Phunware, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Financial amounts below are in millions of dollars unless otherwise stated. Phunware provides a mobile software and services platform and, following its October 2021 acquisition of Lyte Technology, sells high-performance computers.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $6.778 | $1.646 |
| Gross profit / margin | $1.771 / 26.1% | $0.954 / 58.0% |
| Operating loss | $(5.022) | $(3.412) |
| Net loss | $(14.917) | $(14.307) |
| Loss per share, basic and diluted | $(0.15) | $(0.22) |
| Adjusted EBITDA (non-GAAP) | $(4.220) | $(2.403) |
| Cash used in operating activities | $(10.171) | $(7.299) |
Platform revenue was $2.492 million, up 51.4%; hardware revenue was $4.286 million, attributable to Lyte. Platform gross margin was 57.2%; hardware gross margin was 8.1%. The quarter included a $9.353 million impairment of digital assets. Cash was $10.815 million at March 31, down from $23.137 million at year-end. Digital assets were carried at $24.244 million, against an aggregate cost basis of $42.994 million.
Total assets were $81.423 million and total liabilities $29.433 million. Current liabilities included $3.493 million of net current maturities of long-term debt. The Lyte-related 2021 promissory note had $3.654 million principal outstanding; monthly amortization payments are $574,000 and are subject to a prepayment premium that the company says implies an effective rate of approximately 18%. Stockholders’ equity was $51.990 million. Common shares outstanding were 97.251 million at quarter-end.
Changes versus the prior comparable period
- Revenue increased 311.8%, largely because Lyte contributed $4.286 million in hardware sales; platform revenue also rose, primarily reflecting PhunToken sales begun in 2021.
- Total gross margin fell to 26.1% from 58.0%, reflecting the lower-margin hardware mix. Gross profit nevertheless increased 85.6%.
- Operating expenses rose 55.6% to $6.793 million, with higher sales and marketing and general and administrative costs. Operating loss widened.
- Net loss increased by $0.610 million. The 2022 period included the digital-asset impairment, while Q1 2021 included a $5.768 million debt-extinguishment loss and higher warrant valuation and interest expenses.
- Operating cash use increased by $2.872 million. The 2021 period benefited from $29.705 million of stock-sale proceeds and $9.981 million of net borrowing proceeds; Q1 2022 had no comparable financing inflows.
Outlook, risks, and notable items
- Management expects operating losses and cash outflows to continue as it invests in growth, and does not expect near-term profitability. It believes cash on hand is sufficient for at least one year following the May 16, 2022 filing date; this is management’s assessment, not a revenue or earnings forecast.
- Phunware may sell digital assets to fund operations, but cautions that volatility and limited liquidity could constrain sales. Digital-asset regulation, custody, loss, and valuation are material risks.
- The company reported $7.088 million of backlog and deferred revenue at March 31, down from $8.588 million at December 31. It expects approximately 40% of backlog to be invoiced in the following 12 months; approximately 51% of remaining performance obligations are expected to be recognized as revenue over that period.
- Phunware believes Lyte will meet its revenue milestone and expects to owe the full earn-out consideration. Recorded accrued acquisition payments and earn-out payable were $4.500 million. A separate $1.125 million payment, subject to working-capital adjustments, was due June 30, 2022.
- A new five-year lease for Lyte manufacturing and warehouse space is expected to begin in late Q2 or early Q3 2022; initial base rent is approximately $27,000 per month, plus estimated operating expenses of about $7,000 per month.
- The company had authorization to sell up to $100 million of common stock through an at-the-market facility, but had made no sales under it as of the filing. It may need additional financing, which may not be available on acceptable terms.
- Q1 2021 comparative results were revised for an error in accounting for an adjustment to a warrant: revised net loss was $14.307 million, versus $12.363 million previously reported. The filing says the correction did not affect cash or operating cash flow. Management reported the related material weakness in financial reporting controls remediated as of March 31, 2022.
Most important facts for investors to verify
- Whether Lyte can sustain revenue and improve its low hardware gross margin amid inventory, supply, and demand risks.
- Cash runway under continued operating cash outflows, including debt amortization and Lyte acquisition payments, and whether new capital will be required.
- Digital-asset prices, impairment exposure, custody arrangements, and practical liquidity of the holdings.
- Progress in converting backlog and deferred revenue into recognized revenue, and the composition and renewal outlook of platform sales.
- Performance against Lyte’s earn-out milestones, commencement and costs of the new lease, and any dilution from future equity issuance or outstanding warrants.
- That the disclosed control remediation remains effective, and the implications of the prior-period warrant-accounting revision.