Investors Buzzing About SMSI Again

If you missed my last live broadcast, be sure to check it out here… and as always, be sure to read my disclosures/disclosures below. Cheers!

As Thanksgiving approaches, investors are starting to take note of the various catalysts that may spur Smith Micro’s (SMSI) share price in the coming days, weeks, and/or months. Here’s a quick run down of what/s being said out there:

Dave Andaarson on Yahoo Finance — One of the key aspects of this most recent offering was the amendment of previous warrants, allowing them to be reclassified as equity. In other words, the company expects the share price to soon rise faster than the assets, leading to huge liability/decrease in equity without this amendment/reclassification. The amendment allows them to increase equity by around $9 million from current liabilities.

In addition, I’m expecting some type of M&A activity to be announced shortly. I’m not sure what yet, but the PR statement of “maximizing flexibility to execute QUICKLY on strategic initiatives” seems to be a tipping of the hand. I’m looking forward to finding out what this means.

There is an outside chance they will be acquired, but I think it’s more likely they will be acquiring a company that will be immediately accretive.

Verdict: Agree on all counts. There were many reasons SMSI did the most recent offering. Prior to the offering, the company turned profitable and already had $8 million of cash on the balance sheet. So, we know they didn’t need cash.

Anyone who had followed my lessons knows that offerings can be bullish or bearish. The most common deliminator is whether the money was needed (bearish) or not (bullish). Those who acted on this lesson were treated to a “risk-free” trade this month:

  • Long SMSI: The lack of need classified its recent offering in my book as bullish. Those who bought SMSI on the news have been rewarded with a 10% gain in just two weeks (the NASDAQ collapsed by 8% over the same period).
  • Short FUV: I recently predicted that Arcimoto (FUV) would need cash before December. Sure enough, the company announced an offering on Friday that send the stock tumbling more than 30% — a big profit for those who were short. FUV has now fallen 50% in just 2 months.

The best thing about this situation is that buying one and shorting the other effectively insulated investors from a market crash, since one was short and one was long (thus, any market-related movement in one would presumably be offset by a near-equal and opposite move in the other). In other words, it was virtually risk-free.

 

diogenese19348 on Yahoo Finance:
Google Play November 20th – 6 days
82 new reviews – 13.6 per day
43-five star 11-four star 7-three star 5-two star 16-one star
App Annie rank: 65, high for period was 58, Family Locator 209
Estimated total downloads: 548,500
November estimated downloads: 46,250
Date Crossed 500K downloads: Not Yet

App Annie rank is back up, review rate is up…and still hasn’t crossed the 500K mark. We are now up against that 10% cushion I set, if it doesn’t cross in the coming week then I was overestimating things.

Diogenese has done a great job of tracking Safe & Found downloads with one of several different methodologies. Each one has its flaws, so I can’t put my full endorsement on this work. However, I do believe that he’s close to the mark.

According to my personal methodology, they ended the quarter with over 500,000 total downloads (Google Play + Apple Store). Since then, they’ve been on track to end this quarter with about 200,000 more. That adds up to about 700,000.

Now, from what I’ve heard, somewhere around 70% of downloads are on Google Play which gets us very close to 500,000 Google Play downloads, which will be a publicly known event (Google displays if an app is over 100,000 downloads, 500,000 downloads, etc.). That approaching event is causing some excitement out there, as it may draw new investor attention to the stock (which has already been building on Yahoo and StockTwits).

 

Dave Andaarson on Yahoo Finance — I’m hearing Sprint has a pilot program rolling out region by region to do a conversion from FL to SF and it should be completed by mid year of 2019.

I’ve also heard this from a different source. The rumor rings true because it triangulates well with information suggesting that SMSI will soon (within days or weeks) release a new version that enables the app to reside on their childrens’ phones without them knowing it. This is expected to catalyze a full-blown sunset / migration of the Location Labs product over to SMSI’s.

The rumor of a rolling conversion program rings true, since this has historically been Sprint’s modus operandi. If the timeline holds true, I estimate that SMSI’s SafePath subscription revenue will rise by upwards of $1.5 million in Q1 and then another $1.5 million in Q2.

That would get SafePath close to $5 million in quarterly recurring revenue, matching the recurring revenue coming from its CommSuite product. By my math, that would produce about $0.15 of EPS (and rising) per quarter. That’s $0.60 annualized for a company with a current (as of Wednesday morning) enterprise value of just $1.60 per share.

That’s a P/E of 2.7.

Given a P/E of 10, the stock would reach $6.50 per share. At a P/E of 20, it would trade at $12.50. I’m not going to speculate on which (if either) it will achieve. That speculation is best-suited for each individual to ponder.

 

Of course, this is all additive to information I provided via my most recent live broadcast:

* The Spanish version of SafePath is expected to be announced before the end of Q4. This will expand its appeal in Europe and Latin America, where SMSI has told investors it has a robust pipeline of prospects, along with existing customers.

* The IoT (Internet of Things) version of SafePath is also expected to see an announcement before the end of Q4. This will greatly expand its total available market (TAM) and leapfrog most (if not all) of the competition (due to SMSI’s long and independently-validated reputation for world-class IoT expertise).

It will also expand its image among investors to include those who are hot on IoT technologies. With carriers reportedly clamoring to add IoT-location services in 2019 (to protect their businesses from encroachment), SMSI appears poised to serve as the arms dealer to the warring factions.

* SMSI’s first IoT device in expected to be announced in Q1. SMSI management cryptically shared this information on their last earnings call. Adding a device to the mix would add yet another new revenue stream at a time when the revenue from SMSI’s product lines are finally all poised to move in the same direction (yes, “up”).

* A new major SafePath customer is expected to be added anytime between now and the end of Q2. This is widely expected to be T-Mobile. Either way, Sprint is among the smallest major carriers in North America, so any new “major” customer would likely spur a doubling in SafePath TAM (and revenue) in relatively short order.

So, there are many ways for the company to win. In the meantime, the SMSI story is spreading rapidly this month, via sell-side analyst coverage and management’s coast-to-coast investor conference appearance schedule.

The shares have responded by coming to life, with more conferences and news still to come. With a little luck, I’ll be seeing them at the LD Micro conference in two weeks.

Stay Tuned…

If you missed my last live broadcast, be sure to check it out here. Cheers!

SMSI

 

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Disclosures / Disclaimers: I am long SMSI. However, 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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42 thoughts on “Investors Buzzing About SMSI Again

  1. What is an example of an IoT device that could be released for Safepath? Could this be, for example, a tag that is attached to a bike or backpack (as stated on webcast)? Just want to make sure I understand this is the type of roll out for Safepath IoT?

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    1. It’s anyone’s guess. Either way, they will SUPPORT ANY DEVICE on their platform. They’re recognized as being among the world’s top experts in IoT integration, rollout, and administration. Among those leaders, they’re the only ones with a dedicated focus on the carrier market.

      https://www.prnewswire.com/news-releases/iot-device-management-market-rising-utility-of-data-analytics-fuels-demand-for-iot-device-management-says-tmr-639421443.html

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  2. Thank you for the news release. Clearly, a company like Oracle would buy this pretty quickly if they become a leader in the space. Not the reason to invest (acquisition target), but another potential win.

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  3. Thanks for this blog Mark, i missed reading your blogs, granted the videos are easier for your time. Loving the new developments and all the research/collaboration going on here or stocktwits. I love how the stock has performed well during the bloody market lately, here’s hoping we rise against the tide and stay up there! Long SMSI!

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  4. Can someone explain the after hours release tonight of the offering for sale of 6,479,570 SMSI common shares? For what reason was this offering done and what’s it mean for the short and long term share price?

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          1. 😂😂😂

            Well, while we’re at it, I believe that thanks and appreciation is due to ALL of the investors out there who contribute to the research we’ve been gathering as a group here.

            It’s been great to see folks honing their fundamental skills and adding to the power in our numbers. Salute! 🙌🏼😎

            Liked by 1 person

          2. Re TPCS: have they officially confirmed landing any of the submarine business? I don’t think they’ve actually said it’s been awarded and no one asked on the last call. However, Shen seemed to be very excited and upbeat when he mentioned how proud they were to work with DoD and specifically mentioned the Navy. But I don’t recall them ever saying the contract has been officially rewarded. Did I miss that anywhere? Or is it still not 100% certain?

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  5. To date there has been about 8 Billion dollars of submarine orders for Virginia Class Block V and design build of the first Columbia Class Sub. TPCS has received advance orders for both classes of submarines. This is a quote from Alex Shen on the August 13, 2018 earnings call transcript:

    “The path forward with our core customers remained clear and our drive towards top line growth and bottom line profitability. This path is validated with the recent sourcing activity in both Virginia class and Columbia class submarine programs. In the first quarter of fiscal 2019, Ranor successfully secured initial contracts for select Virginia class Block 5 components as well as select Columbia class components.”

    The Navy awards advance material orders to keep the submarine build moving forward in between Blocks. The balance of Block V should be in the 30 Billion range and hit late this year or early next year.

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  6. My best guess on revenue for TPCS for fiscal years ended March 31:

    2019 $20,000,000
    2020 $28,000,000
    2021 $35,000,000
    2022 $47,000,000
    2023 $67,000,000

    If you use a DCF analysis the stock should be trading substantially higher than it is now. I believe Mark has a near term price of $2.5-$3.00 per share. I agree.

    When the Columbia Class Submarine program hits it’s stride, TPCS will need to add plant capacity and labor force. I would not be surprised to see them doing over 100 million in revenue 5 or 6 years from now. What is really exciting is the submarine program is strong for the next 30 years.

    TPCS remains the best risk reward stock I have come across in a very long time. AND, very few people know about this story.

    Remember the subs are coming….don’t miss the boat!

    Liked by 1 person

    1. You had me until the punchline 😂

      Seriously though, you’ve done great work on this. The best part to me is that it’s obvious to those who have, but not to those who have not.

      I always feel better if I can explain why the stock remains cheap, so all the elements are here (and of course, it’s becoming less cheap by the month). 😎

      Like

    2. That would likely make 2019 EPS .07 and 2020 EPS .15 — the operating leverage is about .01 per $1M in revs until they max out their capacity, so that gives us .22, .34, and about .50 for 2021-2023.

      The market tend to discount next year’s earnings in the middle of the preceding year, so put whatever P/E you wish on the .15 and that gives you a lazy man’s (non-DCF) valuation for the end of this coming June.

      A real (DCF) valuation with a 15% WACC and $1 limit of EPS yields a current valuation of $3.60.

      Its current technical channel is rising by about 50% per 6-months (125% annualized), which gets the stock to $5 by the end of 2020, FWIW.

      Liked by 1 person

    3. Sub Guy (and Mark),

      What do you see as the biggest risks for TPCS. I agree the risk/reward seems great, almost too good to be true, at these prices. What do you see as the biggest risks?

      Right now, I see the biggest risk as the low volume trading, which will make it hard to get out of things change. That’s why I haven’t made this position as large as my SMSI position, although I did significantly increase when it initially dropped after ER.

      Any thoughts on this you’re willing to share?

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      1. If they don’t get much government business. That’s all I can think of… but the business they just got seems to eliminate that risk.

        IDK. I just think the stock is unknown. With its low market cap, if word got out, I think it could rip to $3 in a heartbeat. Just needs to be discovered… like most stocks I like.

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  7. The biggest risk I see is that someone will buy TPCS before the story has a chance to unfold. There is also some risk regarding timing of the order flow and being able to ramp up the labor force to keep up with the orders. Mark is also correct that there is always risk with the government. However, everything I read says the nuclear submarine programs are very high priority and the US is behind the curve. We need more faster.

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          1. Try joining with your phone instead of your PC. Sometimes I can’t get the PC to join unless I am clicking the link from within another WhatsApp group.

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  8. Does anyone know what time SMSI is presenting at the LD Micro Conference that runs from Dec 4 to the 6th? The following link is a list of companies attending:
    https://www.ldmicro.com/events/2018-invitational-presenters, however, when I check the detailed schedule I don’t see them listed at all, nor do I see that they are presenting from their website.
    https://www.ldmicro.com/events/presenter-schedule

    I’ve sent an email to the company and haven’t heard back from them as of yet.

    Like

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