XTI Aerospace, Inc. (then Inpixon) — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. The filing was issued under Inpixon’s name; the proposed XTI Aircraft Company merger and name change to XTI Aerospace, Inc. were announced after quarter-end and were not yet completed when the filing was signed on August 18, 2023. Amounts below are in U.S. dollars; financial statement figures are generally in millions unless stated otherwise.
Business context and reporting period
Inpixon reported three segments: Indoor Intelligence, SAVES and Shoom. Its business included industrial real-time location systems and related hardware, software and services, alongside software offerings for engineering and advertising/media. The Enterprise Apps business, including CXApp, was spun off on March 14, 2023; its results are presented as discontinued operations, and prior-period comparisons were recast accordingly.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $2.06m | $2.58m | $5.16m | $5.23m |
| Gross profit / margin | $1.67m / 81% | $1.72m / 67% | $3.98m / 77% | $3.57m / 68% |
| Operating loss | $6.66m | $9.37m | $14.84m | $18.61m |
| Loss from continuing operations | $7.33m | $8.97m | $19.65m | $19.75m |
| Net loss, including discontinued operations | $7.33m | $20.33m | $24.51m | $31.89m |
| Operating cash flow | Not presented separately for quarter | Not presented separately for quarter | $(15.81)m | $(19.54)m |
- Q2 revenue and margins: Revenue fell about 20% year over year, which management attributed mainly to delayed Indoor Intelligence shipments and lower SAVES sales. Gross margin improved, primarily due to lower product costs.
- Six-month results: Revenue was down about 1%; gross margin improved to 77%. Lower operating expenses helped reduce operating loss, while higher interest expense and a $2.5m income-tax provision largely offset that improvement in continuing-operations net loss. The tax charge included a $2.6m deferred-tax expense related to the spin-off, partly offset by a current tax benefit.
- Cash and liquidity at June 30: Cash and equivalents were $15.7m; current assets were $23.7m and current liabilities $23.7m, leaving working capital of approximately $0.02m. Operating cash use was $15.8m for the first half. Cash declined by $4.6m from the beginning of the six-month period.
- Debt and obligations: Short-term debt was $13.8m, comprising Streeterville notes and a third-party note; the notes carry stated rates of 8%–10%, with default rates of 22% on the Streeterville notes. The Streeterville note maturities were extended to May 17, 2024, with extension fees added to balances. Lease liabilities totaled $0.45m. A $1.5m warrant liability was also recorded.
- Other key metrics: Total assets were $30.4m and stockholders’ equity $6.5m. The company had a $337.6m accumulated deficit. Adjusted EBITDA loss was $5.0m for Q2 and $9.9m for the first half; this is a non-GAAP measure and should not be viewed as cash available for debt service.
Material changes versus prior periods
- Q2 net loss improved chiefly because Q2 2022 included $11.4m of discontinued-operations losses and $2.0m of goodwill impairment. There were no discontinued-operations losses in Q2 2023 after the March spin-off.
- First-half net loss improved from $31.9m to $24.5m, substantially reflecting fewer months of discontinued operations and the prior-year impairment; continuing-operations losses were nearly unchanged.
- Interest expense rose to $3.5m for the first half from $0.2m in the prior-year period, principally reflecting short-term debt and related discounts and financing costs.
- Financing and debt exchanges materially increased the share count. The company raised $20.4m net through its ATM offering in the first half and issued shares to settle approximately $3.4m of debt. At June 30, 43.2m common shares were issued; 72.0m shares were reported outstanding as of August 14.
Outlook, risks and unusual items
- Liquidity outlook: Management stated that cash on hand, financing resources and anticipated cash needs were expected to support existing operations for at least one year from issuance of the financial statements. It also acknowledged recurring losses, operating cash use and dependence on equity and debt financing. After June 30, the company reported approximately $1.4m of ATM proceeds and $2.3m from warrant exercises, as well as about $6.4m of remaining ATM capacity at the time described. These sources do not remove the risks of further cash burn, financing access or dilution.
- Warrants and dilution: The company issued 150m May 2023 warrants for approximately $1.5m gross proceeds. Warrants were immediately exercisable, with a $0.26 initial exercise price subject to downward adjustment (with a $0.10 floor). Unexercised warrants are subject to cash redemption at expiration. Total warrants outstanding at June 30 were 153.8m, all reported exercisable; this represents substantial potential dilution and a possible cash obligation.
- Nasdaq listing: Nasdaq notified the company that it was below the $1 minimum bid-price requirement and provided a compliance period through October 11, 2023. Failure to regain compliance could lead to delisting, subject to possible further procedures.
- Proposed XTI transaction: The July 24 merger agreement was subject to stockholder, Nasdaq and other approvals. The filing anticipated that existing Inpixon holders would own about 40% and XTI securityholders about 60% of the combined company, subject to exchange-ratio adjustments. The agreement also contemplated divestiture of Shoom, SAVES, Game Your Game and investment securities. Inpixon had advanced XTI funds under a senior-secured note bearing 10% interest; additional loans of up to $1.775m were contemplated. The transaction’s completion, timing and benefits were uncertain.
- Transaction-related payments: The filing describes transaction bonus plans, including potential executive bonuses tied to transaction value, and an agreement to pay Maxim Group $800,000 cash plus stock valued at $1m upon the proposed XTI closing. These payments and the related dilution merit review.
- Other risks and unusual items: Investment securities, including FOXO shares, are exposed to market-price volatility. A June FOXO release resulted in receipt of 3.685m shares and a reported $1.1m realized gain. Revenue and receivables were concentrated: two customers represented 38% of receivables at June 30. Management cited competition, customer demand, supply-chain and cost pressures, macroeconomic conditions and ongoing financing needs. It reported no material pending legal proceedings and concluded disclosure controls were effective.
Important facts for investors to verify
- Whether operating cash burn can be reduced and whether the stated liquidity runway remains credible after debt service, warrant obligations and any loans to XTI.
- The current Streeterville note balances, repayment or exchange terms, interest and fees, and the dilution from subsequent debt-for-share exchanges and ATM sales.
- The May 2023 warrant exercise, adjustment and cash-redemption terms, including the remaining warrant liability and potential share issuance.
- The status and final economics of the proposed XTI merger, required approvals, net-cash and debt adjustments to the exchange ratio, planned divestitures, and associated transaction bonuses and advisory fees.
- Progress toward Nasdaq bid-price compliance and any implications for continued listing and access to capital markets.
- Underlying segment revenue trends, shipment timing, customer concentration and the valuation and liquidity of the company’s investment securities.