Phunware, Inc.

Good afternoon, ladies and gentlemen. Welcome to Fundware's second 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 Aune, 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 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 Funware's website at investors.funware.com. I further encourage you to visit investors.funware.com to access not only the earnings press release, but also the current investor presentation, SEC filings, and additional collateral on Funware. At this time, I would like to turn things over to Funware's President, CEO, and co-founder, Alan Natowski. Sir, please proceed.

Thank you very much, and welcome to our second 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, 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 MASK. or multi-screen as a service, which is available for licensing under a SaaS business model over one to five-year contract periods worldwide. In our FundToken, FundCoin, and FundVerse, loyalty rewards cryptocurrency ecosystem for the physical and virtual world, which is facilitated transactionally with our FundWallet mobile applications for the Ethereum blockchain. The completion of Q2 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 expansion, and a more than 282% sequential gain in year-over-year revenue growth, representing a new second quarter record for reported revenues as a public company. In parallel, the conclusion of Q2 subsequently provided even more growth to our business, as we further scaled our LiteFi firmware hardware sales and continued to improve our balance sheet, including a current digital currency balance of more than 653 Bitcoin, 753 Ethereum, and DeFi positions valued in the aggregate at more than $18 million at today's trading prices. Importantly, and in tandem, we are reiterating our forward revenue guidance for 2022 of up roughly 250% year-over-year or $25 million. In parallel, we also expect that second half 2022 will represent a new second half record for reported revenues as a public company for its comparable period. Our CFO, Matt Aune, 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 continuing 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 continue to 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. 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, wallet, and metaverse 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 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 Sunrise Media, Media Sequel, Puget Sound Energy, Cooperative Energy Efficiency, SoCal Gas, American Land Title Association, Prestige Care, and Tacoma Arts Live, amongst 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 core indirect sales and channel partners, now including Sirius Healthcare CDW, Convergent, Salta Systems, Axion Labs, Primus Tech, Cooper Lighting, Lutron, Verizon, MKT Consulting, Cox Business, Newcomen Boyd, TD Cynics, Comport, Simpler, Hero, Contact.io, and HID. We remain extremely excited about the post-launch scaling of FundWallet and our blockchain ecosystem powered by FundCoin and FundToken, including the recent addition of FundVerse for the virtual world to accompany our existing efforts already well underway for the physical world. 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 Q2, these important activities included the trading expansion of FundToken on decentralized exchange Uniswap and the trading commencement announcement of FundCoin on centralized exchange Securitize. As stated above, we are extremely excited to announce today more than 282% sequential revenue growth year-over-year which is above our prior guidance about more than 275% year-over-year as previously promised. Additionally, and in parallel, we are again reiterating our forward revenue guidance for 2022 of up roughly 250% year-over-year, or $25 million, while also reaffirming our expectation that second half 2022 will represent a new second half record for reported revenues as a public company for its comparable period. 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 first half and even more excited by what we see coming in the coming quarters ahead. First, we continue adding new customer wins to our existing mass bookings, backlog, and deferred revenue totals 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 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 six months on average, recent and pending customer wins will start appealing on our P&L in the coming reporting periods ahead. Second, We continue expanding our installed base of Funware IDs on MaaS to more than 15 billion devices worldwide, including MaaS 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 MaaS 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 continue 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 digital assets, now including Fundverse for the virtual world. While FundCoin security tokens only appear on our balance sheet due to their status as a regulated security, FundToken utility tokens continue 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 the Litebyte Fundware hardware business at all and had only just launched the mass loyalty and rewards ecosystem anchored by FundToken and FundCoin. However, Fast forwarding to today, we now have both lines of business active and are continuing to scale them productively, including the first half 2022 edition of the FunWallet mobile application portfolio on Apple iOS and Google Android, and its accompanying virtual world metaverse, which we have branded and launched as Funverse. At this time, our CFO, Matt Elney, will go deeper into our second quarter financial performance as reported, including our strong sequential revenue growth year over year and our continued balance sheet improvements and our expectations for the second half of the fiscal year. Matt, please go ahead.

Thanks, Alan, and good afternoon, everyone. I'd like to thank you for joining us today for a review of our second 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 second quarter of 2022 totaled $5.5 million, which represents 282% growth year over year. Our platform revenue represented 30% of net revenues, or $1.6 million, growing 13% over Q2 of last year. Our hardware revenue, or Life by Funware as we have branded it, represented 70% of net revenues, totaling $3.9 million. Gross margin was 27.7% compared to 21.7% Q2 of last year. On a non-GAAP adjusted basis, gross margin was 28.6% compared to 44.4% in Q2 of last year. Platform gross margin was 64.9% compared to 21.7% last year. As I've mentioned previously, Light by Funware has a different margin profile as a computer hardware business than our higher margin platform business. Light by Funware gross margin was 12%, which we're pleased to see was 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 $9.1 million, up from $4.5 million the same quarter last year. Other non-cash operating expense items were stock-based compensation and amortization of intangibles, making up a combined $0.8 million this year compared to $1.1 million in the prior year. By excluding these one-time and non-cash charges, adjusted operating expense was $8.2 million compared to $3.4 million last year. We have continued to invest heavily in sales and marketing to drive growth while efficiently integrating light-by-funware operations and rebuilding portions of our expenses structure that we paused due to COVID during the first half of 2021. We are comfortable with our existing cost structure and confident we can scale the business with our current people and facilities. Non-GAAP adjusted EBITDA loss was $6.6 million compared to $2.7 million last year. Net loss was $17.1 million or $0.17 per share compared to $7.8 million net loss or $0.11 per share lost 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 assets of $12.2 million in the current quarter. Non-GAAP EPS adjusting for these items, along with stock-based compensation and amortization of intangibles, was $0.08 per share loss for the quarter, compared to $0.07 per share loss in the same quarter last year. Backlog and deferred revenue at the end of the quarter totals $5.2 million, down from $8.6 million the same quarter last year. We are extremely pleased with our bookings to start Q3 and our pipeline for the second half of the year. We expect backlog and deferred revenue to trend upward from a low point to end Q2. Moving to the balance sheet, we closed the quarter with $2.7 million in cash and $2.0 million in debt. Subsequent to the close of the quarter, we reached an agreement with our partner, Streeter Bill Capital, increasing our borrowings to roughly $12 million, so we can ensure we have enough operating cash without having to dip into our crypto holdings or sell equity through our ATM. We currently hold just over 653 Bitcoin and 753 Ethereum, with an aggregate value of approximately $17 million based on today's prices. In addition, we hold just under $1 million of decentralized finance or DeFi holdings. which currently yield roughly 20% annually. In closing, we're thrilled to have continued to build on the momentum created in Q1 by posting another record quarter of top-line revenue. As we look toward the second half of the year, we are optimistic about our ability to scale the business and drive higher margins as we grow. 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 Second Annual Crypto Conference on September 8th, the HC Wainwright Global Investment Conference on September 12th through the 14th, and the UBS Global TMT Conference on December 5th through the 7th. 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 the call over to Randall.