Inpixon (NASDAQ:INPX) Q2 2021 Earnings Conference Call August 16, 2021 4:30 PM ET
David Waldman - Investor Relations, Crescendo Communications, LLC
Nadir Ali - Chief Executive Officer
Wendy Loundermon - Chief Financial Officer
Good afternoon and welcome to Inpixon Business Update Call. All participants will be in listen-only mode. [Operator Instructions] Participants of this call are advised that the audio of this conference call is being broadcast over the Internet, and is also being recorded for playback purposes. A telephone reply of the call will be available approximately [Technical Difficulty] after the end of the call.
I would now like to turn the conference over to David Waldman, President and CEO of Crescendo Communications LLC, the company's Investor Relations firm. Please go ahead, sir.
Good afternoon and thank you for joining today's conference call to discuss Inpixon's corporate developments and financial results for the 3 months ended June 30, 2021. With us today are: Nadir Ali, the company's CEO; and Wendy Loundermon, the company's Chief Financial Officer.
Today Inpixon released financial results for the 3 months ended June 30, 2021. If you have not received Inpixon's earnings release, please visit the company's Investor Relations page at ir.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, and the anticipated impact of those transactions on our business; any statements concerning proposed new products or solutions; 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 including but not limited to the impact of COVID-19 on our operations; any statements regarding the valuation attributed to any of our securities instruments; any 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 Safe Harbor section of today's press release 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 releases.
I'll now turn the call over to Nadir Ali, Inpixon's CEO. Please go ahead.
Thanks, David, and hello, everyone. Good afternoon. Thanks for joining us today to hear an update on our recent business activities and our financial results for the second quarter of 2021.
We'll go into the details of our financial results in a bit. But to start off, I'm happy to report that Q2 revenue was up 221% compared to the same 3-month period a year ago. And gross profit increased 232% over that same period.
We ended the quarter with a strong cash position of approximately $70 million, including roughly $25 million cash and another $45 million in short-term T-bills. In addition, with our new product offerings, we're not only starting to scale the business in terms of number of customers and revenues, we're also beginning to see increases in our ASP or Average Selling Price for some of our Indoor Intelligence products and use-cases this year.
And we're also working towards increasing our SaaS subscription offerings, increasing our recurring revenue as we work towards a 70/30 split between recurring revenue and non-recurring revenue.
You would recall in April we announced the conversion of approximately $9 million in principal and accrued interest, underlying the Sysorex note receivable into an equity investment. As of the end of second quarter, we recorded a highly discounted net fair value of approximately $20 million for the Sysorex shares.
There are a variety of factors impacting the valuation of the equity received. However, this transaction primarily contributed to a resulting net income of $14.5 million (sic) [$14.8 million] for the second quarter of 2021. Factors such as Sysorex's stated plans to uplist to NASDAQ or some other national exchange, Ethereum pricing could impact the market price of the securities, along with, of course, trading volume and liquidity on a quarter-by-quarter basis. And so, this will impact our P&L accordingly as well.
But it goes without saying that this transaction is at an overall significant net positive result for the company.
So today, we'll also talk about the unique challenges companies here in the U.S. and all over the world are really facing as they move towards a post-pandemic world, and the future of work in this hybrid model, the role of digital transformation initiatives, and then how our Inpixon solutions are helping these organizations meet these challenges by driving superior employee experiences.
All right, so let's start with the challenges companies and organizations are facing today. And before even taking into account the specific impact of the pandemic, studies have shown that employers are paying a big cost for a dissatisfied workforce. Disengaged employees cost organizations $500 billion a year according to Inc. Magazine.
And 90% of executives say that retention is an issue and businesses are losing about $11 billion dollars a year as a result of churn-over. It's well documented that digital technologies in the workplace are a critical part of driving employee satisfaction. And employees are frustrated with the technologies in place at their organizations for engagement and collaboration.
Certain studies show that only 13% of employees had a satisfactory experience with technology in the workplace, with over 45% claiming that the implementation of the technology wasn't living up to expectations. Now, remember, I've been talking about these challenges experienced by employers even before the pandemic hit.
With the pandemic, the need for digital transformation in the workplace has accelerated, especially with all the news you're hearing about the great resignation happening across this country, right? So a lot of turnover and movements. Employee experience is becoming such a key factor.
With no clear path to manage these changes, employers are struggling to redefine what their work environments will look like. And they're trying to identify which tools and technologies can help invest, improve the experience without adding existing frustrations.
How employees feel about returning to the office will be determined by this experience that I'm referring to. And the employers can create this through use of digital transformation and try to address these concerns. Of course, the Delta variant is causing additional uncertainty for employees returning to the office.
Part of the workplace experience, driven by the Delta variant and ongoing issues, is really trying to make that experience safe and secure. And that's part of our main goal, is how do we provide a safe, healthy work environment to keep employee wellbeing a top priority.
So employers need solutions that help address the new requirements of a hybrid and in-office workforce. And we're enabling employees to not only be highly productive, but simultaneously feel safe and secure.
So, the way we're solving these problems for our customers is we're helping them accelerate their digital transformation. Inpixon's helping organizations deliver superior experiences by leveraging the range of Indoor Intelligence technology that we have to create those smarter and safer more secure environments that customers need.
With our recently acquired smart office app, The CXApp, employers can offer their employees a corporate customer branded location aware app allowing for a fully connected workforce. Our smart office app leverages a robust mapping platform and blue dot or on-device positioning technologies. With the integration of our on-device positioning technologies, we can calculate the user's position to allow for navigation and turn-by-turn directions with little or no infrastructure requirements. So just like you would imagine with Google Maps or Waze and what they do for the outdoors, we do for the indoors.
Employees will also have access to a dynamic interactive map of their corporate facilities that serves as a digital twin of all other facilities, key places and things like entrances and exits, valid pathways, conference rooms, restrooms, elevators, captures and more.
In the near-term, we also expect to integrate our 3D mapping and augmented reality capabilities as well as our asset tracking tags and badges. For example, users to navigate more easily by following overlay graphic arrows that guide the way similar to Google Live View experiences or they could point their phone, let's say, at a pallet in a warehouse and seeking key information about the assets on that pallet.
One of the key frustrations often cited by employees and rising from the shift to a more digital workplace is app fatigue. So data shows that the average business professional uses about 9.4 apps at work. Each app has a different user interface, different operating characteristics, resulting in wasted time switching between apps, and increasing security risk with various passwords for each app. So to address this concern and relieve the fatigue, we focus on building a stronger partner ecosystem.
We have over 75 pre-built partner integrations with third-party solutions like Zoom, Slack, G Suite, [Microsoft HR systems] [ph], et cetera, that employers can offer their employees access tools that they engage with daily through a single app platform. This allows for delivery of an easier, more accessible friction list workplace tool, improving productivity and helping relieve that app fatigue that I'm referring to.
We offer a purpose-built centralized gateway to all of these business related digital touch points in one unified employee friendly experience, integrating variety of capabilities including reserving your socially distance desk or searching for and booking rooms, that meets your spatial and audio visual requirements. Finding and booking seats near colleagues are navigating through a colleague or a key destination like a conference room or an auditorium. These apps also allow our employees to order food or interact with company news feeds and notifications, and even submit a work order in much, much more. Ultimately, we're promoting engagement, productivity and collaboration.
Gartner says increasing employee productivity with technology has become a top priority for organizations. And it's the top objective for 90% of organizations that are implementing digital workplace strategies. We have moved quicker and innovated faster than others in the space, delivering a complete, comprehensive, award winning all-in-one app that integrates our mapping, positioning and analytics.
We're providing solutions that are diverse, agile, flexible, so an organization can pivot as its needs change. And we're trying to address all aspects related to this new normal that we're all living in to address employee frustrations with technologies that are currently in place. All of this results in engaged employees, a connected workforce, and of course, safety and security.
Companies with engaged employees outperform those without by up to 202% according to [Dale Carenegie] [ph], and companies with highly effective communication practices enjoyed 47% higher total returns to shareholders. So by engaging staff with innovative technology that empowers them to do a good job, productivity will increase, turnover will drop and recruitment efforts will thrive.
All right, so let's now go a little bit beyond the workplace, the office space and talk about hybrid corporate events. So live in-person conferences, executive briefings, concerts and gatherings are happening, but they've also got this hybrid twist, right, they've got the online version as well. And so we're beginning to see more activity in the event space. Companies need solutions like ours to address new requirements and to support in-person, remote and hybrid events. Different geographies have different capacity restrictions. Our app adapts to the unique needs of each venue optimizing the use of our technology for every facility.
The CXApp actually started as an events and meeting platform and it continues to be one of our key strengths. To execute a hybrid event organizers need an event platform optimized for hybrid events and omni-device experiences. Our customers are utilizing the app to host conferences, employee events and executive briefings, integrating attendee registration, travel logistics and accommodations, customization of event agenda, monitoring sessions and speaker bios and offering maps of course with navigation to key destinations like conference rooms and breakout rooms in a private venue or a large convention center.
We are optimized to support virtual events meeting the demand of this exploding market segment. Live and recorded event, video streaming can be piped into the apps event platform and viewed on any device. When attendees are unable to attend in-person, they can still get the event experience by visiting virtual booths and viewing 3D tradeshow floors, product demos, even virtual offices.
Importantly, this mobile app creates an attendee engagement experience that can be fulfilled anywhere through live streaming social feeds, polls, surveys and electronic content. Unlike other hybrid event companies, we also have all of the Indoor Intelligence products like our ultra-wideband visitor badges and positioning sensors to provide event organizers and renders, tons of analytics of what's happening at their event.
And let's go one step further and imagine adding our augmented reality to hybrid events, creating a truly immersive experience. Now, you've probably heard of other companies in the space like Hopin and Bizzabo, who are also in this event space and raising money at billion dollar valuations. We can take this to the next level compared to those competitors by bringing in our augmented reality. So you'll hear more about this as we execute on our roadmap here.
Ultimately, what we're trying to create a connection with our customers and their end users. And for Inpixon, it's the way our Indoor Intelligence defines that indoor experience that you have in the spaces that you visit, no matter where you are in the office, at an event, at a museum, airport, et cetera.
So now let's talk about some of the customers that are using our Indoor Intelligence technology and the app. You've probably seen several press releases over the last few months talking about some of these customers, marquee customers, as you know, we can't always name them, but they're fairly large Fortune 500 companies that we're starting to see a strong momentum as organizations worldwide are preparing to reopen their offices and welcome back employees.
We've recently announced several key customer engagements across a variety of industries that are implementing our solutions. And our products are relevant to everyone and every business today. A few examples that can touch on major European-based commercial and retail banking firm with over 50,000 employees. They're implementing our app across 75 different locations.
We've also been working with a customer that's a globally recognized media and entertainment conglomerate, and have a portfolio of well recognized movie, cable and network television, sports and news brands. They're implementing our app across multiple corporate campuses, including its global headquarters as well.
And finally, a leading global social media and information sharing company with hundreds of millions of active users worldwide is implementing our app across their dozens of corporate locations. And the pipeline continues to be filled with large corporate customers across a variety of industries, both in the U.S. and across the world. These engagements demonstrate how we are and continue to deliver an all-in-one app solving hybrid workforce challenges by integrating numerous workplace services and tools into unified employee experience with countless capabilities.
We're integrating with collaboration systems for conferencing and meetings, facilities for occupancy levels and smart parking, food services for menus and ordering, social media for engagement, IT and security for help tickets and single sign on even systems for CRM and marketing campaigns. And all of this allows for increased stickiness and customer retention rates as well as growing our annual recurring revenue streams.
So for some of you, new investors, everything that I've been talking about is a combination of what our business plan and strategy has been over the last few years. Several years ago, we recognized the value of connecting to the end user with our Indoor Intelligence products, and being the only player in the market with the ability to deliver all of the key technology solutions required for a comprehensive Indoor Intelligence solution.
Starting with our device detection sensors, which were leveraged by government agencies and corporations to enhance security measures and bridge the gap between physical and digital security, allowing our organization to make key decisions around security risk mitigation and public safety. Then we added mapping and analytics capabilities, and then supplemented our range of positioning technologies with our on-device positioning and the RTLS solutions.
And finally, we've now closed the loop to connect them to that end user with the addition of this smart office app. We now have one of the industry's most complete indoor location technology portfolios, and can offer a one-stop shop for all Indoor Intelligence needs. Customers in the path had to purchase all of these products from multiple vendors and try to integrate them. We take that pain and overhead cost away for them, right. We know we've been in engagements in the past where we've had to work with those other vendors, and the challenges that that brings not only for the customer but for us.
Having all of this in-house gives us a huge competitive advantage. It creates stickiness and, of course, increases our average sales price. All of the value that GPS brought to the outdoors, we can now make available in the indoors and that revolution is just beginning. The digital transformation market is forecast to surpass a trillion dollars by 2025. And we intend to capture a significant share of this market as it relates to our products. I'm excited about the confluence of factors, the synergy of things that have come together for us.
Today, we've got a team with expertise across the spectrum of Indoor Intelligence solutions, a full suite of technologies, a strong balance sheet, and it's all happening at the right time, right? This hybrid focus has been in the works, but of course, it's been accelerated by the pandemic, whether it's in the workplace or for events.
So when I consider the momentum, we're experiencing with the high caliber of enterprise companies across various industries around the world that have selected our solutions to help them meet the demands of the future of work for their employees, coupled with the pull through potential for our maps and physician products immediately, and then future up-sell opportunities for our RTLS analytics in augmented reality products. I'm confident in our ability to meet our goal of becoming the undisputed leader of indoor location based technologies.
In a bit, I'll come back and answer some of the questions you've all submitted to our Investor Relations firm. But first, I'd like to turn it over to Wendy, our CFO to discuss second quarter 2021 financial results. Wendy?
Thank you, Nadir. Revenues for the 3 months ended June 30, 2021 were $3.5 million compared to $1.1 million for the comparable period in the prior year for an increase of approximately $2.4 million, or approximately 221%. This increase is primarily attributable to an approximate $1.5 million increase in Indoor Intelligence sales, and an increase of approximately $700,000 of SAVES sales.
Gross profit for the 3 months ended June 30, 2021 was $2.6 million compared to approximately $770,000 for the comparable period in the prior year for an increase of 232%. The gross profit margin for the 3 months ended June 30, 2021 was 74% compared to 72% for the 3 months ended June 30, 2020. This increase in margin is primarily due to the higher mix of gross profit from Indoor Intelligence products.
Net income attributable to stockholders of Inpixon for the 3 months ended June 30, 2021 was income of $14.8 million, compared to a loss of $7.3 million for the comparable period in the prior year. This increase in income of approximately $22.1 million was primarily attributable to higher gross profit, the discounted net gain on the Sysorex note and the release of valuation allowance on the Sysorex note, offset by some increased operating expenses.
Non-GAAP adjusted EBITDA for the 3 months ended June 30, 2021 was a loss of $6.3 million compared to a loss of $3.9 million for the prior year period. Non-GAAP adjusted EBITDA is defined as net income or loss before interest, provision for income taxes, depreciation and amortization, plus adjustments for other income and expense items, non-recurring items and non-cash items including stock-based compensation.
Pro-forma non-GAAP net loss for basic and diluted common share for the 3 months ended June 30, 2021, was a loss of $0.07 per share, compared to a loss of $0.21 per share for the prior-year period. Non-GAAP net loss per share is defined as net income or loss per basic and diluted share adjusted for non-cash items, including stock-based compensation, amortization of intangibles and onetime charges and other adjustments, including loss on the exchange of debt for equity, provision for valuation allowance on notes and acquisition costs.
As of June 30, 2021, we had approximately $70 million in available capital, including $24.9 million in cash and $45.3 million held in short-term investments, which is primarily treasury bills. This concludes my comments. And now, I'd like to turn the call back over to Nadir.
Thanks, Wendy. David, could you please lead us through the Q&A discussion?
A - David Waldman
Yes, thanks, Nadir. Like last quarter, in our conference call announcement press release, we suggested interested parties submit their questions in advance. We'd like to address those questions for you now.
Some of them were duplicative. So we did our best to reconcile those where possible. If you have any further questions after the call, please feel free to follow-up with Investor Relations. And we'll be sure to respond as quickly as possible.
Our first question, how does the smart office app benefit employees?
All right. Yeah, so I addressed this during the call, but let me just try to summarize here. Overall, it is simplified and comprehensive mobile app, workplace solution, that supports the flexibility required of a hybrid return-to-office, right. So whether they're working from home or in the office, employees can use this app.
Employees are adjusting to an evolving work environment, right, in the same way that their employers are. And we're able to help them deliver a more connected workplace with a mix of on-site and remote options. By having everything you need in one place, including your calendar meetings, schedule, directions, ordering breakfast or lunch, booking a desk, reserving a conference room, employees become more productive with easier access to information. Remember that whole app-fatigue discussion we had earlier, trying to bring it all in one place, using this app as a gateway to all of the other technologies that the company may be providing.
And additionally, like, as you can imagine, right, there is new health requirements in place like contact tracing or vaccination proofs or COVID testing. These employees are required by their employers to abide by these rules, and they need to submit health surveys sometimes prior to entering a building or they need to provide tickets and information as they check out.
All of this can be done through a simple solution that these large organizations can implement using our app. And it's a balance of employee productivity, creating a good safe work environment, and then of course, employee satisfaction. And that's why I think we're seeing such strong demand for it.
Great, thank you. Our next question, Inpixon was added to the Russell Microcap Index. Can you comment on this and its potential benefits?
Sure, yeah. So as of June 28, I believe we're included in the Russell Microcap Index. The Russell Indexes are widely used by investment managers and institutional investors for index funds and as benchmarks for active investment strategies. We believe this inclusion is reflective of the growth we've experienced over the past year, including our synergistic acquisitions. And we also believe this inclusion will assist us in gaining additional awareness and exposure about Inpixon throughout the investment community.
Great, thank you. Our next question, can you say anything about whether Inpixon is planning more acquisitions, or whether your focus now is on growing the existing business?
I get this question often. So, yeah, look, we're focused on increasing our organic growth opportunities. That's certainly a priority and primary focus. We have some solid business use-cases that span our products and we're looking to scale them. I also believe that the acquisition strategy that we executed over the last couple of years was essential in order to position Inpixon as the leading and, frankly, the only all-in-one indoor intelligence provider.
Ultimately, that full extent of value that our Indoor Intelligence solutions can offer is only just recently beginning to be recognized by enterprise organizations worldwide. And so, we're in a rapidly evolving industry. We'll have to continue to be open to exploring the possibility of strategic transactions in order to continue to enhance, improve our product line, and maintain a leading position in the industry, or to the extent that we believe there are opportunities that will create long-term shareholder value. So we keep an open mind. We're optimistic, but we certainly are focused on scaling the business that we have.
Great, thank you. Our next question, with all that's happened this year, like COVID-19, various acquisitions, return to work and sales momentum, do you think the company has turned a figurative corner?
Yeah, good question. I mean, look, I certainly believe we are in a significant growth trajectory. We have diversified our product lines and increased our revenue. And as I mentioned earlier, we're also beginning to see an increase in our ASP among certain product lines and use cases, as well as in our reoccurring revenue stream. That's really important to us.
And like most technology companies, we're looking to build that ARR. So I'm encouraged by the demand we're seeing for our products. And as more and more organizations are looking to bring their employees back into the office, or to support their hybrid workplace and events, I expect this trend to continue for us as we grow and aggressively market our offerings.
Great, thank you. That concludes the Q&A. And I'll now turn it back over to you for the close.
All right, thanks, David. All right. So before we conclude, I just like to highlight that we continue to differentiate ourselves from other players in the market with our ability to deliver full-stack indoor intelligence technologies. We believe that our competitors can't truly deliver the unique experiences customers desire, without being in control of all of these critical components that we have under one roof.
I mean, whether that's our smart campus solutions or hybrid events or RTLS, we've been pursuing this path over the last few years. And we've achieved the milestones we set out to accomplish this. And now, we're looking to scale the product lines and use cases. I'm excited and pleased with the momentum we're gaining within these markets. And I look forward to providing updates regarding contract wins, technology enhancements, and more developments as they unfold. So thank you, everyone, and stay safe out there.
Thank you for joining the call. John, I think we can call it a wrap.
Thank you. Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.