Phunware, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report; it does not provide standalone fourth-quarter results. Phunware sells a mobile software platform, application development and support services, and mobile advertising transactions.
Financial performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $10.0 million | $19.2 million |
| Gross profit / margin | $6.6 million / 66.4% | $10.1 million / 52.9% |
| Operating loss | $17.5 million | $12.3 million |
| Net loss | $22.2 million | $12.9 million |
| Basic and diluted loss per share | $0.50 | $0.35 |
| Cash used in operating activities | $11.0 million | $6.2 million |
| Adjusted EBITDA (non-GAAP) | $(8.4) million | $(10.2) million |
Revenue fell 47.8%. Platform subscriptions and services declined 47.2% to $9.1 million, largely because the Fox Networks Group statement of work ended in September 2019; Fox contributed about $9.5 million in 2019. Application transaction revenue fell 53.2% to $0.9 million, reflecting reduced or ended advertising campaigns and lower app-store revenue. One customer represented 32% of 2020 revenue, compared with 8% in 2019. Gross margin improved, while gross profit declined 34.4%.
Liquidity, debt and capital
- Year-end cash was $3.94 million, with $0.09 million of restricted cash. Current assets were $4.91 million versus current liabilities of $26.46 million.
- Debt principal totaled approximately $10.1 million at year-end, including $6.1 million of 2020 convertible notes and a $2.85 million Paycheck Protection Program (PPP) loan. The notes carried substantial repayment, redemption and conversion provisions; their stated maturity was December 2021. The PPP loan’s potential forgiveness was uncertain.
- Operating cash outflow increased to $11.0 million. Financing activities provided $14.6 million, principally from debt and equity issuance. The company reported a history of operating losses and negative operating cash flows.
- After year-end, Phunware raised approximately $5.1 million net through an at-the-market offering in January 2021 and $24.7 million net in a February public offering. A noteholder received approximately $11.5 million in connection with the required use of offering proceeds to repay convertible-note obligations. In March, the noteholder prepaid $10.3 million under the related investor note; Phunware then gave notice to redeem the remaining Series B note obligations on April 5, 2021.
- Management said these financings were expected to fund projected operating requirements for at least 12 months from the filing date, but cautioned that future capital needs and access to financing remain uncertain.
Material changes, outlook and risks
- Operating expenses rose 7.6% to $24.1 million despite lower sales and marketing and research and development costs; general and administrative expense was broadly flat. The increase included a $4.5 million Uber settlement charge and higher stock-based compensation.
- The Uber settlement requires Phunware to pay $4.5 million in installments through September 30, 2021; $3.0 million remained accrued at year-end. A separate Wild Basin shareholder lawsuit sought unspecified damages exceeding $1 million; the company said it could not estimate a loss range. The PPP loan was also challenged in litigation, but the court dismissed the claims against Phunware in March 2021.
- Goodwill was $25.9 million, about 81% of total assets. Management reported no impairment at year-end; a future impairment could materially affect reported results.
- COVID-19 disrupted customers and markets. Phunware furloughed 37 employees, about 42% of its workforce, in March 2020; by year-end, seven had returned and ten had voluntarily left. The company reported 58 employees at year-end.
- Management does not expect near-term profitability. No formal revenue or earnings guidance is provided. Backlog plus deferred revenue declined to $9.1 million from $12.6 million; management expected about half of year-end backlog to be invoiced over the following 12 months.
- Phunware had raised $1.2 million from rights to future PhunCoin but had issued no PhunCoin and sold no Phun by year-end. The Token Ecosystem had no assured launch date or commercial adoption, with significant technology, cybersecurity, privacy, regulatory and accounting uncertainties.
- Other key risks include customer concentration, ongoing revenue declines, competition, data privacy and cybersecurity exposure, dilution from convertible notes, warrants and equity issuance, and restrictive debt covenants. The company stated that disclosure controls and internal control over financial reporting were effective; the auditor did not audit internal control effectiveness.
Investor verification priorities
- Track customer concentration, renewals, backlog conversion and whether revenue declines stabilize.
- Verify cash burn, liquidity and the completion and accounting impact of the 2021 offerings and note repayments, including remaining debt and dilution.
- Confirm payment and final resolution of the Uber settlement, and developments in the Wild Basin matter and any other contingencies.
- Assess the recoverability of goodwill and whether operating costs can be aligned with revenue without impairing execution.
- Check PPP forgiveness or repayment status and any related regulatory or litigation developments.
- Evaluate whether PhunCoin and the Token Ecosystem launch, comply with applicable requirements and gain users; no successful launch or adoption is assured.