Phunware, Inc.

Good afternoon, ladies and gentlemen. Welcome to Fundware's third quarter 2022 investor conference call. Currently, all participants are on 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 Owen, 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 statement 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 gap-to-non-gap 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, Sir, please proceed.

Thank you very much, and welcome to our third quarter 2022 investor conference call. My last is Funware's president and CEO. As a reminder, Funware is a nearly 14-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 business-to-business and business-to-government customers with everything they need to succeed on mobile, including the product 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 business-to-consumer 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 MAPS, 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, Fund Coin, and Fund Verse loyalty and rewards cryptocurrency ecosystem for the physical and virtual world, which is facilitated transactionally with our Fund Wallet mobile applications for the Ethereum blockchain. The completion of Q3 constituted continued operational momentum for our business, as we further accelerated our mass platform vision and adoption across a number of key firms, including new product introduction, indirect channel expansion, digital asset expansion, and a more than 120% sequential gain in year-over-year revenue growth. In parallel, the conclusion of Q3 subsequently provided even more growth opportunities for our business as we further scaled our Light by Funware operational infrastructure for what we expect to be record Q4 hardware sales during the upcoming holiday sales season, all anchored by a balance sheet now including digital currency balances of more than 653 Bitcoin, 753 Ethereum, and DeFi positions valued in the aggregate at nearly $14 million at today's prices. In tandem, we expect full-year 2022 revenues to exceed $22.5 million, up roughly 225% year-over-year, while we also continue to 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, We'll break down these details and forecasts further in his section of the earnings broadcast. In terms of the current operating environment, our core business-to-business and business-to-government customers are continuing to return to their offices and facilities, remaining in a hybrid transition with regard to their employees and contractors safely returning back to work. In parallel, and consistent with what many other technology companies are seeing similarly, Operational headwinds remain against a backdrop of excessive inflation, elevated interest rates, ongoing geopolitical tensions, and a stubbornly recessionary macro economy. Nonetheless, we continue to expect that cities, states, and countries will continue opening on a broader basis throughout the balance of 2022, and that 2023 will look far more normal for in-office operations. Of particular note, and quite counter to some of these challenges, our business consumer customers continue to be active and fully engaged, demonstrating robust demand for both hardware and cryptocurrencies. As suggested previously, and again reiterated 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 interest in our mass digital front door solution for healthcare, our mass smart workplace solution for corporations, and our mass residential solution for real estate properties, 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 customer wins for our team, including TransSystem, MediaSequel, Miami-Dade County, Live Nation, the Federal Highway Administration, the Federal Rail Association, and our recently announced renewal and expansion contract with Parkview Health. In conjunction with growing our portfolio of direct customers like these, including a major international hospitality brand that we expect to announce formally in the next few weeks, We also further expanded our global footprint by amplifying our go-to-market strategy with core indirect sales and channel partners, now including Campaign Nucleus, Cisco Systems, Carrier, Presidio, CDW, Salto Systems, Axion Labs, Primus Tech, Cooper Lighting, Lutron, Verizon, Cox Business, Newcomen Boyd, Comfort, Contact.io, and HID Global, amongst others. 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 platforms and our mass mobile loyalty ecosystem. During Q3, these important activities included the trading expansion of fund token on decentralized exchange Uniswap and the pending trading commencement of FundCoin on centralized exchange Securitize. As stated above, we are extremely excited to announce today more than 120% sequential revenue growth year over year. Additionally, and in parallel, we are announcing forward revenue guidance for 2022 of up roughly 225% year-over-year, or $22.5 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 business-to-consumer engagement 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 three quarters and even more excited by what we see coming in the coming quarters and years 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 SaaS revenue recognition over the coming 12 to 60 months rolling forward. Second, we continue expanding our installed base of funder IDs on mass 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 launch and continue scaling our FunWallet mobile application 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 Light by Funware hardware business at all, and had only just launched the mass little team rewards ecosystem anchored by FunToken and FunCoin. 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 Fundverse. At this time, our CFO, Matt Aune, will go deeper into our third quarter financial performance as reported, including our strong sequential revenue growth year over year and our expectations for the remainder of the fiscal year. 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 third 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 third quarter 2022 totaled 4.8 million, which represents 120% growth year over year. Our platform revenue represented 27% of net revenues, or 1.3 million. Our hardware revenue, or Lite by Funware, represented 73% of net revenues, totaling $3.5 million. Gross margin was 16.7% compared to 52.5% in Q3 of last year. On a non-GAAP adjusted basis, gross margin was 17.9% compared to 68.8% in Q3 of last year. Platform gross margin was 46.5% compared to 52.5% 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 6%, which includes 131,000 write-down of inventory related to strategic speculative purchases made in the middle of the worldwide chip shortage when certain CPUs and GPUs were in short supply and at much higher prices than they are today. We still expect to turn this inventory. However, it will be sold at current market prices. Total operating expense was $8.7 million, up from $5.2 million in the same quarter last year. Other non-cash operating expense items were stock-based compensation and amortization of intangibles, making up a combined $1 million this year, compared to $1.2 million in the prior year. By excluding these one-time and non-cash charges, adjusted operating expense was $7.7 million, compared to $4 million last year. As I mentioned last quarter, between the Light by FunWare acquisition and the rebuilding of portions of our expense structure coming out of COVID, the year-over-year operating expense increase was expected. We are confident we can scale the business with our existing people and facilities while keeping our cost structure at or below current run rates. Non-GAAP adjusted EBITDA loss was $6.7 million compared to $2.5 million last year. Net loss was $8 million or $0.08 a share compared to $0.4 million net income or $0.01 per share last year. Backlog and deferred revenue at the end of the quarter totaled $7.9 million, up from $6.1 million the same quarter last year. As I mentioned on a previous call, we expected our backlog to grow coming into the back half of this year. Moving forward, we have every intention to grow this number as it provides predictability with our revenues and future billings. Moving to the balance sheet, we closed the quarter with $8.5 million in cash and $12.7 million in debt. As I mentioned on our last call, we reached an agreement with our partner, Streeterville Capital, increasing our borrowings to roughly $12 million so we can ensure we have enough operating cash for the year. We currently hold just over 653 Bitcoin and 753 ETH with an aggregate value of approximately $13 million based on today's prices. In addition, we hold just under $1 million of decentralized finance DeFi holdings, which currently yield roughly 20% annually. In closing, as we move toward the end of 2022, we are encouraged with our continued record top-line growth in the face of inflation and a slower economy. As we look toward the new year, we have a renewed focus to rigorously prioritize our investments to ensure success in this unpredictable economy. We are committed to continuing to build a strong revenue base while improving overall gross margins 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 Roth 11th Annual Technology Event on November 16th, a benchmark 11th Annual Discovery One-on-One Investor Conference on December 1st, and a UBS 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'd like to turn the call over to Randall.