Phunware - Q2 2024

Executive Summary

• Q2 delivered sequential improvement: revenue rose 10% QoQ to $1.011M, while operating expenses fell ~49% YoY to $3.404M, narrowing net loss to $(2.631)M and EPS to $(0.32) from $(2.10) YoY.
• Software bookings surged: +623% in Q2 2024 and +939% in 1H 2024 vs prior periods, alongside 100% customer retention and major renewals in hospitality and healthcare; pipeline identified at ~$7M early in Q3.
• Balance sheet strengthened: cash was $20.369M at June 30, 2024; management added ~$16.2M in July via ATM proceeds, providing runway to invest in sales/marketing and pursue M&A.
• Consensus estimates via S&P Global were unavailable for PHUN this quarter; no formal numerical guidance given beyond internal targets and margin commentary—limiting expected “beat/miss” catalysts vs Street [GetEstimates error].

What Went Well and What Went Wrong

What Went Well

• Software bookings momentum: “Software bookings in 2024 have increased approximately 623% [Q2] and 939% [1H] vs. the 2023 periods,” with early renewals at three of the largest customers and 100% retention in Q2.
• Cost discipline: Total operating expenses fell to $3.404M (−48.6% YoY), cutting operating loss to $(2.934)M and net loss to $(2.631)M; EPS improved to $(0.32) from $(2.10) YoY.
• Liquidity and optionality: $20.369M cash at quarter-end; in July, ~$16.2M net ATM proceeds added, enabling investment in sales/marketing and potential M&A.

What Went Wrong

• Year-over-year revenue decline: revenue decreased to $1.011M from $1.295M (−22%) YoY despite QoQ growth, reflecting a smaller topline vs prior-year quarter.
• Ongoing losses: operating loss $(2.934)M and net loss $(2.631)M persist; cash from operations for 1H remained negative at $(8.205)M, though improved vs prior year.
• Limited external coverage and guidance: S&P Global consensus estimates unavailable; management does not provide detailed guidance, reducing transparency for near-term modeling [GetEstimates error].

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by. Good afternoon, and welcome to Phunware's second quarter conference call. All participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask this question, you may press star, then one on your telephone keypad. To withdraw your question, press star and one again. Participants of this call are advised that the audio of this conference call is being broadcast live over the Internet and is also being recorded for playback purposes. A webcast replay of the call will be available approximately one hour after the end of the call through August 8, 2025. I would now turn the call over to Joey Delahoussaye of Core IR, the company's investor relations firm.

Please go ahead, sir.

Joey Delahoussaye (Senior Equity Research Analyst)

Thank you, operator. Good afternoon, and thank you for participating in today's conference call. Earlier this afternoon, the company released its financial results for the quarter ended June 30, 2024. A copy of that press release can be found on the company's website at www.phunware.com by selecting Investors under the About tab from the corporate homepage. Joining me on today's earnings call from Phunware's management team are Mike Snavely, Chief Executive Officer, and Troy Reisner, Chief Financial Officer. During this call, management will be making forward-looking statements, including statements that address Phunware's expectations for future performance or operational results. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements.

For more information about these risks, please refer to the risk factors described in Phunware's most recently filed annual report on Form 10-K and subsequent periodic reports filed with the SEC and Phunware's press release that accompanies this call, particularly the cautionary statements in it. The content of this call contains time-sensitive information that is accurate only as of today, August eighth, two thousand and twenty-four. Except as required by law, Phunware disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. It's now my pleasure to turn the call over to CEO Mike Snavely.

Mike Snavely (CEO)

Thanks, Joey, and good afternoon to everyone on the call. During the second quarter of 2024, we've continued building upon the momentum begun during our first quarter. In quarter two, we delivered 100% customer retention, strengthened our bench of advisors within the hospitality sector, and most recently became part of the FTSE Russell Microcap Index. In the first half of 2024, our customer bookings, which are signed contracts with clients that generate revenues over the course of the multi-year contract period, have already exceeded bookings for all of 2023, even as we preserve cash by reducing our team. This is a testament to the effectiveness and efficiency of our revamped sales team and our evolved sales model, which continues to drive a strong and consistent pipeline, including over $7 million in new pipeline identified so far in the third quarter.

As leaders in the mobile applications platform industry, I think it's valuable to take a moment and review what sets us apart. We provide location-based services, content management, mobile engagement, audience monetization, and application analytics that help our clients at every stage of mobile application lifecycle management. We help businesses create their ideal mobile app, monetize their audiences, and create hyper-personalized mobile experiences, all in the interest of ensuring our clients' customers fully utilize their offerings through mobile interactions. We've been in this business for about 15 years, and we are its pioneers. The Phunware platform is a fully integrated enterprise cloud for mobile devices that provides our clients with products, solutions, data, and services necessary to engage with their audiences globally and manage and monetize their mobile app portfolios globally and at scale.

Our model provides a faster time to market, requires less investment of resources and technical expertise, and does not require customer management integrations. We create a white label product that is fully brandable, industry-specific, configurable, and with reusable modules that offer over-the-air app updates for continuous learning and testing without app store approvals. Unlike other white label application services, the Phunware application framework creates native applications that leverage device-specific capabilities such as location technologies, sensors, and operating system-specific design patterns and guidelines. Because of the depth and scalability of our platform, we believe there are many other industries that we can serve. During the second quarter, we plan to begin executing on elements of our go-forward strategies to continue our growth and diversify our opportunities matrix. In our core markets, hospitality and healthcare, we will prudently increase marketing spend and build innovative programs to derive awareness and revenue.

We are also focused on hiring and making productive new account executives, while also partnering with industry leaders to reach additional opportunities and to make the Phunware the top of our prospects list. Our solution delivers strong ROI, which is driving new sales conversions and cementing the relationships with existing customers, which leads to that 100% customer retention stat I mentioned earlier. We are also seeing interest from the operators of multi-property portfolios, from regional resort destinations to some of the largest hospitality flags in the world. In addition to the organic growth strategies mentioned above, we also intend to grow in hospitality and elsewhere by investing in M&A. We are actively evaluating several potential transactions and may have announcements shortly. To identify the next growth markets, we are investing in research and development and expect to reclaim our crown as an innovation leader.

This will result in enhancements to, and additional uses for, our core product offering. We envision building more innovation capacity around our team of talented engineers and product managers by utilizing near and offshore engineering resources as needed. We expect this focus to bring forth new and differentiated products to serve markets beyond hospitality and healthcare. Now I'd like to turn the call over to Troy, who will review our financial results in more detail. Troy?

Troy Reisner (CFO)

Thanks, Mike, and good afternoon, everyone. I'd like to thank you for joining us today for a review of our second quarter of 2024 financial performance. As usual, 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. As Mike indicated, a particular note is our bookings growth. Bookings is a forward-looking metric that reflects the commitment from our customers to pay Phunware money for subscriptions and services that we provide over time. When we use the term bookings, it will reflect the total contract value with the customer that was executed within the period defined.

Software bookings in 2024 have increased approximately 623% and 939% for the second quarter of 2024, and the six-month period then ended respectively, as compared to the 2023 prior periods. Revenues for the second quarter of 2024 were $1 million, nearly a 10% increase over the first quarter of 2024, and for the six-month period ended June 30, 2024, revenues were $1.9 million. The decrease of approximately $0.7 million or 26.8% for the six months ended June 30, 2024, compared to the corresponding period in 2023, was primarily due to a customer breakage fee in 2023. Gross profit for the three months ended June 30, 2024, was $470,000, which is consistent with the prior year period.

Gross profit for the six months ended June 30, 2024, was $994,000, an increase of approximately $400,000 or 63% compared to the corresponding period in 2023. Total operating expenses for the three months ended June 30, 2024, were $3.4 million, which represents a decrease of over $3.2 million or 48.6% from the same period one year ago. For the six months ended June 30, 2024, operating expenses were $6.8 million, which is a decrease of $6.5 million or 49.2% from the same period ended June 30, 2023. On previous calls, I've shared the nature of our focus areas, and these operating expense reductions have resulted from the new management team's execution of doing what we said we would do.

Excluding non-cash stock-based compensation of approximately $1.3 million from the six-month period in 2024, our monthly operating expense run rate was approximately $930,000 per month, as compared to approximately $1.8 million per month for the prior year, six-month period. As Mike noted above, we plan to begin investing in sales and marketing, so we do expect a modest increase in this run rate over the back half of 2024. Net loss for the second quarter of 2024 was $2.6 million, or a per share loss of $0.32, as compared to $6.5 million, or a per share loss of $3.10 in the year ago quarter. The net loss for the six months ended June 30, 2024, was $4.9 million, or a per share loss of $0.65.

That's compared to a net loss of $10.8 million, or a per share loss of $5.18 from the same period in 2023. Our balance sheet remains strong, and as of June thirtieth, we had cash of $20.4 million. In addition, during July, we opportunistically added approximately $16.2 million of cash through net proceeds from selling approximately 2.7 million shares via our ATM. Our cash position now provides the certainty and stability we need to navigate our path to profitability and to make the investments necessary to accelerate and sustain our growth. That concludes my prepared remarks, and I'd like to turn the call back over to Mike for any remaining comments. Mike?

Mike Snavely (CEO)

Thank you, Troy. As these numbers demonstrate, we're diligently working on increasing our foothold within the hospitality and healthcare markets while consciously controlling costs. I want to take a moment to acknowledge the tremendous work of management and the great team members who have helped to turn around the future of Phunware. We now look forward to scaling the core of Phunware and reaching new markets, creating new solutions, and continuing to innovate. I also wish to acknowledge and thank our loyal shareholders who have entrusted us with the mantle to drive Phunware forward. Thank you for your trust. We are honored by it and are dedicated to delivering lasting shareholder value. Now, I'd like to turn the call over to the operator so that we can begin the question-and-answer session. Operator?

Operator (participant)

Thank you. As a reminder, if you'd like to ask a question, please press star and the number one on your telephone keypad. We will begin the question-and-answer session. Your first question comes from the line of Darren Aftahi of Roth Capital. The line is open.

Dylan Hessling (Analyst)

Hi, this is Dylan on for Darren. Thanks for taking my questions. To start, Mike, when, when we talk about investing in R&D and some new products for other markets, could you maybe talk about what, what exactly you need in terms of technology-wise, and why those other markets might be different from the hospitality and, and, resort style that you're going after right now?

Mike Snavely (CEO)

Yeah, excuse me. Sure enough, we have built, I mean, over the last 15 years, a really an enormous capacity to deliver mobile applications at scale globally. And, you know, we have had that scale to 25 million concurrent users in 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.

Dylan Hessling (Analyst)

Got it. Thank you. And then 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, 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?

Mike Snavely (CEO)

Yeah, I don't have a specific breakdown in front of me, but what I'll say is that we have, excuse me, 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, you know, a reasonable percentage of those over a period of time. So, you know, I think the sales machine is really starting to work.

Dylan Hessling (Analyst)

Great. Thank you. I'll pass it on.

Operator (participant)

Thank you. Your next question comes from the line of Howard Halpern from Taglich Brothers. Line is open.

Howard Halpern (Principal Equity Analyst)

Congratulations. Great quarter. 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?

Mike Snavely (CEO)

Yeah, you bet. We have, I would say if you think about the happy path for an implementation, it's about a 30-day process. Now, that assumes that customer dependencies are fulfilled timely. It assumes that we have, you know, 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, you know, brand standards and is the correct description of the things that they want to display in the application. And so for that, we are, you know, substantially reliant upon the customer. We've seen implementations go as quickly as a week. We've seen other implementations take 6 months.

So I would say that our average is on, in that 30-45-day range, probably shading a little closer to the 45.

Howard Halpern (Principal Equity Analyst)

Okay. I believe in the previous call this year, you talked about, you know, seeking, I guess, customers within the hospitality vertical, but in the events customers or conventions and such. Have you had any success in that area yet, or is it coming in the pipeline?

Mike Snavely (CEO)

Yeah, it's coming in the pipeline, and so let me, let me speak about that. So the bull's-eye of our hospitality market is really gonna 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.

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.

Howard Halpern (Principal Equity Analyst)

Okay. Well, thanks, and keep up the great work.

Mike Snavely (CEO)

Thanks, sir.

Operator (participant)

Thank you. Again, if you'd like to ask a question, press star one on your telephone keypad. And our next question comes from... Oh, all right, I apologize. Our next question comes from the line of Ed Woo from Ascendiant Capital. The line is open.

Edward Woo (Director of Research and Senior Analyst)

Yeah, congratulations on the progress. My question is, 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?

Mike Snavely (CEO)

... It's really about the same. I mean, we're, we're looking at a rough, roughly speaking, 90-day sales cycle. Sometimes it's shorter, sometimes it's faster. And we, you know, 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, 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 5 properties, 10 properties at a time. So that's where I think that you're gonna see what I would characterize as the pace of rooftop wins increasing because we're looking at those one-to-many relationships.

Edward Woo (Director of Research and Senior Analyst)

Great. Well, thank you for answering my questions, and I wish you guys good luck. Thank you.

Mike Snavely (CEO)

Thanks very much, Ed.

Operator (participant)

Thank you. Seeing as there are no more questions in the queue, that concludes our question-and-answer session. I will now turn the call back over to Mike Snavely for closing remarks.

Mike Snavely (CEO)

Yeah, and I wanted to do these closing remarks live. I wanna acknowledge that we've had a tough 2021 through 2023, and we've had to batten down the hatches. We had to shed cost, and we had to buy time for the company. As you can see, we're off to a good start here in 2024. We've delivered a couple of successive quarters of growth and improvement to our bottom line, particularly when you look at it comparable to the previous year. We've soared up our balance sheet, and we've gotten our sales rhythm down. Now, we have the benefit of time, capital, and great interest amongst our loyal investors, along with a seasoned management team and a board with a big vision.

We also have a track record of value delivery to the best brands in the world, including Fox, NBC, the Dallas Cowboys Stadium, along with more recent customers like Ryman Entertainment and various Marriott properties. From this platform, we could not be more excited about what markets we can tackle and the plays that we can run in software, innovation, crypto, and AI. We intend to turn the attentions of tens of millions of eyes back on Phunware and our solutions, and to make Phunware great again. Thanks a lot, everybody.