Good afternoon, ladies and gentlemen. Welcome to Phunware's First Quarter 2022 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 potentially effects are impact of the COVID-19 pandemic reflect current views as of today and are based on various assumptions that are subject to risks and uncertainties disclosed in a 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 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'd like to turn things over to Phunware's President, CEO, and Co-Founder, Alan Knitowski. Sir, please proceed.

Thank you very much and welcome to our first quarter 2022 investor conference call. As a reminder Phunware is 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 happen 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 incentivized participation in high-performance gaming, streaming, trading, cryptocurrency mining, and personal productivity computing. Central to these efforts is our enterprise cloud platform for mobile called MaaS or multi-screen as-a-service, which is available for licensing under a SaaS business model over one to five-year contract periods worldwide. And our PhunToken and PhunCoin loyalty and rewards cryptocurrency ecosystem, which has facilitated transactionally with our PhunWallet mobile applications for the Ethereum blockchain. The completion of Q1 constituted continued operational momentum for our business as we further accelerated our MaaS platform vision and adoption across the number of key fronts, including new product introduction, indirect channel expansion, digital asset activation, and a more than 310% sequential gain in year-over-year revenue growth, representing a new first-quarter record for reported revenues as a public company. In parallel, the conclusion of Q1 subsequently provided even more growth to our business as we further scaled our [Indiscernible]…

Thanks, Alan. And good afternoon everyone. I would like to thank you all for joining us today for review of our first-quarter 2022 financial performance and our progress on key strategic initiatives. For clarity, I'll be discussing GAAP financial measures, unless otherwise specifically noted. Our press release 8-K and website provide a reconciliation of all GAAP to non-GAAP financial results. Net revenues for the first quarter of 2022 totaled $6.8 million, which represents 312% growth year-over-year. We decided to combine what we have historically categorized as subscription and services revenue with our application transaction revenue from a presentation standpoint, as we continue to evolve our reporting presentation to match that of how we run the business. Going forward, we will only present platform revenues and computer hardware revenues. With that, our platform revenue representing 37% of net revenues, was $2.5 million growing 51% over Q1 of last year. Our computer hardware revenue for life by Phunware as we have branded it, represented 63% of net revenues totaling $4.3 million. G ross margin was 26.1% compared to 58% in Q1 of last year. On a non-GAAP adjusted basis, gross margin was 26.8% compared to 71% in Q1 of last year. Platform gross margin was 57.2% compared to 58% last year. As I've mentioned previously, Lyte by Phunware has a different margin profile as a computer hardware business than our higher-margin platform business. Lyte by Phunware gross margin was 8.1%, which we're pleased to see an improvement from last quarter. However, we still have work to do to fully streamline our supply chain and expand gross margins to be more consistent with our mid and long-term operating goals. Total operating expense was $6.8 million up from $4.4 million the same quarter last year. Other non-cash operating expense items were stock-based compensation and…

Thanks, Matt, since our last earnings call, the markets have continued to take a hit all over the world due to macro issues such as inflation and the war in Ukraine, which is why we are thrilled to have exceeded our prior revenue guidance for the quarter by more than 60% with over 310% growth year-over-year. However, what I'm most excited about as our platform and what it represents the brands who now more than ever need better ways to engage consumers. Phunware spent more than a decade helping large brands established Mobile ecosystems on our MaaS platform that are designed to better engage unique audiences by ensuring every interaction is contextual By leveraging blockchain technology, we now have the opportunity to deliver solutions that can not only authenticate and compensate who has been engaged with PhunCoin, but also incentivize engagement with PhunToken while leveraging our MaaS Customer Data Platform to give consumers better control over their data and their relationship with brands. Looking ahead, we are well-positioned to commercialize the world's first truly de -centralized data economy with a persistent mobile first connection to consumers through PhunWallet and the robust infrastructure required to support an Oracle network that bridges Web3 applications to Web2 data with Lyte by Phunware, we will do for data with Bitcoin did for finance by disintermediates, [Indiscernible] hardware vendors, software vendors, system integrators, and strategic consultants, and finally, carriers and service providers. During the quarter, we had two significant software subscriptions and services deployments. The first was our MaaS Smart Workplace solution for Norfolk Southern, which has set a new standard for tech enabling the employee experience at their new headquarters in Atlanta, Georgia. With over 25 integrations, employees can easily manage on-site operations such as lighting, room booking, and parking reservations from one unified…

Thanks, Randall, as highlighted throughout today's call, we are all extremely excited by the ongoing scaling of our MaaS Blockchain Ecosystem and the high-performance computing systems being shipped to consumers via Lyte by Phunware. What it means to me is that our decade plus MaaS platform building across mobile, cloud and big data accompanied by our years of community engagement and 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 complement and supplement our core MaaS offerings as we offer our enterprise customers additional capabilities to identify, engage, and then set 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 PhunCoin, but also to reward them for their engagement with PhunToken, which can be purchased online with U.S. 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 acquisition. Importantly, and as we have done previously, 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 model, which includes a rather breathtaking top-line revenue growth of 275% or more year-over-year, all while consistently working towards cash neutrality from operations at scale. In parallel, we also expect to leverage our new sound 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 rapid inflation. But you can also expect to see an efficient and strategic use of stable coins in decentralized finance to generate meaningful financial returns for our overall operations and results. With that, and in conjunction with a sincere thank you, for your ongoing interest and support and all that we do on behalf of the entire Phunware family worldwide, I would like to now open up the call for questions through the operator. Operator, go ahead, please.

Certainly. Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] Please hold while we poll for questions. Your first question for today is coming from Scott Buck. Please announce your affiliation, then pose your question.

Good morning, guys. I'm with H.C. Wainwright. Just few quick ones for me. On the hardware, gross margins, what do you guys think the ceiling is there once everything is fully up to speed? Could that be a 20% gross margin business?

Hey, Scott. Yeah, this is Matt, by the way. Absolutely. I think 20% to 30% gross margin is definitely attainable for that business. Like I said on the like I said on the call, it's not where we wanted to be yet, but there's a lot of stuff that we have in process in terms of just optimizing supply chain, inventory, a lot of things we're putting into place. Also, Randall mentioned that we are moving to a new facility here at the end of the quarter. So I think all those things together are going to give us a better ability to manage those margins and push us up in the right. So certainly, we're not where we want to be. We're better than we were in Q4, and we're moving in the right direction and I think 20 to 30 is definitely attainable, when that's going to happen, I think we'll have to keep you updated, but that's certainly something we're targeting.

Okay, Matt, that's helpful. Not to -- not to ask for guidance, but we'd expect that to be a steady walk higher, not jump with any individual event, right?

Yes. I would agree with that comment.

Okay. That's -- that's helpful. Second on cost infrastructure, clearly, a lot of growth [Indiscernible] and then some hiring on your own. Where are you guys at now in terms of being able to support 250% to 300% revenue growth moving forward, do you need to do additional hiring or are you more or less set at this time?

Yeah. This is Alan. A couple of things on that. First, obviously we restructured how we report revenues to separate out platform from the hardware, so I hope your prior questions about the gross margin and where we are moving towards, I think that's really helpful. It will make it a little easier for you all to be able to monitor as we go and see how we do against that. In parallel, when you look year-over-year on just platform side of things [drop] (ph) over 50% year-over-year. All of that is completely independent of any of the hardware even existing. So the good news is that what we're seeing is growth across all elements of what's happening. On the things that we call out as direct-to-consumer, which includes a lot of the token sales associated with what we're doing in the Mobile Loyalty and Rewards side of things, for rewarding people for being who they are, getting their control of their digital identity, rewarding them for their profitable behaviors and engagement with brands. All those components we even saw across the margins of the platform business. They were very stable and we expect those will expand a bit as we see even more software to go along with the high-margin actions in the tokens. So I think that when you're talking about, is it huge growth hiring. I think there will be an element of people and personnel that will need at the new facility for scaling out the high-performance computing. Mostly what I would call builders that match all of the orders that we're receiving. Relative to scaling in the platform side, typically the headcount we see there are on two fronts. There's just evolutionary expansion of the engineering team that are dedicated to building out the platform and continuing to add capabilities to it. More of the hires right now have been on the sales front to support increased capability for both direct and indirect selling. So we have growth plans -- the headcount built into the operating plan -- but I think right now, we're going to see a modest amount on the hardware side and fairly measured because we're getting a lot of extra revenue scale out of the ability to sell tokens and things that don't really require that we throw headcount at those sales.

That's really helpful, Alan. And then just last one for me, given what cryptocurrencies have done here over the last few weeks, would you expect to get more aggressive in acquiring additional Bitcoin or Ethereum.

So I think at our side, when we actually are doing token sales, obviously we accept U.S. dollars, Ethereum and Bitcoin. One of the things that we typically do by default when we're getting Token sales for U.S. dollars, is we pretty much convert that fairly instantaneously into Bitcoin, so we do end up adding to our Bitcoin balance. If people actually buy with Bitcoin or Ethereum, we typically just hold onto those. So those balances on both fronts tend to increase as we go. I think right now, we leave the balance in cash that we need to operate our operating plan and then right now we don't really have any intent other than holding what we have in Bitcoin and Ethereum and allowing those balances to gradually go up. In the future, depending on what Matt looks at on the financial front as to what kind of runway that he wants, what kind of headcount, what kind of initiatives we want to support, if he deems that we have a big enough cash balance that we don't need that for operational activities then yeah, we would probably continue to add more in that area in the decentralized finance area.

Great. Well I appreciate the additional color guys, thanks a lot.

Your next question for today is coming from Howard Halpern. Please announce your affiliation then pose your question.

I'm with Taglich Brothers. Congratulations, guys. Great quarter. In terms of on the platform side, the growth -- that year-over-year growth -- that is all from internal growth. Your indirect and channel partners are still in the process of building a pipeline. Is that correct?

Yeah. Hello, Howard. Yeah. That's absolutely true. And then let me give Randall an opportunity here. He can walk through -- there's a lot of different components as we've talked with you before on the platform side. But let me let Randall dive into this one with you.

Yeah, we still expect that to be more of a second half of the year. But again, an ongoing thing. I think you recall from the last earnings call and a few of the other ones, even with someone like a Carrier, and you got a $20 billion New York Stock Exchange company, they're not integrating another technology into their own lightly. So from SOX compliance to technical integration, to training bars, to [Indiscernible] portals, to collateral, this is no small feat to get these things up and running. And even once they monetize, just like Alan and both Matt addressed, the way we recognize revenue, even a multi-million-dollar deal through one of these channels is it going to flow-through as they consume that license. And so the goal for us is just start stacking clients, stacking customers rather. And so we still expect these things to take time, take probably 6 to 12 months to sign up a channel and then possibly another 12, even 18 months to truly activate and begin monetizing those channels. So the big ones that we have excited about right now are still Carrier looking a second-half-of-the-year as people begin to get back into the office, obviously, heating and cooling a large part of their business is going to be a Smart Workplace solution. And so that has obviously been impacted due to COVID. And then really bullish on Cox. Everybody knows them from broadband Internet fame but they're getting into healthcare in a big way. So they've white-labeled a lot of our healthcare software and focusing on the clinician experience in hospitals that need to drive that kind of productivity. And so we're already got customers in the pipeline for them. Just working through contracting with them. And then HID as well, smart…

Okay. And how about what you're seeing in terms of activity as we start to ramp up into the political season? Are you seeing requests for your offering build?

Yeah, I'll go ahead and take this one. The short answer is yes, we've got proposals that are outstanding. We have things that we will expect to announce more as we get through the next several weeks and a couple of months probably. But yeah, obviously it's no secret that the 2022 elections are coming up in November. It's no secret that there are lots of polarizing issues on all fronts of the political spectrum, the judicial spectrum, whether it's legislative or executive in nature. We're seeing a lot of activity at the local level. I think one of the big lessons over the last few years is that while things are happening globally, people are really realizing that they need to get involved locally. And what that means to their local city council, their local Kelly board of supervisors, their school districts, and all these things. But we expect that the announcements that we've announced in the past, the work that we're doing is definitely going to start being rolled out. And while 2024 is the really, really big races as we get into the next presidential cycle. I think it's going to be real active, above average, active here for 2022.

Okay. And one last one for me in terms of like what you've seen in the landscape, in the acquisition pipeline compared to like second half of last year. Where are you seeing multiples and opportunities, I guess, given what's occurred over the last couple of weeks in the market?

Yeah. Yeah. Go ahead, Randall.

Excited about that one. And Alan, myself and some of you don't hear from were maybe we'll get them involved in the -- not too distant future, but our through [Indiscernible] who heads our EVP of [Indiscernible]. He looked at a lot of our [Indiscernible] work, a lot of our [Indiscernible] work, but we spent a lot of time talking about this. I don't know what's in the water, but it seems like every software company thinks they're a $100 million company, even if they have no cash, never made any money and never deployed a product that just seems to be the number no matter who you ask or what they're doing. We're not paying those kind of multiples for those kind of businesses, even though sometimes the tech is interesting, the reality is our tech is better than most people's tech and it's proven. And so we don't need to acquire tech. But that's actually a good thing for us as we began to deploy our MaaS Loyalty and Rewards ecosystem. And as we begin to think about how brands reached an engaged customer, a lot of what we're looking for is actually more Campaign oriented. So a lot of these companies out there today have long standing relationships with large Fortune 500 brands, almost as a retainer. So their revenue kind of looks like SaaS, but it's more Campaign oriented. These ongoing marketing campaigns, ongoing advertising campaigns is ongoing. Even employee benefits and education campaigns. And so those are the kind of companies we're looking for right now where we can get something closer to kind of 1 - X revenue or a low multiple of EBITDA, because we're only looking for things that are profitable,

that are accretive to what we're doing, but that can expand their reach of our blockchain enabled data exchange and Mobile Loyalty Ecosystem. And so think things around maybe on a low-end $7 to $8 million in top-line revenue, up to maybe $20 million in top-line revenue. But that we can acquire for a reasonable multiple. And there are a few, and especially it seems like in Canada, that love this that are trading OTC that are not trading near probably the multiple they would if they were under our umbrella or trading on NASDAQ. And so we're actively looking at both private and some public companies that would possibly be accretive to us.

Okay. That's helpful. Thanks, guys. And keep up the great work.

[Operator Instructions]. Your next question for today is coming from Darren Aftahi. Please announce your affiliation, then pose your question.

Hey, guys. This is Austin on for Darren with Roth Capital Partners. Thanks for taking my questions and congrats on the quarter.

Thank you.

Just have a have a couple for you guys. First, not asking for any specific guidance or anything like that, but just curious on how we should probably think about the general mix between the segments moving into the 2Q guidance, especially given the pre -significant sequential ramp and I'm just curious what your general thoughts are on that.

Hey, Austin. This is Matt. Yeah, so you see a Q1 about two-thirds, one-third, like obviously Q4 was kind of a similar trajectory. So we'll see where we end up. We obviously have a lot of stuff in the pipeline, a lot of deals coming in but as Randall mentioned earlier, a lot of that is going to get recognized over longer periods of time. And so you're likely to see that mix closer to what it was in Q1 for probably the next couple of quarters. As some of these bigger deals come in, we start to recognize that revenue. Ideally, in long run, we want to get that down. We'd rather have a 50/50 or something lower than that in terms of light versus platform revenue. But in the foreseeable future, we're probably going to see that over the next couple of quarters. And then as we get some of these bigger deals closed and delivered and start to recognize that revenue, you're going to see that mix slightly change over time.

Got it. No, that's very helpful. And then just the last one for me, I want to touch on the action labs partnership. I know it's still really early. I'm just curious what traction we've seen there. And I noticed that they'd probably playing some verticals that could possibly open up new doors for you guys. I'm just curious what your thoughts are on that.

Yeah, so Crowder and I can take that one. It's early days, so right now we're doing all the training for them. So they -- the way they organize their business around centers of excellence, they have them all over the world. And sometimes brand-based because they really function. Like we used to with Fox. A lot of your don't realize that Phunware was Fox's mobile arm. So we did -- if you downloaded a Fox mobile application, you have experienced Phunware software and all its greatness. And we were really just embedded with Fox. We were partners, we were founders of those products. We worked in tandem with them. Axiom takes the exact same approach to their customers, so they'll embed teams with brands, especially the larger ones like RackSpace and Google, they work a lot with. And then sometimes they'll have centers of excellence around specific items healthcare or blockchain. But they've always focused on the back-end architecture, the platforms. How do you forklift a large company so that it's ready and it can be deployed through the cloud. And so large law firms or hospitals that are still running archaic platforms, they get them ready for the 21st century, which is great for us actually because the partnership works both ways. Some of the really exciting opportunities we have will peel back the onion and they're actually not ready for the power of math and what we can deliver. So we've got to get their backend ready in order to deliver the mobile solutions we know we can deliver. And now Axiom can take on that aspect of the work. And so again, we just signed the partnership. We're doing all the training now. And so we've already gone to market, however, and so there's some things popping up in the pipeline and looking to close our first deal, hopefully in Q3.

Perfect, awesome. Well, I appreciate it, guys. Thank you.

Thank you much.

Thanks, Austin

Your next question for today is coming from Lucas Ward. Please announce your affiliation then pose your question.

Hi. This is Lucas Ward in for Ed Woo at Ascendiant. Congratulations on a strong quarter, guys.

Thanks, Lucas.

You seem to have a lot of momentum on the digital asset business. And so I just wanted to get a little more color on what is the road map for monetizing that and I was curious, kind of a related question -- how much is that actually contributing to the top-line today and where do we see that going? PhunCoin and token.

We have a lot of things going on, so we always think about things in terms of the Phunware flywheel of sorts. So there's a lot of components to the ecosystem. We talk a lot about PhunToken. That's a digital asset that does drove to the P&L. So those results are aggregated in the platform revenues side, where you see that we've shown that more than 50% year-over-year on just the platform growth, kind of independent of all the circus of events going on in the world. But PhunToken was the first token that we wanted to get live. As a reminder, that token is used to reward people for their engagement, their behavior, and their interactions with brands on that engagement. PhunCoin, which both I and Randall mentioned as well, that will go live on Securitize, which is an ATS trading for a security token, and as a reminder, PhunCoin is very specific to your personal digital identity and personal information that you choose to voluntarily share in return for benefit. We have the PhunWallet mobile applications on iOS and Android that get downloaded and then inside that PhunWallet is where you can house both your PhunToken and PhunCoin, either that you earn or that you purchase if you want to purchase. On both of these are slightly different. Any of the PhunCoin sales, because it's the security token, all of those sales that will happen will show up as cash, Bitcoin, Ethereum on our balance sheet, but it has no relevance in terms of anything that flows through our financials in terms of the P&L as revenue. It's only the PhunToken sales that will appear within the platform section of our revenues. As we're going forward, we have one road up that is specific to the used cases and feature sets as we upgrade the IOS and Android applications for PhunWallet. We also then two parallel roadmaps for what happens with the PhunToken and PhunCoin ecosystems that feed in, because those are two brand new markets that complement obviously our NASDAQ trading market as well. So as we go forward, you'll see us continue to include all of the PhunToken sales as both Randall and I mentioned, we're going to have an initial exchange offering for PhunToken on a Two -Two exchange that'll be coming up probably at the end of the month leading into June. And then as we go forward, there will be a standalone road map that will allow us to get both domestic and international distribution with successive initial exchange offerings of PhunToken on those centralized exchanges. So internationally, that looks one way to mystically, ideally some of the larger ones if we got into Tier one land would be things like Coinbase and Gemini Unique to PhunCoin though, it will only trade exclusively on a worldwide basis as a security and only on Securitize on their ATS.

Alright. Thanks for clarifying that. I think that's all I have. Again, congratulations.

Thank you very much.

There are no further questions in queue. I would like to turn the floor over to Alan for any closing remarks.

Yes. As always we appreciate your interest in what we're doing. We appreciate all of the support. We are trying to be as communicative as possible. We're excited that the ugly part of the pandemic seems to largely be behind now we just need to see more of the corporations to the Randall's point will start getting back to their offices. When those intersect with our channels, clearly that's going to have an impact on when their sales teams start scaling that work. We're excited that we took advantage of the downturn to get stronger as a company. We're very excited by the products and solutions that we were able to launch. We're very excited that this quarter represents the first quarter that we have two brand-new components of our business both in the blockchain and digital asset domain in addition to our direct-to-consumer high-performance computing, so it's great to see that we're finding ways to launch brand-new organic products. Were able to close an acquisition and start scaling it and as we go forward, we think that the best times are going to be ahead of ourselves. We're going to consistently keep growing. We're excited that we were able to upwardly revise already our Q2 revenue guidance from up over 250% year-over-year to up over 275% year-over-year and the rest of this is going to be a lot of work. We're excited that over the next few weeks we have several financial conferences. We're going to be participating both remotely in the case of Needham and then in person in the case of H.C. Wainwright. And while we keep introducing Phunware through these financial conferences and very active in our Investor Relations activity; in parallel, we're getting out on the road a lot more for our conferences, trade shows, and a lot of in-person customer and partner meetings that used to be very difficult to be able to accomplish on-site or in person. With that being said, we'll look forward to giving you updates through announcements over the coming 90-day period. And we'll very much look forward to reconvening in about 90 days to upwardly -- update everybody on Q2. So with that, thank you very much for your support and any follow-up questions I know we're going to have with the institutional crowd will be handled through the financial conferences and some follow-up analyst meetings. And then both myself and Randall will separately set up some kind of ask-me-anything things for retail investors who we value immensely around the world and really appreciate their involvement with our company. And we want to give them an opportunity to be able to ask some Q&A just like here. So we'll have some guidance on that and we'll put that information out. So until next time, on behalf of Randall, Matt, myself, and the entire Phunware team, thank you very much and have a fantastic close to your week.

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.