Phunware, Inc.

Good afternoon, ladies and gentlemen. Welcome to Fundware's first quarter 2022 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 Monet, 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 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 Fundware. At this time, I'd 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 first quarter 2022 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 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. Central to these efforts is our enterprise cloud platform for mobile called MASS, or Multi-Screen as a Service, which is available for licensing under a SaaS business model over one to five-year contract periods worldwide, and our FundToken and FundCoin loyalty and rewards cryptocurrency ecosystem, which is facilitated transactionally with our FundWallet mobile applications for the Ethereum blockchain. The completion of Q1 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, digital asset activation, and a more than 310% sequential gain in year-over-year revenue growth, representing a new first quarter record for reported revenues as a public company. In parallel, the conclusion of Q1 subsequently provided even more growth to our business as we further scaled our Light by Funware hardware sales and continued to improve our balance sheet, including a current digital currency balance of more than 652 Bitcoin and 1,222 Ethereum, valued at more than $22 million at today's trading prices. Importantly, and in tandem, we are upwardly revising our forward revenue guidance for Q2 2022 of up more than 275% year over year, which would represent a new second quarter record for our company while trading publicly. Our CFO, Matt Alney, will break down these details and forecasts further in his section of the earnings broadcast. In terms of our current operating environment, our core B2B and B2G customers are only beginning to return to their offices and facilities. remaining 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 2022, while also understanding that this remains an ongoing and unpredictable journey. 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 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. Last year 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 platforms. In addition to continued enterprise and government interest in our mass digital front door solution for healthcare, our mass smart workplace solution for corporations, and our mass smart city solution for cities, we 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 communications cabling innovations, Humana, Sanford Health, Miami-Dade County of Florida, Live Nation, Sanderson Farms, Developers Alliance, Southeast Tech, Cooperative Energy Safety, Sioux Falls Development Foundation of South Dakota, American Land Title Association, Yellowstone Bear World of Idaho, and California Operation Lifesaver, 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 by adding Axiom Labs to those previously announced during our prior earnings announcement. We remain extremely excited about the post-launch scaling of FundWallet and our blockchain ecosystem powered by FundCoin and FundToken. We are continuing to aggressively scale and monetize this part of our business and look forward to the accelerated global adoption of both our blockchain-enabled mass customer data platform and our mass mobile loyalty ecosystem. During Q1, these important activities included the trading commencement of FunCoin on decentralized exchange Uniswap, an initial exchange offering announcement for FunCoin here in Q2 on centralized exchange LaToken, and the trading commencement announcement of FunCoin here in Q2 on centralized exchange Securitize. As a reminder, Fundware currently owns more than 80% of all fund tokens, constituting more than 8 billion tokens and representing more than $50 million in ownership against a fully diluted digital asset market capitalization currently exceeding $60 million. This market did not exist when we completed our last earnings call, but is now live and active. In parallel, and as an additional reminder, Fundware also currently owns more than 70% of all fund coins, constituting more than 70 billion tokens and representing what is expected to be multiples of our fund token ownership value in U.S. dollar terms when launched for trading over the next several weeks. Said differently, for specific clarity, and while recognizing and acknowledging that achieving trading volume and liquidity in both new digital asset markets will take some time, we currently believe that upon formally launching FundCoin on Securitize, our token ownership total for both fund token and fund coin combined is highly likely to exceed the entire NASDAQ market capitalization of fundware. As stated above, we are extremely excited to announce today more than 310% sequential revenue growth year over year, which is well above our prior guidance of up more than 250% as previously promised. Additionally, and in parallel, We are also pleased to upwardly revise our guidance for Q2 to up more than 275% revenue growth year over year, which is more than 25% higher sequentially than previously promised. We finished Q1 extremely strong, successfully posting the highest first quarter revenues in the history of our company while trading publicly, and fully expect that Q2 will similarly represent the highest second quarter revenues in the history of our company while trading publicly. 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 continue to 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 period 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 three to six 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 five billion transactions per day, 500,000 transactions per second, and one 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 engagements. And third, we commercially launched and are presently scaling our Fund Wallet mobile applications on Apple iOS and Google Android in conjunction with our mass blockchain ecosystem, all powered by our FundCoin and FundToken digital assets. While FundCoin security tokens only appear on our balance sheet due to their status as a regulated security, Fund token utility tokens are now flowing transactionally through our P&L as net new and virtually 100% gross margin revenue. As a reminder, and during the comparable period in 2021, we did not have either the Litebuy Fundware hardware business or the mass loyalty and rewards ecosystem anchored by FundWallet, FundToken, and FundCoin. Both lines of business are now active and are now scaling productively. At this time, our CFO, Matt Alney, will go deeper into our first quarter financial performance as reported, including our strong sequential revenue growth year over year, our continued balance sheet improvements, and our 275% plus year over year revenue growth guidance that we expect for the second quarter. 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 first quarter 2022 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 first quarter of 2022 totaled $6.8 million, which represents 312% growth year-over-year. We decided to combine what we have historically categorized as subscription and services revenue with our application transaction revenue from a presentation standpoint as we continue to evolve our reporting presentation to match that of how we run the business. Going forward, we will only present platform revenues and computer hardware revenues. With that, our platform revenue, representing 37% of net revenues, was $2.5 million, growing 51% over Q1 of last year. Our computer hardware revenue, or Life by Funware as we have branded it, represented 63% of net revenues, totaling $4.3 million. Gross margin was 26.1% compared to 58% in Q1 of last year. On a non-GAAP adjusted basis, gross margin was 26.8% compared to 71% in Q1 of last year. Platform gross margin was 57.2% compared to 58% last year. As I've mentioned previously, LightFi Funware has a different margin profile as a computer hardware business than our higher margin platform business. LightFi Funware gross margin was 8.1%, which we're pleased to see an improvement from last quarter. However, we still have work to do to fully streamline our supply chain and expand gross margins to be more consistent with our mid- and long-term operating goals. Total operating expense was $6.8 million, up from $4.4 million the same quarter last year. Other non-cash operating expense items were stock-based compensation and amortization of intangibles, making up a combined $0.7 million this year compared to $0.9 million in the prior year. By excluding these one-time and non-cash charges, adjusted operating expense was $6.1 million compared to $3.5 million last year. We have continued to invest in our sales and marketing teams year over year, pushing marketing efforts for Fun Token and LiteFi Funware. I'm excited to see many of those efforts have directly affected our top-line revenue already, and we look forward to continuing to see much more in the future. On the G&A side, we've fully integrated the Lite team and rebuilt our expense structure that we paused due to COVID during the beginning of 2021. Non-GAAP adjusted EBITDA loss was $4.2 million compared to 2.4 million last year. Net loss was 14.9 million or 15 cents per share compared to 14.3 million net loss or 22 cents per share net loss last year. The main factors driving the reported net loss were the accounting treatments that we were required to take although they have minimal to no cash implications to operations as I have previously explained. These factors include impairment of digital currency of 9.4 million in the current quarter And a year ago, we had non-cast charges for loss on extinguishment of debt related to the payoff of our 2020 senior convertible notes for $5.8 million and the fair value adjustment for warrant liabilities of $2.8 million. Non-GAAP EPS adjusting for these items, along with stock-based compensation and amortization of intangibles, was $0.04 per share loss for the current quarter compared to $0.07 per share loss in the same quarter last year. Backlog and deferred revenue at the end of the quarter totaled $7.1 million, down slightly from $7.7 million at the end of last year. Moving to the balance sheet, we closed the quarter with $10.8 million in cash and $3.5 million in debt. We also currently hold just over 652 Bitcoin and 1,222 Ethereum, with an aggregate value of approximately $23.5 million based on today's price. In closing, we are thrilled to have continued to build on the momentum we built in Q4 2021 by posting our largest revenue quarter as a public company in Q1 2022. In addition to the progress made with the top line, we have continued to invest in the business to further bolster our product offerings and expand the presence of our crypto ecosystem. We plan to achieve two additional major milestones in Q2 as FunToken lists on LaToken and FunCoin begins trading on Securitize. We expect to close the quarter strong and continue to achieve quarter-over-quarter growth for the remainder of the year. As previously mentioned, we hold approximately $34 million in cash and digital assets with very little debt and also have access to $200 million of additional capital as needed via our shelf offering. We are committed to continuing to build revenue and market share in all business lines through both organic and inorganic opportunities. 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. The next major financial conferences we will be attending are the Needham Technology and Media Conference on May 16th through the 19th, virtually, and the H.C. Wainwright Global Investment Conference on May 23rd through May 25th in South Florida. We look forward to many 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 over the call to Randall.

Thanks, Matt. Since our last earnings call, the markets have continued to take a hit all over the world due to macro issues such as inflation and the war in Ukraine, which is why we are thrilled to have exceeded our prior revenue guidance for the quarter by more than 60% with over 310% growth year over year. However, what I'm most excited about is our platform and what it represents to brands who now more than ever need better ways to engage consumers. Funware has spent more than a decade helping large brands establish mobile ecosystems on our mass platform that are designed to better engage unique audiences by ensuring every interaction is contextual. By leveraging blockchain technology, we now have the opportunity to deliver solutions that can not only authenticate and compensate who is being engaged with FundCoin, but also incentivize engagement with FundToken while leveraging our mass customer data platform to give consumers better control over their data and their relationship with brands. Looking ahead, we are well positioned to commercialize the world's first truly decentralized data economy with a persistent mobile-first connection to consumers through FunWallet and the robust infrastructure required to support an Oracle network that bridges Web3 applications to Web2 data with Lite by Funware.

We will do for data what Bitcoin did for finance by disarming

hardware vendors, software vendors, system integrators and strategic consultants, and finally carriers and service providers. During the quarter, we had two significant software subscriptions and services deployments. The first was our mass 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 onsite operations such as lighting, room booking and parking reservations from one unified mobile experience. This is a critical point to understand about our enterprise cloud platform. We are not deploying a mobile application to replace them all, but rather a mobile application to rule them all. In addition to our industry leading location based services software, this ability to integrate with well over a hundred third party software platforms is a key competitive advantage for us. Every space is going to leverage numerous vendors for different functions. But Mass brings everything together into one seamless mobile experience to create a smart space in a mobile-first world. A complete list of all the integrations we offer can be found on funware.com under Partners. We also successfully launched our Mass Smart Hospitality Solution in Atlantis in the Bahamas, which is highlighted in a promotional video that is now available online. 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 plus a casino. We are in active discussions with Atlantis to extend their capabilities to include gaming, augmented reality, and additional guest utilities such as access control and contactless registration. Second, application transactions or media, data, and customer data platform. We will continue to cultivate agency relationships, but we have begun to see success targeting businesses directly in 2022 as these businesses look to diversify their media spend from both agencies and traditional advertising channels like Facebook and Google. We are also seeing a considerable interest in what we're doing with fund wallet to better source and curate first party data while ensuring consumers are able to manage consent from Google, abandoning third party cookies to general data protection regulation in Europe, to the California Consumer Privacy Act, to state attorney generals investigating data companies for deceptive trade practices, the writing is on the wall that customer data platforms like ours will be critical for brands going forward. Third, digital asset transactions or blockchain and DeFi. Our primary means to grow our blockchain-enabled ecosystem will be through social media, thought leadership, and traditional investor relations we've been engaged in that has already attracted considerable attention worldwide with both retail and institutional investors. As Alan previously mentioned, we were excited to see FunToken begin trading on Uniswap, which is a considerable milestone in itself since this represents the first time a U.S. publicly traded company has launched a digital asset that is traded on a decentralized exchange. We expect to achieve two additional milestones in Q2 as FunToken lifts on LawToken and Funcoin begins trading on Securitize. Securitize Markets is an SEC and FINRA registered broker dealer and operates Securitize Markets ATS, an alternative trading system. We are also working with our attorneys at Goodwin to prepare a Regulation A offering to support additional investments in and distributions of Funcoin. To further help consumers and brands manage their activities within our blockchain-enabled data exchange and mobile loyalty ecosystem, FunWallet is available on both Apple iOS and Google Android. As an extension of our mass platform, we are working on regular product updates, but larger roadmap milestones for Q2 and Q3 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 audible 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 finally, location-based marketing that will enable consumers to interact with brands in the real world and be seamlessly rewarded with FunToken. We are also focusing on token velocity and security for both FunToken and FunCoin by enabling our own Layer 2 scaling methodology. As our functionality and roadmap expands, we expect to more aggressively target the developer community so they can build on top of the framework we've created. In the meantime, we will continue to provide exciting new resources through our new funtoken.com website that will help drive mainstream adoption, such as whitelisting for liquidity providers, a step-by-step guide to providing liquidity, and a staking calculator. In parallel, we were thrilled to announce Matt Lull as our new Executive Vice President and Chief Crypto Officer as we begin to leverage decentralized finance to better support not only a healthy global ecosystem, but also internal treasury initiatives. Four, hardware transactions, or light by funware. We are pursuing a direct-to-consumer selling strategy that is supported by a comprehensive marketing effort that is focused primarily across Facebook, Instagram, YouTube, and TikTok. After securing reliable supply chain relationships, we have begun the process of not only increasing our marketing spend, but also targeting international markets that are English-speaking, such as Canada, Great Britain, and Australia. By the end of Q2, we expect to have completed the transition of the Light team to a facility just outside of Austin near Dell headquarters. At double the size of Light's old warehouse in Illinois, we will have plenty of room to expand, and the more efficient layout will better support the revenue growth targets Alan has set for the team. 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. As of the end of the quarter, we have 100 employees and have reduced our light presence in Gurney, Illinois to 19. Since the majority of our employees are in Texas and California, we are evaluating new office space in Newport Beach and expect to establish new headquarters in Austin by the end of Q2. Finally, we were thrilled to announce that we hired Chris Olive to serve as the company's general counsel and chief legal officer. For closing remarks, I'd now like to turn things back over to Alan.

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 being shipped to consumers via LiteFi Fundraise. 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 Funcoin, but also to reward them for their engagement with fun tokens. which can be purchased online with U.S. 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 have done previously, 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 models. which includes a rather breathtaking top line revenue growth of 275% 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 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 at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Your first question for today is coming from Scott Buck. Please announce your affiliation, then pose your question.

Hi, good morning, guys. I'm with H.D. Wainwright. Just a few quick ones for me. On the hardware gross margins, what do you guys think the ceiling is there once everything is, you know, fully up to speed? I mean, could that be a 20% gross margin business?

Hey, Scott. Yeah, this is Matt, by the way. Absolutely. I think 20% to 30% gross margin is definitely attainable for that business. Like I said on the call, it's not where we want it to be yet, but there's a lot of stuff that we haven't processed in terms of just optimizing supply chain, inventory, a lot of things we're putting into place. Also, Randall mentioned that we are moving to a new facility here at the end of the quarter. So I think all those things together are going to give us a better – ability to kind of manage those margins and push those up into the right. So certainly, you know, we're not where we want to be. We're better than we were in Q4. And, you know, we're moving in the right direction. And I think 20 to 30 is definitely attainable. When that's going to happen, I think we'll have to keep you updated. But that's certainly something we're targeting.

Okay, Matt, that's helpful. And not to ask for guidance, but, you know, we'd expect that to be a steady walk higher, not, you know, jump with any individual event, right? Yeah, I would agree with that comment. Okay, that's helpful. Second, on cost infrastructure, you know, clearly a lot of growth through M&A and then some, you know, hiring on your own. Where are you guys at now in terms of being able to support, you know, 250 to 300% revenue growth moving forward? I mean, do you need to do additional hiring or are you more or less at this time.

Yeah, this is Alan. So a couple things on that. So first, obviously, we restructured how we report revenues to separate out platform from the hardware. So I hope your prior questions about the gross margin and where we are moving towards, I think that's really helpful to make it a little easier for you all to be able to monitor as we go and see how we do against that. In parallel, when you look year over year in just the platform side of things, it's up over 50% year over year. All of that is completely independent of any of the hardware even existing. So the good news is that what we're seeing is growth across all elements of what's happening. On the things that we call out as direct-to-consumer, which includes a lot of the – token sales associated with what we're doing in the mobile loyalty and rewards side of things for rewarding people for being who they are, getting their control of their digital identity, rewarding them for their profitable behaviors and engagement with brands. All those kind of components we even saw across the margins of the platform business. They were very stable and we expect those will expand a bit as we see even more software to go along with the high margin actions and the tokens. So I think that when you're talking about is a huge growth hiring, I think there will be an element of people and personnel that will need at the new facility for scaling out the high performance computing, mostly what I would call builders that match all of the orders that we're receiving. Relative to scaling in the platform side, typically the headcount we see there are on two fronts. There's just sort of evolutionary expansion of the engineering team that are dedicated to building out the platform and continuing to add capabilities to it. More of the hires right now have been on the sales front to support increased capability for both direct and indirect selling. So we have growth plans and headcount built into the operating plan, but I think right now we're going to see a modest amount on the hardware side and fairly measured because we're getting a lot of extra revenue scale out of the ability to sell tokens and things that don't really require that we throw headcount at those sales.

Great. That's really helpful, Alan. And then just last one for me, given what cryptocurrencies have done here over the last few weeks,

would you expect to get more aggressive in you know acquiring additional bitcoin or ethereum so i think in our side uh when we actually are doing token sales obviously we accept us dollars ethereum and bitcoin one of the things that we typically do by default when we're getting token sales for us dollars is we pretty much convert that fairly instantaneously into bitcoin So we do end up adding to our Bitcoin balance. If people actually buy with Bitcoin or Ethereum, we typically just hold on to those. So those balances on both fronts tend to increase as we go. I think right now we leave a balance in cash that we need to operate through our operating plan. And then right now we don't really have any intent other than kind of holding what we have in Bitcoin and Ethereum and allowing those balances to you know, gradually go up. You know, in the future, depending on what Matt, you know, looks at on the financial front as to what kind of runway that he wants, what kind of headcount, what kind of initiatives we want to support, if he deems that we have a big enough cash balance that, you know, we don't need that for operational activities, then, yeah, we would probably continue to add more in that area, in the decentralized finance area.

Great.

Well, I appreciate the additional color, guys. Thanks a lot.

Your next question for today is coming from Howard Halpern.

Please announce your affiliation, then pose your question.

I'm with Tagwood Brothers. Congratulations, guys. Great quarter. In terms of on the platform side, the growth that year-over-year growth, that is all... from internal growth. Your indirect and channel partners are still in the process of building a pipeline. Is that correct?

Yeah. Hello, Howard. Yeah, that's absolutely true. And then let me give Randall an opportunity here. He can kind of walk through. There's a lot of different components, as we've talked with you before, on the platform side. But let me let Randall dive into this one with you.

Yeah, hey, Howard. Yeah, we still expect that to be kind of more of a second half of the year, but again, an ongoing thing. I think you recall from the last earnings call and a few of the other ones, even with someone like a carrier, you've got a $20 billion New York Stock Exchange company. They're not integrating another technology into their own lightly. So from SOX compliance to technical integrations to training bars to deal reg portals to collateral, this is no small feat to get these things up and running. Uh, and so we, you know, and even once they monetize, you know, just like Alan and both Matt, uh, address, you know, the way we recognize revenue, even a multimillion dollar deal through one of these channels, um, is going to kind of flow through as they consume that license. And so, you know, the goal for us is just start stacking clients, stacking or stacking customers rather. Um, and so, you know, we still expect, you know, these things that take time, you know, take probably six to 12 months, uh, to sign up a channel. And then possibly another 12, even 18 months to truly activate and begin monetizing those channels. So the big ones that we have excited about right now are still carrier. I'm looking at kind of second half of the year as people begin to kind of get back into the office, you know, obviously heating and cooling a large part of their business is going to be a smart workplace solution. And so, you know, that has obviously been impacted due to COVID. And then, you know, really bullish on Cox. You know, everybody knows them from broadband Internet fame, but they're getting into health care in a big way. So they've white labeled a lot of our health care software and focusing on the clinician experience and hospitals that need to drive that kind of productivity. And so we're already got customers in the pipeline through them, just working through kind of contracting with them. And then HID as well, you know, smart locks, a natural progression for them is smart workplace. And so they're licensed our smart workplace solution, but again, impacted by COVID a little bit. And so good news is, you know, we're seeing all of our contract proposals getting bigger. We're seeing a lot of who we used to see competitively kind of fall by the wayside. You know, this is a very, you know, hard nut to crack, you know, when it comes to not only having the mobile software to engage, but also the location software that all of these large channel partners need in order to really drive that contextual engagement. And then finally, what I'm really one of the ones I'm really excited about, I've gotten to know the CEO really well, Kinesh, over at Axion Labs, you know, they'll do $230 million this year, 5000 employees all over the world, you know, they work with Google Amtrak, Rackspace, Big Lots, you name it, they don't have a mobility partner. And so when it comes to mobile, you know, we are now their preferred partner. And so they think about large multi-million dollar deployments of their digital transformation platforms services and software we will be the answer to their mobile needs and so that one is kind of ongoing and training their business leaders right now I see that starting to kick in second half of the year as well so I think by you know the end of q3 we should start to have a better sense of all of these indirect channel partners we signed up during the pandemic and then we'll just keep pushing them we just hired two new and indirect channel executives that are very senior. We're very bullish on what they're going to be able to bring to the table. They'll be starting next week. And so, you know, we'll look for a Q3 to have, you know, hopefully more tangible update for you. Okay.

And how about what you're seeing in terms of activity as we start to ramp up into the political season? Are you seeing requests for your offering bill?

Yeah, I'll go ahead and take this one. The short answer is, yeah, we've got proposals that are outstanding. We have things that we'll expect to announce more as we get through the next several weeks and a couple of months, probably. But yeah, obviously, it's no secret that the 2022 elections are coming up in November. It's no secret that there are lots of polarizing issues on all fronts of the political spectrum, the judicial spectrum. whether it's legislative or executive in nature. We're seeing a lot of activity at the local level. I think one of the big lessons over the last few years is that while things are happening globally, people are really realizing that they need to get involved locally and what that means to their local city council, their local county board of supervisors, their school districts and all these things. But we expect that the announcements that we've announced in the past, the work that we're, you know, doing is definitely going to start being rolled out. And while 2024 is the really, really big races as we get into the next presidential cycle, I think it's going to be, you know, real active, above average active here for 2022. Okay.

And one last one for me in terms of, like, what you're seeing in the landscape in the acquisition pipeline, compare it to, like, the second half of last year. Where are you seeing multiples and, you know, opportunities, I guess, given what's occurred over the last couple of weeks in the market?

Yeah, that's –

But, yeah, go ahead, Randall.

Yeah, I get excited about that one. And, you know, Alan, myself, and somebody you don't hear from, maybe we'll get them involved in the, you know, not too distant future, but P. Sharp Patel, who heads our EVP of CorpDev, he does a lot of our M&A work, a lot of our IP work. But we spend a lot of time talking about this, you know, I don't know what's in the water, but it seems like every software company thinks they're a $100 million company, even if they have no cash, never made any money, and never deployed a product. That just seems to be the number, no matter who you ask or what they're doing. We're not paying those kind of multiples for those kind of businesses. Even though sometimes the tech is interesting, the reality is our tech is better than most people's tech, and it's proven, and so we don't need to acquire tech. But that's actually a good thing for us. As we begin to deploy... our you know mobile loyalty and rewards ecosystem and as we begin to think about how brands reach and engage customers a lot of what we're looking for is actually more campaign oriented so a lot of these companies out there today have long-standing relationships with large fortune 500 brands you know almost as a retainer so their revenue kind of looks like sas But it's more campaign oriented, these ongoing marketing campaigns, these ongoing advertising campaigns, these ongoing even, you know, employee benefits and education campaigns. And so those are the kind of companies we're looking for right now where, you know, we can get something closer to kind of, you know, 1x revenue or a low multiple of EBITDA because we're only looking for things that are profitable, that are creative to what we're doing, but that can expand revenue. the reach of our blockchain enabled data exchange and mobile loyalty ecosystem. And so think, you know, things around maybe on a low end, you know, $7 to $8 million in top line revenue up to maybe $20 million in top line revenue. But that we can acquire for a reasonable multiple. And, you know, there are a few, especially it seems like in Canada, that love this. that are trading OTC that are, you know, not trading near probably the multiple they would if they were under our umbrella or trading on NASDAQ. And so, you know, we're actively looking at both private and, you know, some public companies that would possibly be accretive to us.

Okay, that's helpful. Thanks, guys, and keep up the great work. Thank you.

Once again, if there are any questions or comments, please press star one on your phone at this time.

Your next question for today is coming from Darren Eftafi. Please announce your affiliation, then pose your question.

Hi, guys. This is Austin on for Darren with Roth Capital Partners. Thanks for taking my questions, and congrats on the quarter. Thank you. Just have a couple for you guys first. First, not asking for any specific guidance or anything like that, but just kind of curious on how we should probably think about the general mix between the segments moving into the 2Q guidance, especially given the pretty significant sequential ramp in light. I'm just curious what your general thoughts are on that.

Hey, Austin. It's Matt. Yeah, so you see Q1, we're about two-thirds, one-third light. Obviously, Q4 was kind of a similar trajectory. So we'll see where we end up. We obviously have a lot of stuff in the pipeline, a lot of deals coming in. But as Randall mentioned earlier, a lot of that's going to get recognized over longer periods of time. And so you're likely to see that mix closer to what it was in Q1 for probably the next couple quarters as some of these bigger deals come in and we start to recognize that revenue. Ideally, in the long run, we want to get that down. We'd rather have a 50-50 or something lower than that in terms of light versus platform revenue. But in the foreseeable future, we're probably going to see that over the next couple quarters. And then as we get some of these bigger deals closed and delivered and start to recognize that revenue, you're going to see that mix kind of slightly change over time.

Got it. No, that's very helpful. And then just the last one for me, I kind of wanted to touch on the Action Labs partnership. I know it's still really early. I'm just curious, you know, what kind of traction you've seen there. And I noticed that they probably play in some, you know, verticals that, could possibly open up new doors for you guys. I'm just curious what your thoughts are on that.

Yeah, so that, you know, I can take that one. You know, it's early days, so right now we're doing all the training for them. So the way they organize their business around centers of excellence, have them all over the world, and sometimes, you know, kind of brand-based because they really function kind of like we used to with Fox. You know, a lot of people don't realize that Funware was Fox's mobile arm. You know, so we did... If you downloaded a Fox mobile application, you have experienced Funware software and all its greatness. And we were really just embedded with Fox. We were partners. We were founders of those products. We worked in tandem with them. Axion takes the exact same approach to their customers. They'll embed teams with brands, especially the larger ones like Rackspace and Google that they work a lot with. And then sometimes they'll have centers of excellence around specific items, healthcare or blockchain, but they've always focused on kind of the backend architecture, the platforms, you know, how do you forklift a large company so that it's ready and it can be, you know, deployed through the cloud. And so large law firms or hospitals that are, you know, still running archaic platforms, they get them ready for kind of the 21st century, which is great for us actually, because the partnership works both ways. You know, some of the really exciting opportunities we have will peel back the onion and they're actually not ready for, you know, kind of the power of math and what we can deliver. So we've got to get there back in ready in order to deliver the mobile solutions we know we can deliver. And now Axion can take on that aspect of the work. And so, again, we just signed the partnership. We're doing all the training now. And so we've already gone to market, however. And so there's some things popping up in the pipeline. and looking to close our first deal, hopefully in Q3.

Perfect. Awesome. Well, I appreciate it, guys. Thank you. Thank you much.

Thanks, Austin.

Your next question for today is coming from Lucas Ward. Please announce your affiliation, then pose your question.

Hi, this is Lucas Ward in for Ed Wu at Ascendant. Congratulations on a strong quarter, guys.

Thanks, Lucas.

I seem to have a lot of momentum on the digital asset business. And so I just wanted to get a little more color on, you know, like how, what is the roadmap for monetizing that? And I was curious kind of related question, like how much is that actually contributing to the top line today? And where do we see that going? Yeah.

We have a lot of things going on. So we kind of always, uh, Think about things in terms of a fun or flywheel of sorts. So there's a lot of components to the ecosystem. Uh, we talk a lot about fun token. That's a digital asset that does throw through the PML. So, uh, those results are aggregated in the platform revenues side, uh, where you see that we've shown that more than 50% year over year on just the platform growth, uh, kind of independent of all the circus of events going on in the world. But Fun Token was the first token that we wanted to get live. As a reminder, that token is used to reward people for their engagement, their behavior, and their interactions with brands on that engagement. Fun Coin, which both I and Randall mentioned as well, that will go live on Securitize, which is an ATS trading for a security token. And as a reminder, Fun Coin is very specific. to your personal digital identity and personal information that you choose to voluntarily share in return for benefit. We have the fund wallet mobile applications on iOS and Android that get downloaded. And then inside that fund wallet is where you can house both your fund token and fund coin, either that you earn or that you purchase if you want to purchase. On both of these, they're slightly different. Any of the fund coin sales, because it's a security token, all of those sales that will happen will show up as cash, Bitcoin, and Ethereum on our balance sheet, but it has no relevance in terms of anything that flows through our financials in terms of the P&L as revenue. It's only the fund token sales that will appear within the platform section of our revenues. As we're going forward, we have one roadmap that is specific to the use cases and feature sets as we upgrade the iOS and Android applications for FunWallet. We also then have two parallel roadmaps for what happens with the FunToken and FunCoin ecosystems that feed in because those are two brand new markets that complement obviously our NASDAQ trading market as well. So as we go forward, you'll see us continue to include all of the fund token sales as both Randall and I mentioned. We're going to have an initial exchange offering for fund tokens on a Tier 2 exchange that will be coming up probably at the end of the month leading into June. And then as we go forward, there will be a standalone roadmap that will allow us to get both domestic and international distribution with successive initial exchange offerings of fund token on those centralized exchanges. So internationally, that looks one way. Domestically, ideally, some of the larger ones, if we got into tier one land, would be things like Coinbase and Gemini. Unique to Fundcoin, though, it will only trade exclusively on a worldwide basis as a security and only on Securitize on their ATS.

All right. Thanks for clarifying that. I think that's all I have. Again, congratulations.

Thank you very much.

There are no further questions in queue.

I would like to turn the floor over to Alan for any closing remarks.

Yes, as always, we appreciate your interest in what we're doing. We appreciate all of the support. We are trying to be as communicative as possible. We're excited that the ugly part of the pandemic seems to largely be behind. Now we just need to see more of the corporations who, to Randall's point, will start getting back to their offices. When those intersect with our channels, clearly that's going to have an impact on when their sales teams start scaling that work. We're excited that we took advantage of the downturn to get stronger as a company. We're very excited by the products and solutions that we were able to launch. We're very excited that this quarter represents the first quarter that we have two brand new components of our business, both in the blockchain and digital asset domain, in addition to our direct-to-consumer high-performance computing. So it's great to see that we're finding ways to launch brand new organic products, We're able to close an acquisition and start scaling it. And as we go forward, we think that the best times are going to be ahead of ourselves. We're going to consistently keep growing. We're excited that we were able to upwardly revise already our Q2 revenue guidance from up over 250% year over year to up over 275% year over year. And the rest of this is just going to be a lot of work. We're excited that over the next few weeks, we have several financial conferences, We're going to be participating both remotely in the case of Needham and then in person in the case of HC Wainwright. And while we keep introducing Funware through these financial conferences and very active in our investor relations activity, in parallel, we're getting out on the road a lot more for our conferences, trade shows, and a lot of in-person customer and partner meetings that used to be very difficult to be able to accomplish online. you know, onsite or in person. So with that being said, we'll look forward to giving you updates through announcements over the coming 90-day period. And we'll very much look forward to reconvening in about 90 days to upwardly, you know, kind of update everybody on Q2. So with that, thank you very much for your support. And any follow-up questions I know we're going to have with the institutional crowd will be handled through the financial conferences and some follow-up analyst meetings. And then both myself and Randall will separately set up some kind of ask me anything things for retail investors who we value immensely around the world and really appreciate their involvement with our company. And we want to give them an opportunity to be able to ask some Q&A just like here. So we'll have some guidance on that and we'll put that information out. So until next time, on behalf of Randall, Matt, myself, and the entire Funware team, thank you very much and have a fantastic close to your week.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.