Good afternoon, ladies and gentlemen. Welcome to Phunware's Third Quarter 2022 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 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 President, CEO, and Co-Founder, Alan Knitowski. Sir, please proceed.

Thank you very much. And welcome to our third quarter 2022 investor conference call. My last as Phunware’s President and CEO. As a reminder, Phunware is a nearly 14 year old technology company focused on the intersection of mobile, cloud, big data and blockchain with business-to-business, business-to-government, and business-to-consumer customers worldwide. Our core mission is to create a Phunware ID for every human being on earth that has a device touching a network that is connected to their favorite brands, applications, and venues that just happen to run Phunware software or intersect with our cloud-based infrastructure. On one side, we provide our business-to-business and business-to-government customers with everything they need to succeed on mobile, including the products, solutions, data and services for their digital transformation needs on Apple iOS and Google Android devices and applications. On the other side, we provide our business-to-consumer customers with the hardware systems, software, and cryptocurrency services needed for their engagement, and incentivized participation in high-performance gaming, streaming, trading, cryptocurrency mining, and personal productivity computing. Central to these efforts is our enterprise cloud platform for mobile called MaaS or multi-screen as-a-service, which is available for licensing under a SaaS business model over one to five year contract periods worldwide. And our PhunToken and PhunCoin and PhunVerse loyalty and rewards cryptocurrency ecosystem for the fiscal and virtual world, which is facilitated transactionally with our PhunWallet mobile applications for the Ethereum blockchain. The completion of Q3 constituted continued operational momentum for our business as we further accelerated our MaaS platform vision and adoption across a number of key firms, including new product introductions, indirect channel expansion, digital asset expansion, and a more than 120% sequential gain in year-over-year revenue growth. In parallel, the conclusion of Q3 subsequently provided even more growth opportunities for our business as we further scaled our Lyte by Phunware operational infrastructure for what we expect to be record Q4 hardware sales during the upcoming holiday sales season, all anchored by a balance sheet now including digital currency balances of more than 653 Bitcoin, 753 Ethereum, and decentralized finance positions valued in the aggregate at nearly $14 million at today's prices. In tandem, we expect full-year 2022 revenues to exceed $22.5 million, up roughly 225% year-over-year, while we also continue to expect that the second half of 2022 will represent a new second half record for reported revenues as a public company for its comparable period. Our CFO, Matt Aune, will break down these details and forecast further in his section of the earnings broadcast. In terms of our current operating environment, our core business-to-business and business-to-government customers are continuing to return to their offices and facilities, remaining in a hybrid transition with regards to their employees and contractors safely returning back to work. In parallel, and consistent with many other technology companies, we are experiencing operational headwinds against the backdrop of excessive inflation, elevated interest rates, ongoing geopolitical tension, and a stubbornly recessionary macro economy. Nonetheless, we continue to expect that cities, states and countries will continue opening on a broader basis throughout the balance of 2022 and that 2023 will look far more normal for in-office operations. Of particular note, and quite counter to some of these challenges, our business-to-consumer customers continue to be active and fully engaged, demonstrating robust demand for both hardware and cryptocurrency. As suggested previously and again reiterated here, we are both excited and comforted by the dramatic increase in activity across all aspects of our product and solution offerings for mobile, big data, cryptocurrency, high performance computing, and the cloud. Importantly, this activity encompasses all of our core growth engines rolling forward, including our MaaS cloud, our data-driven loyalty marketplace, our secure blockchain-enabled token, coin, wallet and metaverse capabilities, and our high-performance computing systems for gaming, streaming, trading, cryptocurrency mining, and personal productivity. Last year was the genesis of a powerful transition in our company's history, as we shifted from a non-recurring low margin transaction business to a far stickier, more scalable, recurring, and high margin SaaS licensing business for our MaaS platform. In addition to continued enterprise and government interest in our MaaS digital front door solution for healthcare, our MaaS Smart Workplace solution for corporations and our MaaS Residential Solution for real estate properties, we accelerated compensations with customers and sectors that were hit hard by the pandemic, including the hospitality, real estate, and healthcare verticals. These activities resulted in many customer wins for our team, including new contracts with Miami-Dade County, Live Nation, the Federal Highway Administration, the Federal Rail Association, and our recently announced renewal and expansion contract with Parkview Health. In conjunction with growing our portfolio of direct customers like these, including a major international hospitality brand that we expect to announce formally in the next few weeks. We also further expanded our global footprint by amplifying our go-to-market strategy with core indirect sales and channel partners, now including Campaign Nucleus, Cisco Systems, Carrier, Presidio, CDW, and other leading companies. We remain extremely excited about the post-launch scaling of PhunWallet and our blockchain ecosystem powered by PhunCoin and PhunToken, including the recent addition of PhunVerse for the virtual world to accompany our existing efforts already well underway for the physical world. We are continuing to aggressively scale and monetize this part of our business and look forward to the accelerated global adoption of both our blockchain-enabled MaaS customer data platform and our MaaS mobile loyalty ecosystem. During Q3, these important activities included the trading expansion of PhunToken, our decentralized exchange unit swap and the pending trading commencement of PhunCoin on a centralized exchange. As stated above, we are extremely excited to announce today more than 120% sequential revenue growth year-over-year. Additionally, and in parallel, we are announcing forward revenue guidance for 2022 of up roughly 225% year-over-year or $22.5 million, while also reaffirming our expectation that the second half of 2022 will represent a new second half record for reported revenues as a public company for its comparable period. As always, we will continue our core go-to-market strategies centered on direct and indirect agreements and contracts with Fortune 500 customers, especially in the Fortune 100 size range, and governments ranging from local and county to state and federal. In parallel, we will also continue to dramatically expand our direct-to-consumer channel for business to consumer engagements across both our high-performance computing and cryptocurrency offerings to consumers. We are extremely excited by a number of developments that have occurred over the first three quarters and even more excited by what we see coming in the coming quarters and years ahead. First, we continue adding new customer wins to our existing MaaS bookings, backlog, and deferred revenue totals 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. Second, we continue expanding our installed base to support our ID initiatives 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 1 petabyte of data, typically growing at more than 5 terabytes per day when operating at scale, our MaaS platform now provides a robust customer data platform, inclusive of both detailed data ontology and comprehensive knowledge graph for one-to-one interactions and engagement. And third, we commercially launched and continued scaling our PhunWallet mobile applications on Apple iOS and Google Android in conjunction with our MaaS blockchain ecosystem, all powered by our PhunCoin and PhunToken digital assets now including PhunVerse for the virtual world. While PhunCoin security tokens only appear on our balance sheet due to their status as a regulated security, PhunToken utility tokens continue flowing transactionally through our P&L as net new and virtually 100% gross margin revenue. As a reminder, and during the comparable period in 2021, we did not have the Lyte by Phunware hardware business at all and only just launched the MaaS loyalty rewards ecosystem anchored by PhunToken and PhunCoin. However, fast forwarding to today, we now have both lines of business active and are continuing to scale them productively, including the first half of 2022 edition of the PhunWallet mobile application portfolio on Apple iOS and Google Android and its accompanying virtual world metaverse, which we have branded and launched as PhunVerse. At this time, our CFO, Matt Aune will go deeper into our third quarter financial performance as reported, including our strong sequential revenue growth year-over-year and our expectations for the remainder of the fiscal year.

Thanks, Alan, and good afternoon, everyone. I'd like to thank you all for joining us today for a review of our third quarter 2022 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 third quarter 2022 totaled $4.8 million, which represents 120% growth year-over-year. Our platform revenue represented 27% of net revenues or $1.3 million. Our hardware revenue or Lyte by Phunware represented 73% of net revenue totaling $3.5 million. Gross margin was 16.7%, compared to 52.5% in Q3 of last year. On a non-GAAP adjusted basis, gross margin was 17.9%, compared to 68.8% in Q3 of last year. Platform gross margin was 46.5%, compared to 52.5% last year. As I've mentioned previously, Lyte by Phunware has a different margin profile as a computer hardware business than our higher margin platform business. Lyte by Phunware gross margin was 6%, which includes a $131,000 breakdown of inventory related to strategic speculative purchases made in the middle of the world-wide chip shortage on certain CPUs and GPUs that were in short supply and at much higher prices than they are today. We still expect to turn this inventory. However, it will be sold at current market prices. Total operating expense was $8.7 million, up from $5.2 million in the same quarter last year. Other non-cash operating expense items were stock-based compensation and amortization of intangibles, making up a combined $1.0 million this year compared to $1.2 million in the prior year. By excluding these one-time and non-cash charges, adjusted operating expense was $7.7 million, compared to $4 million last year. As I mentioned last quarter, between the Lyte by Phunware acquisition and the rebuilding of portions of our expense structure coming out of COVID, the year-over-year operating expense increase was expected. We are confident we can scale the business with our existing people and facilities while keeping our cost structure at or below current run rate. Non-GAAP adjusted EBITDA loss was $6.7 million, compared to $2.5 million last year. Net loss was $8 million or $0.08 a share, compared to a $0.4 million net income or $0.01 per share last year. Backlog and deferred revenue at the end of the quarter totaled $7.9 million, up from $6.1 million in the same quarter last year. As I mentioned on our previous call, we expected our backlog to grow coming into the back half of this year. Moving forward, we have every intention to grow this number as it provides predictability with our revenues and future billings. Moving to the balance sheet, we closed the quarter with $8.5 million in cash and $12.7 million in debt. As I mentioned on our last call, we reached an agreement with our partner, Streeterville Capital, increasing our borrowings to roughly $12 million so we can ensure we have enough operating cash for the year. We currently hold just over 653 Bitcoins, and 753 Ethereum with an aggregate value of approximately $13 million based on today's prices. In addition, we hold just under $1 million of decentralized finance D5 Holdings, which currently yield roughly 20% annually. In closing, as we move toward the end of 2022, we are encouraged with our continued record top-line growth in the face of inflation and a challenging economy. As we look toward the New Year, we have a renewed focus to rigorously prioritize our investments to ensure success in this unpredictable economy. We are committed to continuing to build a strong revenue base while improving overall gross margins through both organic and inorganic opportunities. We will 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. The next major financial conferences we will be attending are the ROTH 11th Annual Technology Event on November 16; the Benchmark 11th Annual Discovery one-on-one Investor Conference on December 1; and the UBS TMT Conference on December 5-7. We look forward to many one-on-one conversations and meetings with high-class institutional investors at each event as opportunities present themselves. With that, I'd like to turn the call over to Randall.

Thanks, Matt. Last year, people spent a third of their waking hours on their phones according to the app industry report. That's almost five hours per day. So, just to estimate that an astounding 90% of the global Internet population uses a mobile device to go online. At Phunware, we deploy cutting edge technology to help any brand in any industry better engage, manage, and monetize their customers in a mobile-first world that is quickly becoming mobile only. With tech-enabled contextual engagement by leveraging data and unifying disparate third-party solutions to deliver the right content in the right place to the right person, at the right time. By automating engagement, we help our customers not only make more money, save more money, or get more out of their money, but also delight their stakeholders by enhancing real-world experiences. To achieve this, we continue to focus our efforts around five core objectives: Objective one, improving the features and scalability of MaaS to not only drive adoption and shorten our sales cycle but also enhance our margin profile. From a platform standpoint, we are hard at work productizing many of the internal tools we use to deliver our amazing mobile solution so we can offer our customers more self-service features and functionality. One of the key problems we're working to solve is that organizations have static data and legacy systems and often leverage third-party solutions that are not designed with interoperability in mind. Many of the customers in our pipeline are looking for better ways to dynamically access and deliver relevant content based on context to inform and enhance engagement through their mobile applications. Our solution is middleware that unifies and leverages disparate data sets and third-party solutions to drive interoperability. Now, we are working on our machine learning engine to auto-populate audience segments by attributes, which can then be assigned to targeted campaigns based on context. For example, our platform will deliver a free drink coupon to a veteran in the lobby when she arrives at least an hour before check-in, just as easily as it will deliver an alert to a nurse when he is in proximity to a recovery room with a patient who is present. This is not that dissimilar from the systems I used during combat to ensure leaders had a comprehensive understanding of the battlefield. The common operational picture is a command and control resource that provides situational awareness enabling users to make accurate informed decisions. Data is integrated from multiple sources to support any and all functions of an appropriate response using one spatial data platform. This is exactly the kind of capability we can offer enterprises so they also gain a tactical advantage. In addition to our continued product enhancements around data and interoperability, we are also working to expand our location-based services capabilities. Our patented MaaS LBS software and beacon management solution provide native mobile-first capabilities that are ADA compliant and deliver proximity, sub-one second, real-time, blue dot indoor positioning, navigation, and wayfinding functionality across any campus or facility. However, the cost of beacons can be prohibitive, so we have begun exploring not only wholesale agreements to bring down the cost of each beacon but also newer technology like geomagnetic indoor positioning to eliminate the need for so many beacons altogether. Our hybrid LBS solution should improve our close rate as well as our margins. Objective two, scaling revenue, as well as activating indirect channels by ensuring our partners have the training, collateral, and proper incentive structures in place to be successful. As of this quarter, our most active industries in our software pipeline remain healthcare, hospitality, and sports and entertainment. While average deal terms are three to five years, we've seen our average deal size for new proposals continue to increase. For example, healthcare represents half of our pipeline with an average deal size of $600,000 since our digital front door is the closest deployment we have to true SaaS. Hospitality represents 25% of our pipeline with an average deal size of over $1.1 million and is getting a lot more attention now that our Smart Hospitality Solution is live at Atlantis and the Bahamas. In fact, we're excited to announce our Smart Hospitality Solution is being licensed by the major hospitality brand we alluded to during last earnings call and expect to be able to formally announce details of that engagement this month. Our initial implementation was a resounding success and the full rollout of that solution across multiple properties requires no additional custom code. This kind of SaaS deployment is a testament to our product engineering teams who have been working tirelessly to help us more efficiently scale our platform. As we look ahead to 2023, we are excited to have these well-known brands as reference customers, but we are also working to refine our collateral and positioning to improve our sales motion and reduce our sales cycle by simplifying messaging, showcasing interoperability, selling ROI, and streamlining pricing. For our data enriched media opportunities, we continue to focus on direct engagements. Our most active industries are retail, government, and healthcare, but we're seeing strong growth in food and beverage, travel and sports and entertainment. That said, retail and healthcare represent approximately half of our pipeline with an average deal size of $40,000 and $120,000 respectively. Our blended platform gross margin was 46.5% in Q3, but it's important to keep in mind that the initial implementation and various integrations require more work in the first year, while subsequent years require very little. For reference, a typical software deal right now is 75% gross margin over the life of the deal. One important area of focus for us to improve our margin profile is improving our ability to sell-through indirect channels. Led by two recent hires, as well as an outstanding consulting team, we have been working hard to not only better support our existing partners but also onboard new ones. We currently have 37 new partners in development and more than 22 new leads sourced from our partners during the quarter. We've also begun holding partner webinars with customers like the one we held with Cox Communications and Phoenix Children's Hospital with over 500 registrants. To support our partners, we also provide comprehensive case studies, articles, e-books, and additional training opportunities. The Phunware Phenom Certified Developer Program is also available to provide on-demand courses and live training sessions remotely to learn more about MaaS and how it helps brands to better execute their digital strategy and establish a true mobile presence. In parallel, we provided full MaaS documentation and software portals via the Phunware documentation portal and GitHub respectively. Objective three, launching a compliant blockchain ecosystem to better incentivize and authenticate consumer engagement. To be frank, crypto is a house of cards built on hubris, fraud, and confusion. Yet blockchain remains one of the greatest innovations the global economy has seen since the Medici's commercialized double entry accounting. Just like the dot-com boom when entrepreneurs either cashed out or flamed out, market corrections like the one we're experiencing now are important because what emerges from the ashes of failure are companies like Phunware that are accountable to their shareholders and will usher in lasting change that realizes Blockchain's true potential. Just like Bitcoin proof allows two parties to transact in a trustless manner without an intermediary like a bank, brands and consumers do not need data oligarchs in the middle who profit from the exploitation of consumer data without consent. A decentralized data economy, which Phunware is helping to create, will put consumers in charge of their data and enable brands to efficiently reach the consumers who are most willing to pay attention. However, the regulatory landscape does not support most of the utility tokens and perhaps even many of the NFT projects that have been deployed over the past few years. During the quarter, we completed an exhaustive review of the SEC's guidance to date, as well as some of the enforcement actions they have taken recently. While we still expect PhunToken to play a role, we will be focusing the majority of our product and commercialization efforts on PhunCoin going forward. PhunCoin is not just a security token. PhunCoin will be a compliant utility token because it's a security. Looking ahead, we are well-positioned to commercialize the world's first truly decentralized data economy with the robust infrastructure required to support an Oracle network that bridges Web 3 applications to Web 2 data with Lyte by Phunware, as well as a persistent mobile first connection to consumers through PhunWallet, which is available on both Apple iOS and Google Android. As an extension of our MaaS platform, we are working on regular product updates, we are excited to announce during the quarter the release of our location-based marketing functionality inside of PhunWallet that will enable consumers to interact with brands in the real world. We are also working to finalize everything we will need for the compliant official launch of PhunCoin for trading. We understand it has taken longer than expected, but we are committed to the long-term health of the ecosystem we've committed to building. In parallel, we are also preparing to file for PhunCoin to enable future purchases and issuances. Objective four, ramping sales and improving margins of Lyte by Phunware by streamlining operations and being more disciplined with our marketing efforts. During the pandemic, Lyte was able to take advantage of CPAs below $50, but we have seen CPAs north of $300, which drove revenue but also expenses. Going forward, we will not drive revenue at any cost. Starting in Q4, we are now focused on driving profitability so we can scale responsibly. We believe we can achieve this at a CPA of approximately $120 and have begun testing our new strategy with marketing campaigns for Black Friday, which are currently ongoing. In the first week, the team has sold over $400,000 and exciting new influencer integrations are going live over the next few weeks to broaden our reach during this holiday season. Our new facility near Dell headquarters in Austin has begun to ramp shipments to accommodate this influx of new sales, but we believe we'll be able to scale to almost 4,000 shipments a month and could achieve up to $75 million in revenue before we'd need to consider more space. In addition, our new ERP system will help us improve margins going forward as we put many of the one-time costs of moving to Austin behind us. We are also looking to add additional product lines such as traditional PCs to give us a larger target market while still optimizing for profitability. Objective five, engaging more investors with a focus on institutions to drive awareness, volume, and stronger price appreciation. Obviously, there's a lot of excitement in the market about Phunware recently. In fact, our daily volume on Monday was 20x our daily average. Similar to last year around this time when our volume nearly reached 650 million shares, a lot of people are taking notice. We will continue to work closely with Gateway, ROTH Capital, and H.C. Wainwright to attend conferences and participate in non-deal roadshows to share the Phunware story more broadly. We have also been given great opportunities to engage new shareholders through partnerships with Barretto Pacific and working closely with various advisors. In closing, I want to personally thank all of Phunware’s employees who are our single greatest competitive advantage. Their faith in each other and our vision is inspiring. As of the end of the quarter, we have 113 amazing employees, with the majority of them residing in California and Texas. As we look ahead to the remainder of the year, and into 2023, I'm excited about what we will be able to achieve as we focus on operational goals that will be foundational to our success. Faster teamwork and minimized distractions, be more disciplined in the allocation of resources, align resources with core competencies, focus on ideal customers and partners, update positioning and marketing to better sell our core value proposition, productize internal tools, identify inorganic targets to accelerate commercialization of key capabilities, launch PhunCoin, reduce cash burn, minimize dilution. For closing remarks, I'll now turn things back over to Alan.

Thanks, Randall. As highlighted throughout today's call, we are all extremely excited by the ongoing scaling of our MaaS Blockchain ecosystem and the high-performance computing systems being shipped to consumers via Lyte by Phunware. What it means to me is that our decade-long investment in MaaS platform building across mobile, cloud, and big data, accompanied by our years of community engagement in blockchain and cryptocurrencies, have resulted in a culmination and convergence of massive global addressable market control that can continue to act as strong wind in our backs to further accelerate our continued growth. We expect this ecosystem to complement and supplement our core MaaS offerings as we offer our enterprise customers additional capabilities to identify, engage, and incentivize 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 continue to expect to be a trusted bridge for Fortune 500 corporations and governments looking to leverage blockchain, independent of the recent macro noise and market pullback associated with all global cryptocurrencies. Please look for additional announcements in the coming weeks and months ahead as we continue to enable consumers to not only regain control of their data with PhunCoin, but also to reward them for their engagement with PhunToken, which can be purchased online with U.S. dollars, Bitcoin, and Ethereum. In parallel, and as we 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. Importantly, and as we have done previously, we expect to focus our merger and acquisition activity on targets that are operating profitably and would represent accretive deals in areas that will provide more customers, more partnerships, and more distribution for our MaaS platform and cryptocurrency ecosystem, especially in international markets, including Europe, Asia, and South America. Importantly, we expect to maintain a laser focus on our core operating and financial model, which includes strong top-line revenue growth of 225% or more for full-year 2022, all while consistently working towards cash neutrality from operations at scale. In parallel, we also expect to continue leveraging our balance sheet where possible to amplify our corporate treasury activities as a strategic asset for the company, including our Bitcoin, Ethereum, and decentralized finance positions in order to generate additional financial returns for our overall operations and results. Finally, today marks my final public earnings call with Phunware. As I transition at year-end from the company's Co-Founder, President, and CEO operationally to the company's Co-Founder, advisor and largest evangelist and fan strategically. During calendar year 2023, I will be spending my time and focus advising Phunware and assisting its leadership team and board wherever and whenever needed both internally and externally. It's been a great honor and privilege to have started Phunware nearly 14 years ago with Luan Dang and Alan Kane as nothing more than a large idea backed up by an even bigger vision to then successfully fund and scale it privately for a decade to then take it public on NASDAQ to trade its fund ever since. Phunware has felt like raising a child to me over all these years, including all of its inherent ups and downs, growth, maturation, and evolution that you might expect along the way. They say that it truly takes a village to raise a child. And in my heart of hearts, I know that our proverbial village has been all of you, our global Phunware family, who have supported us tirelessly along the way. With that, and in conjunction with a sincere thank you from me, Luan, Alan, and everyone else for your ongoing interest and support in all that we do worldwide on your behalf, I would like to now open up the call for questions through the operator. Operator, go ahead please.

Certainly. Your first question is coming from Darren Aftahi from ROTH Capital. Your line is live.

Hi. Thanks for taking my questions. This is Austin on for Darren. First question, I'm just curious if you can maybe go into and discuss some of the dynamics of improved margin profiles or how indirect partners could improve the margin profile as they start selling through those channels?

Yes. Let me start with that and then I'll hand over for additional commentary from Matt and Randall. Importantly, so when you break out different parts of the business, on the software side, obviously, we had very high gross margins of 75% to 80%. When we even bundle in the services, as Randall said, the initial work that we end up doing as time passes over years two, three, four, and five and a lot of these deals, you see the average gross margin just expand because we don't have to do anything in outer years once the applications get deployed. When you separate out the software side, you jump into the application transaction part. We typically see 70% to 75% gross margin. The real issue there is, we just have to scale the size of that business so that instead of it being $650,000, $700,000 per quarter of the business, we just get more heads tied to more campaign budgets tied to larger numbers, which will help improve the margin. The other big part is obviously with Lyte by Phunware. The first thing was to buy the business. The second was to consolidate its private company reporting in the public arena. The third was to migrate it from Illinois to Austin. Fourth was to get a bigger facility that could scale up, and as Randall said, can support upwards of $75 million in scale before we'd need more space. The next part after that was deploying an inventory management system and a whole bunch of things that actually weren't in place before. And then separately, we can set up procurement and supplier relationships to have more scale and economies with both buying discounts with a big focus on about a $120 customer acquisition cost. So, all those elements combined really get into the operating leverage as it relates to those three core areas of the business. And then to your point about selling through indirect channels and partnerships, that becomes really important for us where we get pre-embedded in a product like Carrier and allowing that product to then expand to be able to automatically go out with each purchase that their distribution channels actually have. And the more of these partners that we set up, the faster that we expect to see, not only the revenues grow, but also the margins that accompany them. Let me see if Matt or Randall want to make any comments on that.

I think that was pretty thorough. I think the only thing I would add is, what people need to understand is, the world is consumed by point solutions, every entrepreneur gets told to be laser-focused and they go out and build one very specific code base for one very specific function and they can sell that. Every time we talk to a customer, they're inundated with a bunch of point solutions. So, for us, the value of working with indirect channels is they already have that customer touchpoint. So, we talk about Norfolk Southern a lot. Even during the pandemic, we launched this amazing smart workplace solution of the future. That partnership with the consultancy is important. When you think about like a consulting firm or a systems integrator, they're thinking holistically about the entire solution that one of these venues is going to require in order to drive digital transformation forward. Mobile is so important because it will present itself like a mobile application, but it has to consider all of these other point solutions. And so, for us, when we think about indirect channels, that's what's taken so long. I mean, these are very complex ecosystems with a lot of competing third-party solutions and disparate data sets. And so, the more we can get embedded, either integrating our actual code into somebody else's solution or white labeling our stuff like we did with Cox, or just partnering with these consulting firms where they churn out clients that have problems that need a mobile strategy, and we're going to call Phunware first because we deliver. As we begin to forge these relationships and drive some sales motions forward, it's a big process. It's fuel regulations portal, collateral, training, dealing with value-added resellers, but once you get them going, they can sell, we can support them and start realizing that 75% gross margin across all these deals rather than only the lower margin transactions where we're still carrying most of the load when selling directly.

Got it. That's helpful. And I guess just on the same topic, I just kind of have a follow-up for that. Randall, you've mentioned a few times just the length of time it typically takes to get some of these direct deals integrated, and kind of up and running, as these new leads come in from these indirect partnerships, does that come with it like any faster integration times? I'm just curious if that dynamic changes at all, if it's indirect versus direct time to get up and running with the final customer?

Yes. It depends on what it is. Like with Carrier, we're actually integrating our code into their solution. So, you can imagine in integrating our technology into a multibillion dollar platform. That's going to come with a lot of building consensus, getting approvals, and things of that nature. With other things where it's like we're just kind of white labeling stuff, it's a lot easier because they're kind of selling it under their own brand. For example, Cox ProCyle is going after a clinician experience in healthcare, but using a lot of our code to set it up from zero if you will. So, that's really fast. That’s kind of deal by deal, customer by customer. But I think maybe more to your question is just the maturation of our own platform with this hospitality brand we've been alluding to. As we roll that out, that's no code, that's ready to go. So, the sales cycle was actually shorter than, for example, Atlantis. And then the actual rollout implementation was a lot quicker. So, you're talking about a month, kind of two months, if you will, whereas Atlantis, it was more like six months. So, we're getting better and better not only about truncating the sales cycle but also shortening the time it takes to implement. If you're talking healthcare or hospitality for us right now, those are our leading industries. We can get a full feature-rich mobile application out the door and we're talking a week usually the biggest bottleneck is Apple and Google approving things. If our customers want any specific integrations, we've got over 130 of those integrations that we're just pulling off the shelf. That’s a huge competitive advantage but it also speeds up the process. So, we're getting longer and longer contract terms and we're getting faster and faster at getting those things out the door. So, we're really able to show some great reference customers about how our platform is transitioning to more like a SaaS deployment.

Got it. Super helpful. Appreciate you taking my questions.

Thank you. Your next question is coming from Ed Woo from Ascendiant Capital. Your line is live.

Yes, Alan, I want to say it was great working with you and I wish you the best of luck in the future. My question is, has there been – a gain to be more macro concern, especially with IT firms? What is your outlook into 2023 in terms of sales cycles and IT budgets?

Yes, great question. Thank you very much for the kind comments. This is – I won't be going too far away, but I do appreciate all the kind words and it's been great meeting with many of you guys and working together during this time. I would say when I look at the macro economy between now and the end of 2023, I don't really see a massive change in inflation that we're going to get huge relief. I don't really see interest rates magically reversing course. Clearly, we've already been in a recession; it might even be stagflation when you combine negative GDP growth with high interest rates and inflation. So, I think what we've seen across everything, as Randall alluded, one part of our business used to take us 6 to 12 month cycles. A lot of times we see those down at 3 to 6 months cycle for certain types of vertical solutions, which are more off the shelf and taking advantage of all these integrations and things we've had. In reverse, when you're getting into much bigger deployments, much more custom work, you've seen that traditional 6 to 12 months sales cycle. It doesn't necessarily have to do with the education process or sitting down and walking through what different products and solutions can do for customers. Most of it is about whether they are back at the office yet and how many different functional areas are involved in the decision-making when it’s so strategic. More importantly, many businesses are concerned that we're in a difficult macro economy and they are deferring decisions. So, we have seen a few deals in our pipeline shift into Q1 where they want to focus their 2023 budget instead of 2022. In a few cases, we’re seeing people trying to accelerate their 2022 budget before finalizing their Q4 planning. I would say across IT budgets in general, everything mission-critical is getting deployed. Anything that is touching revenue that's going to enhance top line for companies or reduce cost or expand margin or improve customer satisfaction, we’re seeing investments. As we've been discussing, we'll get very formal on announcing the names and the details behind this big hospitality deployment we talk about. The first property is already up and running and doing extremely well. Multiple properties are behind that and multiple brands are engaged. Effectively getting those apples upfront and doing that work well is instrumental in what we see going forward because whether the economy is difficult or not, certain customers are saying if it expands revenue, reduces cost, or expands margin, they will find the budget.

Great. Well, thanks for answering my questions, and again wish you all the best. Thank you.

Thank you. Your next question is coming from Howard Halpern from Taglich Brothers. Your line is live.

Good afternoon, guys.

Hey, Howard, how are you doing?

I’m okay. In terms of the acquisition landscape out there. I mean, what kind of deal flow are you seeing, and what are you seeing in terms of multiples out there, especially since you're looking for potential acquisitions outside the U.S.?

Yes. I think that's a great question. And what we've seen is, if I was going to use a joking analogy in the U.S. we like to say kind of we suck less, so to speak. You're seeing lots of currencies around the world that are collapsing against the U.S. dollar. So, the dollar has been very strong this year while many other currencies are weak. As a result, if you get into Europe, South America, Asia, what you often start finding is that if things are difficult on Wall Street with NASDAQ and New York Stock Exchange listed companies, it's even worse for publicly traded companies that are micro-caps or small caps all over the world in their local exchanges and markets, especially if their currency is under a lot of pressure because it's not U.S. dollars. So, as a result of that, we’ve done screens and looked all over the world to probably find an accretive acquisition to be able to tuck-in. We're seeing stuff that ranges from $50 million on the low side of revenue all the way up to $150 million or $200 million in revenue. You're seeing often market caps that might be in the $40 million to $80 million market cap range. Many of those are coming across with $10 million or $15 million worth of EBITDA to go with it. So, obviously there's a lot of work required to say is this the right fit? What's the nature of what the motivations are for selling and whether the teams want to stay or not? Then there's also recognizing the harsh realities of what's happening in the economy worldwide, especially in local markets that aren't based on U.S. dollars, which brings the question of whether they are going to wait for a recovery or if they see an advantage in doing deals now to leverage U.S. market arbitrage. The good news is, there are many opportunities and conversations happening. I would say that this time of year, it’s pretty difficult to get things done with the holidays approaching and everyone planning. I expect the first half of next year to see this accelerate but I still see that there's arbitrage between international and domestic markets. For us, it's about finding customers, distribution, and an installed base. We do not really need technology; that is not the primary motivation behind our acquisitions. It's much more about distribution and expanding our footprint for the platform.

Okay. That's good to know. And then, just one last one about what, I guess, this is more like for the first half of next year, what type of margin profile or why do you hope to achieve by the end of the first half of next year?

Yes, I can take that one. This is Matt. Yes. So, I think we've said before, we're targeting that business to be in kind of the 20% plus gross margin profile. So, like we've said, it's not going to happen overnight. We feel like we are making a lot of progress with the margin at Lyte, but it's also a situation where as we move into a much bigger facility, we're getting things up and running. We've done a great job over the last couple of months getting in place new systems and procedures at the new facility. So, for us, if we end the first half of the year in the 20% range, I think we're going to be happy and then we're kind of going to see if we can chip away and get closer to 30% as we move to the end of next year.

Okay. That sounds good. Well, keep up the good work guys.

Thanks, Howard.

Thanks, Howard.

Thank you. That concludes our Q&A session. I will now hand the conference back to Alan Knitowski, President, CEO, and Co-Founder of Phunware for closing remarks. Please go ahead.

Thanks. In conclusion today, I just wanted to express how much I appreciate all of your interest and engagement with our company. Obviously, we've got a nice footprint with headquarters here at Austin. We've got both coasts down in South Florida and Southern California, and we're very much looking forward to continuing to scale. We've gotten through the pandemic piece, now domestically and abroad. We want to start really stepping on the accelerator. Mostly today, I wanted to express thankfulness to our entire employee base of Phunware, who tirelessly work to support everyone here on the call and shareholders around the world, and also just for everyone that has been customers, partners, and other stakeholders with us along this ride. While I will be formally transitioning out myself, I'll be remaining in touch with Phunware at the backend with the board and team as needed and will be looking forward to further scaling in the future. As we always do, we like to really express how much we appreciate and value the Phunware family worldwide leading into our annual General Meeting, which will formalize and get completed tomorrow. I had the great pleasure of talking to shareholders on a worldwide basis, and I know Randall, Matt, and I really value all those engagements and conversations. It helps us to understand where there are areas we can improve or problems to address. So, in conclusion, again, we mentioned Luan Dang and Alan Kane who’ve been by my side. These are all three of us enjoyed founding the company, scaling it, and getting it public. I'm even more excited about the next chapter in the business. So, with that, I’ll call it a day and lastly, I want to wish everyone an amazing Veterans Day tomorrow, and remember what it's truly about. I know we'll enjoy a Phunware holiday tomorrow for Veterans Day minus the annual meeting, and we'll be focused on celebrating all the great brothers and sisters who have served around the world.

Thank you, ladies and gentlemen. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.