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Inpixon (NASDAQ:INPX) Q1 2020 Earnings Conference Call May 11, 2020 4:30 PM ET

Company Participants

David Waldman – Crescendo Communications

Nadir Ali – CEO & Director

Wendy Loundermon – CFO, Secretary & Director

Conference Call Participants

Operator

Good day, ladies and gentlemen, and welcome to your Inpixon First Quarter 2020 Conference Call. [Operator Instructions]. As a reminder, today’s call is being recorded. At this time, it is my pleasure to turn the floor over to David Waldman. Sir, the floor is yours.

David Waldman

Good afternoon, and welcome to the Inpixon earnings conference call for the 3 months ended March 31, 2020. [Operator Instructions]. I’m sorry. Thank you for joining today’s call to discuss the corporate developments and financial results for the 3 months ended March 31, 2020.

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 March 31, 2020. If you have any — 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 relating 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 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 the public periodic reports the company files with the Securities and Exchange Commission. Investors or potential investors should read these risks. Inpixon assumes no obligation to update these forward-looking statements to reflect future events or actual outcomes and does not intend to do so.

In addition, to supplement the GAAP numbers, the company has provided non-GAAP adjusted net loss and net loss per share information in addition to non-GAAP adjusted EBITDA information. The company believes that these non-GAAP numbers provide meaningful supplemental information and are helpful in assessing our historical and future performance. A table reconciling the GAAP information to the non-GAAP information is included in the company’s financial release.

I’ll now turn the call over to Nadir Ali, Inpixon’s CEO. Please go ahead.

Nadir Ali

Thank you, David, and good afternoon, everyone. First, I’d like to thank everyone for taking the time to join our conference call today, especially during this challenging time. I hope that all of you, your families and friends are healthy and doing well. We are pleased to be here with you to discuss our first quarter financial results and accomplishments and update you on our plans and outlook for the quarters to come. Today, we are all living and working in what are an unprecedented time. During the first quarter of 2020, we, like all of you, have had to learn to adapt and change in what is a constantly evolving situation for every industry throughout the world.

When the government stay-at-home orders went into effect, we were able to make necessary adjustments to ensure our employees’ safety and adherence to guidelines by quickly and efficiently transitioning to remote work across all of our locations. Not only have our employees adapted smoothly to working from home, I am proud to report that because of the dedication of all of our employees, who are working harder than ever before to balance work responsibilities with the challenge of family life during these extremely difficult times, we have been able to continue business operations remotely with minimal impact on our day-to-day operations.

Our customer support team is readily available and in full operation, actively engaging with customers and prospects every day. And all of our employees from engineering, operations, to sales, marketing and finance are doing their part so we can quickly deliver new relevant solutions to help our customers, communities and society at large. The challenges that our customers are facing vary by industry. Clearly, those that have been categorized as nonessential have been heavily impacted, while certain essential businesses, government and health care facilities are aggressively working to adopt our indoor intelligence solutions that will help them be prepared for necessary changes.

So while certain projects and customer requests have been delayed over the last few weeks, either because they require on-site services, which could not be performed while shelter in place orders have been in effect, or because of a customer’s decision to reprioritize resources during these uncertain times, our SaaS or subscription-based services and products that can be deployed and managed remotely continue to remain steady. With respect to our first quarter results and particularly in light of the current circumstances, I’m very pleased to report a 32% increase in revenue for the first quarter ended March 31, 2020, as compared to the same period last year. This increase is primarily attributable to our indoor mapping capabilities and solutions.

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In addition, over the last few months, we have been able to secure new relationships to deliver our mapping and wayfinding solutions to a variety of elite organizations, including a large destination resort and a company with dozens of shopping centers in Europe and Asia, allowing us to generate upfront professional services revenue as well as recurring software license revenue.

We also continue to see opportunities within the government sector, as evidenced by the order for our Inpixon Sensor 4000 products, which we received in the first quarter from Sengex, which provides organizations and government agencies with state-of-the-art, innovative threat discovery and analysis solutions. This recent order illustrates the continued recognition by the government sector and the value our technology brings to an increase — to increase security and to assist in complying with regulations that mandate government agencies mitigate mobile device security risks.

During the first quarter of 2020, we have expanded our partner and distribution relationships with the addition of Unified Systems as an authorized reseller and with the expansion of our collaboration efforts with Mist Systems. Unified Systems is a systems integration company specializing in the design, installation and maintenance of IP-based technologies for companies within various marketplaces, including gaming facilities, commercial and industrial companies, as well as government and public agencies. Mist is a Juniper Networks company. And in the first quarter, we expanded our work with them to integrate our new Ultra-Wideband or UWB technology into their enterprise wireless infrastructure solutions.

We continue to increase our exposure and recognition with the indoor intelligence industry with numerous increase from journalists and media outlets to share our expertise, resulting in media coverage from high-quality media outlets, including Forbes, CNET and U.S. News & World Report, which we believe reinforces our recognition by Gartner earlier this year as a visionary in their 2020 Magic Quadrant for Indoor Location Services.

We have also invested resources to enhance our products in various ways. For example, we extended the scalability and improved the user experience for administrators of our wireless device detection solutions while also making additional diagnostic tools available, including reports showing sensor time sync status, database metrics, file handle usage and more. In addition, we launched the next generation of Inpixon Analytics, which includes a new analytics engine, redesigned user interface, new reports and other enhancements from previous versions to measure and analyze visitor counts, movements and dwell times.

Today, while it’s difficult to predict what the full scale of the pandemic’s effects on the national or global economy will be or how it will ultimately impact our results of operations, it’s never been more critical for organizations to not just understand what is happening within their indoor spaces, but also to ensure that they have an infrastructure, which optimizes these spaces for the safety and well-being of their employees and visitors.

Indoor intelligence is now more important than ever. Organizations throughout the world will be required to establish policies and maintain an infrastructure that will allow them to take swift and effective action for their indoor spaces by requiring compliance with new regulations directed at ensuring physical distancing, increased cleaning and digital contact tracing. Businesses and governments are seeing the value and need for indoor intelligence during these times as they prepare to reopen, and they’re asking how our technology can help to facilitate and support them in these efforts. In his daily briefing today, we heard Governor Cuomo in New York indicate that businesses will have to implement safety precautions to bring employees back to work with processes and procedures to address crowding and density. We believe an enterprise solution will be needed for these companies to address their needs in a way that consumer-oriented, app-based solutions that we’ve heard about so far will not be able to address.

Our existing products are enterprise-ready and are already being used by large government and commercial clients. We have now enhanced these products with new dashboards and features for workplace readiness that can assist organizations in managing the return to their facilities as well as monitoring compliance with corporate policies and government regulations in order to help keep employees healthier and safer.

With the ability to deploy our solutions remotely by leveraging existing Wi-Fi access points, coupled with the information that can be obtained with the use of the Inpixon Analytics platform and within the context of a dynamic and interactive map, businesses that use our technology within their premises will have access to ready-to-use, configurable dashboards that can measure crowd density and provide a time-based analysis of the trends and changes in people flow and density by zones within their spaces using device positioning.

What we are offering is a comprehensive solution to help businesses plan and prepare their environment for reopening. Our solution will help them to implement new best practices and to address policies and guidelines around new requirements, such as physical distancing, contact tracing and intelligent cleaning. Our solutions will be able to offer key insights about a particular premise with easy-to-read building and zone health scores calculated based on zone occupancy density, number of entrance and exit points and dwell times. This information will be essential to an organization’s ability to monitor crowding to assess compliance and the effectiveness of their physical distancing policies while also permitting swift action to be taken as and where needed.

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Also key are drill down metrics, trend analysis reports and alerts when preferred density levels have been exceeded within a particular zone, think about conference room, cafeterias or break rooms, without triggering automated workflows for specific zones that may require action such as zone closure, restricted access or increased cleaning and sanitation efforts. Our technology will be able to offer smart navigation to route users along paths that avoid congestion and to integrate with space booking systems that enable users to book a safe space to help enforce physical distancing policies as well as a touch-free, app-enabled location-based services that can decrease interaction with staff or contaminated surfaces and objects.

Our technology can also assist businesses with contact tracing efforts that may be required to help keep employees, customers and visitors safer and healthier by taking efforts to limit their exposure to infectious diseases, such as COVID-19. In this regard, human resource departments and authorized personnel may access information to identify historical movements and activity by zone and proximity, in which a self-identified infected or symptomatic individual may have been to aid in exposure notification efforts to other personnel who may have been in proximity to such an individual as well as direct where increased cleaning and sanitation efforts may be required. Access to this type of information will allow businesses to protect the health of their employees by mitigating exposure to highly contagious viruses within the spaces.

In addition, upload capabilities and APIs will allow customers to integrate data collected from external sources, such as temperature readings, thermal camera counts or customizable health assessment questionnaire responses within the same dashboard, offering a single platform to assess and monitor workplace readiness across a variety of use cases. All of these enhanced features provide useful and actual information for facilities in the form of analytics and reports in near real time, allowing facilities to promptly address issues to secure their spaces and occupants. We believe our technology fills a critical and essential need in the market right now. We are already seeing a growing interest among our customer base for these types of solutions with an increase in customers reaching out not only to understand how we can help, but also how quickly we can implement our solutions.

Along with these activities, we intend to stay the course as it relates to some of our other strategic efforts by continuing to evaluate and pursue, where appropriate, strategic M&A opportunities that will allow us to continue our growth and build upon and enhance our business as a provider of end-to-end solutions for indoor intelligence.

During the first quarter of this year, we were able to access capital resources with an investment from a lender that has continued to support the company for many years as well as secure an at-the-market or ATM facility. With the combination of these resources, we believe we have a solid foundation with access to capital to support our working capital needs as well as allow us to invest in our technology and awareness of our products. We intend to aggressively pursue efforts over the coming months to create awareness around the utility and value of our technology to organizations today as they look to reopen, but also for our core competencies related to visitor analytics, customer experience, enhancement, wayfinding, navigation, first responder communications, security, theft prevention, asset tracking, workforce productivity, facility management, location sharing, intelligent parking and much more. We believe that the potential applications are virtually endless, and we have barely scratched the surface of expanding our addressable market.

With that, I will now turn the call over to Wendy to discuss our financial results for the three months ended March 31, 2020, and then I will wrap up with a few closing comments. Wendy?

Wendy Loundermon

Thank you, Nadir, and thanks to everyone for joining us today. Revenues for the first quarter ended March 31, 2020 were $1.8 million compared to $1.36 million for the comparable period in the prior year, for an increase of $441,000 or approximately 32%. The revenue increase was primarily due to an increase in revenue from mapping services. Gross profit for the 3 months ended March 31, 2020, was $1.3 million compared to $1 million for the comparable period in the prior year for an increase of 26%, while gross margin for the 3 months ended March 31, 2020 was 72% compared to 75% for the 3 months ended March 31, 2019. This decrease in margin was primarily due to lower margins associated with the increase in our mapping services as a percentage of revenue during the first quarter ended March 31, 2020. Loss from operations for the 3 months ended March 31, 2020 was $5.6 million as compared to $4.9 million for the comparable period in the prior year. This increase of approximately $700,000 was primarily attributable to the higher gross profit, offset by higher operating expenses during the 3 months ended March 31, 2020. Net loss attributable to stockholders for the 3 months ended March 31, 2020 was $6.2 million compared to a loss of $5.2 million for the comparable period in the prior year.

The higher loss of approximately $1 million was primarily attributable to higher gross profit, offset by higher operating and interest expense during the first quarter ended March 31, 2020. Non-GAAP adjusted EBITDA for the 3 months ended March 31, 2020 was a loss of $3.9 million compared to a loss of $2.6 million for the prior period in 2019. Non-GAAP adjusted EBITDA is defined as net income or loss before interest, provision for income taxes and depreciation and amortization plus adjustments for other income or expense items, nonrecurring items and noncash items including stock-based compensation. Pro forma non-GAAP net loss per basic and diluted common share for the 3 months ended March 31, 2020 was a loss of $0.92 per share compared to a loss of $31.98 per share for the prior period in 2019. Non-GAAP net loss per share is defined as net loss per basic and diluted share adjusted for stock-based compensation, amortization of intangibles, provision for doubtful accounts, severance costs, acquisition costs, costs associated with public offerings and onetime charges, including the loss on exchange of debt for equity. Cash on hand at March 31, 2020 was $6.1 million.

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This concludes my comments. And now I’d like to turn the call back over to Nadir.

Nadir Ali

Thanks, Wendy. I’d like to thank everyone for participating on our first quarter conference call. As I mentioned earlier, we believe we can fill a critical need in today’s world, and we are proud to have built a company with the essential technologies to assist organizations during one of the most difficult times in history, with solutions to make it easier to bring employees back to work and transition to what will be a new normal.

Our products and services are geared towards large enterprise organizations, government agencies and educational institutions worldwide that can use indoor intelligence to improve lives and experiences, and to enhance the safety, security and well-being of their employees and visitors. We believe we offer a valuable platform with the ability to analyze and monitor what is useful, actionable and essential data in today’s world. While some aspects of the future are uncertain for every business, I am convinced that organizations will invest to ensure this never happens again. An economic shutdown of the proportion experienced this year will likely be impossible to ever endure again.

Our organizations will have to take action to adapt to transform our businesses, economy and society to become better prepared for future similar events. Investing in solutions that help to identify contagion threats, decrease transmission and mitigate the impact of such outbreaks will be critical.

We are honored to be in a position to help our customers create a safer, healthier environment for their employees and visitors with solutions that support efforts to comply with best practice recommendations for effective policies that address the needs for things such as physical distancing, intelligent cleaning, contact tracing and other relevant use cases. Efforts taken to minimize transmission of viruses in the workplace where people spend most hours of their day will help to mitigate the spread of the virus through the broader community. We believe this is an opportunity for Inpixon to truly do good with indoor data by helping organizations across America reopen for a safer, more resilient future.

I’d like to thank all of our shareholders, customers, partners and our amazing employees across the globe for your continued support. We look forward to providing additional updates in the weeks and months ahead. I will now turn the call over for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions]. And we’ll take our first question from Ellen Litvack [ph] with Forest Capital.

Unidentified Analyst

Can you deploy your workplace readiness during the times where the shelter in place orders still continue?

Nadir Ali

Ellen [ph], yes, thanks for the question. Absolutely. So most of our products can be deployed remotely, the mapping products, the analytics products. And as I mentioned, we can capture data from existing Wi-Fi access points that our customers may have or if they have beacons deployed. So there’s existing infrastructure that they may have that we’ll tap into and bring into our mapping and analytics platforms. Our sensors will deploy as shelters in place restrictions loosen, but the other pieces can be done remotely.

Unidentified Analyst

Got it. So have you already seen interest already for this solution? I mean it sounds like it can help with physical distancing and contact tracing. Did I understand that correctly?

Nadir Ali

That’s absolutely right. So it is — these are existing products that Inpixon has had deployed with large customers, both government and commercial, and it’s now reformatting these products, providing new dashboards using that same data that we were capturing for our general indoor intelligence solutions for this purpose. So we are definitely getting lots of inquiries and people asking how can we repurpose this data to help with not only just physical distancing, but contract tracing, understanding which zones may require additional cleaning, also to help direct folks.

Consider if it’s a hospital, you may want certain patients going to a COVID ward, if you have a setup like that, and others going to other parts of the building. But same for enterprise and government agencies, they may want — it used to be we used to provide the shortest path from point A to point B. Now we’re going to focus on maybe which is the least crowded path. So we’re able to help our clients using the same products we have but solving a new use case, given where we are in the world today.

Operator

At this time, there are no further questions. The floor returns to Nadir Ali for additional remarks.

Nadir Ali

Thank you, everyone. Please stay safe and healthy, and we look forward to talking to you soon.

Operator

Thank you. This does conclude today’s teleconference. We thank you for your participation. You may disconnect your lines at this time. Have a great day.