Q2 2023 Phunware Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to fund, whereas second quarter 2023 Investor Conference call. Currently all participants are in a listen only mode joining.
Joining me today are Russ Spice, Chief Executive Officer, and Troy Reisner, Chief Financial Officer.
The format today will include prepared remarks by Russ Android followed by a question and answer session.
As a reminder, today's discussion will include forward looking statements.
These forward looking statements 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 fun wears website at investors thought fund where dot com.
Further encourage you to visit investors thought fun, where dot com to access not only the earnings press release, but also the current investor presentation.
The SEC filings and additional collateral on fun Ware.
At this time I would like to turn things over to fund, whereas CEO Russ Spice. Sir. Please proceed thank.
Thank you very much and welcome to our second quarter 2023, Investor Conference call. We made several significant moves this quarter that will position our company for success, including bringing in a new CFO and implementing strong cost reductions in.
In addition, we also shifted our lead generation to an account based approach and welcome a new category of customer to the fund were full.
One of the main wins I am most proud of is having some per upon resort as a new front of our customer in a way so some relaxation and recreation located in the heart of Minnesota.
With its championship golf course, luxurious Spa World class dining and invigorating indoor water park surrounded by over 200 acres of woodland. The resort offers a captivating escape for its guests. This resort as representative of an entire segment of mid market hospitality brands that can affordably.
And effectively use our location based platform to offer their guests the best possible experience.
This segment is one slice of the $146 billion U S market.
As part of our revamped sales and marketing initiative fund, where it was also proud to exhibit for the first time at the hospitality financial and technology professionals annual hospitality industry Technology Exposition in conference Joe in Toronto, Canada in June we're the world's leading hospitality brands connect with.
Technology partners <unk>.
<unk> thousand attendees visited the Toronto Convention to meet with 325 technology companies generating for us more than 50 direct leads from hotels casinos and resorts, who are primarily interested in our way finding and guest messaging solutions.
<unk> stood out as the clear leader in guest where you're finding technology among the other vendors. Despite this being our first high Tech show there was a steady stream of interest at our booth as we showcased our partnership with Atlanta's Bahamas and their comprehensive guest experience app.
The Sun wear story that resonated with customers with that though we were a relatively new entrant to hospitality, our experienced deploying reliable mobile apps with accurate way finding and contextual engagement that enables new revenue generation was a natural for them, we met with stakeholders from hotels casinos and.
Our resorts, who were primarily interested in our way finding and guests messaging solutions.
At Hy Tech there were many vendors, who offered mobile guest experiences independently or as part of the broader platform, but non focused on combining way finding with personalized messaging son wears patented blue dot accuracy combined with our AI assistant curated and targeted marketing campaigns.
Clearly make a superior in both dimensions compared to the rest of the pack.
The landscape for property management system point of sale and other hospitality essential software is incredibly fragmented and every vendor of high Tech, Florida their integrations, but it was unclear how many we're actively deploying them.
Going forward fund, where we will continue to separate ourselves from the competition by focusing on prospects with a distinct need for way finding and contextual engagement, while we simultaneously identify the most critical integrations and use cases needed to deliver our uniquely positioned guest facing solution to our clients.
<unk>.
On the product side fund, where it made steady progress on our mapping and engagement modules extending our lead as the go to best in class for way finding navigation and customer engagement. We've also improved our locate tool, allowing our deployment teams to configure facilities faster and for less cost.
These combined moves from marketing events to lead generation to sales engagement and continued product innovation position us squarely, where we want to be to bring contextual engagement to hospitality health care and beyond.
Our light unit offering high end Pcs for gamers introduced its first workstations late in this quarter well, we have high hopes for this higher margin product line, we expect growth to be gradual as we rollout promotion of these offerings through influencers and social channels, we continue to optimize light's performance to draw.
<unk> towards profitability, while evaluating strategic options for this business unit over the medium and long term.
We also welcomed Troy ryzen or as <unk>, New CFO Troy has already made a substantial impacted fund, we're bringing fiscal discipline to help us reduce our cash burn and accelerate us down the path toward growth and profitability.
He has been instrumental in restructuring our debt and negotiating terms with prospective investors and with that I will turn it over to try to talk about our financial performance.
Thanks, Russ and good afternoon, everyone I'd like to thank you all for joining US today for a review of our second quarter 2023 financial performance and progress on key strategic initiatives and our <unk>.
First of all know I joined <unk> as CFO about two months ago, and it's a privilege to become part of the talented <unk> team as.
As we move through our second quarter results 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 with that said, let's take a look at the numbers.
Net revenues for the second quarter of 2023 totaled approximately $3 5 million of.
Of which our platform revenue represented 37% or $1 3 million and our hardware revenue represented 63% or $2 2 million.
Gross margin was 13, 1% compared to 27, 7% last year on a non-GAAP adjusted basis gross margin was 16, 3% compared to 28, 6% last year.
Our platform gross margin was 41, 4% compared to 64, 9% last year hardware gross margin was negative three 6% compared to 12% last year.
Significant contributor to the drop in hardware gross margins stemming from an increase during the quarter of our inventory reserve of approximately $300000.
We have already begun efforts to sell any excess inventory to free up working capital. In addition, with the improvement in light supply chain and we are focused on managing our inventory and much more efficiently to increase inventory turnover decreased working capital needed all while continuing to meet customer demand.
Total operating expense was approximately $8 7 million inclusive of a $1 2 million goodwill impairment, which is down from approximately $9 1 million last year.
They're noncash operating expense items for the quarter were stock based compensation amortization of intangibles.
But combined one 5 million this year compared to 800000 in the prior year.
By excluding these noncash charges adjusted operating expense was approximately $5 9 million compared to approximately $8 2 million last year. We are pleased to see that our non-GAAP operating expense decreased quarter over quarter for the fourth consecutive quarter.
non-GAAP adjusted EBITDA loss was $5 2 million compared to $6 6 million last year.
Adjusted EBITDA loss was narrowed for the third consecutive quarter as we continue executing our plan to breakeven.
We still have a ways to go but we are committed to continuing the necessary discipline to not only achieve our goal but move beyond that.
Net loss was approximately $6 5 million or <unk> <unk> per share compared to a net loss of approximately $17 2 million or <unk> 17 per share last year.
The weighted average shares used to calculate earnings per share was approximately $105 1 million versus approximately $97 7 million last year.
Our backlog in deferred revenue at the end of the quarter totaled $5 2 million and was the same for last year.
Moving to the balance sheet, we closed the quarter with approximately $1 1 million in cash.
During the quarter, we liquidated substantially all of our remaining digital assets to fund operations.
We are strategically utilize our at the market offering or ATM to raise additional cash to give us a launching pad for the remainder of the year.
A significant priority for us has been to simplify our debt stack by allowing approximately $2 8 million outstanding warrants to expire in July which will remain from our 2020 convertible notes.
In addition, we expect to finalize the restructuring of our short term debt in the near future. While we continue to evaluate several other financing opportunities.
Now that we've gone through the financials I wanted to address a couple of topics before handing the mic back to us.
First with the management transition complete we are focusing our teams to unveil the full potential of firmware as our world progresses further down the path of a digital first environment.
As part of that we are committed to reducing our cash burn a significant first step was to right size. Our organization in July we reduced our workforce by approximately 33% across all departments and implemented other cost savings that we expect to provide annual run rate cost savings of up to $5 million.
We do not expect these cost savings and reductions to have any significant impact on serving our current customers are achieving significant growth.
Complementary to that initiative is our focus on sales and marketing.
Since our location based platform as an industry leader, we are laser focused on ensuring we're maximizing our potential in the marketplace. As Russ noted we are expanding our marketing partnerships and at the right time may consider further investments in our internal sales and marketing teams.
I have received many questions about <unk> identity in terms of our business model are we a software or hardware company.
Well, Russ and I inherited our hardware business life technology, we want to be clear that the core footwear as a software as a service and our location based services company and the mobile application rail.
As Russ mentioned, we are currently focused on the hospitality and health care sectors, where we do well SaaS and lbs is where we expect to invest to fuel our growth along with seeking complementary inorganic opportunities.
That said, while we continue to diligently operate and optimize light technology. We are taking the next several months to evaluate and way of strategic alternatives for life.
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.
Many major financial conferences, we plan to attend our the HC Wainwright 20, <unk> annual Global investment Conference in New York on September 11 through the 13th.
And the Roth <unk> Annual New York Conference on November 15th.
We look forward to many one on one conversations and meetings with institutional investors at that event and other financial conferences as opportunities present themselves with that I'd like to turn the call back over to Ross for closing remarks.
Thanks, Troy I am very happy to see us add a new category of customer to our portfolio on Thumper pond, and I'm optimistic about our ability to reach and serve the mid market hospitality segment with solutions previously thought only affordable by the big brands.
I'm also delighted at the response, we received at Hy Tech underscoring the value and impact on our <unk> platform offers to the hospitality industry. We.
We made the tough decision to lean out our workforce and reduce our other expenses wherever we can to put us in the best possible position for the journey ahead.
At the same time, we've made rapid progress on our product roadmap and are working on additional innovations that will extend the reach and depth of our solutions.
I would like to open up the call now for questions through the operator operator. Please go ahead.
Thank you.
Floor is now opened for questions if you'd like to join the queue to ask a question at this time. Please press star one on your telephone Keypad review ask if listening on speakerphone today that you pick up your handset to provide optimal sound quality once again that'll be star one on your telephone keypad at this time to join us.
To ask a question please hold them all the while we poll for questions.
And our first question today is coming from Darren <unk> from Roth MKS Barron. Your line is live. Please go ahead.
Hi, guys. Thanks for taking my questions.
Russ just your commentary about the hospitality space.
And some of the wins.
You've seen I guess.
Yes.
The level of excitement there is there a way that you can go to the market in sort of a broader kind of approach meaning are there larger entities that could get you into multiple properties faster or do you feel like you need to go kind of.
Location by location.
Then I guess as it pertains to.
The health care vertical didn't hear too much about that just.
What are you seeing in terms of like from now to the end of the year and a line of sight in terms of what could actually.
Add to backlog or actually end up being revenue generation for you in the lbs space.
Hey, Darren good to hear your voice and glad you're still sticking with those multipart questions are always refreshing.
So to answer your first question, which is about kind of approach to the market as it singletons or is there a greater way to increase the surface area and there absolutely is so we have some channel partners are actually walking us into some of these.
Cows, where they have existing relationships. We also have referral relationships and of course, we have our direct sales force, which is using a do more direct kind of.
<unk> two prospects.
But we do have kind of multiple ways to get these brands. So it's not just one at a time.
There's not one channel at a time either answers very helpful. Because what we find is there are natural partnerships natural complementary offerings beats.
Between the companies who have relationships with the brands, we are trying to reach and ourselves because they don't have an offering like ours. So that's that's how we're doing that you asked about health care, we didn't rack up like a notable win in health care, we did like a minor extension with one of our current customers.
I would say our pipeline is rich with both healthcare and hospitality as a few other.
Verticals ended to like get a smart workplace, but we expect to see and announced later in the second half of this year, even if potentially this quarter some significant business in the health care space was named brands there.
Hopefully I've addressed to you for questions.
Great and then.
Maybe a multipart FERC their choices.
Welcome Troy.
So two things.
Not putting words in your mouth, but it sounds like youre evaluating options for light and maybe that's not strategically part of our plans for fund where long term I guess any truth to that and then second point.
Work force reduction and $5 million in annualized savings can you just kind of give us a sense for when that starts to kind of benefit the P&L of that.
On a quarterly basis, you know I guess $1 million to $5 million is that fully going to be baked into the third quarter, given where you did the cuts or is that.
Yes further on down the road in the year when we start to see the full benefit of those those workforce reductions.
Well Darren.
Darrin Thanks for the question and I liked the two parter as well so first light.
Light technology, our hardware business as I as I said.
Russ and I came into the end.
It it's not part of our core business model.
But we have it and it's an asset and we want to utilize it the best we can so we're working hard.
With light and the team to make that up.
Profitable venture, but we're also looking at how do we what our other options are.
In the future I think we're going to take the next the balance of the year and we're going to look at those options weigh them and then make a longer term decision hopefully by the beginning of the year around light.
And then with respect to the cost reductions.
The reduction in workforce took place in mid July .
So we won't see the full effect of that in.
In Q3.
But we will see it in Q4, and we'll see a fair bit of it hit yet and in Q and Q3.
Great. Thank you.
Thank you.
Your next question is coming from Scott Buck from H C. Wainwright.
Your line is live please go ahead.
Hey, good afternoon guys.
I'm curious you have some nice wins in the hospitality sector, making Atlanta is Gaylord when does this kind of.
Location based services when does it become mandatory to play in this kind of upscale resort space I mean, what when did the dominant that it really started to fall in the industry.
Yes that is the question of the hour isn't that right. So in early stage markets. It's all about trying to establish just one foot in front of the other one wind followed by the next and then you get this you start to see the exponential growth kick in and then.
You know a year or two after that then everybody thinks that they've got to have it because it's just part of table stakes to to be in the business that they're in so my guess is.
My guess is as good as yours, perhaps maybe a little bit better, but I think that what we'll see is.
<unk> start to stack up a little bit more in numbers and then also in bookings.
And then like by the Middle of next year.
I expect to see like a noticeable climb and I don't mean flat until the end I. Just mean, we will start to see like the strong evidence that climbing the durations.
I'm sorry.
Current assets.
The actual review of the options.
Sure.
Alright, so were talking theyre in the background.
Yeah, I didn't catch that question either Russ yes.
It was still a middle of answering question about growth rates.
Can everyone hear me up to that point.
Sorry, guys. That's it for me thank you.
Okay.
So we are expecting to see momentum start to build in the later part of the year the last bit of information on it yet there is among the new prospects that we see entering the pipeline.
Finding with a higher proportion of them already have the awareness there theyre getting into the problem of the guest experience of the patient experience of the get loss problem of the law staff time and try to give directions, the frustration that causes their visitors and guests.
So we're seeing a more informed.
That is customers that are coming into that pipeline.
Thank you next question. Your next question. Your next question is coming from Lucas Ward from <unk>.
Lucas Your line is live please go ahead.
Okay. Thanks, Hi, guys. Yeah. This is Lucas word in for Ed Woo.
Good afternoon.
Hello.
Yeah. So.
I was wondering if you could give an update on the fun coin fund token platform I'm just curious whether that's.
There is still sort of a development path for that that that helps grow the company's business.
Yes, thanks for asking about that that is definitely a part of our plan. Obviously, we are doing a little bit of a reset this quarter and kind of adjusting our pace of progress.
We are still planning to issue some coin this summer per our last quarter statement.
And you should be hearing more from us about this like in the coming weeks.
But it is still part of the strategy and part of the product roadmap.
Okay, great. Thanks, and just one follow up question back.
Back to the Thumper pond, when I was curious.
Just to have a little more color about how that came about like which.
Which channel genera.
Generated that.
That actually came from our direct sales force and.
I don't know the exact Genesis, but it was one of our one of our folks who joined us in the spring so relatively new to the company.
And.
We got a hold of the of the owner operator, there had bumper plant and talked about kind of the advantages and the benefits that we can offer four.
For a property like theirs. So this is.
I am excited about this one of the nerdy things I didn't mention is this is a.
A customer that's not requiring like a full beacon install to take advantage of our platform. So they're going to be using both the way finding and the messaging to get closer to their customers without us having even to send a team there to set it up. So this is really exciting for us.
Cool it sounds good.
That's it for me thank you very much.
Thank you once again as a reminder.
The floor is open for questions if you'd like to join the queue to ask a question. At this time you May press star one on your <unk>.
Telephone keypad once again that'll be star one at this time, if you wish to join the queue to ask a question.
And your next question today is coming from Howard Halpern from package, whether it's.
Howard Your line is live please go ahead.
Hey, good afternoon guys.
I Wonder if you could also talk a little bit about.
A recent win with the new luxury high rise in Houston, and you consider that sort of a different type of vertical all that.
That has a great potential across the U S.
Yes happy to talk about that.
That is absolutely the case, so we can serve multiple verticals, but as you've heard me say ad-nauseum, we focus on our outreach with hospitality and healthcare, but we do have some channel partners also in other markets like smart buildings and the Houston opportunity is exactly that so we had a partner involved in that transaction and there basically.
Setting up a smart residential building with all of the integrations for.
Then of tenants could want.
Access.
Building parking door locks and the whole thing and so our solution was just a natural fit and slid right in there.
We think we can do a lot more of those the peso smart building as it has been a little bit slower just with higher interest rates.
But we think that we've got like a killer solution here and we've got experience with integrations galore.
Yes, pretty close to an out of the box solution.
Okay and could you talk a little bit about your strategy in expanding within.
Like Atlantis and Gaylord throughout their properties across our.
Across the country.
And our promise.
Sure. So one of the things we've done is try to refine our sales pace that we're focusing on kind of the core mapping and way finding capabilities and then from there like the next leg up for a lot of them is using our mobile engagement, which lets them have that closer relationship with the customers.
And then messages you know, whether it's property wide or when they say, Andrew a parking lot or enter the hotel.
Or love to know what they're passing a point of interest in extending the traction that they might want to go visit and so that's kind of how this this kind of rolls out and of course, if you're in hospitality space. We are working on basically a door access capability. Our first version was out on iOS this past quarter and that will allow us.
To kind of plug in in these facilities, where they have smart door locks for the for the guests there to just use their smartphone through the branded app to get into their rooms.
And it expands from there. So there are a lot of other.
A lot of other channels and more things you want to do it.
Okay. Okay got it thank you.
Thank you and there are no further questions in queue. At this time I would now like to turn the floor back to fund, where the Chief Executive Officer, Russ bass for closing comments.
Well. Thank you all for continuing to follow a fund where as you can see where we're still very much a work in progress, but we've got a solid product. We are establishing the sales momentum I've seen both improvement in quantity and quality in our sales pipeline.
Enlisting more channel partners and are reaching out.
Through those partners to the markets that we can't reach directly and also in accordance or in concordance with those in the markets that we already natively serves so I'm very optimistic about what the second half as you know with cost reductions that we've done and the efficiency gains that we have we think we can make light and more economically performance. We also think we can continue.
The sales momentum with some significant logos in the second half of this year. So thank you again for your time and attention.
Thank you. 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.