Phunware, Inc. (PHUN) This fall 2023 Earnings Name Transcript

Phunware, Inc. (NASDAQ:PHUN) This fall 2023 Earnings Convention Name March 12, 2024 4:30 PM ET

Firm Contributors

Mike Snavely – Chief Government Officer

Troy Reisner – Chief Monetary Officer

Convention Name Contributors

Darren Aftahi – ROTH MKM

Scott Buck – H.C. Wainwright

Ed Woo – Ascendiant Capital

Howard Halpern – Taglich Brothers

Operator

Good afternoon, girls and gents, and welcome to Phunware’s Fourth Quarter and Full 12 months 2023 Investor Convention Name. At the moment, all contributors are in a listen-only mode.

Becoming a member of me as we speak are Mike Snavely, Chief Government Officer, and Troy Reisner, Chief Monetary Officer. The format as we speak will embody ready remarks by Mike and Troy adopted by a question-and-answer session.

As a reminder, as we speak’s dialogue will embody forward-looking statements. These forward-looking statements mirror present views as of as we speak and are based mostly on varied assumptions which can be topic to dangers and uncertainties disclosed within the Danger Elements part of our SEC filings. Precise outcomes could differ materially, and undue reliance shouldn’t be positioned on them.

Moreover, the issues being mentioned as we speak could embody non-GAAP monetary measures. Reconciliation of GAAP to non-GAAP info is ready forth within the earnings press launch, which is accessible on the Investor Relations part of Phunware’s web site at buyers.phunware.com. I additional encourage you to go to buyers.phunware.com to entry not solely the earnings press launch, but in addition the present investor presentation, SEC filings and extra collateral on Phunware.

Presently, I might like to show issues over to Phunware’s CEO, Mike Snavely. Please proceed.

Mike Snavely

Thanks, and we welcome our fellow shareholders to our fourth quarter and full yr 2023 investor name. We’re glad you’ve got joined.

Final time I spoke with you was a few weeks after the Board requested me to step into the function of CEO. Within the 90 days or so since that earnings launch, we have reshaped almost each side of the corporate with a watch towards delivering predictable, sustainable and worthwhile progress for our shareholders. Troy will run by means of the small print of these actions right here shortly.

Once I took over this function, there was a good bit of cleanup that wanted to be finished. Our steadiness sheet was burdened with debt obligations, we had litigation publicity in varied locations, and we have been burning an excessive amount of money each within the core software program enterprise and within the ancillary Lyte enterprise. Most significantly, we lack strategic focus. Most of those issues are solved and all are properly understood as we communicate to you as we speak.

We constructed our go-forward plan on quite a lot of vivid spots within the enterprise, a extremely glad and referenceable buyer base, clear ROI that our clients are attaining with our options and a proficient and skilled product engineering workforce. From this strengthened basis, we’re on a brand new trajectory for 2024 and are bullish on Phunware’s future.

I’ll flip it over to Troy to speak about our monetary efficiency. After his remarks, I will return to speak about our imaginative and prescient for the way forward for Phunware.

Troy Reisner

Thanks, Mike, and good afternoon, everybody. I might like so as to add my thanks for becoming a member of us as we speak for a evaluation of our full yr 2023 monetary efficiency and our progress towards key price discount initiatives.

For readability, I will be discussing GAAP monetary measures until in any other case particularly famous. Our press launch, 8-Ok and web site present a reconciliation of all GAAP to non-GAAP monetary outcomes. As well as, I’ll present perception into our working expense run charge and the way we’ve strengthened our steadiness sheet in early 2024.

As a reminder, in November, we made the choice to close down our {hardware} enterprise Lyte Applied sciences, and in accordance with Usually Accepted Accounting Ideas, Lyte is offered as a discontinued operation within the monetary statements. The shutdown of Lyte was considerably accomplished in December.

Internet revenues from persevering with operations for the total yr of 2023 totaled $4.8 million as in comparison with $6.5 million within the prior yr. The decline in income is because of the sale of $1.5 million of PhunToken within the prior yr.

Gross margin from persevering with operations was roughly 34.9% in comparison with roughly 53.8% final yr, with the prior-year margin once more benefiting from the sale of PhunToken.

Working bills from persevering with operations, inclusive of goodwill impairment of $25.8 million, have been roughly $47.4 million this yr in comparison with roughly $27.5 million final yr. Excluding the goodwill impairment, working bills from persevering with operations have been $21.6 million for 2023 in comparison with $27.5 million final yr, which displays the numerous course of we have made late in 2023 to reshape our price construction. For a greater image of the impression of our price reductions, we notice that the common month-to-month working expense from persevering with operations for This fall of 2023 was roughly $1.1 million as in comparison with a mean of $2 million for the earlier 9 months of 2023.

Different non-cash working expense gadgets associated to persevering with operations in 2023 have been stock-based compensation and impairment of goodwill, which totaled roughly $30 million this yr in comparison with roughly $3.1 million within the prior yr. By excluding these non-cash costs, adjusted working expense was roughly $17.9 million this yr in comparison with roughly $24.3 million final yr.

Our loss from discontinued operations for 2023 was roughly $10.9 million and $5.5 million within the prior yr, which encompasses all of the revenues and prices of Lyte.

Non-GAAP adjusted EBITDA loss from persevering with operations was $15.5 million this yr in comparison with $20.8 million final yr, which displays a 25.5% enchancment. In late February, we executed a 50:1 reverse inventory break up, which below GAAP, all share info has been recast. Shares used to calculate earnings per share have been roughly 2.4 million this yr versus roughly 2 million final yr. So, web loss from persevering with operations was $41.9 million or $17.62 per share this yr in comparison with $45.4 million or $22.95 per share final yr.

Our backlog and deferred income on the finish of the quarter totaled roughly $4.7 million.

Shifting to the steadiness sheet, we closed the fourth quarter with $3.9 million in money and $4.9 million in debt, which was down from the $9.7 million in debt on the finish of the prior yr.

So, with our historic numbers lined, I wish to spotlight different latest accomplishments. First, we lowered month-to-month money burn by prudently restructuring operations. Listed here are some examples.

Compensation expense: We retained key expertise to help present clients and preliminary progress tasks, which resulted in lowered compensation-related prices, so salaries, payroll taxes and advantages, by roughly 55%. On the finish of 2023, our whole headcount was 25 and we’re presently at 27 as we speak.

Hire expense: Throughout 2023, we negotiated the termination of three of our 5 present workplace area leases. We anticipate 2024 month-to-month lease expense web of sublease earnings to approximate $50,000 a month. We proceed to pursue the sublease or early termination of our Austin lease. Past compensation and services prices, our This fall run charge for different bills has decreased greater than 50% in comparison with the start of 2023.

Secondly, robust enchancment in our steadiness sheet. Starting with a small fairness increase in December adopted by others in January, we have been capable of stabilize our monetary place and fund our runway for the foreseeable future. For some added context, in early March, we now have roughly $17 million of money readily available; zero debt; almost $2 million of future lease obligations eradicated; roughly $4 million of present liabilities paid; we have settled a big pending lawsuit, which was totally accrued in prior years; and we’ve a clear capital stack consisting of simply frequent inventory.

We’ll stay energetic with each monetary conferences and investor conferences in our efforts to share our story and additional strengthen our company profile within the capital markets. The following main monetary convention we will probably be attending is the thirty sixth Annual ROTH Convention on March seventeenth by means of nineteenth. We look ahead to many one-on-one conversations and conferences with long-term minded institutional buyers on the occasion and different monetary conferences as alternatives current themselves.

So with that, I wish to flip the decision again over to Mike for his dialogue of our forward-looking technique. Mike?

Mike Snavely

Thanks, Troy.

Now that we’ve a strong basis to work from, right here is how we plan to construct the long run for our shareholders. Our dedication to our shareholders is considered one of sober execution. What does this imply? Stable regular progress, cautious stewardship of firm belongings, driving the core software program enterprise towards breakeven after which profitability, and deployment of a portion of our capital towards rigorously thought-about alternatives which have a possible for outsized returns.

Our technique in software program: Software program has all the time been the core of our firm. We imagine that our software program belongings and our partnerships present us with the power to ship the benchmark resolution for the cellular engagement of our buyer stakeholders and to proceed to be acknowledged as an indispensable income generator for manufacturers. That is the first mission of our software program enterprise, which is targeted on hospitality, healthcare and linked workplace environments like we’ve in place with Gaylord Inns, Phoenix Kids’s Hospital and Norfolk Southern’s Company Campus to call a couple of examples.

In recent times, as our software program enterprise has developed from an expert providers software program improvement mannequin to SaaS licensing, our employees had change into outsized in relation to the portfolio we’ve below administration. We’ve rightsized that a part of the enterprise whereas preserving the institutional data embodied in our management workforce. Our objective for the subsequent few quarters is to ship ever growing outcomes from the software program enterprise, and we imagine that we are able to achieve this based mostly on achievable income progress targets and supply efficiencies.

Since our final earnings name, we’ve added and launched new clients in Miami, Hawaii and Montreal. These hospitality clients joined a portfolio of present clients which have constantly renewed and expanded their relationships with Phunware. Our resolution is deemed indispensable by our clients to interact and monetize their visitors, sufferers and workers. The cellular functions and experiences we develop for our purchasers constantly win trade accolades, underscoring their effectiveness and reliability. Lastly, we additionally constantly see one of the best indicator of buyer satisfaction, referrals and optimistic references to their friends within the trade.

We proceed to boost our platform by internally creating new capabilities. For instance, synthetic intelligence that identifies buyer needs based mostly on location, exercise and profile, and providers affords on the proper time. Nonetheless, we additionally imagine that acquisitions and strategic partnerships will play a big function in increasing our footprint within the markets we serve. To that finish, we’re actively looking for relationships that align with and help our technique of delivering a whole end-to-end resolution for finish person engagement that straight drives income for our clients.

On patent monetization: We’re dedicated to defending our firm’s rights towards any patent infringement that we are able to establish and to participating in efforts for restoration of damages. We imagine that our patent portfolio, constructed up over the previous 15 years, covers among the most elementary strategies of the way in which knowledge is managed and distributed on the Web and in cellular, and we intend to aggressively establish and maintain infringers to account. We have seen the primary fruits of progress on this entrance.

A jury within the U.S. District Courtroom in Los Angeles has discovered that U.S. patent quantity 8989715, also called the 715 patent, is infringed by Netflix video streaming providers. Whereas we beforehand offered this patent to GoTV Streaming, we retain a big financial curiosity in all future enforcement, licensing and different recoveries associated to this patent, together with damages from the Netflix case. For extra info on this motion, together with the present standing of a movement for a brand new trial on damages, please see GoTV Streaming, LLC versus Netflix, Inc., filed within the U.S. District Courtroom for the Central District of California.

At the moment, we’ve 16 different issued patents and eight pending. We’re conducting an analysis of our remaining patent portfolio and look to accomplice with a number of entities within the close to future to claim our rights and to monetize some or all of those belongings.

On digital belongings, together with PhunCoin: Digital belongings will even be a part of our technique transferring forward. Given the growth and broader acceptance of Bitcoin, Ethereum and different digital belongings and the expansion of associated networks, along with what we imagine to be growing regulatory certainty on digital belongings, we imagine the time has by no means been higher to refocus on this space individually and as a part of our software program choices.

We’ve been a pioneer and innovator as a public firm within the digital asset area. For instance, we created and developed our personal native tokens, PhunCoin and PhunToken, and we created and launched the PhunWallet software. We had made large progress on implementing our multifaceted digital belongings associated enterprise by mid-2022.

Growing regulatory uncertainty and surprising occasions within the digital asset markets, coupled with modifications in administration, compelled us to place our digital belongings enterprise implementation on maintain till now. It can take us a while, however we’re dedicated to constructing a profitable, multifaceted digital belongings enterprise with differentiated choices.

At the moment, we’re confirming some preliminary steps for our multifaceted digital belongings enterprise technique. Primary, issuance of PhunCoin. We’ll finalize the construction of PhunCoin and its associated ecosystem, solidify the function of PhunToken inside the ecosystem, and full our preliminary issuances of PhunCoin on the earliest practicable alternative. We’re engaged every day within the work required to get this finished. We could make some modifications to PhunCoin and the ecosystem that we imagine will profit our digital asset holders and stakeholders.

Quantity two, we’ve constructed IP that can take our digital belongings technique properly past the issuance of cash and tokens. For instance, we’ve been issued U.S. patent 11829996, described as hybrid organizational system for knowledge administration and monitoring, to cowl sure components embodied in PhunWallet, together with the power to share client knowledge for worth. We’ve additionally conceptualized and utilized for a patent on what we name the worldwide crypto passport, which we imagine will probably be an vital technique for connecting conventional monetary establishments to the crypto ecosystem.

In abstract, we imagine that we’ve solved the vast majority of challenges dealing with the corporate. 2023 is previously and we’re transferring forward. Unencumbered by debt, with the best administration workforce in place and with entry to the capital and runway that can enable us to meet the mission I’ve simply described, our objective is to ship outcomes with sober and accountable execution within the curiosity of constructing long-term purchase and maintain shareholder worth.

I want to open up the decision now for questions by means of the operator. Operator, please go forward.

Query-and-Reply Session

Operator

Definitely. Everybody, right now, we’ll be conducting a question-and-answer session. [Operator Instructions] Your first query is coming from Darren Aftahi from ROTH MKM. Your line is reside.

Darren Aftahi

Hello, Mike. Hello, Troy. Thanks for taking the questions, and good to listen to this strategic focus going ahead. If I may ask a pair? I assume, first, when you concentrate on the Software program as a Service enterprise, you guys have made inroads into the three sort of verticals you talked about. I assume, now that you just kind of acquired among the heavy lifting finished with restructuring the corporate, the place do you see probably the most alternative in these three verticals?

After which, I assume my second query, as we take into consideration, like, mixture of income going ahead, how impactful is digital belongings going to be in your 2024 P&L? Or is that going to be extra of a long-term technique? Thanks.

Mike Snavely

Hey, Darren, it is Mike, and thanks for the questions. So, let me begin with the primary one, which is what verticals do you suppose are most promising inside the software program enterprise. Consider our software program portfolio as a digital companion to an in-person expertise. And so, we have recognized and we’ve traction in hospitality, which is individuals maximizing the worth of the large funding they make in going to a resort property, to illustrate. Quantity two, in healthcare, the place it is of actually crucial significance that they get to their appointments on time and are capable of entry the knowledge they want on that premises. After which, inside the linked workspace section the place it is vital for workers to have the ability to entry varied providers on complicated company campuses. You possibly can extrapolate that idea of digital companion to an in-person expertise to plenty of various things. So, take into consideration college campuses, take into consideration arenas, take into consideration — we had an historic airport enterprise, et cetera.

So, all that to say that we imagine that we’ve the power to ship an end-to-end visitor expertise particularly in hospitality due to among the nuances and techniques which can be in place for a few of these main resort properties. There are a number of hundred actually giant resort properties around the globe and we will be tremendous targeted on that within the instant time period and extra opportunistic on the opposite segments that we have recognized.

Relative to the impression of digital belongings on the steadiness sheet or within the financials of the corporate for this yr, we anticipate it’ll take just a little little bit of time to get this proper. I am personally very bullish on this concept of the worldwide crypto passport. The truth is, I will be on the ROTH convention subsequent week speaking to buyers and others, analysts like your self about what our ideas are there. These ideas are nonetheless crystallizing and coming collectively, however I believe we’re actually on to one thing right here particularly with regards to connecting kind of legacy monetary establishments to the crypto ecosystem. And we’ll have just a little bit extra materials that we are able to discuss then by way of sharing our imaginative and prescient for that section of the market.

Darren Aftahi

Nice. After which simply two extra if I’ll. Your kind of legacy SaaS enterprise had some channel accomplice relationships. Now that you have [figured] (ph) out headcount, like how vital is that to progress going ahead? After which I do know you talked about M&A being vital within the go-forward technique. I am extra curious is {that a} horizontal or extra of a vertical endeavor. Thanks.

Mike Snavely

Positive. Properly, we’re nonetheless fairly — channel remains to be fairly vital to us. And as I stated on the final earnings name, about 30% of our pipeline comes from channel companions. These are sometimes going to be techniques integrators and others who’re proposing giant complicated know-how options for brand spanking new construct — new buildings or probably renovations of present buildings, et cetera. So that continues to be vital.

On the M&A entrance, I believe that we’re taking a look at targets that can probably present us with acceleration for function operate and integrations that can serve the hospitality and healthcare areas.

Darren Aftahi

Nice. Respect the colour. Thanks, Mike.

Mike Snavely

You wager.

Operator

Thanks. Your subsequent query is coming from Scott Buck from H.C. Wainwright. Your line is reside.

Scott Buck

Hello, good afternoon, guys. Thanks for taking my questions. Mike, I hoped possibly you possibly can broaden just a little bit extra on that final query. I am curious, any actual modifications to the way in which you are approaching gross sales on the situation platform versus possibly the final regime?

Mike Snavely

Yeah. So, based mostly on the place we’re by way of staffing measurement, et cetera, we will need to be actually good about creating distribution leverage. And so, I introduced in a few people who find themselves kind of tried and true by way of their effectiveness in not solely promoting, but in addition main the gross sales operate. We will be investing in demand era and different conventional B2B advertising and marketing strategies to serve our direct gross sales drive.

Along with that, and I am personally happening the highway and having discussions with another ecosystem gamers particular to the hospitality section, to be clear. I carried out a type of conferences final week. I’ve acquired one other one developing proper after the ROTH convention subsequent week. And these are of us who’ve gross sales forces of dozens and tons of of reps, who can, hypothetically, take our resolution to market as a complementary product providing to the options that they supply, whether or not they’re know-how, {hardware}, or in any other case.

So, I suppose the purpose is that our intention is to not rent a bunch of direct gross sales reps and hope that they exit and promote. It is going to be to rigorously and organically domesticate and develop an inner gross sales drive, feeding them with the suitable advertising and marketing, however then actually sort of exploring outdoors of the corporate to establish and leverage distribution that is already in place with complementary options inside the markets that we serve.

Scott Buck

Good. That is useful. After which, by way of enterprise cadence from right here, it seems like all of the noise is absolutely previously, and from right here on out, we must always actually have a look at this as a contemporary restart on the enterprise. Is that truthful?

Mike Snavely

I will ask Troy to reply that as a result of I must take a sip of water, however I believe you are most likely proper.

Troy Reisner

Okay. Thanks, Mike. Scott, thanks for the query. And sure, we’re taking a look at this as a restart. Once I joined again in June, we had purchased a heavy lifting, and we have completed the overwhelming majority of that. We have got our prices below management. We’ve a plan to breakeven. One of many issues we have been preventing for some time is the potential NASDAQ delisting for buying and selling below $1. Clearly, we did a reverse inventory break up, and I can share with you guys that as we speak, we acquired a letter from NASDAQ that we’re again in compliance. We’ll be submitting an 8-Ok on that right here within the close to future. So, we have come out of this time period with cleansing up the fee construction, cleansing up the steadiness sheet and sustaining our liquidity choices going ahead. So, yeah, it is a new day, Scott.

Scott Buck

Nice. Thanks for that, Troy. And I assume final one. When it comes to the present price infrastructure, how a lot help does that provide you with because the income begins to ramp? I imply, is that this — are we at trough ranges, or is that this one thing you’ll be able to cling on to whereas income grows sort of 2x or 3x the place we’re as we speak?

Troy Reisner

Yeah, good query. We’re early phases. I imagine we will need to make some funding as we develop. I believe that funding most likely begins to modestly ramp midyear. After which, we’ll consider what the backlog seems to be like and make investments accordingly. We will be conservatively aggressive, however we wish to make it possible for we’re not getting too far in entrance of our income stream and get again into the state of affairs the place we’re burning simply an excessive amount of money.

Scott Buck

I admire that. Thanks for the time, guys.

Operator

Thanks. Your subsequent query is coming from Ed Woo from Ascendiant Capital. Your line is reside.

Ed Woo

Yeah, congratulations on all of the progress on the turnaround. My query is, what are you seeing on the market by way of the gross sales cycle in your enterprise? I believe as you’ve gotten reached a a lot better state of the corporate, has that improved while you make your pitches to your potential purchasers?

Mike Snavely

Yeah. It is beginning to — we’re beginning to see proof of enchancment. Let me communicate to that just a little bit. So, a part of being — a part of our technique and actually being reliant upon partially in natural gross sales drive, after which the kind of the third-party distribution represented by companions et cetera, is that these are very completely different sorts of gross sales cycles and completely different sorts of maturities. And so, our job is to do a greater job of figuring out direct gross sales alternatives the place we are able to. We’re working fairly onerous referral packages from present glad, glad, renewing clients.

And I will provide you with only one actually fast anecdote. So, we lately launched in a selected property below the Marriott umbrella. That implementation went very well. The final supervisor of that property stated, “Look, I am actually having fun with what I am seeing right here by way of the app and the engagement it is driving. Let me introduce you to my good friend over right here who runs one other resort in a unique a part of the nation.” And that gross sales cycle is maturing very, very quickly. I believe it is most likely kind of within the 45 to 60 day shut timeframe as distinct from among the different beachhead accounts which will have taken many months to win.

So, along with that, we have got a good bit of what I characterize as incremental demand inside our present buyer base, these ought to boil faster as properly. And so, we’re using sort of an the entire above technique, figuring out direct offers inside present clients and their family and friends, so to talk, whereas we’re ready for a few of these offers which can be coming by means of channel to mature on their very own timeline.

Ed Woo

Nice. Properly, thanks for all the colour, and I want you guys good luck. Thanks.

Mike Snavely

Thanks, Ed.

Operator

Thanks. Your subsequent query is coming from Howard Halpern from Taglich Brothers. Your line is reside.

Howard Halpern

Congratulations on all of the onerous work that you have completed to this point. May you, I assume, present some coloration on preferrred measurement inside the completely different verticals? And are you taking a look at possibly initially possibly a smaller deal measurement so you’ll be able to transfer ahead with incremental progress inside new clients?

Mike Snavely

Yeah. So, we’re really sort of going the wrong way. Let me let you know what I imply by that. So, we’re sort of rejiggering the way in which that we inform the story of worth that we ship to our clients. And so, our objective and I am talking particularly to hospitality, the economics within the healthcare area are just a little bit completely different they usually’re additionally completely different from the linked workspace. However as I discussed, hospitality goes to be considered one of our main focuses within the instant time period.

We’re actually speaking about that is turning our digital companion to the in-person expertise right into a revenue-generating concierge-type service. And what I imply by that’s that it is basically a digital companion sitting within the pocket of all of the visitors in such a approach as to have the ability to enable them to transact. And we have got some good knowledge from a few clients that have a tendency to point that they are producing many tons of of 1000’s of {dollars} per quarter by means of our software.

So, we will lean into that. We will cost for the worth we’re delivering. And we’re additionally going to be bundling in a deeper degree of buyer success into the connection with these clients in such a approach as to essentially enable them to extract extra of that worth with out having so as to add employees on their facet. And we are able to do all of that with out sort of linear scaling. We are able to try this supported by synthetic intelligence and varied playbooks that we have constructed based mostly on one of the best practices which can be accessible or that we have recognized by means of the companions that we’ve — clients relatively that we’ve which can be attaining with the nice outcomes.

So, I believe that our ticket goes to go up as this gross sales technique takes maintain, however I believe it is sort of early days, and I might hate to say something definitive till we’ve some extra knowledge that will help you together with your forecasting.

Howard Halpern

And may you speak to, I assume, your engineering and software program groups? Have they developed a technique for possibly faster implementations than previously? And the way does that relate to potential progress alternatives?

Mike Snavely

They certain have. The truth is, I need to confess that I do not actually know all the small print as a result of I am actually not a technical individual. However lengthy story brief, we have recognized some methods to essentially compress the timeframe and the extent of effort required to implement a brand new resolution. And that has to do with among the ways in which we have up to date our app framework, among the ways in which we’ve recognized sure capabilities inside the implementation workflows that enable us to ingest knowledge in mass and in any other case use that sort of cascade by means of the app, distinct from among the handwork that was being finished earlier than. And we’ll proceed to deal with methods to lower the time to market and reduce frankly the extent of effort and price related to delivering these options.

Howard Halpern

Okay. Properly, thanks and sustain the nice work.

Mike Snavely

You wager. Thanks, sir.

Operator

Thanks. That completes our Q&A session. Everybody, this concludes as we speak’s occasion. You could disconnect right now, and have a beautiful day. Thanks to your participation.

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