Phunware, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2023; financial statements are unaudited. Amounts below are in millions of dollars unless otherwise noted.
Business context
Phunware provides a mobile software and services platform, including SDK subscriptions, application development and advertising transactions. Its Lyte business sells high-performance computers. On November 1, 2023, after the quarter ended, the company committed to discontinue and wind down Lyte, with completion expected by year-end. Phunware’s digital-asset ecosystem includes PhunToken; it reported no PhunToken sales in the first nine months of 2023.
Financial results and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $2.792 | $4.758 | $11.026 | $17.021 |
| Gross profit | $0.195 | $0.795 | $1.012 | $4.086 |
| Gross margin | 7.0% | 16.7% | 9.2% | 24.0% |
| Operating loss | $(18.540) | $(7.878) | $(33.988) | $(20.435) |
| Net loss | $(18.979) | $(8.018) | $(29.772) | $(40.006) |
| Adjusted EBITDA | $(4.264) | $(6.741) | $(15.080) | $(17.590) |
Q3 revenue fell 41.3% year over year, mainly as Lyte computer shipments declined. Platform revenue was $1.253 million, nearly flat year over year; hardware revenue fell 56.0% to $1.539 million. For the first nine months, platform revenue declined 27.6% and hardware revenue declined 38.7%. Hardware gross profit was negative in both the quarter and nine-month period, including charges for obsolete Lyte inventory. Adjusted EBITDA is a company-defined non-GAAP measure.
The Q3 net loss included a $13.188 million non-cash goodwill impairment charge. The nine-month impairment was $14.391 million, reflecting write-downs of both Phunware and Lyte reporting units. Nine-month other income included a $5.310 million realized gain on digital-asset sales; the company also reported a $0.237 million debt-extinguishment loss. Loss per share was $0.16 for Q3 and $0.27 for the nine months, compared with $0.08 and $0.41, respectively, in 2022.
Cash was $2.857 million at September 30, 2023, versus $1.955 million at year-end 2022. Current assets were $5.483 million and current liabilities were $18.204 million, a working-capital deficit of $12.721 million. Total liabilities were $21.255 million and stockholders’ equity was $6.555 million. The 2022 Promissory Note balance was $5.563 million at quarter-end; under its amendment, it accrues interest at 8% and requires monthly amortization payments of at least $0.800 million, with limited conversion rights for the holder.
For the first nine months, operating cash use was $15.869 million, investing cash provided $15.383 million—primarily from digital-asset sales—and financing cash provided $1.379 million. Financing included $6.879 million of net equity proceeds and $5.056 million of debt repayments. Cash generated by asset sales and equity issuance should be distinguished from recurring operating cash generation.
Material changes, outlook and risks
- Going concern: Management concluded substantial doubt exists about the company’s ability to continue as a going concern for one year after issuance of the financial statements. It reported a nine-month net loss of $29.772 million, operating cash use of $15.869 million and the working-capital deficit noted above. Management expects operating expenditures to exceed revenue for the foreseeable future. Expense reductions and potential equity financing are plans, but management said these sources are not assured and do not sufficiently alleviate the doubt.
- Lyte wind-down: Management expects $0.2–$0.4 million of cash wind-down costs, primarily funded by asset-sale proceeds, and up to approximately $3.0 million of pre-tax non-cash losses in Q4 2023. It also terminated Lyte’s warehouse lease effective November 30, 2023, paying a $0.120 million termination fee and forfeiting a $0.077 million deposit.
- Leadership: CEO Russell Buyse departed October 25, 2023, and Chief Revenue Officer Michael Snavely became CEO. Buyse’s consulting agreement concluded November 10, 2023.
- Funding and dilution: The company may use its at-the-market offering, a stock purchase agreement allowing up to $30 million of sales to Lincoln Park over 24 months, or other registered securities offerings. During the nine months, it issued 17.4 million shares through its ATM for approximately $7.0 million net proceeds and sold shares to Lincoln Park for $0.088 million gross proceeds. Shares outstanding increased from 103.2 million at December 31, 2022 to 128.6 million at September 30, 2023; the filing reports 135.4 million outstanding as of November 9, 2023.
- Debt and listing risk: Nasdaq granted an extension to April 8, 2024 to regain the $1.00 minimum bid-price requirement; a reverse stock split may be considered. Failure to meet listing requirements could impair access to financing and, if delisted from Nasdaq without another qualifying listing, trigger a default under the amended note.
- Other risks and contingencies: A Delaware stockholder lawsuit remains pending on certain claims; the company has not recorded a liability because loss is not currently probable or reasonably estimable. Digital-asset regulation, custody and transaction risks remain. Management reported disclosure controls were effective as of September 30, 2023 and no material change in internal control during the quarter.
Important facts for investors to verify
- Cash runway, monthly cash burn, and whether proposed cost reductions and financing can address the stated going-concern doubt.
- Actual proceeds and dilution from the ATM and Lincoln Park arrangements, including subsequent share issuance and note conversions.
- Terms and payment status of the amended promissory note; the filing gives its extended maturity as May 31, 2024 in the debt note and June 1, 2024 in MD&A.
- Lyte wind-down progress, actual cash costs and asset-sale proceeds, and any additional impairment or exit charges.
- Progress toward Nasdaq bid-price compliance by April 8, 2024 and any effect on the note or the company’s ability to raise capital.
- Developments in the stockholder litigation and any change in the company’s assessment of potential loss.