SEC filing summary
Entity note: The supplied filing is for Sysorex Global Holdings Corp., not XTI Aerospace, Inc. It is an unaudited Form 10-Q for the quarter and six months ended June 30, 2015. Dollar amounts below are in millions unless stated otherwise.
Business context and reporting period
Sysorex provided data analytics, mobile-location and cybersecurity products, IT hardware and software resale, SaaS, and professional services to government and commercial customers. Its reportable segments were Mobile, IoT & Big Data Products; Storage and Computing; SaaS; and Professional Services. The company acquired substantially all LightMiner Systems assets in April 2015, with a recorded purchase price of $3.705 million, largely payable in stock. The purchase-price allocation remained preliminary.
Financial performance and position
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $17.697 | $17.144 | $31.819 | $33.465 |
| Gross profit / margin | $5.696 / 32% | $5.679 / 33% | $9.743 / 32% | $10.030 / 30% |
| Operating loss | $(1.695) | $(2.371) | $(4.505) | $(3.065) |
| Net loss | $(1.695) | $(2.463) | $(4.599) | $(3.286) |
| Net loss per share | $(0.09) | $(0.13) | $(0.23) | $(0.19) |
| Adjusted EBITDA, non-GAAP | $0.034 | $0.455 | $(1.301) | $0.506 |
- Q2 revenue grew about 3%, as higher Services and Storage and Computing revenue more than offset weaker Mobile, IoT & Big Data Products sales. Six-month revenue declined about 5%, mainly from lower Storage and Computing and product revenue; Professional Services grew.
- For the six months, product revenue was $23.930 million (down from $27.251 million); services revenue was $7.889 million (up from $6.214 million). Six-month segment revenue included $23.640 million Storage and Computing, $5.843 million Professional Services, $1.960 million SaaS, and $0.376 million Mobile, IoT & Big Data Products.
- Operating expenses were $14.248 million for the six months, up from $13.095 million. Management attributed the increase primarily to including AirPatrol for a full six months in 2015 versus only part of the period in 2014. Q2 operating expenses declined year over year, partly because prior-year AirPatrol acquisition costs did not recur.
- Cash used in operations was $4.202 million for the six months, versus $5.533 million in 2014. Investing used $0.561 million; financing provided $3.781 million. Cash fell from $3.228 million at year-end to $2.242 million.
- At June 30, total assets were $65.537 million, total liabilities $40.438 million, and stockholders’ equity $25.099 million. Working capital was negative $7.462 million, compared with negative $2.813 million at December 31, 2014.
- Debt totaled approximately $9.299 million: $7.570 million short-term and $1.729 million long-term. The amended bank facility had a $10 million revolving limit, with $6.111 million drawn; approximately $1.9 million was outstanding on the term loan. The facility is secured by substantially all company and subsidiary assets and includes financial covenants.
- Deferred revenue was $16.243 million, including $8.969 million current. Two customers generated 40% of six-month revenue; one customer represented 38% of accounts receivable. Two vendors represented 74% of gross accounts payable, indicating supplier concentration.
Material changes, outlook, and risks
- Six-month net loss worsened to $4.599 million from $3.286 million, despite higher gross margin percentage and lower operating cash use. Management linked the greater operating loss primarily to the full-period inclusion of AirPatrol expenses. Q2 net loss improved year over year.
- Management said current resources, the expanded credit facility, higher-margin business expansion, and contract awards were expected to fund planned operations for the next 12 months. This is a management expectation, not a guarantee; the company disclosed a working-capital deficit, operating losses, and continuing operating cash outflows. It also noted it might curtail expansion or seek additional financing if resources prove insufficient, and had an effective Form S-3 registration statement available for potential equity issuance.
- Sysorex had received two government IDIQ contract awards as a prime contractor, but expressly cautioned that task orders—and resulting revenue and cash flows—were not assured. Management expected AirPatrol to begin generating positive cash flow later in 2015 and expected services and internally developed products to contribute more, higher-margin business; these expectations were not quantified guidance.
- Management cited longer-than-expected AirPatrol sales cycles. Mobile, IoT & Big Data Products revenue was low, and its six-month gross margin fell to 48% from 89%, mainly due to an obsolete-inventory write-off in Q1. The company reported no goodwill or long-lived asset impairment for the periods.
- The $3.705 million LightMiner purchase-price allocation was preliminary and subject to revision. The seller consideration is primarily stock, creating potential dilution; the agreement also provides for additional stock consideration. AirPatrol did not meet the earn-out threshold, so no earn-out was owed.
- A $0.722 million Sysorex Arabia advance payable relates to a 2011 judgment; $0.515 million was to be paid through a surety bond and $0.207 million was accrued. The filing reported no pending legal proceedings against the company or subsidiaries.
- Management stated disclosure controls were effective and there were no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the issuer: this filing identifies Sysorex Global Holdings Corp., not XTI Aerospace, Inc.
- Review the company’s subsequent cash position, operating cash burn, working-capital deficit, and compliance with Bridge Bank covenants, including the required minimum unrestricted cash balance.
- Track actual government task-order awards and revenue, AirPatrol sales and cash generation, and progress converting higher-margin services and products into positive cash flow.
- Assess customer and vendor concentration, receivables collection, and the company’s dependence on bank borrowing or potential equity financing.
- Check the final LightMiner asset valuation, stock consideration and resulting dilution, and whether the acquisition produces expected commercial results.
- Consider GAAP losses alongside non-GAAP Adjusted EBITDA; the company cautions that Adjusted EBITDA does not capture working-capital needs, debt service, capital expenditures, or other cash requirements.