XTI Aerospace, Inc. (XTIA) Q3 2015 Earnings Report, Transcript and Summary

Good afternoon and welcome to the Sysorex Global Holdings Corporation Earnings Conference Call for the Quarter ended September 30, 2015. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Participants of this call are advised that the audio of this conference call is being broadcast live over the internet and is also being recorded for playback purposes. A replay of the call will be available approximately one hour after the end of the call through December 07, 2015. I would now like to turn the conference over to Scott Arnold, Managing Director of CorProminence, the Company's Investor Relations firm. Please go ahead, sir.

Thank you Emilie. Thank you for joining today's conference call to discuss Sysorex Global Holdings Corp.'s corporate developments and financial results for the quarter ended September 30, 2015. With us today are Nadir Ali, the Company's CEO, and Kevin Harris, CFO. At 4:05 PM Eastern time today, Sysorex released financial results for the quarter ended September 30, 2015. If you have not received Sysorex's earnings release, please visit the investor's page at www.sysorex.com. During the course of this conference call, the Company will be making forward-looking statements. The Company, cautions you that any statement that is not a statement of historical fact is a forward-looking statement. This includes any projections of earnings, revenues, cash or other statements relating to the Company's future financial results, any statements about plans, strategies or objectives of management for future operations, any statements concerning proposed new products, any statements regarding expectations for the success of the Company's products in the U.S. and international markets; any statements regarding future economic conditions or performance, statements of belief and any statements of assumptions, underlying any of the foregoing. These statements are based on expectations and assumptions as of the date of this conference call and are subject to numerous risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Some of these risks are described in the section of today's press release titled cautionary note on forward-looking statements and in the public periodic reports the Company files with the Securities and Exchange Commission. Investors or potential investors should read these risks. Sysorex Global Holdings Corp. assumes no obligation to update these forward-looking statements to reflect future events or actual outcomes and does not intend to do so. In addition, to supplement the GAAP numbers the Company has provided non-GAAP adjusted net loss and net loss per share information in addition to Non-GAAP adjusted EBITDA information. The Company believes that these non-GAAP numbers provide meaningful supplemental information and are helpful in assessing our historical and future performance. A table reconciling the GAAP information to the non-GAAP information is included in the Company's financial release. I will now turn the call over to Nadir Ali, Sysorex's CEO.

Thanks Scott, and good afternoon, everyone. Welcome to our Third Quarter 2015 Earnings Call and thank you for joining us. I am jointed today by Kevin Harris, our newly appointed CFO, who will be discussing our third quarter 2015 financial results, after my opening remarks and I will return to conclude our prepared remarks and field to your questions. I'm very pleased to welcome Kevin as our Chief Financial Officer. Kevin is a veteran executive with more than two decades of extensive financial, auditing and capital markets experience as the CFO of publicly traded technology based companies. We've gotten to know Kevin over the past several months and I'm confident that he will be a great fit with our team and a tremendous asset to Sysorex as we grow and scale our business. Kevin assumes the CFO role from Wendy Loundermon, who has served as our interim CFO since January 2015, and before that as Sysorex's CFO from 2002 to November 2014. Wendy will of course continue with Sysorex as VP of Finance and President of our Government Services Unit. I'd like to thank Wendy for her continued support and dedication to the Company. Wendy and Kevin will be working closely together and make a great team. As many of you know, Sysorex is a big data analytics platform company, with complementary mobile and IoT products, enterprise infrastructure solutions and professional services. Sysorex develops the systems and solutions that power the data driven enterprise. With an innovative approach to big data, real-time analytics, indoor locationing and the Internet of Things, we blend virtual data from software and networks with a huge volume of physical data generated by mobile devices and Internet connected things to open new worlds of insight. Our unique solution are helping organizations worldwide improve decision-making, increase revenue and productivity, identify and address mobile security threats in real time and provide real-time analytics to the edge of the network at lightning speed. I'm pleased to discuss our results for the third quarter 2015, and highlight the achievements and milestones our team delivered. Our accomplishments in the third quarter demonstrate our trend toward driving growth in our professional services and our proprietary data analytics and AirPatrol offerings, which inherently will drive higher gross margins. I'm especially pleased to report the growing momentum in adoption of our AirPatrol products, as evidenced by the acquisition of some very exciting new customer and projects. Of particular interest is our recently announced follow on 15-year, $91 million contract with Daruna to make our software and information systems the central nervous system for a new state of the art, smart community being developed to house 4,000 employees working on key infrastructure projects in Qatar, including the FIFA World Cup 2022 and the Qatar National Vision 2030. Sysorex will operate as a community of intelligent infrastructure providing a full range of services including information technology, AirPatrol location-based security products, data analytics, cashless payment systems, campus-wide Wi-Fi and Internet-based TV, along with facilities management and public safety management for police, fire and medical personnel. This follows our initial $2.5 million contract with Daruna announced in July 2015, with Daruna utilizing AirPatrol as a security and asset management platform. This new contract expands that arrangement, extending Sysorex's involvement into nearly every aspect of the community's management and operation. The new contract work is expected to start in second quarter of 2016, and will generate approximately $6 million per year in revenue for us. This is an encouraging development for Sysorex and represents strong opportunities for us to gain additional projects of this type and scope. The deliverables associated with this contract demonstrate our success in solidifying both our legacy revenue business, while leveraging our state-of-the-art proprietary solutions in dynamic and compelling project applications. The Daruna project is illustrative of the vision we've established in our acquisition strategy and demonstrates of our ability of our integrated approach to complementary technology solutions that drive tangible value for our clients. As further demonstration of the growing momentum and success of our execution, we've announced a number of recent customer wins and projects that will employ our innovative and unique AirPatrol solutions. We recently announced an AirPatrol cyber security engagement with a U.S. government agency that will employ AirPatrol's ZoneDefense, mobile device detection and locationing system to help secure sensitive government installations against mobile threats and data leakage posed by road mobile devices such as smartphones, tablets and other items capable of communicating and transferring data outside of secured networks. This engagement was over $1 million for the initial locations and we anticipate this agency will rollout AirPatrol solution to its other locations. This is a testament to ZoneDefense's ability to detect and accurately locate any wireless device operating within a monitored area and is further evidence of the traction we are gaining with our unique AirPatrol solutions across market segments. ZoneDefense is a mobile device system that detects and monitors Wi-Fi, cellular and Bluetooth devices and triggers specific security policies based on the identity of the device and its location. We believe that our patrol was selected for this project as it was the only vendor that could deliver the full capability that the customer was seeking. This initial installation is expected to begin in mid-November and be completed by the end of this year and we look forward to expanding your footprint with this customer in the near future. We expect that we will continue to grow our AirPatrol segment into 2016 and beyond as we gain market traction in both government and commercial verticals in the U.S. and abroad. Our professional services offering and big data analytics solutions and services are also enjoying strong traction in exciting new application areas. We recently announced a new system development engagement with the famed Gemini Observatory in Hilo, Hawaii, which operates two of the largest and most advanced telescopes in the world. We will be developing and deploying a new advanced next-generation computer systems architecture that'll provide high availability, security and compliance with the computer systems currently under development by Gemini that support some of the scientific communities' most exciting deep space research and discovery. Together the Gemini twins offer almost complete coverage of the northern and southern skies and are among the most advanced optical infrared telescopes available to astronomers. We expect to complete the project in the first quarter of 2016. Another exciting example of our growing market adoption within the scientific and aerospace community is our recent announcement of an approximately $900,000 project win by our team to provide high-performance computing systems for use in the engineering and development of NASA's Orion multi-purpose crew transport deep space craft for a leading global aerospace technology company. Speaking of government projects, you may recall that the NASA SEWP and CIOCS contracts Sysorex was awarded earlier this year, along with other vendors. We've started to see increased activity on these contract vehicles and have captured orders on our SEWP contract already. We expect CIOCS soon to follow that same path and anticipate we will capture more revenues in 2016 from these contracts that are valid for 10 years. I'd now like to touch upon developments with our LightMiner analytics solution which we often refer to as LMS. We have begun launching our previously discussed pilot programs with our LightMiner analytics platform for a variety of customers. These pilots are allowing us to build quick start modules for various verticals that will allow us to scale as we embark on our planned product line rollup in 2016. Our LightMiner system's unique high speed database technology, could enable Sysorex to leap to the forefront of an industry wide race to manage and analyse massive amounts of data in real time, either on premise or in the cloud. The LightMiner platform is an in memory, real time, data analysis system designed to perform very large, highly complex and extremely difficult calculations using off-the-shelf hardware and memory. It supports traditional sequel based business intelligence and analytics applications as well as a host of integrated statistical machine learning and artificial intelligence algorithms allowing it to provide super computer like performance at competitive prices. Our solution will capture and process data from the edge where it is being generated and deliver insights fast and execute automated alerts and actions for security, market campaigns, event triggers, et cetera. We remain convinced that with LMS, we can provide a very competitive product, especially in real time applications where speed is critical, including IoT analytics with our AirPatrol product line, while offering our customers a more cost effective solution than competitors using Hadoop technology or traditional SQL database vendors. We believe this will significantly increase our role and value proposition for our customers. With that, I will now turn the call over to Kevin to discuss our financial results for the quarter ended September 30, 2015.

Thanks Nadir. First, I'd like to say thank you for the warm, welcome. I'm very pleased to join Sysorex at this stage in the Company's growth and I look forward to leveraging my more than two decades of financial management experience to help Sysorex achieve its promising future. I will now discuss the results for the third quarter ended September 30, 2015. Total revenues for the three months ended September 30, 2015 were $14.9 million, compared to $14.3 million for the comparable period in the prior year. A $600,000 increase in revenues or approximately 4.2%, was primarily attributable to an increase in professional services revenue. Total third quarter 2015 revenue included $10.3 million of storage and computing revenue, $871,000 of SaaS revenue, $487,000 of mobile, IoT and big data products revenue and $3.2 million of professional services revenue. Total gross profit for the three months ended September 30, 2015 was $4.4 million, compared to $4.3 million for the comparable period in the prior year. The gross profit margin for the three months ended September 30, 2015 was approximately 30%, compared to approximately 30% for the three months ended September 30, 2014. GAAP net loss attributable to common stock holders for the three months ended September 30, 2015 was $3.2 million compared to $2.5 million for the prior year period. This increase of $700,000 was primarily due to an adjustment to the AirPatrol and tangibles resulting in a decrease of approximately $450,000 in amortization during the three months ended September 30, 2014. In addition, we incurred approximately $125,000 more in operating expenses. Approximately, $174,000 more in amortization of intangibles for the LightMiner acquisition offset by approximately $113,000 more in gross margin from professional services sales during the three months ended September 30, 2015. Pro forma non-GAAP net loss for the three months ended September 30, 2015 was $1.8 million, compared to non-GAAP net loss of $1.7 million for the comparable period in the prior year. Pro forma non-GAAP net loss or income for basic and diluted common share for the three months ended September 30, 2015 or the loss of $0.09 per share, compared to a loss of $0.08 per share for the prior year period. Non-GAAP net loss or income per share is defined as net loss or income per basic and diluted share adjusted for non-cash items including stock based compensation, amortization of intangibles and one-time charges, including acquisition costs, severance costs, change in the fair value of share to be issued and the cost associated with a public offering. Total non-GAAP adjusted EBITDA for the three months ended September 30, 2015 was a loss of $1.5 million compared to a loss of $1.5 million for the prior year period. Non-GAAP adjusted EBITDA is defined as net income or loss before interest, provisions for income taxes and depreciation and amortization. Adjusted for other income or expense items, onetime charges, including acquisition costs, severance costs, change in the fair value of shares to be issued, cost associated with the public offering and no cash stock based compensation. On the balance sheet, we ended the quarter with cash and cash equivalents of $5.4 million and total current assets of $25.8 million. During the third quarter, the Company raised gross proceeds of $5.25 million for an underwritten public offering. This concludes my comments and I'd like to turn the call back over to Nadir.

Thanks Kevin. We are pleased with our performance in the third quarter as it represents growing traction of our integrated solutions in a number of existing and new verticals and demonstrate that we're building a solid foundation for growth and profitability going forward. I would like to take a moment and remind everyone, how far we have come from being a sub $5 million revenue government IT services company on the pink sheets in 2013 to a NASDAQ listed technology with $63 million in revenue in 2014 and growing. We have completed integration from sales to engineering of four acquisitions that provide key IT and technology in today's hottest segments including IoT, indoor locationing and big data. With these accomplishments, we are very confident about our prospects for continued growth across business segments as our solutions are being chosen for their superior ability to drive value and ROI for customers in ways that our competitors cannot. The addition of our LightMiner product into our solution sales mix adds a crucial core value driver for clients in the form of an advanced, superior and faster data management and analytics -- faster data management analytics that we feel places us in an even stronger position to generate growth. Sysorex's products and services create real value from data and we are at the forefront of our competitive physician with a tremendous opportunity before us. We've begun to see real uptake for our AirPatrol solutions and the response to our LightMiner analytics platform have been superb from a diverse blend of potential customers that seek to exploit the value from their ever-growing volume of data. With that Emily, I think we're ready to open up the call to any questions.

[Operator Instructions] Our first question is from Josh Nichols of B. Riley. Please go ahead.

Regarding the -- since the rollout of the $1 million AirPatrol U.S. government award that you talked about briefly on the call, how quickly might that rollout come and how many additional buildings do they have that you could be placed into?

Hey Josh. Thanks for the question. So, we expect that initial rollout to be completed within Q4, so by December 31 of this year and then the client has many additional buildings. I can't get into specifics in terms of how many because that's confidential information, but we expect this to be a substantial opportunity for our AirPatrol product line and certainly looking forward to expanding the footprint within this agency across their locations.

And anything you could tell us with LMS coming out in early 2016 for potential partnerships with AirPatrol on that front?

Absolutely, so one of the reasons we acquired LightMiner was because its fit with the AirPatrol technology. So, if you think about AirPatrol and the real time locationing that it control in the data that we would be capturing, whether it's for a security application with the government agency example or in other verticals where we're capturing data across traffic in a public environment whether it be a mall or casino, event, all of that data has been processed in real time and be able to come back and deliver results out at the edge in terms of a security alert, a marketing campaign, an event notification and so how they LightMiner in their -- that's optimized for speed. You'll be able to capture all of that data across multiple locations perhaps and be able to bring that back and trigger those events is key, and so, certainly with our initial rollout of AirPatrol analytics, light minor will play a key role and adds that opportunity expands into the Internet of Thing, I think it gets even stronger for other type of applications.

Our next question is from Mike Crawford of B. Riley and Co. Please go ahead.

Thanks. Maybe I'll just add a couple to Josh's, so Nadir, you've had some nice storage and computing wins lately. How does the pipeline of storage and computing customers that Sysorex have, how does that look like as a pipeline for selling additional services and big data products too?

I think that touches on one of the key themes of today's call which is that we are continuing to make progress on providing cross selling and integrated opportunities for all of our solutions. So, if you look at the Daruna contract, it's a perfect example. It started out as an AirPatrol opportunity that was then expended into some of the infrastructure products, analytics and other things right. So, we continue to see that growing, a lot of our customers that are starting out with storage, or high performance computing are adding on services and certainly with the launch of LightMiner will get more involved with the analytics and bring those opportunities to our customers. Our sales team has been cross training across all of these products and are continuing to improve in being able to send that message across our customer base. So, I expect that to grow and that's a key part of our strategy.

Thank you and then just further regarding Daruna. This is for one of its planned communities. What's the status of opportunities related to other potential communities Daruna might be able to land?

Great question, so yes, I mean, if you do look on the Daruna website, they are pursuing other communities that are even larger than the one that we're currently engaged on and we are a partner and continue to build that relationship with Daruna, so as they move forward and pursues these other communities, we are hopeful that we'll get to play a part in those and so, I don't have any specifics on timing yet, but that is something that is in the near future that they're going after and we're a close partner and look forward to building that business base.

Our next question is from Ross Silver of Vista Partners. Please go ahead.

Hi Nadir. Congratulations on the quarter and to all. Just a question that relates to -- so as it relates to kind of what you're seeing for the comprehensive solution in the marketplace, are you seeing, you know, I know there's been a number of beta tests for the kind of full solution, are you seeing kind of orders starting to come to fruition in this recent order that you announced, this large one from Daruna, that's an example of that or how would you describe kind of the, I guess the growth curve in terms of -- or the adoption curve in terms of the comprehensive solution that offers.

So, yes Daruna is a perfect example of that and there are more to come. And it's not just with the combination of AirPatrol and maybe our storage and computing segment, it's a combination of all of these things that we're doing, right, so, whether it could be services, it could be the LightMiner product. I mentioned the example of how LightMiner can help with the analytics that we intend to deliver with AirPatrol and so the combined offering is going to be something that's going to continue to grow every quarter. I think we're going to build more and more of that as we move into 2016. Keep in mind, these products can also sell on their own right? So the U.S. government, agency rolled out with AirPatrol doesn't naturally involve these other segments built with your control we've always segments that could be a huge opportunity for us, as well as some of these other engagements on the analytics side, but yes, the combined offering is even more of a value proposition that that Sysorex can offer and uniquely offer in combination for what we're doing. So, we'll see more of these types of wins as we go forward and those segments will continue to grow as we break it out, right, so you can see exactly where mobile, IoT starts to sell. So, you'll you see those higher margin, higher our value segment starting to make more of an impact in biologic part of our sales mix which will drive some of the other legacy segments as well.

Thanks for that and one other question for you as it relates to the recent capital raise, there's sort of capital raises to keep the lights on and then there's capital raises to attract new business and sort of fuel these new business opportunities and it seems as though this recent capital raise was to help you achieve and roll out some of these new business initiatives. Is that sort of the right way to think about it or how should we think of this recent capital raise.

Yeah absolutely look, I mean, we're a microcap company that is focused on growth and we're a technology company and so we have some big wins that have provided some great backlog for us right, but you need to be able to build out your control censors to be able to deliver on those contracts. You need to hire folks and execute on these contracts, and so, we're poised for growth, we are focused on growth and so, as most microcap companies do, we need to raise capital from time to time, to be able to achieve that. So, that was the primary motivation behind it and we're excited about the growth and revenue that we'll see from the investments that we're making today.

[Operator Instructions] This concludes our question-and-answer session. I'd like to turn the conference back over to Nadir Ali for any closing remarks.

Thank you. I want to thank everyone again for your time today. As I mentioned, we remain highly optimistic about our prospects for continued growth across our business segments as our solutions are being chosen for their superiability to drive value for our customers. We achieved significant success this quarter in building a backlog of business that will enable more growth in 2016, and beyond. Thank you for your time in joining us today and we look forward to keeping you appraised of our ongoing achievements. We will also be announcing upcoming events where we will be presenting and we hope to see you at one of these events. Thank you for your continued support in Sysorex.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.