XTI Aerospace, Inc. (XTIA) Q1 2019 Earnings Report, Transcript and Summary

Good afternoon and welcome to the Inpixon Earnings Conference Call for the First Quarter Ended March 31, 2019. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions from equity analysts. [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, 2019. I would now like to turn the conference call over to Scott Gordon, President of CORE IR, the Company's Investor Relations firm. Please go ahead, sir.

Thank you, Gary. Thank you all for joining today's conference call to discuss Inpixon's corporate developments and financial results for the first quarter ended March 31, 2019. With us today are Nadir Ali, the Company's CEO; and Wendy Loundermon, VP of Finance. At 4:05 PM Eastern Time today Inpixon released financial results for the first quarter ended March 31, 2019. 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 regarding planned acquisitions or strategic partnerships, any statements concerning proposed new products, any statements regarding anticipated new relationship 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 historical and future performance. A table reconciling the GAAP information to the non-GAAP information is included in the Company's financial release. It is now my pleasure to turn the call over to Nadir Ali, Inpixon's CEO. Nadir?

Thanks, Scott, and good afternoon, everyone. Welcome to our first quarter 2019 earnings call and corporate update. I’m happy to report that we just posted year-over-year revenue growth in this quarter as well as sequential growth in revenue in each of the last three quarters since our separation from Sysorex. Our Q1 year-over-year revenue increased by approximately 65% over Q1 2018, which was revenue of $849,000. Our revenue for the first quarter of 2019 was $1.4 million versus $1.1 million in the fourth quarter of 2018, a 27% increase sequentially. This followed our fourth quarter of 2018 revenue growth of 20% as compared to the third quarter of 2018. I’m confident that we will continue to build on this trend as we focus our efforts and resources on the growth and development of our IPA business. I want to take a moment here to reflect and bring to your attention the significant of these numbers. As a reminder, in 2018 when we completed the spinoff of Sysorex from Inpixon resulting in two separate independent companies each focused on their own core competencies, for Inpixon stakeholders this was a new beginning. In prior quarters following the spinoff there has been confusion among our shareholders and analysts who have been evaluating our financial results with a comparison to historical estimates determined on a consolidated basis with the legacy Sysorex business. This comparison fails to account for the effect of the spinoff of that business which is represented in the deconsolidated operations line in our year-over-year comparisons for the prior year period. The consistent growth over the last three quarters is representative of the independent performance of Inpixon’s IPA business. Inpixon is now a pure play in a rapidly growing indoor positioning analytics industry. The Indoor Positioning Systems or IPS market is currently where GPS or Global Positioning Systems were 30 years ago. As IPS technology continues to mature, more and more use cases, applications and opportunities will emerge for companies like Inpixon, just as we have seen with GPS technology. We are actively working to increase our Indoor Positioning Analytics revenue among both commercial and government customers with a focus towards achieving positive cash flow results. I believe that the results of the past three quarters validate the strategic decisions we have made in support of the painstaking efforts that we have put forth over the last year and a half to achieve this pure play status. Based on our growing sales pipeline, continued channel partner momentum, ongoing conversations with customers and other strategic initiatives, we expect the growth will continue in 2019. In addition, we are offering lower cost entry point solutions to our customers, such as the Inpixon IPA Pod which will expand the application of our products into more customer verticals and use cases. I'm very excited about our results for the first quarter of 2019 and what it reflects about our growth momentum. We not only delivered a significant increase in both revenue and gross profit relative to the comparable period in the prior year, we also significantly increased our gross profit margin percentage and decreased our net loss. Our business continues to be strong in Canada, Europe and the Middle East. We see more and more companies from a variety of industries, including government, corrections, high tech, retail, finance and telecom use our technology for a variety of applications and purposes, including security and intelligence. Indoor positioning and related services are not restricted to any specific industry. The field of applications appear to be limitless some of which were discussed during our last earnings call. Our customer base continues to shift from early adopters to mainstream users. Our outlook for future growth in our customer base remains strong as we have developed a robust pipeline of enterprise customers, schools, government agencies, and various retail entities. Ultimately our goal is to become the leading provider and comprehensive data source for the world of indoors where people spend over 80% of their time and GPS just does not work. As I mentioned in the past M&A is an important part of our growth strategy. To that end we recently announced that we entered into a nonbinding term sheet to acquire Locality Systems Inc. a technology company based in Vancouver, Canada. Locality specializes in wireless device positioning and radiofrequency augmentation, video surveillance systems. Its Video Management System or VMS integration technology enhances traditional security video feed by overlaying wireless device and tracking. In plain English these things where video frames failed to clearly identify the individuals on a given frame, we will be able to identify the unique devices that are present in that location simultaneously and associate them to their owners hence enabling authorities to use the RF signature to quickly isolate picture frames with the same ID. Furthermore we can store that RF information anonymously for future identification. Strategically Locality’s enhanced video surveillance combines with our Sensor Fusion and video integration enhancements to deliver a more formidable security driven product. With the acquisition of Locality and its technology Inpixon will be one of the very few in the global video surveillance market to offer Wi-Fi, Bluetooth and failure detection integrated into a video security platform. Also, we anticipate that integrating the video and RF [thermocast] capabilities will allow us to create cross-selling opportunities amongst our customers enhancing their intelligence operations and by making their existing security infrastructures more effective. Locality’s Visitor Information Solution will be an excellent addition to our IP intelligence product solutions as a Wi-Fi only offering, that will complement our IPA centers. Locality’s Visitor Analytics Solution utilizes a customer's existing Wi-Fi infrastructure for device detection and they can leverage Locality’s proprietary cloud-based software for analysis and reporting. This will allow us to offer a lower cost, quicker and easy to install solution to a customer base that just wants to get visitors counts, analyze real times and visualize visitor flow through the facility. While we're not entered into a definitive agreement with respect to our proposed acquisition of Locality and there are no assurances that the transaction will be completed, our discussions continue to progress and are rapidly developing. We look forward to providing additional information regarding this transaction in the near-term. We will continue to actively evaluate other complementary technology companies that can add to our capabilities. We target companies that have a growing customer base, complementary products and IP that we believe will allow us to capture more market share faster and to help us become the best and most valuable indoor positioning platform solution in the market. I want to conclude my opening remarks by reiterating how excited we are about the progress we are making. We are beginning to realize the results of our focused efforts on our IPA product line and intend to continue to build on that momentum. We’re seeing significant uptick in the acceptance of IPA as a learning curve required for adoption and implementation [has decreased]. We anticipate this trend will continue in 2019. With that, I'll turn the call over to Wendy to discuss our financial results for the quarter ended March 31, 2019 and then I'll wrap up with a few closing comments. Wendy?

Thank you, Nadir. Total revenue for the three months ended March 31, 2019 were $1.4 million, compared to $849,000 for the comparable period in the prior year or an increase of $551,000 or approximately 65%. Revenues increased in the first quarter of 2019 over the prior period due to an increase in our IPA revenues resulting from an increased focus on our IPA product line. Gross profit for the quarter ended March 31, 2019 was $1 million compared to $584,000 for the comparable period in 2018. The gross profit margin for the three months ended March 31, 2019 was 75% compared to 69% for the three months ended March 31, 2018. This increase in margin is primarily due to the increase in higher margin IPA revenue during the three months ended March 31, 2019. GAAP net loss for the three months ended March 31, 2019 was $5.2 million compared to $6.2 million for the prior year period. This lower loss of $1 million was primarily attributable to the higher margin IPA revenue in the three months ended March 31, 2019 and the $1.7 million loss from deconsolidated operations of the spinoff of Sysorex during the three months ended March 31, 2018. GAAP net loss per share for the quarter ended March 31, 2019 was a $1.42 per share compared to a net loss per share of $73.88 per share for the comparable period in 2018. Pro-forma non-GAAP net loss per basic and diluted common share for the three months ended March 31, 2019 was a loss of $0.71 compared to a loss of $49.45 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 deemed dividends and non-cash items including stock-based compensation, amortization of intangibles and one-time charges including gain or loss on the settlement of obligations, gain on earnout, acquisition costs, provision for doubtful accounts and the costs associated with public offerings. Non-GAAP adjusted EBITDA for the three months ended March 31, 2019 was a loss of $2.6 million compared to a loss of $3.4 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 deemed dividends and other income or expense items, non-recurring items and non-cash stock-based compensation. On the balance sheet, we ended the first quarter with cash and cash equivalents of $3.8 million and total current assets of $6.8 million. Our net cash used in operations was approximately $3.5 million during the first quarter ended March 31, 2019. This concludes my comments, and I'd now like to turn the call back over to Nadir.

Thank you, Wendy. As I’ve previously mentioned Inpixon is in effect a new company with great potential and opportunities. Not only have we made strides to increase revenue but our cost structure and financial metrics have significantly improved following the divestiture of our historical infrastructure business which is no longer incorporated into our reporting. We are focused on continued growth and getting to profitability. We thank you for your continued support. And with that, Gary, we're ready to open the call for any questions.

[Operator instructions]. Our first question comes from Ross Silver with Sylva International. Please go ahead.

Well, first and foremost congratulations Nadir and Wendy on the quarter, definitely some pretty exciting progress here. And also the Locality acquisition looks very promising as well. But so as it relates to your types of customers that are contributing to this 60% year-over-year revenue growth that you experienced on a quarterly basis, can you talk a little more about what the -- who those customers are and why you're winning this new business?

Sure that’s a great question. We're continuing to expand into a verity of verticals. The growth in Q1 was particularly interesting because it was -- a big percentage of that growth was in the enterprise space. Enterprise customers are starting to want to understand what's happening inside their buildings, inside their facilities and campuses, not only from a security perspective but a variety of other metrics such as visitors that are coming into their space or building management systems being integrated with where folks are and how much time they are spending in particular areas. So there is a lot of analytics that are interesting to these customers as well as the security applications for it. It’s further validated by the acquisition of one of our competitors Euclid Analytics by WeWork, right? WeWork is in all of these office buildings and space and wanted to get some understanding of location data. So we think this is a vertical that’s really going to grow and could be a great opportunity for Inpixon. So glad to see that we're starting to see that adoption with enterprise customers.

And then one follow up question as it relates to some of these RFPs. Are you starting to see the number of RFPs go up as you’re seeing more maturation and understanding of the IoT industry?

Yes, I mean for IPA, so on the government side we certainly see RFPs, it’s not always RFPs but there is a variety of ways that customers reach out and engage with us. So whether it’s RFP or some sort of request for quotation we're definitely seeing an uptick in the sales pipeline and the business development opportunities. So RFPs makes me think more about our government customers and how they due procurement but certainly across the board I think it goes to my earlier point of we're seeing a little bit more maturity in the industry taking place and with that comes some momentum in the RFPs as well as other ways of procuring our solutions.

I’m showing no further questions. This concludes our question-and-answer session. I would like to turn the call back over to Nadir Ali for any closing remarks.

Thank you again everyone 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.