XTI Aerospace, Inc. (XTIA) Q1 2018 Earnings Report, Transcript and Summary

Good afternoon and welcome to the Inpixon's Earnings Conference Call for the First Quarter Ended March 31, 2018. [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 June 15, 2018. I would now like to turn the conference over to Scott Arnold, Managing Director of CORE IR, the company's Investor Relations firm. Please go ahead, sir.

Thank you, Steven. Thank you for joining today's conference call to discuss Inpixon's corporate development and financial results for the first quarter ended March 31, 2018. With us today are Nadir Ali, the company's CEO; and Wendy Loundermon, VP Finance. At 4:05 p.m. Eastern Time today, Inpixon released financial results for the first quarter ended March 31, 2018. 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 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. 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. 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, Inpixon’s CEO.

Thanks, Scott, and good afternoon, everyone. Welcome to our first quarter 2018 earnings call and corporate update. First, I want to thank you for your continued support in Inpixon. I know this past year has been challenging. With today’s call, I hope to assure you that the company cares significantly about its shareholders and all those who are invested in our collective success. I share the frustrations echoed by our shareholders in many respects in connection with some of the more recent transactions of the company. Therefore, I want to ensure you understand why these transactions were important for laying the foundation on which the company can carry out its objectives in order to create greater shareholder value going forward. Much has been accomplished in the first quarter of 2018 and more recently, which we believe will position Inpixon to execute on its business plan and growth strategy. We have improved our balance sheet, we are implementing certain technology enhancements, and expanding our product offerings and adding a number of channel partners with respect to our IPA solutions. In addition, we regained compliance with NASDAQ's minimum stockholder’s equity requirement and have filed a Form-10 registration statement in connection with the spinoff of our VAR business into a separate, publicly traded wholly-owned subsidiary that will strengthen both businesses respectively. Allow me to take this opportunity to recap where we are as a business today to help clarify any confusion and hopefully address the disconnect we see in our market value. First of all, we have just under 7 million of cash left in the bank as of March 31 resulting from the Q1 financings. The rest of the funds raised in Q1 were primarily used to pay down accrued liabilities and payables. This not only improved our balance sheet, but addressed some of the critical vendor issues we have discussed previously. We also completed another equity financing in April in order to evidence compliance with NASDAQ's minimum stockholder’s equity requirement pursuant to which we received an additional $9 million in net proceeds. We have a world-class team of engineers building very sophisticated technology to address a $40 billion worldwide indoor positioning market. John Piccininni, who has joined us this year to lead the expansion of our channel business is doing a phenomenal job in recruiting new resellers, which we expect will grow our pipeline more rapidly. You will hear more about these in the near future. Our key technology initiatives for 2018 differentiates and strengthens our product in the IPA market, including the use of blockchain technology to maintain and propagate device reputation, enforcing security policies, and payment compliance. I want to emphasize here that we're using blockchain technology for tightly secure technical architecture and we are not generating any cryptocurrency and we do not have any plans to do so. We continue in key product enhancements. We continue to incorporate artificial intelligence capabilities for processing massive, anonymous device information that truly drives a real-time intelligence. In March, we unveiled a demo with Amazon's Alexa for voice-assisted analytics interfaces, and we have moved our analytics delivery to Amazon's web services. Our new IPA Node will be a miniaturized Wi-Fi version of Inpixon’s IPA sensor that can plug into any electrical outlet or USB connection. The air freshener-sized sensor will be able to communicate with any existing Wi-Fi network and position any Wi-Fi enabled device on that network. In beta environments, the IPA Node delivers unparalleled accuracy at less than one meter. Typical Wi-Fi access point providers deliver positioning as a byproduct but are unable to do so effectively. Historically, the promising utility of indoor positioning using Wi-Fi has been limited to wide-ranging proximity solutions rather than the required positional accuracy. Inpixon's IPA Node will be able to fulfil this previously unkept promise of Wi-Fi positioning by enabling retail, marketing, and security customers to realize the full potential of Wi-Fi Indoor Positioning Analytics. We believe Inpixon's IPA Node low-cost entry solution will fill an immediate void in the market. The use cases are staggering. Hotel environments, banks, hospitals, pharmacies, secured multifactor authentication, refill stores, and more. We were extremely excited about this new product offering. The list of prospects in our pipeline for both security and intelligence solutions are more promising than ever, including several global 1,000 companies. The use cases that our customers and partners are seeking for our IPA technology are varied and substantial. For example, we recently announced deployment of the Inpixon IPA platform and portable sensor kit to detect and confiscate contraband mobile devices at U.S. federal and state correctional institutions. In addition, one of our retail banking customers is using our IPA platform to improve customer service by gaining insight into customer visit duration to various branch services. In the coming months, we plan to bring several more customer use case to you. In late April, we announced the filing of a Form-10 registration statement in connection with the spin-off of our wholly-owned subsidiary, Inpixon USA and its subsidiary Inpixon Federal, Inc., which we expect will go back using the Sysorex name. Following the consummation of the transaction, we will have two distinct publicly traded companies, Inpixon and Sysorex, Inc. Inpixon will continue to focus its operations related to the development of its Indoor Positioning Analytics technology and trade on the NASDAQ capital markets under the ticker symbol INPX. Sysorex plans to continue focusing on its business of providing third-party hardware, software, and related maintenance and warranty products and services that it resells to commercial and government customers. Sysorex’s common stock is expected to be quoted on the OTCQB market of the OTC market groups. The separation of the IPA business from the VAR business in connection with the spin-off is intended to create two sharper, stronger, more focused companies by enabling each company to concentrate efforts on the unique needs of each business and the pursuit of distinct opportunities for long-term growth and profitability. Allow each business to more effectively pursue its own distinct capital structures and capital allocation strategies, provide our stockholders with equity ownership in two separate publicly-traded companies, and enable our investors to better evaluate the financial performance, strategies, and other characteristics of each business and company, which we believe will allow them to make investment decisions based on each company's individual performance and potential, enhancing the likelihood the market will value each company appropriately. We anticipate that the separation will result in enhanced long-term performance of each business, thereby maximizing shareholder value for both companies. The related registration statement is currently under SEC review, and we expect to have this completed before our next earnings call. Lastly, the company continues to actively pursue an acquisition strategy targeted on acquiring companies that are accretive with the growing customer base that we believe will allow us to capture more market share faster and with complementary technical capabilities and/or innovative and commercially proven products to expand our offerings. We have been required to overcome some challenges recently and it has taken a lot to get to this point. But we believe the best days of Inpixon are ahead of us. I wholeheartedly appreciate our investors, employees, customers, and partners for continuing to support us. I look forward to the remainder of 2018 more excited than ever to lead the charge and deeply committed to re-establishing confidence among our supporters in the company and its business plans. With that, I will now turn the call over to Wendy to discuss our financial results for the quarter ended March 31, 2018, and I will then wrap-up with a few closing comments. Wendy?

Thank you, Nadir. Total revenues for the three months ended March 31, 2018, were $2.1 million compared to $13.5 million for the comparable period in the prior year. This $11.4 million decrease or approximately 84% is primarily associated with the decline in revenues earned by the infrastructure segment as a result of supplier credit issues and a $2 million decrease in revenue resulting from the adoption of the new ASC 606 revenue recognition policy beginning in January 2018. For the three-months ended March 31, 2018, Indoor Positioning Analytics revenue was $848,000 compared to $981,000 for the prior-year period. Infrastructure revenue was $1.2 million for the three months ended March 31, 2018, and $12.5 million for the prior year period. Gross profit for the quarter ended March 31, 2018, was $1.2 million compared to $3.3 million for the comparable period in 2017. The gross profit margin for the three months ended March 31, 2018, was 59% compared to 24% during the three months ended March 31, 2017. This increase in gross margin is primarily due to the decrease in lower margin storage and maintenance sales. Indoor Positioning Analytics gross margin for the three months ended March 31, 2018 and 2017 were 72% and 65% respectively. Gross margins for the infrastructure segment for the three months ended March 31, 2018 and 2017 were 50% and 21%, respectively. Net loss for the three months ended March 31, 2018 was $6.2 million compared to $6.1 million for the prior-year period. This increase in loss of $100,000 was attributable to the changes described for the various reporting captions discussed above. GAAP net loss per share for the quarter ended March 31, 2018, was $1.85 per share compared to a net loss per share of $83.63 for the comparable period in 2017. Pro forma non-GAAP net loss for the period ended March 31, 2018 was $5.2 million compared to a non-GAAP net loss of $4.4 million for the comparable period in 2017. Pro forma non-GAAP net loss per basic and diluted common share for the period ended March 31, 2018 was $1.24 per share compared to a loss of $60.97 per share for the prior year period. Non-GAAP net loss per share is defined as net loss per basic and diluted share, adjusted for non-cash items including stock-based compensation, amortization of intangibles, and one-time charges including gain or loss on the settlement of obligations, severance costs, gain on an earn out, acquisition costs, and the costs associated with the public offering. Total non-GAAP adjusted EBITDA for the three months ended March 31, 2018 was a loss of $3.4 million compared to a loss of $3.3 million for the prior year period. Non-GAAP adjusted EBITDA is defined as net income or loss before interest, provision for income taxes, and depreciation and amortization plus adjustments for other income or expense items, non-recurring items, and non-cash-based stock compensation. On the balance sheet, we ended the first quarter with cash and cash equivalents of $6.7 million and total current assets of $10.6 million. Our net cash used in operations was approximately $11 million during the first quarter ended March 31, 2018. The majority of funds raised during the first quarter of 2018 were used to pay down accrued payables and accrued liabilities. During the first quarter of 2018, the company reduced operating expenses by $1.8 million as compared to the same period for 2017, primarily due to decreased compensation costs, occupancy costs, and travel costs due to the downsizing of staff and office locations. The company continues to identify areas where it can create operating efficiencies and realize operating cost savings in 2018. This concludes my comments, and now I’d like to turn the call back over to Nadir.

Thanks Wendy. We operate in a market with exceptional growth potential. The Indoor location market is estimated to grow from $4.72 billion in 2016 to $23 billion by 2021 at a compound annual growth rate of 37.4%. We intend to capture significant portion of this market share through the adoption of our cutting-edge products and services. We are confident in our approach to product development and market deployment and look forward to continuing to report on significant developments in due course. As we stated in our last earnings call, we have created a stronger foundation for the future through some difficult and challenging times for our company. We face these challenges and came through together as a team to develop and implement the requisites for changing our course for strengthening our balance sheet, for driving new product enhancements, for establishing a foundation that we are confident we’ll drive growth in markets that will prove our promise and create lasting shareholder value. With that Steven, we are ready to open up the call to questions.

Thank you again for your support and interest in Inpixon. We look forward to updating you on our continued progress.

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