Phunware, Inc.

Good afternoon, ladies and gentlemen. Welcome to Fundware's second quarter 2021 investor conference call. Currently, all participants are in a listen-only mode. Joining me today are Ellen S. Natowski, President, Chief Executive Officer and Co-Founder, Randall Crowder, Chief Operating Officer, and Matt Aune, Chief Financial Officer. The format today will include prepared remarks by Allen, 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 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 Natasky. Sir, please proceed.

Thank you very much, and welcome to our second quarter 2021 investor conference call. As a reminder, Funware is a 12-and-a-half-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 product 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 SaaS business model over one to five-year contract periods worldwide. The completion of Q2 constitutes continued operational momentum for our business, as we have further accelerated our MASS platform vision and adoption across a number of key fronts, including new product introduction and indirect channel expansions. Not only have we formally rolled out our entire blockchain-enabled mobile loyalty ecosystem specific to fund token, fund coin, and fund wallet on a direct-to-consumer basis as promised, but we have also executed a brand new global multi-year distribution agreement with Carrier Global Corporation, a nearly $40 billion NYSE-listed anchor distribution partner for our indirect channels. First, revenues for each new initiative were achieved in Q2, and we expect to expand both dramatically rolling forward. First, more modestly here in Q3 and throughout Q4 sequentially, and then on a more accelerated basis throughout calendar year 2022 thereafter. To that end, and in parallel, we have seen a sequential increase in our total bookings and backlog quarter over quarter, which will be broken down in further detail by our CFO, Matt Aune in his section of the earnings broadcast. In terms of our current operating environment, our core customers have still not consistently returned to their offices and facilities and remain in a hybrid transition with regards to their employees and contractors safely returning back to work. We expect that cities, states, and countries will continue opening on a broader basis throughout the balance of 2021, while also understanding that this process will be an ongoing an unpredictable journey that won't happen overnight in light of the shifting myriad of government mandates tied to the ongoing pandemic. As suggested previously in past quarters, and again here, we are both excited and comforted by the dramatic increase in business activity across all aspects of our software product and solution offerings for mobile, big data, and the cloud. Importantly, this activity encompasses all three of our core growth engines rolling forward, including our mass cloud, our data-driven loyalty marketplace, and our secure blockchain-enabled token, coin, and wallet capabilities. This past year was the genesis of a transition 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 SaaS licensing business for our mass platforms. In addition to continued enterprise and government interest in our mass digital front door solution for healthcare, our mass smart workplace solution for corporations, and our mass smart city solution for cities, 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 growing our portfolio of direct customers, we intend to continue expanding our global footprint by amplifying our go-to-market strategy with indirect sales and channel partners, including not only Carrier Global as announced earlier, but three more signed but not yet announced partner contracts that we expect to release formally over the next few weeks. In parallel, we are excited about the completion of FundWallet and the launch of our blockchain ecosystem powered by FundCoin and FundToken. We are now live and excited to scale and monetize this part of our business and look forward to the accelerated global adoption of the blockchain-enabled mass customer data platform and mass mobile loyalty ecosystem commercially deployed. We are completely focused on the future and what a post-pandemic environment is going to look like for our business, while also recognizing and appreciating that the last year has represented a very interesting and unique challenge for all of us. While we saw a decline in recognized quarterly revenue associated with these initiatives when compared to the second quarter of 2020, We expect to see a rebound here in the balance of 2021. As always, we will continue our core go-to-market strategies centered on direct and indirect agreements and contracts with Fortune 500 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 quarter and even more excited by what we see in the coming quarters ahead. First, we were able to launch 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. A mass documentation repository at docs.funware.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 revenue 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 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 install 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 one 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 commercially launched our FundWallet mobile applications on Apple iOS and Google Android in conjunction with our recently launched mass blockchain ecosystem, all powered by our FundCoin and FundToken cryptocurrencies. While FundCoin security tokens will appear on our balance sheet due to their status as a regulated security, FundToken utility tokens will actually flow transactionally through our P&L as net new and virtually 100% gross margin revenue. At this time, our CFO, Matt Aune, will go deeper into our second quarter 2021 financial performance as reported, including revenue and gross margin timing associated with a large public smart campus customer that affected our Q2 reporting, while also highlighting the dramatic improvements made to our balance sheet throughout 2021 year to date. Matt, please go ahead.

Thanks, Alan, and good afternoon, everyone. I'd like to thank you all for joining us today for a review of our second quarter 2021 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 second quarter 2021 totaled $1.4 million. of which platform subscriptions and services revenue was $1.2 million. As I've mentioned previously, our focus continues to be on higher margin, longer-term software customers. In the second quarter, we recognized a new element to our financials, albeit small, as it just got off the ground. Fund token is included in our application transactions line on the face of our financials. With this added element, our net revenues derived from our mass platform subscriptions and services customers was 82%. Gross margin was 21.7% compared to 65.3% last year. On a non-GAAP adjusted basis, gross margin was 44.4% compared to 68.4% in the previous year. The main cause for the drop in gross margin was a mismatch of cost of goods sold on the revenues it is associated with. Our fulfillment team was diligently working on a large project that was originally scheduled for delivery in Q2, but pushed to Q3 by the customer. As you can see, this timing shift has negatively affected our margins in Q2 as we recognize the cost associated with the project, but have yet to recognize the revenue. We expect that gross margins for the quarter would have been closer to 65% on a non-GAAP basis if the customer's timeline did not slip to the third quarter. We did our part on time, but we aren't always the only dependency, which is a blessing and a curse. Multiple dependencies means we are sticky and build a lot of consensus to be implemented. Sometimes it means we have to wait on folks who aren't as operationally efficient as we have become. While I do expect our margins to fluctuate from time to time, a lower margin quarter generally means our bookings are strong and we are working to deliver on our backlog. I'd like to reiterate we continue to have a long-term goal of 75% plus gross margins. Total operating expense was $4.5 million, up from $4.4 million last year. Other non-cash operating expense items were stock-based compensation, and amortization of intangibles, making up $1.1 million this year compared to $1.1 million in the prior year. By excluding these one-time and non-cash charges, adjusted operating expense was $3.4 million compared to $3.3 million last year. Non-GAAP adjusted EBITDA loss was $2.7 million compared to $1.8 million last year. Net loss was $8.3 million, or 12 cents per share, compared to $3.5 million, or 8 cents per share, last year. Backlog and deferred revenue at the end of the quarter totaled $8 million, up from $7.7 million at the end of last quarter. I'm encouraged to see our backlog increasing. As I mentioned previously, we had expected Q1 to be the low point, with bookings picking back up for the remainder of the year. We closed the quarter with $2.7 million in cash on the balance sheet, along with 26 Bitcoin and 15.2 Ethereum. Subsequent to the closing of Q2, we raised approximately $2.9 million from our active upmarket ATM offering with B Rally Securities. The debt that is remaining totals $3.9 million, which is comprised of our $2.9 million PPP loan, which we have applied for forgiveness from the SBA and are awaiting a response, and $1 million of promissory and convertible notes that come due in 2024. Looking at our current capital structure, needs, and strategy going forward, I believe that we are well positioned operationally. As previously mentioned, we expect our debt load to drop to $1 million by the end of the third quarter, assuming we receive forgiveness on our PPP loan. If we look beyond just debt, you will see that we have made significant progress reducing our current liabilities by over $10 million in the first six months of the year. We have roughly $22 million open on our $25 million ATM offering, giving us operational flexibility to access cash for the capital markets if we choose to do so. While we have used the ATM sparingly over the past few months, we continue to be very mindful of dilution at lower stock prices and have only taken what we feel we need. Finally, we have available approximately 50 million of open shelf space on our $100 million registration statement we filed in February of this year, providing simplicity and optionality for any future capital needs to support both organic and inorganic growth opportunities. In closing, I said previously the transformation the company has gone through over the past 12 months in the face of the COVID-19 pandemic has been remarkable. We have worked hard to improve our balance sheet and give ourselves flexibility to raise additional cash as needed to execute against our short-term and long-term objectives. We have continued to operate the company extremely efficient and have been able to make several key hires in sales and engineering without increasing non-GAAP operating expenses quarter over quarter. As Randall will discuss, we are excited to see the progress we are making building the pipeline in the second half of the year with both customers and partners. The COVID-19 pandemic will likely continue to impact the time to close new deals and the revenue recognition of these deals through the end of the year, but we believe that we are past the worst of it and will start seeing more consistent growth as we head into the second half of 2021. We will continue to be active with financial conferences and investor meetings throughout 2021 in our efforts to tell our story and further strengthen our corporate profile in the capital markets. The next conferences we will be attending will be the 10th Annual Gateway Investor Conference on September 8th and 9th, and the 23rd Annual HC Wainwright Global Investment Conference on September 13th through the 15th. And we'll look forward to augment the number of conversations and meetings with high-class institutional investors. With that, I'd like to turn over the call to Randall.