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.