Phunware, Inc. Q1 FY2023 earnings call

• Product progress: Advanced mapping and engagement SDKs, updated SmartApp module and health care industry solution, launched Experience Optimizer, and received a patent for geofence event prediction technology. - Customer deployments: Finished deployment with Gaylord Hotels by Marriott under budget and ahead of schedule, VHC Health expanded engagement. - Partnerships: Joined Siemens Connect ecosystem to optimize smart buildings with Blue Dot wayfinding technology. - Marketing: Strengthening marketing efforts with thought leadership content and ROI studies. - Blockchain: Continuing work on fund coin and fun token with a slow and steady approach due to crypto winter and regulatory headwinds. - Hardware: Light business unit outperformed PC market averages while maintaining cost discipline.

Net revenues for the first quarter of 2023 totaled $4.7 million. Platform revenue represented 28% of net revenues ($1.3 million), while hardware revenue (light by Phunware) accounted for 72% of net revenues ($3.4 million). Gross margin was 7.6% compared to 26.1% last year. On a non-GAAP adjusted basis, gross margin was 12.9% compared to 26.8% last year. The hardware business (light by Phunware) saw its adjusted EBITDA loss term by 46% quarter-over-quarter with a target to reach profitability in the next 1 to 2 quarters.

• Expect Q1 backlog and deferred revenue to be a low point for the year. - Hardware business aims to reach profitability in the next 1 to 2 quarters. - Anticipate concrete business from Siemens partnership within 1 to 2 quarters. - OpEx is expected to continue being trimmed quarter-over-quarter as part of ongoing evaluation.

• Challenging selling environment due to rising interest rates and economic uncertainty delaying decision-making for some prospects. - Regulatory headwinds affecting blockchain initiatives. - GAAP accounting mismatch causing temporary impact on margins related to large deployments like Gaylord.

Q: On your pipeline, can you characterize how it's changed in the last 90 days and what verticals the deals are in?

A: More opportunities joined the pipeline, with middle-stage deals moving to later stages; most activity in hospitality and health care.

Q: Given inroads in hospitality and generative AI, any road map for integration?

A: Keeping an eye on AI for potential application in contextual engagement, but still evaluating.

Q: Comments about mismatch on revenue and deals and costs with Gaylord, any way to smooth it out?

A: It's a function of GAAP accounting; over time, as deployments get faster and base grows, impact will lessen.

Q: Color on scaling up partnership with Siemens and when to expect incremental revenue?

A: Expect deals related to smart workplaces to enter pipeline within a quarter or two.

Q: Color on hardware revenue down year-over-year and status of new products?

A: PC market down, but light unit tracked 10 points ahead of cohort; workstation line expected to launch this quarter.

Q: On OpEx, any additional levers and expected run rate?

A: Majority of OpEx is headcount; evaluating and rightsizing, expecting Q2 to continue reducing OpEx.

Q: With pivot to SaaS model, seeing less hesitation by customers?

A: Yes, simplifying pricing and lowering floor makes it easier for customers to commit.

Q: Status of partners, especially Siemens and prior announcements?

A: Some partners up and running, working on more partnerships to broaden reach.

Q: Mismatch in revenues with Gaylord, will future revenues be high margin?

A: Portion from Gaylord deployment will be blended with support and maintenance, rightsizing over time.

Q: Notice any change in pipeline given uncertain economic environment?

A: Slight slowness and caution, but no drop out of pipeline; more due to natural budget cycles and uncertainty.