Good afternoon, ladies and gentlemen. Welcome to Phunware’s Third 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 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 President, CEO, and Co-Founder, Alan Knitowski. Sir, please proceed.

Thank you very much, and welcome to our third quarter 2021 investor conference call. As a reminder, Phunware is nearly 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 Phunware 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 happened to run Phunware 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 and incentivize participation in high performance gaming, streaming, trading, cryptocurrency mining and personal productivity computing. Central to these efforts are 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. And our PhunToken and PhunCoin loyalty and rewards cryptocurrency ecosystem, which is facilitated transactionally with our PhunWallet mobile applications and connects to the Ethereum blockchain. The completion of Q3 constituted continued operational momentum for our business, as we further accelerated our MaaS platform vision and adoption across a number of key fronts, including new product introduction, indirect channel expansion, and more than a 50% sequential gain in quarter-over-quarter revenue growth with our customers. In parallel, the commencement of Q4 subsequently provided even more immediate scale and growth to our business. As we formally closed our acquisition of Lyte Technology, dramatically improved our balance sheet with…

Thanks, Alan, and good afternoon, everyone. I'd like to thank you all for joining us today for a review of our third 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 third quarter 2021 totaled $2.2 million, which represents 50% growth quarter-over-quarter. Our MaaS platform subscriptions and services customers revenue was $1.8 million, or 85% of total net revenues. Gross margin was 52.5% compared to 71.3% last year. On a non-GAAP adjusted basis, gross margin was 68.8%, compared to 74.8% in the previous year. As I mentioned on our last earnings call, our margins were previously affected by a customer delay in Q2, which has since been resolved, with the project having been partially delivered in Q3. We continue to work with this customer to complete the project in Q4 and we're happy to report the initial project deliveries have been stellar. Total operating expense was 5.2 million, roughly flat from last year excluding the charge for legal settlement we took in Q3 of 2020. Other non-cash operating expense items were stock-based compensation and amortization of intangibles, making up $1.2 million this year, compared to $1.6 million in the prior year. By excluding these one-time and non-cash charges, adjusted operating expense was $4 million compared to $3.6 million last year. We have invested in our sales and marketing teams' year-over-year and plan to further invest in those areas to fuel our future growth. Non-GAAP adjusted EBITDA loss was $2.5 million compared to $1.3 million last year. Net income was $0.4 million or $0.1 per share compared to $8.6 million net loss or $0.19 per share loss…

Thanks Matt. During our last earnings call, I discussed our go-to-market strategy, but the activity and attention surrounding our stock over the past few weeks means we have many new shareholders who are less familiar with the company and what we are endeavoring to do. At a high level, we are a technology company that enables enterprises to engage people contextually. But with our initiatives in data and blockchain, we can help verify and incentivize that contextual engagement. In a world where many of the products you buy are Amazon-enabled, we are well-positioned to ensure many of your experiences are Phunware-enabled because our platform can get the right content to the right person, on the right screen, at the right time, in the right place to drive profitable behavior. The reason we are so well-positioned to succeed is because we've been doing this for over 12 years on behalf of some of the most recognized brands in the world, as evidenced by figure one shown here. However, just as important as who we do it for is how we do it. Enterprises value working with Phunware because our platform approach makes it easier for them to manage numerous vendors and disparate workflows by seamlessly integrating them into a unified ecosystem that is mobile first. Rather than one app to replace them all, we provide one app to rule them all. Figure two will give you a sense of just how extensive our integration portfolio has become, which makes it more efficient and cost-effective for our customers to deploy solutions specifically tailored to their needs. For example, we announced during the quarter that we have completed a comprehensive integration with Epic and have been added to the Epic app Orchard Marketplace, which makes it easier for Epic customers to take advantage…

Thanks, Randall. As highlighted throughout today's call, we're all extremely excited by the ongoing scaling of our MaaS blockchain-ecosystem and the high performance computing system that we can now ship directly to consumers, because of our Lyte Technology acquisition. 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 further accelerate our recent growth. We expect this ecosystem to compliment, supplement our core MaaS offerings, as we offer our enterprise customers additional capabilities to identify, engage and incent their target audiences. While many corporations and individuals are [newly] (ph) 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 PhunCoin, but also to reward them for their engagement with PhunToken, which can be purchased online with US dollars, Bitcoin and Ethereum at buy.phuntoken.com. In parallel and as we would again reiterate here, we intend to complement and supplement our core organic growth activities through direct and indirect channels worldwide, with opportunistic inorganic mergers and acquisitions. Importantly, and as we recently did with Lyte Technology, we expect to focus our merger and acquisition activity rolling forward 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 and cryptocurrency ecosystem, especially in international markets, including Europe, Asia, and South America. Finally, and importantly rolling forward, we expect to maintain a laser focus on our core operating and financial models, which includes top line growth of 30% or more year-over-year, while achieving cash neutrality from operations. In parallel, we also expect to leverage our newfound balance sheet strength to transition our corporate treasury activities into a strategic asset for the company. Not only can you expect to see more purchases of Bitcoin as we go for storing value and protecting ourselves from inflation, but you can expect to see an efficient and strategic use of stablecoins and decentralized finance to generate meaningful financial returns for our overall operations and results. With that, and in conjunction with a very sincere thank you for your ongoing interest in support and all that we do on behalf of the entire Phunware family worldwide, I'd like to now open the call for questions to the operator. Operator, go ahead, please.

Thank you. Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] The first question is coming from Darren Aftahi from ROTH Capital Partners. Your line is live.

Hey guys, thanks for taking my questions, and nice work on the quarter. A few if I may. First on you MaaS business, I'm just curious you made a bevy of indirect partner announcements. What was kind of a mix of revenue, is it mostly still direct? And then if it is mostly direct, how is the pipeline building with the indirect channel?

Yeah, I'll be happy to address that. When we actually announced all the results this time, we're still seeing a lot of direct business. So I'd say still kind of pick 90% of that is direct, 10% is indirect. Importantly, we've done a lot of communications over the last 90 days with a lot of these net new channels that we set up. The biggest ones that we we’re most focused on to get to scale fastest include Carrier where they’re actually as Randall said, bundling our location-based offering within our platform into their solution, as that represents a upsell of what they're offering to their customers in terms of a Smart Workplace solution. They have 100,000 customers, and they're already purchasing all the hardware across escalators, elevators, access control, security and other components, heating, air and so forth. And they're offering a simple upsell and cross sell. So we expect to our communications with them they said it's usually about a six to 12 month period for them to scale up and get the kind of the big cog rolling through their distribution worldwide. And we're probably about seven months to that process. So we expect finishing this quarter and into Q1 for that to start really kicking in. Secondarily, Cox Communication is another big focus with Cox Enterprise. And a lot of that training, a lot of the components that are going on with their healthcare solutions that they've OEM or white-labeled from us, we're going through the same process. So the training and certification, getting the sales teams up to speed. And while we're starting with healthcare we'd like to be able to expand that to other verticals within Cox Communication and Cox Enterprise. But I think what you're going to see is the rest of this year - and we've seen this across many of the large distribution partners, they're really just trying to get all teed up for January of next year, trying to get COVID put behind them and get their sales teams worldwide to be out and about with their customers and start activating. So it's mostly been sales, training, prep, and then getting the train the trainer activities done. And then I think we're going to start seeing Q1 and beyond as they go back to live a different composition of direct versus indirect.

That’s helpful, Alan. I'd be remiss if I didn't ask this question. But on the supply chain through earnings we've heard a lot of different, you know, sort of headwind. So two parts to this really on the Lyte technology business any cause for concern in terms of supply chain and procuring what you need? And then on the MaaS indirect side, is there anything you're seeing consternation in the channel where your partner is having a hard time procuring [hardware] (ph) that they would need to integrate your service into?

Sure. That's a great question and quite timely. We're very focused on that same issue, and what are we seeing across verticals and just in general. So I would say in our case, we closed the Lyte acquisition and we're in a unique position of having a lot of backlog in place. And right now, you know, it's kind of a early teaser. We've seen a 60% uptick in the amount of orders comparable year-over-year during the comparable period subsequent to our closing. So demand does not seem to be a problem and even when we met Lyte when they were still private and pre-acquisition, their biggest problem was that they had never reached saturation of demand. They literally had to turn-off the order bucket because they were getting so many orders relative to your questions about how much can you fulfill. Inside Phunware this is quite a different thing. We want to take off that and just keep turning up the volume so to speak on allowing as much demand to come in as possible. Now in order to do that there's two things that we need. And one is simple for us to address, Lyte has one eight hour shift. We have the ability to add a second and even a third shift with personnel. That's not a problem. So we don't see either the demand nor the organizational manpower to do that work as a challenge. The biggest challenge you are saying is when you're really dealing with these systems are chips and boards. And so what we found here in Q4, the second we closed the deal with Lyte, our executive team reached out through our own network and sourced brand new supply relationship that we have yet to announce directly with a large manufacturer out…

Great. If I can squeeze one last one in maybe for Matt. Your $5 million or better revenue guide in the fourth quarter, what's the rough mix between call it hardware and software and services? A – Matt Aune: Yeah, thanks Darren. So we're not giving out detail in terms of what that is. For us right now, it's a matter of getting Lyte ramped up. We've been with them less than a month right now. So, we certainly have expectations on that side of the business but really a lot of the core Phunware business is going to drive a lot of the revenue for this quarter as well in terms of just software application transaction and Phuntoken sales. So, we don't have an exact split on that, but we feel comfortable with our $5 million for the quarter.

Thanks.

Okay. The next question is coming from Scott Buck from H.C. Wainwright. Your line is live.

Hi, good afternoon guys. I know it was touched on a few times the near term strategy around Lyte, but you kind of talk about what the longer term opportunity is and whether there are opportunities to kind of mesh it with the legacy business or the PhunToken, PhunWallet, PhunCoin side of things?

Yeah, I'm going to start with this one and then I'm going to have Randall finish up for me. As you know what's really important that we talked about in the vision is, how important it is for us to get a Phunware ID for every human being on the planet. You know, when I started the business, I actually -- was actually laughed at, out loud when I said that to some institutional investors because that was a bit too ambitious, apparently. But after we fast forward 12 years, got over 15 billion of these Phunware IDs and we expect to dramatically accelerate that. Now it's a very different situation. Importantly, what we want to do is get that ID for each person who has a device touching a network, through their favorite brands, applications and everything that are tied to venues that run our software. And what we expect to do is, when you think of companies that are pure enterprise software like Adobe and Microsoft and Salesforce, there's kind of a certain expectation of what that means. And conversely you saw pure hardware companies the way Apple started or Dell or others –and you saw most of the hardware companies drive out towards software and services, and increasingly you’ve seen more of the software companies like Microsoft that has very large hardware businesses. For us, because we were a core to get these Phunware IDs to facilitate a global user base that is in control of their own digital identity that has complete personal sovereignty of everything they do, they're not going to be exploited like they are with Facebook or Google or Twitter or Snap, they're going to be KYC verified individuals, who are providing voluntarily all their data information engagement on an incentivized basis to…

Yeah, I think you hit it. If anybody wants to dive deep, we can do a one-on-one after this. We're transparent company. We're always available. You really want to go down the rabbit hole before that conversation, just kind of, Google and research decentralized Oracle network. But the way I would think about it, for anybody on this call that is new to this whole ecosystem, especially from a shareholder perspective, Amazon wouldn't be Amazon if they didn't invest considerably in hardware, so that you could experience the magic of software and on-demand cloud services and on-demand delivery of products. You wouldn't be –infatuated with Bitcoin if somebody didn't invest in a very high-end computing system in order to deliver this new fanciful internet money. Software exists at the pleasure of hardware and only companies with the wherewithal and persistence to actually build something meaningful, actually have the guts to build the hardware infrastructure that's required to deliver, especially on demand anything and we expect them to deliver on-demand experiences. And having a data economy behind that, that is truly decentralized, will live into the promise of Web3 – Web3. And so when you think about anything in decentralization, it's got to run on computers, rather than running on centralized data servers, what if you had a worldwide network of high-end computing systems that were truly decentralized? So let’s leave some time for some more questions.

That's helpful guys. Appreciate the color there. And second one just on M&A. With all the additional capital you have now, did anything change in the way you're looking at potential targets?

Well, I'll take a stab at that one. So the way we always look at M&A is always very consistent with or without big balance sheets, right? We find things that are opportunistic, sometimes strategic. What we really want to do is get more touch points all over the world. I do think, you're right that with flush balance sheet, we are doing a lot of deep dives with our Board and working through our finalized operating plan, which then allows us to provide some – some more detailed guidance to all of you, once we get through that planning process and finalize and approve it. You know, the way we're thinking about things is that some companies just have like really strange valuation parameters or ownership structures, whether they're public or private that really just make a lot of the M&A a bit challenging, clearly with a lot more money that we have and strong stock, stock price market capitalization. It opens up more opportunities. I will say candidly, there's some folks that Randall and I have talked to historically, both in the public and private markets about M&A and buying businesses that respectfully said no thank you or had issues where they didn't want to or move forward because of either ownership structures or management structures. You know, some actually, talk, contacted us recently where they I think, have a little regret and remorse for having said no. We'll only do deals if it's disciplined. It's going to be accretive. It's going to make financial sense to both of us. And honestly, we don't look for anything, where we're - someone's trying to sell a business to us and disappear. The real attraction of Lyte was not only that Lyte wanted to do a deal with Phunware and…

All right. Great, guys, I appreciate the additional color. Thanks a lot.

Okay. The next question is coming from Ed Woo from Ascendiant Capital. Your line is live.

Yeah, congratulations on the quarter. I was just wondering if you could talk a little bit about your strategy on Bitcoin. Do you anticipate that the amount of coins you have to fluctuate quarter-to-quarter? And then also, do you anticipate acquiring any other crypto currency?

Sure. So I'll take a first pass and then let Matt make some additional comments from the CFO seat. So first and foremost, we look at Bitcoin as a complete hedge against inflation. Inflation is out of control. If the official [number is released] (ph) with a little over six, you might as well double or triple that to 12 or 18. We believe that there's a lot of concern of having 40% of all US dollars in the history of our country printed in the last 12 months. We think that that's going to be very bullish for Bitcoin and the issues when you have a lot of financial assets and a lot of physical assets, all those are going to get denominated in US dollars. So Bitcoin is the one thing that is not denominated in US dollars. In fact, over the last 12 years, the US dollar dropped 99% in value against Bitcoin, and even gold, physical gold has dropped 95% in value over the last 12 years. So, while there's volatility in the asset, you kind of have one asset that has a lot of volatility, but goes up on average 200% per year for 12 straight years. And on the other aspect, you have the US dollar, which is dropping between 20% and 25% per year in value with certainty. It's actually terrifying to think that you lose as a personal level 1% of your wealth every 30 days right now, because even at 4% inflation, which is far lower than what reality is, you're going to lose 50% of your wealth in the next 20 years at 4%. And we're way, way higher than that. So Bitcoin is going to be foundational to preserve value, to preserve purchasing power. And I think you should expect that our Bitcoin balance is predominantly going to not only stay where it's at, but it's just going to continue to rise. So when you're asking about variability, don't expect us to be buying and selling and trading Bitcoin. That's not what we do. What we do is we treat it as a strategic asset to preserve protection against inflation, purchasing power, and flexibility. So that's what we're going to do. On other currencies as Randall I think said and Matt said, we obviously accept Bitcoin and Ethereum in addition to the US dollars when we sell our PhunTokens. So we haven't yet disclosed an Ethereum balance, but we do have Ethereum and as we get into decentralized finance, you can expect we're going to touch different kinds of assets in a very safe and manageable way with our corporate treasury. Matt, comments.

Alan, I think you kind of touched on it all there. So yeah, obviously we've kind of made a few announcements and you can follow along in our Qs and Ks as to how we're acquiring and at what prices and as I'm sure you know the funny thing with accounting for this as we go right down anytime the value of Bitcoin goes down, but obviously we don't take the -- we don't take any gains on it until we sell it. So you're not going to see anything on there anytime soon. We're not selling Bitcoin. We're holding. And as Alan said, it's part of our strategy going forward, and we'll kind of keep everybody up to date as we move forward with that.

Well, you guys have definitely done very well. So congratulations. Thank you for answering my question.

Thanks, Ed.

[Operator Instructions] The next question is coming from Howard Halpern from Taglich Brothers. Your line is live.

Congratulations on all the work you've been doing these quarters.

Thanks, Howard.

A couple of housekeeping questions. What -- I don't know if you mentioned it, what is your backlog entering the fourth quarter in recurring revenue?

Yes, I mentioned, it's just a little over $6 million entering the fourth quarter.

Okay. With all the transactions post the quarter, how many shares outstanding do you have from the offering and the warrant exercise?

So we have 96.2 million shares is our current.

Okay.

So, we sold -- yes, we've sold a decent amount after September 30.

Okay. And in terms of the Lyte acquisition, what -- over the longer term, I guess, or over the next 12 months, what type of gross margin profile does it have compared to the software business. Obviously, it’s hardware versus software so -- but what does that mix going to do over the longer term to…?

Yes. It's a great question and it's something, as Alan mentioned, we're working through the operating plan right now and going through everything with the Board. You're correct, in terms of hardware, it's kind of your typical hardware business, where there are going to be lower margins. That being said, there are quite a few things that we're doing now to try to improve margins, whether that's new supplier relationships, or just more efficient activities and getting the computers out and different kind of low hanging fruit. So, we'll kind of see how that shakes out and, obviously, once we get a quarter under our belt and you guys will be able to see kind of where that is, but certainly it's going to be a mix of a higher margin software and slightly lower margin hardware business and we'll kind of update you guys as we get the numbers in and kind of figure out what that's going to look like going forward.

Yes, Howard, and one thing, just to add on to that to help. We also have a new product, right? So all of the PhunToken that we're selling is virtually 100% gross margin. We mint that internally, as our own cryptocurrency. I think, we're the first NASDAQ or NYSE listed company in history to actually issue its own cryptocurrency. There's a lot that buy Bitcoin. There's a lot that mine Bitcoin, but the concept of having a fully regulated set of things that you're doing, I think we're unique and we're the first, so we're excited by that. And then, in parallel, by doing that, really the cost of goods when we do that, and we do those sales are basically the KYC fees to make sure you're validating identity and AML and all the other controls. And then, the other part of that is typically the gas fees or the transaction fees that you pay in Ethereum. So to Matt's point, cryptocurrency having Bitcoin is important. Having Ethereum is important, because US dollars can't be used in the world of blockchain. And in order to facilitate transactions, all the fees are in different types of cryptocurrencies. So that should be helpful. And I think as Matt said, we'll have both the hardware oriented margins, the software margins you're used to and then we're going to have things that look even better than software as it relates to cryptocurrency margins.

Okay. And just one last one on, I don't know, maybe some tailwind as you go into 2022, as the money starts flowing from the projects, from the newly passed infrastructure bill, how is that going to impact especially on smart cities offerings as infrastructure gets upgraded across the country?

Yes. So I think we're all still getting our arms around as to exactly what in that massive pile of a bill is really going to represent, actual physical infrastructure versus programs of all sorts of shapes and varieties. And I think what's interesting is I'm currently in Miami. We have offices in Miami, Austin and Southern California. And one of the things that just came out literally, shortly before our call, in a meeting with Mayor Suarez, my next visit here in a couple of weeks, they just announced a really interesting initiative. They're actually going to take Bitcoin dividends from the City of Miami, and they're going to give Bitcoin dividends to every citizen who downloads a wallet and uses a Bitcoin wallet, here in the City of Miami as a beneficiary of what they're doing. And in parallel to that, they've now accepted almost $20 million at the local city level from a separate cryptocurrency that are tied to people effectively if you think that are staking, what they think is going to happen with the City of Miami and ways to contribute to the local community. And that's really $20 million of found money and with all that money, what the Mayor is attempting to do is to make all their public services budget neutral. So imagine where you can operate the city budget neutral through the use of cryptocurrency and effectively start reducing the taxes from property tax, sales tax, because they no longer need to get that from the residents. And in fact, not only are they trying to do that, but they're trying to give dividends of the benefit of that accrued value to the citizens of the city. So I think it's a really important thing to watch here in the United States, much like you should watch very close attention to what El Salvador is doing as a country, and how phenomenal that's changed. So I do think we're going to see a lot of investment where the Internet of Things is going to be supplemented by a trademark we own called the Software of Things where we're going to deliver smart city solutions in a downloadable app that a constituent, a resident, a visitor can all engage with all the services offered by the local community. And I think we kicked that off with the City of Pasadena to showcase how that's possible.

Okay. Well, keep up the great work guys.

I’d now like to turn the call back to Alan for closing remarks.

Yes. Closing remarks, I just want to say thank you for all the - that've been supporting us, obviously since we've been publicly gone through a lot of interesting things. COVID has been just a crazy thing to deal with for all of us in our business and yours personal life and everything in between. We're very empathetic to the differences between cities and states. We have employees and partners and customers all over the country and around the world. And obviously, all the protocols are amazingly different. So I do appreciate all of the help and support along the way. We've been trying to be very candid and open about what we're going to do, how we're going to do it, what's important to us and why. And we're trying to be very authentic and genuine about that. We're trying to tell you in advance what we plan to do and we go do it. And then we report back the results and I think the last 90 days have been exciting to really show you all the investments we made during COVID, of what is possible and what can start happening. So now we're going to take this, enjoy a day and get right back to it tomorrow and start really scaling because while COVID isn't completely over, we're hopeful that by the end of the year come January we have people ready to kick off a brand new year and our team is going to do that at the Consumer Electronics Show out in Las Vegas, right after the holidays. And final conclusion I want to just make, a special thank you and wish nothing but the best for our Veterans around the world. Randall who I have the pleasure of working with every day, both he and I were ex-United States Army military officers, and we're just thrilled to have not only been able to serve our country, but to also recognize the sacrifices of those soldiers and their families around the world that are actually making our way of life possible. So on this unique day, Happy Veterans Day. God bless all of you that have been serving our country and God bless America. So we're really excited for what comes next with Phunware. Thank you very much.

Thank you, ladies and gentlemen, this does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.