Inpixon, Inc. — Form 10-Q Summary
Entity note: The supplied filing is for Inpixon, Inc., not XTI Aerospace, Inc. It covers the quarter and six months ended June 30, 2017; the interim financial statements are unaudited. Figures below are in U.S. dollars, generally millions unless stated otherwise.
Business context and reporting period
Inpixon provides indoor-positioning analytics and related technology, alongside third-party IT hardware, software, maintenance and services. Its two reporting segments are Indoor Positioning Analytics and Infrastructure. The November 2016 Integrio acquisition expanded the company’s federal-government IT business. Per the filing, share data reflect a 1-for-15 reverse split effective March 1, 2017.
Financial performance and liquidity
- Second quarter: Revenue was $15.10 million, up 13% from $13.33 million a year earlier. Product revenue rose to $12.21 million from $9.16 million; services revenue fell to $2.89 million from $4.18 million. Gross profit was $3.38 million and gross margin 22%, compared with $3.44 million and 26% in the prior-year quarter.
- Second-quarter losses: Operating loss was $5.23 million, versus $3.95 million; net loss was $6.43 million, versus $4.18 million. Net loss per share was $2.72, versus $2.49. Adjusted EBITDA, a non-GAAP measure, was a loss of $2.71 million, versus a loss of $2.22 million.
- First half: Revenue was $28.58 million, up 4% from $27.42 million. Gross profit declined to $6.67 million from $7.39 million, and gross margin to 23% from 27%. Operating loss increased to $10.59 million from $8.13 million; net loss increased to $12.49 million from $8.48 million. Adjusted EBITDA loss was $6.03 million, versus $4.68 million.
- Segment margins: Second-quarter Indoor Positioning Analytics revenue was $1.16 million, with a 67% gross margin; Infrastructure revenue was $13.94 million, with a 19% margin. For the first half, the respective margins were 66% and 20%. Management attributed lower consolidated margins mainly to lower-margin Integrio revenue.
- Cash flow: First-half operating cash flow was positive $1.54 million, compared with negative $0.12 million in 2016. The filing attributes the result to noncash expenses and changes in working capital, including collections and lower prepaid contract balances, partly offset by a $6.02 million decrease in deferred revenue. Investing cash outflow was $0.80 million and financing cash outflow $2.51 million. Cash fell from $1.82 million at year-end to $42,000.
- Balance sheet and debt: At June 30, total assets were $49.70 million and total liabilities $56.13 million, leaving a $6.43 million stockholders’ deficit. Current assets of $17.62 million were substantially below current liabilities of $48.29 million; the balance-sheet-derived working-capital deficit is $30.67 million. The filing separately cites a $26.9 million deficit in a note, an apparent inconsistency to verify. Reported short- and long-term debt totaled $4.11 million; derivative liabilities were an additional $3.78 million. Accounts payable was $25.87 million.
Material changes versus the prior comparable period
- Revenue growth was largely attributed to Integrio, while Indoor Positioning Analytics revenue declined year over year in both the quarter and first half. The filing says the acquisition and its lower margins increased costs and amortization.
- Operating expenses increased 17% in the quarter and 11% for the first half, despite reductions in certain legacy-business expenses. Higher amortization, Integrio-related expenses and professional fees contributed to the increase.
- Interest expense rose to $1.34 million in the quarter and $2.03 million in the first half, primarily due to convertible debt, credit-facility interest and amortization of debt discounts and financing costs.
- On June 30, the company completed an offering with approximately $5.71 million net proceeds before estimated offering expenses, using approximately $5.51 million to repay debt. The offering included common and Series 2 preferred shares and warrants; warrants were classified as derivative liabilities.
Outlook, risks, contingencies and unusual items
- Going concern and funding: Management reported substantial doubt about the company’s ability to continue as a going concern. It said available resources might not fund planned 2017 operations and that it needed to raise $4–6 million of outside capital. Management could not assure success; absent adequate funding, the company may curtail operations, sell assets or dispose of a business segment.
- Management outlook: Management expected revenue and operating cash flow to improve with Integrio, growth in services and indoor-positioning products, and improved vendor credit access. It also said lengthy indoor-positioning sales cycles and vendor credit limitations had constrained business. These are forward-looking expectations, not guarantees.
- Subsequent financing and dilution: In August 2017, certain warrant holders agreed to exercise up to 1,095,719 warrants at a reduced $0.30 exercise price, for up to approximately $329,000 gross proceeds, in exchange for additional warrants at $0.55. Hillair also received an exchange right covering up to 5,606,061 common shares for Series 2 preferred stock. Series 2 conversions in July and August had resulted in 4,080,523 common shares issued by the filing date. The filing reports 10,247,989 common shares outstanding at August 18, compared with 4,293,209 at June 30.
- Credit facility: In August, the GemCap facility was assigned to Payplant and amended. It permits, but does not require, advances of up to 80% of eligible purchase-order face value, generally for terms up to 360 days, at a stated 2% per 30 days. The related agreement restricts some additional financing while advances are outstanding.
- Legal matters: HP sought $636,047 plus interest in a goods-payment suit; the filing says the liability was accrued in accounts payable. Embarcadero and Idera sought $1.1 million over software and services; that liability was also reported accrued in accounts payable. A $722,000 judgment against the Saudi Arabia entity is included in liabilities held for sale.
- Listing and operating risks: Nasdaq had notified the company of a stockholders’ equity deficiency, with a September 30, 2017 deadline to document compliance, and a separate minimum-bid-price deficiency, with a February 12, 2018 deadline. A vendor represented about 40% of gross accounts payable; one customer represented 24% of second-quarter revenue. The filing also highlights limited cash, recurring losses, financing dependence, competition and potential impairment of acquired technology or goodwill.
- The $3.78 million derivative liability is a Level 3 fair-value estimate based on significant unobservable inputs. The filing reported no goodwill or long-lived-asset impairment for the first half.
Most important facts for investors to verify
- Confirm the registrant and ticker: this filing identifies the company as Inpixon, not XTI Aerospace.
- Reconcile the stated $26.9 million working-capital deficiency with the $30.67 million deficit calculated from the reported balance sheet.
- Assess near-term liquidity, the ability to raise the stated $4–6 million, and the availability and terms of Payplant advances; quarter-end cash was only $42,000.
- Review actual post-quarter warrant exercises, preferred-stock conversions, exchange rights and resulting fully diluted share count and potential dilution.
- Track Nasdaq compliance deadlines, the HP and Embarcadero/Idera cases, and whether accrued liabilities cover eventual outcomes.
- Evaluate whether revenue growth can improve gross margins and reduce losses, particularly given declining Indoor Positioning Analytics revenue and customer/vendor concentration.