes on restricted stock awards | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :-------------------- | :----------------------------- | :--------------------------- | | January 1 - 31, 2023 | 23,993 | $2.63 | | February 1 - 28, 2023 | 21,931 | $3.20 | | March 1 - 31, 2023 | 65,179 | $1.17 | | Total | 111,103 | $2.33 | - Shares were repurchased for the payment of withholding taxes in connection with the vesting of restricted stock awards[122](index=122&type=chunk) [Item 5. Other Information](index=27&type=section&id=Item%205.%20Other%20Information) Discloses impairment review outcome after customer termination, confirming no goodwill or intangible asset impairment - Following an impairment review triggered by a customer agreement termination, the company determined there was no impairment of goodwill or long-lived intangible assets[123](index=123&type=chunk) [Item 6. Exhibits](index=28&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with Form 10-Q, including certifications and Inline XBRL documents - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer, as well as Inline XBRL instance, schema, calculation, definition, label, and presentation documents[124](index=124&type=chunk) SIGNATURES [SIGNATURES](index=29&type=section&id=SIGNATURES) Contains official signatures of authorized officers, certifying due authorization and filing of the Form 10-Q - The Report was signed on May 12, 2023, by William W. Smith, Jr., Chairman of the Board, President and Chief Executive Officer, and James M. Kempton, Vice President and Chief Financial Officer[128](index=128&type=chunk)

Financial Data and Key Metrics Changes - Revenue for the first quarter of 2023 was $10.9 million, down from $12.7 million in the same quarter of 2022, representing a decrease of approximately 14% [73] - GAAP net loss for the first quarter of 2023 was $6.9 million or $0.11 loss per share, compared to a GAAP net loss of $7 million or $0.13 loss per share in the first quarter of 2022 [8] - Non-GAAP gross margin for the first quarter of 2023 was 71.8%, compared to 71.4% in the first quarter of 2022 [101] Business Line Data and Key Metrics Changes - Family Safety revenue decreased by $1.3 million or 12% compared to the first quarter of the prior year, primarily due to the attrition of legacy Sprint subscribers [30] - CommSuite revenues were approximately $800,000, down from $1.4 million in the first quarter of 2022 [66] - ViewSpot revenue was approximately $1 million for the first quarter of 2023, which increased by $100,000 compared to the first quarter of the prior year [100] Market Data and Key Metrics Changes - The company anticipates consolidated revenue for the second quarter of 2023 to be flat to lower by 4% compared to the first quarter of 2023 [31] - The company expects second quarter 2023 non-GAAP operating expenses to decrease by 25% to 30% from the first quarter of 2023 [32] Company Strategy and Development Direction - The company is focused on completing the migration of the AT&T Secure Family application to the SafePath platform, with a public launch expected in the third quarter [64] - The company aims to achieve $4 million in savings from total non-GAAP expenses reported in the fourth quarter of 2022 [12] - The company is optimistic about expanding its ViewSpot business and anticipates additional customers in both North America and EMEA regions [79] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in returning to profitability by the third quarter, with a focus on cost reduction and operational efficiency [42] - The management noted that the challenges faced are largely within their control and are being addressed proactively [107] - Management highlighted positive feedback from sales prospects in both the U.S. and high ARPU markets across Europe [106] Other Important Information - The company has implemented a global reduction in workforce, eliminating approximately 26% of its global workforce to achieve cost reduction goals [3] - The company reported $8.7 million in cash and cash equivalents as of March 31, 2023 [103] Q&A Session Summary Question: Has the expectation for a return to profitability changed? - Management confirmed that they are still committed to achieving profitability in the third quarter [42] Question: Can you elaborate on margins in the back half of the year? - Management indicated that they expect adjusted gross margins to improve by 150 to 250 basis points as the year progresses [43] Question: What additional growth initiatives are being worked on with AT&T? - Management mentioned ongoing discussions and activities to support AT&T's growth initiatives, but did not provide specific quantifiable opportunities at this time [19]