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.

Thanks, Matt. Funware is a materially different operating company than it was when we reported the third quarter last year. What we were able to achieve in the fourth quarter has positioned us well for 2022. Now, before I cover each of our unique business units, I wanted to take a moment to share our current mission and vision statements, which we recently refined and ratified by our board. Funware's mission. Our dedicated team of pioneers deploys cutting edge technology at the intersection of mobile, cloud, big data, and blockchain in order to help any brand in any industry better engage, manage, and monetize their global audiences and communities. Our multi-screen as a service enterprise cloud platform facilitates one-to-one engagement and interactions between brands and individuals with a focus on engaging the right person at the right time, in the right place, on the right screen, in the right context in order to drive profitable behaviors and delight audiences worldwide. whether they are consumers, channel partners, employees, or advocates. Funware's vision. We will create a Funware ID for every human being on Earth that has a device touching a network through their favorite brands, venues, and applications that interface or intersect with Funware mass software solutions or infrastructure. Our core vision is to transform the digital human experience worldwide by leveraging personal, corporate, and government data to better inform, facilitate, and improve interactions and engagements between brands and individuals in the real world and virtual world alike. Now, to achieve this, we have organized the company around four key business units, software subscriptions and services, application transactions, blockchain, and light by funware. As we further scale and commercialize each business unit, we will point back to these as we think about reporting unit-specific key performance indicators in the future and providing further guidance to the market. Software subscriptions and services. Although we see positive signs that point towards recovery, the pandemic continues to influence buying decisions and extend the sales cycles for many of our key software subscriptions and services verticals. However, the deals that did close were more indicative of the larger multi-year contracts that will generate higher margin recurring revenue. Our average target total contract value for the deals we're focusing on today continues to trend up closer to $1 million with three to five year staff license terms. Quarter over quarter, we saw the most activity and interest in these four verticals, mass digital front door for healthcare, mass smart workplace for corporations, mass smart city for local officials and chambers of commerce, mass advocacy for politicians. We also recently announced a new strategic partnership with Campaign Nucleus and are thrilled to work closely with Brad Parscale again on ensuring politicians have the best possible solutions to not only better engage voters, but also ensure their message is heard. It has also become evident that hospitality will be a key area of growth for us as we are engaged in significant discussions with multiple well-known brands to support their digital transformation initiatives. As Alan mentioned, we recently launched our smart hospitality solution in Atlantis in the Bahamas, which is highlighted in a promotional video that was recently released. This comprehensive mobile solution has already begun generating additional revenue for Atlantis by tech enabling the guest experience across Paradise Island, which is over 140 acres and includes five distinct resorts. We are also thrilled to announce that we successfully deployed our smart workplace solution for Norfolk Southern, which has set a new standard for tech enabling the employee experience at their new headquarters in Atlanta, Georgia. With over 25 integrations, employees can easily manage on-site operations such as lighting, room booking, and parking reservations from one unified mobile experience. In addition to our industry-leading location-based services software, this ability to integrate with well over 100 third-party software platforms is a key competitive advantage for us. you can review a complete list of all the integrations we offer on funware.com under partners. Application transactions. With regards to our application transactions business, we are seeing strong growth as we have expanded our focus to include working directly with brands rather than mostly through agencies. Many companies are struggling to keep up with the new advertising rules on popular platforms like Facebook and are equally concerned about managing consumer consent when it comes to data enriching their media. Our customer data platform helps brands get more out of their marketing spend by ensuring they can identify and target the right consumers with engaging media on mobile. We also added four new sales reps to the team in the fourth quarter to help us capitalize on the momentum we built heading into 2022. Blockchain. Many people now understand how our mass platform can help brands contextually engage their customers but blockchain technology offers us the ability to not only authenticate that engagement, but also incentivize it. Since Funcoin is a regulated security token that we are developing to blockchain enable our data exchange, it's critical that we take the appropriate steps to ensure trading occurs in a compliant manner. In the fourth quarter, we have been able to set up trading accounts for most of the people who previously invested in Funcoin. This has taken longer than expected, but we plan to be live on a securitized platform by the end of the second quarter in 2022. Securitized Markets is an SEC and FINMR registered broker dealer and operates Securitized Markets ATS, an alternative trading system. We are also working with our attorneys to prepare a Regulation A offering to support additional investments in and distributions of fund coin. In parallel, we anticipate decentralized exchanges like Uniswap to begin trading fund token by the end of the first quarter. In fact, we recently launched a whitelisting program to support the effort to further decentralize this unique utility token designed to promote loyalty while ensuring participants complete the appropriate KYC and AML procedures. We will also be publishing a new website for a fund token by the end of this month to better educate and engage our growing community. To help consumers and brands manage their activities within our blockchain-enabled data exchange or mobile loyalty ecosystem, Funwallet is available for Apple iOS and Google Android and is receiving great feedback. As an extension of our mass platform, we are working on regular product updates, but larger roadmap milestones in 2022 include creating a comprehensive user registration and profile experience to make it easier for users to register as well as recover existing accounts across new devices, enhancing the profile experience to give users more control over the information they choose to share, the ability to update and access this information, and an auditable account of their engagement activity, new support functionality to allow users to refer friends, family, and colleagues while being rewarded for the networks they build, and location-based marketing that will enable consumers to interact with brands in the real world and be seamlessly rewarded with fun tokens. Light by Sunware. As Matt and Alan already touched on, Light had a record fourth quarter as we initiated work to integrate them into fundware following our acquisition. Fortunately, we were able to secure two important strategic supplier relationships in order to help us mitigate the supply chain constraints that many of our competitors continue to face. These relationships are critical to support the increased demand we are seeing and will support our international expansion. We were also excited to announce that we executed a new commercial lease on a warehouse just outside of Austin where we will be moving light operations. At double the size of light's old warehouse in Illinois, we will have plenty of room to expand and a more efficient layout will better support the revenue growth targets Allen has set for the team. As of the end of the year, we have grown to 118 employees with the addition of 41 light employees who will primarily operate out of Illinois until our new warehouse is up and running. Since the majority of our other employees are in Texas and California, We are assessing new office space in Austin and Newport Beach to support our efforts to return to the office. In closing, on a more personal note, since I'm engaged to marry someone who was born and raised in Ukraine, I couldn't be more proud of our team for organizing supplies that recently arrived at the Ukrainian border to help refugees in need. Now I'd like to turn things back over to Alan for final remarks.

Thanks, Randall. As highlighted throughout today's call, we are all extremely excited by the ongoing scaling of our mass blockchain ecosystem and the high-performance computing systems that we can now ship directly to consumers because of our light technology acquisition. 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 community engagement in blockchain and cryptocurrencies, have resulted in the culmination and convergence of massive global addressable markets and trends that can now act as strong wind at our backs to further accelerate our recent growth. We expect this ecosystem to complement and supplement our core mass offerings as we offer our enterprise customers additional capabilities to identify, engage, and incent 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 to reward them for their engagement with FundToken, which can be purchased online with US dollars, Bitcoin, and Ethereum at buy.fundtoken.com. In parallel, and as we 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. Importantly, and as we did late last year with Light Technology, we expect to focus our merger and acquisition activity rolling forward on targets that are operating profitably and would represent accretive deals in areas that will provide more customers, more partnerships, and more distribution for our mass platform and cryptocurrency ecosystem, especially in international markets including Europe, Asia, and South America. Finally, and importantly rolling forward, we expect to maintain a laser focus on our core operating and financial model, which includes a rather breathtaking top-line revenue growth of 250% or more year-over-year all while consistently working towards cash neutrality from operations at scale. In parallel, we also expect to leverage our newfound balance sheet strength to transition our corporate treasury activities into a strategic asset for the company. Not only can you expect to see more purchases of Bitcoin as we go for storing value and protecting ourselves from rampant inflation, but you can also expect to see an efficient and strategic use of stable coins and decentralized finance, or DeFi, to generate meaningful financial returns for our overall operations and results. With that, and in conjunction with a sincere thank you for your ongoing interest and support in all that we do on behalf of the entire FundWare family worldwide, I would like to now open up the call for questions through the operator. Operator, go ahead, please.

Certainly. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone now. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone now. Please hold a moment while we poll for questions. Your first question is coming from Darren Aftahy with Roth Capital Partners. Your line is live.

Hey, guys. Thanks for taking my questions. If I may, first, can you speak to the mass revenue pushout on 4Q and actually quantify how big that is?

Yeah, we'll let Matt actually walk through the delay. But as he was saying, it really goes through. We have in Q2 and again in Q4 where you end up having those timing issues when we finish launches. and the way the revenue recognition actually works is that we have to wait for them to do the launch in order for us to recognize the revenue. So, Matt, do you want to actually quantify that in terms of the Norfolk Southern piece, which is predominantly that lucid?

Yeah.

Hey, thanks, Aaron. Yeah, so it's a similar situation that we talked about back in Q2 in terms of push-out, and it just so happens that it's tied mostly to one customer here, and, you know, at As we've talked about in the past, it's a good thing in that this is basically furthering the engagement even more and building that up. So in terms of the amount, I believe it's somewhere in the neighborhood of a quarter million, a half a million tied to that project. There's some other stuff that we've got to go through in terms of another customer it's related to as well, but we're probably talking somewhere like $250,000, $300,000 that's kind of related to that project.

Great. That's helpful. And then can you, um, speak to your indirect, um, channel partners you signed and, and kind of how that's progressing and when we could actually see kind of yield on those relationships, uh, in 2022?

Yeah, I'll take the first part and then I'm going to hand over to Randall for the second piece. So, uh, we spent most of COVID, especially 2021 working through activating our partner portal, inclusive of documentation, training and certification activities across each of the names that we mentioned in my section of the earnings call. What we've been doing is using that period to actually work through their processes in order to go live. Depending on which group it is, they on average think about six to 12 months is as they phrase the proverbial cog in the wheel to get moving for them to have all of their sales folks train their marketing groups and a lot of the packaging that they do in pricing manuals. specific to marketing packages on go-to-market. As we've been going through this, what we've found is the biggest gating item to them scaling out has predominantly been their timing of being back on the office and doing the in-person meetings to meet their own customers. So we only uniquely see this in the software side, both direct and indirect. As we found, the average price of a lot of these deals used to be more like a half million. They seem to be closer to 1.5 million. What used to be two to four months tends to be three to six. The budgets are bigger because they were unspent last year, but they're a little bit more deliberate because they're timing when they actually get back. The Norfolk Southern piece Matt mentioned actually was a direct deal, but that actually was to the timing of their new headquarters in Atlanta. They were going to have everyone in in Q4. They pushed it to Q1, which is where we had the COGS and revenue go. But Randall, why don't you provide some additional flavor and context on the various indirect channels and some of the differences you're seeing between hardware versus service provider and consultants?

Yeah, thanks, Alan. I think you've covered it pretty well. I mean, we spent a lot of the second half of the year just kind of getting all the drill wrench portals set up, getting all the collateral set up. And then it takes a while to kind of train them in a situation like Carrier. We're also working through training their VARs because they do a lot of selling through VARs. I think that's going to still be a little bit of an unknown for us, how long it takes their teams to activate. Our goal is to sign up as many as possible, get as many as possible trained. Really, I think probably the biggest difference going into this year is seeing a lot more on the software side. There's a lot of engineering groups and folks who are doing a lot of large Fortune 500 work who don't want to start from scratch. who we kind of always felt would be competitors, but actually, you know, kind of work in concert with us, because they don't really focus on mobile. And so a lot of those have been reaching out and looking at, you know, probably applying our mobile platform to a much larger project. So I think it's going to be, you know, still probably second half of 2022, before we start seeing meaningful growth out of the existing indirect channels that we have. And I think most of that is going to be, you know, hardware, in system integrators still, but I'd like to see a lot of these software vendors come online as well who could probably execute a little faster because they're working on these larger projects and they have an immediate need now. But again, it's still, I know it's a slow process and we've been saying this for a while, but these are multi-billion dollar companies. They don't move fast. We were just at HIMSS again with Cox. As you may recall, Cox is licensing our healthcare solution We announced last year that HID was licensing our smart workplace solution. These are multi-billion dollar companies, and so this takes a while, but this is no different than Microsoft trying to get Microsoft Office on every phone and every computer rather than selling direct to every single person with a phone or a computer. So again, I think it'll still be probably second half of the year before we see meaningful growth and revenue from those indirect channels.

Thanks. Maybe I could squeeze the last two into one. So I'm just kind of curious the reception you've had from brands in terms of wanting to use fun token as kind of a white label with customers. And then secondarily, since you announced the partnership with campaign nucleus, what kind of traction have you seen in terms of like pipeline interest on the political space? Thanks.

I'll pick the first one and maybe Alan can pick the second one. Yeah, I was going to say, on the crypto side, it's actually pretty exciting. You know, there's a couple different flavors in how brands think about, you know, our crypto ecosystem. I think most of them are starting with kind of the value proposition of fun tokens. And so this idea of, hey, I've got certain things that I want my customers to do more of. We call it driving profitable behavior. But I don't want to necessarily take on the headache of launching my own cryptocurrency, launching a team that can manage customer support, wallet addresses, all of the compliance that would be required of any meaningful company, especially a public company. And so I think that's what we offer, that ability to kind of have compliant utility token as a service. And so we're seeing, you know, initially a lot of, you know, folks kind of in the engagement space, they're trying to modeling, you know, rewards. So, you know, think like fantasy sports, think, you know, things where, you know, there's a lot of gamification involved. Those are kind of the initial ones that we're talking to today. And so I think I'm really excited about that. A lot of people are saying, that's kind of the first conversation I asked them is like, you know, do you want to have your own token ecosystem? And, you know, kind of uniformly, they're like, absolutely not. I just don't want to deal with it. I want to focus on, what we do well, and all we want is really the benefit of it without having to deal with the headache. So that's great for us because we get to kind of book that as revenue. Basically, it's software to us, really great gross margin software for us. And then they get the benefit of not having to keep any of these reward points as a liability on their books and not having to deal with any of the headaches of minting their own token, dealing with exchanges, and dealing with all the headaches of what happens when you have a cryptocurrency which you know quite frankly is still a new industry you're dealing with a lot with fraud you're dealing a lot with bot attacks and you're dealing a lot of complexity of exactly you know how these ecosystems develop and so we've had to you know end up kind of working on our own things just because the industry didn't have the right ecosystem to meet our needs like self-sovereign identity um and then also kind of how we address layer 2 scaling so That's going to be the future of crypto in terms of how it, you know, kind of crosses the chasm in the mainstream. You're going to have to have, you know, centralized companies deploying decentralized ecosystems so that they can handle things like fraud and scaling appropriately. But getting a good response so far and, you know, in a lot of different conversations with brands who would use that as kind of a crypto as a service, if you will.

Yeah, and I'll take the part on the question about campaign nucleus and our work with Brad Parscale. Obviously, we have a long-standing history of working with Brad that dates back to the work on American-Made Media Consultants during the Trump-penned 2020 election. We're super proud of all the work that we did on iOS and Android. It was the most advanced application portfolio for advocates and constituents ever done in politics anywhere in the world, and we held up at scale. None of our systems were hacked. And we really proved ourselves under mass scale in very difficult circumstances. Things like the Olympic Games helped us. The World Cup helped us. But when we applied this to politics, you know, we're a software company and a cloud platform and infrastructure company at the end of the day. But it was fascinating to see, you know, the level of reactions that happened. You know, I don't see a lot of reactions when Apple or Dell, you know, licenses iPhones or computers to Republican Party. But boy, did we get a lot of grief from all over the place because we did it for software. What Brad and our team have been focused on, and Brad's running Campaign Nucleus, he's really working to aggressively create a dedicated CRM that would be like Salesforce, for lack of a better comparable, but specifically and only for center-right politics globally. What we do is everything Brad and campaign nucleus doesn't so we handle the platform in the cloud We have all the components that help engage manage and monetize audiences. We have a specialty in mobile proven reliability and security at scale and So we're a great partner and to that end We're currently working on development and this will be really important and something that you know will be done by the end of q2 and but we're actually putting a whole series of solutions that are dedicated for the political vertical and for advocacy predominantly on a center-right basis. This doesn't just include local elections that are tied to cities and counties, but this gets into state and federal elections, including international opportunities. As you know, around the world in all democratic organizations, they're having president elections and their own version of Congress for their version of the Senate, the House, and so forth. So we're real excited that we're literally jointly partnered and jointly developing all of that. We have all the applications that are based on what we built for President Trump in the last election. We're trying to make those available. So whether you're running for mayor, city council, state representative, whether you're running for the U.S. Senate, U.S. House of Representatives, or literally anything in between up to the President of the United States or the President or Congress of another country, we fully intend to provide solutions from local to national and international for everyone. Recently, as some of you may have seen, which is probably important to highlight, there's always a lot of activity and noise around Congress and January 6th, and you probably saw a lot of press where there was some subpoena activity that went out toward Salesforce to get access to all of the data for the Republican National Committee and the GOP. And fundamentally, what just happened, you know, we're not a part of any of that. But when Salesforce is, you know, going to try to turn over all that data, I think the Republican groups are trying to block that because that's literally, you know, all of the information around all the people that they interact with for their own constituencies. and I don't know how that plays out, but I will say that that probably was a shot across the bow, and what that just did for us is it opened up half of the United States where absolutely nobody who's dealing with the GOP, the RNC, are ever again going to be licensing from Salesforce for any reason, because all of their data tied to their relationships, they believe are theirs, much like When we do work for our customers, our customers' data are their own. Any individual using an application of Funware, it's their identity. They own it. They're in charge of it. They decide what happens. We're a platform. And so we honor that personal data sovereignty at the individual app user level and for every customer that we have and every channel partner we have. And while we have no involvement in all of that public activity that's been going around just in the last two weeks, I can assure you that that's going to dramatically open up opportunities and a shift in spending because nobody is going to ship to anyone who is going to hand over, you know, their customer data or information. And, you know, I fully understand that. And we're very proud that we've complied with privacy data, things like GDPR, COPA, and all these other rules long before this was even a fashionable topic. So we're excited that we're going to have these joint solutions. We have all of our expertise from what we built in the past. We're going to amplify that. We're going to go to market. We know the big prize is all the cycles leading into 2024. But obviously here in November, there's going to be midterms, and we've been having communication with folks from coast to coast in different kind of potential election races and are excited wherever we can deploy our solutions to help have an easier and more direct conduit between candidates and their constituents so that people can make smarter decisions on who they want to vote for and why.

Thanks, guys. Your next question is coming from Scott Buck with HC Wainwright. Your line is live.

Hi, good afternoon, guys. Hey, Scott. Hey, Scott, how are you doing?

Good, good. I just have a couple of questions. First, I know it's early, but can you give us a little color on where you are in terms of kind of cross-selling with Light? You know, I know you've done some advertising of their products on your site over the holiday season. I'm just kind of curious where that stands and what early feedback has been.

Yeah, let me start with the high level and then I'm going to have Randall finish this off since it's a lot of, you know, operational things. So again, we have our kind of four areas of business. We have the software part of the business. We have the application transaction part of the business. We have the cryptocurrency piece of business. And then we have the light by firmware hardware part of the business. As you might expect, what we've been trying to do is first thing last quarter, we focused on acquisition integration for light, optimizing the supply chain, working through demand gen, scaling, getting our new production facility up, and a whole bunch of operational logistics that I'll let Randall kind of get into. But what we've been focusing on is we look at every one of these as conduits for distribution of Funware software. And so when we sell our software directly to corporations and governments, obviously our software development kits, application program interfaces, or our vertical solutions, get adopted and included, and then go to market with their audiences. And that's great for expansion of our Funware IDs. In parallel, right now with Light by Funware, we're focused on the operational logistics to scale the standalone computing delivery. And it's really going to be starting in third and fourth quarter where we'll start adding more components, probably initially things like Funwallet, and then we'll slowly start expanding where we can take the capabilities of our crypto ecosystem and our rewards ecosystem and start making that available for each of these decentralized nodes as we sell those pieces of hardware. And ideally we'll even have systems that will help people get an ROI on their computer, both when they're actively engaging, like on play to game or play to, you know, engage with advertising or surveys. And on the flip side of that, There'll be passive opportunities where you can do mining and other things to also pay down the cost of that hardware. So think of light is the first half of the year is all about direct operational integration and scale, supply chain, demand gen. We've recently added a new country. We just started selling in Canada to go along with what was exclusively in the past, just the United States. So we expect to open more markets as we go to help scale faster and bigger. And then we think on the application transaction piece, we've been seeing growth. We're bigger than we were before COVID. We've added about five new media, senior media sales, and we're scaling that business. And they're chomping at the bit for us to be able to start pitching, you know, everything that's going on within our data ecosystem to expose customer segments and demographic information for people to engage with And so as a high level, that's what it looks like. And then what I want Randall to do is he can walk you through the flywheel of how adding audience leads to data, leads to more segments, which leads to the brand interaction and how we focus on using cash for them to purchase. And then the fund token is an operational thing within the ecosystem. So we don't have to retrain anybody to think about like, how do I buy crypto? We don't want them to do that. But, Randall, can you highlight that flywheel and kind of walk through the details of how that cross-selling works?

Yeah, honestly, I think you hit it. So, I mean, I think we probably have – I know we're running, you know, light on time, so we probably have more, you know, use the last 10 minutes for some more questions because, you know, you nailed it. I mean, I think that was a very good answer.

All right, guys. Appreciate the color there. Second one for me. Could you kind of update us on path to profitability and generally how you're thinking about the kind of push-pull between generating positive EBITDA versus reinvesting in growth in the business?

Yeah, I'll start, and then I'll give it to Matt. We're focused on scaling revenue right now, and we want to drive ourselves where, as we're going along that, we're driving the cash neutrality. Obviously, COVID was kind of an 18 to 24-month you know, delay of that process. Obviously, we added light to buy. But right now, honestly, we focus on how do we be like Amazon when it was growing? How do we be like Salesforce when it was growing? And our goal is to take any and all profitability, you know, within cryptocurrency, within our PC hardware business, within the media side of our business, and plow all that back in to keep building out our platform, building out the software direct and indirect, adding more sales, adding more marketing, because based on our size, we understand that people want to see revenue growth. The idea of profitability, you know, it's important and interesting, but we're going to focus like Salesforce and Amazon. We don't see that as a this year event. And Matt can give you a little more context about how he rightly manages that and keeps Randall and I under control about being very measured. Yeah.

Yeah, and I'll answer quickly because Alan, you said a lot of it there as well. I think, you know, in terms of profitability, you know, we're going that direction, but we're not there yet. I certainly think that, you know, second half of the year, there's an opportunity to get closer to kind of a break-even cash neutrality position. You know, in terms of kind of gross margins, that's really what we're focusing on now is kind of optimizing gross margins between all the business lines and certainly light as a as a new business for us. Um, there's a little bit of a learning curve and getting them integrated and really focused on the margins there. So my focus is really on building the gross margin and then, uh, you know, whatever dropping the bottom line is really going back into the business right now. And then we'll evaluate, you know, throughout the year, kind of see where we are and see what makes sense. If we've got things to invest in and we'll put it back in the company, if not, then it will get closer to that, uh, cash neutral position.

Great. Well, I appreciate the time, guys. Thank you. Thanks, Scott.

Your next question is coming from Howard Halpern with Taglik Brothers. Your line is live. Hi, guys.

Just a quick question, I guess, on how you plan on, I guess, marketing or the marketing dollars you expect to – deploy for the for light and and even for the i guess uh what randall talked about crypto as a service to to basically brand yourself in the area yeah i'll start yeah so the good thing about a lot of what we're doing i mean you know i think it's no surprise that we've got a lot of attention you know on funware you know the whole uh and all of that you know through our ir efforts you know

actually happens to be the exact same customers that we would target with a lot of kind of, you know, for example, you know, the crypto ecosystem. So, you know, Robinhood traders, you know, people who are following, you know, stocks like us, you know, I reserve the right to not call ourselves, you know, a meme stock, you know, but a lot of people did, you know, come with that excitement, but stayed for the company and kind of began learning about the company. And so, you know, we've been able to, you know, besides a lot of the stuff we're doing in IR and, to kind of get the word out more around fun. A lot of people will tell you we're very active in different channels, different social channels, which I think is new for a lot of public companies. They haven't done that. They don't have the wherewithal around that. You have to just be doing it every single day, that constant flow of new content, new messaging, new community building. I think we're doing that exceedingly well. which I think is, you know, helps us, you know, trade better. But a lot of those people are also the exact kind of people that we would target, you know, for fun token today and then fun coin in the future. And then also, you know, tied to both of those, the fun wallet downloads. So we're able to kind of, you know, double, triple dip a lot of these and get people excited. And then, you know, where we see a lot of kind of common goals around approach is in our app transactions business. So Just like we want to sell data-enriched media to a lot of big brands and have them kind of be able to better target one-to-one engagements with consumers, those exact same people are thinking about engagement through awards program as well. So it's a lot of the same kind of methodology to market to them, just marketing different opportunities. And that's not that much different than what we started at with a lot of this. As you all may recall, A lot of this ecosystem got thought out with our current board member, Cathy Mayer, who is the former CDO and CMO of Carnival. I think I've used a couple of different examples. Our software as a whole could put infomercial-like capability into their app in order to showcase certain things they might want their customers to do. Taking that one step further, they might want to incentivize the ability to watch that infomercial so they could actually leverage Fund Token for that. So a lot of what we're doing kind of nests within itself or is a natural extension of what we have. It's not like a pivot or we have to think of some new marketing scheme in order to reach those same customers. It's a lot of the same approach and the same workflow. It just depends on what the brand is trying to achieve. Okay.

And for the light segment, are you going to – put some more dollars into marketing, or is it more going to be like the social networking that you talked about?

No, no, we are, certainly. I mean, that's why we had such a, you know, we had a record, you know, Q4. You know, they would have never been able to accomplish that if it wasn't for, you know, the fundware acquisition. And so, you know, we understand kind of, you know, how to market, you know, where to spend dollars, but also where to get, you know, a little bit more growth in our dollars. So it's not kind of a one-to-one situation. we're not running Super Bowl ads that are going to be crazy expensive, not if we can reach out to amazing Twitch influencers or amazing YouTube influencers who have a million subscribers all talking about the gaming ecosystem. And oh, by the way, those people are usually also either mining Bitcoin, Ethereum, or really rabid kind of community builders around cryptocurrency. So it actually becomes the same target audience. And so you reach those same target audiences the same way. So the days of old school running commercials and flyers and all of that, those days are gone for a lot of industries. And so I think we've got a pretty good handle on how to reach people where they are today. So we're going to keep focusing on that both for Lite and for fund token and for overall stockholder awareness and shareholder awareness when it comes to fund. Okay.

Okay, well, thanks. Keep up the great work, guys.

Thanks, Howard.

Your next question is coming from Ed Wu with Ascendant Capital. Your line is live.

Yeah, congratulations on the quarter. My question is on your M&A strategy now that you guys are almost done integrating Lite.

yeah i would be happy to answer that so i really say jokingly that we have to kiss a lot of frogs so to speak to find a good fit um right now we've been actively looking internationally and uh in some ways i kind of equate it to trying to like buy a home right now um there are a lot of people that are out there with money and assets looking to you know add other assets uh people trying to buy homes or struggling to find inventory If they do, they're trying to find something that works for their family and on and on. So in the M&A part, we're actually very aggressive and very active in having lots of conversations on a regular basis. We review opportunities. Typically, we find some companies that are trading in other public markets elsewhere in the world. They may not have a lot of volume or liquidity. They may not have a lot of trading. But often, it's a little bit messier to get a consensus around approvals on the kind of deals we might like to do. So we've seen management teams that want to do a deal with boards or shareholders that don't. That's been the case in both public settings and private settings. And then in the private, you see so many people chasing deals, whether they're angel investors, family offices, venture capitalists, private equity firms between private and public companies that they're looking to deploy a little bit of equity, but mostly get and then aggregate You're just seeing a lot of competition for deals. And so you have to be disciplined. And I applaud Matt and his team's effort with Randall. There's kind of a strategic and operational interest in what we want to do to add in these four areas of business. And that includes domestically and abroad. But then you have to be financially disciplined because some of the multiples people want are relatively insane. We only are looking at accretive add-ons. And then we're typically looking at things of at least 10 million in size or more just because the accounting, the audit, the legal, the deal documents, the due diligence, all those costs get relatively fixed on big deals, small deals. And so I think we're just going to keep doing that. We want to enter international markets through a small accretive acquisition that we can then blow out our model through. And then in other cases like light, we don't really have to necessarily buy a company to make that happen. We just have to launch new markets. So I would say you're less likely to see M&A in the light technology hardware business. You're less likely to see acquisitions, you know, in the cryptocurrency things that we're launching, you know, in the short term. Where most of the things are is can we bulk up our application transaction business inclusive of app users and data to service our new crypto ecosystem? And then can we find additional ways to get you know, more capability in our software platform and our solutions and products that we offer.

Great. Well, thanks for answering my questions, and I wish you guys good luck. Thank you. Thanks, Ed.

We have no further questions from the lines at this time. I would now like to turn the floor back to Alan Nikowski for closing remarks.

Sure. In closing, I'd just like to say we really value and appreciate all the investors that have been helpful and supportive of Funware. While we do get a chance to go out to financial conferences like Matt and I just did at the Roth Capital Conference and got a chance to meet face-to-face with some institutional investors, we really value our retail investors around the world. In our crypto world, we see huge interest and activity in South Korea, over in Germany, over in Greece, and here in the United States, amongst other countries. And we have very active folks. We have Telegram channels with people talking all the time. Randall and I and Matt and team are trying to be very available, not just to institutions, but to retail investors. We value and appreciate all of you more than you could possibly imagine. And we really are excited by the opportunities that we have. We've gotten a chance to start getting out to institutional investors, again, who are now starting to get together in person and meet. And we expect that to accelerate throughout the balance of the year. But we'll be scheduling some more things to talk to retail, as we always do. And retail has been there the whole time. You know, pandemic, no pandemic. We're having lots of interactions and communications. And we look at that as a strategic advantage for our shareholders, our cap table, and the future of what we're going to be able to accomplish through our direct consumer channels. So in conclusion, I'd just like to say there's obviously a lot of crazy things going on in the world, domestically and abroad. We're very excited by the opportunity that we have coming out of the pandemic. We hope that calmer heads prevail globally, and we can get back to living life, conducting business, and just really flourishing as a species around the world. Some of the craziness at times, It does good things to remind us how sacred life is and how sacred our relationships are and how important it is to do the things we do at home and to really have some exciting things to change society for the better in our work. And we couldn't do it without all of you, and we very much appreciate you being part of our Sunware family. So with that, thank you very much. We're getting ready to close Q1. We'll look forward in mid-May to talking again. And in the interim, we plan to kick some ass and we're looking forward to doing that in conjunction with all of you.

So thank you very much.

Thank you, ladies and gentlemen. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.