Phunware Inc. Q1 2023 Earnings Call
Speaker 1: and you may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions. Thank you. Our first question is coming from Darren Afthahi with Roth MKM. You may proceed. Thank you. I was going to have to ask the next question. On your pipeline, can you characterize I guess one how that's changed in the last 90 days and maybe what verticals, you know, those deals are in right now.
Speaker 1: So I was just going to say that, good to hear your voice again. And how things have changed over the last quarter as we see more opportunities to join the pipeline and the ones that were kind of in middle stages are now in later stages. And the two verticals that we see the most activity in are in hospitality and our healthcare, which are our two favorites. Great. And that kind of leads to my second question. So, given the inroads you've made in hospitality and all the hoopla around generative AI, I'm just wondering, is that on the sort of roadmap in terms of integrating that into your platform, just in terms of opportunity to provide clients with maybe more revenue opportunity or list over time? Thanks. Well, AI is something we're certainly keeping an eye on, especially as large language models that have come up with very naturalistic written language, which of course could be turned into spoken as well. And we're just looking for opportunities like where that would make sense for us to plug it in. You know, we are about contextual engagement, which is reaching those consumers where they are and when they are. And so there may be an application in the way that we.
Speaker 1: offer essentially if you will the writing that will allow them to reach those customers. We're still looking at that.
Speaker 1: Maybe one last one for Matt. Just comments about the mismatch on revenue and deals and costs. They wouldn't call that gay lords. But is there any way to kind of smooth that out or is that just a function of gap accounting and it's kind of out of your hands?
Speaker 2: But, well....
Speaker 3: Yeah, I mean, it is it is more or less a function of Gapka County. Certainly over time as we're able to deploy quicker with less resources. It's not going to be as much of that up front work. And also, you know, as I mentioned on the call, I mean, we've got to build up a bigger base. So like, you know, if there's.
Speaker 3: You know, one customer is this happened to last quarter and had a pretty significant impact on the margins Whereas you know next year if something like that happens it might only change margins by two or three points So it's a matter of we need to grow that base more and then as we mature more and more these deployments will get faster and faster And the galore was already fast, but still there was a significant amount of work just going
Speaker 1: Good afternoon, guys. Thanks for taking my questions. I'm curious, could you give us just a little bit of color on what expectations are in terms of, you know, scaling up the partnership with Siemens and maybe when we could expect to see some incremental revenue from that partner? Well, we're sort of hot off the presses in announcing that Siemens partnership. So, you know, there's a period of kind of bring up of getting that partnership going and doing the cross training and whatnot.
Speaker 1: But we do expect to see deals enter the pipeline within a quarter or so that will be related especially to this smart workplace, certainly with Seaman's strength there. And it's going to really be a function of Seaman's kind of working set of opportunities themselves. But I'm expecting to see concrete business that we do directly out of that partnership within a quarter or two. That's helpful for us. And then on the hardware business, it looks like revenue is down kind of 20% year over year. Is that just macro environment and people cutting back on discretionary spending or there's something else going on there and as a follow up?
Speaker 4: I seem to remember you guys were going to have some new products there pipeline. What's the status of those?
Speaker 1: Yeah thanks for asking. The entire PC market including Max's is actually off quite a bit in Q1. The PC group was basically off almost 30% and Apple their max sales are down 40% so we actually were tracking 10 points ahead of the cohort there.
Speaker 1: in the PC space. And so what we've done is really just focus on the cost discipline around customer acquisition costs and make sure that we stay in line with our build costs as well. So we're tracking kind of a heads up plan. If we had kind of a normal market, I think that we'd be seeing greater revenue out of that as well as better the bottom line too.
Speaker 1: And you asked about wider products for the light unit. We are expecting to introduce the workstation lines this quarter, so that'll give us.
Speaker 1: offerings that are aimed at power business users and that's a good compliment to the gamer market that we already serve
Speaker 4: Great, that's helpful. And then last one for me, just on OptX, you guys have done a nice job. Kind of real and that in versus the last few quarters. If you have some additional levers there to pull or what we're looking at this quarter, it's kind of the expected run right here for the rest of the year.
Speaker 5: Yeah, I'll let you talk about that one.
Speaker 3: Yes, sir. Yes, no, I mean, we're some, this is something we're constantly looking at. Like I said...??
Speaker 3: on the call. We've had a couple consecutive quarters of reducing it and we anticipate Q2 will be reduced as well. So I mean in terms of levers, I mean we're you know
Speaker 3: majority of our optics is headcount and so we're evaluating the headcount and making sure we're right size for the number of deals we have. We have made a few, you know, trimmed a few here and there towards the end of last quarter that you're not really seeing the impact of in Q2 yet. So I think there'll be a little bit of savings there.
Speaker 3: And then we'll just kind of evaluate going forward and make sure that the staff we have is the staff we need to continue to grow. But again, it's going to be a slow process. I don't see, we're going to drop a million or two in an optics in a single quarter, but it's mostly just a process of continuing evaluating and.
Speaker 3: making sure that we're turning those expenses quarter over quarter.
Speaker 1: Great, appreciate that guys, thank you very much.
Speaker 6: You may proceed.
Speaker 7: Good afternoon guys.
Speaker 7: Are you with the pivot, I guess, towards much more now the software as a service assessed based model, are you seeing less hesitation by customers than because a lot of businesses are seeing hesitation deploying funds but you aside.
Speaker 7: With your business model now and your customers or customers in the pipeline, are they really committed to going forward with the projects?
Speaker 1: Yes, they are committed and what we've done, which is in simplifying the pricing for them, we've taken kind of fewer variables for them to have to consider. We had formerly had broken out all the costs around fulfillment and beacons around location based services and everything was kind of unbundled. So we kind of rebundled it together.
Speaker 1: And it just makes it easier for them to understand. And it's also easier for them to say yes, because they don't have to contemplate sort of being their own, thinking about every little option and addition that goes in there. And also what you heard Randall talk about earlier there, we've also lowered the floor, if you will. So now we have a bundle where...
Speaker 1: customers could get started for as little as 5,000 a month. And so that gives us much more range and variability in terms of the packaging that we can offer. It doesn't affect the margins or the size of opportunities at the enterprise end. It merely opens the middle end of the lower end more.
Speaker 7: announcements are most of those up and running fully trained and bringing in leads.
Speaker 1: We have a few that are up and running like that and we're working on more partnerships where we expected to broaden this especially in markets where we don't have a direct sales effort. It's not exclusive to that but as mentioned with Siemens, they're doing a lot of...
Speaker 1: work about kind of building and constructing the smart workplaces in the future. And that's not an area where we have like a specific outbound focus from within Fundware. And so we're looking for those kinds of players. And of course we've got we've improved kind of the training materials and the structure of the agreements.
Speaker 1: to be our advocates here. So eventually this will turn into a model where instead of kind of co-selling with them it's pure indirect where they can completely do it on their own. Okay and and one last one from that I guess going back to the mismatch in revenue especially you know with Gay Ward you brought up.
Speaker 7: But the revenues now that you'll be able to recognize going forward, they're going to be extremely high margin revenue, if not 100% revenue margin. Yeah, certainly. Certainly. So, yeah, that portion is kind of devoted to the deployment is
Speaker 3: we'll essentially be 100% gross margin going forward, and I'll be blended in with our kind of support and maintenance continuing for the next several years. So it will get right-sized over time. It's just a bigger impact in the first quarter there, as we saw. Okay, and in the hardware, you're still seeing improvements in...
Speaker 7: Gross margin, you're going to maintain that discipline going forward and improving it as much as you can quarter to quarter. Yeah, so gross margin quarter over quarter dips slightly in Q1 and there's some various factors that we're still working through in terms of inventory management.
Speaker 3: and getting products out the door. However, on an overall basis, while the light business did lose some money, it did improve quite a bit quarter over quarter and had its best quarter since we've even owned the company. And so bottom line is doing well. Our customer acquisition costs have trimmed quite a bit from.
Speaker 3: Q3 and Q4 last year. So we finally kind of feel like we're in the fine tuning process here, where we're going to be able to get the thing to break even or better in the next one to two quarters. So hopefully this quarter, but we'll see if that's the clear and next. Okay. Well, thanks guys.
Speaker 3: So we finally kind of feel like we're in the fine-tuning process here, where we're going to be able to get this thing to break even or better in the next one to two quarters. So hopefully this quarter, but we'll see if it happens this quarter or not. Okay. Well, thanks, guys. Yep.
Speaker 1: Thank you. Our next question is coming from Ed Wu with Sendient Capital. You may proceed. Yeah, have you noticed any change in the pipeline given the uncertain economic environment in your sales cycle? Yeah, the way I would characterize it is just a little bit more slowness, a little bit more...
Speaker 1: the white industry is being kind of a, you know, a local hive for the last decade or more hospitalities having a good year. And so we expect them to keep going. And of course, healthcare is pretty counter-cyclical in nature. So this is more a function of the natural budget cycles combined with a little bit more slowness due to that uncertainty.
Speaker 8: return the call back over to management for any closing remarks.
Speaker 1: you all for your time. I do think this is still, despite kind of the economic environment, still a very good time to have the product we do that does what it does in contextual and great engagement using our location-based platform and being able to really help brands improve the quality of their guest experience, their patient experience, as well as reduce their costs and enhance their revenue. So that there's
Speaker 8: Thank you. This does conclude today's conference and you may disconnect your lines at this time and we thank you for your participation.