XTI Aerospace Inc (XTIA) 2017 Q4 法說會逐字稿

Good afternoon, and welcome to the Inpixon Earnings Conference Call for the Fiscal Year Ended December 31, 2017.

(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 1 hour after the end of the call through April 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, Austin.

Thank you for joining today's conference call to discuss Inpixon's corporate developments and financial results for the fiscal year ended December 31, 2017.

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 fiscal year ended December 31, 2017.

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 CEO.

Thanks, Scott, and good afternoon, everyone.

Welcome to our 2017 fiscal year-end earnings call and corporate update, and thank you for joining us.

2017 was a challenging year for Inpixon.

Our ability to fulfill orders was impacted by capital constraints and supplier credit challenges, resulting in a decline in revenues.

In addition, our balance sheet made it difficult for customers to have confidence in buying our products and services.

That has now changed.

We have worked hard to overcome the challenges faced in 2017, and today, we believe we have a more solid footing with an increase in capital and an invigorated strategic plan to return to revenue growth and advance towards achieving the full potential that Inpixon represents.

I am mindful of the impact these challenges and the steps we've taken to rectify them have had on all our stakeholders, and it is my hope through our call today that I leave you with a clear perspective about our plans for the future and what we believe our execution of those plans will represent in terms of creating shareholder value.

One of these steps we took in this process was the reverse split we implemented in the first quarter of 2018.

As a shareholder myself, I can understand that may have been frustrating for our shareholders.

However, it was a necessary action, which not only allowed us to regain compliance with the NASDAQ minimum bid price requirement but was also a critical component of a plan that led to another important step, the successful completion of capital-raising transactions in which we realized over $21 million in gross proceeds before deductions of commissions and expenses payable.

We believe that these recent corporate actions will provide us with the stability that's required for our customer base to regain their confidence in the company and our products in order to rebuild our revenue growth.

In addition, we continue to move forward with strategic options that may include acquisitions and/or divestiture of our VAR Infrastructure segment, including a sale or a spinoff.

A divestiture of this segment, whether through a sale, spinoff or otherwise, would allow us to streamline our business and focus solely on the Indoor Positioning Analytics, IPA business, and allow all resources associated with the VAR business to be devoted to its core business plan without the need to divert resources for the research and development of the IPA business and products.

We believe our strategy to focus on building out our core IPA offering through ongoing technical innovations and enhancements and new product offerings will facilitate our transition and growth as a technology company.

We also plan to stimulate growth through channel partner expansion and improve marketing and sales efforts.

If you have been following our recent announcements, you are aware that we have hired John Piccininni, an industry veteran in business development, to grow our channel sales.

As we change -- charge into 2018, our goal is to help our channel partner network grow and thrive.

Mr. Piccininni is a leader in the industry and well known for cultivating long-lasting relationships with his partners that consistently express overwhelming satisfaction with the investments he had assisted in helping them make in physical access control systems and video surveillance.

We are thrilled to have him onboard introducing those same long-term partners to our physical cybersecurity solution.

On the product development side, we are representing cutting-edge technical innovation, and I'd like to take a few minutes to provide some further perspective about where we are heading and why.

Our 2018 product road map and development plans include the use of blockchain technology to maintain and propagate advice profile and reputation, enforce security policies, and attain compliance.

It also includes incorporating advanced artificial intelligence for amassing anonymous device information.

Why is this important?

Well, because most devices do not log in or register on a given network, and therefore, they can't be uniquely identified.

This makes it difficult for most indoor positioning vendors to recognize these devices individually and verify their position and path as they move through the indoors.

With our proprietary device fingerprinting method along with our artificial intelligence, we can amass enough anonymous device information to be able to create a profile for that device and then use the blockchain technology to secure and propagate that profile so that no one particular entity can manipulate that device's profile or reputation data.

Both our security and intelligence customers will benefit enormously from this enhancement, and it also creates a significant competitive advantage for Inpixon.

Our IPA, artificial intelligence engine, will interface with [district] customer site data sources and the platform's locationing data.

The AI engine will apply heuristic analytical algorithms to data that is accumulated over time, identifying new patterns in device and customer behavior, and deliver this information to customers and users via IPA and/or an application program interface in realtime.

For the security domain, IPA's AI analytics will be able to identify device behavior patterns on networks that are associated with existing blacklisted devices, analyze device behavior and, after pattern matching, predictively alert users to a potentially risky device.

With the use of blockchain technology, we can deliver the blacklisted catalogs and risky behavior patterns to on-premises IPA components so that the detection is near instantaneous.

We also recently announced our plans to incorporate the use of enterprise voice-user interface technology, or VUI, to support our network of retail and marketing customers in making better decisions with deeper intelligence.

The VUI technology and our IPA platform will be -- will perform as a digital assistant for marketers, allowing them to make quick hands-free decisions based on embedded predictive information provided with simple voice speech commands while also providing a complete audit trail.

While the use of platforms such as Siri, Alexa and Google Assistant have made VUI's modern household names, Inpixon's IPA VUI is uniquely built for the enterprise marketing space digital assistant with no monitor, no keyboard, no mouse and only an audio input/output device that functions just like a search engine listening for keywords.

While the technology itself is not revolutionary, it will modernize meetings and brainstorm sessions by speeding up intelligence gathering with nearly instantaneous access to company information and Big Data.

It'll be able to predict outcomes based on past information and make suggestions to keep business moving efficiently and effectively.

We currently expect that proof of concept for this technology within our IPA platform will be available during the second quarter of 2018.

We will also be announcing expansions to our IPA product line to provide entry-level products and price points to attract a wider customer base and increase product adoption rapidly.

This is also one of the reasons IPA is now on Amazon Web Services.

We have migrated our IPA analytics engine onto the AWS cloud to enable better service and security to our customers and international coverage and support.

Being on AWS allows us to deliver SaaS-based solutions to our Federal customers as well, making it easier for them to roll out time-sensitive deployments.

In addition, our channel partners will find it more convenient to access, integrate and install new customers much faster than before.

The data integration points for IPA and other Big Data partners on AWS will become much more user-friendly.

As a whole, IPA on Amazon Web Services is a very significant step forward to grow our business cost-effectively and attain higher customer satisfaction.

Some of these innovations are creating capabilities that do not exist in the market today, and we believe others will resonate with clients who seek increased security, insights and value creation through technological innovation and analytics with our solutions.

We believe that with the strategic vision we've laid out, we will drive the growth of Inpixon solutions into mainstream adoption.

I'm encouraged by our having overcome many of the challenges that constrained us in 2017.

We have evolved our overall business plans, product development and go-to-market approaches to better capitalize on our value-creation capabilities for shareholders, customers, partners and employees.

I expect, as we proceed through the coming quarters, that we'll continue to transform and strengthen our position.

Before I hand off the call to Wendy to discuss our financial results for the quarter and year ended December 31, 2017, I'd like to make a comment about the numbers.

As you can see from our financial results, our credit challenges impacted revenue margins and cash flow.

While 2017 resulted in decline in revenue as compared to the prior year, we took action to reduce our operational expenses by approximately $2 million in the fourth quarter compared to the third quarter in 2017.

In addition, since we were able to raise capital in Q1 2018, we have an opportunity to repair the damage we suffered last year that impacted all segments of our business but, more significantly, our VAR Infrastructure business.

It doesn't happen overnight, but we believe we will begin to see this turn around as we move into Q2 2018.

With that, I will now turn the call over to Wendy to discuss our financial results for the quarter and year ended December 31, 2017, and I will then wrap up with a few closing comments.

Wendy?

Thank you, Nadir.

Total revenues for the year ended December 31, 2017, were $45.1 million compared to $53.2 million for the comparable period in the prior year.

This decrease of $8.1 million, or approximately 15.2%, is primarily associated with the decline in revenues earned by the Infrastructure segment.

Revenues earned by the Indoor Positioning Analytics segment for the year ended December 31, 2017, were $3.9 million compared to $4.9 million for the prior year period.

Revenues earned by the Infrastructure segment were $41.2 million for the year ended December 31, 2017, as compared to $48.3 million for the prior year period.

Revenues declined due to the ongoing capital constraints and supplier credit challenges the company faced throughout the year.

Gross profit for the year ended December 31, 2017, was $10.8 million compared to $14.9 million in 2016.

The gross profit margin for the year ended December 31, 2017, was 24% compared to 28% for the prior year period.

This decrease in margin is a result of lower margin infrastructure sales from the Integrio acquisition.

Indoor Positioning Analytics gross margins for the year ended December 31, 2017, and December 31, 2016, were 67% and 69%, respectively.

Gross margins for the Infrastructure segment for the year ended December 31, 2017 and 2016, were 20% and 24%, respectively.

GAAP net loss attributable to stockholders for the year ended December 31, 2017, was $35 million compared to $27.1 million for the comparable period in the prior year.

GAAP net loss per share for 2017 was $137.79 per share compared to a net loss per share of $468.26 per share for 2016.

The increase in net loss was primarily attributable to capital constraints and supplier credit challenges; decrease in gross profit as a result of lower margin infrastructure sales; higher interest expense; increases in operating expenses due to the Integrio acquisition, which was offset by lower compensation cost; and an extinguishment loss on debt modification.

2017 pro forma non-GAAP net loss was $17.8 million compared to a non-GAAP net loss of $12.9 million for 2016.

Pro forma non-GAAP net loss per basic and diluted common share for the 12 months ended December 31, 2017, was $68.70 compared to a loss of $223.08 per share for the prior year period.

Non-GAAP net loss per share, as defined by -- as net loss per basic and diluted share, adjusted for noncash items, including stock-based compensation; amortization of intangibles and onetime charges, including gain or loss on the settlement of obligation; extinguishment loss for debt modification, goodwill impairment, severance costs, changes in the fair value of shares to be issued, acquisition cost and the cost associated with the public offering.

Total non-GAAP adjusted EBITDA for the year ended December 31, 2017, was a loss of $12.1 million compared to a loss of $9.8 million for the prior year period.

Non-GAAP adjusted EBITDA is defined as net income or loss before interest in provision for income taxes and depreciation and amortization plus adjustments for other income and expense items, nonrecurring items and noncash stock-based compensation.

On the balance sheet, we ended the year with cash and cash equivalents of $141,000 and total current assets of $9.2 million.

Our net cash provided by operations for the year ended December 31, 2017, was approximately $2.3 million.

Please note, however, as Nadir indicated previously, the company successfully completed capital-raising transactions in the first quarter of 2018, for which we realized over $21 million in gross proceeds before deductions for commissions and other expenses.

During the fourth quarter 2017, the company reduced operating expenses by $2 million primarily by the consolidation of staff and the reduction of office space and lease-related cost.

The company continues to identify areas we can create operating efficiencies and realize cost savings for 2018 and beyond.

This concludes my comments.

And I'd now like to turn the call back over to Nadir.

Thanks, Wendy.

The indoor location market is estimated to grow from $7 billion in 2017 to $40 billion by 2021 at a compound annual growth rate of 37.4%.

We are especially excited that we have announced several initiatives, like AWS, the AI, VUI and blockchain enhancements that in effect have given as an enhanced technology road map to build out our IPA business.

I am confident that with our recent infusion of capital, executing on our game plan will put us in a position to achieve the results we envision.

Our company has unique industry-leading products with real world practical value across our segment offerings.

I understand that ultimately, it's results that matter, and we've developed a plan with the expectation to deliver.

We are excited about our path and the opportunities we are presented with in 2018 and look forward to sharing more progress with you in the coming year.

With that, Austin, we're ready to open up the call to questions.

(Operator Instructions) And our first question will come from [Ross Silver] with [Silver International].

The question I have for you is related to the capital raise.

You don't see a lot of people investing $21 million into a company unless they see something, and I know you can't speak for the institutional investors that participated in your round, but could you talk a little bit about some of the feedback perhaps that you received from some of these investors who invested in you and were willing to, obviously, write a check for -- combined check for over $21 million?

Yes, sure, thank you for the question.

Yes, absolutely, to respond to that, I think it's definitely a indication of the confidence that folks have in our business plan and the state that we're in and where we're headed.

I think there's also a value story here, right, given where the market cap has been for the company that many folks have expressed is disconnect from where the company's at even with the combination of the VAR and the IPA business.

But certainly, there's a lot of interest in where we could go.

And I think that -- the technology that we have and the uniqueness, competitive advantage we have in the marketplace, and the size -- we talked about the size here on the call today, about a $40 billion market opportunity.

We really have an opportunity to be the dominant player in the space, and we were just handicapped this past year with our ability to execute on that, given our capital constraints and the issues with the VAR business.

So we're turning that around.

We've been able to address the capital issue.

And that'll allow us to fix the VAR business as well as, we've mentioned here today, looking at the sale or spinoff.

So as these businesses can separate and focus on their business plans, I think it'll be really exciting to see what happens, and I think that's what investors were seeing in making the investment, right.

There's definitely good value there, and they believe in the business plan we presented them.

This concludes our question-and-answer session.

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

Thank you, Austin.

Thank you again for your support and interest in Inpixon and, of course, for your time today.

We'll continue to keep you updated on our progress.

Thanks for joining us.

The conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect.