Inpixon Form 10-Q Summary — Quarter Ended September 30, 2017
Issuer identification: The supplied filing identifies the registrant as Inpixon, not XTI Aerospace, Inc. Verify that this is the intended filing. Financial statements are unaudited and amounts below are in U.S. dollars unless otherwise stated.
Business context and reporting period
Inpixon provided indoor positioning analytics and IT infrastructure products and services. Its two reported segments were Indoor Positioning Analytics and Infrastructure; the latter includes resale of third-party hardware, software, maintenance, and related services. The filing covers the three and nine months ended September 30, 2017, compared with the same 2016 periods. The November 2016 Integrio acquisition expanded the federal-government IT services business.
Financial results and liquidity
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $11.924m | $11.240m | $40.502m | $38.659m |
| Gross profit | $2.251m | $3.098m | $8.924m | $10.489m |
| Gross margin | 19% | 28% | 22% | 27% |
| Operating loss | $(14.594)m | $(4.142)m | $(25.181)m | $(12.272)m |
| Net loss attributable to Inpixon stockholders | $(14.637)m | $(4.716)m | $(27.116)m | $(13.189)m |
| Adjusted EBITDA loss (non-GAAP) | $(3.121)m | $(2.366)m | $(9.154)m | $(7.045)m |
- Q3 revenue increased 6% year over year, primarily reflecting Integrio; nine-month revenue rose about 5%. Product revenue increased while service revenue declined. Infrastructure supplied $11.053m of Q3 revenue and Indoor Positioning Analytics $0.871m.
- Margins deteriorated: management attributed the decline primarily to lower-margin Integrio revenue. Q3 segment margins were 69% for Indoor Positioning Analytics and 15% for Infrastructure, versus 64% and 22%, respectively, a year earlier.
- Q3 operating expenses included an $8.392m goodwill impairment. The impairment followed a stock-price decline, accumulated losses, and insufficient working capital. Q3 other expense was reported as $0.038m; the filing cites a $0.561m gain on Integrio earnout as a major offset.
- For the nine months, operating cash flow was positive $0.218m, versus use of $1.136m in 2016. Investing used $1.154m and financing used $0.763m. Cash declined $1.714m to $0.107m.
- At September 30, cash was $0.107m, current assets $14.135m, and current liabilities $44.931m; working capital deficit was $30.796m. Total liabilities were $51.670m and total stockholders’ deficit was $16.465m.
- Reported debt was $5.600m: $3.519m short-term and $2.081m long-term. The Payplant facility was secured by company assets; approximately $3.4m was drawn at quarter-end. The filing also describes credit restrictions and vendor-credit challenges.
- Common shares issued increased to 15.414m at September 30 from 2.172m at December 31, 2016; 16.584m were outstanding November 17. The filing reflects a 1-for-15 reverse split effective March 1, 2017.
Material changes, outlook, risks, and unusual items
- Going concern: Management and the filing state that recurring losses and the working-capital deficit raise substantial doubt about the company’s ability to continue as a going concern. Management said available resources might not fund planned operations for the next 12 months and could not assure its financing and cost-reduction plans would succeed.
- Capital needs: The filing gives different estimates of required outside capital: $8–10m in one note and $10–15m in MD&A. A November 17, 2017 financing provided $1.5m net proceeds through a $1.745m face-value, 10%-interest convertible note due in 10 months, with a $0.45 conversion price and potentially dilutive and redemption provisions.
- Management outlook: Indoor Positioning Analytics revenue was expected to be flat in 2017, with growth expected in 2018. Management cited long sales cycles, customer budget and procurement processes, pilot deployments, and limited capital. It expected cost reductions from headcount and office cuts to save approximately $6m annually, and said financing and vendor-credit improvements could support operations.
- Financing and dilution: A June 2017 public offering generated about $5.7m net before estimated offering costs; proceeds were substantially used to repay debt. Warrants were repriced to $0.30 under an August agreement, with additional warrants issued at $0.55. Series 2 preferred shares were converted into common shares. These transactions contributed to substantial share-count growth.
- NASDAQ listing: In October 2017, the company reported it had not regained the $2.5m minimum stockholders’ equity requirement and had appealed a delisting determination; a hearing was scheduled for December 7, 2017. It also had a separate $1.00 minimum-bid-price deficiency, with a stated compliance deadline of February 12, 2018.
- Contingencies: HP’s claim was settled November 9, 2017 and was being dismissed. Embarcadero and Idera sought $1.1m over unpaid software and services; the company reported settlement discussions and had accrued the liability. A $0.722m Saudi Arabia judgment remained classified among liabilities held for sale.
- Other risks: Payplant’s security interest covers substantially all company assets, with default remedies that could include acceleration and foreclosure. The company also disclosed customer and vendor concentration, an increased doubtful-account allowance, and risks of further impairment. Management reported disclosure controls effective at quarter-end.
Important facts for investors to verify
- Confirm the issuer: the filing is for Inpixon, whereas the request names XTI Aerospace, Inc.
- Reconcile the stated capital requirement of $8–10m versus $10–15m, and assess actual financing availability, terms, and runway after the November note.
- Review the going-concern disclosure alongside the very low cash balance, working-capital deficit, vendor-credit limitations, and Payplant collateral and default provisions.
- Check the status and outcome of the NASDAQ equity and bid-price deficiencies, including any listing decision after the scheduled hearing.
- Assess dilution from the offering, preferred conversions, warrant repricing and exercises, subsequent warrant exercises, and the November convertible note.
- Verify the $8.392m goodwill impairment assumptions and the sustainability of reported operating cash flow, which benefited from working-capital movements and non-cash adjustments.
- Resolve filing inconsistencies: MD&A includes a reference to a nine-month net loss of approximately $22.5m, while the financial statements report $27.129m; confirm the capital-need estimates and other relevant disclosures against the filed financial statements and exhibits.