Phunware ( NASDAQ: PHUN) Announces Second Quarter 2019 Financial Results

Continued MaaS Subscription Revenue Growth Accompanies Improved Net Loss per Share

Phunware, Inc. (NASDAQ: PHUN) (the “Company”), a fully-integrated enterprise cloud platform for mobile that provides products, solutions, data and services for brands worldwide, today announced financial results for its second quarter ended June 30, 2019, and provided an update on recent business developments.

Second Quarter 2019 Financial Highlights

  • Net revenues totaled $5.5 million
  • Platform subscriptions and services revenue totaled $5.1 million, or 92% of net revenues
  • Multiple consecutive quarters of platform subscription and services revenue growth
  • Gross margin was 50.6%, compared to 78.4% for the same period in the prior year
  • Non-GAAP gross margin was 51.2%, compared to 47.2% a year ago
  • Net loss was ($3.1) million. Net loss per share was ($0.08), an improvement of 34% quarter-over-quarter sequentially
  • Non-GAAP adjusted EBITDA loss was ($2.4) million, a $1.2 million improvement year-over-year

“Our first half financial performance has provided a strong foundation for our growth strategies throughout the balance of the year and into 2020,” said Alan S. Knitowski, CEO and Co-Founder of Phunware. “Our SaaS, data and blockchain offerings for mobile uniquely position us to deliver true digital transformation for our customers, enabling 1:1 real-time interactions between consumers and brands in both the virtual and physical world alike.”

Recent Business Highlights and Announcements

  • Notable customer and partner wins:
    • Closed Mount Sinai Health System Contract for MaaS Platform Licensing
    • Closed Susan Miller’s Astrology Zone® Contract for MaaS Blockchain-Enabled Data Exchange and Mobile Loyalty Ecosystem
    • Closed L&T Technology Services Partnership for Phunware-Enabled Corporate Campus Contract with Fortune 50 Company
    • Closed Comport Partnership for Best-in-Class Mobile Patient Experience Offering
  • Awards and recognition:
    • Joined the FTSE Russell 2000®, FTSE Russell 3000® and FTSE Russell Microcap® Indexes
    • Rang the Opening Bell at the Nasdaq MarketSite in Times Square on July 12, 2019
    • Awarded 2019 North America Company of the Year Award by Frost & Sullivan
    • Recognized as Top 10 Indoor Positioning Solution Provider by CIO Applications
  • MaaS platform updates:
    • Announced new Data and Knowledge Graph Products and launched Blockchain-Enabled Data Exchange and Mobile Loyalty Ecosystem
    • Announced Dual Token Structure for the PhunCoin Security Token and the Phun Utility Token, along with the Sale of the Phun Utility Token to International Markets
    • Partnered with Wave Financial for Initial Exchange Offerings and Listings of the Phun Utility Token
  • Phunware, PhunCoin and Phun Advisory Board appointments:
    • Cambridge Analytica whistleblower: Brittany Kaiser, from Netflix documentary The Great Hack
    • Koherent, Inc., Chief Executive Officer: Sean Koh
  • Conferences and events:
    • Alan S. Knitowski, CEO and Co-Founder, presented at the Southern California Investment Forum (SCIF) in Las Vegas, Nevada
    • Randall Crowder, COO, moderated the OPEX Exchange Conference Panel in Alexandria, Virginia

Audiocast and Presentation Information

A pre-recorded audiocast announcement will be made available today at 1:30pm Pacific / 3:30pm Central / 4:30pm Eastern discussing the Company’s financial results, product announcements and business highlights. The audiocast and investor presentation will be accessible on the Phunware Investor Relations website at http://investors.phunware.com/.

Safe Harbor Clause and Forward-Looking Statements

This press release includes forward-looking statements. All statements other than statements of historical facts contained in this press release, including statements regarding our future results of operations and financial position, business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “expose,” “intend,” “may,” “might,” “opportunity,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

The forward-looking statements contained in this press release are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) and other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors” in our filings with the Securities and Exchange Commission (SEC), including our reports on Forms 10-K, 10-Q, 8-K and other filings that we make with the SEC from time to time. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. These risks and others described under “Risk Factors” in our SEC filings may not be exhaustive.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this press release. In addition, even if our results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this press release, those results or developments may not be indicative of results or developments in subsequent periods.

Disclosure Information

Phunware uses the investor relations section on its website, https://www.phunware.com, as a means of complying with its disclosure obligations under Regulation FD. Accordingly, we recommend that investors should monitor the investor relations section on Phunware’s website in addition to following Phunware’s press releases, SEC filings, and public conference calls and webcasts.

About Phunware, Inc.

Everything You Need to Succeed on Mobile — Transforming Digital Human Experience

Phunware, Inc.  (NASDAQ: PHUN),  is the pioneer of Multiscreen-as-a-Service (MaaS), an award-winning, fully integrated enterprise cloud platform for mobile that provides companies the products, solutionsdata and services necessary to engage, manage and monetize their mobile application portfolios and audiences globally at scale. Phunware’s Software Development Kits (SDKs) include location-based servicesmobile engagementcontent management, messaging, advertising, loyalty (PhunCoin & Phun) and analytics, as well as a mobile application framework of pre-integrated iOS and Android software modules for building in-house or channel-based mobile application and vertical solutions. Phunware helps the world’s most respected brands create category-defining mobile experiences, with more than one billion active devices touching its platform each month. For more information about how Phunware is transforming the way consumers and brands interact with mobile in the virtual and physical worlds, visit https://www.phunware.comhttps://www.phuncoin.comhttps://www.phuntoken.com, and follow @phunware, @phuncoin and @phuntoken on all social media platforms.

Financial Results

Phunware, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except per share information)

  June 30, 2019   December 31, 2018
  (Unaudited)    
Assets:      
Current assets:      
Cash $ 248     $ 844  
Accounts receivable, net 3,546     3,606  
Prepaid expenses and other current assets 740     272  
Total current assets 4,534     4,722  
       
Property and equipment, net 36     66  
Goodwill 25,817     25,821  
Intangible assets, net 378     521  
Deferred tax asset – long term 64     64  
Restricted Cash     5,500  
Other assets 187     187  
Total assets $ 31,016     $ 36,881  
       
Liabilities, redeemable convertible preferred stock, and stockholders’ equity      
Current liabilities:      
Accounts payable $ 9,083     $ 9,890  
Accrued expenses 3,357     3,028  
Deferred revenue 2,101     2,629  
PhunCoin deposits 1,181      
Factored receivables payable 1,775     2,434  
Short term notes payable – related party     1,993  
Total current liabilities 17,497     19,974  
       
Convertible note payable 250      
Deferred tax liability 64     64  
Deferred revenue 5,048     5,622  
Deferred rent 14     17  
Total liabilities 22,873     25,677  
       
Commitments and contingencies      
Redeemable convertible preferred stock, $0.0001 par value     5,377  
       
Stockholders’ equity      
Common stock, $0.0001 par value 4     3  
Additional paid in capital 125,854     118,062  
Accumulated other comprehensive loss (421 )   (418 )
Accumulated deficit (117,294 )   (111,820 )
Total stockholders’ equity 8,143     5,827  
Total liabilities, redeemable convertible preferred stock, and stockholders’ equity $ 31,016     $ 36,881  
Phunware, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(In thousands, except per share information)

(Unaudited)

  Three Months Ended June 30,   Six Months Ended June 30,
  2019   2018   2019   2018
Net revenues $ 5,510     $ 14,185     $ 10,825     $ 19,165  
Cost of revenues 2,722     3,069     5,339     5,936  
Gross profit 2,788     11,116     5,486     13,229  
               
Operating expenses:              
Sales and marketing 665     1,414     1,389     3,332  
General and administrative 3,970     3,318     7,945     7,807  
Research and development 1,077     1,718     2,386     4,018  
Total operating expenses 5,712     6,450     11,720     15,157  
Operating (loss) income (2,924 )   4,666     (6,234 )   (1,928 )
               
Other income (expense):              
Interest expense (151 )   (183 )   (339 )   (385 )
Fair value adjustment for warrant liabilities             (54 )
Impairment of digital currencies     (21 )       (334 )
Other income 13     10     17     9  
Total other expense (138 )   (194 )   (322 )   (764 )
(Loss) income before taxes (3,062 )   4,472     (6,556 )   (2,692 )
Income tax expense (5 )       (5 )    
Net (loss) income (3,067 )   4,472     (6,561 )   (2,692 )
Other comprehensive loss              
Cumulative translation adjustment (30 )   (81 )   (3 )   (27 )
Comprehensive (loss) income $ (3,097 )   $ 4,391     $ (6,564 )   $ (2,719 )
               
Net (loss) income per share, basic $ (0.08 )   $ 0.18     $ (0.19 )   $ (0.11 )
Net (loss) income per share, diluted $ (0.08 )   $ 0.17     $ (0.19 )   $ (0.11 )
               
Weighted-average shares used to compute net (loss) income per share, basic 38,810     25,396     34,537     25,174  
Weighted-average shares used to compute net (loss) income per share, diluted 38,810     26,164     34,537     25,174  

Non-GAAP Financial Measures and Reconciliation

Adjusted Net Revenues and Adjusted EBITDA should be considered in addition to, not as a substitute for, or superior to, financial measures calculated in accordance with Generally Accepted Accounting Principles in the United States (“GAAP”). It is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net revenues or net income (loss), as applicable, or any other performance measures derived in accordance with GAAP and may not be comparable to other similarly titled measures of other businesses. Adjusted Net Revenues and Adjusted EBITDA have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our operating results as reported under GAAP. Some of these limitations include: (i) Non-cash compensation is and will remain a key element of our overall long-term incentive compensation package, although we exclude it as an expense when evaluating its ongoing operating performance for a particular period, (ii) Adjusted Net Revenues and Adjusted EBITDA do not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of ongoing operations, and (iii) other companies in our industry may calculate Adjusted Net Revenues or Adjusted EBITDA differently than we do, limiting their usefulness as comparative measures.

We compensate for these limitations to Adjusted Net Revenues and Adjusted EBITDA by relying primarily on its GAAP results and using Adjusted Net Revenues and Adjusted EBITDA only for supplemental purposes. Adjusted Net Revenues and Adjusted EBITDA include adjustments for items that may not occur in future periods. However, we believe these adjustments are appropriate because the amounts recognized can vary significantly from period to period, do not directly relate to the ongoing operations of our business and complicate comparisons of our internal operating results and operating results of other peer companies over time. Each of the normal recurring adjustments and other adjustments described in this paragraph help management with a measure of our operating performance over time by removing items that are not related to day-to-day operations or are non-cash expenses.

Phunware, Inc.

Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands)

(Unaudited)

  Three Months Ended

June 30,

  Six Months Ended

June 30,

  2019   2018   2019   2018
  (in thousands)   (in thousands)
Net revenues $ 5,510     $ 14,185     $ 10,825     $ 19,165  
Less: One-time revenue adjustments     (8,428 )       (8,428 )
Adjusted net revenues 5,510     5,757     10,825     10,737  
       
  Three Months Ended

June 30,

  Six Months Ended

June 30,

  2019   2018   2019   2018
  (in thousands)   (in thousands)
Net (loss) income $ (3,067 )   $ 4,472     $ (6,561 )   $ (2,692 )
Add back: Depreciation and amortization 84     118     175     242  
Add back: Interest expense 151     183     339     385  
Less: Income tax benefit 5         5      
EBITDA (2,827 )   4,773     (6,042 )   (2,065 )
Less: One-time revenue adjustments     (8,428 )       (8,428 )
Add Back: Stock-based compensation 416     62     427     211  
Adjusted EBITDA $ (2,411 )   $ (3,593 )   $ (5,615 )   $ (10,282 )
Phunware, Inc.

Supplemental Information

(In thousands)

(Unaudited)

31-Mar-18   30-Jun-18   30-Sep-18   31-Dec-18   31-Mar-19   30-Jun-19
Platform subscriptions and services revenue $ 4,004 $ 6,448 $ 4,349 $ 4,608 $ 4,821 $ 5,092
Less: One-time revenue adjustments     (2,106)        
Adjusted platform subscriptions and services revenue $ 4,004 $ 4,342 $ 4,349 $ 4,608 $ 4,821 $ 5,092