Q3 2020 Phunware Inc Earnings Call
Please standby we are about to begin.
Good afternoon, ladies and gentlemen, and welcome to fund where its third quarter 2020 Investor Conference call. Currently all participants are in a listen only mode.
Joining me today are Alan Matelski, President Chief Executive Officer, and co founder Randall Crowder, Chief operating Officer, and Matt Our Chief Financial Officer.
The format today will include prepared remarks by Alan Randall and that followed by a question and answer session.
As a reminder, today's discussion will include forward looking statements.
Forward looking statements include including such statements, referring to the potential effects or impact of COVID-19 pandemic reflect current views as of today and are based on various assumptions that are subject to risks and uncertainties are disclosed in the risk factor section of our FTC 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 Sun wears website at investors Dot fun way dotcom.
I further encourage you to visit investors dot <unk> dot com to access not only the earnings press release.
But also the current investor presentation, that's easy filings and additional collateral on fund where.
At this time I would like to turn things over to Alan Matelski. Sir. Please proceed.
Today, we are pleased to update shareholders on our operational and financial quarterly progress at somewhere.
Well I will touch on many of the high level activities and themes that we've been seeing with our customers partners and employees across our product solutions data and services, our COO Randall prouder, and our CFO, Matt Olney will dive deeper and provide additional color within their respective fields, but.
But first for those who remain new to our story I'd first like to give a quick overview and summary of what fun, where does including the capabilities of our flagship multi screen as a service mass platform and our overall business model and strategy.
For the pioneer of mass a fully integrated enterprise cloud platform for mobile that provides the world's most respected brands with the product solutions data and services necessary to build manage and monetize their mobile application portfolios in the audience is globally at scale.
How did nearly 12 years ago in February 2009 February helps brands transition from the web to mobile by enabling enterprise level mobile applications through its mass platform, including the software data and infrastructure needed to support these mobile application portfolios on Apple iOS and Google Android device.
Cases.
Across smartphones tablets, Wearables smart televisions and digital signage.
Our ideal customer is a fortune 1000 brand or government organization that standardizes on our mass offerings for all of their mobile initiatives and needs much like they would standardize on Microsoft office for their productivity software sales force marketing cloud for their CRM or Oracle net suite for their ERP.
Throughout our history as both a private and public company fund, whereas successfully raised over $120 million in debt and equity financing from notable investors, including Cisco systems, Samsung PLD T. W. W. E first hand technology value fun ways maker partners.
Maxim Adventures, Frazier, Macoms ventures, and because on a well providing fortune 1000 brands and government organizations everything they need to succeed on mobile.
We focus our competitive efforts globally at the intersection of mobile cloud Big data in block chain through four key Differentiators one.
Building robust mobile ecosystems for enterprises and government organizations, they can't afford to fail at scale, including the unique requirements and challenges associated with those live events and remote engagement.
Two locating and engaging mobile devices and mobile application users, both indoors and outdoors, both onshore and offshore and both on the ground in any air all in real time.
This also includes catering to the needs of those with hearing and visual impairments and those that are wheelchair bound as well.
Three generating disparate real time data says to make big data actionable well, enabling one to one interaction between brands and government bodies and their respective consumers and constituents anywhere and anytime globally, including Geo fence based policy enforcement works well optimization.
And process compliance.
For leveraging block chain technology to optimize media span reduce fraud enhance transparency drive profitable behaviors and maintain an immutable audible public record of brand interactions with consumers worldwide.
We have a diverse enterprise and government customer base across multiple verticals, because we offer a comprehensive digital transformation platform with products and solutions for mobile that are seamless flexible cost effective and proving that production scale globally.
While we have historically supported the health care media and entertainment hospitality and real estate retail aviation and sports verticals as a core focus we expect our COVID-19 vertical focus to remain much more specific during Q4 in the first half of next year.
Some of these verticals or health care enterprise.
Enterprise corporate campus.
Education Smart campus.
Governments smart city environments, which translate to the needs of patients and clinicians remote work forces students and faculty and government bodies and agencies that are interacting with and managing our country citizens at the local state and federal level respectively.
While we expect to see engagements in contracts continuing across all of our customer types in each vertical including mass renewals. We also expect that the market and economic pressures will remain heightened for an extended timeframe within the specific industries hit hardest by the pandemic, even potentially well into 2021.
Moving on I'd like to share that independent of the ongoing pandemic, we continue executing our operational model and business strategy to become the Premier digital transformation platform for mobile initiatives worldwide.
Our latest quarter close with nearly 8.6 million in backlog and deferred revenue for our multi screen as a service platform, even though a majority of our corporate customers remained in either a locked down or remote work from home operational status.
While we do not expect our non government customers or partners to be operating at full capacity into a COVID-19 vaccines therapeutic becomes widely available we're continuing to see an increase in business activity with each passing week and month.
We believe that there is a significant amount of pent up demand tied to pending mass bookings that will be released throughout the balance of the current quarter and the first half of 2021, which we intend to capitalize on.
More specifically net revenues composition specific to the use of our mass platform for mobile continues to account for more than 90% of our net revenues.
These results continue to represent a dramatic year over year revenue transformation from one time nonrecurring application transactions revenue to annual and multiyear recurring platform subscriptions and services revenue tied to the licensing in use and the software and infrastructure underlying our enterprise cloud.
Our platform.
Anecdotally and during the underlying transformation period highlighted for the customer set of core interest of the company.
We have seen our average customer contract lengths doubled to 24 months, while our average contract value has tripled to $300000 in parallel.
Our team is continuing to execute against our existing customer contracts and backlog and as aggressively pursuing new business opportunities and partnerships, where our mobile cloud big data and remote expertise intersects directly with the needs of our fortune 1000 and government customers.
This includes but is not limited to.
Juan Ramon.
Remote tele health and telemedicine three hours for health care patient capacity management.
To remote work optimization and back to work initiatives for corporate campuses three.
Three remotes school optimization in back to school initiatives for educational campuses and for social distance policy enforcement engagement and asset tracking for smart cities and government organizations at the local state and federal level.
Looking ahead, our short term focus remains centered on the operational stability and continuity, including the constant strengthening of our balance sheet. The achievement of operational self sufficiency and the deployment of our mass infrastructure with our customers and partners in order to address the technological and data needs underlying COVID-19.
Specific products and solutions for communities worldwide.
Randall will tell you more about these mass offerings shortly.
It's clear that we have established a strong product market fit as we continue to find recurring success with new mass customer contracts and partnerships, including Baptist Health, South Florida sales.
Cisco Meraki on the enterprise side.
Cisco Meraki on the education side, Cisco Webex gain innovation, Greater Baltimore Medical Center, Norfolk, Southern Parkview health.
<unk> digital front door deployment for a leading pediatric hospital, a big four corporate campus deployment.
Mall developers smart shopper to playing it a property developers smart residential deployment at a myriad of the application transaction customers from a variety of venture industries and verticals for mobile engagement and monetization.
And finally, we're extremely pleased to have received two recent awards for our mass enterprise cloud platform for mobile, including the top mobile application developer award from the expertise.
And the best mobile driven enterprise cloud platform for 2020 award from corporate Vision magazine with that said I will now turn things over to our Chief operating Officer, Randall Crowder, who will elaborate on our business operations in detail Randall.
Thanks, Alan we've been working hard to optimize operations and ensure our customers can easily license our multi screen as a service enterprise called platform for mobile can better drive true digital transformation. A recent international data Corporation report found that despite budget concerns triggered by the COVID-19 pandemic global spending on digital.
Transformation technologies and services is expected to increase by 10.4% and 2020 to 1.3 trillion as businesses seek to increase operational efficiencies.
It's warm existing business processes and improved digital experience for their customers although.
Although we developed mass could be an industry agnostic platform. We have optimized deployments that are available out of the box such as our mass pandemic responses for smart cities health care and education could specifically address challenges brought on by the Cobi 19 pandemic.
Digital front door for health care cannot only enhance the patient experience, but also reduce operating expenses and drive revenue for provider smart.
Smart workplace solution for corporations to Reimagine their employee experience and support returned to work initiative.
Smart residential solution for a tech enabled luxury living experience.
Hospitality solution to delight guest with a digital concierge smart.
Mark campus solution for higher education in a safe return to school.
Smart city solution for government officials to better engage with communities and visitors.
To accelerate the deployment of math and drive utilization, we also announced several new product enhancements to include the mass modular mobile application framework solution not only allows us to quickly develop and deploy mobile application, but also enables our channel partners to sell deploy and manage amass offerings more effectively.
And a mass enhanced mobile loyalty solutions to better engage and retain users as showcasing the official trunk 2020 mobile application portfolio that was developed on math.
Simply put mass deployment Conservative fund, where customers are able to get the right content to the right person on the REIT screen in the right place at the right time, however to truly informed these real world experiences you have to cure rate information the virtual world in order to make big data actionable to help solve this charge.
Once we launched our mass customer data platform. The global CTP market is expected to grow at a compound annual growth rate of 34% to more than 10.3 billion by 2025 businesses from retailers to health care providers are increasingly relying on software machine learning and artificial.
So intelligence to more effectively market sell and communicate with our customers on a one to one basis at scale.
The recent $3.2 billion acquisition of segment by Twilio underscores the immense value to these platforms tied as brands continue to leverage data enriched media to achieve a critical competitive advantage.
During the quarter, we also announced the launch of our healthy spaces mobile application on iOS and Android to help people and businesses not only track and monitor personal health information, but offer to gather together more safely by tech, enabling prescreening health and safety protocols well.
Well anyone can take advantage of the Standalone mobile application portfolio provided our enterprise customers will have access to a more comprehensive and seamlessly integrated feature set grew a healthy spaces software development kit or SDK, which we plan to release later this year.
<unk> ability to master. The addition of the healthy spaces SDK will include but will not be limited to providing individuals and groups with pre screening guidelines in questions. Upon arrival at a location tracking important health habits and risk information among individuals and groups through user profiles right.
Reviewing and determining if an individual or group it would prove to gather based on health attributes and potential risks associated managing and enforcing social distancing at health protocols, including proactive and reactive messaging reminders and notification mom.
Monitoring tracing movements activity in room presence subject to facility readiness the integration of our mass location based services SDK.
To further enhance our ability to address returned to work challenges presented by the COVID-19 pandemic. We were thrilled to announce an integrated room present solution that takes advantage of Cisco's webex technology to monitor and determine room occupancy.
In addition, we announced two new listings to the Cisco Meraki marketplace for both our smart workplace solution and Smart campus solution Cisco Meraki marketplace isn't exclusive catalog of technology partner. It showcases applications developed on top of the Cisco Meraki platform, allowing customers and partners to view.
Demo and deploy commercial solutions.
During the quarter, we also announced a new partnership with gain innovation in order to bid on state and local government and education contracts in Texas with this partnership and the success, we've been seeing working and supported a 2020 presidential campaign, we're excited to expand our ability to sell into the government and advocacy sectors.
These types of partnerships are central to our sales strategy as we continue to focus on indirect selling through four primary channels that comprise our global reseller network, one hardware vendors to software developers three systems integrators and for carriers.
To lead this effort, we were thrilled to recruit and hire fair ICANN last month, as our new VP or channel partnerships.
Era has spent nearly two decades building and managing robust enterprise channels and most recently he was responsible for a three X increase and total company revenues within year, one of initiating a channel partner program at our last company.
In order to effectively support our channel partners and their customers. We offer a comprehensive Webinars case studies articles E books, and additional training opportunities the fun, where feed 'em certified developer program is also available to provide on demand courses in live training sessions remotely to learn more about math and how it helps bring.
And to better execute their digital strategy and establish a true mobile presence in.
In parallel we provide full mass documentation and software portals via the fund where documentation portal and get have respectively.
By partnering with an supporting larger companies and their global distribution network, we seek to scale faster without incurring the heavy expenses a direct sales force. However, the underlying revenues for any new contract wins will be recognized over the course of a 12 month to 60 month contract period. As a result, we will continue to point to our recent press release.
Video interviews and both backlog and deferred revenue metrics as important indicators of our success in sales, which closed last quarter at 8.6 million.
Looking internally the strategic decisions, we made during the first quarter to further streamline operations helped drive a reduction of our opex spend quarter over quarter by 5% on a GAAP basis, and 26% on a non-GAAP basis.
Our gross margin also improved to 71% during the quarter, representing nearly a 1600 basis improvement over the last year as we continue our efforts to reach breakeven in terms of both operating cash and adjusted EBITDA.
Next I'd like to talk a bit about our work force at this time. We currently have 56 employees across four offices with an average tenure of over four years exceeding the average retention benchmark set intact by over 64% According to pay so.
We have maintained 100% continuity and effectiveness, while taking prudent steps to maximize our operational efficiency and ensure our long term financial health. In fact, we have seen a 93% increase in employee productivity this year, which we measure as a function of revenue per employee.
During the quarter, we were thrilled to have the opportunity to unfurled several fund where employees. Additionally, we have plans in place to not only on furlough other fun, where employees, but also to begin making new hires were actively looking to bring on seasoned executives with enterprise software sales and channel development experience to help us meet the ROI.
Renewed customer demand, we're seeing for our math offerings.
Despite this exciting increase and demanded activity, we expect to work remotely for the foreseeable future until receive more definitive guidance from government officials in Texas, California, and Florida, where we have our physical offices.
We are more easily able to work remote than most companies, but do expect to reopen our physical facilities and a safe responsible and ought to nibble away through the use of our new smart workplace solution powered by our new healthy spaces functionality.
I will now turn things over to our Chief Financial Officer, Matt <unk>, who will discuss our third quarter financials in more detail Matt.
Thanks, Randall and good afternoon, everyone.
I'd like to thank you all for joining us today for a review of our third quarter 2020 financial performance and our progress on key strategic initiatives for clarity I will be discussing GAAP financial measures unless otherwise specifically noted a press release 8-K and website provide a reconciliation between GAAP to non-GAAP financial results.
Net revenues for the third quarter, 2000, 23.1 million of which platform subscriptions and services revenue was 2.9 million I phones.
This continues to be on higher margin longer term software customers and we are pleased to see that we are continuing to follow the strategy. Thus far in 2020 with over 90% of our net revenues derived from our mass platform subscription and services customers.
Gross margin was 71.3% compared to 57.1% in the same period last year on a non-GAAP adjusted basis gross margin was 74.8% compared to 58.4% in the same period of the previous year.
That is over a 1600 basis point improvement year over year on a non-GAAP adjusted basis and it not only validates the conscious decisions. We made earlier in the year to focus on higher margin software and data deals and away from lower margin legacy application turns auctions, but it also gets funded we're launching pad for more profitable and predictable revenues in the future.
Total operating expense was 5.2 million down from $5.5 million in the same period last year I'd like to point out, though that stock based compensation and amortization of intangibles made up 1.6 million this year compared to just 671000 in the prior year.
Excluding these non cash charges adjusted operating expenses was 3.7 million down from 4.8 million for the same period last year or 26% improvement year over year.
With respect to the legal settlement previously filed we took a one time 4.5 million dollar expense in the quarter and are pleased to be moving forward without continued overhang or uncertainty.
We view this particular settlement as a onetime event and that's excluded from our non-GAAP calculations.
Payments for the settlement will be made over the next 12 months starting with the first payment at the end of next month in December.
Non-GAAP adjusted EBITDA loss was 1.3 million compared to $1.5 million in the same period last year and 1.8 million in Q2 2020.
I'm pleased with the progress we've made year over year and quarter over quarter, Despite the ongoing and I'm not.
Strategic focus on profitable behaviors to increase margins and manage operating expenses have continued to show its effects.
Net loss for the quarter was $8.6 million or 19 cents per share.
Turning to $2.4 million or six cents per share in the same period last year.
I'd like to remind everyone that this loss is inclusive of a 10 cents net loss per share for an extraordinary expense for legal settlements previously mentioned.
Moving to the balance sheet any cash for the quarter was 1.1 million with 1.8 million of cash used in operations for the quarter.
This represents the highest cash balance in the quarter and the lowest amount of cash used in operations for a quarter. This year.
Looking ahead as we manage through the ongoing uncertainties of Tobin 19, we continue to position ourselves for success in the future by strengthening our balance sheet and lowering operational expenses.
We are encouraged with our start to Q4 I believe that Q4 software bookings will soon outpace software bookings for all of Q3, we.
We intend to continue to fund operations with proceeds from organic sales and Opportunistically raising additional capital will be a debt and equity options available to us.
Positioned well to extend our operational runway for maximum stability and flexibility of the ER visits demand continues to return more broadly.
Leading into the fourth quarter to close out the year, you'll continue to execute against our existing customer contracts and backlog and will aggressively pursue new business and partner opportunities as outlined above by Alan Randall.
As we continue to win deals and help customers enhance their mobile application experiences, we intend to drive net revenues and gross margin expansion to reduce our operational cash burn and move towards breakeven on an adjusted EBITDA basis.
That I would like to turn the call back over to Alan.
Thanks, Matt I'd like to briefly touch on our mid and long term goals going forward before I share. My closing remarks, looking ahead, our ideal operating scenarios to achieve and maintain cash neutrality and operational self sufficiency, well reinvesting excess cash and profit for growth both organically and inorganically.
Organic like.
To that end and post paying down that we intend to accelerate our top line growth at 30% or more a year over year net revenues growth, while achieving more than 75% blended gross margins overall.
Notably and as demonstrated in todays announced financial results for Q3, we have already accelerated our net revenues by more than 40% sequentially over Q2, while simultaneously expanding our gross margins from 65% in Q2 to more than 70% during Q3.
These results are both extremely positive developments for our operating model and actually beat our previous upwardly revised financial guidance from late September.
In parallel and for the foreseeable future, we will remain extremely judicious with our balance sheet improvements focusing only on the equity structured debt debt and government specific alternatives wherever they might make sense.
Including any post Kuroda virus aid relief and economic Security Act legislation that may provide additional long term low interest rate debt directly from the United States government post election, such as our previously announced $2.8 million small business administration paycheck.
Protection program alone.
In addition to our previously announced $4.3 million structured debt refinancing we will continue to maintain our at the market equity offering program against our existing S. Three shelf registration statement.
ATM sales have remained a popular tool for raising capital due to the efficiency and flexibility provided in our existing ATM will continue to allow us to minimize dilution as we operate and scale our business rolling forward.
As has been the case previously we remain committed to driving awareness of everything fine or has to offer and to increase the institutional exposure to our story.
In addition to pass to that participation in online financial conferences, such as the Canaccord Genuity. His 40th annual growth Conference. We have also recently transitioned our investor relations activity to Gateway Investor Relations to further accelerate these efforts in conjunction with an expansion in our IR initiatives.
We remain actively engaged with Canaccord genuity as our Midmarket investment bank of record while also maintaining ongoing research coverage for our stock via Taglich brothers and Ascendiant Securities. We hope to see this research coverage materially expand throughout 2021, as we continue to focus on inside.
Situationally oriented investment discussions both domestically and abroad.
As I have done previously I want to conclude my remarks today by again expressing a very sincere in special Thank you to both our employees and their families.
Not only are they supported us tirelessly despite the ongoing shelter in place and work from home mandates tied to COVID-19 in some parts of our country, but they have also done so despite the ongoing upheaval to both our personal and professional lives and routines and material unexpected and still evolving ways.
Furthermore, I also want to thank our customers and partners, who are not only our biggest advocates but also trust us with their most valued assets and needs and these extremely turbulent times as we jointly prepare for an eventual full reopening of the economy import.
Importantly, I want to express our sincere gratitude and indebtedness to both our public and private investors for their continued assistance and support and all that we do daily as we continue to execute operationally and financially on their behalf.
Finally, I want to humbly, thank our government leaders health care professionals and the citizens of the world for collectively contributing to humanities efforts to unify and persevere together now that we are preparing for business in life and oppose pandemic environment with that we can open up the line for questions operator.
Thank you we will now take questions from our analysts.
If you do have a question. Please press Star then one on your telephone.
And if you are using a speakerphone. Please pick up your handset to provide the best quality.
And our first question comes from Austin Mogil with Canaccord. Please go ahead.
Hi, Thanks, very much for taking my questions I have a couple of big picture questions to start out. So that's the first one is on alternative mobile nice products already available given we live in a in a mobile world and it's kind of in that way for some time what are these brands that your approach.
And what are they using instead of somewhere to launch and manage their mobile apps and app audiences. You know, they're not using you what products are they using and yeah cool or what do you have to unseat or beat out to win those customers.
Sure. This is Alan I'll be happy to answer that so.
What's really unique about the offering that we have for mass is there actually isn't another holistic platform that comprehensively addresses all the components that you need to either engage manager monetize large audiences in communities on mobile, especially for Apple iOS and Google Android what we find is that the two alternatives.
Either looked like one of the following either one it would be internal I teams or other groups internal to businesses that believes that they're going to create the components they need or build things from the ground up.
Across the whole wide variety of things using a good analogy think of that like companies, who choose to build their own CRM system internally versus many others that opt to use sales force and just say you know what no matter. How good we are at what we do we're not going to invest our research and development internally to build their own systems. We're just.
The license that capability from sales force and move things forward, So one and a area that we always see is that a.
Conversation about a trade off between what people want to build from the ground up internally and we much like a sales force believe we'll always have more investment we're up to about $150 million between debt equity gross margin over all this time and think we had a really comprehensive solution.
The other is groups that want to stitch together, a this kind of falls to lead to the best of breed. They want a license standalone content management systems that could come from large scale companies like.
Adobe Oracle or others.
You see folks with analytics, where they may want to grab things they use from the web and try to put that to the mobile web or the mobile app environment and you see all sorts of different analytics platforms from mix panel or flurry, and others, but again, a bunch of point solutions and when you go through the rest of the stack when you're talking about.
Marketing automation mobile engagement.
Any sort of alerts notifications and messaging you would see private companies like air ship.
Or others that are trying to do pieces of that same thing in location based services, whether those are blue dot and proximity across the use of indoor or Wi Fi or beacons to supplement what we all see outdoors with GPS and longitude and latitude.
And then you see a lot of advertising platforms from a big incumbents to small private companies, but really just thinking about the solution is you standardize on the fund where platform.
Do you like to build your own applications, we provide ingredients that we called products does come in the form of software development kits or application programming interfaces. Much like you would think if someone like Twitter Leo who provides that functionality in different environments.
Or alternatively, you see groups and say you know what I don't have the time money or inclination to figure out how to take all these things and stitch them together, so we'd like to license off the shelf commercially available solutions and we provide those by vertical for digital transformation. The only real differences, we might say its the patient experience for health care.
The fan experience for sports the traveler experience for aviation and things like that but fundamentally we sound nobody that has everything in one location one log in one procurement relationships and one architecture that was meant to play nicely together.
Got it that is really helpful. So it sounds like it's a great products and what does it take to get it to new customers and sign new licensing deals can can you describe the the sales cycle and the timing on that and also where you are currently in in terms of the sales force.
Sure I'll take the first part and I'll leave the second part on the composition of the sales and marketing activities and the productivity gains we've seen there to Randall but.
But what you should think of is on a direct basis with our sales force, we typically see three to six month cycles.
As we highlighted we've seen our average contract length of double here in 2020, and we've seen the average contract size Triple in 2020, there's always unique things different by different verticals for instance, if you're touching government things there is a little more bureaucracy in processing time, So I would say government deals.
It'd be things that you'd see more like a six to 12 month timeline.
But on average across no.
Non government organizations. Most fortune 1000 companies are easily in three to six month sales cycle, and we prioritize direct selling historically.
And then as we highlighted in today's call.
We've been adding indirect channels, where we bundle our software through four different groups.
Hardware providers.
That may have networking equipment, and they want a bundle away to mobile enable with software the deployments that they might be making two different types of venues that purchase their network equipment that could be stadiums that could be colleges. Those can be enterprise campuses does can be hospitals or any number of other funds.
Ladies.
And then in parallel to that we also see channels like software channels that are very familiar with taking component products like SDK is an EPA size or software solutions and then they can add value add on top to integrate to legacy enterprise systems or any number of other.
Unique feature sets or use cases that they might want to have.
Then we also see groups like carriers and service providers, where they might license voice video and data bundles to customers, but they want to enable digital transformation and mobile access before they reach facilities, while they're on site and after they leave and again, our software becomes that mobile layer to take advantage.
Each of those voice video and data offerings. So again, that's hardware software carrier system integrator and the last one would be consulting groups. So lot of those folks that represent some of the big four or the big services arms, where they're doing strategy consulting and they're helping customers with digital transformation to stitch.
Altogether, a variety of products and solutions to accelerate those digital transformation needs or to migrate what they did very successfully on the internet.
The mobile application environment, which represents kind of 90% of all mobile Internet traffic, let me turn it over to Randall to let him address the sales force composition in the thoughts of direct versus indirect selling.
Yeah. Thanks, Alan I think you hit the nail in ahead for US we don't want to incur you know the large expenses building out a direct sales force and it is not an efficient way to go to market. You know when you think of like an it last year and that's really how we're position how do you get this into many hands as possible because this is a transformational technology.
Transformational platform you know just like we help everyone kind of transition from web to mobile back in 2009. When we first started the company now everyone kind of realizes that mobile is going to be table Stakes and were living in a mobile first world is quickly becoming mobile only and our strategy to sell through channels. You know we are accretive to pretty much everything you can imagine.
And whether it's someone outfitting a smart building or whether someone is deploying a solution.
For you know us digital front door and health care, you know, there's a lot of different groups that it's an easy cross sell up sell for what we have and so we really do have a small sales team. We have eight people full time sales and marketing and yeah. We just took our first we made our first higher for our VP of channel partnerships and fair that we mentioned on the call earlier and so it's going to be.
Her job to really build out what that channel team looks like.
But again, it's going to be efficiently selling through other channels and we are a b to b platform and were really what everybody needs right now as they think about how to establish a true mobile presence you know this isn't about passive applications, just serving up content. It's really about how do you take the mobile device or any screen and how do you stitch together.
A really comprehensive engagement solution that puts the user are top of mind and really get some information when they need. It you know it's this idea of contents contextually marketing and really forming these real world experiences. So yeah. We're excited to partner with a lot of great folks keep an eye on our press releases as we announced partnerships.
Yeah. Those take time, you know we're going to establish those partnerships, we're going to train them and then really they go out and sell and we support and that's what you know the kind of company, we want to build and that's kind of company that we're starting to do a really kind of hit the accelerator on in 2021.
Got it and my last one here is.
So so it sounds like there is and will be more gross resumption here for the top line.
So can you just touch on timing EBITDA profitability, what you're what you're currently thinking for that.
Yeah, Let me go ahead and hit part of it and they'll let Matt address the rest of what we're doing in 2021, we did actually included in what we distributed not only in our investor presentation, but also as part of the earnings transcript a real breakdown of what 2020 during the pandemic is looked like and it.
Good where we kind of bottomed in Q2 in terms of revenue recognition. We show Q1, Q2 and Q3, obviously, we're extremely excited that we grew more than 40% sequentially quarter over quarter, we had sort of telegraphed that our last announcement and said that we expected that that would be a low in Q2, and we would see.
Started accelerating from that point as things started opening up a bit more from the really ugly second quarter coated lockdowns in.
In parallel to that you see sequential expansion from Q1, Q2, Q3, all the way up to where our getting our gross margins up above 71% again that was really really important and then what you see in the final chart. We provided was the continued acceleration on that drive to the adjusted EBITDA break even.
And what I'll do is let Matt actually try and then now relative to some of the timing of how we set up the operating model to get to that cash neutrality position.
To be able to move forward with a goal to achieve 30% plus year over year growth continually secondarily, 75% plus gross margin.
And then finally on a real focus on being able to achieve cash neutrality and invest back into the business for sales and marketing expansion and organic and inorganic growth.
Let me hand that over to you.
Thanks Alan.
Hey, guys. Thanks for the question, yes, so as Alan mentioned, there's obviously a whole lot of things going on we're trending in the right direction.
For the we thought Q2 or the low point Q3, we're coming out of it in terms of.
Both topline revenue gross margins, which obviously all will help us fund operation. So when we look at next year. Obviously, you know we kind of look first at bookings.
What we're booking now is going to impact next year, but we look at the beginning of next year is going to have heavy impact on on where we are next year in terms of profitability adjusted EBITDA on an adjusted EBITDA basis, So really for us as we work through you know we're targeting the first half of the year.
To get there and it's you know, it's still a process for us, but with with the traction we're getting now kind of coming out of Q3 and into Q4.
We're seeing more and more deals signing and you've got more and more confidence going in next year. So so as Ellen mentioned, where we're going to target a growth next year, we're going to start growth in topline growth in.
And gross margin and then in terms of adjusted EBITDA cash, we're going to try to get there by the middle of the year and it will kind of go from there and see what makes sense for us whether or not we want to put more cash in the business and grow faster or if we kind of want to just continue to operate as a as a.
Adjusted EBITDA profitable company.
Great. Thanks for answering my questions, they're all really helpful.
And next we'll go to Howard Halpern with Taglich Brothers. Please go ahead.
Congratulations on the quarter and navigating this pandemic environments.
Uh huh.
Question.
With regards to what you have a rough number on how many customers are in.
Included in your recurring revenue base.
So in terms of how we haven't actually broken out in that way I think we've looked at it and obviously, we have a wildly diversified piece of that every customer we try to drive to be in a single digit percent gainer, we have actually sorted and communicated to the market, we see about an equal split in our test.
Summer base between those who buy the platform products or the software development kits application programming interfaces tools utilities that are kind of the ingredients that provide functionality for people that build their own applications and then the other half of our customers that tend to say you know what I know and he does for digital transformation in mobile but it's.
Not our core expertise so they license our vertical oriented solutions and then extend from there.
So we actually can easily take that as an action that we want to look to see to what extent that can probably highlight the methodology of reporting that we do as it relates to any customer concentrations or top 10 customers, where we trigger materiality disclosure specific to that.
Okay.
Yeah, I mean, obviously the.
Concentrations in the into Q it'll be in there no significant concentrations or.
So we're definitely getting more diversified as a group.
Okay now in terms of.
In the quarter you talk about you know Youve won expanded.
<unk> customer contracts from like are you and Baptist health.
Talk about the process of I guess like the initial contracts and then what the process is to go about expanding with and.
Those type of customer bases.
Yeah I'd be happy that's a great question and I think it's super helpful to think about how our business grows and scales as well.
When we typically are are doing deals as I said, there's kind of someone who is more horizontal in nature, where they like to be a do it yourself for and they want components are ingredients that help you the duties engage manage and monetize activities. So when we see groups that actually want to focus on these high end.
Location portfolios typically you'll see one of two buckets.
The do it yourself or is tend to start with about an 800000 to a million dollar engagement as I said, our average contract length has expanded to basically doubled sales of two years, while some of the contract size is tripled so when you're looking at some of these initial engagement.
If it's a higher budget more customized groups that are building think has 800000 to a million as a starting point on the mass licenses and if you're doing vertical solutions those range typically from three to 600000 within.
The vertical focus versus the horizontal.
On top of that usually they'll have some some integrations are add ons. They may like to do a much like salesforce, we'd like to license our platform and our software and our cloud and then let others do that work on the services, but if they want to do that and treat us like a big job mobile AD, Phil we'll do that.
But typically.
The license options start at one to five years in length typically one three or five years at one year, we have standard retail software licensing typically at three years, we have a 20% discount at a five year, we had a 30% discount on the licenses. So the average deal size for vertical engagements typically.
Starts from 350 to 750000, and then when you're talking about the bigger.
Deployments those typically started around 900000 to 1.5 million.
Now as you correctly said when people are then adding on or renewing or expanding like a part do you like it Baptist Health South Florida. Those are typically where they are adding more in those cases medical facilities. They need more location based services. They have more square footage to deploy so the software license.
Sales and the support maintenance licenses typically are expanding incrementally.
And those typically you can see add ons, let's call. It on average that might be 20000 per month or about a quarter million per year on some of the license add ons and then we'll have kind of one offs, where theyre doing smaller facilities that might be sub six digits, but it's really important when we get in first.
We tend to see an expansion.
And then good net revenue revenue retention and low customer churn.
Okay, and one other customer that I noticed that you announced in the quarter is that.
The co living development residential the residential solution.
Is that.
That really is that going to be your biggest customer so far for smart residential solutions and does that open up for.
Even some of the existing H away communities that are across the country.
Yes, great question. So we've definitely seen a lot more activity and what I would call the real estate domain. So sometimes that's a real estate investment trust sometime it's the property management or to your point homeowners Association. So the one that we mentioned was tied to a south Florida facility one of the largest in the country.
Who continue to expand especially with all these stay at home orders during the pandemic.
They are trying to dramatically improve the quality of life experience for residents onsite.
So now these kind of mobile deployments on these smart president or smart luxury resident experience is typically imaginary buyer a condominium or an apartment, it's not dissimilar to the work we would do that we've announced with a high end luxury resorts like the when when it deals with casino environment or Atlanta, as Bahamas, when you're talking about resort debt.
The nations. These are typically fully featured where people are either leasing or buying.
In a mixed use facility or a real estate group thats kind of buried.
In a mall or just surrounding a shopping retail and others and what we end up doing is help activate the full experience after they do that lease or the purchase so that you get all activities from the property through the mobile application portfolio. That's branded for the facility that you happened to reside.
That includes cost the air services that includes all of the trouble tickets and maintenance that includes schedule of events throughout especially when they have additional amenities that might be pools or workout facilities laundry facilities restaurants, you name it and it even gets into some of the valet services and parking off.
Options that are associated with them. So we expect that that's going to accelerate and also it's uniquely fantastic about that is we have seen our relationships and integrations with groups like Salto, where you can use mobile as an entry exits.
And audit platform of storage to be able to get entry and exit.
It actually have more controls, especially when you're dealing with things like contact tracing.
Hi, David Frank and just the security in general is who's getting access how when when especially if they might have to have some some health responses before they can access those facilities.
Okay and one last question.
And then I'll, let someone else jump in but.
And you talked about how the sales cycle is one liberal governmental type agencies, and I know you announced products for them earlier this year.
Talk a little bit about.
Widen that might be.
Coming to fruition in the next three three months or so in the government area.
Yes, I was actually going to hit one highlight and I'm going to hand, it over to Randall as he was instrumental in working through in some of the Smart City solutions that we've done so we saw a real opportunity where.
Yes subsidies residents of cities and even constituents of elected officials at the city and county level, specifically, but it also applies at the state level.
There are all these capabilities, we've built for corporate use or use an educational environments or anywhere else.
Our government tends to not deploy a similar solutions and what we wanted to do is to create a full smart city solution because the application portfolio in the software is what allows cities to take advantage of the infrastructure that they're deploying.
Across different environments, those can be visitors bureaus convention centers.
Airports public transit and a number of other things and what we did is purposely package all the solutions, we had done in the corporate environment, So that mayors.
City councils could actually have a trusted software layer that could encourage people to download on iOS and Android and then facilitate real time engagement trouble.
Trouble ticket.
All sorts of other things that are relevant to our community not only in the downtown environments, but throughout the suburbs I Ramble, you want to actually highlight about how that pipeline has evolved through both some of the partnerships. We just announced and then also true Pasadena, Texas tied to Houston is one of the larger.
Climates in the first of its kind really in the United States.
Yeah, you know what it's you know the first of many Reits I think you know for US is always you know challenging to have you know exciting things that we're working on you know that would constitute a pipeline and no ability to talk about it you know sometime as you can imagine what if you know government contracts you know that's confidentiality involved but there are certain things that we can and can.
Don't disclose but you know we try to be as transparent as possible.
We try to put out as much price as possible. So we're educating both retail and institutional investors alike, but.
But can you just you know sometimes you have to read the tea leaves you know so you think about like a really exciting partnership with gain innovation you know for those on the call who haven't worked with governments in the past you know, Texas is you have to have at the IR contracts and so by partnering with someone like gain we get to take advantage of entered the IR contract.
And bid on really exciting opportunities in kind of the flood space and so state local government education and so.
So you think that's kind of where we're going with that partnership we do yeah, we're working hard on opportunities with them and out working on opportunities direct and you have to refer channels <unk> got to expand our smart city solutions. So while we can't give specifics on kind of whats in the pipeline you know obviously, we've established this vertical for.
The reason I'm, we're seeing really good traction and really good entrust this.
This is something that everybody is kind of talking about right now like Alan said, how do I stay engage with communities and.
And anything like no large government facilities and what a great place for our smart workplace solutions or you know a lot of things that we provide where you're thinking security is paramount access control is paramount notifications are Paramount one of the really interesting thing is that we can deliver that is top of mind for everyone is threatened.
Management, you know what do you do in a government building. If you have an active shooter situation and so being able to dynamically notify entered route users of a mobile app that are in that space to safety, while de conflicting ingress routes for first responders. That's critical for any government facility and so you know where we are on the <unk>.
That's right now educating you know a lot of our government clients about what we can do and why that's important to them and really bullish about what we'll be able to deliver in 2021.
Okay, well, thanks, and keep up the great work guys.
Thank you thanks, Howard Thanks Howard.
And next we'll move to Ed Woo with Ascendiant capital. Please go ahead.
Yes, congratulations on the quarter most of my questions have been asked already an answer but I just have a question in terms of trying to get back to normal I know you mentioned that you know on a weekly monthly basis. It seems like revenue is returning slowly steadily when do you think we'll get back to some level of normality and also do you.
Feel that your customers are feeling much more confident about the business now they're almost two back to normal levels or do you still see that there is a lot of hasn't team with people still were working remotely and whatnot.
Yes, it's great question and I'll be Super open and candid about that as we always are and what we found is it's a real mix bag in the United States. So much like it's taken most of 2020 to get scale in our testing for co lit across the country.
We're probably getting a lot closer to that obviously now so the more testing we do the more cases, we see.
It's great to see the lethality rate of cobot has dropped by about 85% during that window, but obviously this clearly hasn't gone away and isn't going anywhere anytime soon.
Radically earlier today it was great to see Pfizer at announced on a potential vaccine that Scott, 90% effectiveness. So I'm very cautiously optimistic that that you know may help the process, but as we think about 2020 I don't see anything changing here in Q4 relative to the state of.
Lockdown shutdown mass social distancing it all the unique rules and requirements.
That we're seeing even in our customers or partners and even fun way obviously.
Obviously, we've got a workforce predominantly in three states and the coated rules couldn't be more different.
Southern California versus here in Texas versus southern Florida have wildly different rules from from a disease. So we see 2020 is the year, where the testing gets ramped and if the co bid a vaccine, whether pfizer and even others that come on board.
If it as high efficacy I think thats still going to be a process minimally I think it's going to take the first half of next year for vaccine, even if available to be available at the scale in the dosage needed for everybody to have more safety security and comfort.
I expect that even if we do out of vaccine, it's going to be minimal a second half of next year before you start seeing more activity on live events.
Sports and a lot of the other components of things that are big scale audiences without capacity restrictions. So I am optimistic that we achieved where the testing is by the end of this year.
I think we'll scale vaccines by the middle of next year and that I think it's going to take all of 2021 before you're going to really see people back as normal.
I will say much like here at fun, where we have not accelerated by any means bringing people back to the office our business allows us to work more easily remote and with our core customers.
In the healthcare domain, obviously, the healthcare groups are open for business, there's still sorting through what they deem to be normal operations for separating all the cobot activity from non cobot activity, including elective surgeries and other remote tele health and other capacity management.
Of how to address and deal with patients while you're at home before you get to the facilities, while you're on site and after you leave.
Clearly in California, we've got customers in the Bay area, they're not opened you know whether we're talking about someone like Kaiser Permanente that is in Oakland or others from the big four that are in downtown San Francisco.
The market is not open yet so in our case as we win deals.
We have a balance of which markets are fully open which markets are not.
We've had developments more recently were up in the northeast in places like New York, We have and why you land going as a customer in the healthcare domain, we have Mount Sinai.
As two examples.
Only more recently have interest stay traveled in permitted to do expansions at their facilities in person and on site and so we don't see anything wildly accelerating I think if anything people are very concerned during the winter months that we may have a resurgence I don't have that answer.
I won't try to speak medically like we know that but I will say.
Well, we highlight more activity is happening.
We're seeing things we never would have thought before we're meeting groups that we've never met in person, we're going through and tire sales processes, all the way through winning a deal contracting a deal and deploying solutions and we've still never been onsite and we've never met the people face to face.
That would have been something almost unprecedented to think you're doing mid six digit or low seven digit initial contracts and you've never met anyone in person. So we are taking advantage like everyone else and a lot more zoom and webex and other sorts of video conferences and.
And we're actually trying everything that we need to to be able to get on the phone communicate more but I think most.
Enterprise campuses are going to be much more deliberate pulling employees back to their facilities unless they absolutely have to.
And in the Middle is probably colleges and universities, where they do have to get people onsite they do need to get them back in the class a but.
But I think to date there is only about a little over a third of all colleges and universities are back in person and fully open everyone else is a hybrid or full remote.
So hopefully that helps answer at least the timing of what we're seeing and we did have some pending deals right. The four cobot head that we're just waiting for the markets to open to be able to formally sign those and we're optimistic that we'll start seeing that here as we get towards the tail end of this quarter.
And a lot of that budget that has been deferred or delayed is going to come back like gang Busters and the first and second quarter of next year.
Great. Thank you for asking my question that was very helpful. Thank you and good luck.
At this time that does conclude the company's question and answer session.
If your question was not taken you may contact <unk> Investor Relations team.
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