XTIA - NASDAQ

Good afternoon, and welcome to the Inpixon Business Update Call. All participants are will be listen-only mode. [Operator Instructions] Participants of this call are advised that the audio of this conference call is being broadcast live over the Internet and is also being recorded for playback purposes. A telephone replay of the call will be available approximately 1 hour after the end of the call through November 21, 2022. I would now like to turn the call over to Alexandra Schilt, Vice President of Crescendo Communications, LLC, the company's Investor Relations firm. Please go ahead.

Good afternoon, and thank you for joining today's conference call to discuss Inpixon's corporate developments and financial results for the third quarter ended September 30, 2022. With us today are Nadir Ali, the company's Chief Executive Officer; and Wendy Loundermon, the company's Chief Financial Officer. Today, Inpixon released financial results for its third quarter ended September 30, 2022. If you have not received Inpixon's earnings release, please visit the company's Investor Relations page at ir.inpixon.com. During the course of this conference call, the company will be making forward-looking statements. The company cautions you that any statement that is not a statement of historical fact is a forward-looking statement. This includes any projections of earnings, revenues, cash or other statements relating to the company's future financial results, any statements about plans, strategies or objectives of management for future operations, any statements regarding completed or planned acquisitions or strategic partnerships and the anticipated impact of those transactions on the company's business, any statements concerning proposed new products or solutions, any statements regarding anticipated new customers, relationships or agreements, any statements regarding expectations for the success of the company's products in the U.S. and international markets, any statements regarding future economic conditions or performance, including, but not limited to, the impact of COVID-19 on the company's operations, any statements regarding the valuation attributed to any of our securities instruments, any statements of belief and any statements of assumptions underlying any of the foregoing. These statements are based on expectations and assumptions as of the date of this conference call and are subject to numerous risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Some of these risks are described in the safe harbor section of today's press release and in the public periodic reports the company files with the Securities and Exchange Commission. We also encourage you to read the public filings made with the SEC related to the proposed business combination with KINS Technology Group, including a registration statement on Form S-4 and registration statement on Form S-1 and, in particular, to the section titled Risk Factors for a discussion of the risks that can affect the transaction, the company's enterprise apps business and the outlook of the combined company. Investors or potential investors should read all of these risks. Inpixon assumes no obligation to update these forward-looking statements to reflect future events or actual outcomes and does not intend to do so. In addition, to supplement the GAAP numbers, the company has provided non-GAAP adjusted net loss and net loss per share information in addition to non-GAAP adjusted EBITDA information. The company believes that these non-GAAP numbers provide meaningful supplemental information and are helpful in assessing our historical and future performance. A table reconciling the GAAP information to the non-GAAP information is included in the company's financial release. I will now turn the call over to Nadir Ali, Inpixon's CEO. Please go ahead.

Thanks, Ale, and hello, everyone. Thanks for joining us today as we discuss our progress and business developments during the third quarter. So late last year, we announced that we would explore options to maximize shareholder value. And during this most recent quarter, we've taken meaningful action in a number of ways in furtherance of this objective. We implemented measures to streamline our operations and reduce our operating costs, including reducing our global head count by approximately 20%. We regained compliance with NASDAQ's bid price requirement, and we announced the signing of a definitive agreement for the spinoff and sale of our enterprise apps business to KINS Technology Group in a transaction that will deliver shares of KINS capital stock based on a pre-transaction value of $69 million to holders of Inpixon securities as of a record date to be announced. We expect a record date will be announced as we get closer to regulatory clearance. We believe this transaction is a win for our shareholders, recognizing the value of our workplace experience technologies, including our enterprise app, indoor mapping, the events platform, augmented reality and related business solutions based on a transaction value that offers a significant premium over Inpixon's current market price. In addition, this transaction will provide the enterprise apps business with more focused and dedicated capital and operational resources, including a new management team and Board to become a more recognized force in the industry. I believe that our company continues to be undervalued in this market, so we will continue to evaluate other strategic opportunities for the remainder of our business. In this regard, as we previously announced, we have entered into a nonbinding letter of intent and are in due diligence stages with another third party in connection with a potential transaction involving the remainder of our business. We are determined to pursue opportunities that we believe will unlock additional value for our shareholders. With respect to our results of operations, while revenue for the 9 months was up over the same period last year, we have faced headwinds given the volatility in the overall financial markets, the uncertainty felt by some of our prospective customers and the ongoing supply chain challenges. Nevertheless, we believe these challenges are short term, and we have focused our efforts on pursuing opportunities that we believe will result in a faster path to profitability and streamlining operations to position our businesses for long-term success and continued growth. Additionally, we believe the activities we are undertaking will assist us in accelerating our path to profitability. We are convinced -- we are more convinced now than ever that there are vast opportunities in the market and we believe we have firmly positioned ourselves at the forefront of the industry by building comprehensive full-stack solutions that few competitors can match. Organizations are continuing to seek technologies that maximize efficiency, increase productivity and drive growth. As I've mentioned on previous conference calls, this shift has accelerated as a result of the pandemic as organizations are trying to adapt to hybrid and remote workplaces while keeping employees engaged and productive. And our enterprise solutions are an excellent fit. Many of our customers are validating that belief and expressing their satisfaction by growing their investments with us. We continue to have success with what we've referred to before as our land-and-expand strategy. As an example, one of our customers, which is a well-known organization in the entertainment industry, started with a pilot in 2021 for our experience app. Then they expanded to 2 regional headquarter campuses and then expanded to Europe and Asia, giving us 15 total campuses live in our app. Now we are at 19 campuses and over 4 million square feet licensed, and there are 10 more campuses in progress scheduled to be completed by the end of Q1 next year. Their implementation is a great example of the power of our technology agnostic platform and our ability to integrate with third-party systems. They are using Blue Dot wayfinding, NFC room booking, integrations to health attestation forms, facility ticketing, visitor registration systems, occupancy sensors tied to the space availability maps, smart locker booking, tech support appointment bookings and more. In almost all cases of our experience products, we are helping our customers to transform their workspace operations and how their employees interact with a potentially large tech stack. For example, in another one of our recent enterprise deployments, we enabled our customers to consolidate 11 different tools, services and integrations into one unique experience, helping that customer to drive adoption and throughput and an exciting initiative to support return to the office and hybrid work. We have many other examples of our success in cross-selling and upselling with our clients. We think the experience app and hybrid events platform have a lot of upside potential with both new and existing clients. Now let's turn to our industrial business line. The Industrial Internet of Things market, or IIoT, is big and growing larger. Markets and Markets estimate it will reach $106.1 billion by 2026. Grand View Research recently stated advancements in technology and the increasing availability of affordable sensors and processors that can provide real-time access to information are expected to drive the growth. We cannot agree more. We've seen that industrial IoT can deliver benefits that customers need even as the economy slows. These location intelligence solutions automate processes, helping organizations to increase efficiency and reduce costs. By harnessing location data and adding context, industrial organizations such as factories, warehouses and mining operations can make database decisions, improve resource allocation, reduced waste and boost production speed, throughput, quality and more, ultimately creating agile, resilient operations to mitigate the volatility and disruption in today's uncertain market. We are witnessing strong traction in the market and we brought numerous -- brought in numerous purchase orders and contracts throughout the quarter, including a new purchase order with one of the largest electronic distributors in the world whereby Inpixon's industrial IoT platform and ultra-wideband tags are now available for streamlined purchasing throughout this worldwide channel. We also brought in first purchase order following the execution of our collaboration agreement with Schauenburg Systems to implement Inpixon's IIoT solutions for our customers seeking collision avoidance systems and increased mining safety. Purchase orders for additional solutions in 3 countries with a leading global energy products and services company also came in to implement Inpixon's industrial reality products for asset tracking and to enhance business operations. This customer will also begin a pilot program utilizing Inpixon's provided BLE mesh network technology to track high-value assets within a large manufacturing site. And finally, we had some additional purchase orders with multiple large mining equipment manufacturers for RTLS components for their collision avoidance and proximity warning solutions to optimize mining operations and improve worker safety. As you can see, we have a good purchase activity from new customers as well as existing customers. That land-and-expand strategy we talked about earlier for the experience app is also bearing fruit on the industrial side of the business. As an example, we have a customer in the top 100 on the Forbes Global 2000 list of the large public companies in the world. In 2021, we first started working with a division which manufactures equipment for power plants. We installed our industrial IoT platform, ultra-wideband tags in their electronic shelf labels to help them automate their manufacturing processes. Then they expanded their use cases by purchasing our GPS tags to improve their logistics and shipping process. Then in the third area of the facility, we installed our Wirepas BLE tracking solution. It's a great example of expanding across customer sites and countries and of adding technologies and use cases. It's also a good proof point on how our platform supports multiple technologies, which is again something many competitors simply can't do. It was so successful that they installed us at another facility in another country to track production orders. And then we landed a third site in an entirely different continent, and we're currently in discussions to bring on several other sites. We have the potential to have dozens of their manufacturing facilities standardized on the Inpixon RTLS. It's been an eventful and productive quarter for Inpixon. Overall, we are making significant strides in order to create value for shareholders, expand our business operations, grow our customer base, and we continue to explore all options available to us. Ultimately, we believe these activities will accelerate our path to profitability as well as increased adoption in the market. We are focused and continue to work diligently on the business and towards completing the strategic transactions and we'll keep our shareholders apprised of developments. With that, Wendy, I'll turn it over to you to discuss our financials.

Great. Thank you, Nadir. Revenues for the 3 and 9 months ended September 30, 2022, were $4.2 million and $14.1 million, respectively, compared to $4.5 million and $10.9 million for the comparable period in the prior year for a decrease of approximately 6% and an increase of approximately 30%, respectively. This decrease for the 2022 third quarter primarily attributed to delayed shipments in the IIoT product line and lower sales for the [same] product line. However, for the 9-month period, we did see an increase in revenues, which is primarily attributable to the increase in Indoor Intelligence sales, including the addition of the CXApp product line during the second quarter of 2021 and the addition of the IIoT product line in the fourth quarter of 2021. Gross profit for the 3 and 9 months ended September 30, 2022, was $2.9 million and $10.1 million, respectively, compared to a gross profit of $3.3 million and $7.9 million in the 2021 reflective period, representing a decrease of approximately 10% and an increase of 28%, respectively. The gross profit margin for the 3 and 9 months ended September 30, 2022, was 70% and 71% compared to 73% for both the 3 and 9 months ended September 30, 2021. This decrease in margin is primarily due to the sales mix during the period. Net loss attributable to stockholders of Inpixon for the 3 and 9 months ended September 30, 2022, was $17.6 million and $48.7 million, respectively, compared to $33.6 million and $31.4 million, respectively, for the comparable periods in the prior year. This increase in loss was primarily attributable to lower gross profit, a $7.6 million goodwill impairment and other noncash items, including unrealized net loss on equity securities offset by decreased operating expenses in the 9 months ended September 30, 2022. Non-GAAP adjusted EBITDA for the 3 and 9 months ended September 30, 2022, was a loss of $8.2 million and $26.9 million, respectively, compared to a loss of $6.7 million and $18.5 million for the prior year period, respectively. Non-GAAP adjusted EBITDA is defined as net income or loss before interest, provision for income taxes, depreciation and amortization, plus adjustments for other income or expense items, nonrecurring items and noncash items, including stock-based compensation. Pro forma non-GAAP net loss for basic and diluted common share for the 3 and 9 months ended September 30, 2022, was a loss of $3.96 and a loss of $13.44, respectively, compared to a loss of $3.77 and a loss of $13.68 for the prior year period. Non-GAAP net loss per share is defined as a net loss per basic and diluted share adjusted for noncash items, including stock-based compensation, amortization of intangibles and onetime charges and other adjustments, including impairment of goodwill, provision for valuation allowance on notes and acquisition costs. As of September 30, 2022, we had approximately $53.2 million in cash and cash equivalents, which amount was offset by payments of approximately $45.8 million related to redemption of shares of our Series A preferred stock and increased by $15 million in gross proceeds received from the sale of securities subsequent to the end of the quarter. This concludes my comments. And now I'd like to turn the call back over to Nadir.

Thanks, Wendy. Ale, would you please lead us through the Q&A discussion?

Yes. Thanks Nadir. Like last quarter in our conference call announcement press release, we suggested interested parties submit their questions in advance. We'd like to address those questions for you now. Some of them were duplicative, so we did our best to reconcile those where possible. If you have any further questions after the call, please feel free to follow up with Investor Relations and we'll be sure to respond as quickly as possible. Our first question is, in your share consolidation press release on October 6, you state you entered into a nonbinding LOI with a third party for the remainder of the business. But can you elaborate on this?

So unfortunately, I cannot go into specifics at this time. But as we stated, this is a nonbinding letter of intent involving the remainder of our business. We do not have a definitive agreement in place yet. And we are still in due diligence stages. As I mentioned, we are and we'll continue to explore all options available to us and only enter into agreements that we believe are in the best interest of Inpixon and our shareholders. We will provide updates regarding this as soon as we are able to do so.

Thanks, Nadir. Our next question. Can you explain what number of shares Inpixon shareholders will receive of KINS in layman's terms?

I'll do my best. Yes. So while this information is in our filings, I'll provide a quick summary. So Inpixon shareholders and certain other security holders will receive an aggregate of approximately 6.9 million shares of KINS Class A and Class C common stock, allocated 10% and 90%, respectively, and subject to adjustment in accordance with the terms of the merger agreement. The record date for holders of securities that are entitled to receive securities will be announced at a later date following the resolution of any SEC or other regulatory comments that may be received in connection with the related registration statements that have been filed in connection with the transaction. Definitely for more information regarding the terms of transaction, we encourage you to read the company's Form 8-K filed on September 26, 2022.

Thank you. Next question is, why was the $15 million registered direct offering conducted?

Yes. As Wendy indicated, we were required to redeem a portion of our Series A preferred stock in accordance with their terms. So this offering was able to provide additional capital to support our operations.

Thank you. Our next question, are you considering further cost reductions or restructuring given the sale of the CXApp business line such as additional reductions in the workforce or realignment of management?

So as we've previously announced, we reduced headcount by approximately 20% at the end of third quarter. We do also have to ensure that we have sufficient resources to continue to realize growth across our business lines. However, we will continue to critically evaluate our expenditures and cash resources to maximize efficiencies in operations.

Thank you. Our next question. Does the investor of the $5.85 placement receive their Inpixon shares over a period of time?

So there was a prefunded warrant issued in lieu of common stock and the investor can exercise a pre-funded warrant over time. But for more specific information regarding the terms of that transaction, please referred to the 8-K filed on October 20, and that will give you more detail.

All right. Thank you, Nadir. That concludes the Q&A. I'll turn it back to you for the close.

All right. Thanks, Ale, and thank you all for joining us today. As always, we appreciate the support of all our shareholders and look forward to providing more updates in the near future. Thank you, and take care, everyone.