Good afternoon, ladies and gentlemen. Welcome to Phunware’s Second Quarter 2021 Investor Conference Call. Currently, all participants are in a listen-only mode. Joining me today are Alan S. Knitowski, 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 reflects 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 the Phunware’s website at investors.phunware.com. I further encourage you to visit investors.phunware.com to access not only the earnings press release, but also the current investor presentation, SEC filings and additional collateral on Phunware. At this time, I would like to turn things over to Phunware’s CEO, Alan Knitowski. Sir, please proceed.

Thank you very much and welcome to our second quarter of 2021 investor conference call. As a reminder, Phunware is a 12.5 year old enterprise software company focused on the intersection of mobile, cloud and big data with business-to-business and business-to-government customers worldwide. Our mission is to provide everything you need to succeed on mobile by providing our customers with the product solutions, data and services for their digital transformation needs on Apple iOS and Google Android devices and applications. Central to this effort is our enterprise cloud platform for mobile, called MaaS, or Multiscreen-as-a-Service, which is available for licensing under a SaaS business model over one to five year contract periods worldwide. The completion of Q2 constitutes continued operational momentum for our business as we had further accelerated our MaaS platform, vision and adoption across a number of key fronts, including new product introduction and indirect channel expansion. Not only have we formally rolled out our entire blockchain-enabled Mobile Loyalty Ecosystem specific to PhunToken, PhunCoin and PhunWallet on a direct-to-consumer basis as promised, but we have also executed a brand new global multi-year distribution agreement with Carrier Global Corporation, a nearly $40 billion NYSC listed anchor distribution partner for our indirect channel. First revenues for each new initiative were achieved in Q2, and we expect to expand both dramatically rolling forward, first more modestly here in Q3 and throughout Q4 sequentially and then on a more accelerated basis throughout calendar year 2022 thereafter. To that end and in parallel, we have seen a sequential increase in our total bookings and backlog quarter-over-quarter, which will be broken down in further detail by our CFO, Matt Aune, in his section of the earnings broadcast. In terms of our current operating environment, our core customers have still not consistently returned to their…

Thanks Alan, and good afternoon, everyone. I'd like to thank you all for joining us today for a review of our second quarter 2021 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, 8-K and website provide a reconciliation of all GAAP to non-GAAP financial results. Net revenues for the second quarter 2021 totaled $1.4 million, of which, platform subscriptions and services revenue was $1.2 million. As I’ve mentioned previously, our focus continues to be on higher margin, longer-term software customers. In the second quarter, we recognize a new element to our financials, albeit small as it just got off the ground. PhunToken is included in our application transaction volume on the face of our financials. With this added element, our net revenues derived from our MaaS platform, subscriptions and services customers with 82%. Gross margin was 21.7% compared to 65.3% last year. On a non-GAAP adjusted basis, gross margin was 44.4% compared to 68.4% in the previous year. The main cause for the drop in gross margin was a mismatch of costs of goods sold on the revenues associated with. Our fulfillment team was diligently working on a large project that was originally scheduled for delivery in Q2, but puts the Q3 by the customer. As you can see, this timing shift has negatively affected our margins in Q2, as we recognize the cost associated with the project, but have yet to recognize the revenue. We expect that gross margins for the quarter would have been closer to 65% on a non-GAAP basis if the customer's timeline did not slip to the third quarter. We did our part on time, but we aren't always the only dependency, which is a blessing and a curse.…

Thanks, Matt. During our last earnings call, I discussed our competitive landscape. So today I want to highlight our go-to-market strategy so shareholders can better assess the progress we're making and account for the challenges we save. It's important to remember that we have only been actively selling our SaaS-inspired mobile platform for the past 18 months once we scaled down the last of our digital agency business tied to Fox's mobile application portfolio. When we decided to make this pivot from lower margin, non-recurring digital agency revenue to higher margin, recurring SaaS revenue, we knew it would be a process to not only upgrade mass, but also educate the market on what is now possible. Now, brands can finally license mobile software in much the same way they can license a customer relationship management solution in sales force or a cloud-based communications platform from Twilio. And while we couldn't have foreseen the pandemic, our go-to-market strategy remains relatively the same. We are targeting industries that have been slower to adopt mobile solutions, such as healthcare, politics, hospitality, and property management, to include both residential and commercial. Organizations and these industries have to manage complex customer journeys, but have come to understand that leveraging the power of a mobile device is the only way to accomplish this economically. MaaS allows their customers to navigate these experiences contextually based on who they are, where they are, and what’s most important to them so that brands can not only delight their customers, but also drive profitable behavior. While our solution is sticky, it remains a complex sell because of its transformational nature. Our typical sales cycle, which we find ranges from 3 to 12 months has six major components identify, prospect, qualify, propose, close, and of course, upsell. I’m emboldened by our…

Thanks, Randall. As highlighted throughout today’s call, we’re all extremely excited by the reason commercial launch of our MaaS blockchain ecosystem. What it means to me is that our decade plus of MaaS platform building across mobile, cloud, and big data accompanied by our years of community engagement in blockchain and cryptocurrencies have resulted in the culmination and convergence of massive global addressable markets and trends that can now act as strong wind at our backs to reaccelerate our growth. Not only have we successfully achieved our first revenue from this launch, but we also expect as part of our business to scale materially in the quarters ahead. We expect this ecosystem to compliment and supplement our core MaaS offerings as we offer our enterprise customers additional capabilities to identify and engage their target audiences. While many corporations and individuals are newly familiar with blockchain and cryptocurrencies, both Phunware and our executives have a long and distinguished history within the global digital asset community. As such, we expect to be a trusted bridge for Fortune 500 corporations and governments looking to leverage blockchain. Please look for additional announcements in the coming weeks and months ahead, as we enable consumers to not only regain control of their data with fun coin, but also to reward them for their engagement with fun token, which can be purchased online with U.S. dollars, Bitcoin and ethereum at buy.funtoken.com. In parallel, and as we would, again, reiterate here. We intend to compliment and supplement our core organic growth activities through direct and indirect channels worldwide with opportunistic, inorganic mergers and acquisitions. Importantly, we expect to focus our merger and acquisition activity on targets that are operating profitably and would represent accretive deals in areas that will provide more customers, more partnerships and more distribution for our MaaS platform, especially in international markets, including Europe, Asia, and South America. To that end, we have recently signed a fully executed letter of intent to acquire a company here in the United States that will accelerate our new direct-to-consumer, go-to-market channel for fun wallet, fun token, and fun coin. And we’ll provide a much more detailed breakdown of the deal, when we have formally executed the definitive agreements underlying the transaction. If successful, we would expect the transaction to add upwards of $1 million per month in profitable transaction revenues to our core MaaS software licensing and services. Finally, and importantly, rolling forward, we fully expect to maintain a laser focus on our core operating and financial model, which includes top line growth of 30% or more year-over-year and blended gross margins of 75% were greater. With that and in conjunction with a sincere thank you for your ongoing interest and support in all of our activities on behalf of the entire Phunware family worldwide, I would like to now open the call for questions through the operator. Operator, go ahead please.

Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] And we go first to the line of Darren Aftahi from ROTH Capital Partners. Please go ahead.

Hi guys. Good afternoon. Thanks for taking my questions. First on Carrier, I know you guys announced that early June. I’m just kind of curious how the needle is moved on the backlog with that partnership? Or any kind of color you can share in terms of what visibility might look like into the third and fourth quarter.

Yes. Great. This is Alan. Thanks for the question. I think that what we found in Q2, we spent our time on with that was basically doing three core things. One was to get all the procurement systems that they have to operate their order system along with marketing packages that include our software in part of their Enterprise Smart Campus solution. The second thing that we needed to do was to actually then do a trainer session that went across all of the primes for Carrier to be able to deal with how the deployments would go out, how the applications would be activated and then all the methodologies that they would use for how they would interface both the maps and a lot of what we call fingerprinting, which is to enable all the location services within. And then the third bucket was the business planning and strategy part of how they’re going out to market importantly of 10,000 thousand customers globally in that install base, where we’re effectively an upsell or a cross-sell to activate all the hardware from Carrier that’s being purchased across their access systems, security systems, elevator escalator and then heating air conditioning that then deploy the software to activate things. So Q2 to us was about completing all of that work that we had to do to activate and get the very first revenue which were predominantly specific to Carrier facilities. And then here in Q3, what we’re doing is getting the go-to-market packages ramped in spike through their global sales teams, so that they’re now fully engaged. They kicked that effort off with a public webinar, which has been completed and their next steps through this period is to actually start scaling that and rolling it out. I think in that section where he talked about our expectations that the initial revenues of Q2 would start ramping in Q3, Q4, and we haven’t given out any specific guidance as to their expectations, the adoption rates and timing. But when we have more information available on that, we’ll provide it as we go.

That’s helpful. Thanks, Alan. You have another one obviously COVID is a tough thing to navigate. So as the Delta variant kind of reared its ugly head, I know there’s some areas like corporate campuses where people talked about going back to work and maybe kind of pull the reins back. I mean, have you seen any movement in terms of conversations with maybe the corporate side where maybe that’s become a little bit of a headwind and then maybe the inverse and your healthcare practice and vertical, have you seen more accelerated conversations as a result of Delta?

Yes. Let me kick this one off. And then I’m going to hand over to both Randall and Matt as all three of us are seeing different parts of this. I will say, as a backdrop it’s real interesting, right? Like COVID is happening, the pandemic surely hasn’t gone away. Our original expectation is, okay, when there’s a vaccine by the end of the second quarter, those that want to take it, we’ll use some kind of informed consent decided to take it. It was for them. In other cases, people decided not to. What I think none of us really expected with the concept of Delta as a variant is all the noise that now has kicked off in Q3 is we're kind of gearing up for everyone going back to school, whether it's K through 12, colleges or universities, you're now getting almost it’s like a political division by states, cities, counties, you even have city leadership battling, county or state leadership. And this is spilling over publicly everywhere. When we take a step back and we think about our personal lives, what we actually see is people don’t really change any behavior tied to COVID. They stay home. If they want to stay home, if they want to go to a bar or a restaurant, they want to go to live events, they want to travel. They want to go have fun. Most everywhere I've seen – seems to be making their own decisions understanding that COVID isn't going away anymore than the flu is going away and they're making their own decisions for themselves and their families. And they're just going about their lives. When you suddenly say business, then you get into this very different construct. Matt mentioned as part of his session where we…

Thanks. I don't want to go too much in a minute. You covered it. So I want to leave some room for some additional questions. I mean, the reality is, the industry that you think will kind of be a little bit slower to kind of get over the COVID hangover are obvious like workplace, but we’ve always said we’re industry agnostic. So, our healthcare vertical is wildly active. And you’ve had – you have hymns right now going on in Vegas, I would’ve thought they might even cancel it, but they didn’t. And so a lot of great partner activity going on there, a lot of activating these kinds of indirect channels and a lot of really exciting announcements for us going forward. So, healthcare is going to continue to really need technologies like ours to kind of demystify that continuum of care, but also just manage patients, manage people coming in for elective surgeries. And you can’t go to a hospital right now without – right now it’s filling out paperwork and doing all these COVID onboarding forms. And so there’s a lot of this that can be taken over by mobile software and done more effectively. And so a lot of hospitals are really embracing that, you can look at Virginia Hospital Center, if you go, anyone on this call within Virginia stopped by that hospital. You’ll see signage everywhere for their mobile application. They mailed out a 100,000, pamphlets to people, this is becoming a competitive edge. We talked to – one of the most interesting conversations you’ve had with healthcare is now actually looking at our app transactions business, how do I do? What we call geo-conquesting? How do I target patients who maybe are at or competing health systems ER, and actually tell them…

Great. Thanks guys.

Next we go to the line of Howard Halpern with Taglich Brothers. Please go ahead.

Good afternoon guys. In terms of the delay that occurred or slippage in the project has not occurred yet in this quarter or you just expected to that the customer will come through and you’ll deploy the – you’ll have the deployment done in Q3?

Yes. I mean, I can talk just in terms of the accounting aspects and perhaps Randall can add a little more color on the actual project from our perspective, I guess, like I said, on the call, the work has been done on the project. It’s just a matter of getting it delivered to the customers. It’s no fault of our own, as we discussed for various reasons, we’re not able to deliver. And under GAAP recognition, we've obviously had to deliver the product to the customer to start recognizing the revenue. We've taken the expense above the line to get the project out to them. And so it's just a mismatching, but in terms of when it will be delivered, we anticipate that it's going to be delivered this quarter, Q3.

Okay. We should, all things being equal should provide the opportunity for a little bit of an outsized gross margin?

It kind of remains to be seen. We're still – obviously, we're still here early in the quarter. We will add some other projects we're working on. This particular customer is in the only one where we're experiencing some of these things, it's obviously, it's not just one customer COVID impacts a lot of our customers, potential customers. So there's other things where we may see this impact go across to some different customers and we could add some delays from Q3 to Q4. So we'll see on the surface. Yes, there could be some opportunity there, but we still have to kind of work through that. And what we're going to be able to get delivered and what customers are in their offices and ready to go.

Okay. And with all the different mandates regulations and especially from just self-imposed, I guess on in the corporate level, especially in hospitality, at least in the New York, New York City Area with restaurants and such, are you seeing any activity there and are those the type of customers long term that if you are able to yet you'll be for the mass product that you'll be able to transition them to the PhunCoin loyalty programs over time.

Yes. So a couple things in there, I'll take. So the first thing is we are no more or less confident than probably you or anybody else as it relates to what will individual cities or counties or states do when will they do it? When will they open and for every step forward, two steps back, I think, we're all living through this daily. That gets really noisy for the Fortune 500. Obviously, the companies we're dealing with because even across their large-scale operations, carriers the $40 billion company, but they have facilities and offices and tons of different jurisdictions, domestically and abroad. And so the concept of one size fits all or what they're going to do in New York, at their facility and headquarters in Rochester to your point about New York. They're behave one way there and different when they're down in their offices in South Florida, where their innovation center is located and where they bring customers and partners to show off all the amazing products that they have including that which includes our software. So I think that each of these are going to have their ebbs and flows. And to your point somewhat we're going to see where those, that delay would lead to an expansion of margin that breaks out of the assumption that you don't have other customers, they get caught in the same problem where they can't get back to their office. As it relates to what we really refer to as a mass mobile loyalty and rewards system, the concept of how you get rewarded for your personal information and data, and instead of being harvested and exploited the way with Google and Facebook and Twitter and all the others, where we are the product. And then the ability to reward people for their physical activity, actions and behavior. We believe that that is going to be a very compelling thing that people are going to take more ownership of their identity, their digital identity, their personal sovereignty, and the good news is, is we're alive. We're alive with the system. We're starting to do that rollout. We're starting the early adoption and what we've done is we packaged, nor that Randall kind of talked through, we package this as software development kits within DaaS, so that our customers who already work with us can very easily grab an SDK, drop it into their applications and suddenly they have the equivalent of a white label works, the orange card. But Randall, why don't you give a little bit more insight on the rollout and methodologies of the business customers versus the consumer side of it?

Yes. Again, I'll be real quick. I think we covered this in the earnings call. The best thing to think about is – we announced it, right, so we haven't announced the name yet. But one of the largest and most kind of complex international luxury resort, that's our target. And these folks have five ten-year plans, when they're talking digital transformation, they're not wrestling with what are we going to do with COVID next month? And so we've never gone after kind of the restaurant industry. And the reason being is most of them have no intention or budget to afford a complex mobile application portfolio, but therein lies the opportunity of what we're doing with fun wallet. We have all of our applications pre-integrated with all of our products and that's all of the featured analytics, content management, we have the ability to turn on that location based services layer. And so as we begin to roll this first kind of consumer facing application and ecosystem out, we do anticipate being able to offer some of these smaller and medium sized businesses and ability to piggyback on that mobile application portfolio. So just because you don't have your own native mobile application, like a leading luxury resort that could afford it, it doesn't mean you can't get some of the features of consumer engagement through fun wallet by having kind of a branded interaction within fun wallet, which we do through carding and other sorts of prompts for engagement. And so that's going to be exciting. That's the whole reason why we're building that. It expands our universe and also begins to continue to look like SaaS for some folks who maybe can't afford a full deployment, so we can kind of serve all. So expect that to…

Okay. Well, thanks, and keep up the good work guys.

Thanks Howard.

[Operator Instructions] And next we go to Scott Buck with H.C. Wainwright. Please go ahead.

Hi, good afternoon guys. Thanks for taking my questions. First I want to apologize being kind of jumping back between calls. So you've answered these again, I'm sorry. First I'm curious if there were any kind of one-time fee associated with the launch of PhunWallet, PhunCoin, PhunToken that we should – be thinking about from a modeling perspective for future quarters.

Hey, Scott it’s Matt, nothing of significance in terms of any one time fees.

Okay, perfect. And then on gross margins, I understand that the mismatch in the quarter but I would assume that would mean that the third quarter would be, kind of mismatched the other direction. Is that the right way to think about it?

Yes. So how did you ask this question, so you can go back and get a little more details? I think right now, we're looking at that and we'll see, obviously we're only halfway through the quarter here. There's a potential that could happen. I think, the only thing, the only other thing I would say is that, that customer, it pushed from Q2 to Q3, is not the only customer of ours that is experiencing issues with getting back to work or getting back to the office. And so there could be other similar issues that are just going to take a little while to right-size. So, while we do anticipate we're going to deliver this quarter and we'll be able to recognize that above the line sorry, above line and margin will be higher. There are some other customers that could push out to Q4 and impacted, so it's just kind of remains to be same.

Yes, that makes a ton of sense. And then last one for me just on excuse me – additional effects. I mean, any kind of further investment headcount ads or anything like that, you're thinking about for the remainder of the year?

I'll help with that one. And for the most part, all of our focus is on sales and marketing at add on and then some engineering as we're starting to get more bookings, we are a little bit of an uptick, obviously in backlog, and we didn't get to recognize those revenues, but that the real heart of our business is in closing deals, getting the bookings, expanding the backlog doesn't affect our ability to invoice get paid annually, prepaid in advance on net 30. But obviously it takes a while to flow through 12 to 60 months of revenue recognition associated with that. So I expect that that'll kind of be a consistent thread as we go forward. And that's really where we're trying to get people to focus on that. Because the GAAP score keeping will kind of fall how those GAAP score keeping is. And we're going to be successful by scaling carrier scaling the other channels that we've signed, but we haven't quite yet announced, but that'll be coming over the next few weeks and continuing things forward from there.

That's great guys. Again I appreciate the time is definitely.

No problem at all.

Next we go to the line of Ed Woo with Ascendiant Capital. Please go ahead.

Yes. Thanks for answering my question. In terms of, as things are slowly returning back to normal, do you think that there's going to be a big improvement in your sales cycle?

Well, we do think there's a lot of pent-up demand and there's pent-up budget that wasn't spent. I think the real chicken, egg that, Matt alluded to in his comments, Randall was alluded to, and I've done the same, that the real thing is the unpredictability of when folks are going to get back to the office. As we said, all the personal lives are operating one way and how to deal with school. And when we go out and travel and do the things we do. Corporations seem to be taking a much more measured and deliberate approach, which in many respects makes a lot of sense auditability, contact, tracing and other things. Should we get spikes in different parts of the U.S.? But I do think that our focus is on continuing to sign deals, get those folks up to speed and trained in the channel and then allowing their sales teams globally as they're coming back on board discard ramping. And as Randall said, we weren't quite sure what was going to happen with hymns on the healthcare specific conference in Vegas. We kind of were flipping a coin, has maybe they're going to cancel it, maybe they're not. We were excited that they did not cancel it that a really productive week with our team that's out there dealing with digital front doors and the healthcare vertical. Obviously, we see a bunch of needs and if there is a good side of looking at the optimistic part of what happened in the pandemic as it relates to our business, it's that digital transformation is not likely to be an eight to 10 year process. I think we're going to see an acceleration of the adoption of mobile technologies and that is going to be met with more meaningful budgets that largely have been tabled over the last 18 months while we've all been dealing with this new challenge. So we're looking forward to helping corporations understand this digital transformation, how to apply it, how to systematize it and deploy it. And as we come out of the other side of this, which hopefully will happen before we finish out this year, then we can allow people to take that demand, those budget and those needs, and really start scaling it around to their customers as well.

Great. Well, thanks for answering my questions and I wish you guys, good luck.

Thank you. Appreciate it.

This concludes our question-and-answer session. We now turn to Alan Knitowski for closing remarks.

Yes. Just in closing remarks, I’d like to say that we do appreciate the patient's support of our investor base. We do appreciate all the work and detail that our ALS community has been diving into and learning more about the Phunware story. How digital transformation is going to be paramount to the Fortune 500 and also to governments. And really we appreciate the patients that also goes alongside of really the unknowns that all of us are dealing with. Both professionally and personally, we know it's been a huge burden on families, employees and people that we operate and do business with around the world. I think we'd all like to be done with this permanently and move on. As I said, I do think much like the flu COVID is going to be with us for quite some time and we're going to have to all get adjust to it. We're going to do that safely and responsibly as we can. And we are looking forward that there will be another side to this and we will continue to scale out. We're going to scale and be successful, because these channel partnerships that we're signing and that we’ll be announcing more of over the couple of weeks coming up, will actually be really meaningful to our expansion and growth. And we're also excited now to be fully live with everything we're doing with Blockchain, Loyalty, Rewards, PhunCoin, PhunToken. And now, instead of just talking about it, we can execute and scale. Important in anything that you do as a new initiative is obviously to get the first products out and then get the first revenues and then start scaling them. And we're very excited that we managed to get that done on two core initiatives that we had, as we said, last earnings call that we were going to do, we got those done, and now we look forward to sharing the rest going forward. So thank you very much, and we look forward to talking to you all again on Q3 here in a few months.

This concludes today's teleconference. We thank you for your participation. You may disconnect your lines at this time. Have a great day.