XTIA - NASDAQ

Good afternoon, and welcome to Inpixon's Business Update Call. [Operator Instructions]. Participants of this call are advised that the audio of this conference 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 one hour after the end of the call through April 6, 2023. 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 its 2022 fiscal year ended December 31, 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 2022 fiscal year ended December 31, 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 projection of earnings, revenues or 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 filed with the Securities and Exchange Commission. We also encourage you to read the public filings made with the SEC related to the recent spin-off of our enterprise apps business to KINS Technology Group, including the registration statement on Form S-4 and registration statement on Form S-1, and in particular to the section or sections titled Risk Factors for a discussion of the risks related to the transaction, the company's enterprise app 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 good afternoon, everyone, and thank you for joining our call today as we discuss our 2022 fiscal year accomplishments and financial results. To begin, I'd like to highlight a significant progress we made throughout 2022. Despite macroeconomic headwinds globally, we executed on our growth strategy, which resulted in a 21% increase in year-over-year revenue. Additionally, we maintained a solid balance sheet with over $20 million in cash and cash equivalents, allowing us to pursue growth opportunities to maximize value for our shareholders. Towards this end, we recently announced completing the business combination of CXApp Holding Corp. with KINS Technology Group. With this transaction, we successfully sold our CXApp workplace experience business line, which includes [CXApp] technologies, indoor mapping, events platform and related business solutions. We worked very hard on this strategic transaction for many months with the goal of unlocking additional value for our shareholders, which we do not believe was being fairly reflected in our market cap. As a result of this transaction, which closed on March 14, our shareholders received the benefit of potential upside in 2 rather than 1 publicly traded companies. Inpixon shareholders as of the March 6 record date received over 7 million shares of CXApp common stock, representing just over 50% of the outstanding shares of CXApp common stock. Shareholders were able to maintain the same number of Inpixon shares that they held before the transaction, plus they received net new CXApp shares. There are now 2 separate businesses, each with its own distinct customers and product lines. We see this as a major accomplishment for both Inpixon and CXApp. We believe each company can better leverage the unique opportunities of each specific market with dedicated resources and management teams while also continuing to work together as partners and/or resellers to offer comprehensive solution sets for our respective customers. In addition to completing this transaction, we also implemented additional initiatives over the last few months to reduce operating expenses and overhead for both businesses after the closing of the transaction. For Inpixon, we expect to see a reduction in our annual operating expenses from the initiatives we implemented in Q4 and reduction in operating expenses resulting from the sale of the CXApp business. We believe these combined efforts could decrease our operating expenses and potentially are burned by approximately 50% over the coming quarters. We also remain committed to pursuing beneficial strategic opportunities that we believe will increase the company's total enterprise value for the benefit of our shareholders. In that regard, we previously announced that we have entered into a nonbinding letter of intent with a third party. If this transaction advances to fruition, we expect the resulting combined enterprise value to exceed the value of the KINS transaction. Again, we believe the market cap is not capturing the true enterprise value of the Inpixon business that remains, therefore, we are hopeful that this transaction or any transaction that we ultimately pursue will help capture that value for our shareholders. As a result, we remain aggressively engaged in the due diligence review and negotiation process and look forward to announcing further developments in the near term. Concurrently, we are continuing to focus on accelerating the growth of our RTLS product line. Real-time location systems are changing the way industries operate. In today's data-driven world, businesses that leverage these technologies can gain a competitive edge by optimizing their operations and capitalizing on the benefits of smart factories, smart warehouses, automated mining operations and digital supply chains. We can help organizations create a connected, visible and automated industrial workflow with our platform by integrating location-aware sensors, digital twins and advanced applications. Our platform is scalable, flexible and intelligent. Users can reduce their operational costs and deliver more products faster to their customers by utilizing asset tracking, automated operations, collision avoidance and more, all available via our platform. The RTLS market is experiencing increased demand from a wide range of industries, including manufacturing, logistics, health care and others. This demand is driven by the growing need for efficient supply chain management and the increasing need for real-time operational visibility. However, one of the challenges is that the market is characterized by complex technology, significant investment requirements for new players and the need to develop meaningful ecosystem partnerships. These barriers can make it very challenging for new entrants to compete with established players like Inpixon. We have the expertise and the experience to navigate these challenges in a way that we believe we can create opportunities for Inpixon to drive growth and capture a larger share of the market. Our full stack industrial RTLS allows customers to locate, learn and leverage data and intelligence to reduce costs, grow revenue and increase productivity. Let's start with locate, which is at the core of Inpixon's Indoor Intelligence and what we have been building over the past several years. RTLS technologies enable our customers to locate or find and track the real-time movement of their raw materials, finished goods, vehicles, forklifts, equipment, tools, personnel and more. We do this by using a comprehensive lineup of location technologies and form factors. Few competitors can integrate the wide variety of technologies that we can, including ultra-wideband, Chirp, RFID, GPS, BLE, QR codes, Wirepas Massive, NFC, LiDAR and WiFi, which enable us to solve more use cases and provide greater accuracy than most competitors in the market. Our customers then learn or gain insights and intelligence, if you will, about their space and operations. By identifying assets and their locations, customers are able to learn more and have greater visibility into and control of their operations. For example, big companies have an ERP, enterprise resource planning systems, such as SAP or a WMS or a warehouse management system; or an MES, manufacturing execution system. And these systems typically have a lot of information about the assets in the building, but they often don't know the real-time location of a particular asset. Inpixon RTLS knows that location and can push it to the ERP, WMS or MES, so that, that system can become more intelligent. The customer can see where their assets and products are being used, they can trigger advanced automations to deliver products to right place at the right time and so forth. They can identify how much time is spent in each step of the production process and where there might be inconsistencies or errors in the manufacturing process. And Inpixon can pull data such as item number, et cetera, from those or other systems into ours and display that data on the RTLS dashboard, increasing the visibility of key data. With implementation of our technology-agnostic open platform, which integrates the complete technology stack and communicates with their other systems, our customers can learn more about their day-to-day operations and processes and are able to better manage their assets and inventory, pinpoint the ETA of shipments, ensure just-in-time delivery of parts to the assembly line and overall address inefficiencies, bottlenecks and danger zones. And finally, the way in which this information can be leveraged and put into action is where organizations can experience breakthroughs that will truly optimize their operations by increasing productivity and cutting costs by eliminating search times and reducing errors, increasing efficiency by streamlining operations and automating workflows and enhancing safety with collision avoidance and geofencing within dangerous areas. Leveraging this data and analytics allows for smarter decisions around changing and enhancing processes and procedures. With deeper automations and more integration, organizations can address even more use cases by taking full advantage of their initial RTLS investment. This is how the power of Indoor Intelligence can be extended and fully realized. Our single full stack platform enables these integrations and automation to address a multitude of key customer challenges. And as we integrate the artificial intelligence capabilities we've been exploring, we expect to further increase locational precision and will unlock advanced capabilities never before possible. Given our ability to address many common obstacles industries face, we have entered into a variety of verticals and secured new customers and numerous purchase orders. As for some of our accomplishments, we recently secured a new contract with one of the world's largest telecommunication companies that will be reselling our RTLS solutions through their global sales force, which we understand is over 1,000 sales reps, including a focused team of IoT sales specialists, selling to their customers around the world for use to improve their operational efficiencies and further automate factories in warehouse. We feel this deal has major potential, and we already have pilots at multiple end user companies underway. We secured a new approved supplier partnership status with one of the world's leading electric vehicle manufacturers, an important first step for them to be able to purchase our solutions for their manufacturing and warehousing facilities. We already have several automotive manufacturers as customers and this validates our account-based marketing and sales strategy to go in strategic verticals and accounts. We also signed a collaboration agreement with one of the leading providers in the mining market whereby we are providing our full stack RTLS solution to them for resale. By full stack, I mean everything from the front-end software and location engine down to the radio frequency anchors and transmitter tag modules. This arrangement is already bearing fruit, and in fact, we recently secured another purchase order from them, a 6-figure deal, and we're now evaluating solutions for additional verticals besides the mining industry with them. We are also accepted as a member of SAP's partner program. This has the potential to significantly expand our reach into new markets and secure additional customers as we can market our RTLS solutions to SAP's 440,000 customers worldwide. We have a number of prebuilt integrations to the SAP modules already available, which make it possible to easily inject location information into an exchange information with SAP applications, unlocking advanced automation and intelligence capabilities for SAP customers. And we were also recognized for the fifth consecutive year in the 2023 Gartner Magic Quadrant for indoor location services, which marks the second consecutive year that we were named as a leader in the space. I encourage you to access their report on our website at inpixon.com and to read why Gartner identifies Inpixon as a leader for real-time location technologies. And despite the headwinds in the global electronic supply chain, we have worked strategically with global component suppliers to ensure continued chip and module availability with adequate lead times. This has helped our key OEM partners to meet their customer order fulfillment requirements as well as ours. The current momentum is strong, and we anticipate that it will continue in 2023. We believe with the initiatives we put in place, including reducing costs and streamlining our operations, we can firmly secure our leadership position in the RTLS market as well as accelerate our path to profitability. With that, Wendy, I'll turn it to you to discuss our financials.

Thank you, Nadir. Revenues for the year ended December 31, 2022, were $19.4 million compared to $16 million for the comparable period in the prior year or an increase of approximately $3.4 million or approximately 21%. This increase is primarily attributable to an increase in Indoor Intelligence sales, including $2.6 million from our smart office app and $900,000 from our real-time location-based technologies. Gross profit for the year ended December 31, 2022, was $13.9 million compared to a gross profit of $11.6 million for the 2021 fiscal year, representing an increase of 20%. The gross profit margin for the year ended December 31, 2022, was 72% compared to 73% for the year ended December 31, 2021. This lower margin is primarily due to the sales mix during the year. Net loss attributable to stockholders for the year ended December 31, 2022, was $63.4 million compared to $69.2 million for the comparable period in the prior year. This decrease in loss of approximately $5.8 million was primarily attributable to the decrease in operating expenses of $13.7 million and the higher gross margin of $2.3 million, offset by an increase in other loss of $10.9 million. Non-GAAP adjusted EBITDA for the year ended December 31, 2022, was a loss of $26.6 million compared to a loss of $29.6 million for the prior year period. 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 per basic and diluted common share for the year ended December 31, 2022, was a loss of $12.25 per share compared to a loss of $18.77 per share for the prior year period. Non-GAAP net loss per share is defined as 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 and intangibles, provision for unrealized loss on equity securities and acquisition costs. As of December 31, 2022, we had approximately $20.2 million in cash and cash equivalents. This concludes my comments, and I now would like to turn the call back over to Nadir.

Thanks, Wendy. Ale, could you please lead us through the Q&A session?

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, why did new shareholders that bought Inpixon a few weeks ago have the same dividend right as the long-time investors?

Good question. So yes, for the transaction agreement, shareholders as of the March 6 record date were entitled to the share distribution for the CXApp transaction. Keep in mind, we have tens of thousands of shareholders with trades happening every day. It would be difficult not only to assess how long any one individual has held our stock as of any particular day, but then to implement special entitlements based on length of ownership. So the normal practice for a transaction of this nature is to inform shareholders of a specific record date to determine who would be entitled to participate in the distribution. And that's the process we followed.

Great. Thanks, Nadir. Our second question is, investors have been waiting on an update on the letter of intent. When do you expect to provide further updates?

Yes. So I'm assuming this is about the second transaction, which we have put out there that we were negotiating a letter of intent. And as I mentioned during my remarks, we are working aggressively on this. Admittedly, the last few weeks, we've had to allocate more time and resources to closing the CXApp transaction. But we are continuing to work through the process. We are evaluating our options to ensure that we are doing what we can to maximize value for the company and our shareholders, and we'll only enter into an agreement which we feel does that. So we'll update -- we'll share updates as soon as we can, but we are working towards that second transaction as we speak.

Great. Thank you, Nadir. Our next question, given the sale of CXApp, can you comment on what you would expect for a normalized level of operating expenses going forward?

Sure. Yes. Sorry, I touched on this a little bit earlier, but I believe we're seeing at least a 50% reduction in operating expenses going forward over the next several quarters with the sale of the CXApp business, which just happened in mid-March and as a result of the cost-cutting measures that the company implemented starting in Q4 last year into some adjustments this year. So -- this will -- we expect will significantly impact our burn and allow us to get to positive cash flow faster as well.

Thank you. Our next question, what actions are the -- is the company taking to restore shareholder confidence on their investment? And why is the company not fighting against the shorting of the stock and liquidity?

Yes. Good question. Look, we are working diligently on various opportunities that we believe will provide value for our shareholders. We believe this has been apparent with the CXApp transaction. And as I just talked about, we have a second LOI in place with respect to our RTLS business. So we are looking at ways to create shareholder value through these transactions and executing on our business. And as far as shorting our stock, I've reached out to counsel, advisers and a couple of CEOs who've commented on this issue publicly to better understand what they're doing to address this challenge. So we're thinking through and working on that. Keep in mind, there are limited options to combat illegal and naked shorting, and this is an area that regulators are also challenged with, but we are looking at it and talking to folks.

Thank you. Our next question, do any senior management team members intend to resign as a result of the transaction?

Yes. I feel it's important to keep the management team intact as we progress through this major inflection point in the company following the CXApp transaction and in pursuing other opportunities for the remainder of our business. So to the extent we are able to come to definitive terms and close on a second transaction for the remainder of our business, we don't expect that all of our senior management team will be staying. But for now, our core senior management is essential to ensure successful execution and completion of our business plan on these transactions.

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

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