Phunware, Inc.

Good afternoon, ladies and gentlemen, and welcome to Fundware's fourth quarter and full year 2022 Investor Conference Call. Currently, all participants are in a listen-only mode. Joining me today are Russell Bice, Chief Executive Officer, Randall Crowder, Chief Operating Officer, and Matt O'Neill, Chief Financial Officer. The format today will include prepared remarks by Russ, 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 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. 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 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 FUNWARE. At this time, I would like to turn things over to FUNWARE's CEO, Russell Bice. Sir, please proceed.

Thank you very much, and welcome to our fourth quarter and full year 2022 investor call, my first as FUNWARE's CEO. FUNWARE has been on my radar for quite some time, as I admired the company going back a decade when I was COO at Mutual Mobile. This organization has always been known for its great talent, top customer brands, and its great work. As the company recently transitioned its business model from custom app development to a SaaS product model, it's at the stage where I can be the most effective in elevating our corporate trajectory to the next tier with my product orientation and operational focus. I won't steal Matt's thunder by going through the 2022 numbers, so I'll talk about where we are and where we're going in 2023. To start off, it's safe to say we're still in the early stages of enterprises adopting solutions to drive contextual engagement as they wrestle with digital transformation strategies. Fundware sits at the cross-section of three important markets to help them. First, the $187 billion mobile application market that is fairly mature but still growing at a 13.4% CAGR. The $28 billion location-based services, LBS market, is growing at a 23.5% CAGR as technology improvements have helped customers finally realize its true promise. This is a nascent industry that remains in the early innings due to two tough years of the pandemic, the gradual unlocking afterward, and then the economic uncertainty that arose during the past year. The third market is often referred to as integration platform as a service, IPaaS, But at $3.7 billion and a 30% CAGR, it's becoming increasingly important as companies demand interoperability from disparate third-party systems. Although the pandemic delayed our market penetration, we have a robust product with immense upside potential, which is one of the key reasons I was drawn to Leading Fundware as its new CEO. Our SaaS products enhance the user experience by providing consumer-grade, state-of-the-art mapping and wayfinding and mobile engagement to help brands reach customers where they are when they are most willing to engage in profitable behavior. This could be an opportunity to spend money or it may be an opportunity to take advantage of self-service tools that can significantly reduce operational costs. We're enhancing those products to provide more capabilities to consumers while creating revenue uplift and extending the reach of brands to improve the total experience. In particular, these provide a strong ROI to customers in the hospitality and healthcare verticals, with Lighthouse brands guiding the way. And beyond those verticals, we have convention centers, smart workplaces, multi-dwelling units , sporting events, retail, entertainment, and more that all struggle to manage complex user journeys while still delivering best-in-class consumer engagement. For our go-to-market strategy, we're strengthening our marketing efforts to drive awareness and accelerating sales through additional channel partners to complement our direct sales force. We've simplified pricing and packaging for customers by bundling modules into industry-specific solutions and rolling the software, services, beacons, and implementation into one SaaS price. This makes it easier for them to say yes while retaining healthy margins over three- to five-year agreements. Our deployment with Gaylord Hotels by Marriott has just finished. The Opryland, Texan, and Rockies properties have been fully operational, and the Gaylord Palms and National are now live more than a week ahead of schedule. Another wing we're proud of is the Atlantis Resort in the Bahamas, which has notably helped the organization take in $1.2 million through the app in less than a year and was recently recognized by HSMAI at the Adrian Awards. On the blockchain side, the idea behind FunCoin and FunToken is really astounding. A marketplace between brands and consumers where brands can reward consumers for the right to engage them. Brands benefit by being able to identify and engage more effectively, whereas consumers benefit through the tokenomics of the marketplace. This is a far superior model compared to the Web2 economy where user's data is someone else's product and it doesn't belong to them. Our objective with the blockchain initiative is to disintermediate that outdated Web2 surveillance model. That said, we're taking a slow and steady approach on this given the current crypto winter and regulatory headwinds. Our offerings will be privacy-preserving and fully compliant. The first steps we've made are with the Fun Wallet app, and we've recently added the Fun Blocks game in version 1.5 where users can earn and spend Fun Token. This proof of concept has consumers earning and spending crypto with a wallet. FundWallet 1.6 introduces videos and an offer wall, allowing brands to reach and reward consumers for their participation. Eventually, we see this as part of our SaaS offering for brands to engage with their customers. We'll be able to include ads and offers as a module in our industry solutions that will let brands reach the audiences they want. On the hardware side, our Light business unit equips consumers with the gear they need, providing cost-effective high-end PCs to gamers. Now that the team has relocated its facility in Round Rock, Texas, and implemented a new ERP system, we expect profitable operations and growth going forward. Light has several key priorities for 2023. We're introducing workstations to the product mix, extending our reach to power business users. We're also optimizing Light's unit economics with firm targets for cost per acquisition, CPA, and cost per build, TPB, that will ensure profitable growth. And now our CFO, Matt Aune, will cover our financial performance.

Thanks, Russ, and good afternoon, everyone. I'd like to thank you all for joining us today for a review of our full year 2022 financial performance and our progress against key strategic initiatives. For clarity, I'll be discussing GAAP financial measures unless otherwise specifically noted. Our press release 8K website provide a reconciliation of all GAAP and non-GAAP financial results. Net revenues for the full year 2022 totaled $21.8 million, which represents 105% growth year over year. Our platform revenue represented 30% of net revenues, or $6.5 million. Our hardware revenue, or light by firmware, represented 70% of net revenues, totaling $15.3 million. Gross margin was 23.3% compared to 33.9% last year. On a non-GAAP adjusted basis, gross margin was 24.3% compared to 43.9% last year. Platform gross margin was 53.8% compared to 46.8% last year. We are encouraged to see platform gross margins increase year over year, as we continue on our long-term goal to achieve 75% plus gross margins for platform revenue. Secondly, our new business line, Light by Funware, has a different gross margin profile than we have had in the past. We have done a lot to fully integrate Light into Funware over the past year, and we are pleased to see gross margin dollars increase nearly 7x from Q4 2021 to Q4 2022. As expected, with a full year of Light by Funware operational expenses in 2022, versus just Q4 in 2021, we did see a significant increase in operational expenses. Total operating expense was 34.6 million, up from 20.5 million last year. Other non-cash operating expense items were stock-based compensation, amortization of intangibles, and impairment of goodwill in 2022, making up a combined 5.6 million this year, compared to 4.1 million in the prior year. By excluding these one-time and non-cast charges, adjusted operating expense was $29 million compared to $16.3 million last year. Non-GAAP adjusted EBITDA loss was $23.5 million compared to $11.7 million last year. Net loss was $50.9 million or $0.51 per share compared to $53.5 million net loss or $0.71 per share last year. Shares used to calculate earnings per share were $99 million this year versus $75.4 million last year. Our backlog in deferred revenue at the end of the quarter totaled $8 million. Moving to the balance sheet, we closed the quarter with $2 million in cash and $9.7 million in debt. We currently hold approximately $6 million of cash and digital assets based on today's prices. We are actively working on several options to expand our operational runway. and have recently agreed to terms with Streeterville Capital to defer our final four debt repayments to the second half of 2023. This will enable us to further evaluate various debt and equity options to fund operations as we continue to push towards cash neutrality. 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 conference we'll be attending is the 18th Annual Needham Technology and Media Conference, May 16th through the 18th. We look forward to many one-on-one conversations and meetings with high-class institutional investors at the event and other financial conferences as opportunities present themselves. With that, I would like to turn the call over to Randall.