Yahoo Finance Phunware, Inc. (NASDAQ:PHUN) Q4 2023 Earnings Call Transcript
Phunware, Inc. (NASDAQ:PHUN) Q4 2023 Earnings Call Transcript March 12, 2024
Phunware, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, ladies and gentlemen, and welcome to Phunware's Fourth Quarter and Full Year 2023 Investor Conference Call. Currently, all participants are in a listen-only mode. Joining me today are Mike Snavely, Chief Executive Officer, and Troy Reisner, Chief Financial Officer. The format today will include prepared remarks by Mike and Troy 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 information is set forth in the earnings press release, which is available on the Investor Relations section of Phunware's website at investors.phunware.com. I further encourage you to visit investors.phunware.com to access not only the earnings press release, but also the current investor presentation, SEC filings and additional collateral on Phunware. At this time, I'd like to turn things over to Phunware's CEO, Mike Snavely. Please proceed.
Mike Snavely: Thank you, and we welcome our fellow shareholders to our fourth quarter and full year 2023 investor call. We're glad you've joined. Last time I spoke with you was a couple of weeks after the Board asked me to step into the role of CEO. In the 90 days or so since that earnings release, we've reshaped nearly every aspect of the company with an eye toward delivering predictable, sustainable and profitable growth for our shareholders. Troy will run through the details of those actions here shortly. When I took over this role, there was a fair bit of cleanup that needed to be done. Our balance sheet was burdened with debt obligations, we had litigation exposure in various places, and we were burning too much cash both in the core software business and in the ancillary Lyte business.
Most importantly, we lack strategic focus. Most of these problems are solved and all are well understood as we speak to you today. We built our go-forward plan on a number of bright spots in the business, a highly satisfied and referenceable customer base, clear ROI that our customers are achieving with our solutions and a talented and experienced product engineering team. From this strengthened foundation, we are on a new trajectory for 2024 and are bullish on Phunware's future. I will turn it over to Troy to talk about our financial performance. After his remarks, I'll return to talk about our vision for the future of Phunware.
Troy Reisner: Thanks, Mike, and good afternoon, everyone. I'd like to add my thank you for joining us today for a review of our full year 2023 financial performance and our progress against key cost reduction initiatives. For clarity, 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. In addition, I will provide insight into our operating expense run rate and how we have strengthened our balance sheet in early 2024. As a reminder, in November, we made the decision to shut down our hardware business Lyte Technologies, and in accordance with Generally Accepted Accounting Principles, Lyte is presented as a discontinued operation in the financial statements.
The shutdown of Lyte was substantially completed in December. Net revenues from continuing operations for the full year of 2023 totaled $4.8 million as compared to $6.5 million in the prior year. The decline in revenue is due to the sale of $1.5 million of PhunToken in the prior year. Gross margin from continuing operations was approximately 34.9% compared to approximately 53.8% last year, with the prior-year margin again benefiting from the sale of PhunToken. Operating expenses from continuing operations, inclusive of goodwill impairment of $25.8 million, were approximately $47.4 million this year compared to approximately $27.5 million last year. Excluding the goodwill impairment, operating expenses from continuing operations were $21.6 million for 2023 compared to $27.5 million last year, which reflects the significant process we've made late in 2023 to reshape our cost structure.
For a better picture of the impact of our cost reductions, we note that the average monthly operating expense from continuing operations for Q4 of 2023 was approximately $1.1 million as compared to an average of $2 million for the previous nine months of 2023. Other non-cash operating expense items related to continuing operations in 2023 were stock-based compensation and impairment of goodwill, which totaled approximately $30 million this year compared to approximately $3.1 million in the prior year. By excluding these non-cash charges, adjusted operating expense was approximately $17.9 million this year compared to approximately $24.3 million last year. Our loss from discontinued operations for 2023 was approximately $10.9 million and $5.5 million in the prior year, which encompasses all the revenues and costs of Lyte.
Non-GAAP adjusted EBITDA loss from continuing operations was $15.5 million this year compared to $20.8 million last year, which reflects a 25.5% improvement. In late February, we executed a 50:1 reverse stock split, which under GAAP, all share information has been recast. Shares used to calculate earnings per share were approximately 2.4 million this year versus approximately 2 million last year. So, net loss from continuing operations was $41.9 million or $17.62 per share this year compared to $45.4 million or $22.95 per share last year. Our backlog and deferred revenue at the end of the quarter totaled approximately $4.7 million. Moving to the balance sheet, we closed the fourth quarter with $3.9 million in cash and $4.9 million in debt, which was down from the $9.7 million in debt at the end of the prior year.
So, with our historical numbers covered, I want to highlight other recent accomplishments. First, we reduced monthly cash burn by prudently restructuring operations. Here are some examples. Compensation expense: We retained key talent to support existing customers and initial growth projects, which resulted in reduced compensation-related costs, so salaries, payroll taxes and benefits, by approximately 55%. At the end of 2023, our total headcount was 25 and we're currently at 27 today. Rent expense: During 2023, we negotiated the termination of three of our five existing office space leases. We expect 2024 monthly lease expense net of sublease income to approximate $50,000 a month. We continue to pursue the sublease or early termination of our Austin lease.
Beyond compensation and facilities costs, our Q4 run rate for other expenses has decreased more than 50% compared to the beginning of 2023. Secondly, strong improvement in our balance sheet. Beginning with a small equity raise in December followed by others in January, we were able to stabilize our financial position and fund our runway for the foreseeable future. For some added context, in early March, we now have approximately $17 million of cash on hand; zero debt; nearly $2 million of future lease obligations eliminated; approximately $4 million of current liabilities paid; we've settled a significant pending lawsuit, which was fully accrued in prior years; and we have a clean capital stack consisting of just common stock. We will remain active with both financial conferences and investor meetings in our efforts to share our story and further strengthen our corporate profile in the capital markets.
The next major financial conference we will be attending is the 36th Annual ROTH Conference on March 17th through 19th. We look forward to many one-on-one conversations and meetings with long-term minded institutional investors at the event and other financial conferences as opportunities present themselves. So with that, I want to turn the call back over to Mike for his discussion of our forward-looking strategy. Mike?
Mike Snavely: Thanks, Troy. Now that we have a solid foundation to work from, here is how we plan to build the future for our shareholders. Our commitment to our shareholders is one of sober execution. What does this mean? Solid steady growth, careful stewardship of company assets, driving the core software business toward breakeven and then profitability, and deployment of a portion of our capital against carefully considered opportunities that have a potential for outsized returns. Our strategy in software: Software has always been the core of our company. We believe that our software assets and our partnerships provide us with the ability to deliver the benchmark solution for the mobile engagement of our customer stakeholders and to continue to be recognized as an indispensable revenue generator for brands.
This is the primary mission of our software business, which is focused on hospitality, healthcare and connected office environments like we have in place with Gaylord Hotels, Phoenix Children's Hospital and Norfolk Southern's Corporate Campus to name a few examples. In recent years, as our software business has evolved from a professional services software development model to SaaS licensing, our staff had become oversized in relation to the portfolio we have under management. We have rightsized that part of the business while preserving the institutional knowledge embodied in our leadership team. Our goal for the next few quarters is to deliver ever increasing results from the software business, and we believe that we can do so based on achievable revenue growth goals and delivery efficiencies.
Since our last earnings call, we have added and launched new customers in Miami, Hawaii and Montreal. These hospitality customers joined a portfolio of existing customers that have consistently renewed and expanded their relationships with Phunware. Our solution is deemed indispensable by our customers to engage and monetize their guests, patients and employees. The mobile applications and experiences we develop for our clients consistently win industry accolades, underscoring their effectiveness and reliability. Finally, we also consistently see the best indicator of customer satisfaction, referrals and positive references to their peers in the industry. We continue to enhance our platform by internally developing new capabilities. For example, artificial intelligence that identifies customer desires based on location, activity and profile, and services offers at the right time.
However, we also believe that acquisitions and strategic partnerships will play a significant role in expanding our footprint in the markets we serve. To that end, we are actively seeking relationships that align with and support our strategy of delivering a complete end-to-end solution for end user engagement that directly drives revenue for our customers. On patent monetization: We are committed to protecting our company's rights against any patent infringement that we can identify and to engaging in efforts for recovery of damages. We believe that our patent portfolio, built up over the past 15 years, covers some of the most fundamental methods of the way data is managed and distributed on the Internet and in mobile, and we intend to aggressively identify and hold infringers to account.
We've seen the first fruits of progress on this front. A jury in the U.S. District Court in Los Angeles has found that U.S. patent number 8989715, also known as the 715 patent, is infringed by Netflix video streaming services. While we previously sold this patent to GoTV Streaming, we retain a significant economic interest in all future enforcement, licensing and other recoveries related to this patent, including damages from the Netflix case. For more information on this action, including the current status of a motion for a new trial on damages, please see GoTV Streaming, LLC versus Netflix, Inc., filed in the U.S. District Court for the Central District of California. Today, we have 16 other issued patents and eight pending. We are conducting an evaluation of our remaining patent portfolio and look to partner with one or more entities in the near future to assert our rights and to monetize some or all of these assets.
On digital assets, including PhunCoin: Digital assets will also be part of our strategy moving ahead. Given the expansion and broader acceptance of Bitcoin, Ethereum and other digital assets and the growth of related networks, together with what we believe to be increasing regulatory certainty on digital assets, we believe the time has never been better to refocus in this area separately and as part of our software offerings. We have been a pioneer and innovator as a public company in the digital asset space. For example, we created and developed our own native tokens, PhunCoin and PhunToken, and we created and launched the PhunWallet application. We had made tremendous progress on implementing our multifaceted digital assets related business by mid-2022.
Increasing regulatory uncertainty and unexpected events in the digital asset markets, coupled with changes in management, forced us to put our digital assets business implementation on hold until now. It will take us some time, but we are committed to building a successful, multifaceted digital assets business with differentiated offerings. Today, we are confirming some initial steps for our multifaceted digital assets business strategy. Number one, issuance of PhunCoin. We will finalize the structure of PhunCoin and its related ecosystem, solidify the role of PhunToken within the ecosystem, and complete our initial issuances of PhunCoin at the earliest practicable opportunity. We are engaged daily in the work required to get this done. We may make some changes to PhunCoin and the ecosystem that we believe will benefit our digital asset holders and stakeholders.
Number two, we have built IP that will take our digital assets strategy well beyond the issuance of coins and tokens. For example, we have been issued U.S. patent 11829996, described as hybrid organizational system for data management and tracking, to cover certain elements embodied in PhunWallet, including the ability to share consumer data for value. We have also conceptualized and applied for a patent on what we call the global crypto passport, which we believe will be an important method for connecting traditional financial institutions to the crypto ecosystem. In summary, we believe that we have solved the majority of challenges facing the company. 2023 is in the past and we are moving ahead. Unencumbered by debt, with the right management team in place and with access to the capital and runway that will allow us to fulfill the mission I've just described, our goal is to deliver results with sober and responsible execution in the interest of building long-term buy and hold shareholder value.
I would like to open up the call now for questions through the operator. Operator, please go ahead.
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