Phunware, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed March 31, 2023. This is an annual report, not a standalone fourth-quarter report. Phunware operates a mobile software and services platform and, through Lyte Technology, sells custom and pre-packaged computers.
Financial performance and position
| Metric | 2022 | 2021 | Change / context |
|---|---|---|---|
| Revenue | $21.8 million | $10.6 million | Up 104.8%, principally because 2022 included a full year of Lyte revenue |
| Platform revenue | $6.5 million | $7.5 million | Down 13.6%; lower development, licensing and support revenue was partly offset by PhunToken sales |
| Hardware revenue | $15.3 million | $3.1 million | Up $12.2 million following the Lyte acquisition |
| Gross profit / margin | $5.1 million / 23.3% | $3.6 million / 33.9% | Profit increased, but margin fell as lower-margin hardware became a larger share of sales |
| Operating loss | $29.5 million | $16.8 million | Worsened as operating expenses rose 69.0% to $34.6 million |
| Net loss | $50.9 million | $53.5 million | Improved, but remained substantial; 2022 included $22.9 million of digital-asset impairment |
| Adjusted EBITDA (non-GAAP) | $(23.5) million | $(11.7) million | Loss widened; company cautions this measure is supplemental and not a substitute for GAAP results |
| Cash from operations | $(26.8) million | $(22.5) million | Cash use increased |
| Cash at year-end | $2.0 million | $23.1 million | Down $21.2 million |
At year-end, total assets were $54.8 million, current assets $16.9 million, current liabilities $25.6 million, and total liabilities $30.0 million. The resulting current-liability excess was approximately $8.7 million. Digital assets were carried at $10.1 million after impairment; the company reported holding approximately 605 bitcoin and 400 ether. Goodwill was $31.1 million, approximately 57% of total assets, after a $2.1 million Lyte-related impairment. Total stockholders’ equity was $24.9 million.
Material changes and financing
- Lyte hardware drove reported growth, while platform revenue declined. Hardware gross margin rose to 10.3% from 2.5%, but remained well below platform gross margin of 53.8%.
- Operating expenses increased to $34.6 million, including higher sales and marketing, general and administrative, and research and development expenses. General and administrative costs included increased legal fees.
- The company recorded $22.9 million of digital-asset impairment, compared with $9.4 million in 2021. Under its accounting policy, impairment write-downs are not reversed for subsequent price recoveries; gains generally are recognized upon sale.
- Year-end debt included $9.7 million of current maturities, net. A July 2022 unsecured promissory note had an effective interest rate of 15.34% and required monthly amortization. In March 2023, the lender agreed to defer payments for April through July; the deferrals increase the outstanding balance by 1.85% per month, and the revised monthly payment is approximately $1.8 million beginning in August, with a new stated maturity of November 2023.
- During 2022, the company received $11.8 million net from the promissory note and $4.3 million net from common-stock sales, while making $8.1 million of debt payments. It had $95.4 million of remaining capacity under its disclosed at-the-market sales agreement as of the filing date, subject to the agreement and offering terms.
- Common shares outstanding increased to 103.2 million at year-end from 96.8 million a year earlier. The filing also reports 10.6 million potentially dilutive securities excluded from diluted loss per share as anti-dilutive.
Outlook, risks and unusual items
- Going concern: Management and the auditor state that substantial doubt exists about the company’s ability to continue as a going concern for at least one year after issuance of the financial statements. Management says cash and potential liquidation of digital assets are insufficient for operating needs over the following year; it may reduce costs, sell digital assets, or seek additional financing. Financing is not assured. The auditor’s opinion on the financial statements was unqualified but included a going-concern explanatory paragraph.
- Outlook: The company says it does not expect to be profitable in the near future and expects operating expenditures to exceed revenue for the foreseeable future. It provides no numeric revenue, earnings or cash-flow guidance.
- Digital assets and tokens: Bitcoin and other digital-asset prices, liquidity, custody and regulatory developments may materially affect results and liquidity. PhunToken revenue was $1.5 million in 2022; the Token Ecosystem remained under development, and the company cautions that PhunCoin issuance and ecosystem completion are uncertain. Management anticipated transferring PhunCoin to rights holders in 2023, but gives no assurance this will occur.
- Management and operations: Co-founder and former CEO Alan Knitowski left the CEO role in December 2022; Russell Buyse became CEO on December 28. The company also disclosed a January 2023 separation agreement with its CTO. Execution of the leadership transition and cost control are key uncertainties.
- Legal matters: A dispute with former counsel is in arbitration; $4.3 million of claimed fees is recorded in accounts payable. A separate stockholder lawsuit concerning a 180-day lock-up remained unresolved; the company had not accrued a loss because it did not consider a loss probable or reasonably estimable. The filing says outcomes and potential losses may be material but does not provide a clear estimate.
- Subsequent event: The board authorized up to $5 million of stock repurchases in January 2023, funded through bitcoin liquidation. By the filing date, 461,500 shares had been repurchased for $475,000.
- Other material risks include customer renewals and concentration, competition, privacy and cybersecurity, Lyte supply-chain and demand variability, further goodwill impairment, dilution from future financing, and volatile trading prices. The SBA could also revisit forgiveness of the company’s $2.85 million PPP loan, though it had been forgiven in 2021.
Important facts for investors to verify
- Current cash needs, the timing and terms of the deferred promissory-note payments, and whether additional financing or asset sales are required.
- Bitcoin and other digital-asset quantities, custody arrangements, realizable liquidity and sensitivity of reported results to market prices.
- Whether Lyte can sustain revenue and improve hardware margins, and whether platform revenue stabilizes or renews.
- Progress, regulatory status and commercial adoption of PhunCoin, PhunToken and the Token Ecosystem, including obligations to rights holders.
- Developments and potential financial exposure in the arbitration and stockholder litigation, plus the accounting and funding implications of the share-repurchase program.
- Future share issuance, warrant exercises and equity awards, and the resulting potential dilution.