XTI Aerospace, Inc. (XTIA) Q3 2019 Earnings Report, Transcript and Summary

Good afternoon. And welcome to Inpixon Earnings Conference Call for the third quarter ended September 30, 2019 [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 telephone replay of the call will be available approximately 1 hour after the end of the call through November 6, 2019. I would now like to the conference over to David Waldman, President and CEO of Crescendo Communications, LLC, the company's Investor Relations firm. Please go ahead, sir.

Thank you for joining today's conference call to discuss Inpixon's corporate developments and financial results for the third quarter ended September 30, 2019. With us today are Nadir Ali, the company's CEO and Wendy Loundermon, the Chief Financial Officer. At 4:05 Eastern Time today, Inpixon released financial results for the third quarter ended September 30, 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 related to the company's future financial results; any statements about plans, strategies or objectives of management for future operations; any statements regarding completed or planned acquisitions or strategic partnerships; any anticipated impact of those transactions on our business; any statements concerning proposed new products; any statements regarding anticipated new customers, 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 any 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'll now turn the call over to Nadir Ali, Inpixon's CEO. Please go ahead.

Thank you, David, and good afternoon, everyone. I'm very pleased to report we achieved strong year-over-year increases in revenue and gross profit with improved margin. Both Wendy and I will discuss the financials in more detail, but first I'd like to review some of the ways we've achieved success and discuss our plans going forward. Over the last year, we have taken a number of strategic actions aimed to put us in a position to deliver the most comprehensive, integrated indoor data solution available in the Indoor Positioning Analytics market and to be recognized as the go-to search and visualization engine for indoor data. In a global market estimated to reach $54.6 billion by 2026, our ability to offer intelligent mapping, positioning and analytic services for the indoors across a multitude of verticals and industries, creates a nearly uncontested blue ocean opportunity for Inpixon. In a pursuit to secure our position as the leader in this converged space, this year, we have continued to strengthen our key capabilities, solutions and technology by building and acquiring complementary products and companies that completes our indoor data platform. This includes our previously announced IPA Pod, which enhances positional accuracy for visitor analytics, and when integrated with the enhanced video management system we acquired with Locality, allows us to uniquely deliver sensor fusion, specifically RF data, radio frequency data, correlated to security video. We added GPS tracking technology to provide indoor and outdoor campus solutions for school, enterprise and government customers. And most notably, with the completion of the Jibestream acquisition and its premier intelligent mapping technology, we are now able to offer all four of the essential building blocks needed to make indoor spaces information rich and helpful. These include mapping, positioning, analytics and development tools. We believe that this transaction together with all of the achievements of this year will be transformational for Inpixon, not just because they will result in an increase in revenue and the addition of marquee customers, but because they have allowed us to secure a very attractive position as we're the only company that can offer this kind of end-to-end solution. Our strategic transactions have resulted in the addition of marquee customers, such as Mall of America, The Pentagon, Westfield World Trade Center, San Francisco International Airport and others allowing us not only to expand our customer base, but also our existing customer relationships with significant opportunities for up-selling and cross-selling. We recently deployed our indoor mapping solution with a leading national retailer, which will allow shoppers to search and locate products within their stories using digital directories. This enables the retailer to significantly enhance the customer's experience as many shoppers often become frustrated locating a specific item inside a store. Our platform allows shoppers to anonymously and quickly search for the product and then identify the product's location. This functionality is designed to increase purchases by assisting customers as well as provide retailers with beneficial information on customer activity. Another example of our many new customers, we recently announced that we're selected by American Dream, one of the largest entertainment and retail centers in North America, as its indoor mapping partner. Being selected by American Dream is another validation of the robustness and versatility of our platform, which provides the necessary tools to deliver exceptional visitor experiences and add value for American Dream's tenants and partners. We have a robust sales pipeline, and we continue to see a growing interest from customers worldwide as we establish the company as a leader in the indoor positioning market. In order to further accelerate growth, we intend to ramp up our sales and marketing efforts, including through the addition of new sales personnel. At the same time, we are aligning our teams and optimizing resources to support our anticipated growth and enhance profitability. Strategic partnerships have and will continue to play an important role in our strategy to rapidly and cost-effectively expand our penetration within this market. We have announced a variety of strategic partnerships that we believe will help accelerate our growth. Through our partnership with IDENTOS, we announced a successful collaboration project with one of Canada's most renowned hospitals. We have also partnered with Express Image Digital to create immersive digital experiences and we recently signed Master Technology Group as an authorized reseller. Now let's talk for a minute about Inpixon's patents. Great companies in nearly every industry often have a strong patent portfolio and Inpixon is no exception. Patents are one very important part of our intellectual property, but our IP also includes our copyrighted software, middleware, methods and techniques, trademarks and trade secrets. Patents are especially powerful for 3 reasons. First, they're an offensive tool. They allow to us build on prior innovations, moving further into what our essentially protected avenues going where others cannot. Second, they're defensive. They allow us to build walls around our innovations, so others can't copy us. And third, they create revenue opportunities. We may choose to license certain patents for a fee or pursue infringement claims. Inpixon has purposefully secured patents by invention, acquisition or licensing at every single level of our architecture, detection, processing and positioning, analytics, presentation or visualization, and extensibility, such as the way we communicate with other systems. Inpixon is a true innovator and we espouse an inventor culture. Towards this end, we recently received a Notice of Allowance from the U.S. Patent and Trademark Office allowing our patent application covering a method of storing and analyzing variable-width data. This patent makes retrieval of data faster and closer to real time. We are not a tech reseller or aggregator or follower. We're solving important problems for our customers, treading new ground and pioneering solutions in the world of indoor data, while protecting our inventions and innovations along the way. We believe our strategy is working and that we have laid the foundation for sustained growth. We will talk more specifically about our financial results in a moment, but I'd like to highlight that we achieved a 63% increase in revenue for the third quarter of 2019 compared to the same period last year. At the same time, gross profit increased 79% and our gross margin increased to 75% for the third quarter of 2019 compared to 68% for the same period last year. In addition to our revenue growth and improvement in gross margin, we are also carefully managing expenses. While our operating losses have grown as a result of acquisitions and growth, a significant portion of that has been noncash items, resulting in a lower EBITDA loss year-over-year. This improvement is in line with our push towards achieving positive cash flow as soon as we can. As a result, we believe we have built a highly scalable organization with significant earnings potential. To summarize our technology development, we believe we have developed the most comprehensive, flexible, scalable and interoperable architecture available in the indoor positioning market. Our platform is able to interface with disparate data sources, both internal and external, meaning customers can leverage existing data sources like wireless access points, beacons, RFID or ultra wideband tags, IoT sensors, and combine it with Inpixon sensor data, as well as our video management systems, point-of-sale data, and public databases like weather and traffic. In turn, this information can be digested and analyzed for a wide range of applications, including visitor analytics, customer experience enhancement, wayfinding, navigation, student safety, first responders, security, theft prevention, asset tracking, workforce productivity and many more. The potential applications are endless and we have barely scratched the surface of this enormous addressable market. I'd also like to take this opportunity to remind everyone that our Annual Shareholder Meeting is tomorrow, October 31, 2019, and we request your vote in support of proposals two and three, which are described in our proxy statement filed with the SEC on October 1, 2019, and distributed to our stockholders of record as of September 3, 2019, calling for an amendment to our articles of incorporation to increase our authorized shares of common stock from 250 million to 500 million with respect to proposal three and the authorization to affect a reverse stock split in a ratio of between 1 to 2 and 1 to 50. I understand there may be significant hesitation to approve each of these proposals. So I'd like to explain the importance of each of these proposals to our long-term success and strategy. With respect to the implementation of a reverse stock split, our desire to achieve compliance with the NASDAQ bid price requirement organically. As you probably know, NASDAQ requires stocks listed on its exchange trade at a minimum bid price of $1 per share. Inpixon is currently below that threshold. If we do not achieve compliance by November 26th, the deadline by which we are required to cure the deficiency, we intend to request additional time, usually six months to cure that deficiency. Getting there organically is our first priority and our preference. However, there are no assurances that NASDAQ will agree to provide such additional time, and therefore, we believe it is important for our stockholders, customers and partners that we have options available to us that will provide us the ability to increase our stock price in order to satisfy the listing requirements of NASDAQ or any other major U.S. exchange. While there are options for our stockholders for continued trading on the OTC markets, the liquidity offered by an actively traded stock on an exchange listing is important to all of you. In addition, presence on an exchange provides our customers and partners with greater confidence in the company and our stability, which is very important to our continued and sustained growth. In addition, we have discussed how our recent acquisitions have contributed towards our revenue growth and enhanced our technology and product offering and assisted in positioning us as a leader in the indoor positioning and analytics market. In this regard, the authorized share increase described in proposal number three is an important component of our M&A strategy. In all of our recent transactions, we have used our stock as partial consideration allowing us to conserve cash resources for the development of our products and services. As a result, it is important that we continue to have enough authorized shares to issue as consideration in connection with the execution of our M&A and growth strategy. If you were a shareholder as of September 3 record date and haven't voted yet or if you voted against proposals two and three, I request you to go online to proxyvote.com and enter your control number or call the Broadridge number at 1-800-690-6903 and vote in favor of both of these proposals. You have until 11:59 p.m. Eastern Time today 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, 2019, and I will then wrap up with a few closing comments. Wendy?

Thank you, Nadir, and thanks to everyone for joining us today. Revenues for the three months ended September 30, 2019, were $1.53 million compared to $940,000 for the comparable period in the prior year or an increase of $594,000 or approximately 63%. This is our third consecutive quarter with year-over-year growth, demonstrating our momentum in the indoor data market. Gross profit for the three months ended September 30, 2019, was $1.15 million compared to $642,000 for the comparable period in the prior year or an increase of 79%, while gross margin for the 3 months ended September 30, 2019, was 75% compared to 68% for the 3 months ended September 30, 2018. This increase in margin is primarily due to the increase in higher-margin IPA revenue. Loss from operations for the three months ended September 30, 2019, was $5.7 million as compared to $3.3 million for the comparable period in the prior year. This increase in loss of approximately $2.4 million was primarily attributable to the higher gross margin, offset by higher operating expenses during the 3 months ended September 30, 2019, including acquisition-related expenses, the addition of Jibestream's operating expenses as well as other noncash items, including amortization of intangibles, stock-based compensation and other expenses. Net loss attributable to stockholders for the 3 months ended September 30, 2019, was $6.6 million or $0.28 per share compared to a loss of $5.2 million or $4.84 per share for the comparable period in the prior year. The higher loss of approximately $1.4 million was primarily attributable to higher revenue, offset by higher operating and interest expenses during the 3 months ended September 30, 2019. Non-GAAP adjusted EBITDA for the 3 months ended September 30, 2019, was a loss of $2.4 million compared to a loss of $3.4 million for the prior period in 2018. 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, nonrecurring items and noncash stock-based compensation. Pro forma net loss for basic and diluted common share for the 3 months ended September 30, 2019, was $0.17 per share compared to a loss of $3.61 per share for the prior period in 2018. Non-GAAP net loss per share is defined as net loss per basic and diluted share, adjusted for deemed dividends and noncash items, including stock-based compensation, amortization of intangibles and onetime charges, including gain or loss on the settlement of obligations, gain on earn out, acquisition costs, provision for doubtful accounts and the costs associated with the public offering. This concludes my comments. And I'd now like to turn the call back over to Nadir.

Thanks, Wendy. I'd like to thank everyone for participating on our third quarter conference call. As I mentioned earlier, we are pleased with our third quarter results, including the increase in revenue as well as improved gross profit margins, and we are aggressively working towards our goal to be cash flow positive, as evidenced by our improving EBITDA. The integration work in connection with our strategic transactions are progressing in a positive direction, significantly enhancing our capabilities. We now offer what we believe is the most robust product offering within the indoor positioning market, bringing even greater benefits to our customers and partners. Combined, we have a unique and powerful portfolio, changing the way people live, work and play indoors. We look forward to providing additional updates in the near future. I'll now turn the call over for questions.

Thank you [Operator Instructions]. And our first question comes from Ellen Litvak with Forest Capital.

Congrats on another strong quarter. I mean, it really sounds like the integration is going well. In terms of cross-selling opportunities between Inpixon and Jibestream, can you guys comment further on how do you plan to go about this?

Ellen, yes, thanks, and thanks for the question. The cross-selling opportunities is one of the motives we have behind these acquisitions. And we've already started seeing that not only with Jibestream, but also our Locality customers across the entire portfolio of products. In fact, having this one-stop shop, if you will, with the suite of products we now have is going to allow us to do a land-and-expand strategy with our customers. They can start with any of our products and then move towards a migration path as their requirements grow, which I think from a customer perspective, it saves budget and time for them. They don't have to deal with multiple vendors, right, and they have no integration challenges because our solutions are optimized and intelligently connected. So I think there's definitely value in that. And the cross-selling upsell opportunities for us, start with the fact that we also now have entry point price point solutions for our customers, who previously may have not had the budget to buy Inpixon's IoT sensors. Now they can start with not only the mapping product from Jibestream, but also the Inpixon Pods or the Locality video management solutions and then move up to our full-blown sensors. So we're pretty excited about the upsell cross-sell opportunities, and we're seeing that becoming a reality.

I mean, that definitely sounds great. I mean, obviously, we're seeing continued improvement in revenue and expanding margins. And you mentioned during the call that your goal was to turn cash flow positive. I mean, obviously, that would be a major milestone for shareholders. How exactly do you plan to get there? And how confident are you in achieving this goal?

We're very confident, and it's a priority for us and focus. As you can see, we are growing our top line revenue over the last few quarters, and we expect that growth to continue. And we have gross margins in the mid-70s range, which as we grow the top line, our operating costs won't grow as significantly. So a lot of that gross profit will fall to the bottom line, reducing our burn and then helping us achieve the cash flow positive cash flow that we're targeting for sooner rather than later. So we're very focused on it. We understand it's important to our shareholders, and it's a priority.

And that does conclude our Q&A session for today. I'll turn it back over to management for any closing remarks.

Great. Thanks, Kristi. Please everyone remember to vote if you haven't already for our shareholder meeting. You can go to proxyvote.com or call 1-800-690-6903, and thank you for joining our call today.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time, and have a great day.