Progressive Q1 2024 Earnings Call Transcript

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May 9, 2024

There are 7 speakers on the call.

Operator

Good afternoon, ladies and gentlemen. Welcome to the FundWear's First Quarter 2024 Investor Conference Call. Joining me today are Mike Snavely, Chief Executive Officer and Troy Reisner, Chief Financial Officer. The format today will include prepared remarks by Mike and Troy, followed by a question and answer session. As a reminder, today's discussion will include forward looking statements.

Operator

These forward looking statements reflect current views as of today and are based on various assumptions that are subject to and uncertainties disclosed in the Risk Factors section of our SEC filings. Actual results may differ materially and undue reliance should not be placed on them. Additionally, the matters being discussed today may include non GAAP financial measures. Reconciliation of GAAP to non GAAP financial information is set forth in the earnings press release, which is available on the Investor Relations section of Fundware's website at investors. Funware.com.

Operator

I further encourage you to visit investors. Funware.com to access not only the earnings press release, but also SEC filings and additional collateral on Funware. At this time, I would like to turn things over to Funware's CEO, Mike Snavely. Please proceed.

Speaker 1

Fellow shareholders, welcome. I'm happy to tell you that we're off to a strong start in 2024 that our plan to focus on the fundamentals of our SaaS business is working. The Q1 of 2024 is the first evidence of sales traction for quite a while. New logos and bookings are up. Our solutions continue to gain traction with customers across the hospitality and healthcare sectors by delivering strong ROI.

Speaker 1

As a result, we continue to both renew and extend our existing customer relationships and win new business in competitive situations in hospitality and healthcare. In fact, in the Q1, we've seen more than 60% of the total bookings we did in all of 2023. Costs are down. We previously announced expense cuts that took full effect in the Q1. Our gross margin has dramatically improved as a result and Troy will brief you on those details.

Speaker 1

On the patent monetization front, we have executed a term sheet to engage a partner to work on our behalf in monetizing additional patent families. Now, I'll ask our CFO, Troy Reisner to run through the details of Q1 results. Troy?

Speaker 2

Thanks Mike and good afternoon everyone. I'd like to thank you all for joining us today for a review of our Q1 of 2020 4 financial performance. I'll be discussing GAAP financial measures unless otherwise specifically noted. Our press release, 8 ks and website provide a reconciliation of all GAAP to non GAAP financial results. In addition, a quick reminder, we shut down Light Technologies in 2023 and the business was reflected as a discontinued operation.

Speaker 2

Prior quarterly information has been updated to reflect such. With that said, let's take a look at the numbers. For the Q1 of 2024, net revenues were approximately $921,000 which exceeded our internal plan by 5%. While Fundwear continues to not provide detailed earnings guidance, we do believe it helpful to our investors and others to share that our internal net revenue goal for 2024 is between the range of $6,000,000 $8,000,000 which will be back end loaded to the second half of the year. Gross profit was $524,000 for Q1 2024 versus $73,000 for Q1 2023, which resulted in gross margin of 56.9% and 5.4% respectively for the quarters.

Speaker 2

Adjusted gross margin was 61.8% compared to 23.4% for the respective quarters. While the 2023 margins were impacted by the timing of recognition of certain product costs, 2024 also benefited from improvements in streamlining our product delivery processes and a significant decrease in stock based compensation. Total operating expense was approximately $3,400,000 for Q1 2024 versus approximately $6,800,000 for Q1 2023 or a 49.8% decrease. Other non cash operating expense items for the quarter were stock based compensation and depreciation making up a combined $600,000 for Q1 twenty twenty four compared to $1,100,000 in Q1 2023. By excluding these non cash charges, adjusted operating expense was approximately $2,800,000 in Q1 'twenty four as compared to approximately $5,700,000 in Q1 'twenty 23.

Speaker 2

The notable decrease in operating expenses reflects our disciplined approach to managing costs and our ability to execute as a much leaner organization. On our last call, I said we would begin making investments in the business. And during Q2, we have started to strategically make investments by prudently expanding our sales and marketing teams, which we believe will directly contribute to achieving our net revenue plan for 2024. Non GAAP adjusted EBITDA loss was $2,000,000 in the Q1 of 2024 compared to a loss of $5,200,000 in the Q1 of 2023 or a 61.1 percent reduction in the loss. Our net loss for the Q1 of 2024 was approximately $2,300,000 or $0.33 per share compared to a net loss of approximately $4,300,000 or $2.07 per share for the Q1 of 2023.

Speaker 2

The weighted average shares used to calculate earnings per share was approximately $6,900,000 versus approximately 2,100,000 which reflects the reverse stock split effectuated in February. Moving to the balance sheet, we closed the 4th quarter with approximately $21,600,000 in cash, 0 debt and settled a long outstanding legal matter. We were able to achieve this balance sheet transformation through proceeds from the sale of equity and strategic decision making. We believe our financial strength positions us well to not only strategically invest in the growth of our software business, but to also have optionality to pursue M and A opportunities to accelerate growth. And finally, during the quarter, we attended the 36th Annual ROTH Conference and we plan to attend the HITECH 2024 Industry Conference in late June.

Speaker 2

We expect to remain active with both financial conferences and investor meetings in our efforts to tell our story and further strengthen our corporate profile in the capital markets. And with that, I will turn the call back over to Mike for closing remarks. Mike?

Speaker 1

Thank you, Troy. We appreciate the patience and continued support from our shareholders as we continue to turn the company around. We're off to a great start in 2024 and we're looking forward to continuing to deliver for you. I'd like to open up the call now for questions through the operator. Operator, please go ahead.

Operator

Thank you. At this time, we will be conducting a question and answer And the first question today is coming from Darren Aftahi from ROTH MKM. Darren, your line is live.

Speaker 3

Hey, this is Dylan on for Darren. Thanks for taking my questions. First, I wanted to start with the comment you made about your bookings in Q1, roughly 60% this year compared to all of last year. I guess, could you talk a bit of a 2 part question. How much of that is from existing expansions and renewals?

Speaker 3

I know you've announced a few renewals recently versus net new logos?

Speaker 1

Sure. This is Mike. Thanks for the question. It's very roughly fifty-fifty between the renewal of existing business and then brand new logo wins. We have new logo wins from major hospitality brands, significant one from an independent and certainly renewal of some of our tentpole customers who have been with us for some time.

Speaker 3

Got it. Thank you. And I mean sort of, what is the timeline you think for turning on some of those customers from sort of when you go from bookings to actual revenue generation?

Speaker 1

Sure. Our implementation time frame is roughly 30 days.

Speaker 3

Got it. And then if I could maybe ask 2 more. First, on the monetization of the patents, do you have any color you can provide on sort of what that might look like, what sort of opportunities you're going after? And then maybe when you'd be able to sort of go out to the market to sort of express sort of what you're working on and when it might be able to roll out, whether that's with existing products or net new products?

Speaker 1

Sure enough. So it's public, of course, that, we sold the Netflix, I'm sorry, the video streaming patents that were found to be infringed by Netflix to a similar company that helps us to monetize those patents. That work is kind of wending through the appeals process after we get a final judgment against Netflix, the monetization process will happen there. And we don't expect that to happen until quite frankly the end of this calendar year. Now with respect to additional patent families that we're entering into a similar arrangement with, we expect to likely file specimen lawsuits against folks whom we believe are infringing and then quickly follow that with a letter writing campaign that will help others understand that we're serious about representing our IP rights on behalf of our shareholders.

Speaker 1

I can't give you right now when we expect those dollars to start coming in, but certainly as material development should occur, we will update the market.

Speaker 3

Got it. Thank you. And last one, maybe for Troy. I appreciate the color on sort of what you think the year can look like in the back end specifically. Any color you could provide on sort of the shape of margins in the mid-50s, whether we're in Q1 or is there some investment that has to take place that may push those down on the gross margin side at least?

Speaker 4

Thanks for the question.

Speaker 2

I think the margins are going to continue to be in the range that we saw in Q1. Given quarters, margin might ebb and flow in terms of timing of revenue, cost recognition and things like that. But in a similar vein as to what you're seeing in Q1 is what we would expect for the balance of the year.

Speaker 3

Perfect. Thanks for taking my questions. I'll pass it on.

Operator

Thank you. The next question is coming from Scott Buck from H. C. Wainwright. Scott, your line is live.

Speaker 5

Hey, good afternoon, guys. Thanks for taking my questions. First, I saw you made a hire on the hospitality side. I was hoping you could give a little color on the hire and maybe some of the additional investments you may be making in that vertical?

Speaker 1

You bet. It's Mike. And we've actually got 2 hires that I'll talk about, one of which literally started today. So hire number 1, which we did a press release on, I guess, about a week ago is a fellow called Paul Ruffino. Paul is a 35 year old 35 year rather, hospitality operator having run luxury properties and then run some of the operations of major property operating companies.

Speaker 1

Paul is going to give us access to not only the thought processes and decision makers in some of those kinds of organizations, but is also going to help us understand how we can continue to evolve our product to meet the needs of the General Manager at the Luxury Resort, which is very much in the bull's eye of our sales target. Number 2, we hired a fellow by the name of Donnie Neufus. Donnie just started today, as I mentioned. Donnie has 25 years of experience in hospitality related events and we believe there's an application for our technology platform to support the in event experience for convention attendees. So we've historically been more focused on what I'd characterize as the leisure traveler.

Speaker 1

Now this gives us an opportunity to access a market for the business traveler, specifically rather those that are attending conventions at major luxury properties around the globe. We're delighted that both gentlemen have joined us.

Speaker 5

Great. That's helpful. And just as a bit of a follow-up, I mean, what's a reasonable timeline for investors to expect to see some tangible progress in the vertical?

Speaker 1

Well, I think we've seen it in the Q1 and let me tell you why. So when I mentioned in the main part of the remarks that we've done 60% of total 23 bookings already this year, that means that we've got a pretty good head start in terms of selling new contract value and part of that's existing relationships renewing, but a significant part of that is new logo acquisition. In fact, we're pretty pleased with our bookings performance in the Q1 And the bookings performance will continue to increase on plan as we achieve it each quarter of the year. And with our implementation time frame being approximately 30 days, we expect those the bookings that we won in the Q1 to all materially contribute to revenues for the Q2 and the bookings for this quarter will contribute the third of the rest of it. So that's the response there.

Speaker 5

Great. That's helpful. Thanks a lot guys.

Operator

Thank you. The next question is coming from Howard Halpern from Taglich Brothers. Howard, your line is live.

Speaker 6

Congratulations on the start to the year. In the press release and the supplemental information, how should we look at as you grow revenues, the breakdown between subscription and services and application transaction going forward, especially with a lot of the action occurring in the second half of the year?

Speaker 1

Sure. It's Mike again. And let me speak to that, Howard. So we're focusing very much on our SaaS business. And so that's 1 to 3 year contracts for a software license fee.

Speaker 1

We do have an application transactions business, which is reoccurring, not necessarily recurring from the standpoint of renewal revenue. That's going to be largely the same with probably a slight increase in 2024 over 2023, but we're very much focused on growth in the SaaS business. When I think about services and that's really just work for hire services or one time project work, that will be a very trivial amount of our revenues moving forward.

Speaker 6

Okay. Okay. Thanks for that. Thank you. Keep up the good work.

Speaker 1

Thanks, sir.

Speaker 4

Thank

Operator

you. And the next question is coming from Ed Woo from Ascendiant Capital. Ed, your line is live.

Speaker 4

Yes, congratulations on the quarter. My question is on the competitive environment. Have you seen any change in competition? And how do you think the sales cycle is going to go throughout this year? Thank you.

Speaker 1

Thanks, Ed. I mean, the competitors are who they've generally been. I mean there are a number of what I characterize as small app companies that are building wayfinding and other kinds of apps for hospitality. Most of those are very small companies and we're not seeing any difference in who they are or in their win rates against us. We're kind of seeing the same old story.

Speaker 1

Now, what we're finding is that our ability to start to access multiple properties and portfolios of properties is increasing. So by engaging at the operator level, where they may have a handful to dozens of properties, we're able to go in and tell a more interesting, nuanced and compelling story about generating a delightful guest experience across the entire portfolio. And that is something that we're not seeing a lot of the same competitors doing. And I'll leave it at that. We hope to have some additional material announcements on that particular prong of O'Garda market strategy in the next quarter or 2.

Speaker 4

Great. Well, congratulations on our progress and I wish you guys good luck. Thank you.

Speaker 1

Thank you, sir.

Operator

Thank you. There were no other questions in queue at this time. And this does conclude today's conference. You may disconnect your lines at this time. And thank you for your participation.

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