PHUN - NASDAQ

Good afternoon, ladies and gentlemen. Welcome to Phunware’s First Quarter 2021 Investor Conference Call. Currently, all participants are in a listen-only mode. Joining me today are Alan S. Knitowski, President, Chief Executive Officer and Co-Founder; Randall Crowder, Chief Operating Officer; and Matt Aune, Chief Financial Officer. The format today will include prepared remarks by Alan, Matt and Randall, followed by a question-and-answer session. As a reminder, today’s discussion will include forward-looking statements. These forward-looking statements, including any such statements referring to the potential effects or impact of the COVID-19 pandemic reflect current views as of today, and are based on various assumptions that are subject to risks 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 the Phunware’s website at investors.phunware.com. I further encourage you to visit investors.phunware.com to access not only the earnings press release, but also the current investor presentation, SEC filings and additional collateral on Phunware. At this time, I would like to turn things over to Phunware’s CEO, Alan Knitowski. Sir, please proceed.

Thank you very much and welcome to our first quarter 2021 investor conference call. As a reminder, Phunware is a 12-year old enterprise software company focused on the intersection of mobile, cloud and big data with business-to-business and business-to-government customers worldwide. Our mission is to provide everything you need to succeed on mobile, by providing our customers with the products, solutions, data and services for their digital transformation needs on Apple iOS and Google Android devices and applications. Central to this effort is our enterprise cloud platform for mobile, called MaaS or Multiscreen-as-a-Service which is available for licensing under a SaaS business model over one to five year contract periods worldwide. The completion of Q1 constitutes a positive operational inflection point for our business as we have quickly made our MaaS platform vision become reality across a number of key fronts. Not only have we commenced the full roll out of our blockchain-enabled Mobile Loyalty Ecosystem specific to PhunToken, PhunCoin and PhunWallet as promised, but we have also executed a global distribution agreement with an anchor distribution partner that will be formally announced in the next several weeks. While we continue to work through what appears to be the final stages of the COVID pandemic operationally, we are both excited and comforted by the dramatic increase in business activity across all aspects of our software product and solution offerings for mobile, big data and the cloud. Importantly, these encompass all three of our core growth engines rolling forward, including our MaaS cloud, our data-driven loyalty marketplace and our secure, blockchain-enabled token, coin and wallet capabilities. As we suggested on our last earnings call, this past year was a genesis of a transition in our company's history. As we shifted from a non-recurring, low margin transaction business to a far stickier, more scalable, occurring and high margin SaaS licensing business for our MaaS platform. While we remain in the midst of that transition, we are now at the latter end of that process, and expect to thrive rolling forward as a pure SaaS company. In addition to continued enterprise interest in our MaaS digital front door solution for healthcare, and our MaaS Smart Workplace solution for corporations, we have resumed conversations with customers from sectors that were hit hard by the pandemic, including the hospitality and real estate verticals. In conjunction with growing our portfolio of direct customers, we intend to expand our footprint globally by amplifying our go-to-market strategy with indirect sales and channel partners, including the recently signed anchor distribution partner that will be formally announced later this quarter. In parallel, we are excited about the completion of PhunWallet and the launch of our blockchain ecosystem powered by PhunCoin and PhunToken. We are now live and excited to scale and monetize this part of our business and look forward to the accelerated global adoption of the blockchain-enabled MaaS customer data platform and MaaS mobile loyalty ecosystem commercially deployed. As with most businesses worldwide, our team continues to see the lingering effects of the pandemic despite more widely available vaccines and more recent or pending openings from previously imposed stay-at-home orders and lockdowns, both domestically and abroad. Many of our customers and partners are still operating remotely and are still in the process of reopening their venues, facilities and offices. As such and in our case, we saw many pending deals that would normally have closed in Q1. Now, starting to close here in Q2 instead. Importantly, we are completely focused on the future and what a post-pandemic environment is going to look like for our business while also recognizing and appreciating that the last year has represented a very interesting and unique challenge for all of us. While we saw multiple months without strong bookings during the heart of the pandemic, as many of our customers and partners simply shut down their in-person operations and shifted to either remote-centric or remote-only environments. We're also announcing the benefits and importance of our backlog and deferred revenues specific to our SaaS model and the positive effects that we expect to see during the second half of the year. Going forward and especially in light of the scale of vaccinations being delivered right now globally, we are assuming that each month and each quarter for the balance of 2021, we'll have the world beginning to accelerate to a more normal and predictable operating environment. Fundamentally, we do not expect to have to face such a problem again for the foreseeable future, and are extremely comforted by our operating performance during this difficult period. We not only made the most of the opportunity by streamlining our cost structure, but we also enhanced our MaaS product and solution offerings, capitalized on the needs of the healthcare sector and facilitated enterprise customers getting more safely back to work. While we saw a decline in quarterly revenue recognition associated with these initiatives when compared to the first quarter of 2020 pre-pandemic. We expect to see a rebound here in the balance of 2021 as the operational downtime provided by COVID-19 allowed us more time to foster and improve our existing relationships, while also establishing and bolstering brand new indirect sales channels and partnerships in parallel. As always, we will continue our core go-to-market strategy centered on direct and indirect agreements and contracts with Fortune 5000 customers, especially in the Fortune 100 size range, and governments ranging from local and county to state and federal. Importantly, and independent of the pandemic, we are extremely excited by a number of developments that have occurred over the past quarter during lockdown and even more excited by what we see coming in the coming quarters ahead. First, we were able to launch three core customer and partner portals for scaling our business through indirect channels. These included a MaaS software repository on GitHub at www.github.com/phunware. A MaaS documentation repository at docs.phunware.com, and a MaaS training in Phunware Phenom certification repository at training.phunware.com. Second, we were able to add to our MaaS bookings backlog and deferred revenues for future revenue recognition over one to five year contract periods that will ultimately provide SaaS revenue recognition over the coming 12 to 60 months rolling forward. These efforts do not provide instant or near-term gratification on revenue recognition for our P&L, they importantly demonstrate the ongoing health and expansion of our business and will be broken down in further detail by our CFO, Matt Aune in his section of the earnings broadcast. As a reminder, and with our MaaS sales cycles typically representing two to four months on average, recent intending customer wins will start appearing on our P&L in the coming reporting periods ahead. Third, we have expanded our install base of Phunware IDs on MaaS to more than 15 billion devices worldwide, including MaaS platform scalability capable of supporting up to 5 billion transactions per day, 500,000 transactions per second and 1 billion unique devices per month. With more than one petabyte of data, typically growing at more than 5 terabytes per day. Our MaaS platform now provides a robust customer data platform, inclusive of both a detailed data ontology and a comprehensive knowledge graph for one-to-one interactions and engagements. And fourth, we are commercially launching our PhunWallet mobile applications on Apple iOS and Google Android in the next new weeks, in conjunction with our recently launched MaaS blockchain ecosystem, all powered by our PhunCoin and PhunToken cryptocurrencies. While PhunCoin security tokens will not necessarily appear in our financials when live, PhunToken utility tokens will actually flow transactionally through our P&L as net new and virtually 100% gross margin revenue. As an analogy rolling forward, please consider our core MaaS licensing activities akin to Amazon, which is what we are reporting today, while considering our new MaaS blockchain activities akin to Amazon AWS, which is what we will begin reporting incrementally rolling forward, beginning with our next 10-Q for Q2 2021 in mid-August. At this time, our CFO, Matt Aune will go deeper into our first quarter 2021 financial performance as reported, and also highlight the dramatic improvements made to our balance sheet throughout the first four months of 2021, including a record quarterly closing cash balance of $23.5 million. The largest since our inception in February 2009. Matt, please go ahead.

Thanks, Alan and good afternoon, everyone. I’d like to thank you all for joining us today for a review of our first quarter 2021 financial performance and our progress on key strategic initiatives. For clarity, I’ll be discussing GAAP financial measures unless otherwise specifically noted. Our press release, 8-K and website provide a reconciliation of all GAAP to non-GAAP financial results. Net revenues for the first quarter 2021 totaled $1.6 million, of which, platform subscriptions and services revenue was $1.5 million. Our focus continues to be on higher margin, longer-term software customers and we are pleased to have continued following this strategy in early 2021. With 92% of our net revenues derived from our MaaS platform, subscriptions and services to customers. Gross margin was 58% compared to 58.7% last year. On a non-GAAP adjusted basis, gross margin was 71% compared to 60.9% in the previous year. That is more than a 1,000 basis point improvement year-over-year on a non-GAAP adjusted basis. Total operating expense was $4.1 million, down from $5.4 million last year. Other non-cash operating expense items were stock-based compensation and amortization of intangibles making up $0.9 million this year compared to $0.6 million in the prior year. By excluding these one-time and non-cash charges, adjusted operating expense was $3.5 million down from $4.8 million last year, or a 27% improvement year-over-year. Non-GAAP adjusted EBITDA loss was $2.4 million compared to $3.2 million last year. Net loss was $12.4 million or $0.19 per share compared to $4 million or $0.10 per share last year. Backlog and deferred revenue at the end of the quarter, totaled $7.7 million as one that expect company decided the pandemic as a reason to delay the timing of booking business with us. As companies begin to reinvest in a mobile application infrastructure, we expect our backlog and deferred revenue to increase going forward and believe Q1 will be a low point with respect to this metric. I'd like to take a minute for review with everyone our prior financing activities. As we mentioned in our yearend earnings call, in February, we raised approximately $25 million in an underwritten public offering. With the proceeds from this offering, I'm pleased to announce that we've completely paid off the balances of the 2020 convertible notes, which occurred over multiple payments in March and April. We recorded various charges relating to interest, loss on extinguishment of debt and warrant liability reevaluation of $8.8 million for the quarter. And we expect to record approximately $3.8 million in Q2 relating to the April payoff. For further details, please see the debt section of our subsequent events in our 10-Q, which we planned to file Friday after market close. We closed the quarter with $23.5 million in cash on the balance sheet, subsequently using $13.9 million to pay off the 2020 convertible notes in full in the beginning of April. We’re beginning Q2 with approximately $9.6 million in cash along with 25.8 Bitcoin, we’re holding to support our blockchain initiatives. Looking at our current capital structure needs and strategy going forward, I believe that we are very well positioned operationally. First, we have reduced our debt significantly and dramatically reshaped our capital structure. Second, we have engaged the B. Riley securities and have a $25 million after market offering that available for future fundraising use. Giving us flexibility to access cash from the capital markets if we choose to do so. And third, we have available approximately $50 million of open shelf space on our $100 million registration statement, providing simplicity and optionality for any future capital needs to support both organic or inorganic growth opportunities. In closing, I think it's important to take a moment to emphasize the transformation of the company has gone through and how far we've come in the last 12 months. For the first time as a public company, we have a strong balance sheet and the cash to execute against our short-term and long-term objectives. Our MaaS enterprise cloud platform is fully functional and we're starting to see more scalable, recurring and high margin SaaS licensing business. The COVID-19 pandemic will likely continue to impact the time to close new deals and the revenue recognition of these deals through the end of the year. But we believe that we are past the worst of it, and we'll start to see more consistent growth, as we head into the second half of 2021. We will continue to be active with financial conferences and investor meetings throughout 2021 and our efforts to tell our story and further strengthen our corporate profile and the capital markets. With that, I would like to turn the call over to Randall.

Thanks, Matt. I think it's important for our shareholders to understand we are still dealing with the impact COVID-19 has had on our target customers. Well executives are now racing to embrace new digital transformation initiatives, implementation timelines and sales cycles are still delayed as the economy opens back up and businesses adapt to what will become a new normal. However, we learned a lot about our business and value proposition to both customers and partners in 2020 and we expect to capitalize on that momentum heading into the second half of 2021. Like customer relationship management or cloud storage, our target customers increasingly want an out of the box solution that not only takes the guesswork out of deployment, but also offers a platform approach they can license. As illustrated in this graphic, Phunware’s closest competitors are often digital agencies or consultancies or large software developers or cloud providers, however, in either instance, businesses are required to make significant investments in their own development teams to design, build and maintain a mobile application portfolio, which becomes a significant barrier to adoption. With Phunware’s proven MaaS platform, they're able to seamlessly outsource their mobile strategy and take advantage of pre-integrated MaaS features and capabilities, which allows them to focus on their core business launch rapidly and save on engineering and IT costs. Today, we see three key competitive advantages across our product offerings, which are designed to drive digital transformation and deliver contextual engagement in a mobile-first world that is quickly becoming mobile-only. First our modular application framework. Without access to a platform like MaaS, mobile development is an error prone task that often results in applications that are both difficult and expensive to maintain, just like Amazon web services enables companies to standardize their cloud infrastructure on a proven platform with various modules to support key features, this framework ensures our Fortune 500 customers and partners can standardize their mobile and digital transformation strategies on MaaS by seamlessly integrating modules that serve as the core building blocks for new generation of mobile applications, solutions and engagement. This friction-free modular approach will also make it far easier for our indirect channel partners to sell, deploy and manage MaaS offerings and packages to their customers and organizations worldwide through Phunware’s global reseller network and Phenom certification program. Second, our location-based services. Phunware’s patented MaaS LBS software and beacon maintenance solution delivers proximity, sub one-second, real-time blue dot indoor positioning, navigation and wayfinding functionality across campuses and facilities, while simplifying and streamlining the underlying beacon deployment and management for both facility staff and administrators. The software is not only ADA compliant, addressing the needs of anyone who is usually impaired, hearing impaired or wheelchair bound, but it also transitions seamlessly between indoor and outdoor environments. Third, blockchain enabled data exchange and mobile loyalty ecosystem. While PhunCoin is a regulated security token designed to help brands empower consumers to take control of and be compensated for their data. PhunCoin was developed as a utility token to encourage, measure and track brand interest within our mobile loyalty ecosystem and ultimately drive profitable behavior. However it's components of MaaS, these features can be seamlessly integrated via our MaaS PhunCoin data SDK for Apple iOS and Google Android, or our MaaS PhunToken loyalty SDK for Apple iOS and Google Android. We're also excited to launch a PhunWallet in the coming weeks, once we received the requisite approvals from Apple and Google. This native mobile application will allow consumers to manage both PhunCoin and PhunToken, while enabling Phunware to deliver contextual engagement opportunities through its own branded mobile application portfolio. Although Phunware was a pioneer in the adoption of mobile applications, especially what we call the passion verticals, such as sports, media and entertainment, we are most excited about verticals that have just begun to implement a mobile strategy as a part of a larger digital transformation. Over the past few months, we have seen a lot of interest in our platform from corporations looking to deploy a Smart Workplace solution and tech enable their return to work, as well as health systems looking to deploy a digital front door to tech enable the patient experience. We've also seen increased activity from government officials, interested in better engaging their constituency, as well as hospitality and retail who are looking for new ways of engaging with consumers, while they're on site and driving profitable behavior. As our pipeline continues to grow, shareholders should look for us to close on similar deals to the ones we announced most recently. First, our modular application framework. Our Smart Workplace solution for Norfolk Southern is a great example of an innovative company whose leadership has embraced the digital transformation and taking full advantage of our MaaS platform. Virginia Hospital Center and Greater Baltimore Medical Center are also great examples of health systems that are looking to not only deploy a fully integrated digital front door, but also transition from Epic’s MyChart mobile applications with limited functionality, that our own native mobile application portfolio, that is their brand, their content and ultimately their experience that is unique to their specific continuum of care. Second, our location-based services. Our recent deployments at Baptist Health South Florida, where we cover over 6 million square feet and Common Spirit health previously known as Dignity Health, where we cover over 22 million square feet are great examples of leading health systems integrating our MaaS LBS that SDK. This high margin recurring revenue is usage based on square footage and we anticipate announcing details about a major distribution agreement we've executed with a key indirect channel partner later in the second quarter. Lastly, we were thrilled to announce the launch of our PhunToken purchase portal this week, which not only enables consumers, developers and brands to begin purchasing PhunToken, but also provides Phunware with an additional revenue stream. Now, I'd like to turn things back over to Alan for closing remarks.

Thanks Randall. As highlighted throughout today’s call, we are all extremely excited by the recent commercial launch of our MaaS blockchain ecosystem. What it means to me is that, our decade plus of MaaS platform building across mobile, cloud and big data, accompanied by our years of community engagement in blockchain and cryptocurrencies have resulted in the culmination and convergence of massive global addressable markets and trends that can now act as strong wind at our backs to reaccelerate growth. We expect this ecosystem to complement and supplement our core MaaS offerings as we offer our enterprise customers additional capabilities to identify and engage their target audiences. While many corporations and individuals are newly familiar with blockchain and cryptocurrencies, both Phunware and our executives have a long and distinguished history within the global digital asset community. As such, we expect to be a trusted bridge for Fortune 500 corporations and governments looking to leverage blockchain. Please look for additional announcements in the coming weeks and months ahead, as we enable consumers to not only regain control of their data with PhunCoin, but also reward them for their engagement with PhunToken, which can now be purchased with U.S. dollars, Bitcoin and Ethereum online at buy.phuntoken.com. In parallel, and as we have suggested previously, and would again reiterate here, we intend to complement and supplement our core organic growth activities through direct and indirect channels worldwide, with opportunistic inorganic, mergers and acquisitions. While we still have nothing yet to formally announce on this front, we expect to focus our merger and acquisition activity on accretive deals in areas that will provide more customers, more partnerships and more distribution for our MaaS platform, especially in the international markets including Europe, Asia, and South America. Finally, and importantly rolling forward, we fully expect to maintain a laser focus on our core operating and financial model, which includes top line growth of 30% or more year-over-year, and blended gross margins of 75% or greater. With that, and in conjunction with a sincere thank you for your ongoing interest and support in all of our activities on behalf of the entire Phunware family worldwide, I would like to now open up the call for questions through the operator. Operator, go ahead, please.

Thank you. The floor is now open for questions. [Operator Instructions] Our first question comes from Darren Aftahi with ROTH Capital Partners. Please state your question.

Hi guys. How are you? Thanks for taking my question. A few if I may.

Sure.

On the guidance – soft guidance, you guys kind of gave the 30%. I'm kind of curious contextually how this unnamed indirect distribution partner kind of fits into that. Is that something that would be marginal, it's dependent? And then as a secondary of that question, how many more of those kind of indirect type partners are kind of in the pipeline? And do you expect to announce more of those later this year?

Yes. Thanks. Great question and thanks for joining. So yes, here we – I think in our last earnings call, we announced in Q2, we do this announcement, obviously, we're here doing this earnings call and it's just a matter of a few weeks. So the good news is, we've already signed our deal, inked a deal, everything is in full kind of rollout mode at this point. We expect the first initial sales will start at the end of Q2 here in this last piece, now that we are alive. And then scales route Q3, Q4 and be full steam ahead throughout all of next year and beyond. So what we expect that you're going to see is as you're alluding to the growth rates and the other pieces, yes, absolutely we've made a lot of investments in a partner portal. We've been doing a lot of training remotely during the downtime. And we're very excited to do a joint announcement. Our partners actually started already doing the individual announcements, but we need to kind of button up some things before we do the full joint announcement in go-to-market. We do expect that the relationship will be quite material. We do believe that all of our software is fundamentally just included inside the products they're selling, it's not an upsell, it's not a cross-sell, its core to the offering that's going to market. So think of that like a white-label OEM, we're Phunware inside. And to your point about additional channels, now that we've done all the work to activate the partner portal, we've used this as a means to really dive deeply through how the training and certification works, how the documentation works, how the software repository works. And then now the order mechanisms against the stock keeping units goes for scaling. So not only we get that work done, this deal signed, we're using this deal as fine tuning all the process and workflow that'll go for the other deals that we do. We haven't made anything public just yet this quarter, but we would expect that each quarter rolling forward, we should start having more information available to four key channel partners. One would be where they bundle our software with their hardware through hardware channels, another will be where voice video and data bundles from service providers and carriers will bundle our software for venues and facilities, a third will be where we see traditional software channels that take their software bundle it with ours in go-to-market. And then finally, the system integrator and consulting channels that are brought on to stitch together hardware and software solutions for corporations, and we expect that will be the fourth area. And this will be the blueprint for where scale really comes from, because other than activating through our portal each sale, we obviously don't have to go through any of that traditional sales process as they're selling and bundling together.

Great. That's helpful. If I could just squeeze in two more. On PhunToken, just curious on initial uptick from developers and customers. And I'm curious if PhunToken ends up being kind of an upsell for MaaS for maybe customers that we're looking at initially. And then maybe last for Matt, if you could give us kind of a current share count that’ll be helpful. Thanks.

All right. I'll take the first piece and then I'll hand over to Matt for the share count. So when you think about PhunToken in terms of uptick – the first uptake that we see is when we go live on the purchase portal, we've actually already been processing Bitcoin, Ethereum, U.S. dollar purchases of the tokens. And we will have that open perpetually going forward. And there is two ways to get these tokens. One is to buy them and that's where the purchase portal comes through, people have to go through a registration process, a KYC process and AML piece, and once all their profile and certification is all done, then it's just a matter of processing the purchases and as I said, it can be Bitcoin, ether or a U.S. dollar wire transfers. And so, as those occur, that will be one basket of token holders that can then put them into their wallet. And then separate from that, obviously, as we go live with the applications that are pending approval at Apple and Google, then we can allow people that can also earn through the MaaS Data SDK, which is associated with PhunCoin and then the MaaS Loyalty SDK, which is associated with PhunToken. And the best way to think of those is the more information you provide about yourself, your identity, your interests, they will earn PhunCoin, and that will bolster our data offering an exchange. And then in parallel for any of the profitable behaviors that folks do, like filling out a survey for a brand, going to a physical location, sharing content; these are activities that will be rewarded with PhunToken. And so, when you see the uptake, you're going to see folks that purchase it, focus secondarily on those that are going to participate in the ecosystem and earn the tokens. And then what you'll see across our customer base is that all of those that are already using MaaS and other software development kits, they simply need to drop in the MaaS Data SDK and/or the MaaS Loyalty SDK. And then the functionality of our ecosystem will come native into their iOS and Android applications that they sell. So I expect that that's kind of the sequencing of a one, two, three purchasers of the token, those that are earning the token and then our partners and customers that just do that to your point, upsell or cross sell of adding the SDKs in. And then they get the full benefit of all the blockchain, the loyalty and the data inside their applications without having to build anything, just dropping in those SDKs. And then let me turn it over to Matt for your question about share counts.

Yes. Hey, Darren. So as of this week we're at $71.7 million and then at the end of March, we were at $71.2 million.

Great. Thanks guys. Appreciate it.

Okay. Our next question comes from Howard Halpern with Taglich Brothers. Please state your question.

Good afternoon, guys. Just wanted to ask a little bit about your forecast. At 30% and 75% gross margin, is that basically you're looking at starting that in the second half of this year and for the 2022 fiscal year as we're still transitioning through the pandemic in the first half of this year?

Yes. That's probably fair. The reality is that right now, I kind of look at it where – by the end of this quarter, I think everyone in the United States for sure is going to have the option to have either already taken their vaccine or decide they don't want to take the vaccine. Obviously, the CDC came out today and said, if you take the vaccine, masks off, indoors, outdoors, I think there is some exceptions like airlines, buses, homeless shelters, prisons, there's a handful I think in hospitals. But the reality is that, now that everything is starting to reopen and a lot of the things that we originally we’re thinking were going to be closing in Q1 after the New Year. I think before the vaccines were really made available in scale, a lot of the big companies and even some of the government customers we have, I think Q1, they basically just took a wait and see, and they paused a lot of their spending waiting to see what was going to happen with the vaccines. I think what we saw as those deals that were kind of pending in Q1 started signing here in Q2 and we're seeing an acceleration of that, and I think that's going to maintain its course. The other reason when we talk about the 30%, obviously we're only going to have about half of this quarter specific to the recent launch of PhunToken and some of these other elements. So – and even with the deal we alluded to with the partner that we've signed the deal, but we haven't formally announced it, but will in the next couple of weeks. All of that activity means that, that revenue recognition and anything that's going to hit is going to be in the tail half of this current quarter. And then I think as we're getting into Q3, Q4, we're going to start getting back to a very – a more normal scenario where that 30% you're going to be comparing against Q3, Q4, and we expect normalcy. I think internally we're forecasting, that it's probably going to be January of next year before we see a similar situation around the world, like we're seeing here in the United States. I think Israel led the way, U.S. was probably second, clearly there is challenges in Europe, in India especially, South America, especially Brazil and pockets in Asia. So we believe that the vaccine rollouts are internationally are going to be a lot more of what Q3 and Q4 will look like. And the rest of this is honestly just how quickly do people want to get back to their facilities. But that's kind of how we're planning and we expect to your point that all of the benefits of both this indirect channel deal, the launch of our ecosystem, we're going to get, call it on a little over, just under half of the current quarter we're in, and then we'll start having the first full quarters of those in Q3.

Okay. And you talked about deals closing in the second quarter. What kind of verticals are you seeing the activity in?

Yes. So I would say, the sequence, the most active vertical is healthcare first and that's coast-to-coast. So this is during the period of the pandemic we saw, it was sort of how they provide COVID versus non-COVID services, especially elective procedures. So I think that what we've seen is just an immense amount of activity from coast-to-coast. We recently launched as Randall suggested both Baltimore and Virginia health systems. We've been expanding with Baptist Health South Florida, we've done add-ons up in New York when you're dealing with kind of where NYU Langone and the Mayo Clinic is at. Out West, it's more about Dignity Healthcare which is now called Common Spirit, post M&A. And so we're seeing a very vibrant healthcare market and we expect that to continue. The second biggest market we're seeing is definitely being around corporations in terms of corporate campuses, smart campuses. And this is about getting people safely back to work in the event something goes wrong and having audit ability, contact tracing and a bunch of other provisions inside. We did talk about Norfolk Southern in instances like that we're seeing full speed ahead, they keep expanding the kind of things they're doing with us, and they're opening up to more and more facilities faster. Any of the corporate engagements we were doing that look at or feel like New York, California and a few of the other, I'll just say kind of blue states. Those are still in a slow open mode and some of those customers and partners we've seen believe that they'll start trying to get people back in Q3, try to finish that up in Q4 and there'll be full speed ahead in January. I think in some of the red states, Florida, Texas, they've been much more open, a much quicker and that's been consistent across probably the third group that we see that's most active, which is in the property, management, real estate, hospitality side, where whether it's been Atlantis, Bahamas, that reopened only in May or whether it's the when you're dealing with casinos, obviously they're more open fully in Las Vegas up in Boston, a little bit different Macau, a little bit different. But if you go in sequencing, healthcare is one, corporate is two, three is kind of the real estate, hospitality and then fourth is really government. Interestingly we're seeing a lot more of an uptick of conversations and activity amongst local cities. We launched Pasadena, Texas, which is a large suburb outside Houston, but we're having a lot more activity where city councils and mayors are realizing they need to have a much better means to interface with both visitors of the city and residents and constituents that are local. They're investing in a lot of the, what I call, smart city activity in terms of network, hardware, sensors, and other kind of standard access security and control features. And what we're finding is that our software is the interface through mobile, that you would then access all of those existing services. So that's kind of where I would put it for now. I do think Q3, Q4, the next big wave of customers that are going to be coming back in earnest, or you're going to see things like sports, especially live events, stadiums, arenas, and others that just flat out kind of shut down during the window of what's been happening pre-vaccine.

Okay. And just one last one, since you brought up government. Government, especially the local government starts implementing, could they actually be a source to grow your blockchain ecosystem as a means to get the local people in the town to use their MaaS technology?

Well, we believe the answer to that should be yes. And we think anyone progressively, if you look across the country, again, throw politics out. Even though, there's lots of politics involved with local government, you're seeing the state of California, the state of New York has had a lot more challenges than the state of Texas or the state of Florida, as an example. You're seeing examples where the mayor of Miami at a local level is leading a boom in recruitment and activity. And how can I help and getting not just blockchain, crypto financial companies to move down into South Florida and a massive recruitment out of Silicon Valley in the West Coast to get a big tech to move as well. So we think that there's a big difference. There's two groups that are engaging in big ways. We do think that residents, visitors, constituents need to have a means to interface with their local government in a much more productive way. And we do think people need to be able to understand how to take advantage of the services that are offered in a much more productive way. So we were excited to get some of these solutions live. And we're definitely seeing a big uptick because I think what we've found through the pandemic is with people working remote, they now have options to work, not just for the companies they want to choose, but the geography they want to use, where they want to spend their time, how they want to live their life. And what that has done is, it's really opened up a competition for talent and resources nationwide. And everything's on the table and governors and even county commissioners and mayors are starting to realize thinking fundamentally changed the landscape of what their local economy looks like. And so we see our solutions as a means to help facilitate that dialogue, let people work through and explore options. And obviously for lots of visitors, whether it's for fun or on business conferences, we think that it's important for people to be able to access those services when you're in unfamiliar cities.

Okay. Thanks for answering my questions, guys. Thanks.

[Operator Instructions] Our next question comes from Ed Woo with Ascendiant Capital. Please state your question.

Thank you for taking my question. My question is, you mentioned that you guys were looking for M&A opportunities acquisition by opportunistic basis. What are you seeing out there in terms of valuations and opportunities?

Yes, so we'll say as a wildly competitive market. Importantly from our standpoint, we've put probably $150 million over our existence into the development of our enterprise cloud platform for mobile. So when we're thinking about M&A, we're not trying to find products or solutions or technology or anything that we need to bolt onto our platform, we feel quite comfortable with that. What we're actually most focused on for any activity, one as Matt would reinforce accretive deals that are going to be financially beneficial to the company with a focus on expansion in new geographies, inclusive of Europe, South America, and Asia. And the biggest thing that we're interested when we're thinking about acquisitions are customer-oriented and channel-oriented so that we can amplify not only our core customer base but we can access channels to market. So that's really where the focus is at. In terms of the second part of your question on valuation, Matt and I – he probably smile at me and we laugh a little bit. There still is a lot of competition and a lot of unrealistic expectations on what valuations look like. I think when you're private, you're seeing a lot of angel-backed and venture-backed companies at elevated valuations where they probably haven't grown into the financials just yet. And therefore, you see a bit of a disconnect often between those who might want to buy and where they're valued at relative to where the financials really are. When you get into the larger private companies, you start having a lot more of the competition between the corporate strategic buyer. You're getting a lot of private equity firms that might be trying to find deals without people going public. And then of course, the special purpose acquisition companies, when we use the SPAC to go public years ago, it wasn't quite as fashionable as it is now. Now everyone's using SPAC as an alternative to a traditional IPO or a direct listing. And you're seeing lots of competition because all those SPACs are on timeline where they either have to find a deal, consummate a deal, and get it public, or they have to return all the trust money and shut the SPAC down and the listing is done. So I think you're seeing a lot more competition and across the whole spectrum. When you actually get internationally, I think there is a little bit more rationality, so to speak. But so far, I think that we're really not trying to do anything unless it's a good fit. First and foremost, it's operationally efficient, it's financially accretive. And if it's not going to add to our customers or distribution for our platform, or get us entry into new markets for us, we're going to be diligent and take our time and just focus on organic growth out of the pandemic.

Great. That's a great answer. And thank you for answering my questions and good luck.

Thank you.

Okay. I'll turn the call back over to Alan for closing remarks.

Yes. I'll have a few closing remarks. And also while then Matt to kind of give a few final comments. I think what's really important for everybody to understand is, everyone knows the pandemic has been a pain. We can look backwards and see all the interesting decisions governments have made, corporations have made, what we've all lived through. It is what it is. The good news is we're here. We've looked and put the past behind us. We now know that everything is starting to reopen. We think that the reopening is going to start accelerating as we finish off Q2. I think it's going to be better in Q3, even better in Q4. And then 2022 right now, barring any other kind of big, shocking surprise event, we're going to be in a position where we'll be able to have a fully funded company executing normally in the markets that are provided, while we clearly were not as beneficially focused as some companies were when they were getting into meal-kit delivery or

Yes, thanks Alan. I know we're running out of time here. So I think Alan obviously said it best, I think a lot of things I was going to say, I mean, just the position we're at right now compared to where we’re last year. We feel great where we are and we appreciate everyone's support. And there's lots of bigger and better things to come. We'll continue to fund the company and execute operationally and build shareholder value. And that's our extreme focus right now. And all I can say again is thanks for your time and please look out for us in the next couple of months as the game will be active at conferences and happy to take calls as needed and trying to get as many people to learn more about Phunware and join the journey with us.

Great. So in closing, I'd just like to say, as a reminder to all of you that are net new to blockchain, cryptocurrency, we have lots of information that go along with how our royalty data operates. And we encourage you to get part of the Phunware ecosystem by going to buy.phuntoken.com and you can start diving in and be a part of this brand new ecosystem. I'm very proud that I believe you can fact check me on this all you want. We're the first NASDAQ or New York Stock Exchange listed company in the history of the world that has launched its own captive crypto ecosystem with both a security token and utility token. I've seen people that are buying Bitcoin for corporate treasury. We've seen people that are doing mining. We have yet to see anyone anywhere worldwide especially trading on NASDAQ or the NYSE that can get the full regulatory compliance with a public-listed audited company and the activation of all of these assets. So we'll look forward to sharing that with you. We appreciate you being on the journey with us and from our Phunware family to all of you, thank you very much.