SMSI: Show Me The Money

Long-time readers should note some significant changes in how I communicate in the public domain. The primary purpose of this forum is now to attract new contacts with professional industry expertise to share research and receive feedback (confirmation / refutation) regarding my investment theses.

Accordingly, this document should not be construed as an endorsement or recommendation of the companies or securities discussed herein. I am not an investment advisor and this is not an investment thesis. It is merely one part of the story, which I present for debate in hopes of determining all risks and upside potential. The disclosure at the end of this piece is critical to understanding the content of this document. Further, I frequently trade my positions and may buy, sell, or short the securities mentioned herein at any time, regardless of the facts or perceived implications of this article.

This afternoon, I released a Special Report to everyone who contacted me with how many shares they own. The report revealed how many shares we all own (as a group — I neverreveal individual data; among other things, that would hurt my ability to collect valuable data from folks). I refer to this as the “SMSI Census”.

The report also looked at SMSI’s recent trading action and roster of stockholders. I dissected the short selling and mapped it to SMSI’s recent rounds of funding, connecting everything back to our census data and SMSI’s largest shareholders.

I may share parts of the report with my broader reader base, but if so, it will exclude anything related to the census data I’ve collected. So, to get the Special Report (and future census-related reports), just contact me with how many shares you own!

Next, I know my Q1 write-up was pretty long and intense, so I’ll break it down into bite-sized pieces over the coming weeks so we can all digest it properly.

Today, I’ll highlight the most important data point for Safe & Found — MONEY.

No matter how many times I preach it, investor still struggle to overcome recency bias (putting too much weight into the most recent data point, no matter how insignificant) and confirmation bias (assigning the wrong weight to each data point in order to justify a preconceived notion).

Both maladies work to help your mind make sense of what you believe. That’s BAD, because investors shouldn’t seek to believe what they believe… they should seek to determine the truth.

THAT is how to be right… and being right is how to get rich!

As it pertains to SMSI, many investors have shortsightedly freaked out about Safe & Found’s reviews. In doing so, they’ve ignored several things:

  • The small number of users who are leaving reviews. In other words, the data is not statistically significant.
  • The inherent tendency for some app’s users to only leave a review if they are wowed or have a complaint. This skews the data.
  • The ability for review data to be manipulated (by competitors as well as the company).
  • If we get past all that, we can see that the reviews have improved markedly over the past month.
  • Of course, we shouldn’t really trust the data, so…
  • Most of all, most people haven’t tried the app for themselves!! What better way to find the truth (unless you don’t want to hear it)?

In the end, it’s all relatively meaningless. Even testing the app for yourself will only give you a sample size of one (yourself). If I relied on that, I would never have bought stock in GAIA. I don’t care who you are… ego isn’t worth six figures.

So, what should we care about? THE MONEY!

Customers get 15-day free trials to Safe & Found. If they don’t like it, they don’t turn into paying customers. Period. End of story.

So, let’s look at the money…

On the Q1 call, CFO Tim Huffmyer stated that SafePath generated “several hundreds of thousands of dollars” in Q1.

This was ahead of my expectations.

Based on my review & download model (built in-part on data provided by diogenese19348 from the Yahoo message boards), I estimated that SMSI had exited Q1 on a $600,000 run rate. Since Q1 encompassed Jan 1 through March 31, I calculated that SafePath had likely generated about $250,000 in Q1.

Mr. Huffmyer’s comment implied a minimum of $300,000.

So, the money is flowing in! Not only that, but my tracking model now gives me confidence that SafePath is now on a run rate of about $1 million per quarter.

That’s excellent progress for a product that is just getting started, hasn’t yet benefited from a forced switch-over (which is slated to occur in the coming weeks, according to my due diligence), and is slated to be the subject of a Sprint marketing campaign (to their 60 million customer and the general public) in the coming weeks.

Based on management’s repeated commentary, a full transition of Sprint’s Family Locator installed base would drive $3.5 million in quarterly revenue for SMSI. That’s $14 million per year. Assuming the rest of the business shows 0% growth, $14 million of new revenue will represent 60% growth for the company.

Of course, a full transition won’t happen (because some % of customers will cancel Family Locator without transitioning to Safe & Found, a.k.a. “breakage”). Luckily, this breakage will be offset by new customers, which Sprint will aggressively target starting this month, according to SMSI.

In other words, the company is making great (and now, accelerating) progress toward generating $3.5 million per quarter from Safe & Found. With expected operating margins in range of 70% (as discussed on multiple occasions by management), a continuation of recent momentum will drive profitability in the second half (which is exactly what management has guided us toward).

More importantly, the next $14 million in revenue (which would come via Sprint’s goal of doubling the customer base in a year) will drive an additional $10 million to the bottom line. If achieved, SMSI’s earning should total 50-cents per share…

…and remember, all of this is modeled based on information provided by the company.

I’ve used the same technique in modeling countless companies, including HMNY. The difference is that the HMNY’s data told us that the company would dilute shareholders into the ground (not to mention the misleading statements they made / continue to make to prop the stock up for their funding activities).

SMSI’s numbers are telling us that they are (finally) executing and on pace to start generating meaningful EPS in the coming quarters.

To wrap thing up, let’s all take a second to reflect on our blessing and take note of the fact that today is Mucopolysaccharidosis (MPS) Awareness Day.

MPS refers to a set of rare (1 in 25,000 births) life-limiting, progressive, genetic conditions caused by the shortage of mucopolysaccharides.

Mucopolysaccharides are long molecular chains of sugar. They are used by the body in the building of connective tissues, such as cartilage and tendons. You can start to imagine the impact of not being able to properly produce cartilage and tendons.

MPS diseases are caused by a missing enzyme which restricts the body from breaking down certain structural molecules called GAGs (Glycosaminoglycans). GAGs accumulate in cells in tiny structures called lysosomes.

Without essential enzymes to break down, recycle, and build new mucopolysaccharides, they continue to be stored inside the lysosome. So, in addition to the obvious ramifications of not being able to properly produce cartilage and tendons, the excess storage causes the lysosome to swell and disrupts cell functioning.

MPS is multi-organ disease which causes progressive physical disability. In many cases, it causes severe neurological deterioration and can result in death in childhood.

For those interested, publicly-held Shire will be recognizing MPS Awareness Day 2018 with global events focused on increasing disease awareness.

Emily, thanks for reaching out… and God bless.

More Research:

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Disclosures / Disclaimers: I am long SMSI.

This is not a solicitation to buy, sell, or otherwise transact any stock or its derivatives. Nor should it be construed as an endorsement of any particular investment or opinion of the stock’s current or future price. To be clear, I do not encourage or recommend for anyone to follow my lead on this or any other stocks, since I may enter, exit, or reverse a position at any time without notice, regardless of the facts or perceived implications of this article.

I am not a financial advisor. Nor am I providing any recommendations, price targets, or opinions about valuation regarding the companies discussed herein. Any disclosures regarding my holdings are true as of the time this article is written, but subject change without notice. I frequently trade my positions, often on an intraday basis. Thus, it is possible that I might be buying and/or selling the securities mentioned herein and/or its derivative at any time, regardless of (and possibly contrary to) the content of this article.

I undertake no responsibility to update my disclosures and they may therefore be inaccurate thereafter.  Likewise, any opinions are as of the date of publication, and are subject to change without notice and may not be updated. I believe that the sources of information I use are accurate but there can be no assurance that they are. All investments carry the risk of loss and the securities mentioned herein may entail a high level of risk. Investors considering an investment should perform their own research and consult with a qualified investment professional.

I wrote this article myself, and it expresses my own opinions. I am receiving no compensation for it, nor do I have a business relationship with any company whose stock is mentioned in this article. The information in this article is for informational purposes only and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

The primary purpose of this blog/forum is to attract new contacts with professional industry expertise to share research and receive feedback (confirmation / refutation) regarding my investment theses.

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14 thoughts on “SMSI: Show Me The Money

  1. I guess the update today was what was mentioned in the cc:

    “These new marketing initiatives will coincide with some significant upgrades planned for the core SafePath Family platform. ……Currently in development, the next major release of SafePath will introduce a new, family-centric user experience that further extends the platform beyond a location focused service. With the next release, SafePath will evolve to a digital lifestyle management platform for the entire family that will provide enhanced location services, easy to use parental controls, powerful web filtering functionality and built-in support for new IoT products and services.”

    From Play:
    • Addressed user concerns on permission setup. They are now only needed when setting up Parental Controls (e.g. on child devices)
    • Wipe and Lock features are now optional (which means DEVICE ADMIN permission can be skipped) – Feature can be
    turned on/off in settings menu
    • Support for Android 8 and Wear OS 2
    • Possibility to customize which websites to block or allow
    • Other fixes and improvements

    I see the parental controls update, the IoT update and web filter update. Also great they are directly dealing with negative comments. Have seen reviews about Wipe and Lock and permission setups.
    Really wish I had Sprint. I asked fb friends about switching and was told by several that the coverage sucks where I live.

    It doesn’t really matter though because Bill Smith said that the upgrade comes first and then the marketing initiatives from Sprint. Today’s release was 1.3.0. I assume that was the “next major release” that was spoke about. New Release -> Sprint Marketing -> Family Locator Shutdown -> SMSI roadshow

    Liked by 1 person

  2. awesome.
    How far ahead are current investors on SMSI? So much so that we’re weeks ahead of the Sprint Marketing department and have to make our own feature comparison charts. That’s early to the party.

    Liked by 1 person

    1. Early to the gains party you mean 😉 . With all seriousness though, there isn’t a huge amount of information for the public to work with in regards to the SMSI story. It’s not a huge company and there’s literally 0 coverage on the stock itself. I live in Canada, so unless I want to be booking flights to the states to attend the LD Microconferences my best bet to stay on top of all this is to read the comments on this blog and contribute where I can.

      By the way, thanks for the feature comparison chart – good visualization of SMSI’s features compared to its competitors.

      Like

  3. I’ve spent tonight reading up on Smith’s Quicklink IoT. I noticed a new app on the Sprint Store which has less than 100 downloads: Sprint IoT Factory. Unfortunately as far as I can tell, SmithMicro has nothing to do with this. MyDevices got the contract. Cool stuff. A 1000 ways to configure it but the simplest example would be a restaurant that needs to monitor temperatures and moisture levels across multiple spots.

    The only current large application I could find Quicklink IoT being involved was in a Korean company that is working on autonomous cars and needed a way to update firmware. https://www.smithmicro.com/company/news-room/press-releases/2017/05/09/kona-s-licenses-smith-micro-s-firmware-update-technology-for-integration-into-its-device-management-platform-for-the-automotive-sector

    But, they talked QuickLink IoT in the cc quite a bit so I hoping to find more examples of it being used. This is the technology that is the reason they are one of the “Leading players in the global IoT device management market” along with google, IBM, etc.

    Hoping that someone else knows of where QuickLink IoT is being used. If not, its something we should keep an eye on. SafePath is awesome, but with 5G coming there is going to be very heavy demand for all sorts of intelligent tracking and management.

    Like

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