Business context and reporting period
This is Inpixon, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2018—not a filing under the name XTI Aerospace. Inpixon reported two segments: Indoor Positioning Analytics (IPA) and Infrastructure, which included value-added reseller activities. The company also disclosed a recently completed acquisition of an 82.5% interest in Sysorex India.
Key financial metrics
Unless otherwise noted, amounts are in millions of dollars. Comparisons are with the three months ended March 31, 2017; balance-sheet comparisons are with December 31, 2017.
| Metric | Q1 2018 | Comparable period / prior date |
|---|---|---|
| Revenue | $2.095 | $13.481 |
| Gross profit / margin | $1.236 / 59% | $3.288 / 24% |
| Operating loss | $(5.607) | $(5.354) |
| Net loss | $(6.243) | $(6.056) |
| Net loss attributable to common stockholders | $(7.751), including a $1.508 deemed preferred dividend | $(6.052) |
| Operating cash flow | $(10.976) | $1.608 |
| Cash and cash equivalents | $6.694 | $0.141 |
| Working capital | $(14.979) | $(32.823) |
| Total debt | $1.970 | $3.825 |
| Total liabilities | $26.269 | $46.544 |
Segment revenue was $0.848 million for IPA and $1.247 million for Infrastructure, versus $0.981 million and $12.500 million, respectively, a year earlier. Gross margins were 72% for IPA and 50% for Infrastructure. Adjusted EBITDA, a non-GAAP measure, was a loss of $3.391 million versus a loss of $3.326 million.
Material changes versus the prior period
- Revenue fell approximately 84%. Management attributed the decline primarily to supplier credit constraints and reduced Infrastructure sales; adoption of ASC 606 also reduced reported Q1 revenue by approximately $2.031 million compared with the prior accounting basis.
- Gross margin rose to 59% from 24%, reflecting a lower proportion of low-margin storage and maintenance sales and the revenue-accounting change. The reported increase in margin occurred alongside a sharp revenue decline.
- Operating expenses decreased by $1.799 million to $6.843 million, which management attributed mainly to reduced compensation, occupancy and travel costs following staff and office reductions. Operating loss nevertheless widened by $0.253 million.
- Operating cash use swung to $10.976 million from $1.608 million provided. The quarter’s $17.703 million of financing cash flow, principally equity and warrant proceeds, lifted cash to $6.694 million.
- ASC 606 was adopted January 1, 2018 using the modified retrospective method. The company reported a $1.287 million opening retained-earnings adjustment and said adoption increased Q1 gross profit by $0.314 million versus the prior accounting basis.
Outlook, risks and unusual items
- Going concern: The filing states that the $14.979 million working-capital deficit and recurring losses raise substantial doubt about the company’s ability to continue as a going concern. Management said available resources, the April financing and the Payplant facility were expected to fund planned operations through 2018, but this depends on revenue recovery, cost reductions and continued access to capital.
- Financing and dilution: Q1 included approximately $18.944 million of net proceeds from issuance of common and preferred stock and warrants. A subsequent April offering generated approximately $9.2 million net proceeds. The filing describes conversion and anti-dilution provisions in the preferred stock and warrants; subsequent conversions and potential share issuance may materially dilute existing holders.
- Business separation: Inpixon planned to spin off its Infrastructure business into a separate company. Management said the segment represented approximately 91% of revenue; a spin-off could reduce operating expenses and substantially eliminate trade debt, but would also significantly reduce Inpixon’s revenue. Completion, timing and conditions were uncertain, and the company could contribute up to $2 million to the business.
- Supplier and liquidity pressure: Management said past-due vendor balances and credit limits impeded order processing and sales. Accounts payable was $22.020 million, compared with accounts receivable of $1.202 million. The Payplant facility was secured, lender approval was not assured, and its stated maturity was August 15, 2018.
- Litigation and contingencies: The filing disclosed, among other matters, a Virtual Imaging claim of approximately $3.688 million, a Deque claim of $0.336 million, and a subsequent AVT claim seeking at least $9.153 million. A consultant separately sought a financing-related fee of up to $1 million; the company disputed the claim and had not accrued an amount. Verify the status and accounting for these and other vendor claims.
- Other items: The company sold its 50.2% interest in Sysorex Arabia in January. It also reported a $0.577 million gain related to the Integrio earnout and a $0.023 million gain on the Sysorex Arabia sale. Nasdaq notified the company on May 2 that it had regained compliance with the minimum stockholders’ equity requirement after the April offering.
- Controls: Management said it remediated a previously reported material weakness related to implementation of ASC 606 and concluded that disclosure controls were effective at quarter-end.
- Outlook: Management expected supplier-credit improvements and IPA growth to support higher revenue and cash generation. The filing gives no quantified revenue, earnings or cash-flow guidance; forward-looking plans remain subject to execution and financing risks.
Important facts for investors to verify
- Confirm the issuer and security identity: the supplied filing is for Inpixon, despite the request metadata naming XTI Aerospace.
- Assess whether the April proceeds and supplier-credit improvements can offset operating cash use and the substantial working-capital deficit; review the going-concern disclosure.
- Review the proposed Infrastructure spin-off’s final terms, liabilities, conditions, funding contribution and effects on remaining revenue and expenses.
- Examine preferred-stock and warrant conversion terms, subsequent conversions, authorized shares and potential dilution.
- Check current balances, settlement terms and accrual treatment for vendor payables and the disclosed litigation and arbitration claims.
- Separate underlying operating performance from ASC 606 presentation effects and the unusual earnout and sale gains.