Phunware, Inc. Q2 FY2024 earnings call

• Mike Snavely noted 100% customer retention in Q2 2024, strengthened hospitality sector advisers, and inclusion in the FTSE Russell Microcap Index. First half 2024 customer bookings exceeded 2023, with ~$7 million in new pipeline identified in Q3. • Phunware provides location-based services, content management, etc., and focuses on hospitality and healthcare markets. Plans include increasing marketing spend, hiring account executives, partnering with industry leaders, investing in M&A, and R&D for new products. • Troy Reisner discussed financial results, operating expense reductions, cash position, and plans to modestly increase sales and marketing spend in the back half of 2024.

In the second quarter of 2024, revenues were $1 million, a nearly 10% increase from the first quarter. For the six months ended June 30, 2024, revenues were $1.9 million. Gross profit for the second quarter was $470,000 (consistent with prior year), and for the six months it was $994,000, an increase of approximately $400,000 or 63% compared to the prior year. Total operating expenses for the second quarter were $3.4 million, a decrease of over $3.2 million or 48.6% from the same period one year ago. For the six months, operating expenses were $6.8 million, a decrease of $6.5 million or 49.2% from the prior year. Net loss for the second quarter was $2.6 million or $0.32 per share; for the six months, it was $4.9 million or $0.65 per share. As of June 30, 2024, cash was $20.4 million, and in July, an additional $16.2 million was added via ATM.

• Plan to begin investing in sales and marketing, expecting a modest increase in operating expense run rate in the back half of 2024. • Focus on growing in core markets (hospitality, healthcare) through increased marketing, hiring, partnerships, and M&A.

• Forward-looking statements involve risks that may cause actual results to differ materially from those stated. Refer to risk factors in Phunware's most recently filed annual report on Form 10-K and subsequent periodic reports filed with the SEC.

Q: When you talk about investment in R&D and some new products for other markets, could you maybe talk about what exactly you need in terms of technology-wise and why those other markets might be different from the hospitality and resort style that you're going after right now?

A: Sure enough, we have built – I mean over the last 15 years really an enormous capacity to deliver mobile applications at scale globally. And we have had that scale to 25 million concurrent users and a video-on-demand streaming, context and otherwise throughout the history of the company. What we're looking to do is to really point that terrific technology asset toward continually larger markets. So hospitality is a terrific market. We like it. We are really making some progress in that market as you can see from the numbers that we've just shown. But we believe that there are other and additional and substantially larger markets that we can point our technology stack at. So R&D is going to be more about identifying those additional larger markets that we can go point our tech at and then probably some evolution and modification of the platform to meet the unique needs of those markets.

Q: In terms of bookings like obviously, another really strong quarter. I guess like when you're looking at three of your largest customers renewing is that accounting for most of the strength you're seeing so far? Or how much is coming from new customers as well? And what do you need to do to get those across the finish line into sort of top line revenue?

A: Yes. I don't have the specific breakdown in front of me. But what I'll say is that we have – we're continually identifying new opportunities and moving them down the sales pipeline. I think we've identified – last quarter I think we identified something like $5.5 million in total contract value. This quarter we've already identified approximately $7 million on top of that and we expect to liquidate a reasonable percentage of those over a period of time. So I think the sales machine is really starting to work.

Q: In terms of implementing those customers can you talk a little bit about the implementation cycle and what you expect in the second half in terms of deployments?

A: Yes you bet. We have – I would say if you think about the happy path for implementation it's about a 30-day process. Now that assumes that customer dependencies are fulfilled timely, it assumes that we have the delivery capacity available to deliver those applications. But don't forget that our platform is mostly a configuration engine. So we ingest customer content. We work with the customer to ensure that the content meets the brand standards and is the correct description of the things that they want to display in the application. And so for that we are substantially reliant upon the customer. We've seen implementations go as quickly as a week. We've seen other implementations take six months. So I would say that our average is in that 30- to 45-day range probably shading a little closer to the 45.

Q: In terms of implementing those customers in events customers or conventions and such have you had any success in that area yet? Or is it coming in the pipeline?

A: Yes it's coming in the pipeline. And so let me speak about that. So the bull's eye of our hospitality market is really going to be a destination property. Now it could be a destination property for a couple of reasons. Reason number one could be that it's a beautiful beach resort. Reason number two could be that it's a convention property. And so our relationship with Gaylord Hotels for example kind of falls into more of the convention category and we're actually expanding our relationship with those guys to accommodate certain of their convention-related facilities and activities. And we are also partnering with a couple of major players in the hosting of conventions to really penetrate that market. And the convention market is actually really interesting for us. And I'd say that we're making good progress and we'll certainly keep you apprised of that progress as those customer wins come in.

Q: Have you seen any changes in the sales cycle whether customers have been more cautious? Or has it been about the same in the past quarter?

A: It's really about the same. I mean we're looking at a roughly speaking 90-day sales cycle. Sometimes it's shorter, sometimes it's faster and we continue to work on our sales process to see if we can reduce the cycle time. Now, notably, we are also highly focused on identifying one-to-many relationships. And here's what I mean by that. So it's one thing to sell an individual property. That's terrific and we love our customers. It's another thing altogether to approach management companies, property portfolio owners and others in such a way as to penetrate multiple properties at once. And so we have some very interesting conversations going on right now with such groups where we could potentially spend a similar amount of time on the sales cycle but pick up five properties, 10 properties at a time. So that's where I think that you're going to see what I would characterize as the pace of rooftop wins increasing because we're looking at those one-to-many relationships