Phunware, Inc. — Form 10-Q Summary
Reporting period: Quarter ended June 30, 2022; filed August 15, 2022. Unaudited consolidated results. Phunware operates a mobile software and services platform and, following its 2021 acquisition of Lyte, sells high-performance computers.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $5.5m | $1.4m | $12.3m | $3.1m |
| Gross profit / margin | $1.5m / 27.7% | $0.3m / 21.7% | $3.3m / 26.8% | $1.3m / 41.1% |
| Operating loss | $(7.5)m | $(4.2)m | $(12.6)m | $(7.6)m |
| Net loss | $(17.1)m | $(7.8)m | $(32.0)m | $(22.1)m |
| Adjusted EBITDA (non-GAAP) | $(6.6)m | $(2.7)m | $(10.8)m | $(5.1)m |
Revenue grew 282% in Q2 and 298% in the first half. Hardware revenue from Lyte contributed $3.9m in Q2 and $8.1m in the first half; platform revenue was $1.6m and $4.1m, respectively. Management attributed platform growth principally to PhunToken sales and, for the first half, increased advertising campaigns. Lower platform sales to certain customers partly offset growth. The six-month gross margin declined year over year, reflecting the changed revenue mix, including lower-margin hardware.
- Operating expenses rose 101% in Q2 and 79% in the first half, to $9.1m and $15.8m. The company cited higher marketing, employee, legal, and research and development costs.
- Other expense included digital-asset impairment of $12.2m in Q2 and $21.5m in the first half. This drove much of the increase in net loss. Interest expense was lower than in 2021, and the warrant fair-value adjustment was a gain.
- Basic and diluted loss per share was $0.17 for Q2 and $0.33 for the first half, compared with $0.11 and $0.32, respectively, in 2021.
Cash, liquidity and obligations
- At June 30, cash was $2.7m, versus $23.1m at December 31, 2021. Current assets were $20.8m and current liabilities $21.2m. The company reported $35.7m of stockholders’ equity.
- For the first half, operating cash use was $15.0m, investing cash use $2.2m, and financing cash use $3.1m; cash decreased $20.4m. Operating cash use was broadly similar to the $14.4m used in the first half of 2021.
- Digital assets were carried at $12.6m, down from $32.6m at year-end after impairment. Their aggregate cost basis was $42.3m. The filing notes price volatility, custody, liquidity, and regulatory risks.
- Current maturities of long-term debt, net, were $2.0m. The 2021 promissory note had $2.1m principal outstanding at June 30, with monthly amortization payments of approximately $574,000 and a 110% prepayment premium.
- On July 6, 2022, the company obtained a new unsecured promissory note, receiving $11.8m net proceeds on $12.8m original principal. Monthly payments of approximately $1.6m are scheduled to begin November 1, subject to permitted deferrals and associated balance increases. The note disclosure states a July 1, 2022 maturity date, which appears inconsistent with the issuance date and payment schedule.
- The company had an effective shelf registration statement and an at-the-market facility for up to $100m of common stock, but had made no sales under the facility through June 30. Management said it believed financing and other plans would provide sufficient cash for at least one year after filing, while acknowledging continuing liquidity risk and no assurance of future financing.
Outlook, risks and notable items
- Management said it expects continued investment in products, sales and marketing, and Lyte, and does not expect profitability in the near future. The filing provides no specific revenue or earnings guidance.
- Backlog was $2.7m and deferred revenue $2.6m at June 30, down from combined $8.6m at year-end. Management expected about 36% of backlog to be invoiced in the following 12 months; of remaining performance obligations, approximately 40% was expected to be recognized over the next 12 months.
- A Delaware stockholder lawsuit challenges a 180-day lock-up and seeks damages, costs and fees. The company is defending the case and has not accrued a loss because it considers a loss neither probable nor reasonably estimable; the possible loss range is not stated.
- Risks highlighted include ongoing losses and cash burn, digital-asset volatility and custody, uncertain token regulation, supply-chain disruption, inflation and macroeconomic weakness. A previously identified material weakness relating to warrant accounting was reported remediated as of June 30; disclosure controls were deemed effective.
- The company revised its 2021 comparative financial statements for an accounting error involving a warrant. The revision increased reported net loss by $0.5m for Q2 2021 and $1.4m for the first half of 2021; management said it did not affect cash or operating cash flow.
Investor verification priorities
- Confirm the July 2022 note’s correct maturity date, payment terms, deferral conditions, and impact on near-term liquidity.
- Assess cash runway against continuing operating losses and cash use, and whether additional equity or debt financing will be required.
- Review Lyte’s hardware margins, inventory and supply availability, and the sustainability of platform revenue growth.
- Evaluate the scale and valuation risk of digital-asset holdings and the impact of future impairment or sales.
- Track the stockholder lawsuit, the acquisition earn-out, and progress in converting backlog and deferred revenue into recognized revenue.