8-K: Mobivity Holdings Sells SMS/MMS Messaging Business to SMS Factory for $303,000 Upfront Plus Earn-Out

Mobivity Holdings Corp. has sold its SMS/MMS text messaging customer accounts to SMS Factory, Inc. for an upfront payment of $303,000 plus a two-year earn-out based on gross profit.

Summary

• Mobivity Holdings Corp. has entered into an Asset Purchase Agreement with SMS Factory, Inc. to sell its SMS/MMS text messaging customer accounts.
• The sale includes all rights, titles, and interests in the customer accounts, excluding certain assets related to Mobivity's other business.
• SMS Factory will pay Mobivity an upfront payment of $303,000 as a pre-payment of the earn-out.
• Mobivity will also receive an earn-out payment over two years, calculated as two times the gross profit earned from each customer account.
• Gross profit is defined as gross revenues less $0.001 per SMS, $0.01234 per MMS, and all applicable surcharges.
• The deal closed on September 25, 2024.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. The sale provides immediate cash and potential future earnings, but also represents a divestment of a business unit. The earn-out structure introduces some uncertainty.

Positives

• Mobivity receives an immediate cash injection of $303,000.
• The earn-out structure provides potential for additional revenue over the next two years based on the performance of the acquired customer accounts.
• Mobivity is divesting a business unit, potentially allowing it to focus on its other operations.
• The agreement includes a non-solicitation clause, protecting SMS Factory's investment.

Negatives

• Mobivity is selling a business unit, which may reduce its overall revenue.
• The earn-out payment is dependent on the performance of the customer accounts, introducing uncertainty in future revenue.
• Mobivity is responsible for taxes resulting from the sale of the assets.

Risks

• The earn-out payment is contingent on SMS Factory's ability to generate gross profit from the acquired customer accounts.
• There is a risk that SMS Factory may take actions to decrease gross profit to reduce the earn-out payment.
• Mobivity is responsible for liabilities arising from the business prior to the closing date.
• The agreement includes a non-solicitation clause, which may limit Mobivity's ability to engage with former customers.

Future Outlook

Mobivity will receive earn-out payments semi-annually for two years based on the performance of the sold customer accounts. Mobivity will no longer be in the SMS/MMS business after December 31, 2024.

Management Comments

• Mobivity's CEO, Bryce D. Daniels, signed the report on behalf of the company.

Industry Context

The sale of the SMS/MMS business suggests a strategic shift for Mobivity, potentially focusing on its other technology offerings. This type of transaction is common in the tech industry as companies refine their focus and divest non-core assets.

Comparison to Industry Standards

• The structure of the deal, with an upfront payment and an earn-out based on future performance, is a common practice in acquisitions of this type.
• The specific multiples used in the earn-out calculation (two times gross profit) would need to be compared to similar transactions in the messaging and marketing technology space to assess if it is a fair valuation.
• Comparable companies in the messaging space include Twilio, MessageBird, and Sinch, but these are much larger companies and the transaction is not directly comparable.
• The deal is relatively small compared to larger acquisitions in the tech sector, suggesting that Mobivity's SMS/MMS business was not a major revenue driver for the company.

Stakeholder Impact

• Shareholders may view the sale positively due to the immediate cash injection and potential future earnings.
• Employees of the SMS/MMS business may be impacted by the change in ownership.
• Customers of the SMS/MMS business will be transitioned to SMS Factory.
• Suppliers and creditors of the SMS/MMS business will be impacted by the change in ownership.

Next Steps

• SMS Factory will begin operating the acquired SMS/MMS business.
• Mobivity will communicate with its customers about the sale.
• Mobivity will receive semi-annual earn-out payments over the next two years.
• Mobivity will provide access to its customer account records to SMS Factory for review.

Key Dates

Keywords

asset purchase, SMS, MMS, text messaging, customer accounts, earn-out, acquisition, Mobivity Holdings, SMS Factory