XTI Aerospace Inc (XTIA) 2015 Q4 法說會逐字稿

Good afternoon.

Welcome to the Sysorex Global earnings conference call for the year ended December 31, 2015.

(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 this call will be available approximately one hour after the end of the call through April 11, 2016.

I would now like to turn the conference call over to Mr. Scott Arnold, managing director of CorProminence, the Company's investor relations firm.

Sir, the floor is yours.

Thank you, Mike.

Thank you for joining today's conference call to discuss Sysorex Global's corporate development and financial results for the fiscal year and quarter ended December 31, 2015.

With us today are Nadir Ali, the Company's CEO, and Kevin Harris, CFO.

At 4:05 PM Eastern Time today, Sysorex released financial results for the year and quarter ended December 31, 2015.

If you have not received Sysorex's earnings release, please visit the investors page at www.Sysorex.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 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.

Sysorex 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, Sysorex's CEO.

Thanks, Scott, and good afternoon, everyone.

Welcome to our 2015 earnings call and thank you for joining us.

I'm here today with Kevin Harris, our CFO, who will be discussing our financial results for the year and quarter ended December 31, 2015, after my opening remarks and I will return to conclude our prepared remarks and field your questions.

Sysorex helps customers derive real-time value by combining data from both the physical and digital worlds.

This simple, yet exceptional, statement is the result of what we have been working on so diligently over the past three years.

Through a series of acquisitions and the complete integration of key technologies and capabilities, we have built a company that empowers data-driven customers with an innovative approach to data analytics, security, and the Internet of Things.

Sysorex stands at the forefront of a broad-based, high-demand market space that embodies a paradigm shift in the way clients are using our products to capture and analyze data that drive competitive advantage and increase ROI.

The type and granularity of the data we can provide our customers through our AirPatrol sensors was never available before.

Actionable sensor data processed in real-time through our LightMiner analytics platform is truly a game-changer, providing our customers an opportunity to jump the innovation curve in their respective industries and leapfrog past their competitors that are still relying on obsolete technologies and metrics.

With Sysorex, we believe companies can personalize and radically improve their customer experience, significantly increase safety and security in their premises from new types of threats, and better protect and manage their physical and digital assets in ways never seen before.

I am very proud of what our team has accomplished over these past few years and especially the integration work in 2015.

These efforts have resulted in positioning Sysorex for what we believe is going to be significant growth in our AirPatrol and LightMiner product lines as we get further into 2016 and we gained traction and recognition from customers, analysts, and partners.

I believe we are at an inflection point of this year of moving from early adopters to mainstream customers in our proprietary products, demonstrating our ability to deliver dramatic ROI to our customers while still capitalizing on the synergies and opportunities provided by our growing legacy business.

Along with completing the integration, we achieved a record revenue quarter for Sysorex in 2015.

The fourth quarter ended with total revenues of $20.3 million, a 33% increase over the same period in 2014.

Our AirPatrol product line is starting to build momentum.

We achieved more revenue for AirPatrol in the fourth quarter than in the past two quarters combined.

While we did experience lower gross margins on our Q4 revenue due to the higher-than-usual mix of VAR business, we are pleased with our overall adjusted EBITDA performance.

We anticipate adjusted EBITDA and our cash flow to improve in the latter part of 2016.

We are encouraged with the increasing market recognition of the value of our AirPatrol location-based services platform across a growing array of applications and industry sectors.

Last week we announced the debut of AirPatrol for Healthcare, a unified real-time location system, or uRTLS, that brings multiple asset, staff, and equipment tracking technologies into a single vendor-neutral administrative platform.

As we announced on March 1, with AirPatrol for Healthcare, hospitals can now simultaneously locate and monitor assets and people equipped with three of the most popular wireless location technologies, Wi-Fi, Bluetooth, and cellular, in real-time with sub room-level location accuracy from one dashboard.

Our analytics will give hospitals deep insights into operations, staffing, foot traffic, equipment staging, etc., that other RTLS systems simply can't because they don't see the entire environment and they don't have the power and speed we do in LightMiner.

We demonstrated AirPatrol for Healthcare in the Intelligent Health pavilion of the HIMSS16 Healthcare IT conference in Las Vegas last week to much attention from potential customers and strategic partners.

This market is valued between $3 billion and $5 billion this year and is growing at an 18% CAGR.

There are several competitors in this space such as Intelligent InSites, Versus, Ekahau, but each is a proprietary technology and requires both their sensors and their devices and tags to work.

We are vendor-neutral on the device side, so any wireless-enabled device can be tracked via our system, not just our own.

So all the mobile things in hospitals, like beds, robots, computers on wheels, equipment, phones, etc., can be monitored with AirPatrol.

While we have launched AirPatrol into a new vertical, I am pleased with the solid traction we are experiencing with AirPatrol in the retail, government, and smart community verticals where we already have customers.

We are continuing to expand our footprint with these customers.

One example is the $1 million project we announced in the fourth quarter with a US government agency employing our AirPatrol for Security system, formerly known as Zone Defense, to help secure sensitive government installations against mobile threats and data leakage.

After extensive trials, this government agency selected Sysorex to help secure its facilities.

I am very pleased to report that this project is expanding to this agency's other locations, validating our approach as the sole solutions provider delivering capabilities across Bluetooth, Wi-Fi, and cellular.

In short, we are emerging as the best indoor locationing solution.

Much of our enthusiasm surrounding our performance in 2015 centers on the advancement of client projects that continue to grow with broader and more comprehensive solution deliverables that leverage a robust combination of our core offerings.

As our capabilities have coalesced, so too has the extent to which our clients have repeatedly called upon us to provide comprehensive, multifaceted solutions which present cross-selling opportunities for all of our proprietary products.

In November, we announced the latest in a series of critical IP infrastructure systems and services projects for a leading Fortune 500 biopharmaceutical research and development client to provide critical data infrastructure migration and upgrade services.

The $1.2 million project was in addition to IT systems and services products we had completed for the client, together totaling more than $3 million in 2015.

We also won an additional IT systems engagement with a California-based Fortune 500 healthcare services provider to deliver IT structure and consulting services for the Company's IT modernization effort.

The project's scope included designing, deploying, and integrating advanced computer systems and software architecture, posting business-critical information migrating from the Company's legacy mainframe systems.

It was the third such engagement between us in 2015, which totaled over $4 million in combined revenue.

The future of Sysorex continues to grow stronger, especially with the impending rollout of our integrated LightMiner solutions.

As I mentioned on our last call, the LightMiner platform is an in-memory, real-time data analytics platform designed to perform very large, highly complex, and extremely difficult calculations using off-the-shelf hardware and memory.

It supports traditional SQL-based intelligence and analytics applications, as well as a host of integrated statistical, machine learning, and artificial intelligence algorithm, allowing it to provide supercomputer-like performance at competitive prices.

Our pilot LightMiner customers are proceeding with their evaluations and our products are now under consideration in a wide array of industry verticals including banking, agriculture, retail, and services.

We are evaluating numerous strategic partners in our solutions development efforts and look forward to bringing our exceptional analytics offerings to the market with strong appeal.

With that, I will now turn the call over to Kevin to discuss our financial results for the year and quarter ended December 31, 2015.

Thanks, Nadir.

Total revenue for the fourth quarter 2015 was $20.3 million.

Revenue for the year ended December 2015 was $67 million, an increase of approximately 6.5% over 2014.

The increase is primarily associated with growth in the storage and computing and professional services segments.

Total 2015 revenue included storage and computing revenue of $50 million, professional services revenue of $11.6 million, SaaS revenue of $3.7 million, and mobile IoT and big data products revenue of $1.7 million.

Gross profit for the fourth quarter 2015 was $5.2 million.

Gross profit for the year ended December 2015 was $19.3 million, compared to $18.7 million for the year ended December 2014.

Fourth-quarter 2015 gross margin was approximately 26%.

Gross margin for the year ended December 2015 was approximately 29%, compared to approximately 30% for the year ended December 2014.

The slight decrease in gross margin is primarily a result of sales mix.

GAAP net loss attributable to stockholders for the fourth quarter of 2015 was $3.9 million.

GAAP net loss attributable to stockholders for the year ended December 2015 was $11.7 million, compared to $7.5 million for the year ended December 2014.

GAAP net loss per share for the fourth quarter of 2015 was $0.16 per share.

GAAP net loss per share for the year ended December 2015 was $0.55 per share compared to a GAAP net loss per share of $0.42 for the year ended December 2014.

This increase in net loss of approximately $4.2 million was primarily attributable to an increase in amortization of intangibles, acquisition and acquisition-related costs, provision for doubtful accounts, depreciation, and cost of expanding our engineering, sales, and marketing operations to drive future growth.

Non-GAAP net loss for the fourth quarter of 2015 was $1.1 million.

Non-GAAP net loss for the year ended December 2015 was $4.7 million, compared to non-GAAP net loss of $2.6 million for the year ended December 2014.

Non-GAAP net loss per share for the fourth quarter of 2015 was $0.04 per share.

The year ended December 2015 non-GAAP net loss per share was $0.22 per share, compared to a non-GAAP net loss of $0.14 per share for the year ended December 2014.

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, change in the fair value of shares to be issued, acquisition costs, provision for doubtful accounts, and the costs associated with the public offering.

Non-GAAP adjusted EBITDA for the fourth quarter of 2015 was a loss of $800,000.

Non-GAAP adjusted EBITDA for the year ended December 2015 was a loss of $3.6 million, compared to a loss of $1.9 million for the year ended December 2014.

We define non-GAAP adjusted EBITDA as GAAP net income or loss before interest, income taxes, depreciation and amortization, plus adjustments for other income or expense items, nonrecurring items, and non-cash stock-based compensation.

On the balance sheet, we ended the year with cash and cash equivalents of $4.1 million and total current assets of $28.6 million.

Our net cash used in operations was approximately $8.2 million for the year.

This concludes my comments and now I would like to turn the call back over to Nadir.

Nadir?

Thanks, Kevin.

2015 was a pivotal year for Sysorex.

We completed the integration that now enables us to bring our innovative solutions to market in a number of existing and new verticals that represent strong growth potential going forward.

We are truly at the beginning of the next phase in our journey to fulfill the promise of what Sysorex represents as a leading provider of real-time data analytics, the Internet of Things, and security.

We are experiencing momentum for our AirPatrol solutions and the response to our LightMiner analytics platform has been encouraging across a wide array of prospective customers who seek to drive evermore ROI from their data.

With that, Mike, I think we're ready to open up the call to questions.

(Operator Instructions) Joe Maxa, Dougherty & Company.

Thank you, good afternoon.

So question on just the profitability.

You talked about improving EBITDA, adjusted EBITDA in the second half of the year just from current levels it sounded like.

So my -- based on that I would assume you will still produce a loss in the first half.

Do you expect to get to profitability in the second half of the year?

Joe, we aren't providing guidance, but we are certainly on track to improve our profitability.

As you can see, the trend is moving in the right direction.

Our EBITDA is getting better and I think with the sales mix changing, as we get more traction with AirPatrol and LightMiner, certainly we are on that path.

Okay.

And the contribution from AirPatrol, how much was included from that $1 million government project?

Is that --?

I'm just wondering how much of that went in Q4 and then will be in Q1.

A majority of it was in Q4.

There's maintenance and some ancillary pieces that will be spread out over a period time, but a majority of that was in Q4.

Okay.

And you've talked about additional rollout from the same customer, so is that on the same order of magnitude or are we seeing an even larger opportunity?

It's definitely a larger opportunity.

As you can imagine, it's based on square footage and so the original PO was for a couple of locations.

And as that is expanding into multiple buildings, multiple locations, the square footage increases.

It will be over a period time in 2016 and beyond, because this government agency has a lot of locations, but --.

In consolidation, yes, it will be much larger than that particular order in Q4.

Okay.

I wanted to ask on that Daruna project; is that on track to begin in the second quarter of this year?

Yes, we are tracking that and we expect it to start in Q2 sometime.

That's again on a SaaS model, so it's not upfront revenue necessarily, but it's the good recurring revenue backlog that we will be building and continue to build as we get more SaaS-based clients.

So after the first year -- it was, what, $90 million, $91 million over 15 years so you're assuming -- I think we previously thought it was roughly linear over those 15 years.

Perhaps not the first year, of course.

Is that how we should still think about it?

That's right.

Okay, okay.

And just lastly on these orders, I'm just wondering, the opportunities that are coming, just what the pipeline looks like.

Maybe you compare it right now versus a year ago and then how that may affect the gross margin.

So definitely feeling much more confident about the pipeline on our proprietary products with AirPatrol and LightMiner and the opportunities that represents.

And of course, that then translates into better consolidated gross margins, right?

So what really drives this is the sales mix quarter to quarter, but on an annual basis we expect that trend to go upward as the sales mix continues to increase.

We're definitely much more confident about the pipeline this year than we were last year.

Which could be offset by increases in your lower-margin [VAR]-type business?

That's right, but the growth rate on the legacy business is not necessarily going to be the same percentage wise as it is on the AirPatrol and LightMiner pieces, but yes, it will offset it because it's a larger dollar value.

I know you're not giving guidance, but just looking at year over year, you are expecting an improvement on the bottom line suggesting an improvement on the top line.

Is that fair?

That's fair.

All right, thanks, Nadir.

That's all I'll ask for now.

Josh Nichols, B Riley.

Real quick, I don't think I heard anything mentioned in the commentary.

When is the official launch of LightMiner?

We will be launching this quarter with a prelaunch at the Gartner event next week in Dallas and then we will do a formal launch later in the month.

Great.

And could you give us any updates on the progression of a lot of these pilots that you are doing with casinos and prisons and gaming customers and what not?

Yes, absolutely.

So as I said on the earlier question, we are definitely more confident about the pipeline and the activity that has been happening with AirPatrol and with LightMiner, and we expect that to start showing more in our results as we progress in the quarters.

We have made further penetration of the verticals that we talked about before: retail, the smart communities.

We're expecting follow-on business in all of those areas with customers, as well as the government agency that I touched on, and now with the launch of the healthcare product we will be expanding into some new verticals as well.

I guess, in your mind, what metrics would make 2016 a successful year?

I think we should be looking at the growth within these operating segments.

As you know, we report four different segments in our Qs and Ks and so you will see the segments related to our proprietary products for AirPatrol and LightMiner.

And the growth that we see there, the margin that we are seeing there, that's what's really going to drive the overall returns for the business and so I think those are the metrics that we should be looking at.

Okay, thank you.

Ross Silver, Vista Partners.

Congratulations on an excellent quarter and year.

Just a question on the sales mix and a way to kind of think about sales mix going forward.

What -- in terms of contributions from say AirPatrol and LightMiner, would you say that you expect a considerable contribution from them in 2016 or --?

How would you characterize the contribution from them, because that obviously will dictate the margin expansion as well, right?

I know I'm not -- not trying to ask you to give guidance, but how would you describe the sales mix on a go-forward basis?

Sure.

Yes, we definitely expect significant contribution from the AirPatrol product line in 2016.

When I say significant, I think, compared to last year, we expect 2016 to be much stronger for the AirPatrol product line in terms of percentage or a factor of the revenue.

LightMiner, obviously we're just launching formally in this quarter, in March, and so there will be some significant amount or a reasonable amount of revenue from LightMiner.

Then I think both of them really scale in 2017, but I think AirPatrol will have a magnitude better result in terms of revenue.

The legacy business, of course, will still be a majority as a percentage of our revenues in the foreseeable future.

In 2016 and possibly 2017.

But that grows at a much lower rate, so the VAR business is typically 5% to 8% growth.

Thanks.

Then just a question about the gross margin.

Like assuming LightMiner and AirPatrol are scaled up, what is the target gross margin that you are looking to achieve from both of those segments?

Both those products are in the 60% to 80% range in terms of gross margins.

Okay.

And so just you will see a slow creep up towards that.

So it will be kind at the low end of the range, just to expect out of the gate and then as you progress and scale it'll creep higher, right?

So that's kind of the way to think about it or should we think of it differently?

That's right.

And part of what we are doing there in expanding that, for example, with healthcare, is working through partners.

So Sysorex is not going down a path of hiring hundreds and hundreds of sales guys.

We will leverage strategic partners and VARs, SIs, etc., and so that's why we are saying there is a little bit broader range on the margin.

Certainly there will be customers that we are dealing with directly and then others will be through partners.

Okay.

And then my last question -- I really appreciate your time -- is what's the way to think when you're going to -- let's say for AirPatrol as an example.

When you are out to bid for some of these contracts, who are you up against?

How is AirPatrol winning these bids?

That's a great question.

We are up against defense contractors when we are in the government space.

We're against the Wi-Fi or Beacon technology players like Cisco, Aruba, or some of these other smaller folks, Euclid.

And what happens is that customers quickly realized that with Sysorex and AirPatrol they can get not just Wi-Fi, they get cellular and Bluetooth.

And not only is our accuracy much better, but we can do something even, for example, in the Wi-Fi space that our competitors can't do.

Many folks have multiple devices or their devices are sending out multiple Wi-Fi radio signals.

How do you --?

We have a unique technology that allows us to identify those four radiofrequency signals as one person.

A lot of RF folks can't do that de-duplication that we can and so that separates us as well.

Excellent.

Congratulations again on a great quarter.

My jaw hit the floor when I saw $20 million, so hopefully this strength continues, the margin improvement, EBITDA, etc.

Great job to you and your team.

Thanks, Ross.

We appreciate that.

At this time we are showing no further questions.

We will go ahead and conclude our question-and-answer session.

I would now like to turn the conference call back over to Mr. Nadir Ali for any closing remarks.

All right.

Thank you, Mike.

I want to thank everyone again for your time today.

I would like to reiterate the confidence I have in our growing future.

Sysorex has not only succeeded in transforming into a technology company with cutting-edge solutions, we have set the bar high for the rest of the market with products and service solutions mix that is unlike anything on the market today and for the foreseeable future.

I believe that we have accomplished the requisites for our future growth along a path that will drive real, tangible, quantifiable ROI for our clients across a broadening industry mix with solutions that span truly high-demand markets.

We deliver the promise of innovation in serving the needs of clients that are in the midst of a paradigm shift in leveraging their data with compelling and value-driving analytics.

Our path to profitability will be driven by growth and we are expecting to see significant progress on that front this year as a result of AirPatrol and LightMiner solutions taking hold.

We achieve significant measurable successes here in building a foundation upon which we will thrive in 2016.

We will be presenting at the Gartner BI conference in Dallas next week, as well as the ROTH conference in Southern California.

We hope to see you at one of these events and appreciate your time and continued support in Sysorex.

Thank you.

Mr. Ali, we thank you, sir, and also to the rest of the management team for your time also.

The conference call has now concluded.

We thank you all for attending today's presentation.

At this time, you may disconnect your lines.

Thank you, take care, and have a great day, everyone.