PHUN - Phunware Looks To New CEO For Execution

Summary

• Phunware reported its Q3 financial results on November 10, 2022.
• The firm provides mobile engagement software, computing hardware and is developing a blockchain ecosystem.
• While the firm has grown revenue, operating losses continue to worsen and I don't favor its unfocused approach.
• I'm on Hold for PHUN in the near term.

A Quick Take On Phunware

Phunware (PHUN) reported its Q3 2022 financial results on November 10, 2022, missing revenue and EPS estimates.

The company provides a mobile engagement platform that assists companies in maximizing the value of their investments in mobile applications.

PHUN has expanded its focus to low-margin hardware and highly volatile crypto / blockchain segments.

I'm generally not a fan of companies without a focused business approach, so I'm on Hold for PHUN in the near term.

Phunware Overview

Austin, Texas-based Phunware was founded in 2009 to develop an integrated software platform that helps organizations improve their mobile engagement processes and results.

The firm is headed by new CEO Russ Buyse, who was previously Chief Operating Officer at GlobaliD, a digital identity platform and has experience in mobile software and data management.

The company's primary offerings include the following:

• Data

• Media Services

• Blockchain

• Mobile Engagement

• Location Based Services

• Content Management

• Analytics

• Audience Monetization

The firm acquires customers via direct sales efforts, inbound response and through partner referrals.

Phunware's Market & Competition

According to a 2017 market research report by MarketsAndMarket, the global market for mobile engagement software and services was an estimated $2.3 billion in 2016 and is forecast to reach nearly $39 billion by 2023.

This represents a forecast CAGR of 43.5%, a very high rate of projected growth.

The main drivers for this expected growth are strong demand from consumers in using internet-connected services via their mobile devices and a desire by companies to improve and automate their prospect and customer engagement processes.

Major competitive or other industry participants include:

• Oracle

• IBM

• Urban Airship

• Salesforce

• Appboy

• Adobe Systems

• Vibes

• Swrve

• Localytics

• Marketo

• Selligent

• Tapjoy

Phunware's Recent Financial Performance

• Total revenue by quarter has risen in recent quarters, as the chart shows below:

• Gross profit margin by quarter has dropped sharply more recently:

• Selling, G&A expenses as a percentage of total revenue by quarter have followed the trajectory shown below:

• Operating losses by quarter have worsened recently:

• Earnings per share (Diluted) have also remained materially negative:

(All data in the above charts is GAAP)

In the past 12 months, PHUN's stock price has fallen 70.1% vs. that of the Nasdaq 100 Index's drop of 13.8%, as the chart indicates below:

Valuation And Other Metrics For Phunware

Below is a table of relevant capitalization and valuation figures for the company:

(Source - Seeking Alpha)

Commentary On Phunware

In its last earnings call (Source - Seeking Alpha), covering Q3 2022's results, management highlighted its enterprise mobile cloud platform which it calls 'multi-screen as-a-service,' or MaaS that it sells by a subscription revenue model.

The company also continued to scale its Lyte by Phunware hardware segment in advance of the expected higher holiday sales period in Q4, which has not yet been reported.

PHUN leadership also noted that it has added more indirect sales and channel partners for its products and services.

On the cryptocurrency and its blockchain ecosystem front, management is seeking to 'aggressively scale and monetize this part of our business.'

As to its financial results, total revenue rose 120% year-over-year, with 73% of that revenue driven by its hardware segment, which the company previously acquired.

Gross margin dropped sharply from 52.5% to 16.7% due to the prevalence of that hardware segment in total revenue.

Operating expenses rose markedly year-over-year, contributing to worsening operating losses.

For the balance sheet, the firm ended the quarter with cash and equivalents of $8.5 million and total debt of $12.7 million.

Over the trailing twelve months, free cash used was $26.5 million, of which capital expenditures accounted for $200,000. The company paid $3.2 million in stock-based compensation in the last four quarters.

At quarter-end, PHUN held 653 Bitcoin and 753 Ethereum tokens, which, if still held, have appreciated in value.

Regarding valuation, the market is valuing PHUN at an Enterprise Value / Revenue multiple of 5.0x.

While management provided details on the firm's various business segments, the company remains a hodgepodge of products and services.

Additionally, the company co-founder and CEO Alan Knitowski has transitioned to an advisory and evangelist role.

I'm generally not a fan of unfocused companies, but with a new CEO in charge, we'll see what he can produce for the bottom line.

I'm on Hold for PHUN in the near term.

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