Phunware, Inc.

Good afternoon, ladies and gentlemen. Welcome to Fundware's third quarter 2021 investor conference call. Currently, all participants are in a listen-only mode. Joining me today are Alan S. Natowski, President, Chief Executive Officer and Co-Founder, Randall Crowder, Chief Operating Officer, and Matt Onay, 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 risk and uncertainties disclosed in the risk factor 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 Funware. At this time, I would like to turn things over to Funware president, CEO, and co-founder, Alan Natowski. Sir, please proceed.

Thank you very much, and welcome to our third quarter 2021 investor conference call. As a reminder, Funware is nearly a 13-year-old technology company focused on the intersection of mobile, cloud, big data, and blockchain, with business to business, business to government, and business to consumer customers worldwide. Our core mission is to create a Funware ID for every human being on Earth that has a device touching a network that is connected to their favorite brands, applications, and venues that just happen to run Funware software or intersect with our cloud-based infrastructure. On one side, we provide our B2B and B2G customers with everything they need to succeed on mobile, including the products, solutions, data, and services for their digital transformation needs on Apple iOS and Google Android devices and applications. On the other side, we provide our B2C customers with the hardware systems, software, and cryptocurrency services needed for their engagement and incentivized participation in high performance gaming, streaming, trading, cryptocurrency mining, and personal productivity computing. Centered with these efforts are 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. And our FunToken and FunCoin loyalty and rewards cryptocurrency ecosystem, which is facilitated transactionally with our FunWallet mobile applications and connects to the Ethereum blockchain. The completion of Q3 constituted continued operational momentum for our business, as we further accelerated our mass platform vision and adoption across a number of key fronts, including new product introduction, indirect channel expansion, and more than a 50% sequential gain in quarter-over-quarter revenue growth with our customers. In parallel, the commencement of Q4 subsequently provided even more immediate scale and growth to our business, as we formally closed our acquisition of Light Technology dramatically improved our balance sheet with more than $65 million in additional cash, and guided Q4 revenue growth sequentially quarter over quarter to up more than 100% at $5 million or more. Importantly, and in tandem, we have also seen a material sequential increase in our total bookings and backlog quarter over quarter, which will be broken down in further detail by our CFO, Matt Bounty, in his section of the earnings broadcast. In terms of our current operating environment, our core B2B and B2G 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 the year, while also understanding that this process will be an ongoing and unpredictable journey that won't happen overnight light of the shifting myriad of government mandates tied to the ongoing pandemic in parallel our b2c customers are both active and fully engaged demonstrating strong demand for hardware and cryptocurrency alike completely independent of what we see within the private and public sectors as suggested in previous past quarters and reiterated again here we are both excited and comforted by the dramatic increase in activity across all aspects of our product and solution offerings for mobile, big data, cryptocurrency, high performance computing, and the cloud. Importantly, this activity encompasses all of our core growth engines rolling forward, including our mass cloud, our data-driven loyalty marketplace, our secure blockchain-enabled token, coin, and wallet capabilities, and our high performance computing systems for gaming, streaming, trading, cryptocurrency mining, and personal productivity. The past year was a 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 platform. 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 accelerated conversations with customers from sectors that were hit hard by the pandemic, including the hospitality and real estate verticals. These activities resulted in many new customer wins for our team, including Regent Square, Atlantis Bahamas, Phoenix Children's Hospital, City of Pasadena, Virginia Hospital Center, and Yavapai Regional Medical Center, amongst many others. In conjunction with growing our portfolio of direct customers like these, We also further expanded our global footprint by amplifying our go-to-market strategy with indirect sales and channel partners, including Carrier Global Corporation, Cox Communications, Epic, HID Global, and Cooper Lighting Solutions. In parallel, we remain extremely excited about the completion of FundWallet and the launch and scaling of our blockchain ecosystem powered by FundCoin and FundToken. We are now scaling and monetizing 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 active. We are completely focused on the future and what a post-pandemic environment is going to look like for our business, but also recognizing and appreciating that the last year has represented a very interesting and unique challenge for all of us. We are excited to announce today more than 50% sequential revenue growth quarter over quarter from Q2 and also to guide to more than 100% sequential growth quarter over quarter for Q4. We expect to finish the year strong with more than $5 million of Q4 revenues to close 2021. As always, we will continue our core go-to-market strategy 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. In parallel, we will also dramatically expand our direct-to-consumer channel for B2C engagements across both our high-performance computing and cryptocurrency offerings to consumers. 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 coming in the quarters ahead. First, we added 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 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 in our P&L in the coming reporting periods ahead. Second, we continue to expand our install base of Funnelware 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 when operating at scale, 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 engagement. And third, we commercially launched our FunWallet mobile applications on Apple iOS and Google Android in conjunction with our mass blockchain ecosystem, all powered by our FunCoin and FunToken cryptocurrencies. While fund coin security tokens will only appear on our balance sheet due to their status as a regulated security, fund token 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 Bounty, will go deeper into our third quarter 2021 financial performance as reported, including our recent revenue growth and the dramatic improvements made to our balance sheet 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 third 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 third quarter 2021 totaled $2.2 million. which represents 50% growth quarter over quarter. Our mass platform subscriptions and services customers revenue was 1.8 million or 85% of total net revenues. Gross margin was 52.5% compared to 71.3% last year. On a non-GAAP adjusted basis, gross margin was 68.8% compared to 74.8% in the previous year. As I mentioned on our last earnings call, Our margins were previously affected by a customer delay in Q2, which has since been resolved, with the project having been partially delivered in Q3. We continue to work with this customer to complete the project in Q4, and we're happy to report the initial project deliveries have been stellar. Total operating expense was $5.2 million, roughly flat from last year, excluding the charge for legal settlement we took in Q3 of 2020. Other non-cash operating expense items were stock-based compensation, and amortization of intangibles, making up $1.2 million this year compared to $1.6 million in the prior year. By excluding these one-time and non-cast charges, adjusted operating expense was $4 million compared to $3.6 million last year. We have invested in our sales and marketing teams year over year and plan to further invest in those areas to fuel our future growth. Non-GAAP adjusted EBITDA loss was $2.5 million compared to 1.3 million last year. Net income was 0.4 million or one cent per share compared to 8.6 million net loss or 19 cents per share loss last year. The main factors driving the change was the full forgiveness of our $2.85 million PPP loan recognized this quarter, minimal interest expense as we have cleared up our balance sheet, along with the absence of the legal settlement from last year. Backlog and deferred revenue at the end of the quarter totaled $6.1 million, down from $8 million at the end of the last quarter. The reduction in backlog mainly has to do with customer delivery in Q3, along with lighter than expected bookings closing in the quarter, with decisions being pushed to Q4 with a few of our customers. Moving to the balance sheet, we closed the quarter with just under $1 million in cash and $1.1 million in debt, which is a far cry from where we sit today. Subsequent to the closing of Q3, we raised approximately $62 million from our active at-the-market offering with B-Rally Securities and another $4.6 million from warrant exercises. In addition to the equity raise, the company issued a promissory note with Streeterville Capital borrowing $5.2 million in conjunction with the closing of the Light Technologies transaction. With these proceeds, we have preemptively paid down the $1.1 million of promissory and convertible notes that would have come due in 2024. We also announced last week that we purchased an additional 100 Bitcoin for approximately 6.2 million, bringing our total holdings to approximately 129 Bitcoin. We believe cryptocurrency will continue to be a large part of our business going forward and having the ability to hold and transact multiple cryptocurrencies provides flexibility with our own FundCoin and FundToken offerings. We currently accept Bitcoin and Ethereum for FundToken purchases and recently announced that we have begun to accept Bitcoin for Lite by FundWare personal computer purchases. In closing, and I've said previously, the transformation we have gone through in the past 12 months in the face of the COVID-19 pandemic has been remarkable. We have successfully improved our balance sheet to fully fund our short term and long term objectives. Not once in our history as a public company have we had the ability to say that our balance sheet is stabilized with minimal debt and ample cash for the future. We are finalizing plans for 2022 and look forward to sharing more details on our next earnings call. We will continue to be active with financial conferences and investor meetings in our efforts to tell our story, and further strengthen our corporate profile in the capital markets. The next conferences we will be attending include the Roth 10th Annual Virtual Technology and Inaugural AgTech Answers Virtual Event on November 17th and the Leidenberg-Thalmann Virtual Technology Expo 2021 on November 18th. We will look to augment the number of one-on-one conversations and meetings with high-class institutional investors at each event with opportunity to present themselves. With that, I would like to turn the call over to Randall.