Q3 2021 Phunware Inc Earnings Call
[music].
Good afternoon, ladies and gentlemen, welcome to <unk> third quarter 2021, Investor Conference call. Currently all participants are in a listen only mode. Joining me today are Alan S. Koski, President Chief Executive Officer, and co founder Randall Crowder, Chief operating officer.
Matt.
<unk> financial officer.
Our format today will include prepared remarks by Allen, 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 impacts 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.
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 <unk> website at investors fund where dot com.
I further encourage you to visit investors dot footwear dot com to access not only the earnings press release, but also the current investor presentation, SEC filings and additional collateral on footwear.
At this time I would like to turn things over to fund, where president CEO and co founder Allen Metavsky. Sir. Please proceed.
Thank you very much and welcome to our third quarter 2021, Investor Conference call. As a reminder, February 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 fund where I'd for every human being honored that hasnt device touching in network that is connected to their favorite brands applications and venues that just happened to run somewhere software or intersect with our cloud based infrastructure.
On one side, we provide our b to B BTG 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 DTC customers with the hardware systems software and crypto currency services needed for their engagement and incentivize participation in high performance gaming.
Dreaming trading crypto currency mining and personal productivity computing.
Central to these efforts our enterprise cloud platform for mobile called bats for 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 fund token and suncor in loyalty and rewards crypto currency ecosystem, which has facilitated trans.
Actually with our fund wallet mobile applications and connects to the theory and blockchain.
The completion of Q3 constituted continued operational momentum for our business as we further accelerated our bass 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 white technology dramatically improved our balance sheet with more than $65 million in additional cash and guided Q4 revenue growth sequentially quarter over quarter to up more than 100% at <unk>.
$5 million or more importantly.
Importantly, and in tandem we have also seen a material sequential increase in our total bookings in backlog quarter over quarter, which would be broken down in further detail by our CFO, Matt Tony in his section of the earnings broadcasts.
In terms of our current operating environment, our core <unk> and BTG customers, it's still not consistently return to their offices and facilities and remain in a hybrid transmission with regards to their employees and contractors safely returning back to where we.
We expect that cities states and countries will continue opening on a broader basis throughout the balance of the year. While also understanding that this process will be an ongoing unpredictable journey that won't happen overnight in light of the shifting myriad of government mandates tied to the ongoing pandemic.
In parallel our <unk> customers are both active and fully engaged demonstrating strong demand for hardware crypto currency alone.
<unk> independent of what we see within the private and public sectors.
As suggested in previous past quarters and reiterated again here. We are both excited comforted by the dramatic increase in activity across all aspects of our product and solution offerings for mobile big data crypto currency high performance computing in the cloud.
Importantly, this activity encompasses all of our core growth engines rolling forward, including our mass cloud or data driven loyalty marketplace are secure blockchain enabled token pointed wallet capabilities and our high performance computing systems for gaming streaming trading cryptocurrency mining.
And personal productivity.
The past year was the Genesis of the transition in our company's history as we shifted from a nonrecurring low margin transaction business to a far stickier more scalable recurring and high margin SaaS licensing business for our mass platform.
In addition to continued enterprise and government interest in our math digital front door solution for healthcare, our mass smart workplace solution for corporations and our mass Smart city solution for cities, we accelerated conversations with customers in sectors that were hit hard by the pandemic, including the hospitality and real estate verticals. These.
These activities resulted in many new customer wins for our team, including reagents Square Atlantis Bahamas.
Phoenix Children's Hospital Idiot.
City of Pasadena, Virginia Hospital Center, and Yavapai Regional Medical center amongst many others.
In conjunction with growing our portfolio of direct customers like these we also further expanded our global footprint by amplifying our go to market strategy with indirect sales and channel partners, including carrier Global Corporation.
Cox Communications.
HIV global and Cooper lighting solutions in parallel we remain extremely excited about the completion of fun wallet and the launch and scaling of our blockchain ecosystem powered by some coin at some token.
We are now scaling and monetizing this part of our business and look forward to the accelerated global adoption of the blockchain enabled mass customer data platform and mass mobile loyalty ecosystem commercially active.
We are completely focused on the future and what a post pandemic environment is going to look like for our business, but also recognizing and appreciating that the last year has represented a very interesting and unique challenge for all of us.
We are excited to announce today more than 50% sequential revenue growth quarter over quarter from Q2.
Also to guide more than 100% sequential growth quarter over quarter for Q4.
We expect to finish the year strong with more than $5 million of Q4 revenues to close 2021.
As always we will continue our core go to market strategy centered on direct and indirect or agreements and contracts with fortune 500 customers, especially in the fortune 100 size range and governments ranging from local and county to state and federal in parallel we will also dramatically expand our direct to consumer channel for BDC.
Gabe it's across both our high performance computing and crypto currency offerings to consumers.
Importantly, and independent of the pandemic, we are extremely excited by a number of developments that have occurred over the past quarter and even more excited by what we see coming in the quarters ahead.
First we added to our SaaS bookings backlog and deferred revenues for future revenue recognition over one to five year contract periods that will ultimately provide SaaS revenue recognition over the coming 12 to 16 months rolling forward while there.
These efforts do not provide instant or near term gratification on revenue recognition for our P&L. They importantly demonstrate the ongoing health and expansion of our business and will be broken down in further detail by our CFO in his section of the earnings broadcast.
As a reminder, and with our mass sales cycles typically representing two to four months on average recent and pending customer wins will start appearing in our P&L in the coming reporting periods ahead.
We continue to expand our installed base upon our ideas on that more than 15 billion devices worldwide, including that platform scalability capable of supporting up to 5 billion transactions per day.
500000 transactions per second and 1 billion unique devices per month.
With more than one petabyte of data typically growing at more than five terabytes per day when operating at scale. Our mass platform now provides a robust customer data platform inclusive of both the detailed data ontology and a comprehensive knowledge graph to one to one interactions and engagement.
And third.
We commercially launched our fund wallet mobile applications on Apple iOS, and Google Android in conjunction with our mass blockchain ecosystem.
Powered by our <unk> fund token crypto currencies.
First point security tokens will only appear on our balance sheet due to their status as a regulated security.
I'm joking utility tokens will actually flow transactions through our P&L as net new and virtually 100% gross margin revenue.
At this time, our CFO, Matt Audi will go deeper into our third quarter 2021 financial performance as reported including our recent revenue growth and the dramatic improvements made to our balance sheet year to date.
Please go ahead.
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 mouth platform subscriptions and services customers revenue was $1 8 million or <unk>, 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% from 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, but the projects having been partially delivered in Q3.
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 noncash 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 onetime and noncash 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 EBIT loss was $2 5 million compared to $1 3 million last year.
Net income was <unk> 4 million or one cents per share.
Compared to $8 6 million net loss or <unk> 19 per share loss last year.
The main factors driving the change was the full forgiveness of our 2.85 million PPP loan recognized this quarter minimal interest expense as we have cleared up our balance sheet along with the absence of the legal settlement from last year.
Backlog and deferred revenue.
At the end of the quarter totaled $6 1 million down from $8 million at the end of the last quarter.
The reduction in backlog, mainly has to do with customer delivery in Q3.
Along with lighter than expected bookings clothing in the quarter with decisions being pushed to Q4 with a few of our customers.
Moving to the balance sheet, we closed the quarter with just under $1 million.
In cash and $1 1 million in debt, which is a far cry from where we sit today.
Subsequent to the closing of Q3, we raised approximately $62 million from our active at the market offering with B Riley's Securities.
And another $4 6 million from warrant exercises.
In addition to the equity raise the company issued a promissory note with St Maryville capital borrowed $5 2 million in conjunction with the closing of the life technologies transaction.
With these proceeds we have preemptively paid down the $1 1 million promissory and convertible notes that would've come due in 2024.
We also announced last week that we purchased an additional 100 bitcoin for approximately $6 2 million, bringing our total holdings to approximately 129 bitcoin.
We believe crypto currency will continue to be a large part of our business going forward and having the ability to hold and transact multiple crypto currencies provides flexibility with our own fun coin and fund token offerings.
We currently accept bitcoin and ethereum for fun token purchases and recently announced that we have begun to accept bitcoin for light Python, where personal computer purchases.
And clothing and I've said previously the transformation, we have gone through in the past 12 months in the face of the COVID-19 pandemic has been remarkable we have successfully improved our balance sheet to fully fund our short term and long term objectives.
Once in our history as a public company.
Had the ability to say that our balance sheet stabilized with minimal debt and ample cash for the future.
We are finalizing plans for 2022 and look forward to sharing more details on our next earnings call.
We will continue to be active with financial conferences, and investor meetings, and our efforts to tell our story.
Further strengthen our corporate profile and the capital market.
The next conferences will we will be attending include the Roth 10th annual virtual technology.
And inaugural AG Tech answered virtual event on November 17th.
And the Ladenburg Thalmann virtual technology Expo 2021 on November 18th.
We will look to augment the number of one on one conversations and meetings with high class institutional investors at each event as opportunities present themselves.
With that I would like to turn the call over to Randy.
Thanks, Matt.
Last earnings call I discussed our go to market strategy, but the activity and attention surrounding our stock over the past few weeks. It means we have many new shareholders, who are less familiar with the company and what we're endeavoring to do it at a high level. We are a technology company that enables enterprises to engage people contextually, but with our initiatives and data and blockchain we.
Can help verify and incentivize that contextual engagement.
World, where many of the products you buy our Amazon enabled we are well positioned to ensure many of your experiences are fun. We're 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.
Because we've been doing this for over 12 years and on behalf of some of the most recognized brands in the world as evidenced by finger one shown here. However, just as important of who we do it for if how we do it.
Enterprises value working with fun, where 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.
Two we will give you a sense of just how extensive our integration portfolio to come 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 that had been added to the epic App orchard marketplace, which makes it easier for epic customers to take advantage of our mass digital front door for health care. This will help us expand our sales reach since epic has almost a third of the electronic health record market.
And more than 40% of all hospital beds.
Gracenote is also complement our indirect channel strategy, where we work closely with much larger companies like the one shown in figure three who are interested in either integrating key features of our platform into their own solution or white labeling our off the shelf solutions have been optimized by industry.
This quarter, we were thrilled to complete initial sales training and collateral preparation for carrier integrated our mass location based service the software into their blue Diamond platform by following a link provided on our earnings call transcript here you can see our technology in action and how it can seamlessly support corporate campuses entertainment venues.
As hospitals convention centers and more we also announced two notable new indirect channels during the quarter HIV Global who was a worldwide leader in access control and its integrated our math tomorrow workplace solution with HIV or go to increase employee engagement reduce the number of employee applications our customers must maintain.
Jane and simplify each employee's daily experience as well as Cox Communications, which is the business division of Cox visitor, who is not only an industry leader in broadband Internet of things and managed cloud services, but also active in delivering connected health solutions that enhance the relationship between patients and caregivers.
By leveraging our mass digital front door Cox pro site will be able to better support excellent patient experiences and outcomes drive cost savings and more efficiently coordinate facility resources, we officially launched with collaboration with Cox at HIMSS 2021 on August nine 2021 in Las Vegas.
These types of partnerships are central to our sales strategy to scale revenue in 2022, as we focus on indirect selling through our four primary channels to comprise our global reseller network, one hardware vendors to software developers three system integrators and a four carriers.
In order to effectively support our channel partners and their customers. We offer comprehensive Webinars case studies articles E books and additional training opportunities.
We're thinking of them certified developer program is also available to provide on demand Corso and the live training sessions remotely to learn more about math and how it helps brands and better execute their digital strategy and establish a true mobile presence in parallel we'll provide full mass documentation and software portal via the fun word documentation.
Portal and Github, respectively.
By partnering with and supporting larger companies and a global distribution networks, we seek to scale faster without incurring the heavy expense of a direct sales force, although we havent had any difficulty in the past it's worth noting that our target partners looks favorably on our improved balance sheet now that we have $65 million of cash on hand to complement our U.
Years of experience looking ahead, it will be important for us to be good stewards of the capital, but we fully plan to leverage it for growth both organically and Inorganically.
The third quarter. We currently have fixing unemployed, who are primarily located in Texas, Florida, and California with an average tenure of approximately five years exceeding the average retention benchmark set an attack by over 66% According to pacer.
We're also excited to welcome 27, new members to the team from Illinois as a result of our recent acquisition of light technology. During the first half of 2022 we will be working to relocate operations and key personnel to Austin, Texas. We're excited to properly resource like a company that has largely grown through word of mouth and excellent customer service, although we have set in there.
So post closing financial performance target of approximately $1 million a month in revenue over the first 12 months, we expect our ability to materially address the supply chain and marketing constraints will allow us to significantly ramp revenue generated by light in parallel we plan to expand our software sales and marketing team with a focus on indirect channel experience.
And as we've seen nearly 100% increase in sales activity from the first quarter to this quarter as it begins to rebound from the pandemic quarter over quarter. We saw the most activity and interest in these four verticals first mass digital front door for health care second mass smart workplace for Corporation third mass smart.
City for local officials and chambers of commerce and forth math advocacy for politicians in closing I'd like to turn things back over to Alan for final remarks, and a brief commentary on our mass blockchain ecosystem managed by funnel wallet empowered by fun coin and fund token.
Thanks, Randall I've highlighted throughout today's call. We were all extremely excited by the ongoing scaling of our mass blockchain ecosystem and the high performance computing system that we can now ship directly to consumers because of our light technology acquisition.
What it means to me is that our decade, plus that we're building across mobile cloud and big data accompanied by our years of community engagement blockchain and cryptocurrencies have resulted in the culmination in convergence a massive global addressable markets and trends that can now act a strong wind at our backs to further accelerate our recent growth.
We expect this ecosystem to complement or supplement our core mass offerings as we offer our enterprise customers additional capabilities to identify engage and incent their target audiences well many corporations and individuals are really familiar with blockchain and cryptocurrencies, both footwear and our executives have a long and distinguished history with them.
Global digital asset community.
As such we expect to be a trusted bridge for fortune 500 corporations and governments looking to leverage blockchain.
Look for additional announcements in the coming weeks and months ahead, as we enable consumers to not only regain control of their data with suncor, but also to reward them for their engagement with fund token, which can be purchased online with U S dollars.
Quinn and a theory them at by top fund token Dot 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 light technology, we expect to focus our merger and acquisition activity.
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 mass platform in crypto currency 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 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 stable coin 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 and support in all that we do on behalf of the entire hardware family worldwide.
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. If you have any questions or comments. Please press star one on your Touchtone phone pressing.
Pressing star to remove you from the queue should your question be answered and lastly, while posing your question. Please pickup your handset listening on speaker phone to provide optimum sound quality. Please hold while we poll for questions.
And your first question is coming from Darren <unk> from Roth Capital Partners. Your line is live.
Hey, guys. Thanks for taking my questions and I spoke on a quarter C. If I may.
First on your mass business I'm, just curious made a bevy of.
Indirect partner announcements.
It's kind of a mix of revenue is it mostly still direct and if it is.
This is mostly direct how is the pipeline building with them.
Indirect channel.
Yeah, I'll be happy to help.
Address that when we actually announced all the results. This time, we're still seeing a lot of direct business and so I'd say, it's still kind of think 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're most focused on to get to scale fastest include carrier, where there actually as Randall said bundling our location based offering within our platform into their solution.
That represents a upsell of what they're offering to their customers in terms of a smart workplace solution.
100000 customers and Theyre already purchasing all of the hardware crossed escalators elevators access control security.
And other components of heating air and so forth.
And theyre offering a simple upsell and cross sell so we expect through 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 are rolling through their distribution worldwide.
And we're probably about seven months through that process. So we expect finishing this quarter and into Q1.
To start really kicking in.
Secondarily Cox communications and other big focus with Cox enterprises, and a lot of that training a lot of the components that are going on with their health care solutions that they are the OEM or white labeled from us.
Going through the same process and the training and certification getting our sales teams up to speed and while we're starting with health care, we'd like to be able to extend that to other verticals within Cox communication and Cox enterprise, but I think what youre 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 gonna start seeing Q1 and beyond as they go back to live.
Composition of direct versus indirect.
That's helpful.
Miss if I Didnt ask this question, but on the supply chain earnings you've heard a lot of different.
Yeah sort of headwind so two parts to this really on the light technology business any cause for concern in terms of supply chain and procuring what you need and then on the math indirect side.
Is there anything youre seeing consternation in the channel whether that your partners are having a hard time procuring hardware.
They would need to integrate.
Your you service them too.
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.
We closed the light acquisition and we're in a unique position of having a lot of backlog in place and right now as 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 life. When they were still private and pre acquisition are their.
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 fund, where this is quite a different thing we want to take off that it just keeps 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 light has won eight hour shifts 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.
Our biggest challenge is 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 light our executive team reached out to our own network and sourced brand new supply relationship that we have.
Yet to announce.
Directly with a large manufacturer out of Asia, and we instantly set up a brand new supply to.
To address our backlog and new orders and that's going to be amazing for here in Q4 importantly, we are now having conversations with that net new supplier.
To expand dramatically throughout 2022, I think they still see and recognize the problem of chips and what youre seeing out and off the coast of California with the <unk>.
<unk> ships in port.
And so right now what we're doing is adding even more net new discussions with that new suppliers and what we want to do is to figure out whether there's really a ceiling to the demand we're fully comfortable and Randall does a great job of managing the team and adding the shifts in the personnel and the capacity we need to fulfill the orders the rest of it.
There's just going to be taking everything light already put in place and it was working quite well historically, but then we wanted to take our relationships and start setting up numerous new supply chains.
Behind these four dominant personas.
The high end performance systems for gaming.
As for streaming.
For trading markets those for cryptocurrency mining and then candidly folks that are just using it for advanced personal productivity.
We are not yet seeing the same residual effects other than we're very conscious of the fact that the supply crunches real relationships.
Relationships matter, new supply sources matter and I think depending on what type of chips and boards Youre doing and what part of the hardware ecosystem, you're in you're seeing a pretty wide spectrum as to whether they see this being another three to six months or something that's going to go deeper into 2022.
Yes.
Greg if I could squeeze one last one in maybe for Matt.
<unk> 5 million or better revenue guide in the fourth quarter.
What's the rough mix between call it hardware and.
Software and services.
Yeah, I think there so we're not giving out detail in terms of what that is you know for US right now it's a matter of.
You know getting like ramped up are they you know we've been with them in less than a month right now so.
We certainly have expectations on that side of the business, but.
Really a lot of the.
Our core.
<unk> business is going to drive a lot of the revenue for this quarter as well in terms of.
Just software application transaction and fund token itself 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.
Hey, good afternoon, guys I know it was touched on a few times the near term strategy around light, but could you kind of talk about what the longer term opportunity is and whether there are opportunities to kind of match it with the legacy business.
Business or the fund token fun wallet fun coin.
Other things.
Yeah, I'm going to start with this one and then I'm going to have Randall finish up for me is you know, what's really important and we talked about in the vision is how important it is for us to get in front of our idea for every human being on the planet.
Started the business I actually I think that was actually laughed at out loud when I said that too.
Additional investors because that was a bit too ambitious apparently but after we fast forward 12 years got over $15 billion of these fun, where ideas and we expect to dramatically accelerate that now.
Now, it's a very different situation.
Importantly, what we want to do is get that IV for each person, who has a device touching and network through their favorite brands applications and everything that they're tied to venues that run our software.
And what we expect to do as you know 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 that you saw most of the hardware companies drive out towards soft.
We're in services and increasingly you're seeing more of the software companies like Microsoft that have very large hardware businesses for us because we want at a core to get these fund where Ids.
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 gonna be ky see verified individuals who are.
Providing voluntarily all their data information engagement on and incentivize basis to populate audiences in market segments that brands can then trust that those segments that they're going to engage with our completely real completely transparent openly.
On our ledger on the blockchain and allow those brands and those users to connect with one another in a safe way and also compensates users for their engagement and their behavior across those incentives.
And so at the core of this we see software is delivered inside applications, Apple iOS and Google Android, we see software running in the cloud we see software that we have being bundled with the hardware that light represents and as these high performance systems get shot out to market that becomes.
A housing point for our software.
And for many of the things that we're doing with fund wallet from Cohen and fund token as these represent a lot of the early adopters and represent nodes and a global decentralized network that allows us to completely change the dynamics of how people are respected and control of their digital identity and information.
That safely engage with brands transparently, where both parties know what's happening you keep a ledger of all of it and for US. It just allows us to upsell and cross sell to your point, specifically before I hand, this over to Randall.
If you downloaded our fund wallet application right now on either iOS or Android you would find that upsell or cross sell as one of the first cards you would see within it separate from the engagement survey and other interactions you could do where it's actually promoting the high performance system in the Black Friday sales that we have throughout the month, where you can get those high.
Performance, Shane without any don't cost and with some really interesting high end personas that will allow people to be who they are we not only want to reward you for being you, but we want to accelerate.
Your personal identity and you engaging in any way that you want it ran but could you talk about a little bit of how that ties into the customer data platform and the build out that going on operationally that would be really helpful. Thank you.
I think you hit it if anybody wants to dive deep you know we can do a one on one. After this you were transparent company. We're always available if you really want to go down a rabbit hole before that conversation just kind of you know Google and research decentralized Oracle networks, but the way I would think about it you know for anybody let's call it new to this whole ecosystem, especially from a shareholder perspective ammo.
It wouldn't be Amazon.
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 in Bachelor weighted with bitcoin if somebody didn't invest in the very high end computing system in order to deliver this new.
No.
Before Internet money software exist at the pleasure of hardware and only companies with the wherewithal.
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 expected to deliver on demand experiences.
Having a data economy behind that that is truly decentralized will live into the promise of.
Web three weaponry and so when you think about anything and Decentralisation, It's got a run on computers, rather than running on centralized data servers. What have you had a worldwide network of high end computing systems that were truly decentralized.
So I'll leave some time for some more questions.
No.
That's helpful guys. Appreciate the color there and second one just on M&A with all the additional capital you have now does anything change in the way youre looking at potential targets.
Well, it's I'll take a stab at that one so the way we always look at M&A and it's always very consistent with or without big balance sheets right. We find things that are opportunistic some time strategic.
We really want to do is get more touch points all over the world I do think you are right that with flush balance sheet we are.
Are doing lots of deep dives with our board and working through our finalized the operating plan, which then allows us to provide some more detailed guidance to all of you once we get through that planning process and finalize and approve it.
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 a strong stock stock price market capitalization. It opens up more opportune.
I will say candidly there are some folks that Randall and I have talked to historically both.
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 move forward because of either ownership structures or.
Management structures.
Some actually.
Todd contacted us recently, where they I think have a little regret and remorse for having said no. We will only do deals if it's discipline.
Would it 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.
Real attraction of light was not only that light wanted to do a deal with footwear and come join us.
But that the founder and CEO didn't want to go anywhere and in fact, we wouldn't have wanted to do the deal had he wanted to have the desired to go elsewhere.
I think we will now having very little that we can always look for revolvers for M&A.
I think we have a lot more opportunities to us.
Supplements with cash or cash and stock to consummate M&A, if we find the right fit.
But I think the way you should think about it it's going to be three levels of capital and those three levels of capital will feed into what happens with an organic and inorganic growth.
Bucket one is all the cash.
And stable coin oriented things that we do to manage what our needs are to operate and scale the business.
It too will be all the things that we deal with and decentralized finance.
To make our corporate treasury much more of a strategic weapon. If you will to operate in the market worldwide and then the final base bucket of that is of course, bitcoin, which we continue to believe and as long as you know the federal.
Government is going to continue to print money and the way. It is we look at the cost of capital at about 25% based on the amount of dollars being generated and so that's really the threshold that we look at on the cost of capital as to what makes sense and then what kind of asset is being used.
Alright, great guys I appreciate the additional color thanks a lot.
Okay. The next question is coming from Ed Woo from <unk> capital.
Yes, congratulations on the quarter I was wondering if you could talk a little bit about your strategy on bitcoin do you anticipate that the amount of points you have to fluctuate quarter to quarter and then also do you anticipate.
Acquiring any other no 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 Inflations out of control if the official member as released 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 U S 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 he issues. When you have a lot of financial assets and a lot of physical assets.
All of those are going to get denominated in U S. Dollars. So bitcoin is the one thing that is not denominated in U S dollars and in fact over the last 12 years the.
The U S. Dollar has 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 cent per year.
For 12 straight years.
The other aspect you have the U S dollar, which is dropping between 20 and 25% per year in value with certainty.
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.
To lose 50% of your wells in the next 20 years at 4% and we're way way higher than that so bitcoin is gonna 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 were asking about.
<unk> ability I don't expect us to be buying.
Buying and selling and trading that claim that that's not what we do.
What we do is we treat it as a strategic asset to preserve a protection against inflation purchasing power and flexibility.
That's what we're gonna do on other currencies as Randall I think said.
And that said, we obviously accept bitcoin and Ethereum. In addition to the U S dollars when we sell our fund token. So we haven't yet disclosed in a theory imbalance, but we do have a theory them and as we get into decentralized finance you can expect we're going to touch a different kind of assets.
Safe and manageable way with our corporate Treasury.
Matt comment.
No.
And I think you just kind of touch on it all there. So yeah. It where are you know obviously, we've you've kind of made a few announcements and you can follow along and are keyed in cages to.
As to how we're acquiring and at what prices.
As I'm sure you know the funny thing with accounting for this is we got a write down.
Anytime the value of a bitcoin goes down, but obviously we don't.
You 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 you know that.
Instead, it's part of our strategy going forward and what 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.
Yeah.
Once again, if there are any remaining questions or comments. Please indicate so by pressing star one. The next question is coming from Howard Halpern from tablets Brothers. Your line is live.
Congratulations on all the work you've been doing these quarters.
Uh huh.
Couple of housekeeping questions.
I don't know if you mentioned it what is your backlog entering the quarter in recurring revenue.
Yeah, I mentioned is just a little over $6 million.
Entering the fourth quarter.
Okay.
And with all the.
Transactions post the.
Quarter, how many shares outstanding do you have from the offering and that warrant exercise.
Yeah, So we would have.
$96 2 million shares as our current.
Okay. So we sold we sold a decent amount and after September 30th.
Okay and in terms of a delight.
Delight 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 our software business, obviously hardware versus software so, but what is that mix going to do over the longer term to.
Yeah. It is.
It's a great question and it's something as Alan mentioned, we're working through the operating plan right.
Right now in.
Going through everything with the board you're correct that in terms of hardware.
It's kind of your typical hardware business, where there are going to be lower margin.
That being said.
There are quite a few things that we're doing now.
Now to try to improve margins, whether that new supplier relationships.
Or just you know more efficient activities and getting the computers out and different kind of low hanging fruit.
So.
What kind of see how that shakes out and obviously once we get.
You 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 of a higher margin.
Software and slightly lower margin hardware.
Hardware business.
What kind of update you guys as we are.
As we get some numbers and kind of figure out what that is going to look like going forward.
Yeah, Howard and one thing just to add on to that to help us.
We also have a new product right. So all of the fun token that we're selling.
It's virtually 100% gross margin, we meant that internally as our own crypto currency I think we're the first NASDAQ or NYSE listed company in history to actually issue.
Crypto currency, you know theres a lot that buy bitcoin, there's a lot that mine that claim but the concept of having a fully regulated set of things that you're doing.
Think we're unique and we're the first 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 ky see fees to make sure you're validating identity in 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 a theory and so.
To that point, you know crypto currency, having bitcoin is important having a theory and that's important because U S dollars can't be used in the world of blockchain and in order to facilitate transactions all the fees are in different types of crypto currencies. So.
That should be helpful and I think as Matt said, we will have both the hardware oriented margins the software margins you're used to and then we're gonna have.
You know things that look even better than the software as it relates to crypto currency merchants.
Okay, and just one last one on me.
Maybe some tailwind as you go into 2022 as the money starts flowing from the projects from that.
Newly Paas infrastructure.
How is that going to impact, especially on smart cities offerings as infrastructure gets upgraded across the country.
Yeah. So I think we're all still getting our arms around as to exactly what isn't that massive pile of the bill.
It's really going to hit represent actual physical infrastructure versus <unk>.
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 in Southern California, and one of the things that just came out literally shortly before our call.
And I'm meeting with mayor Suarez.
Visit here in a couple of weeks.
They just announced a really interesting initiatives, they're actually going to take bitcoin dividends from the city of Miami and Theyre 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 theyre doing and in parallel to that thing.
Now accepted almost $20 million.
At the local city level from eight separate crypto currency.
We're tied to people effectively if you think that are staking them. What they think is going to happen with the city of Miami and ways to contribute to the local community.
That's nearly $20 million of found money and with all that money and 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 crypto currency 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 get dividends at the benefit of that accrued value to the citizens.
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 else 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 haven't called the software of things, where we're going to deliver smart city solutions and a downloadable app that are constituent a resident or visitor can all engage with all of the services.
As 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 would now like to turn the call back to Alan for closing remarks.
Yeah, No closing remarks I just wanted to say thank you for all these they've been supporting US obviously since we've been public we've gone through a lot of interesting things.
Covid has been you know just a crazy thing to deal with for all of Us and our business in your 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 of 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 gonna do how we're going to do.
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 then we go do it and then we report back to the results and I think the last 90 days have been exciting to really show you. All the investments we made during COVID-19 of what is possible and what can start happening.
So now we're gonna take this enjoy a day.
Get right back to it tomorrow and start really scaling cause while COVID-19 isn't completely over we're hopeful that by the end of the year come January we'll 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.
In conclusion I want to just make a special thank you.
And wish nothing but the best for our veterans around the World are Randall who I haven't put it we're working with every day, both P&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 Furthermore, 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.
Okay.