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.