XTI Aerospace, Inc. (XTIA) Q3 2018 Earnings Report, Transcript and Summary

Good afternoon and welcome to the Inpixon's Earnings Conference Call for the Third Quarter Ended September 30, 2018. All participants will be in listen-only mode. [Operator Instructions]. After today's call, there'll be an opportunity to ask questions. [Operator Instructions]. Participants on 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 1, 2018. I would now like to turn the call over to Scott Arnold, Senior Managing Director of CORE IR the Company's Investor Relations firm. Please go ahead, sir. Mr. Arnold, your line is live, sir.

Thank you, Rocco. Thank you for joining today's conference call to discuss Inpixon's corporate developments and financial results for the third quarter ended September 30, 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 third quarter ended September 30, 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 related to the Company's future financial results; any statements about plans, strategies or objectives of management for future operation; the impact of the spin-off on our business and our ability to execute our business strategy following the spin-off; 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. Good afternoon everyone and thank you for joining us. I would like to begin by stating that Inpixon has made significant progress in 2018 in a way that I believe positions the company to be at the forefront of a burgeoning multi-billion dollar industry and finally able to realize the true value of its innovative products and services. During the third quarter of 2018, we were able to successfully execute on the first part of our three part strategic plan which I will describe in more detail shortly. We're now completely focused on growing our indoor positioning analytics or IPA business which we believe will more effectively increase shareholder value. For those of you who are new to Inpixon, let me tell you about our IPA platform. Inpixon's indoor positioning analytics platform is redefining the indoor spaces where people conjugate and move by locating all accessible cellular Wi-Fi and Bluetooth signals using a rapid data mining engine to provide invaluable data, delivering greater visibility and intelligence, and allowing organizations to improve their decision making processes and increase productivity. Inpixon IPA offers government agencies and commercial entities the ability to see all connected devices that correlate to a single identity in one place along with an in-depth intelligent analytics. We offer SaaS or subscription and licensing based pricing options providing flexibility to our customers. The true value of our IPA technology is in the data that we collect from our sensors as well as our ability to integrate voice and in the near future video into our analytics platform enabling us to provide our customers with a critical and vital location context in order to deliver valuable intelligence, security, and ultimately ROI. We can extend this even further by incorporating data from other third-party sensors and data sources such as social media, point of sale systems, access control systems, et cetera to provide an even more comprehensive look at the indoors. On November 2, 2018, in the Wall Street Journal article Ryan Dezember highlighted the value of location data and its worth to Wall Street investors. The location data discussed in this article which primarily focused on the GPS data obtained from your smartphone which doesn't provide nearly the level of accuracy that Inpixon's IPA can provide. So we believe there is immense potential for our products. The level of granularity in the data that we are capable of providing can be a very powerful resource that can be monetized in a variety of ways with a wide range of companies in a multitude of industries. This is the time to seize the moment and aggressively move forward with our plans to dominate market share in the indoor space. As previously noted, we have a three part strategic plan. The first part was to separate our legacy systems integration bar business from our IPA business. As of August 31, 2018, we completed the spin-off of this business formally separating our Infrastructure segment or value-added reseller business from our IPA business. Inpixon now has greater flexibility to focus on and pursue our growth strategy and are better positioned to achieve profitability and build long-term shareholder value faster. We can now truly identify as a pure technology company with several patents in place and more pending. We are an innovative leader in the indoors position market with significant growth opportunities ahead of us. While the spin-off resulted in removing approximately 90% of our revenues from the bar business, there was an immediate increase to our stockholders equity and gross profit and a decrease in GAAP net loss even with the inclusion of two months of losses from the discontinued business. We anticipate that these improvements will continue through the fourth quarter which will represent the first full quarter following the completion of the spin-off. The second part of our strategy include the implementation of several steps to organically grow our IPA business. In the third quarter of 2018, our IPA business continued to improve in terms of revenue and gross margins. In fact the number of purchase orders received in Q3 increased by more than 67% as compared to the first half of this year. Since we offer a SaaS model, this doesn't get recognized as revenue immediately but adds to our monthly subscription base going forward. We attribute this in part to our increasing number of channel partners and customers in both the federal and commercial sectors. Several federal customers have placed orders to use our security down solution coverage. An existing federal agency customer has placed a large order to upgrade their sensors as well as expand their coverage into additional buildings with the latest 4000 Series sensors which offer advanced features set to increased security and reduce investigation costs. We continue to receive growing number of portable sensor kit orders which is popular among both security and intelligence customers. We have also received several orders from international channel partners for various installations at European financial and telecom customers. In addition to our recent announcement of a reseller partnership agreement with Canadian based wireless integration expert Genwave Technologies, we announced that NuVision Technologies has contracted to resell Inpixon's IPA to offer as a service to its customers participating in Trade Shows and other events. According to statista.com the Trade Show market has grown to 13.7 billion in the U.S. as of 2016 and exhibitors spend significant sums for both -- for booth space and are keen to maximize traffic. Our IPA technology enable exhibitors to determine visitor counts by time of day and zone, visitors dual time by kiosk or zone, returning versus new visitors and help optimize future booth placement with Insightful Analytics. NuVision will deploy IPA at events around the U.S. to enhance attendees and exhibitors event experience. This is a great example of what Inpixon's IPA is capable of. Today, we also announced the addition of ROCK Networks as a platinum Inpixon authorized partner. ROCK Networks is a wireless solutions company focused in the areas of two-way radio, microwave, and mobility products and services supporting government and commercial clients across Canada. ROCK Networks expertise in the wireless space makes them the specialty capable partner. In addition to signing of new customers and reseller agreements, we continue to develop and progress on certain key technology initiatives including machine learning and artificial intelligence, device reputations for block chain technology, video data integration into positioning analytics and multi-tenant hosting on AWS. We have announced our IPA engine with AI to strengthen device identity in the evolving digitizing indoors of security and marketing. More specifically, we're combining analytics with AI technology and machine learning to identify device position patterns and signal variance elimination. We're also leveraging AI to increase IPAs positional accuracy several fold and build visitor profiles. Our technology can do many unique things and has truly become our major competitive advantage. We are particularly excited about our recent introduction of Inpixon's IPA Pod. The IPA Pod will expand Inpixon's IPA product line with an entry level product and price point to attract a wider customer base and assist in rapidly increasing product adoption. Typical Wi-Fi access point providers deliver positioning as a by-product but are unable to do so effectively. Inpixon's IPA Pod will be able to fulfill this previously un-kept promise of Wi-Fi positioning by enabling retail, marketing, and security customers to realize the full potential of Wi-Fi indoor positioning analytics. Inpixon's IPA Pod fulfill an immediate need in the market and we are looking forward to rolling out this technology to our data customers this quarter. I also want to mention that we previously announced that Adam Benson has joined Inpixon as our Chief Technology Officer to lead our engineering team. Adam has extensive experience evaluating indoor positioning products so it is a great validation that he has decided to join Inpixon. Adam also has extensive customer and partner relationship that he brings to us that make him uniquely qualified to help us innovate and grow our business. His successes include the implementation of interactive digital advertising and wayfinding solutions, the deployment of public Wi-Fi services at retail malls which include data analysis on behavior customer profile management and a Facebook advertising integration, prototyping of Internet of Things sensors, and the development of offline store visit attribution methodology. In addition to these initiatives that will accelerate organic growth, we continue to pursue an aggressive M&A strategy to expand our product offerings, revenue, and talent representing the third part of our strategic plan. We are actively evaluating merger and acquisition candidates or opportunities that we believe can be decisive in achieving strategic transformations with the aim of generating short and long-term benefits for all of our stakeholders. We are seeking strategic transactions with companies that have complementary capabilities and/or innovative and commercially proven technologies in indoor positioning and Big Data Analytics in an effort to obtain an established customer base and more rapidly expand within the indoor location market. We intend to use a combination of stock, cash, and earn-outs as consideration for any potential target and therefore the success of this part of our strategic plan will be dependent on our ability to raise additional capital and the strength of the support of the investor community in our stock which will allow potential targets to recognize the potential value of our stock. In this regard, I would like to take this opportunity to request that you vote in support of Proposal 3 described in our proxy statement filed with the SEC on October 15, 2018, and distributed to our stockholders of record as of October 8, 2018, calling for an amendment to articles of incorporation to increase our authorized shares of common stock. As you may be aware, we adjourned the vote in connection with this proposal at our recent shareholder meeting in order to solicit additional proxies in support of this proposal which meeting will be reconvened at 10 A.M. Pacific Time on November 15, 2018. I understand there may be significant hesitation to prove an increase in our authorized shares. However the authorized share increases an important component of our M&A and growth strategy. While we have higher margin revenues following the spin-off, our IPA business represents only approximately 10% of our historical pre spin-off revenues from the bar business. Therefore the successful execution of our M&A strategy will be important to more quickly increase our revenue base. In addition Gartner and other analysts have identified several fragmented players in the indoor positioning space highlighting an opportunity for Inpixon to aggressively capture market share in the IPA sector, with the possibility of catapulting Inpixon into a leading position. The ability to use our stock to execute our M&A strategy and conserve cash resources for the development of our products and services is dependent on having enough authorized shares to issue as consideration. If you were a shareholder as of the October 8th record date and haven't voted yet or you have voted against Proposal 3, I urge you to please go online to proxyvote.com and enter your control number or call the Broadridge number at (1)800 690-6903 and please vote in favor. You have until 11.59 P.M. Eastern time on November 14, 2018, to vote via Internet or by telephone. With that, I will now turn the call over to Wendy to discuss our financial results for the quarter ended September 30, 2018, and I will then wrap up with a few closing comments. Wendy?

Thank you, Nadir. Net revenues for the three months ended September 30, 2018, were $940,000 compared to $871,000 for the comparable period in the prior year. This $69,000 increase or approximately 8% is primarily associated with the increasing sales from our IPA product. The gross profit for the three months ended September 30, 2018, was $642,000 compared to $604,000 for the same period in 2017. This increase in gross profit is due to the higher margin IPA sales. The gross profit margin for the three months ended September 30, 2018, was 68% compared to 69% during the three months ended September 30, 2017. GAAP net loss attributable to common stockholders of Inpixon for the three months ended September 30, 2018, was $5.2 million compared to $14.6 million for the prior year period. This decrease in loss of about $9.4 million was primarily attributable to the decrease in compensation and occupancy costs due to the downsizing of staff and office locations and a $7.8 million impairment of goodwill charge included in the deconsolidated operations in 2017. GAAP net loss per share for the quarter ended September 30, 2018, was $4.84 compared to a net loss per share of $1,858.90 for the comparable period in 2017. Pro forma non-GAAP net loss per basic and diluted common share for the three months ended September 30, 2018, was $3.61 compared to $546.74 for the prior year period. Adjusted EBITDA for the three months ended September 30, 2018, was a loss of $3.4 million compared to the loss of $3.1 million for the prior year period. Non-GAAP adjusted EBITDA is defined as net income or loss before interest, provision, or benefit from income taxes and depreciation and amortization plus adjustments for other income or expense items, non-recurring items, and non-cash stock-based compensation. On the balance sheet, we ended the third quarter with cash and cash equivalents of $1.5 million and total current assets of $4.9 million. Our net cash used in operations was approximately $23.4 million for the nine months ended September 30, 2018. The company continues to identify areas where it can create operating efficiencies and realize operating cost savings in 2018. This concludes my comments and I now like to turn the call back over to Nadir.

Thanks, Wendy. As I said on our last call, our company has created and will continue to create innovative solutions to fulfill the need for location based analytics that are predicted demonstrate tremendous growth and demand. Using the Inpixon IPA derived data provides our customers the ability to create a competitive advantage and make better more actionable business decisions. We enable visualizing and analyzing the relationships between corporate data and location specific data. By delivering important facts and relevant information about movement in a facility, this data can be helpful to speed up logistics and operations and streamline key processes. Now we are realizing our strategy to execute and grow in this 21st century Greenfield opportunity. Inpixon is focused on going with the addition of domestic and global channel partners, closing new businesses, increasing our customer base, and finding strategic M&A opportunities. We know the path has been challenging but we thank our shareholders for their support and look forward to executing on our objectives in an effort to increase shareholder value. With that, Rocco, we are ready to open up the call to questions.

Thank you. At this time, we have allotted 15 minutes to address questions from equity analysts. [Operator Instructions]. And today's first question comes from Ross Silver of Sylva International. Please go ahead.

Thank you for taking the time. Excuse me thank you for the time for the question, Nadir and Wendy and congrats on the quarter and the successful spin-off. The first question I have for you is and I think I heard this in your comments was that purchase orders were increasing, is that -- I mean can I associate that with revenues increasing sort of on a go-forward basis and did I hear you correctly?

Yes, thanks Ross. Yes, absolutely increased POs will lead to increased revenue. We offer two different pricing models, a SaaS based model and license based. So the POs that we received are mix of both of those types of orders and so what we will see is a steady growing in our subscription revenue quarter-to-quarter as well as certain quarters we will have spikes in revenue based on the licenses that we may sell in a particular quarter especially to our government customers that like to own the hardware and software but absolutely there's a correlation there.

Okay. So this is not a one-time bump that you're seeing continued growth if I'm hearing you correctly as it relates to purchase orders?

Yes. We expect to continue building grow the revenue as we move forward and especially now that we are 100% focused on the IPA business.

Got it, okay. And then another question as it relates you talked a little bit about acquisitions on the call, are you in any way constrained as it relates to acquisition?

Well I mean I think what as I referred to the Proposal 3 in our proxy, the constraint could be the authorized shares and that's why that's important to us. But we certainly think that grabbing the land or market share as soon as possible is important. We think there are some attractive opportunities out there and consolidation opportunities in the IPA space. So having those shares available to make those transactions happen is definitely a plus.

So, okay, so hear you correctly. Okay, I guess it sounds like there might be some opportunities and it seems like some of these opportunities may be interested more so on, on the share side. Okay, all right, well that's very -- that's helpful.

We definitely want to use our stock, we will offer some cash and earn-outs, but stock is a big component and these are long-term potential shareholders that will support the company going forward, right. So I think it makes sense to use the stock to do these types of transactions.

Okay, that's helpful. Thank you. That's good to hear. And then the last question I have for you just more of on the administrative side is assuming that the reverse was due to maintain your NASDAQ compliance just because we haven't seen a capital raise in conjunction with that was that just fair to assume?

Yes, absolutely. We could not take a risk with our NASDAQ compliance issues. So we went ahead and implemented the reverse.

Okay, great. Well, thank you, that's all the questions I have and congrats on the quarter and look forward to continuing to following your progress.

Thanks Ross.

This concludes our question-and-answer session. I would like to turn the call back over to Nadir Ali for any closing remarks.

All right. Thank you again for your support and interest in Inpixon everyone. We look forward to updating you on our continued progress. Have a good day.