Phunware, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. Phunware provides mobile software, services and application transaction offerings. The company had wound down Lyte Technology, which is reported as a discontinued operation; 2023 comparisons are presented on that basis.
Financial results
Amounts are in thousands of dollars, except per-share data and percentages.
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $921 | $1,344 |
| Gross profit / margin | $524 / 56.9% | $73 / 5.4% |
| Operating expenses | $3,398 | $6,767 |
| Operating loss | $(2,874) | $(6,694) |
| Net loss | $(2,292) | $(4,269), including discontinued operations |
| Loss per share, basic and diluted | $(0.33) | $(2.07), including discontinued operations |
| Adjusted EBITDA (non-GAAP) | $(2,028) | $(5,217) |
| Operating cash flow | $(5,530) | $(7,382) |
| Cash and cash equivalents, March 31 | $21,567 | $694 |
Revenue declined 31.5%. Subscriptions and services revenue fell 60.7% to $454, primarily due to a customer contract termination and lower reimbursable expenses; application transaction revenue rose 148.4% to $467, driven by the timing of advertising campaigns. Lower costs of revenue and reduced operating expenses—primarily reflecting lower headcount and lower consulting and stock-compensation expense—improved gross profit and narrowed losses. The prior-year net loss included a $3,214 gain on digital-asset sales and a $557 discontinued-operation loss; Q1 2024 included a $535 gain on extinguishment of debt.
Financial position, liquidity and capital
- At March 31, 2024, current assets were $22,636 and current liabilities were $8,179. Total liabilities were $9,647; stockholders’ equity was $14,625, versus a deficit of $11,457 at year-end 2023.
- Cash increased from $3,934 at year-end to $21,567, principally due to $23,204 of net financing proceeds from common-stock sales. Operating activities used $5,530; investing activities provided no cash.
- The 2022 Promissory Note was paid in full through Q1 share conversions and related waivers. The filing reports $108 of interest expense, compared with $537 a year earlier.
- Phunware issued shares and pre-funded warrants in Q1 offerings and ATM sales. The company reported 8,272,091 common shares outstanding as of May 7, 2024, compared with 3,851,448 at December 31, 2023. A one-for-fifty reverse stock split took effect February 26, 2024; share data has been retrospectively adjusted.
- Lease liabilities totaled $1,513; stated future minimum lease obligations were $1,683 before $170 of interest. Remaining performance obligations were $4,609, of which about 37% is expected to be recognized over the next 12 months. Backlog plus deferred revenue was $4,426 at quarter-end.
Outlook, risks and notable developments
- Management expects operating losses and negative operating cash flows to continue and does not expect near-term profitability. It believes cash on hand is sufficient for at least one year following the filing date, based on financing activity. The filing provides no revenue or earnings forecast.
- Future capital needs depend on growth, renewals and investment plans. The company may seek additional equity or debt financing and cautions that acceptable financing may not be available. Further share issuance could dilute investors.
- Nasdaq confirmed continued listing compliance after the reverse split, but imposed a one-year Panel monitoring period from March 12, 2024. The company says there is no assurance it will maintain compliance.
- Disclosure controls and procedures were deemed ineffective at quarter-end. Management identified an ongoing material weakness involving IT general controls and insufficient segregation of duties in financial reporting; remediation efforts are underway, with no assurance they will succeed.
- Phunware paid approximately $2,194 to settle part of its arbitration dispute with former counsel WSGR. Related claims remain pending; $2,159 of accounts payable at March 31 relates to WSGR claims. A separate stockholder lawsuit remains unresolved; the company has not recorded a liability because a potential loss is not considered probable or reasonably estimable.
- Customer concentration is material: Customer A represented 33% of Q1 revenue and 36% of receivables at March 31. Results may fluctuate; the company says Q1 results are not necessarily indicative of full-year results.
Key facts for investors to verify
- Reconcile the substantial increase in shares outstanding, Q1 offering proceeds and remaining capacity under the ATM and Lincoln Park purchase arrangements; assess potential dilution.
- Review operating cash burn against management’s one-year liquidity assessment and the availability and terms of future financing.
- Track revenue mix, customer concentration, contract renewals, backlog and the timing of advertising campaigns.
- Monitor remediation of the disclosed material weakness and any subsequent change in control effectiveness.
- Follow outcomes and possible financial effects of the remaining WSGR arbitration and stockholder litigation, as well as Nasdaq listing compliance.
- Check the debt maturity dates stated in the filing: the debt note says May 31, 2024, while MD&A says June 1, 2024; the note also reports the debt was paid in full during Q1.