Business Context and Reporting Period
This is Sysorex Global Holdings Corp.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2015. The filing describes a provider of data analytics, location-based and cybersecurity products, IT hardware and software resale, SaaS, and professional services. The request metadata names XTI Aerospace, Inc., but the filing itself identifies Sysorex Global Holdings Corp. as the registrant.
Financial Performance and Position
Amounts below are in U.S. dollars; financial statement figures are generally in millions.
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $14.9 | $14.3 | $46.7 | $47.7 |
| Gross profit / margin | $4.4 / 30% | $4.3 / 30% | $14.1 / 30% | $14.3 / 30% |
| Operating loss | $(3.1) | $(2.5) | $(7.6) | $(5.5) |
| Net loss attributable to Sysorex stockholders | $(3.2) | $(2.5) | $(7.8) | $(5.7) |
| Basic and diluted loss per share | $(0.16) | $(0.13) | $(0.39) | $(0.33) |
| Adjusted EBITDA loss | $(1.5) | $(1.5) | $(2.8) | $(1.0) |
- Revenue mix: Q3 services revenue rose 25% to $4.2 million, while product revenue declined 2% to $10.7 million. For the nine-month period, services revenue increased 26% to $12.1 million, but product revenue fell 9% to $34.6 million.
- Segments: Nine-month Storage and Computing revenue was $34.0 million, Professional Services $9.0 million, SaaS $2.8 million, and Mobile, IoT & Big Data Products $0.9 million. The latter segment’s gross margin fell to 56% from 84%, primarily due to an obsolete-inventory write-off in Q1; consolidated gross margin remained 30%.
- Cash flow: Nine-month operating cash use was $3.9 million, versus $6.4 million a year earlier. Investing cash use was $0.9 million versus $9.8 million; financing provided $6.9 million versus $16.8 million. Cash increased by $2.1 million to $5.4 million.
- Liquidity and debt: Working capital deficit was $4.9 million, compared with $2.8 million at December 31, 2014. Total reported debt was approximately $7.8 million, including $4.8 million drawn on a $10 million revolving facility and approximately $1.8 million on a term loan. The company also reported a $3.5 million current LightMiner acquisition liability expected to be settled in stock.
- Equity: A September public offering of 5.25 million shares at $1.00 per share yielded approximately $4.7 million net. Common shares outstanding were 25,118,648 at September 30 and 25,281,648 as of November 12, 2015.
Changes Versus Prior Period
- Q3 revenue increased about 4%, primarily from a large professional-services contract; nine-month revenue declined about 2%, mainly from lower Storage and Computing and Mobile, IoT & Big Data sales.
- Despite higher Q3 revenue, operating and net losses widened. For nine months, net loss attributable to stockholders increased to $7.8 million from $5.7 million; management cited a full nine months of AirPatrol expenses in 2015 versus about five and a half months in 2014, alongside higher amortization and operating costs.
- Adjusted EBITDA loss worsened to $2.8 million for nine months from $1.0 million. Management cautioned that this non-GAAP measure is not a substitute for GAAP results or cash flow.
- Debt and the working capital deficit increased from year-end 2014. The company added the LightMiner acquisition in April 2015, with recorded purchase consideration of $3.7 million, predominantly stock to be issued later.
Outlook, Risks, and Other Matters
- Management said available cash, the expanded bank facility, offering proceeds, anticipated higher-margin business growth, and contract awards were expected to fund planned operations for the next 12 months. If these sources prove insufficient, the company may curtail expansion or seek additional financing; availability of financing is not assured.
- The company expected service growth and task orders under NASA SEWP and NIH CIO-CS government contract vehicles to support revenue and cash flow, but stated there is no assurance that further task orders will be awarded. AirPatrol sales cycles were longer than expected because of customer budget, procurement, and evaluation processes.
- The bank facility is secured by substantially all company and subsidiary assets, includes financial covenants and a minimum unrestricted cash requirement, and matures in 2017; the term loan matures in 2018. A post-quarter amendment changed the lender to Western Alliance Bank and revised certain covenants.
- Customer and supplier concentration is material: one customer accounted for 26% of nine-month revenue, and one vendor represented 54% of gross accounts payable and 61% of Q3 purchases.
- LightMiner’s purchase-price allocation remained preliminary pending valuation work. AirPatrol did not meet the earn-out threshold, so no earn-out was owed. Management reported no impairment charges for the periods presented.
- The filing reported no pending legal proceedings, stated disclosure controls were effective, and incorporated the risk factors from the company’s 2014 Form 10-K. Results for the interim period are not necessarily indicative of full-year results.
Important Facts for Investors to Verify
- Confirm the issuer identity: this filing is for Sysorex Global Holdings Corp., not XTI Aerospace, Inc.
- Track operating cash use, the $4.9 million working capital deficit, and management’s stated 12-month funding expectation.
- Review bank-facility covenant compliance, available borrowing capacity, and the effect of the October 2015 covenant amendment.
- Assess whether government task orders and higher-margin services materialize, and whether longer AirPatrol sales cycles improve.
- Monitor customer/vendor concentration, the LightMiner stock consideration and final purchase accounting, and potential dilution from outstanding options and future equity issuance.