Phunware, Inc.

Good afternoon, ladies and gentlemen. Welcome to Funware's fourth quarter and full year 2021 investor conference call. Currently, all participants are in a listen-only mode. Joining me today are Alan S. Nikowski, 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 risks and uncertainties disclosed in the risk factors section of our SEC filing. 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's president, CEO, and co-founder, Alan Natowski. Sir, please proceed.

Thank you very much, and welcome to our fourth quarter 2021. and full year 2021 investor conference call. As a reminder, Funware is 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 Interset 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. Central to these efforts are our enterprise cloud platform for mobile called MaaS, 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 fund token and fund coin loyalty and rewards cryptocurrency ecosystem, which is facilitated transactionally with our fund wallet mobile applications for the Ethereum blockchain. The completion of Q4 and full year 2021 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 150% sequential gain in quarter-over-quarter revenue growth with our customers. In parallel, the conclusion of Q4 in full year 2021 subsequently provided even more immediate scale and growth to our business as we operationally integrated and scaled our acquisition of light technology and dramatically improved our balance sheet, including a year-end close of more than $23 million in cash and a current digital currency balance of more than 641 Bitcoin and 1,217 ETH, valued at approximately $31 million at today's trading prices. Importantly, and in tandem, we are providing forward revenue guidance for Q1 and Q2 2022 of up more than 250% year-over-year. Our CFO, Matt Downey, will break down these details and forecasts further in his section of the earning broadcast. In terms of our current operating environment, our core B2B and B2G customers still have not consistently returned to their offices and facilities and remain in a hybrid transition with regard to their employees and contracts safely returning back to work. We expect that cities, states, and countries will continue opening on a broader basis throughout the balance of 2022 while also understanding that this process remains an ongoing and unpredictable journey that won't happen overnight. 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 with the private and public sectors. As suggested previously in 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. 2021 was the genesis of a powerful 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, real estate, and healthcare verticals. These activities resulted in many new customer wins for our team, including Atlantis Bahamas, Regent Square, Phoenix Children's Hospital, Intermarkets, Virginia Hospital Center, and Dignity Health 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 Amazon AWS, Carrier Global Corporation, Cox Communication, HID Global, IBM, Primus Tech, Vizia Technologies, and Cooper Lighting Solutions. In parallel, we remain extremely excited about the post-launch scaling of FunWallet and our blockchain ecosystem powered by FunCoin and FunToken. We are continuing to aggressively 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 as we commence trading a fund coin next month in April and fund token later this month before closing March. As stated above, we are extremely excited to announce today more than 100% sequential revenue growth quarter over quarter, as promised previously for Q3 to Q4 2021, and also the guide to more than 250% revenue growth year over year for both Q1 and Q2 2022, respectively. We finished 2021 extremely strong, with over half of our 2021 annual revenues achieved in Q4 alone. 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. 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 16 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. Second, we continue to expand 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 one petabyte of data, typically growing at more than five 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 and started scaling our FundWallet mobile applications on Apple iOS and Google Android in conjunction with our mass blockchain ecosystem, all powered by our FundCoin and FundToken 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 Downey, will go deeper into our fourth quarter and full year 2021 financial performance as reported, including our strong sequential revenue growth, our dramatic balance sheet improvements, and our 250% plus year-over-year revenue growth guidance that we expect for the first two quarters of 2022 operations. 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 full year 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 full year 2021 totaled $10.6 million, which represents 6% growth year over year. Our mass platform subscriptions and services customers revenue was $5.3 million, or 50% of net revenues. With the acquisition of Light Technologies that closed in mid-October, we were able to ship $3.1 million in computer hardware revenues, or 29% of net revenues. This was a great achievement for the Light team with less than a full quarter with Funware. Gross margin was 33.9% compared to 66.4% last year. On a non-GAAP adjusted basis, gross margin was 43.9% compared to 69.4% in the previous year. The drop in gross margin can be attributed to two things, including first a mismatch of cost of goods sold and the revenues it is associated with. Our fulfillment team was diligently working on a few large projects that shifted out to 2022 after originally being scheduled for delivery in Q4 21. As we have discussed in the past, this situation does occur from time to time, but we expect to mitigate these scenarios in the future as we continue to grow our software business. The timing shift has negatively affected our margins in Q4 as we recognize the cost associated with the projects, but have yet to recognize the revenue. We did our part on time, but we aren't always the only dependency, which is both a blessing and a curse. Multiple dependencies means that we are sticky and built a lot of consensus to be implemented, but 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 the long-term goal of 75% plus gross margins for our mass revenue. Secondly, our new business line, Light by Funware, has a different gross margin profile than we've had in the past. We have been moving quickly to fully integrate Light into Funware and are pleased with the top line revenue achieved for Q4. As with any acquisition, we experienced increased costs above and below the line during our integration phase, which impacted our gross margins. We fully expect that gross margins will pick back up as we continue to integrate and grow in 2022. Total operating expense was $20.5 million, slightly up from last year, excluding the $4.5 million 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 a combined $4.1 million this year compared to $4.3 million in the prior year. By excluding these one-time and non-cash charges, along with the charge for legal settlement, adjusted operating expense was $16.3 million compared to $15.3 million last year. We have continued to invest 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 $11.7 million compared to $8.4 million last year. Net loss was $53.5 million or $0.71 per share compared to $22.2 million net loss or $0.50 per share loss last year. The main factors driving the change were a few accounting treatments that we are required to take, although they have minimal to no cash implications to operations. These factors include non-cash charges for the fair value adjustment for warrant liabilities of $18.1 million and impairment of digital currency for $9.4 million, in addition to a one-time charge of just under $8 million for loss on extinguishment of debt related to the payoff of our 2020 senior convertible notes in the first half of 2021. Non-GAAP EPS adjusting for these items, along with stock-based compensation and amortization of intangibles, was $0.21 per share loss for 2021 compared to $0.27 per share loss in 2020. Backlog inferred revenue at the end of the year totaled $8.6 million, down slightly from $9.1 million at the end of last year. Moving to the balance sheet, we closed the year with 23.1 million in cash and 4.9 million in debt. We also currently hold just over 641 Bitcoin and 1,217 Ethereum with an aggregate value of approximately 31 million based on today's prices. In closing, we are thrilled with our 2021 results, but are even more excited about the opportunities going forward in 2022 and beyond. In short, we're just getting started and now finally have the ability to go on the offensive. We have a strong balance sheet with very little debt and also have access to $200 million of additional capital as needed via our shelf offering. Importantly, we are committed to continuing to build revenue and market share in all business lines through both organic and inorganic opportunities. As Alan previously mentioned, we are positioned to start the year off strong and expect to post for the first time as a public company full quarterly revenue of more than $6 million here in Q1 2022. We will remain active with both financial conferences and investor meetings in our efforts to tell our story and further strengthen our corporate profile in the capital markets. We were happy to see our institutional ownership base double year over year, led by the Vanguard Group and BlackRock, and are extremely appreciative of our strong and growing retail investor base. The next major financial conference we will be attending is the H.C. Wainwright Global Investment Conference on May 23rd through May 25th in South Florida. We will look to augment the number of one-on-one conversations and meetings with high-class institutional investors at each event as opportunities present themselves. With that, I would like to turn the call over to Randall.