Phunware, Inc. Q4 FY2023 earnings call

• Reshaped the company over past 90 days: Cleaned balance sheet, reduced cash burn, stabilized financials. Shut down Lyte Technologies in November, which was substantially completed in December.
• Software business: Focus on hospitality, healthcare, connected offices. Rightsized staff, added new customers in Miami, Hawaii, Montreal. Plan to drive software business to breakeven and profitability, enhance platform with AI and acquisitions/partnerships.
• Patent monetization: Jury found Netflix infringed on U.S. patent 8989715, retained economic interest in future enforcement, licensing, etc. on this patent. Have 16 other issued patents and 8 pending, evaluating portfolio for monetization.
• Digital assets: Plan to restart digital assets business. Finalize PhunCoin structure, issue PhunCoin, develop IP like global crypto passport, with U.S. patent 11829996 granted for hybrid organizational system for data management.

Continuing operations: Net revenues for full year 2023 totaled $4.8 million, down from $6.5 million in prior year. Gross margin from continuing operations was approximately 34.9% compared to ~53.8% last year (prior-year margin benefited from PhunToken sale). Operating expenses from continuing operations were approximately $47.4 million this year compared to ~$27.5 million last year, inclusive of $25.8 million goodwill impairment. Excluding goodwill impairment, operating expenses from continuing operations were $21.6 million in 2023 vs $27.5 million last year. Adjusted operating expense was approximately $17.9 million in 2023 vs ~$24.3 million last year. Backlog and deferred revenue at end of quarter totaled ~$4.7 million. Discontinued operations: Loss from Lyte Technologies for 2023 was approximately $10.9 million vs $5.5 million in prior year.

• Goal to drive the core software business toward breakeven and then profitability.
• Intend to use acquisitions and strategic partnerships to expand software footprint in target markets.
• Plan to finalize PhunCoin structure and issue PhunCoin, develop digital assets business with differentiated offerings including global crypto passport.

• Risks related to digital asset market uncertainties and regulatory changes.
• Execution risks associated with restarting digital assets business and implementing strategic plans.

Q: When you think about the Software as a Service business, where do you see the most opportunity in the three verticals? And how impactful is digital assets going to be on your 2024 P&L?

A: Most opportunity in hospitality (large resort properties), healthcare (appointments and info access), connected workspace. Digital assets impact on 2024 P&L expected to take time, but bullish on global crypto passport.

Q: How important is channel partner relationships to growth going forward? And is M&A horizontal or vertical?

A: Channel partners important (30% of pipeline), M&A targets for acceleration in hospitality and healthcare verticals.

Q: Any real changes to the way you're approaching sales on the location platform versus maybe the last regime?

A: Creating distribution leverage, investing in demand generation, cultivating internal sales force and leveraging existing distribution with complementary solutions.

Q: What are you seeing out there in terms of the sales cycle in your business?

A: Starting to see improvement, with referral programs from existing customers accelerating sales cycles, and incremental demand within existing customer base.

Q: Could you provide some color on ideal size within the different verticals and engineering/software teams' methodology for quicker implementations?

A: Ticket size likely to increase as sales strategy takes hold, engineering teams have developed methodologies to compress implementation timeframes.