Smith Micro (SMSI) Q3 2026 Earnings Call Transcript

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DATE

Thursday, Nov. 12, 2026

CALL PARTICIPANTS

• Vice President of Marketing - Charles Messman
• President, Chief Executive Officer, and Chairman of the Board - Bill Smith
• Chief Financial Officer - Bethany Braund

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TAKEAWAYS

• Revenue -- $5.0 million, representing a 16% increase compared to the second quarter of 2026 and a 15% increase versus the third quarter of last year.
• Q4 Revenue Guidance -- $5.4 million to $5.6 million, with management expecting double-digit sequential growth compared to the third quarter.
• Gross Margin -- 81.6%, setting a new five-year high driven by sequential revenue growth and strategic cost reductions.
• Q4 Gross Margin Guidance -- 81% to 83%, maintaining levels consistent with the prior quarter.
• Family Safety Revenue -- $4.2 million, an increase of 18% compared to the third quarter of last year and 18% sequentially.
• CommSuite Revenue -- $857,000, growing 3.8% compared to the second quarter of 2026 due to increased subscriber messaging activity.
• Non-GAAP Net Loss -- $281,000, or $0.05 per share, representing a significant improvement from the $2.6 million loss in the second quarter of 2026.
• GAAP Operating Expenses -- $5.6 million, a decrease of 28% compared to the third quarter of 2025.
• Non-GAAP Operating Expenses -- $4.2 million, a decrease of 26% year over year reflecting strategic cost-optimization efforts.
• Cash and Cash Equivalents -- $2.4 million as of Sept. 30, 2026, up from $1.5 million at the end of 2025.
• Year-to-Date Revenue -- $13.6 million through Sept. 30, 2026, an increase of 1.4% compared to the first nine months of the prior year.
• GAAP Net Loss -- $1.7 million, or $0.30 per share, compared to a loss of $5.2 million in the third quarter of 2025.
• Year-to-Date Gross Margin -- 80.5%, reflecting the second consecutive quarter above 80% as the company optimizes its cost structure.
• Intangible Asset Amortization -- $1.2 million for the quarter, included in the reconciliation from GAAP to non-GAAP metrics.
• Convertible Notes Payable -- $2.1 million in non-current liabilities as of the end of the third quarter.
• Stock-Based Compensation -- $118,000 for the quarter, a decrease from $644,000 in the same period of the prior year.
• Headcount -- 118 employees, as the company maintains a leaner organizational structure following 2025 cost reductions.
• Tier 1 Contract Activity -- Management reported signing an expanded multiyear agreement with a major customer that yielded non-recurring engineering (NRE) fees and increased recurring revenue.
• Accounts Receivable -- $3.0 million as of Sept. 30, 2026, an increase from $1.8 million at the end of the prior fiscal year.

SUMMARY

Smith Micro Software, Inc. (NASDAQ:SMSI) reported its third consecutive quarter of sequential revenue growth, driven by contract expansions and new product launches within its SafePath ecosystem. Management indicated that the company achieved a five-year high in gross margins while significantly reducing operating expenses through strategic cost optimization. The company expanded its market reach by launching solutions for the senior demographic and securing its first win for SafePath Connect in the European market. Management stated that the sales pipeline continues to grow with high-quality opportunities across diverse deployment models.

• The company entered into an expanded multiyear agreement with a Tier 1 customer, which CEO Smith stated is "already generating additional revenue" and expected to "continue to generate significant revenue growth" as more deliverables are rolled out.
• Management highlighted the shift toward using SDKs and APIs to integrate family safety features directly into carrier-branded apps, which CEO Smith noted allows carriers to invest in marketing while "substantially growing the size of the user base."
• The company expanded into the senior market through a partnership with Consumer Cellular, launching the Speakeasy brand solution designed to help older adults remain connected and maintain independence.
• CEO Smith characterized SafePath as a "total family safety platform" that protects users through all life phases, noting that the company expects a future customer to use three different deployment methods simultaneously.
• The launch of SafePath Drive with a Tier 1 partner is expected to generate immediate revenue growth by offering premium safety features for families at a higher price point.
• The company joined the AgeTech Collaborative from AARP to improve its positioning in the senior technology market, a segment management identified as a significant growth opportunity in North America and Europe.

INDUSTRY GLOSSARY

• SafePath: A family safety software platform that includes location services, parental controls, and digital wellness tools.
• CommSuite: A white-label messaging platform providing voicemail services and voice-to-text transcription for mobile carriers.
• NRE: Non-recurring engineering; one-time fees paid for the development or customization of software products.
• OTT: Over-the-top; software applications delivered over the internet directly to users rather than being integrated into the carrier's network infrastructure.
• SDK: Software development kit; a set of tools that allows developers to embed SafePath features directly into their own mobile applications.
• API: Application programming interface; a set of protocols that allows different software programs to communicate and share data.
• SafePath Connect: A version of the SafePath solution designed for rapid market deployment via App Store distribution.

Full Conference Call Transcript

Operator: Good day, and welcome to Smith Micro Software's financial results for the Third Quarter of 2026. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Charles Messman, Vice President of Marketing. Please go ahead.

Charles Messman: Thank you, operator. We appreciate you joining us today to discuss Smith Micro Software's financial results for the third quarter of 2026. 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 President, CEO, and Chairman of the Board, and Bethany Braund, 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 limitation, 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 developments, growth by new and existing customers, operating expenses, and the company's 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 management's beliefs and assumptions only as to 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 reconciliations of these non-GAAP financial measures. With that said, let's turn the call over to Bill. Bill?

William Smith: Thanks, Charlie, and thank you for joining us today for our third quarter 2026 earnings conference call. We appreciate your continued interest and support of Smith Micro. Overall, we had a very active and productive quarter. I am pleased with the progress we've made as we continued to build on the momentum established during the first half of the fiscal year. Our third quarter results surpassed our achievements in the second quarter. Revenue was up 16% quarter over quarter. Gross margins rose to 81.6%. Our non-GAAP loss was under $300,000. We remain confident in our ability to sustain this progress through the remainder of fiscal 2026 and expect double-digit sequential revenue growth in Q4 as compared to Q3.

Commercially, we continue to make meaningful progress securing and expanding contracts with both new and existing customers and launching new product offerings to the market. I believe these wins reflect the growing market interest in our solutions, as well as the strength of the relationships we have with our customers. We announced three new contracts during Q3, and we expect to announce additional new contracts over the coming quarters as our sales pipeline continues to grow and yield high-quality opportunities. We also significantly expanded our product portfolio during the quarter, bringing together a comprehensive family-focused ecosystem of software products and services designed to connect and protect families across generations.

Our expanded portfolio allows us to address a wider range of market needs, extend our overall reach, deepen our customer relationships, and drive additional opportunities for long-term growth. This is an exciting time at Smith Micro. I believe we have strong and growing momentum across our business. Teams across the company are working hard to support the expansion of our sales pipeline while delivering and strengthening our product offerings, but I believe we are just scratching the surface and expect continuous success as we move through the remainder of the fiscal year and beyond. Lastly, I am excited to have returned as CEO.

We have a great team at Smith Micro, and I am proud to be at the helm as we continue to fulfill our mission of delivering innovative software solutions that help families stay connected, protected, and safe. We are looking forward to building on the momentum we have created this year. I am encouraged by our progress, energized by our growing opportunities, and remain very confident in our ability to translate this momentum into long-term growth. Later in the call, I will provide more details, but first, let's turn the call over to Bethany Braund, who will review the third quarter financial results.

Bethany Braund: Thanks, Bill, and good afternoon, everyone. Initially, I want to note some of the key contract activity contributing to our results for the third quarter. We entered into an expanded multi-year agreement with one of our largest Tier 1 customers, which reinforces our longstanding partnership and shared commitment to delivering innovative family safety solutions. This yielded NRE fees and began contributing to increased recurring revenue during the quarter. We also launched and began recognizing revenue on new agreements with two other carriers in the third quarter: the first in the U.S. for our SafePath OS for senior phone solution, and the second in Europe with our SafePath Connect solution.

Beyond these customer wins, we continue to see benefits from the strategic cost reductions we announced in the fourth quarter of last year. We achieved longer-term cost benefits in the second and third quarters this year and expect those benefits to continue into the fourth quarter. Our focus remains on achieving sustainable profitability by driving revenue growth while maintaining disciplined cost management. Now let's cover the financial results of the third quarter of 2026. For the third quarter, we continued our positive momentum, delivering our third consecutive quarter of sequential revenue growth. We recognized revenue of $5.0 million for the third quarter of 2026 compared to $4.3 million for the same quarter of the prior year, an increase of 15%.

When compared to the second quarter of 2026, revenue increased by $676,000, or 16%. Year-to-date revenues through September 30, 2026, were $13.6 million versus $13.4 million through the third quarter of last year, an increase of 1.4%. During the third quarter of 2026, family safety revenue was $4.2 million, which increased by $631,000, or 18%, compared to the third quarter of last year. Family safety revenues increased by $645,000, or 18%, compared to the second quarter of 2026. During the third quarter of 2026, CommSuite revenue was $857,000, which increased by $65,000 compared to the third quarter of '25. Revenue from CommSuite grew by $31,000, or 3.8%, as compared to the second quarter of 2026.

For the fourth quarter, we expect continued sequential revenue growth, supported by expected contributions from new contracts, with revenue anticipated to range from $5.4 million to $5.6 million. For the third quarter of 2026, gross profit was $4.1 million compared to $3.2 million during the same period of the prior year, an increase of $885,000, or 28%, due to the period-over-period increase in revenues and our strategic cost reductions. Further, gross margin was at 81.6% for the quarter, which was in line with our prior quarter guidance and a significant improvement as compared to the 73.9% realized in the third quarter of 2025.

Our third quarter gross margin of 81.6% marked the second consecutive quarter above 80% and surpassed the 81.3% achieved in the second quarter, setting a new five-year high. Gross profit for the third quarter increased by $566,000 compared to the gross profit realized in the second quarter of 2026. In the fourth quarter of 2026, we expect gross margin to continue in the range of 81% to 83%. For the year-to-date period ended September 30, 2026, gross profit was $10.9 million compared to $9.8 million during the corresponding period last year. Gross margin was 80.5% for the September 30, 2026, year-to-date period.

GAAP operating expenses for the third quarter of 2026 were $5.6 million, a decrease of $2.1 million, or a 28% decline as compared to the third quarter of 2025. GAAP operating expenses sequentially decreased by $341,000, or 5.8%, when compared to the second quarter of 2026. Both of the period-over-period cost reductions were a result of our cost optimization efforts. GAAP operating expenses for the year-to-date period ended September 30, 2026, were $18.1 million compared to $34.5 million in the same period of the prior year, a decrease of $16.4 million.

Even excluding the impact of certain one-time expenses in that prior year period, including the $11.1 million goodwill impairment and the $1.3 million gain on the sale of ViewSpot, our GAAP operating expenses decreased by $6.6 million, or 27%, year over year. Non-GAAP operating expenses for the third quarter of 2026 were $4.2 million, compared to $5.7 million in the third quarter of 2025, a decrease of approximately $1.5 million, or 26%. Non-GAAP operating expenses declined by $104,000, or 2.4%, compared to the second quarter of 2026.

Non-GAAP operating expenses for the year-to-date period through September 30, 2026, were $13.3 million, compared to $17.8 million for the year-to-date period ended September 30, 2025, a decrease of approximately $4.4 million, or 25%, compared to last year. We anticipate relatively flat non-GAAP operating expenses in the fourth quarter of 2026 compared to the third quarter of 2026. The GAAP net loss attributable to common stockholders for the third quarter of 2026 was $1.7 million, or a $0.30 loss per share, compared to the net loss attributable to common stockholders of $5.2 million, or a $1.23 loss per share, in the third quarter of 2025.

GAAP net loss attributable to common stockholders for the nine months ended September 30, 2026, was $8.3 million, or a $1.57 loss per share, compared to the GAAP net loss attributable to common stockholders of $25.4 million, or a $6.50 loss per share, for the nine months ended September 30, 2025. The non-GAAP net loss attributable to common stockholders for the third quarter of 2026 was $281,000, or a $0.05 loss per share, compared to the non-GAAP net loss attributable to common stockholders of $2.6 million, or a $0.61 loss per share, in the second quarter of 2026.

Non-GAAP net loss attributable to common stockholders for the nine months ended September 30, 2026, was $2.8 million, or a $0.52 loss per share, compared to non-GAAP net loss attributable to common stockholders of $8.2 million, or a $2.10 loss per share, for the nine months ended September 30, 2025. Within today's press release, we have provided a reconciliation of our non-GAAP metrics to the most comparable GAAP metric. For the third quarter of 2026, the reconciliation primarily includes adjustments for intangible asset amortization of $1.2 million, stock compensation expense of $118,000, depreciation expense of $20,000, and amortization of debt discount and financing issuance costs of $112,000.

Due to our cumulative net losses over the past few years, our GAAP tax expense is primarily due to certain state and foreign income taxes. For non-GAAP purposes, we utilized a 0% tax rate for 2026 and 2025. The resulting non-GAAP tax expense reflects the actual income taxes expensed during each period. On the balance sheet, we reported $2.4 million of cash and cash equivalents as of September 30, 2026. This concludes my financial review. Now I'll pass it back over to Bill.

William Smith: Thank you, Bethany. As we mentioned in our last earnings call, we continue to see growing demand across our markets, reinforcing our expanded go-to-market strategy for our SafePath platform and its broader ecosystem of solutions and functionality. On our last quarter's call, we shared that we were within days of signing an expanded multi-year contract with one of our Tier 1 customers. I am pleased to confirm that the contract was signed as expected and is already generating additional revenue for us. And we expect it will continue to generate significant revenue growth for the company as we roll out additional deliverables under the new contract.

It's a significant win for the company that we believe demonstrates the strength of our solutions and the confidence our customers place in our ability to deliver innovative family safety solutions. With the new contract, we'll deliver expanded features and functionality, as well as new deployment options built to reach a much larger segment of the user base, driving subscriber growth. Along with the new contract expansion, we launched our first SafePath Drive premium upgrade with a Tier 1 partner this quarter. We believe this will generate immediate revenue growth. Also, during the quarter, we proudly supported Consumer Cellular in the launch of a new connected care solution designed specifically for older adults and the families that support them.

The solution is custom built on our SafePath OS for Senior Phone platform and is delivered under Consumer Cellular's Speakeasy brand. We are in the first stage of deployment, and we'll be adding more features and functionalities in the coming quarters. Our SafePath OS for Senior Phone solution has opened several new opportunities for us in the Americas and Europe, as carriers look to expand their reach into the large and growing senior market. We believe mobile devices will play an increasingly important role in helping seniors remain connected, maintain independence, and access support when needed, and our SafePath OS for Senior Phone solution meets that demand.

To further support this key market, we recently joined the AgeTech Collaborative from AARP, which is a global ecosystem of organizations working together to improve how people age through innovation, research, and collaboration. We reached another milestone during the quarter with our launch of SafePath Connect. SafePath Connect delivers the same trusted real-time location services, parental controls, digital wellness tools, and family safety capabilities of our SafePath solution while offering partners a simplified path to market. By leveraging App Store distribution by Smith Micro, a broader range of partners can offer safety-focused experiences without the need for complex integration or development.

We closed our first SafePath Connect win during the quarter with Orange Belgium, which is offering SafePath Connect as part of its safer phone solution aimed at helping families build healthy digital habits from day one. This is another positive step for the company that expands our footprint with Orange Group and validates the speed and efficiency of our SafePath Connect distribution strategy. It is important to note that SafePath is evolving into a total family safety platform, protecting the family during all phases of life, from kids to seniors and everyone in between. This is important to our carrier customers as they strive to attract and retain the highest quality subscribers available to them.

Carriers can deploy SafePath as an over-the-top application, as part of a phone offering with SafePath OS, or as an embedded solution within their own applications using our SafePath SDKs and APIs. What is even more exciting is that we believe we will soon have a customer using all three deployment methods simultaneously, all talking to the same SafePath servers in the cloud. SafePath is evolving into a comprehensive family safety platform with more capabilities, more ways to reach families, and more opportunities for growth. From kids to seniors across devices, apps, and deployment models, SafePath is built to protect and connect families at every stage of life.

We're delivering the solutions our carrier customers want and their family subscribers need. Smith Micro is leading the way and building towards an amazing future. Overall, as I look ahead to the remainder of the year and into 2027, I believe that we have built a solid foundation for growth. Our pipeline remains strong, and we continue to see opportunities with both new and existing customers across the SafePath ecosystem. We are seeing increased interest from our existing partners in expanding the premium features and capabilities they offer their subscribers, and from prospective new partners who recognize the value of offering solutions to families at all stages. Taken together, I believe these developments position us well for continued growth.

We have the products, opportunities, and team to capitalize on the momentum we're seeing across our business, and I'm excited about what lies ahead for Smith Micro. With that said, operator, please open the call for questions.

Operator: [Operator Instructions] The first question comes from Scott Searle with ROTH Capital.

Scott Searle: Nice to see the momentum sequentially continuing, not only in the third quarter, but looking forward into the fourth quarter. Bill, maybe to start, in terms of that outlook into the fourth quarter, can you give us a little bit of an idea about specifically which applications that you're seeing start to ramp up sequentially? And then I have a couple of follow-ups on some specific products.

William Smith: Sure. Look, I think we're just seeing a lot of interest in the family safety space. As I mentioned in the prepared comments, this is crucial for the carriers to attract the family subs, which is the highest quality sub a carrier can find in the marketplace today. As we look at the growth going forward, we see growth not only with existing over-the-top applications, but also now with the advent of our first customer with SafePath OS, and also, probably most importantly, with the new customers coming on that will be using the SafePath SDKs and APIs to incorporate family safety directly into the carrier's branded app.

I think that's particularly significant because the carriers will be investing heavily in the distribution and marketing of their own app, which should really substantially grow the size of the user base and, in doing so, really expands Smith Micro's revenues. I think it is an event you'll see throughout.

Scott Searle: Hey Bill, just to follow up on the SDKs and APIs or the super apps, when should we see some of the first products like that in the marketplace? And I know it's early, but as we start to think about 2027, how should we think about sizing that, both in terms of the number of potential operators or apps you would target working with and as a percentage of sales?

William Smith: Yes. Okay. So we have the first contract signed. I think you'll see a launch in the first half of the year in '27. I think there are other contracts that will be signed in this space as well, and some with some fairly significant players. So I think, you know, '27 is going to be a very exciting year. You should see growth coming out of the SDKs all the way through it.

Scott Searle: Got you. And if I could, Bill, I'll follow up with one last question. Drive, potentially an attractive product, complementary to everything else that you're doing. I think it also entails some higher pricing that goes on with it. I wonder if you could just provide some details in terms of that coming to market, how many carriers are you kind of talking to and engaged with, and how we should think about the pricing?

William Smith: Yes, okay, so on the Drive side, the first Tier 1 customer of ours has already launched Drive. It is already generating revenue growth and should continue to grow throughout the balance of the year as more users start using the Drive feature. Yes, it does generate higher revenue, both for the carrier as well as for us, but it also provides really some pretty powerful safety features for the family. So we're pretty excited about it. We think this is the first of what should be many customers that will also be offering Drive. But the first one's done, that's always the tough one, and now we'll move to the next.

Operator: [Operator Instructions] The next question comes from Matthew Harrigan with StoneX.

Matthew Harrigan: Thank you. I've got a couple of tangential questions. One, AARP, I didn't even realize it was international, to be perfectly honest, but, I mean, obviously a lot of marketing reach, to say the least. Is that something that you see as having a definite potential impact? And then secondly, you know, obviously the European telecom structure is different than the U.S. Of all the national subdivisions, how likely is it that someone within the Orange family is going to emulate Orange Belgium? Are people probably going to wait a while in some of the other countries to see what the traction is on the product? And then I have one more question, I'll save it.

William Smith: Okay, let's take them in order. Then the first one, AARP, you're right, AARP is based here in the U.S., but the partners that are working with them to try to provide the safety and technology come from around the world. So that's what that comment was aimed at. On the European side, the activities that we see with our Tier 1 customer in Europe are expanding, and you should expect that they will expand going forward. I think we're going to have some pretty exciting news to follow up on, maybe with our next call. So I think there's a lot of activity there.

There's a lot of energy and a lot of interest that looks like it will turn into meaningful business going forward. As far as with other carriers throughout Europe, Europe tends to be, in the family safety space, more of a greenfield opportunity. We're not replacing existing technology, and there is a lot of activity going on, and we expect that we will throughout '27 be talking about additional wins in Europe as well as in North America. All in all, I think we're sitting in a very strong leadership spot, and we are working to cash in on it.

Matthew Harrigan: You just alluded to existing technology and probably in the sense of in-house efforts to do something on the family safety side. Obviously, all you have to do is watch cable news and you can see everything bad happening, so there's certainly tremendous demand. What are you seeing in terms of efforts in-house and any fledgling efforts to provide a solution comparable to what Smith has in terms of outside software vendors?

William Smith: I think because of our strong role that we already play with right now, 3 Tier 1 carriers, two in North America, one in Europe. We have become the go-to for other Tier 1s that are looking to provide an answer and, in doing so, try to attract more family subscribers. So what we see is not so much "we want to build it ourselves." What we see is, how do we take the technologies that are offered by Smith Micro and also look at, you know, new technologies that we're going to be bringing to the marketplace, and how do they leverage that so that they can quickly have an answer to a market need?

Does that answer your question?

Matthew Harrigan: Good, good. Thank you.

Operator: Thank you. [Operator Instructions] This concludes our question and answer session. I would like to turn the conference back over to Charles Messman for any closing remarks.

Charles Messman: Thank you, operator. I want to thank everyone for joining us today. Should you have any further questions, please feel free to reach out to us directly, and we'll look forward to talking to you on our next earnings call. Thanks, have a great day.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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