Q3 2022 Phunware Inc Earnings Call
Good afternoon, ladies and gentlemen, welcome to <unk> third quarter 2022, Investor Conference call.
Currently all participants are in a listen only mode.
Joining me today are Alan Erskine, Stawski, President and Chief Executive Officer, and co founder rental Crowder, Chief operating officer.
Cone Chief Financial Officer.
The format today will include prepared remarks by Allen Madden 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 statement, referring to the potential effects or impact of the COVID-19 pandemic reflect current views as of today and are based on various assumptions that are subject to risks and uncertainties disclosed in 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 Dot fund where dot com.
I further encourage you to visit investors docs on where dot com to access not only the earnings press release, but also the current investor presentation, SEC filings and additional collateral on software.
At this time I'd like to turn things over to fund <unk>, President CEO and co founder Allen at housekeeping.
Sir Please proceed.
Thank you very much and welcome to our third quarter 2022, Investor Conference call My wife to Sunrise, President and CEO .
As a reminder, somewhere isn't nearly 14 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 can eat for every human being on Earth that as a device touching a network that is connected to their favorite brands applications and venues that just happen to run footwear software or intersect with our cloud based infrastructure.
On one side, we provide our business to business and business to government customers with everything they need to succeed on mobile, including the product 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 business to consumer customers with the hardware systems software and crypto currency services needed for their engagement and incentivize participation and high performance gaming streaming trading crypto currency mining and personal productivity computing.
Central to these efforts is our enterprise cloud platform for mobile callbacks 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 fun coin and sunburst loyalty and rewards crypto currency ecosystem for their physical and virtual world, which has facilitated transaction really with our fun, while mobile applications pretty good theory on blockchain.
The completion of Q3 constituted continued operational momentum for our business as we further accelerated our mass platform vision and adoption across a number of key firms, including new product introduction.
Indirect channel expansion digital asset expansion and a more than a 120% sequential gain and year over year revenue growth in.
In parallel the conclusion of Q3's subsequently provided even more growth opportunities for our business as we further scaled our lightweight footwear operational infrastructure for what we expect to be record Q4 hardware sales during the upcoming holiday sales season.
All anchored by a balance sheet now, including digital currency balances of more than 653, bitcoin 753 or area and defy positions valued in the aggregate at nearly $14 million at today's prices.
In tandem we expect full year 2022 revenues to exceed $22 5 million up roughly 225% year over year. While we also continue to expect that second half 2022 will represent a new second half record for reported revenues as a public company for its comparable period.
Our CFO Matt will.
We'll break down these details in the forecast further in his section of the earnings broadcast.
In terms of the current operating environment, our core business to business and business to government customers are continuing to return to their offices and facilities remaining at a hybrid transition with regard to their employees and contractors safely returning back to work in.
In parallel and consistent with what many other technology companies are seeing similarly operational headwinds remain against the backdrop of excessive inflation elevated interest rates ongoing geopolitical tension and a stubbornly recessionary macro economy.
Nonetheless, we continue to expect that cities states and countries will continue opening on a broader basis throughout the balance of 2022 and that 2023, we'll look far more normal for in office operations.
Of particular note and quite counter to some of these challenges our business to consumer customers continue to be active and fully engage demonstrating robust demand for both hardware and crypto currencies.
As suggested previously and again reiterated here, we are both excited and 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 and the cloud.
Importantly, this activity encompasses all of our core growth engines rolling forward, including our mass cloud.
Our data driven loyalty marketplace are secure blockchain enabled token coin wallet and net averse capabilities at our high performance computing systems for gaming streaming trading crypto currency mining and personal productivity.
Last year was the Genesis of a powerful transition in our company's history as we shifted from a non recurring 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 interest in our mass digital front door solution for health care, our mass smart workplace solution for corporations and our mass residential solution for real estate properties, we accelerated conversations with customers in sectors that were hit hard by the pandemic, including the hospitality real estate and healthcare vertical.
<unk>.
These activities resulted in many customer wins for our team, including Tran system.
Media sequel, Miami Dade County Live nation, the Federal Highway administration, the Federal Rail Association, and our recently announced renewal and expansion contract with Parkview health.
In conjunction with growing our portfolio of direct customers like these including a major international hospitality brand that we expect to announce formally in the next few weeks. We also further expanded our global footprint by amplifying our go to market strategy with core indirect sales and channel partners now including campaign nucleus.
Cisco systems carrier Presidio CDW.
<unk> systems Axion labs private tech.
Cooper lighting, Lutron, Verizon Cox business, Newcomen, Boyd comport contact Io and HIV global amongst others.
We remain extremely excited about the post launch scaling of Sun wallet and our blockchain ecosystem powered by fund and fund took it including the recent addition of <unk> for the virtual world to accompany our existing efforts already well underway for the physical world.
We are continuing to aggressively scale and monetize this part of our business and look forward to the accelerated global adoption of both our blockchain enabled mass customer data platform and our mass mobile loyalty ecosystem.
During Q3, these important activities, including the trading expansion of fund token our decentralized exchange unit swap and the pending trading commencement of fun coin on centralized exchange securitize.
As stated above we are extremely excited to announce today more than 120% sequential revenue growth year over year. Additionally, and in parallel we are announcing forward revenue guidance for 2022 of up roughly 225% year over year or $22 5 billion, while also reaffirming our expectation.
That second half 2022 will represent a new second half record for reported revenues as a public company for its comparable period.
As always we will continue our core go to market strategy centered on direct and indirect 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 continue to dramatically expand our direct to consumer channel for business to consumer engagement across both our high performance computing and crypto currency offerings to consumers.
We are extremely excited by a number of developments that have occurred over the first three quarters and even more excited by what we see coming in the coming quarters and years ahead.
First we continue adding new customer wins for our existing mass bookings backlog and deferred revenue totals for future revenue recognition over one to five year contract period that will ultimately provide SaaS revenue recognition over the coming 12 months to 60 months rolling forward.
Second we continue expanding our installed base upon our ideas on mass to more than 15 billion devices worldwide, including mass 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 a detailed data ontology and a comprehensive knowledge graph for one to one interactions and engagement.
And third we commercially launched and continued scaling our fun wallet mobile applications on Apple iOS and Google Android in conjunction with our mass blockchain ecosystem all powered by our fund Cohen and fund token digital assets now, including fund versus for the virtual world, whilst Uncoined security tokens only appear on our balance sheet due to their status.
As a regulated security token.
Token utility tokens continue flowing transactions through our P&L as net new virtually 100% gross margin revenue.
As a reminder, during the comparable period in 2021, we did not have the light by fund where hardware business at all and it only just launched the mass loyalty and rewards ecosystem anchored by fund token and fun core.
However, fast forwarding to today, we now have both lines of business active that are continuing to scale them productively, including the first half 2022 edition of the fund wallet mobile application portfolio on Apple iOS, and Google Android and its accompanying virtual world members, which we have branded and launched at <unk>.
<unk> at this time, our CFO , Matt Downing will go deeper into our third quarter financial performance as reported including our strong sequential revenue growth year over year, and our expectations for the remainder of the fiscal year.
Please go ahead.
Thanks, Alan and good afternoon, everyone.
Like to thank you all for joining us today for a review of our third quarter 2022 financial performance and our progress on key strategic initiatives.
For clarity I'll be discussing GAAP financial measures unless otherwise specifically noted.
Press release, 8-K and website provide a reconciliation of both GAAP to non-GAAP financial results.
Net revenues for the third quarter 2022 totaled $4 8 million, which represents a 120% growth year over year.
Platform revenue represented 27% of net revenues or $1 3 million.
Our hardware revenue or life by phone were represented 73% net revenues totaling $3 5 million.
Gross margin was 16, 7% compared to 52, 5% in Q3 of last year.
On a non-GAAP adjusted basis gross margin was 17, 9% compared to 68, 8% in Q3 of last year.
Platform gross margin was 46, 5% compared to 52, 5% last year.
As I've mentioned previously life by phone Ware has a different margin profile and computer hardware business that are higher margin platform business.
But on where gross margin was 6%, which includes a 131000 write down of inventory related to the strategic speculative purchases made in the middle of the worldwide chip sorted when certain Cpus and Gpus were in short supply.
Much higher prices than they are today.
We still expect to turn this inventory however, it will be sold at current market prices.
Total operating expense was $8 7 million up from $5 2 million the same quarter last year.
Other noncash operating expense items were stock based compensation and amortization of intangibles picking up a combined $1 billion this year compared to $1 2 million in the prior year.
Excluding these onetime and noncash charges.
Adjusted operating expense of $7 7 million compared to $4 million last year.
As I mentioned last quarter between our life, iPhone, where acquisition and the rebuilding of portions of our expense structure coming out of Covid the year over year operating expense increase was expected there.
We're confident we can scale the business, whether with our existing people and facilities, while keeping our cost structure at or below current run rate.
non-GAAP adjusted EBITDA loss was $6 7 million compared to $2 5 million last year.
Net loss was 8 million or eight cents per share compared to <unk> 4 million net income or one cents per share last year.
Backlog and deferred revenue at the end of the quarter totaled $7 9 million up from $6 1 million in the same quarter last year.
As I mentioned on our previous call, we expected our backlog to grow coming in to the back half of this year.
Moving forward, we have every intention to grow this number as it provides predictability with our revenues in future buildings.
Moving to the balance sheet, we closed the quarter with $8 5 million in cash and $12 7 million in debt.
As I mentioned on our last call we reached an agreement with our partner Streeter real capital.
Increasing our borrowings to roughly $12 million. So we can ensure we have enough operating cash for the year.
We currently hold just over 653, bitcoin and 753.
With an aggregate value of approximately $13 million based on today's prices.
In addition, we held just under $1 million of decentralized finance defy holdings, which currently yield roughly 20% of the anyway.
In closing as we move toward the end of 2022, we are encouraged with our continued record topline growth in the face of inflation in a slower economy.
As we look toward the new year, we have a renewed focus to rigorously prioritize our investments to ensure success in this unpredictable economy.
We are committed to continuing to build a strong revenue base, while improving overall gross margins through both organic and inorganic opportunities.
We will remain active with both financial conferences, and investor meetings, and our efforts to tell our story and further strengthen our corporate profile and the capital markets.
The next major financial conferences, we will be attending or the Roth 11th annual technology event on November 16th.
The benchmark 11th annual discovery, one on one Investor Conference on December one.
And the UBS TMT conference on December 5th through the seven.
We look forward to many 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 Randall.
Thanks, Matt.
Last year people spent a third of their waking hours on their phones. According to App Annie State of mobile 2020 to report that's almost five hours per day.
The estimates at an astounding, 90% of the global Internet population use a mobile device to go online.
Sun, where we deploy cutting edge technology to help any brand in any industry better engage manage and monetize their customers in a mobile first world, but it's quickly becoming mobile only.
We tech enable contextual engagement by leveraging data and unifying disparate third party solutions to deliver the right content and the right place to the right person at the right time.
By automating engagement, we help our customers not only make more money save more money or get more out of their money, but also delight their stakeholders by enhancing real world experiences to.
To achieve this we continue to focus our efforts around five core objectives.
Objective, one improving the features and scalability of mass to not only drive adoption and shorten our sales cycle, but also enhance our margin profile from.
From a platform standpoint, we are hard at work product targeting many of the internal tools, we use to deliver our amazing mobile solutions. So we can offer our customers more self service features and functionality.
One of the key problems are working to solve is that organizations have static data and legacy systems and often leverage third party solutions that are not designed with interoperability in mind.
Many of the customers in our pipeline are looking for better ways to dynamically access and deliver relevant content based on context to inform and enhanced engagement through their mobile applications.
Our solution is middleware that unifies and Leverages disparate datasets and third party solutions to drive interoperability now we were working on a rules engine to auto populate audience segments by attribute which can then be assigned to targeted campaigns based on context.
For example, our platform will deliver a free drink coupon to a veteran in the lobby when she arrived at least an hour before check in just as easily as it will deliver an alert to a nurse when he is in proximity to a recovery room with a patient who's in forest.
This is not that dissimilar from the systems I use during combat to ensure leaders have a comprehensive understanding of the battlefield.
Common operational picture or cop is the command and control resource to provide situational awareness, enabling users to make accurate informed decisions.
Data is integrated from multiple sources to support any and all functions of an appropriate response using one spatial data platform. This is exactly the kind of capability. We can offer enterprises. So they also gained a tactical advantage.
In addition to our continued product enhancements around data and interoperability. We are also working to expand our location based services are LDS capabilities, our patented mass lbs software and Beacon management solution provide native mobile first capabilities that are 80, a compliant and deliver proximity sub one.
Second real time, Blue Dot indoor positioning navigation and waste finding functionality across any campus or facility.
However, the cost of beacons can be prohibited so we've begun exploring not only wholesale agreements to bring down the cost of each beacon, but also newer technology like geomagnetic indoor positioning to eliminate the need for so many beacons altogether, our hybrid L. B S solution should improve our close rate as well as our margins.
<unk> to scaling revenue as well as activating indirect channels by ensuring our partners have the training collateral and proper incentive structures in place to be successful.
As of this quarter, our most active industry than our software pipeline remain health care hospitality and sports and entertainment. While average deal terms are three to five years, we've seen our average deal size for new proposals continue to increase for example, health care represents half of our pipeline with an average deal size of $600000 since our.
Digital front door is the closest deployment, we have the truth SaaS hospitality represents 25% of our pipeline with an average deal size of over $1 $1 million and it is getting a lot more attention now that our smart hospitality solution is live at Atlanta in the Bahamas.
In fact, we're excited to announce our smart hospitality solutions being licensed by the major hospitality brand, we alluded to during last earnings call and expect to be able to formally announce details of that engagement. This month. Our initial implementation was a resounding success and the full rollout of that solution across multiple properties requires no additional custom code.
This kind of SaaS deployment is a testament to our product engineering teams, who have been working tirelessly to help us more efficiently scale our platform as.
As we look ahead to 2023, we're excited to have these well known brands as reference customers, but we are also working to refine our collateral and positioning to improve our sales motion and reduce our sales cycle by simplifying messaging showcasing interoperability selling ROI and streamlining pricing.
For our data enriched media opportunities, we continue to focus on direct engagements are most active industries, our retail government and health care, but we're seeing strong growth in food and beverage travel and sports and entertainment.
That said retail and health care represent approximately half of our pipeline with an average deal size of $40000 and $120000 respectively.
Blended our platform gross margin was 46, 5% in Q3, but it's important to keep in mind that the initial implementation and various integrations require more work in the first year. While subsequent years require very little for reference a typical software deal right now with 75% gross margin over the long.
Life of the deal.
One important area of focus for us to improve our margin profile is improving our ability to sell through indirect channels.
Led by two recent hires as well as an outstanding consulting team, we've been working hard to not only better support our existing partners, but also onboard new ones. We currently have 37, new partners in development and more than 22, new leads sourced from our partners during the quarter we.
We have also begun holding partner Webinars with customers like the one we held with Cox Communications and Phoenix Children's hospital with over 500 registrants.
To support our partners. We also provided comprehensive case studies articles ebooks and additional training opportunities. The fund worth Vietnam certified developer program is also available to provide on demand courses and live training sessions remotely to learn more about mass and how it helps brands better execute their digital strategy and establish a true mobile.
Present.
In parallel we provided full mass documentation and software portals via the fun, where documentation portal and Github respectively.
Objective three <unk>.
Launching a compliant blockchain ecosystem to better incentivize and authenticate consumer engagement.
To be Frank.
The house of cards built on hubris fraud, and confusion yet block chain remains one of the greatest innovations the global economy has seen since the medicis commercialized double entry accounting.
Just like the dot com boom with watchman errors, either cashed out or flamed out market corrections like the one we're experiencing now are important because what emerges from the ashes of failure or companies like funnel, where that are accountable to their shareholders.
Sure and lasting change that realizes blockchain true potential.
Just like Bitcoin proved to parties could transact in a trustless manner without an intermediary like a bank brands and consumers do not need data oligarchs in the middle and profit from the exploitation of consumer data without concern.
Decentralized data economy, which fund worth helping to create will put consumers in charge of their data and enable brands to efficiently reach the consumers who are most willing to pay attention.
However, the regulatory landscape does not support most of the utility tokens and perhaps even many of the N F. T projects that have been deployed over the past few years.
During the quarter, we completed an exhaustive review of the SEC guidance to date as well as some of the enforcement actions that you've taken recently, while we still expect fund token to play a role we will be focusing the majority of our product and commercialization efforts on fun going going forward. One point is not just with security token suncor will be a compliant utility tokens.
Cause it's a security looking ahead, we are well positioned to commercialize the world's first truly decentralized data economy with a robust infrastructure required to support an Oracle network that bridges web three applications to web two data with light by fund, where as well as a persistent mobile first connection to consumers through fun wallet, which is available on <unk>.
Apple iOS and Google Android.
As an extension of our mass platform, we were working on a regular product updates, but we were excited to announce during the quarter. The release of our location based marketing functionality inside a phone wallet that will enable consumers to interact with brands in the real World. We are also working with securitize the finalized everything you'll need for the compliant official launch a fund calling for trading.
We understand it has taken longer than expected, but we were working to ensure the long term health of the ecosystem. We've committed to building in parallel we are also preparing to file a reggae for fun coin to enable future purchases and issuances.
Objective four ramping sales and improving margins of light by phone, where by streamlining operations and being more disciplined with our marketing efforts. During the pandemic light was able to take advantage of the CPA is below $50, but we have seen CPA is north of 300 cents, which drove revenue, but also expenses going.
Forward, we will not drive revenue at any cost starting in Q4, we are now focused on driving profitability. So we can scale responsibly. We believe we can achieve the CPA of approximately $120 and have begun testing our new strategy with marketing campaigns for Black Friday, which are currently ongoing in the first week the team has.
Sold over $400000 in exciting new Influencer integrations are going live over the next few weeks to broaden our reach during this holiday season.
Our new facility near Dell headquarters in Austin has begun to ramp shipments to accommodate this influx of new sales, but we believe we'll be able to scale to almost 4000 shipments a month and could achieve up to $75 million in revenue before we'd need to consider more space. In addition, our new ERP system will help us improve margins going forward.
As we put many of the one time costs of moving to Austin behind Us we.
We are also looking to add additional product lines, such as traditional P. C's to give us a larger target market, while still optimizing for profitability.
Objectified engaging more investors with a focus on institutions to drive awareness volume and stronger price appreciation.
Obviously theres a lot of excitement in the market about fun. We're recently in fact, our daily volume on Monday was 20 times, our daily average similar to last year around this time when our volume noted reached 650 million shares a lot of people are taking notice. We will continue to work closely with gateway Roth capital <unk> H C Wainwright to attend conferences.
And participate in non deal roadshows to share the fun, we're storing more broadly we've also been given great opportunities to engage new shareholders through partnerships with Red Oak Pacific and working closely with both Jon Najarian and Mark with prestige Monette Advisors, Inc.
In closing I want to personally thank all <unk> employees, who are single greatest competitive advantage their faith in each other and our vision is inspiring.
As of the ended the quarter, we have 113 amazing employees with the majority of them residing in California, and Texas as we look ahead to the remainder of the year and into 2023 I'm excited about what we will be able to achieve as we focus on 10 operational goals that will be foundational to our success.
Foster teamwork and minimize distractions.
Be more disciplined in the allocation of resources.
Align resources with core competencies.
Focus on ideal customers and partners.
Update positioning and marketing to better sell our core value proposition.
Product ties internal tools.
Jennifer inorganic targets to accelerate commercialization of key capabilities launched fun coin reduced cash burn.
Minimize dilution.
For closing remarks, I'll now turn things back over to Alan.
Thanks, Randall as highlighted throughout today's call. We are all extremely excited by the ongoing scaling of our mass blockchain ecosystem and the high performance computing systems being shipped to consumers, they're like buy somewhere.
What it means to me is that our decade plus of mass platform building across mobile cloud and big data accompanied by our years of community engagement blockchain and cryptocurrencies have resulted in a culmination and convergence of massive global addressable markets in trend that can continue to act as strong wind at our backs to further scale our continued growth.
We expect this ecosystem to complement and supplement our core mass offerings as we offer our enterprise customers additional capabilities to identify engage and incent their target audiences.
While many corporations and individuals are really familiar with blockchain and cryptocurrencies, both fund where at our executives have a long and distinguished history within the global digital asset community.
As such we continue to expect to be a trusted bridge for fortune 500 corporations and governments looking to leverage blockchain independent of the recent macro noise and market pullback associated with all global crypto currencies. Please look for additional announcements in the coming weeks and months ahead as we continue to enable consumers to not only regain control of their data with <unk>.
Corey, but also to reward them for their engagement with fund token, which can be purchased online with U S dollars bitcoin and ethereum at by Dot Fund token Dot com.
In parallel and as we would again reiterated 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 have done previously we expect to focus our merger and acquisition activity on targets that are operating profitably.
And would represent accretive deals in areas that will provide more customers more partnerships and more distribution for our mass platform in crypto currency ecosystem, especially in international markets, including Europe , Asia and South America.
Importantly, we expect to maintain a laser focus on our core operating and financial model, which includes strong top line revenue growth of 225% or more for full year 2022.
All while consistently working towards cash neutrality from operations scale and.
In parallel we also expect to continue leveraging our balance sheet, where possible to amplify our corporate treasury activities as a strategic asset for the company, including our bitcoin and ethereum and decentralized finance positions in order to generate additional financial returns for our overall operations and results.
Finally today marks my final public earnings call with fun, where as I transition at year end from the Companys co founder President and CEO operationally to the company's co founder adviser and largest evangelists and fan and strategically drill.
During calendar year, 2023, I'll be spending my time and focus advising fun ware and assisting its leadership team and board wherever and whenever needed both internally and externally.
It's been a great honor and privilege to have started fund where nearly 14 years ago with Guangdong and Alan Kay as nothing more than a large IDM backstopped by an even larger vision to then successfully funded scale. It privately for a decade to then take it public on NASDAQ the trade is fine ever since.
<unk> has felt like raising a child me over all these years, including all of its inherent ups and downs gross maturation and evolution that you might expect along the way they.
They say that it truly takes a village to raise a child and in my heart of Hearts I know that our proverbial village has been all of you our global fund where family who have supported us tirelessly along the way.
With that and in conjunction with a sincere. Thank you for me Luann Allen and everyone else for your ongoing interest and support and all that we do worldwide on your behalf I would like to now open up the call for questions through the operator, operator go ahead. Please.
Certainly ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time.
We do ask them well posing your question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality.
Once again, if you have any questions or comments. Please press star one on your phone. Please hold while we poll for questions.
Your first question is coming from Darren <unk> from Roth Capital. Your line is live.
Hi, Thanks for taking my question. This is Austin on for Darrin.
First question I'm, just curious if you can maybe go into and discuss some of the dynamics of.
Yeah proved margin profiles or how indirect partners could improve the margin profile.
As you start selling through those channels.
Yes, let me start with that and then I'll hand over for additional.
Additional commentary from that Randall.
Importantly, when you breakout different parts of the business on the software side, obviously, we have very high gross margin of 75% to 80% when.
When we even bundling the services as Randall said.
The initial work that we ended up doing as time passes over years 234, and five and a lot of these deals you see the average gross margin just expand because we don't have to do anything in the outer years once the applications get deployed.
When you separate out the software side and jumped into the application transaction part, we typically see 70% to 75% gross margin.
Issue. There is we just have to scale the size of that business. So that instead of it being 650 $700000 per quarter of the business. We just get more heads tied to more of a campaign budget tied to larger numbers, which help out the margin.
Big part is obviously with life somewhere first thing was to buy the business second thing was to consolidate it.
Its private company reporting in the public third was to migrate it from Illinois to Austin fourth was to get a bigger facility that can scale up and as Randall said can support up to 75 plus million in scale before we'd need more of a facility next part after that was deploying an inventory management system and a whole bunch of things that actually weren't in place before and.
Then separately was to setup procurement and supplier relationships to have more scale and economies with both buying discounts with a big focus on about $120.
Customer acquisition costs.
So all those elements are combined and it really would get into the operating leverage as it relates to those three core areas of the business and then to your point about selling through indirect channels and partnerships that gets really important for us where we get pre embedded in our products like carrier allow.
Owing that product to then expand to be able to automatically go out with each purchase that their distribution channels actually have and the more of these partners that we set up the faster that we expect to see not only the revenues grow it but also the margins that go with them.
See if Matt or random want to make any comments to that.
I think that will go pretty thorough.
I would add to what people need to understand as you know we're not you know the world is confirmed by point solutions or every entrepreneur gets told to be laser focused when they go out and build one very specific code very for one very specific function and they can sell that every time, we talk to a customer you know, they're inundated with a bunch of point solutions and so for us the value of.
Working with indirect channel that they already have that customer touch point. So when we talk about Norfolk Southern a lot even during the pandemic. We launch this amazing smart workplace solution of the future.
<unk> partnership with NUKEM avoid is important when you think about like a consulting firm or a systems integrator theyre thinking holistically about the entire solution that why these venues is going to require in order to drive digital transformation forward mobile is so important because it is going to present itself like a mobile application, but its got to consider all.
These other point solutions and so for us when we think about indirect channels. That's what's taken so long I mean, these are very complex ecosystem with a lot of competing third party solutions and disparate data sets and so the more we can get embedded either integrating our actual code into somebody else's solution or.
Or white labeling our stuff like we did with Cox or just partnering with these consulting firms who they hate to be exclusive you know they've got to kind of remain on.
I'm biased, but you want to be their first call like look I've got a customer they've got a problem you know they need a mobile strategy and you know, we're gonna call fun, where first because they deliver and so as we begin to get some of these relationships and as we begin to kind of drive some of these.
All of the motions forward.
Big process of fuel rods portal the collateral it's training, it's dealing with vars, but once you get them going you know they can sell we can support and then we can start realizing that 75% gross margin across all our deals rather than the lower margin stuff, where we're still kind of carrying.
Most of the load.
Selling direct.
Got it that's helpful and I guess just on the same topic.
Just kind of have a follow up for that.
Randall you've mentioned a few times just the length of time it typically takes to get some of these direct deals.
Integrated and kind of up and running.
As these.
New leads come in from these indirect partnerships does that.
That come with it like any faster integration times I'm, just curious at that portion of the day if that dynamic changes at all if it's any.
Versus direct you know time to get up and running with.
The final customer.
Yeah. It depends on what it is you know like with carrier, we're actually integrating our code into their solutions. So you can imagine and integrating our technology into a multibillion dollar platform, that's going to come with a lot of building consensus of getting approvals and things of that nature.
With other things, where it's like we're just kind of white labeling stuff, it's a lot easier because theyre kind of selling it under their own Cox Pro site for example, going after a clinician experience in health care.
Using a lot of our code to kind of get so they'd have to start from zero. If you will but that's really fast with kind of deal by deal customer by customer, but I think maybe more to your question is just kind of the maturation of our own platform.
With this kind of hospitality brand, we've been alluding to and we roll that out that's no code that's ready to go and so you know the sales cycle with <unk>.
Actually shorter than for example, like Atlanta, and then the actual rollout implementation with a lot shorter so you're talking.
You know what kind of two months, if you will whereas Atlanta, if it was more like six months and so we're getting better and better not only about truncating that sales cycle, but also truncating. The actual time it takes to implement but if you're talking in health care or hospitality for US right. Now those are our leading industry. We can get you know a full fee.
It's a rich mobile application out the door.
And we're talking weeks, usually the biggest bottleneck at Apple and Google just approving things and then you know if our customers want any specific integrations that we've got over 130 of those integrations that we're just pulling off the shelf that's a huge competitive advantage, but it also speeds up the process. So you know, we're getting longer and longer contract terms, and we're getting faster and faster.
Getting those things out the door. So we're really able to show some great reference customers about how our platform is transitioning to more like a SaaS deployment.
Got it Super helpful. I appreciate you taking my questions.
Thanks Al Q.
Your next question is coming from Ed Woo from <unk> capital. Your line is live.
Yeah, Alan I want to say it was great working with you and I wish you best of luck in the future. But my question is you know is.
Thinking it would be more macro concern, especially with our it team firms or what is your outlook into 2023 in terms of sales cycles in.
Hi Chi budgets.
Yeah, Great question and thank you very much for the kind comments.
I won't be going too far away, but I do appreciate all the kind words as it would be great meeting with many of you guys and working together overall this time I would say when I look at the macro economy between.
Between now and the end of 2023, and you don't really see a massive change in inflation that we're going to get huge relief I don't really see it.
Interest rates magically reversing course.
Really where we're already been in a recession might even be stagflation when you combine.
<unk> GDP constructs that we had overlaid with high interest rates and inflation.
So I think what we've seen across everything is as Randall alluded one part of our business is what used to take US six to 12 months cycles, a lot of times, we see those down at three to six months cycle.
There are certain types of vertical solutions, which are more off the shelf and taking advantage of all these integrations things we've had.
In reverse when youre getting into much bigger deployments much more custom.
You've seen that traditional six to 12 months sales cycle.
It doesn't necessarily have to do with the education process or sitting down and walking through with different products and solutions can do for customers, but most of it has to do or are they back at the office yet how many different functional areas are involved in the decision, making when it's so strategic.
More importantly, because so many of the customers out there, especially businesses are very concerned that we're in a difficult.
Market economy macro economy, and they're just deferring things so we have seen.
Deals in our pipeline that actually shifted out into Q1, where they wanted to start focusing on the 2023 budget for.
For their fiscal year and calendar year of 'twenty three instead of 22 in a few cases, we're seeing people that are trying to accelerate the use of their 2022 budget before they finalize their Q4 it planning.
So I would say across just it budgets in general I think everything mission critical was getting deployed anything that is touching revenue.
That's going to enhance topline for companies or it's going to reduce cost where it is going to expand margin or customer satisfaction.
Seeing people invest as we've been talking about we'll get very formal on announcing the names and the details behind this big hospitality deployment, we talked about.
The first property is already up and running it's doing extremely well, there's multiple properties behind that and then multiple brands behind that.
And really biting into that is apples upfront and in doing that work and getting that right has been instrumental in what we're seeing going forward because whether the economy is difficult or not.
Customers are saying, hey, if it expands revenue if it reduces cost and expands margin where it helps us in any way, whether health care with patient satisfaction scores or whether it's hospitality, where it's getting more yield per customer per day by having more delightful experiences onsite.
All of those things are going to be key because once you have the payback of the ROI lockdown they.
The deployment stuff sort of takes care of itself and with the right payback or ROI people find the budget.
Great well, thanks for answering my questions and I again wish you guys. All good luck. Thank you.
Thank you.
Thank you once again, ladies and gentlemen, if you have any questions or comments. Please press Star then one on your phone at this time.
Your next question is coming from Howard Halpern from tablets Brothers. Your line is live.
Good afternoon guys.
Hey, Howard how are you done.
Okay.
In terms of the kind.
The acquisition landscape out there I mean, what kind of deal flow what are you seeing and what are you seeing in terms of.
Multiples out there, especially since youre looking for a potential acquisitions outside the U S.
Yeah, I think that's a great question and what we've seen is yes.
If I was going to use that choking analogy in the U S. We like to say kind of we.
We suck less so to speak you're seeing lots of Fiat currencies around the world that are collapsing into U S. Dollars. So the dollars that very strong this year and a lot of other currencies have been weak as a result of that if you get into Europe , South America Asia. What you often start finding is that if things are difficult mountain wall.
Street, with NASDAQ and New York Stock Exchange listed companies, it's even worse for publicly traded companies that are microcap small cap all over the world and their local exchanges and markets, especially if their currency is under a lot of pressure because it's not U S. Dollars. So as a result of that what we found is we've done screens and looked at all.
The world because it's a lot easier to probably find an accretive acquisition to be able to tuck in and we're seeing stuff that ranges from you know.
$50 million on the low side of revenue all the way up to 150 or $200 million in revenue and Youre seeing often market caps that might be kind of in the $40 million to $80 million market cap range.
And many of those are coming across with $10 million to $15 million worth of EBITDA to go with it. So obviously theres a lot of work you have to go in to say is this the right fit.
What's the nature of what the motivations are for selling and teams that want to stay or not stay.
And then there's a lot of sort of recognizing the harsh realities of what's happening in the economy worldwide, especially in local markets not based on U S dollars, which is are they going to try to wait for a recovery or do they see an advantage in being able to do deals get some arbitrage if you want to call on the multi.
Polls in the U S market and then as the economy is getting better and we get out of recession and back to growth. Then you can actually have everybody would benefit from that uptick.
Stronger than what's likely to happen if they wait in foreign markets.
I would say that you know the good news is there's lots of opportunities lots of conversation I would say at this time of year, it's pretty difficult to get things done.
Through the end of the year in the holiday and everybody's planning I expect in the first half of next year that all of that would accelerate but I do still see that there's arbitrage between international and domestic and for US. It's a matter of can we find customers can we find distribution.
Can we find installed base, we don't really need technology, that's not really a motivator for us for buying.
It's much more about distribution customers and expanding our footprint for the platform.
Okay.
Good to know and then.
One last one about what I guess.
For the first half of next year, what what type of margin profile for White do you hope to achieve by the end of the first half of next year.
Yes, I can.
This is Matt Yeah. So I think we've said before where we were targeting in that business to be in the 20 plus percent gross margin profile. So it's like we've said, it's not going to happen overnight.
We feel like we are making a lot of progress with our margin at light, but it's also a situation where are we moving to a much bigger facility, we're getting things up and running we've done a great job over the last couple of months getting.
Getting in place new systems and procedures at the at the New facility. So you know for.
For us if we're in the first half of the year ending the first half of next year and were up in the 20% range I think we're going to be happy and then we're kind of trying to see if we can chip away and you'll get closer to 30%.
As we continue through the end of next year.
Okay that sounds good well keep up the good work guys.
Thanks, Tom.
Sure.
Thank you that concludes our Q&A session I will now hand, the conference back to Alan at housekeeping, President CEO and co founder of fun, where for closing remarks. Please go ahead.
Thanks in conclusion today I just wanted to say how much I appreciate value all of your interest and engagement with our company.
Obviously, we've got a nice footprint headquarters here in Austin.
Those coast down in South, Florida, and Southern California, and we're very much looking forward to continuing to scale, we've gotten through the pandemic piece now domestically and abroad. We wanted to start really stepping on the accelerator.
And mostly today, what I wanted to do is just to say thank you not only to the entire employee base, a fund where who tirelessly as working for everybody here on the call and shareholders around the world.
But also just for.
Everybody that has been customers partners and other stakeholders with us along that's right.
While I'll be formerly transitioned out myself.
I'll be remaining in touch with fund where at the Beck and call the board and team as needed and we'll be looking forward to continued scaling into the future.
As we always do we like to really say, how much we appreciate and value fund where family worldwide, leading into our annual general meeting, which will formalize and get completed tomorrow I had the great pleasure of talking to shareholders on a worldwide basis.
Including some net new retail investors that we found in India.
With large fund where holdings that were interested in knowing a lot more about our business.
I know Randall, Matt myself really value all of those engagements all of those conversations.
It also helps us to understand where there's problems. We found shareholders that were getting proxy materials and part of the Nordic countries.
Other places in Asia, where they werent getting all the proxy materials because of the nature of how the brokerage relationships work between the United States and the rest of the world. So we're gonna be actively following up with our shareholder base trying to encourage people to get on the Nobu list, which is a list of more of your detailed information to the U S.
Shareholders can make sure that you receive all of our information for things like annual General meetings and also so we know how to reach you if there might be some things that haven't happened that we'd like you to participate with from routine things like meetings or other special events that may happen tied to acquisitions or anything in between.
So in conclusion again, we mentioned the one dang earlier, Alan Kay and earlier.
Three three of US really enjoyed our founding the company scaling it getting it published and I'm, even more excited about the next chapter of the business.
That I'll call it a good day, and finally and most importantly.
On behalf of several of US here that are all ex military having amazing veterans day Tomorrow remember what it's all about I know, we're going to enjoy a fund where holiday tomorrow for veterans day minus the annual meeting and will be <unk>.
As Don really celebrating all the great brothers and sisters, who got around the world dealing with military service. So for those who have served thank you does your shareholders. Thank you for being part of our family and with that we'll close things out for the day much appreciate it.
Thank you ladies and gentlemen. This concludes today's event you may disconnect at this time and have a wonderful day. Thank you for your participation.