Inpixon (INPX) CEO Nadir Ali on Q4 2018 Results - Earnings Call Transcript

About: Inpixon (INPX)
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Earning Call Audio

Inpixon (NASDAQ:INPX) Q4 2018 Earnings Conference Call March 26, 2019 4:30 PM ET

Company Participants

John Marco - Managing Director of CORE Investor Relations

Nadir Ali - Chief Executive Officer

Wendy Loundermon - Vice President of Finance

Conference Call Participants


Good afternoon, everyone, and welcome to the Inpixon Earnings Conference Call for the Fiscal Year Ended December 31, 2018. All participants will be in a 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 this call will be available approximately one hour after the end of the call through April 26, 2019.

At this time, I would like to turn the conference call over to Mr. John Marco, Managing Director of CORE IR, the Company's Investor Relations firm. Please go ahead, sir.

John Marco

Thank you, operator, and thank you for joining today's conference call to discuss Inpixon's corporate developments and financial results for the fiscal year ended December 31, 2018. With us today are Nadir Ali, the Company's CEO; and Wendy Loundermon, VP of Finance. After the market closed today, Inpixon released financial results for the fiscal year ended December 31, 2018. If you have not received Inpixon's earnings release, please visit the Investors page at

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's CEO. Nadir?

Nadir Ali

Thanks, John, and good afternoon, everyone. Welcome to our 2018 fiscal year-end earnings call and corporate update, and thank you for joining us. A slide deck accompanying this conference call is available on our Investor Relations website for you to follow along with.

As an Indoor Positioning Analytics company, Inpixon's strength is in its technology, which captures all connected cellular, Wi-Fi, Bluetooth, and RFID devices anonymously. These capabilities paired with a high-performance data analytics platform are proven to deliver unmatched visibility, security, and business intelligence in practically any commercial and government premise worldwide.

Our primary objective now is to increase our Indoor Positioning Analytics revenue among both commercial and government customers with a focus towards achieving positive cash flow results.

In the second half of 2018, we were able to increase the number and breadth of our channel partners and customers in the commercial and federal sectors, resulting in quarter-over-quarter growth and we continue to build on that momentum into 2019.

Also in December, we reported that we shipped a record number of our IPA Sensors in Q4 2018. This represents a 100% increase over the highest number of what we shipped in any other prior quarter.

Shipments were strong for Canada, Europe and the Middle East and across a number of industries including government, corrections, high tech, retail, finance, telecom and events. I also want to mention that in the fourth quarter, we have scaled production to meet the increased demand.

In a market that is forecasted by research firm MarketsandMarkets to grow at 42% compound annual growth rate to $40 billion by 2022 as compared to $7 billion in 2017, we believe our growth strategy is beginning to bear fruit.

We see this manifesting in more customer inquiries from a variety of verticals, we see it in analysts talking more about Indoor Location data and we see it validated in the exits of recent companies like Euclid Analytics, [indiscernible] Networks, Turnstyle and others.

We may have been early to market with our cutting edge technology, but now we feel the interest and need for our products is gaining and our collective patience will be rewarded. Ultimately, our quest is to be a comprehensive data source for the indoors where people spend 86% of their time and GPS positioning does not work.

We then analyze that indoor data with proprietary data analytics to provide our customers with mission critical information that will open a world of possibilities for marketers and also provide unique security and protection for indoor environments.

Since many times we are not allowed to disclose our customers by name, we thought it would be helpful to walk you through some of our use cases to better explain how Inpixon Technology is adding value to our customers in various verticals including government, schools, banks, enterprise and retail and in applications that span from security to intelligence.

Please turn to the slides we have provided online for this part of our call. Let's start with Slide 3 regarding Inpixon IPA in government agencies. Physical cyber security situational awareness and wireless intrusion detection are key value propositions of our IPA solutions. We provide complete situational awareness of all Wi-Fi, Bluetooth and cellular devices in the indoors based on security policies by zones for people or assets.

Cellular by the way, is very important to these customers and our competitors don't provide. Our technology can distinguish between known devices and unknown or rogue devices. We also have the capability of setting up and enforcing no device zones.

Most importantly to these customers, we can prevent security breaches and IP loss from devices that bypass traditional data security controls. This also saves the government a significant amount of time and money, which may otherwise be spent in lengthy investigations and countermeasures when unknown devices are brought into their facilities.

Next, let's discuss Inpixon IPA in school safety on Slide 4. In these times where incidents of violence in our schools are unfortunately all too prevalent, there is a critical need for multiple technologies that can enhance school safety to create an optimal learning environment for students and teachers alike.

It is essential that schools have the capability to know where people are, to see who is there and who is not supposed to be there and to be able to communicate directly with everyone on school property.

Our smart school solution is able to identify the location of students, teachers, administrators and visitors within a facility and we'll send alerts to officials when it detects unknown devices which may for instance, indicate a trespasser. Once a notification system is integrated, authorities can be notified immediately of a pending emergency or a possible threat.

Moving on to Slide 5, let's see how Inpixon IPA can be used in banks. Retail banking is going through a dramatic transformation. Keeping up with changing customer behavior technology is being used in innovative ways for digitization and transformation of the banking environment to meet modern expectations.

All the while, banks are trying to reduce costs, grow topline revenue, mitigate risk and improve customer service. Our technology helps these organizations to understand how customers use the branch, where they go, how long they stay, and what services they use. It also helps to measure performance and customer utilization while continually validating the design, layout and staffing mix.

The future of banking will require the locational context of people and assets to be ubiquitous with offline banking whether it's at the ATM or over-the-counter transactions. Authenticating and servicing customers as they come into the branch is important to the customer experience retail banking is creating.

Then there's our Inpixon IPA in enterprise buildings on Slide 6. Enterprise security is always close to follow where the government goes and is not different in the case of physical cybersecurity. Enterprise customers are focused on security and building management applications. Hence the recent acquisition of Euclid Analytics by WeWork, they want to understand what is happening inside their buildings, how to better serve their tenants, manage their buildings more efficiently, and provide more security, not just physical, but also in the air.

Our Security Dome solution, based on our technology is capable of detecting, locating and monitoring all connected assets, equipment and personal devices on a live dynamic floor plan in real-time. Yes, we can even provide location with accuracy down to the sub-room level and distinguish between known versus unknown devices.

Our goal is to provide detailed insights and monitoring capabilities of personnel, visitors, assets and devices to uphold the Company's security policies. We can integrate with building management systems and allow them to leverage occupancy and location data to optimize their systems.

We see this as potentially one of our fastest growing verticals given that enterprise customers have woken up to the need and value that indoor location data and analytics can provide them. We are partnering with companies that are already providing services to building owners, REITs, and we are engaged in POCs with enterprise customers.

Slide 7 is to remind you that Inpixon IPA is also in retail and retail for us is not just shopping malls. Retail can be stores, supermarkets, restaurants, airports, stadiums et cetera. In the age of online versus brick-and-mortar retail, our retail customers are focused on the consumer. Our technology delivers unparalleled accuracy on important metrics like unique versus repeat visitor counts, dwell time by zone, and total journey to retailers and property managers.

IPA Intelligence also provides insight into operational efficiencies by showing the location of staff and visitors, allowing for location-based staffing optimization and creating omnichannel customer personas, thereby allowing retailers to more efficiently engage with customers by learning their preferences.

Brick-and-mortar retail, as we all know, has its challenges, but we believe data is what will help them adapt and compete. Location data is an important factor in digitizing the physical space especially as it gets integrated with augmented reality, virtual reality, point of sale systems, inventory systems et cetera.

Let's move on to Slide 8 now and talk about analyst validation for indoor positioning and Inpixon. Earlier this year, Gartner published their Magic Quadrant for indoor location and Inpixon was mentioned in that report for our capability in both security and intelligence data collection and analytics.

What you will find striking in this report is that most of the players are RTLS companies, which are basically proprietary asset tracking companies or Wi-Fi access point companies like Cisco and Aruba. Indoor locationing of all devices is just a feature or byproduct for them and not their primary focus.

We believe we are the largest pure-play indoor positioning company that covers all frequencies including cellular, Wi-Fi, Bluetooth, RFID for both assets and people and have the opportunity to become the dominant player in this category as we grow our business in both security and intelligence.

Again, the message I want to leave with you on this slide is the fact that Gartner has now created a separate category and Magic Quadrant for indoor positioning. This shows that the momentum is building in this space and that bodes well for our growth prospects.

Finally, in Slide 9, I want to show you that all of these use cases I went over culminate from the core technology we have been developing that collects various data from several sources. Our customers may care about one, two, or all four of these circles, devices, wireless and IoT, people in various profiles, assets, static or dynamic, and location or positional accuracy.

Once we capture a significant quantity of good quality data for these attributes, our proprietary analytics engine will deliver a variety of intelligent and useful insights and applications for various groups of users.

For example, individual users can use it for way finding or searching for products. Businesses can use it for security, intelligence and analytics. Industry groups, hedge funds and municipalities can use the aggregate anonymous data to understand market trends and other metrics.

As we grow the IPA business, M&A is also an important part of our strategy, and to that extent, we are actively evaluating several complementary technology companies that can add technology, differentiation, customers, revenue or all of the above.

We are primarily looking for accretive opportunities that have business value and operational synergies. These complementary technologies and companies are strategic to offering a comprehensive indoor positioning platform or a one-stop shop to our customers.

For example, we are evaluating mobile app or SDK platforms to help our customers with a code base to build or add locational context into their apps. We're also looking at various Wi-Fi based positioning products to offer a no hardware solution at large locations, leveraging their existing access point infrastructure. While these Wi-Fi solutions are not as precise or comprehensive as our solution, it is an entry point solution that we can use to upsell our products.

We are considering several mapping interfaces that can provide a dynamic user interface for outdoor and indoor positioning with layers for different users like consumers, marketing teams, IT et cetera.

We are also considering the possibility of adding GPS capabilities to our arsenal to enhance our Security Dome solution to areas beyond the indoors, to include some outdoor areas as well, allowing us to carry the blue dots seamlessly from the outside to the inside.

I want to conclude my opening remarks by mentioning that we have recently added a new hire to help us continue to bolster our strong network of partners and ramp up our customer and acquisition efforts, especially in retail and entertainment.

Andrew Chapman joins us as VP of Sales, Retail & Entertainment. Mr. Chapman will lead Inpixon's further penetration efforts into large accounts including, but not limited to, traditional retailers, big box stores, shopping malls, property management, casinos, banking, airports and public venues. He will also evaluate potential re-seller partners for inclusion in the Inpixon Authorized Partner Program. Mr. Chapman brings more than 30 years of experience within three security and retail industry disciplines as a practitioner, integrator and manufacturer to our Company.

Before I turn the call over to Wendy to discuss our financial results for the year ended December 31, 2018, I want to make a couple of points regarding the numbers. First, as you can see from our results, we are growing our Indoor Positioning revenue, even if our overall revenues were flat.

Fourth quarter grew 20% over third quarter despite all of the challenges we faced last year with the spin-off. We expect to continue to grow the IPA business in 2019. In addition, you will see we lowered our net losses significantly in 2018 versus 2017, and again, this is a trend we expect to continue in 2019 as we are focused on getting to positive cash flow as quickly as we can.

Now let me turn it over to Wendy.

Wendy Loundermon

Thank you, Nadir. Revenues for the year ended December 31, 2018 were $3.8 million, compared to $3.9 million for the comparable period in the prior year or a decrease of approximately $100,000 or 2.6%.

Revenues between the two comparable periods are relatively flat due to an increase in our IPA product revenues, which was offset by a decrease in our Shoom services revenue.

Gross profit for the years ended December 31, 2018 and December 31, 2017 were $2.7 million. The gross profit margin for the year ended December 31, 2018 was 71% compared to 69% for the year ended December 31, 2017. This slight increase in margin is primarily due to the sales mix of products and services sold during the 2018 year.

GAAP net loss attributable to stockholders of Inpixon for the year ended December 31, 2018 was $24.6 million compared to $35 million for the comparable period in the prior year. This decrease in net loss of approximately $10.4 million was primarily attributable to the $2 million of lower other income and expenses offset by a $3.4 million increase in operating expenses during 2018, plus a $12 million lower loss from deconsolidated operations of the spin-off of Sysorex during the year ended December 31, 2018.

2018 pro forma non-GAAP net loss was $18.7 million compared to a non-GAAP net loss of $17.8 million for 2017. Pro forma non-GAAP net loss per basic and diluted common share for the 12 months ended December 31, 2018 was $24.18 per share compared to a loss of $2,747.92 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 on the settlement of obligations, extinguishment loss for debt modification, goodwill impairment, gain on earnout, debt forgiveness, write-off of project expenses, provision for doubtful accounts, gain on the sale of contracts and the costs associated with the public offering.

Non-GAAP adjusted EBITDA for the year ended December 31, 2018 was a loss of $15 million compared to a loss of $12.1 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, other income or expense items, non-recurring items and non-cash items.

On the balance sheet, we ended the year with cash and cash equivalents of $1 million and total current assets of $3.4 million. However, Inpixon did raise gross proceeds of $12 million in January 2019 through an oversubscribed rights offering. Net cash used in operating activities during the year ended December 31, 2018, was $26.8 million.

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

Nadir Ali

Thanks, Wendy. As I said in my opening comments, we have been able to increase the number of channel partners and customers in the second half of 2018 resulting in revenue growth for the IPA business quarter-over-quarter and we are continuing to build on that momentum into 2019.

Our channel partner network is key to our growth globally. The pipeline is robust, seeing a steady increase in interest across several industries, including high-technology, retail banking, entertainment, healthcare, and various federal agencies.

Some of the prospects in this current pipeline have already become new customers and have received shipments as our Company continues to expand its reach in the U.S. and abroad. Here are several examples of the interest we have recently received.

Initial evaluation systems have been deployed at one of the world's largest technology firms to secure its worldwide facilities against rogue device attacks. A global defense and space systems contractor has ordered an Inpixon PSK or portable unit as a test for securing sensitive areas within its facilities around the world.

The U.S. government is piloting PSKs for detecting the presence of contraband mobile phones and other radio frequency based communication devices in federal prisons. A Middle Eastern telecom provider is piloting Inpixon IPA intelligence in stores in order to enhance customer experiences. Leveraging advanced analytics the provider will be able to understand customer journey and areas that may cause congestion or high wait times.

In Kuwait, Inpixon IPA Sensors have been deployed for visitor management in a multistory building. These have the potential to represent multimillion dollar opportunities for Inpixon that we believe will help us achieve our growth objectives and move us to a positive cash flow.

Our Company has unique industry-leading products with real-world practical value across our segment offerings with an escalating demand. Our plan is to continue grow our business through our channel partner community and we are making progress both in the quantity and quality of leads that are being added by new reseller partners. Every day, we are continuing to aggressively pursue these relationships and forge new ones to increase our market share.

As I mentioned earlier, we are also actively pursuing several complementary acquisition targets that we think are very interesting and will add to our growth plans and capabilities. This market is fragmented and provides us an opportunity to become the dominant player if we are able to acquire the right companies and technologies to strengthen and grow our platform.

We expect our continued efforts will deliver consistent and reliable performance as we move forward that will enable us to create long-term, dependable value. We want to thank our shareholders for their continued support.

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

Question-and-Answer Session


[Operator Instructions]


And ladies and gentlemen, at this time, I’m showing no questions. I'd like to conclude today's question-and-answer session and turn the conference call back over to Nadir Ali for closing remarks.

Nadir Ali

Thanks, Jamie. Thank you everyone again for your support and interest in Inpixon and for your time today. We are excited about our path and the opportunities ahead and look forward to sharing more progress with you in the coming year. Thank you.


Ladies and gentlemen, the conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.