Phunware, Inc.

Good afternoon, ladies and gentlemen, and welcome to Fundware's 2020 Investor Conference Call. Currently, all participants are in a listen-only mode. Joining me today are Alan S. Knitowski, President, Chief Executive Officer and Co-Founder, Randall Crowder, Chief Operating Officer, and Matt Awn, Chief Financial Officer. The format today will include prepared remarks by Alan, Matt, and Randall, followed by a question and answer session. As a reminder, today's discussion will include forward-looking statements. These forward-looking statements, including any such statements referring to the potential effects or impact of the COVID-19 pandemic, reflect current views as of today, and are based on various assumptions that are subject to risks and uncertainties disclosed in the Risk Factors section of our SEC filings. Actual results may differ materially, and undue reliance should not be placed on them. Additionally, the matters being discussed today may include non-GAAP financial measures. Reconciliation of GAAP to non-GAAP financial information is set forth in the earnings press release, which is available on the Investor Relations section of the Fundware's website at investors.fundware.com. I further encourage you to visit investors.fundware.com to access not only the earnings press release, but also the current investor presentation, SEC filings, and additional collateral on Fundware. At this time, I would like to turn things over to Fundware CEO, Alan Knitowski. Sir, please proceed.

Thank you very much, and welcome to our full year 2020 investor conference call. As a reminder, Fundware is a 12-year-old enterprise software company focused on the intersection of mobile, cloud, and big data with business-to-business and business-to-government customers worldwide. Our mission is to provide everything you need to succeed on mobile by providing our customers with the products, solutions, data, and services for their digital transformation needs on Apple iOS and Google Android devices and applications. Central to this effort is our enterprise cloud platform for mobile called MASS, or multi-screen as a service, which is available for licensing under a SAS business model over one to five-year contract periods worldwide. This past year was the genesis of an inflection point in our company's history as we shifted from a non-recurring, low-margin transaction business to a far stickier, more scalable, recurring, and high-margin SAS licensing business for our mass platform. In addition to continued enterprise interest in our mass digital front door solution for healthcare, and our mass smart workplace solution for corporations. We have resumed conversations with customers from sectors that were hit hard by the pandemic, including the hospitality and real estate verticals. In conjunction with our growing portfolio of direct customers, we intend to expand our footprint globally by amplifying our go-to-market strategy with indirect sales and channel partners, including an anchor distribution partner that will be formally announced during Q2. In parallel, we are excited about the completion of FundWallet next month as we launch our blockchain ecosystem powered by FundCoin and FundToken. We are on schedule to commercialize, scale, and monetize this part of our business and look forward to the accelerated global adoption of our blockchain-enabled mass customer data platform and mass mobile loyalty ecosystem alike. As with most businesses worldwide, our team at FundWallet was materially affected by the COVID-19 pandemic and was in no way immune to the operational challenges that resulted from widespread domestic and international stay-at-home orders and lockdowns. Many of our customers and partners were forced to operate remotely and are still in the process of reopening their venues, facilities and offices as vaccines become more widely available and herd immunity is achieved throughout the balance of 2021 across cities, states, regions and countries. In our case, we have seen specific examples of customers throughout North America that are still working actively to get back to a new state of normal. These include Mount Sinai in New York, which still has stringent travel restrictions and health protocols and requirements for their medical operations, Atlantis in the Bahamas, which just reopened the resort in the past 30 days after an extended closure, Norfolk Southern in Atlanta, which is still finalizing its return to work schedule for its corporate employees, contractors, and support staff. And PricewaterhouseCoopers in San Francisco, which is still finalizing its return to work schedule, accompanying the grand opening of its new corporate headquarters for worldwide operations. We are completely focused on the future and what a post-pandemic environment is going to look like for our business. But we also recognize and appreciate that 2020 represented a very interesting and unique challenge for all of us. We saw multiple months without strong bookings in the middle of last year during the heart of the pandemic, as many of our customers and partners simply shut down their in-person operations and shifted to either remote-centric or remote-only environments. Going forward, however, and especially in light of the scale of vaccinations being delivered right now globally, we are assuming that each month and each quarter for the balance of 2021 will have the world beginning to accelerate to a more normal and predictable operating environment. Fundamentally, we do not expect to have to face such a problem again for the foreseeable future and are extremely comforted by our operating performance during this difficult period. We not only made the most of the opportunity by streamlining our cost structure, but we also enhanced our mass product and solution offerings capitalized on the needs of the healthcare sector, facilitated enterprise customers getting back to work more safely, and supported the 2020 presidential election on mobile. While we saw a decline in annual revenue recognition associated with these initiatives when looking backwards at 2020, we expect to see a rebound here in 2021, as the operational downtime provided by COVID-19 allowed us more time to foster and improve our existing relationships while also establishing and bolstering brand-new indirect sales channels and partnerships in parallel. As always, we will continue our core go-to-market strategy centered on direct and indirect agreements and contracts with Fortune 5000 customers, especially in the Fortune 100 size range, and governments ranging from local and county to state and federal. Importantly, and independent of the pandemic, We are extremely excited by a number of developments that have occurred over the past several quarters during lockdown, and even more excited by what we see coming in the coming quarters ahead. First, we were able to complete three core customer and partner portals for scaling our business through indirect channels. These included a mass software repository on GitHub at www.github.com slash funware, a mass documentation repository at docs.com and a mass training and Funware Phenom certification repository at training.funware.com. Second, we were able to add to our mass bookings, backlog, and deferred revenues for future revenue recognition over one to five-year contract periods that will ultimately provide SAS revenue recognition over the coming 12 to 60 months rolling forward. While these efforts do not provide instant or near-term gratification on revenue recognition for our P&L, they importantly demonstrate the ongoing health and expansion of our business and will be broken down in further detail by our CFO, Matt Aune, in his section of the earnings broadcast. As a reminder, and with our mass sales cycles typically representing two to four months on average, recent and pending customer wins will start appearing on our P&L in the coming reporting periods ahead. Third, we have expanded our installed base of Funware IDs en masse to more than 15 billion devices worldwide, including mass platform scalability capable of supporting up to 5 billion transactions per day, 500,000 transactions per second, and 1 billion unique devices per month. With more than 1 petabyte of data, typically growing at more than 5 terabytes per day, our mass platform now provides a robust customer data platform inclusive of both a detailed data ontology and a comprehensive knowledge graph for one-to-one interactions and engagements. And fourth, we will commercially launch our FundWallet mobile applications on Apple iOS and Google Android next month in conjunction with our new mass blockchain ecosystem, all powered by our FundCoin and FundToken cryptocurrencies. Importantly, while FundCoin security tokens will not necessarily appear in our financials when live, Fund token utility tokens will actually flow transactionally through our P&L as net new and virtually 100% gross margin revenue. As an analogy rolling forward, please consider our core mass licensing activities akin to Amazon, which is what we are reporting today, while considering our new mass blockchain activities akin to Amazon AWS, which is what we will begin reporting incrementally rolling forward beginning with our 10Q for Q2 2021 in mid-August. At this time, our CFO, Matt Aune, will go deeper into our 2020 financial performance as reported and also highlight the dramatic improvement made to our balance sheet throughout the first quarter of 2021, including our recently announced institutional financing of more than $25 million. Matt.

Matt Aune Thanks, Alan, and good afternoon, everyone. I'd like to thank you all for joining us today for a review of our full year 2020 financial performance and our progress on key strategic initiatives. For clarity, I'll be discussing GAAP financial measures unless otherwise specifically noted. Our press release 8K and website provide a reconciliation of all GAAP to non-GAAP financial results. Net revenues for the full year 2020 totaled $10 million, of which platform subscriptions and services revenue was $9.1 million. Our focus continues to be on higher margin, longer-term software customers, and we are pleased to have continued to follow this strategy in 2020, with over 91% of our net revenues derived from our mass platform subscriptions and services customers. Gross margin was 66.4% compared to 52.9% last year. On a non-GAAP-adjusted basis, gross margin was 69.4% compared to 53.8% in the previous year. That is more than a 1,500 basis point improvement year-over-year on a non-GAAP-adjusted basis. This result continues to validate the decisions we made to focus on higher-margin software and data deals and away from lower-margin legacy application transactions and gives fun to our launching pad for more profitable and predictable revenues in the future. Total operating expense was $24.1 million, up from $22.4 million last year. As mentioned on our previous earnings call, operating expenses for 2020 include a $4.5 million legal settlement that we view as one-time in nature. Other non-cash operating expense items were stock-based compensation and amortization of intangibles, making up $4.3 million this year compared to $1.9 million in the prior year. By excluding these one-time and non-cast charges, full year 2020 adjusted operating expense was $15.3 million, down from $20.6 million last year, or a 26% improvement year over year. As we continue to navigate through the ongoing COVID-19 pandemic, we have made it a priority to improve operational efficiency by cutting back operating expenses without sacrificing our ability to deliver to our customers and grow in the future. Non-GAAP adjusted EBITDA loss was 8.4 million compared to 10.2 million last year. I'm pleased with the progress we've made year over year, despite the challenges we've faced in the midst of the global pandemic. Our strategic focus on profitable behaviors to increase margins and manage operating expenses has continued to show its effects. Net loss for the year was 22.2 million, or 50 cents per share, compared to 12.9 million, or 35 cents per share, last year. I'd like to remind everyone that this loss is inclusive of a $0.10 net loss per share from the extraordinary expense for legal settlements previously mentioned. Moving to the balance sheet. Ending cash for the year was $3.9 million with just under $11 million used in cash from operations. In Q1 2021, we raised an additional $29.8 million with $5.1 million from our at-the-market offering and $24.7 million from our underwritten public offering. These 2021 capital raising events have put us in a position to control our own destiny without the need to raise additional capital and removed any doubt as to whether or not we carry a going concern designation. That being said, we are always looking for ways to opportunistically raise debt and or equity if it will help accelerate growth and help us to achieve our objectives faster. As we look at our debt obligations, we now have the ability to initiate a payoff of our 2020 convertible notes should we decide to do so prior to December 31st, 2021 maturity date. We intend on applying for partial forgiveness of our PPP loan that is allowable under SBA guidelines in coming months and anticipate starting making monthly payments later this year. We are also working to reduce our accrued expenses and accounts payable balances, which will be reflected in our Q1 2021 and Q2 2021 results. Backlog and deferred revenue at the end of the year totaled $9.1 million. This is an encouraging sign as a growing backlog means several things for our business, including one, business is coming back from the closures caused by the pandemic. Two, this is the first quarter backlog has grown since being a public company. And three, it is a key indicator for our future revenues and predictability. Closing out the year in the beginning of 2021, We have attended several financial conferences and met with many accredited institutional investors in our efforts to further strengthen our corporate profile in the capital market. We will continue to tell our story and build a strong base of investors that will join us on the FundWare journey. With that, I would like to turn the call over to Randall.

Thanks, Matt. I don't think anyone expected a year like 2020, but with disruption comes opportunity. At Funware, our opportunity is to do for mobile engagement what Amazon did for cloud computing. By standardizing on our platform, enterprises can seamlessly drive digital transformation in a mobile-first world that's quickly becoming mobile-only. And COVID-19 has only accelerated both the need for and the adoption of technology like ours. In fact, The recent McKinsey & Company report, How COVID-19 Has Pushed Companies Over the Technology Tipping Point and Transformed Business Forever, found that companies have accelerated the digitization of their customer interactions and of their internal operations by three to four years. Although we specifically designed our mass platform to be industry agnostic, it excels in industries that struggle to manage complex customer journeys such as healthcare, hospitality, and property management. However, 2020 has generated increased interest in our cutting edge mass smart workplace solution for corporations returning to work and our mass advocacy solution for politicians seeking to better engage their constituencies. Regardless of industry, a critical aspect of engagement and a competitive advantage for funware is being able to identify and locate your target audience in real time. While some customers were forced to temporarily delay software deployments, others took the opportunity to invest in true digital transformation. Over the next few years, we expect this financial commitment to accelerate. In fact, the same McKinsey & Company report found that 80% fewer executives now rank cost savings as one of the most important priorities for their digital strategies. As more than half say they're investing in technology for competitive advantage or refocusing their entire business around digital technologies. To ensure our customers achieve a competitive advantage by licensing our math software we have made considerable progress across not only our products and solutions, but also our data and blockchain offerings, for example. We launched our modular application framework in 2020 to support the kind of rapid deployment of feature-rich mobile application portfolios that makes it easier for our indirect channel partners to sell mass offerings through our global reseller network. One of our most compelling solutions that has been gaining traction through our network of partners is our mass digital front door to tech-enable the patient experience. It has always been a challenge to navigate the continuum of care, but COVID-19 has made the patient journey even more complex as patients became reluctant to visit hospitals for the types of elective procedures that drive critical revenue streams. Our mass digital front door can not only provide reassuring on-site navigation capabilities and seamless access to health records, bill pay, and testing, but also virtual care if a patient is not yet ready to visit a healthcare facility in person. Our most recent deployments of our cutting-edge platform include Greater Baltimore Medical Center and Virginia Hospital Center. The tech-enabled employee experience also became a pressing issue for corporations in 2020 as they wrestle with how to plan a safe return to work. Our Mass Smart Workplace solution allows corporations to not only manage a safer return to the office with critical features like contactless check-in, contact tracing, and density management, but also improves operational efficiency with mobile room booking, parking management, and campus-wide navigation. We were thrilled to announce that Norfolk Southern is deploying this comprehensive solution to drive true digital transformation at its new headquarters in Atlanta. We also announced that our smart residential solution was deployed by Property Management Group for Society Los Alamos in Fort Lauderdale, which is the largest co-living development in the United States. Luxury residents have grown to expect the kind of features our solution delivers out of the box, including keyless entry, payments, guest access control, thermostat monitoring, and delivery management all through their mobile devices. Lastly, we established a new vertical by designing, developing, and deploying the official Trump 2020 mobile application portfolio and setting a new standard for constituency engagement on mobile. Our mass advocacy solution is now available to politicians both domestically and abroad, with one of the key features of this new political vertical being the ability to support live rallies, which takes advantage of our proprietary mass location-based services and mass mobile engagement software. As I've said in the past, you can't monetize what you can't engage, and you can't engage what you can't locate. Mass LBS software is a key competitive advantage for us because we have to do more than just static wayfinding to drive true digital transformation. Our software enables high precision indoor positioning, and that's why it now covers 6 million square feet at Baptist Health South Florida and over 22 million square feet across Dignity Health Network with our latest deployment at Yavapai Regional Medical Center in Arizona. Of note, both of these latest LBS deployments were delivered through our partner network, which is critical to our success. Indirect channel sales will allow us to scale faster and more efficiently in 2021 because our mass offerings are such an accretive upsell opportunity for channel partners, including hardware vendors, system integrators, software providers, and carriers to enhance mobile engagement. A key strategic initiative for us is to get our software bundled into offerings that are already being deployed by our channel partners. Before I wrap up, I want to highlight the importance of data because identification is an important aspect of engagement that provides important contextual information when LBS software is being used. Data is another competitive advantage for funware as we've not only generated over a petabyte of data and 15 billion funware IDs, but also develop the knowledge graph that curates actionable data from approximately 1 billion active devices a month at scale. In 2020, we were thrilled to announce the launch of our mass customer data platform to further commercialize our persistent, unified customer databases and help brands engage the right consumer in the right place at the right time with the right content. Leveraging information in the virtual world to inform real-world experiences is the future of mobile engagement. And it's a future we are well positioned to dominate. To further enhance our position in the market, we are officially launching our blockchain ecosystem next quarter, which will not only help address the value of a consumer's digital identity, but also the value of a consumer's engagement with a brand. For more on that, I'd like to turn things back over to Alan.

Thanks, Randall. As highlighted throughout today's call, we are all extremely excited by the pending commercial launch of our mass blockchain ecosystem. What it means to me is that our decade-plus of mass platform building across mobile, cloud, and big data, accompanied by our years of researching the benefits of blockchain and cryptocurrencies, has resulted in the culmination and convergence of massive global addressable markets and trends that can act as wind at our backs and accelerate growth. We expect this ecosystem to complement and supplement our core mass offerings as we offer our enterprise customers additional capabilities to identify and engage their target audiences. While many corporations and individuals are newly familiar with blockchain and cryptocurrencies, both Funware and our executives have a long and distinguished history within the global digital asset community. As such, We expect to be a trusted bridge for Fortune 500 corporations and governments looking to leverage blockchain. Please look for additional announcements in the coming weeks and months ahead as we enable consumers to not only regain control of their data with FundCoin, but also reward them for their engagement with FundToken. In parallel, and as we have suggested previously and would again reiterate here, We intend to complement and supplement our core organic growth activities through direct and indirect channels worldwide with opportunistic inorganic mergers and acquisitions. While we have nothing yet to formally announce on this front, we expect to focus our merger and acquisition activity on accretive deals in areas that will provide more customers, more partnerships, and more distribution for our mass platform, especially in international markets such as Europe, Asia, and South America. Finally, and importantly, rolling forward, we fully expect to maintain a laser focus on our core operating and financial model, which includes top line growth of 30% or more year over year and blended growth margins of 75% or greater. With that, and in conjunction with a sincere thank you for your ongoing interest and support in all of our activities on behalf of the entire FundWare family worldwide, I would now like to open up the call for questions through the operator. Go ahead, please.

Thank you. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. And the first question is coming from Austin Moldau. Austin, your line is live. Please announce your affiliation and pose your question.

Yeah, hi, thanks for taking my questions. Can you put into context how meaningful an expansion is with a current customer like Baptist Health South Florida versus signing a new customer?

Yeah, I'd be happy to do that. So when we actually see these, there's usually two types of engagements we see with the healthcare companies that focus on patient experiences. Typically the initial engagement will be something that will be mid six digits in size that will be typically tied not to their whole health system as step one, but usually they do a tiered rollout. So what we often see, which has been the case in places like Baptist Health, Dignity Healthcare, Mount Sinai, Greater Baltimore, many of the other ones that we've been announcing recently, typically you could see something ranging in the four to 600,000 and usually about three-year contract period. So you're kind of talking about $20,000 to $30,000 per month of mass licensing. And then typically as they expand it to their other facilities and expand it to more square footage, we typically arrive at the low seven digit and then it expands up from there.

Okay, great. Thanks for that. And can you just sort of speak to your channel partner pipeline for 2021 a little more?

Yeah, absolutely. And great question. You know, for the most part leading up to the pandemic, we did mostly all direct selling. Digital transformation was still net new. There wasn't always that compelling reason for governments, especially and even large corporations, which we sell to, to accelerate their digital transformation initiatives and needs. As it turned out for us, what the pandemic did is it forced companies to re-look at how they operated both on-site and remote, and they realized that digital transformation, and especially the way in which they engaged on mobile, became a matter of survival. What we've seen is is as you might expect, a lot of 2020 was showcased by healthcare engagements because pandemic or no pandemic, healthcare was essential. It just got broken into that which supported COVID and that which supported elective surgeries and all the other normal care. They initially started diving into remote telehealth. That became critical for them to be able to focus on triage and actually focusing on what they wanted to do remote versus who they wanted to show up and then how to separate COVID and non-COVID patients. So when we see this going forward as it relates to channels, the channels we have are in four areas. We have hardware companies that typically take our software as a mobile activation layer. They'll bundle it with their routers, their switches, their access points, and they'll provide a package to a venue or an office where they can get not just faster Wi-Fi and more interactivity, but they have all the software they need to be able to tie those into those mobile applications for their employees, their partners, or their consumers. In the area of our second partnerships that you'll expect to see will be in the service provider domain where they're bundling voice, video, and data with our software to, again, give venues activation for digital transformation on those mobile applications. The final two are very traditional for software companies. They are software channels and they're system integrator channels. And in both of those cases, they're trying to provide digital transformation solutions to their customers and they're licensing the firmware software to help them engage, manage, and monetize. While I teased that we're here in Q2 upcoming, we already have a signed global distribution deal that we'll be providing details to We have not yet publicly done an announcement or broken out how that go-to-market will work, but now that it's been signed, you should expect to see in Q2 a formal announcement, a formal rollout that will really shine all the work that we've done in the last several quarters to activate these channels, and we'll expect to see the benefits of those rolling forward.

All right, great. Thanks very much.

Thank you. And the next question is coming from Howard Halpern. Howard, your line is live. Please announce your affiliation and pose your question.

Sure. Howard from Tablet Brothers. Hi, guys. Congratulations on navigating the year.

Appreciate that. Good talking, Howard.

Yep. First question is in regards to, I think, my understanding of what you sort of said in the beginning. From a modeling perspective, we can expect... potential quarterly growth going forward in 2021?

Matt, go ahead and take that.

Yeah, no, I can take that. Yeah, so we're not providing guidance for this year, at least yet. Obviously, there's a lot of factors that go into what we're doing in terms of timing and and deliverables to customers, and getting customers to sign up for deals. So our reaching focus, as Alan mentioned, is to try to grow at 30% year over year. You've seen in the last several quarters, there's been some few dips here and there, and that's really just been as a result of timing issues. And so our focus for the full year will be the growth how that grows between quarters, still we're working through that, but obviously as we get more certainty into that, we'll share that as we get to that point. Okay.

And can you guys talk a little bit about the activity or pent-up demand you're seeing in Q1 as compared to the second half of last year?

Yeah, let me start with that, and then I'm going to have Randall finish up. So I'll take it at the you know, strategic level of the things that we've been seeing, and then Randall can dive into some of the tactical things that we're seeing in parallel. So when we look across, our platform can be sold to all Fortune 5000 customers, inclusive of governments. When you deal with carving out healthcare specifically, and you carve out government specifically, both of those verticals are fully active. So independent of the pandemic looking backwards, and independent of coming out of the pandemic, post-vaccine, elimination of lockdowns and shutdowns. Those two verticals will be extremely active and will stay similar to what we were seeing a year ago. So that'll be point one. Point two would be those verticals that we saw that were really devastated by the pandemic. Things in the areas of travel, live sports, live music, and a lot of the hospitality-oriented things that were very much affected by all of us not being able to travel for either work or pleasure. And so we are seeing a lot more activity now. On our call, we highlighted where literally the Wynn Hotel in Vegas has been open. Macau has been open. When you go into Boston, they're still in the process of expanding that opening. However, if you take another customer that we highlighted, Atlantis, They were shut down literally until about 30 days ago. So anything touching hospitality and travel, I think you're going to see. We've already seen a big uptick in Q1 of the activity, and I think as they're opening those facilities in full, travel is going up, more people are on more flights, and I think that we're going to see that progressively get better throughout the balance of the year. In terms of other areas like media entertainment, I think we've seen that any of the one doing distribution across their companion television applications, their networks, their shows and their content, obviously a lot of us have been consuming that. And that's been no different in the past through the pandemic. If anything, it accelerated because we were all trapped at home and not really out and about the way we normally are. I think that the final comment I'll make before giving it to Randall, would be as we get into areas, as I said, that look like aviation and deal especially with corporate campuses, we're seeing a big uptick in the activity around the corporate campus as people are getting accustomed to back-to-work initiatives. We highlighted Norfolk, but what I want to do is hand it over to Randall, and he can give you some very specific customer examples to supplement the vertical areas that we're seeing.

Okay, thanks, Alan. Okay, the best way for me to answer that is to try to reinforce something that I think keeps getting lost. At the end of the day, we have two primary competitive advantages. One, we can deploy feature-rich mobile application portfolios faster and more scalable than pretty much anybody because we've been doing this since before mobile applications were cool. So that's our modular application framework. Now, when I say that, you think, well, hey, doesn't most of the world have mobile applications? So that cuts us out of certain businesses like media. NBC is not going to come to us and say, we want your modular application framework to build a mobile application. But in healthcare and for corporations who have never had a mobile application because they never needed one until now, that's wildly beneficial to them. So hospitals, have gotten by with you know responsive you know mobile responsive websites they've gotten by with using for example my chart which is a mobile application provided by epic which is just access to an ehr and then you know every corporation who traditionally has been going to the office you know what do they need a mobile application for right you know you go to the office and if you really need to try to figure out something about the company you log in you know you You know, go to www dot whatever that office is and you get an about us page and a contact us form and that's it. The world is changing. So now every corporation trying to figure out how to manage the workforce. So fortune 500 large corporations trying to figure out how to bring people back into the office activities off the charts. Everybody, you know, nobody is, you know, forget this idea that everyone just going to go remote forever. We know, you know, people said they would never fly after 911. And sure enough, a couple years later, it was back to normal. This is happening right now. Everyone's struggling with that. So our most active sectors right now are corporations trying to come back into the office who also need a mobile application in order to do that well. healthcare systems that are trying to turn back on elective procedures because that's literally their lifeblood. They absolutely have to fall for digital transformation to make that happen beyond the operational efficiencies. That's just the mobile side of it. Now, take that, put a pin in it. What's even more exciting is the location-based services, our other major competitive advantage. If you want to have smart venues, if you want to have smart spaces, you have to have software that connects a mobile device to all these access points that were never designed in order to provide contextual location. That's what Funware does out of the box. So we are that middleware between a mobile device and, you know, whether it's Wi-Fi, smart lighting, you know, anything else you might have that actually sends out a signal. We make sense of all that so that you can identify a human being inside the way we can use GPS to identify a device, you know, outside. And so a lot of activity around that where it's just, I want to create smart spaces now. The future of mobile engagement is going to be contextual. And so anywhere you have, like, you know, so I remember we talked about Society Los Alos. It's the largest, you know, co-living development in the U.S. and Fort Lauderdale. Everybody wants to do that now. Everybody wants to live, work, and play in the same space. And so as you start having this density and as you start having people wanting to have grocery and restaurants and bars and, you You know, luxury, high-rise, residential, all in one place. Those kind of customer journeys have to be managed by an application and location-based services like Funware has. So a lot of activity around that. And those folks have five-year development timelines. You know, they understand that COVID hit in 2020, but they're building these large developments and they're not going to abandon them. So we're seeing a lot of activity in that respect as well. So healthcare, smart workplace, and kind of mixed-use residential, really exciting.

Okay. I mean, I use... Have you seen any near term in like, you know, when the stadiums are, stadiums are opening up across the country?

You know, the challenge with that we've done, you know, so we did AT&T Stadium in Dallas. You know, the challenge with that is actually just business use cases. You know, you have the NFL teams, you know, who pays for it, right? So you have somebody that owns a stadium, but then you have a team that owns it, then you have a sponsor that wants to put their name on it, and everybody's pointing at each other in order to pay for it. At the end of the day, we're an enterprise software company. We can deploy anywhere, but we're also very judicious about where's the low-hanging fruit. So if all we did was dominate, we're getting people to return to work, getting people to have a tech-enabled patient experience, you know, really dominating, you know, luxury, residential, and even what we're doing in our political vertical, we did that well, we'd be a Fortune 100 company. So, you know, going and trying to target stadiums, you know, we'll let them, we have some conversations going on, but, you know, that's not necessarily a major sweet spot for us, to be honest.

And to actually supplement that a little bit, Howard, just to your point, what you might expect is it's state by state, if you're talking domestic, and it's still subject to the lockdown and shutdown differences. So if you actually said stadiums and arenas, and we're dealing with March Madness right now, obviously, for the NCAA, if you're in Texas, if you're in Florida, things are pretty wide open. Then they're just managing, you know, are we going to allow full capacity or half capacity? If you're in New York, if you're in California, you're just not having these sporting events at all. Even, I think, the UFC is – relocating itself back to the United States, opening up stuff in Florida. So I think what you're seeing is it's not so much a holistic thing across the stadiums and arenas across the country. It's still which states are open, which ones are not. And the states that are open are being flooded with not just professional sports, but going down into collegiate sports and youth sports as well. But I think over the next two quarters, As California, New York, and other parts of the country start behaving more like Texas and Florida, we're going to see an acceleration of that. Okay.

And one last one regarding the blockchain launch. Is there going to be any meaningful incremental cost to that or your current infrastructure based on that launch going forward?

I'll take that one.

It's actually, you know, really intuitive question. It's great. It's what differentiates us from, I would say 95% of the rest of the blockchain, you know, cryptocurrency world, you know, after everybody got burned in 2017, everyone is looking for who's real, who has the gumption and the wherewithal to get this done. Because decentralization, for me, oftentimes means a rudderless ship. And so you need people who have this as a part of their product roadmap, who have this as a part of their go-to-market strategy, who can push this forward, or these things are never going to be adopted by the mainstream. And so for us, our existing engineers who are world-class, our existing infrastructure supports the entire thing. We don't have to go out and hire new people and build new features because we've been building mobile engagement tools for enterprise for more than a decade. And so there's no additional you know, major material incremental costs that we need to, you know, kind of incur. But that being said, obviously, as we grow as a company, as our market cap expands, and as we grow both organically and inorganically, you know, we'll continue to build out that team so we can deliver even more, you know, more features, more capabilities. And so it'll just be a natural progression. But we don't have a separate, you know, engineering team for our blockchain initiative. that, you know, incur some additional liability. Our engineers have been working on that because we're building it for the same enterprises that we built mobile applications for. We have the exact same design-led thinking, and that's why it's actually going to be successful.

And the one thing I'd want to highlight here that I think is super important about this is much like people got familiar with Red Hat as the safe on-road for open source and Linux if you were a corporation or government, The trust that we've earned in working on mobile applications at scale and controlling up to a billion devices every month with our software and using literally hundreds of thousands of transactions per second, what we're going to be able to do is a couple of interesting things. One, we'll be able to provide a safe onboard for these enterprise customers, government customers that want to tie into data and mobile loyalty in a safe way bridging through Funware to get into this new ecosystem in a way that they actually can trust, as Randall said very directly and very accurately. The other thing is that we're not aware, and maybe you all know, but we believe that our launch of our full ecosystem tied to FunToken and FunCoin next month will represent the first ever crypto ecosystem ever launched by a public company that trades. We know there's people that buy Bitcoin with corporate treasury as an example. We know there's people that are doing Bitcoin mining. We know that there are financial groups offering ETFs or funds or other things like that to try to get exposure. We even see some that are dealing with the trading aspects of security tokens or utility tokens. What we've yet to see, and what we think we're going to be the first, is a credible NASDAQ trading, listed company, fully audited with the pristine components of governance and everything that goes around this ecosystem, launching an entire ecosystem to take advantage of what we're doing and to allow others to use it in a safe, responsible, compliant way according to all the laws, regulations, and everything in between. So we're really excited by that. We've been doing this for years and now we finally get to hit the proverbial go button And that will be something that, as I said in my portion, we'll start having successes in the second quarter of those fund tokens that will actually flow through our P&L. That will be net new. And then you'll start seeing those when we report in, I believe, mid-August for the second quarter.

Okay. I look forward to that. Keep up the good work, guys.

Thanks.

Appreciate it, Howard.

Thank you. Once again, ladies and gentlemen, if there are any questions, please press star 1 on your phone at this time. And the next question is coming from Ed Wu. Ed, your line is live. Please announce your affiliation and pose your question.

Sure. Ascendant Capital. Congratulations on managing through what was a very challenging year. My question is, as things get back to normal, do you think your sales lead time as well as your implementation software time is going to get back to normal and be faster?

Yes, I'll take that one. I think what we've seen and what Randall highlighted, we actually have in our vertical solutions the ability to provision solutions extremely quickly. The two to four months we typically talk about that you see in an average sales cycle, that may be in the engagement, that may be in RFI, RFQ, RFP responses. and then back and forth of the papering of deals that you win. So we think that that cycle is going to stay very consistent. What we expect, though, to overlay that is actually two things. One is all this pent-up demand where companies really were deferring budget and deferring initiatives, deferring rollouts of their solutions even for their employee bases in addition to consumers until their facilities were reopening. And we see that that acceleration that we were highlighting, the delays that we've seen in some of our customers and partners, we expect there's going to be a lot of pent-up demand that's going to go with that. The other thing is that we see all the work that we put into creating a full software repository on GitHub, a full documentation training and certification set of repositories, all that work we set up for our indirect channels We're really looking forward to making those announcements in Q2 to show where that's going to be a one-to-many deployment where it's not even an upsell or a cross-sell, but we'll have our software bundled with product. And every time those products ship, we're going to actually receive a license of one, three, five years across those venues and that square footage to Randall's Point across those venues and those facilities that they're trying to activate for digital transformation on mobile.

That sounds great. And then my last question is in terms of, you know, average deal size as well as average duration. I know you guys have done a very good job to, you know, get bigger deals and for a longer time period. Is there a specific target that you guys want to get your average duration of new contracts going forward?

So I'll take the contract duration. Oh, go ahead, Matt. Actually, you can take this. Sorry. We're talking over each other.

You can take that. Yeah. So typically, you know, as we said before, we can typically look at one to five years. You know, for us, we want to, you know, we want to have people sign up for as long as possible. Our, you know, our typical deals and the verticals that we've been focused on over the last, you know, kind of six to 12 months have been three years long. And, you know, deal sizes are, you know, anywhere from 700,000 up well over a million dollars. And so, uh, you know, for us, the three years is a good timeframe for us. A lot of the customers we're dealing with are, you know, if we're talking about big healthcare customers, you know, they don't want to sign up for a year and then have to go through the whole process again. And so typically we're, you know, we're able to sign up for three, five years without a problem. And then from there, really our next focus is how do we expand that? You know, and like we've talked about with, uh, With Baptist Health and some of our other customers, we start with initial engagement, and then we really focus on pushing with the customers and getting more and more and extending that overall timeline in terms of how long they're engaged for.

Great. Well, thanks for answering my questions, Ben. I wish you guys good luck.

Thanks, Ed.

Thank you. And the next question is coming from Mike Latimore. Mike, your line is live. Please announce your affiliation and pose your question.

Hi, guys. This is on for Mike. Could you give me an update on how much of Pipeline includes location-based services, and how are the revenue retention rates?

Matt, you can probably talk to that. We have been breaking that out in the past. I think we had that question before.

I missed the first part of the question. Could you repeat that? Apologies.

Yeah. So how much of your pipeline includes location based services?

Let me let me start Matt and see if you can kind of clean it up. Yeah, one important point to kind of note, you know, when we deploy our platform, it's kind of like Microsoft Office, you know, just because I think nobody on this call has ever used access doesn't mean you still don't get it. And so there's a lot of our platform, I think people have misconceptions about We're deploying math, and math is fully feature-rich. Now, certain customers will choose to turn on certain features, but they're licensing that base platform. And so we've never actually had the need to kind of break out, okay, well, you're only using that same analogy. You're only using Access versus this customer using PowerPoint versus this customer is using only Outlook. And so I don't think we have those numbers. Matt, I know we were going to look at it and maybe we can do it in a follow up with Mike. I know we have a couple of calls with Northland that we need to hold. But, you know, is there anything that we have shared before that gets to that point a little bit? For example, you know, Baptist Health South Florida, they already had a mobile application. And so they only licensed our location-based service to software. So that one's easy. That's 6 million square feet. It's a million total contract value. And we love that business because that's a lot higher margin because now they're just licensing our location-based service to software. And it's not that kind of integration and design component that we normally have with mobile applications that we help out with. But do we have any numbers tied to ones that are similar to Baptist Health, Matt?

Yeah, it's not something that we're sharing right now. We do have some numbers. We can go back and take a look with the team and see if there's something we can pull up to help better represent the portion that's utilizing the LBS portion. So let me take that down and see if there's something I can pull up on that and we can certainly get back to you. I did want to address the second part of the question. I believe it was related to churn. And so for us, as we've said before, we're selling to customers now in kind of a three to five year contract. This is really a culmination of a lot of development. We've been around 12 years, but our platform is fully ready now and it's really over the last year plus that we've been selling these types of deals. And so for us, it's a little bit early to say, hey, the churn rate is this when we're signing customers up at three to five year terms. For us, if we look one layer deeper in how we approach churn, our typical LTV on initial engagements is going to be greater than our cost to acquire that customer. And so for us, you know, the math works for us going out and getting customers. You know, we feel that our deal sizes more than cover how much it costs to get these customers. But for us, really, as I mentioned earlier, you know, the focus then becomes on customer success. And, you know, customers like BHSF were expanded, as Randall said, you know, expanded 3 million to over 6 million square feet in total. You know, this is just another example where the customer becomes stickier and the churn window is pushed out and the LTV is extended. And so those are the types of things we look at now. And as we, you know, over time, we're going to get a better idea on how things churn. But just to be clear, this isn't, you know, our business isn't a business where we're going to see customers having an opportunity to churn on and off every month. You know, we're signing up for longer term deals and, you know, we're cognizant of, you know, how much it costs to get that customer, and what's the lifetime value of that customer.

I think what you're getting at, and which is important, and I'd like to reframe the question just a little bit so we can get you the right answer. It's not who's getting location-based services. It's kind of who's getting that plus something else. And so the reason you come to Funware is because of our ability to contextually engage, and that's location. And so, you know, we're not out there selling a bunch of, you know, non location enabled mobile software to hospitals. Every single hospital we're working with is working with us because we can make things contextual with that location based services software. And so there's almost, I guarantee you the number right now will be, you know, pretty much 90% or more of our revenue is licensing our location-based services software. The question is how many of them are also doing a full feature-rich mobile application portfolio using our modular application framework. So Baptist Health South Florida is only licensing location-based services software. Virginia Hospital Center and Greater Baltimore Medical Center, they're also licensing location-based services software. But in addition to that, they also needed us to build their digital front door. So everyone gets location, services, software. Only some people need us to actually also build them the mobile application. Does that make sense?

Yeah. All right. Cool. And how many salespeople do you have now, and how many more will you add this year? Okay.

Five right now, we're actively hiring more. That is the primary use of funds. Obviously, we announced the $25 million round from Northland and Roth. That's not to address a lot of tech debt. That's to address a very small sales and marketing team. You know, our ideal operating model is kind of a four to one LTV to CAC. We really, you know, and when I say sales, a lot of it is tied more around kind of this idea of engaging these channel partner relationships, not direct selling. So we're, these folks are experienced sales executives. We're not buying kind of a young team of people just hammering the horn. You know, these are 20 year veterans of, you know, selling enterprise software through channels. so that we're getting orders of magnitude from their participation. So five now, and we are aggressively hiring right now more, you know, can tell you what we're going to end at the end of the year. It'll also depend on how fast we activate some of these channels, because some of these sales folks will also be working those channels to kind of, you know, further, you know, activate new customers within those channels. So, You know, five now, I'd like to get another five by the end of the first half of this year, and then we'll kind of scale from there.

All right, and the last one, should deferred revenue grow faster than revenue this year? Repeat that question again, Mike? Yeah, should deferred revenue grow faster than the revenue this year?

I'm not hearing the first part of it's cutting out from me.

Matt, can you hear the... You're referring to deferred revenue growth for this year in terms of how it's going to grow versus revenue? Gotcha.

Matt, go ahead and take that one. We've already seen we're turning the corner and we feel like we're at an inflection point to begin adding back to backlog and deferred revenue.

I think that... You know, deferred revenue growth, we've said it before, you know, deferred revenue backlog are key indicators for us. And certainly, our focus is to build that as much as possible. You know, that being said, I think that on a deferred revenue basis, you know, we are able to deploy quicker, faster now, so you're not going to see projects that are held up for several months because maybe in the past might have been development issues up front with our customer. Now we have a fully capable platform and product so we can deliver quicker. But that being said, we're continuing to invoice annual in advance and to build that. And so we do expect to see growth there. And we'll see how things play out with our strategy in terms of obviously we're continuing our direct sales that we've been doing for years, but really this indirect sales that we're focusing on this year could have a fairly big impact on that. And so we'll update everybody as we kind of get through that. As Alan mentioned, we've got some partners we're working with, and there could be some opportunities there where we're going to be able to scale up our revenue and backlog.

Remember, that's going to be the biggest differentiator between last year and even the previous year to this year. As we grow this, our ability to generate revenue, both Alan already made a good point of it. I hope everybody understands what we're doing around blockchain actually showing up as revenue because we have a live product and a live ecosystem with our fund wallets. that now it's just like selling digital goods. So for us, it's no different selling a fun token than it would be selling location-based services software. That should be very compelling from a shareholder perspective of saying, okay, how do we really begin ramping revenue a lot faster? That's one. The other, and I want to hammer this point home, are these indirect channel partner relationships. And so you'll see a big move over the next couple of years to this idea of usage-based pricing. And for us, that means square footage. And so our usage-based pricing is square footage. Depending on the complexities of your venue that you want to become a smart venue, once we're bundled in someone else's offering and they already have access to that customer and the door is already wide open, and they're just upselling them or turning on additional features and capabilities. We're just collecting revenue at that point. Great margins, and it's priced based on square footage. And so that is a totally different thing. I think still a lot of people feel like we have to engage in these year-long sales cycles to sell some large brand like Fox, and then it's the slow roll of trying to develop the actual engine that they want. and then we finally get to recognize revenue. We've done that very well in the past. We've done it very well in the passion verticals. We still will do that. A little bit faster clip, but we'll do it for hospitals and corporations. But when we start bundling things like our location software and other people's offerings, it will fundamentally change our revenue ramp.

Got it. Thank you. Thank you.

Thank you, ladies and gentlemen. At this time, this concludes the company's question and answer session. If your question was not taken, you may contact Funware's investor relations team at fun, that's P-H-U-N, fun, at gatewayir.com. Thank you all for joining us today for Funware's 2020 Earnings Conference Call. You may now disconnect.