I read it as: "I'm happy to see both of you, face to face, smiling."
That's listing three things that make you happy. Read the commas as meaning "and".
If you want to condense it: "I'm happy to see you both face to face, smiling." So now that's 2 things.
Can we go for one?? :D
"I'm happy to see you both smiling face to face." 'Face to face' describes how they are smiling, so it's not a separate thing.