XTI Aerospace, Inc. (XTIA) Q2 2017 Earnings Report, Transcript and Summary

Good afternoon and welcome to the Inpixon earnings conference call for the second quarter ended June 30, 2017. All participants will be in 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 September 21, 2017. I would now like to turn the conference over to Mr. Scott Gordon of CORE IR, the company's investor relations firm. Please go ahead, sir.

Thank you, Andrea. And thank you for joining today's conference call to discuss Inpixon's corporate developments and financial results for the second quarter ended June 30, 2017. With us today are Nadir Ali, the company's CEO, and Wendy Loundermon, interim CFO. At 4:05 PM Eastern time today, Inpixon released financial results for the quarter ended June 30, 2017. If you have not received Inpixon's earnings release, please visit the investors page at www.inpixon.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 anticipated new relationships or agreements, any statements regarding expectations for the success of the company's products in the US 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. Inpixon 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. The table reconciling the GAAP information to the non-GAAP information is included in the company's financial release. It is my pleasure to now turn the call over to Nadir Ali, Inpixon's CEO.

Thanks, Scott. And good afternoon, everyone. Welcome to our second quarter 2017 earnings call and corporate update and thank you for joining us. I'll make some introductory remarks and discuss developments in our second quarter and then hand off to Wendy Loundermon, our VP, finance who will be discussing our financial results for the quarter ended June 30, 2017. I’ll then return for some closing thoughts and then we will open up the call for questions. We continued to advance our market position as a leader in the sensor technology, real-time positioning, and data analytics markets, with our indoor positioning analytics for marketing and security offerings. Our government contracts from the Integrio asset acquisition added revenue, which we expect will drive significantly more growth throughout the remainder of 2017 and beyond. Revenues for the second quarter grew 13.5% to over $15 million compared with $13.2 million in the second quarter of 2016. During Q2, Inpixon was selected by Finance Factors, Hawaii’s largest locally-owned depository financial services loan company, to protect consumer data and privacy using Inpixon technology. The financial services sector is a growing vertical for Inpixon as we have additional banks implementing pilot programs that we look forward to discussing in more detail in the near future. I’ll add that financial services customers like most of our non-government verticals are typically looking at a three-year contract on a software as a service or SaaS model. As we have discussed before, the monthly recurring revenue from this is based on the square footage of the facility. The interesting opportunity with financial institutions is that they have a very large number of locations. So, while their footprint at each branch or location may be smaller than our shopping mall customers, the number of locations makes these very attractive wins for us. We recently joined the ng Connect Program to advance the adoption and development of indoor positioning analytics and collaborate with the multi-industry open innovation ecosystem founded by Nokia to provide an indoor positioning and analytics platform for the next generation networks, cloud, and IoT technologies. I’m also pleased to report that Inpixon was among a number of firms awarded the prestigious 2017 IOT Security Excellence Award by PMC, a global media company presented by IOT Evolution Magazine. We have strengthened our channel partners with the additions of IT solution firm GDT, Phirelight Security Solutions, and Integrated Security Technologies to deliver the benefits of our sensor technology, real-time positioning, and data analytics to customers across industries. These partners are a testament to the fact that more and more the channel community is discovering the benefit of implementing an indoor positioning system with robust analytics on which they can develop and deliver custom modules of specific vertical markets and customers. We will continue to build our channel partnerships across verticals as a key strategy to growing our business. IOT security is going to be a key use case with many of these verticals. On the government infrastructure side of the business, we accomplished numerous wins, which position us for revenue growth throughout the remainder of 2017, including two delivery orders from the Bureau of Census totaling $1.4 million. We expanded our offering of Canon USA’s RadPRO SecurPASS Security Screening System, to improve the safety and security of federal, state, and local government correctional facilities and have already delivered over 100 of these screening systems across the nation’s correctional facilities. Inpixon Federal anticipates over $5 million in revenue by the end of 2017 related to this effort. Inpixon Federal was also approved for the Army, consolidated by number 25, which is part of our army desktop and mobile computing or ADMC-2 contract. The Army ADMC-2 CB-25 ordering period is from June 26, 2017 and ends September 30, 2017, and could potentially generate up to $10 million in delivery orders. Our commercial infrastructure business has had a number of significant project wins in the second quarter, including $2.5 million purchase order from a leading health insurer for the design and deployment of a highly modernized infrastructure platform for the customer's core commercial claims processing application. All of these accomplishments bode well for Inpixon. As I've mentioned previously, processing orders due to credit limitations was having a significant impact on our revenues. I’m pleased to say we recently announced a new financial agreement with Payplant, based here in Palo Alto, to support our growing opportunities and accelerate revenue. The Payplant facility will allow increased flexibility in meeting our working capital needs, by processing a growing amount of commercial and government purchase orders and invoices. In addition, we closed a $6 million public offering in the quarter, the proceeds of which largely reduced existing debt and we also entered into a warrant exercise agreement to better align our capital structure. We are evaluating additional resources and financing options to ensure that Inpixon is able to meet its capital needs going forward. We continue to enhance and strengthen our marketing efforts and outreach to industry analysts to establish our growing prominence in the market with additional webinars, articles, podcasts, and digital media, which have all been well received with growing participation, and we look forward to continuing to establish Inpixon as a market-leading force. With that, I'll now turn the call over to Wendy to discuss our financial results for the quarter ended June 30, 2017, and I’ll return with some closing thoughts and then open the call for questions. Wendy?

Thank you, Nadir. Total revenue for the three months ended June 30, 2017 were $15.1 million compared to $13.3 million for the comparable period in the prior-year. This $1.8 increase in revenues was primarily attributable to the acquisition of Integrio Technologies in November 2016. For the three months ended June 30, 2017, Indoor Positioning Analytics revenue was $1.2 million compared to $1.3 million for the prior year period. Infrastructure revenue was $13.9 million for the three months ended June 30, 2017 compared to $12.1 million for the prior year period. Gross profit for both the three-month period ended June 30, 2017 and the three-month period ended June 30, 2016 was $3.4 million. The gross profit margin for the three months ended June 30, 2017 was 22% compared to 26% during the prior-year period. The decrease in gross margin was primarily attributable to lower gross margins on the Integrio revenue, which is included in the Infrastructure segment during the quarter ended June 30, 2017. Indoor Positioning Analytics gross margin for the three months ended June 30, 2017 and 2016 were 67% and 77%, respectively. Gross margins for the Infrastructure segment for the three months ended June 30, 2017 and 2016 were 19% and 20%, respectively. GAAP net loss attributable to common stockholders for the three months ended June 30, 2017 was $6.4 million compared to $4.2 million for the prior-year period. This increase in net loss of $2.2 million was attributable to the increase in amortization of intangibles and depreciation costs, additional costs incurred for the Integrio operations offset by a reduction in operating expenses related to Inpixon USA. Pro forma non-GAAP net loss per basic and diluted common share for the three months ended June 30, 2017 was a loss of $1.89 per share compared to a loss of $1.65 per share in the prior-year period. This decrease was attributable to the items previously discussed. Adjusted EBITDA for the three months ended June 30, 2017 was a loss of $2.7 million compared to a loss of $2.2 million for the prior-year period. Non-GAAP adjusted EBITDA is defined as net income or loss before interest, provision for or benefit from income taxes, and depreciation and amortization plus adjustments for other income and expense items, non-recurring items, and non-cash stock-based compensation. This concludes my comments. And now I’d like to turn the call back over to Nadir.

Thanks, Wendy. We made progress in the second quarter across our business segments and are building a foundation on which to continue growing. We recognize the challenges we have faced in securing the capital we need in order to fuel our growth. We are pursuing multiple options to address our capital needs and the Payplant facility is one piece of that. We remain highly confident in the promise that Inpixon represents and are committed to realizing its potential for our shareholders. With that Andrea, we're ready to open up the call for questions.

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

Yeah. Hi, Nader. Could you provide any updates about Daruna or the shopping mall that the of the company has been working with for the ITA [ph]?

Sure. So, the Daruna project, as you know, has been delayed due to their construction challenges and that process there, but we are in touch with them regularly and do anticipate that it will get started this year. It's just been one challenge after another for them on the construction process in the Middle East. But that is, we had a meeting just a couple months ago and they expect to resume here pretty shortly with the project. So, I expect that will happen. On the shopping malls, we are still focused on several of our mall customers and working with them to expand from one location to multiple locations and adding new shopping malls as we go. So, that's also a continued focus area of our as we expand into other verticals.

And then, any timeline you can provide or testing for how things have been going at the first location?

Yes. We've been providing data to the customer – so, we have multiple mall customers. So, generally, we've been seeing information passed. The customers are analyzing the data and working through or moving forward with multiple locations on some and others are still evaluating the data. So, depending on the customer, we're at different stages.

And then, last quarter, you did mention that you were having some credit issues with vendors. It's good to see the Payplant agreements. Are you still experiencing some trouble with some of the other vendors or any additional color you could provide on that front would be helpful?

Sure. And, obviously, the Payplant facility was just put into place this past week. So, yes, Q2 was impacted by not having this facility in place. The benefit of it is that it allows for purchase order financing in addition to invoice financing, which we had previously with Gemcap, so it allows us to now work with our vendors in a different fashion and gives us another tool to be able to process orders. So, we definitely think that this is going to be very helpful for us in Q3 and going forward to be able to process orders that in the past two quarters we certainly had to turn away due to credit limits.

And then any other detail you could provide about what the company's plans are, what for liquidity or are you exploring strategic alternatives or just different types of avenues that you're looking at?

So, we have multiple options that we're pursuing. As we've talked about in the past, we have a shelf available to us. We are looking at other types of equity and debt financing options. So, there are various tools available to the company that we are evaluating and having discussions with parties on. So, it's obviously a critical factor for us to move forward with these things, so we're definitely pushing along. Without getting into too much detail, we think we've got solutions that the company can move forward with.

Thank you.

Thank you, Josh.

[Operator Instructions]. There appear to be no further questions at this time. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Nadir Ali for any closing remarks.

Thank you, Andrea. I wish to thank everyone again for your time today. Inpixon is truly at the forefront as a leader of the indoor positioning analytics space. And we're keenly focused on growing this business and capturing significant market share. I wish to thank our loyal shareholders for your continued support and look forward to announcing key milestones in the coming quarters that demonstrate execution on our business plans. Thank you.

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