Inpixon
Q1 2015 Earnings Call Transcript

Published: 8 May 2015

[Operator:]

Good afternoon, and welcome to the Sysorex Global Holdings Corp. Earnings Conference Call for the Quarter Ended March 31, 2015. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [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 replay of the call will be available approximately one hour after the end of the call through June 8, 2015. I would now like to turn the conference over to Scott Arnold, Managing Director of CorProminence, the company’s Investor Relations firm. Please go ahead, sir.

[Scott Arnold:]

Thank you, Frank. Thank you for joining today’s conference call to discuss Sysorex Global Holdings Corp’s corporate developments and financial results for the quarter ended March 31, 2015. With us today are Nadir Ali, the company’s CEO; Wendy Loundermon, the company’s Interim CFO; and Bret Osborn, President of Sales. At 4

[Nadir Ali:]

Thank you, Scott and good afternoon everyone. Welcome to our first quarter 2015 earnings call and thank you for joining us. I am joined today by Wendy Loundermon, our Interim CFO. And I have also invited Bret Osborn, President of Sales, to join us for today’s call, to talk about our recent acquisition of the LightMiner data-analytics software and its impact on our big data analytics strategy. As many of you may know Sysorex has experienced a significant transformation over the past few years with several acquisitions and IPOs, and an uplisting to NASDAQ. This transformation continues in 2015 as we further integrate the existing products and services from each acquisition target and add new products and capabilities as well as new partners and customers. On the last earnings call, we discussed how we believe that our strategy has positioned us well for addressing few key interests of CIOs today, security and big data, and how we believe that our combined products provide an unique solution for the Internet of Things or IoT market. By this, I refer to how the combination of our AirPatrol, and data analytics products and services help our customers blend real-world data and digital data, that in turn may provide them with new and valuable insights. Today, it is phones and tablets, but tomorrow as more and more devices become connected, we can capture data from any of these devices and ingest them into our data analytics platform using our new LightMiner product, which we’ll talk about more shortly. And then provide actual insights like security alerts, marketing campaigns, loyalty programs, et cetera in real-time. By doing so, we have created a fast, secure and scalable solution that we believe allows customers to answer their most complex business questions today. I’ve touched on examples of how our solution addresses business problems in various industries in the past. But let’s take a recent issue that made headlines this week. The Mayweather-Pacquiao fight resulted Periscope, Twitter’s live-streaming app, being declared the real winner. Much to the dismay of copyright owners, broadcasters, et cetera, live streaming during the Price-Fight [ph] and other events like this happens all the time. What if the venue and broadcasters have the ability to use Sysorex’s AirPatrol technology to detect devices that were violating the live-streaming policies and disabled that feature? Customers would have been able to continue to use their Twitter accounts, but not be allowed to live-stream. Of course, this former device management would require consumer consent to be specified terms and conditions when connecting to the venue’s Wi-Fi, but it could provide a mechanism to protect copyright content. We believe that Sysorex’s AirPatrol technology, which can detect and manage mobile devices, along with our LightMiner data analytics platform, which can provide real-time analytics, could be a solution to this issue. On today’s call, I’d like to focus on three key areas. Our integration efforts in the new operating segments you see in the financial results beginning this quarter. Our recent government contract awards, the NASA SEWP and NIH CIO-CS contracts, and what that means for us in our recent acquisition of the LightMiner product and its role in our big data analytics business. As I mentioned at the beginning, we have made and continue to make significant progress on integrating the companies we have acquired. Part of this integration effort has led to the reclassification of our operating segments in our financial reporting. We have shifted from IT commercial, IT government, location-based technologies that need solutions, which were essentially tied to the entities we acquired. The new segments more clearly represent our products and services regardless of which entity or division may have made the sale. As we integrate the companies and cross-selling between entities expand, we believe this approach will provide more accurate information to our shareholders and the public. For example, with the SEWP or CIO-CS contracts third-party products, Sysorex products and all services sold to government customers, would have been in the IT government operating segment and would blend the revenues and margins. We would not declare to our management team or shareholders which piece was contributing what. In the new segments government becomes a vertical, just like life-sciences, high-tech, retail, et cetera. And we all can clearly see revenues and margins by products and service categories. This is how we look at the integrated business and we felt it was important to share that with you. In our in Q1 results we announced the Storage and Computing, which represents hardware, software and maintenance on products we resold from third-party vendors. This is our largest top line segment with margins on average of 20%. We expect this segment to grow especially with our recent SEWP and CIO-CS’ contract awards. The next segment is Sysorex’s Mobile, IoT and Data Analytics products. Included in this you will find our AirPatrol line and new versions of these products that we are positioning for the IoT space. This segment will also include our LightMiner big data analytics product when sold on premise as an appliance. Any Sysorex owned product sales will be included in this category. This is a smaller revenue segment today, but one that we believe will have high growth and high gross margins in the future. Third, we have our Software as a Service or SaaS segment. This includes all SaaS sales which include revenues that were in our eSolutions category before, as well as our LightMiner data analytics platform when sold as a service and other SaaS services. We have a $4 million revenue stream in this category today. And we expect this category to grow as our LightMiner service roles out later this year. This is also one we expect to be a high growth segment with gross margin levels currently ranging from 70% to 80%. And finally, we have our professional services segment. This includes all other services including managed services and our government IT services. We expect our professional services will continue to grow at an attractive rate. Margins in this segment currently ranges from 40% to 50%. Further to this integration discussion, I’ll point out that you will see us phasing out the subsidiary names and moving them to the Sysorex brand. We will be launching a new website and marketing collateral accordingly. We feel this further unties our employees and signals to our customers and partners that we are one company. The AirPatrol, LightMiner and Shoom names will continue only as product line names. An example of how our integration and cross-selling efforts are beginning to pay off, are the recent contract vehicle awards of the NASA SEWP and the NIH CIO-CS contracts. These contracts that we bid on back in Q4 2013, within six months of the Lilien Systems acquisition demonstrate the integration efforts that we’ve undertaken. Let me take a couple of minutes to address some of the questions we receive from shareholders around these announcements

[Bret Osborn:]

Yes, LMS is a critical piece to our Big Data Analytics as a Service platform or BDaaS as we referred to in the past. LMS in-memory column-based versus row-based database with high-performance computing techniques, make it very fast real-time scalable solution to address the big data analytic needs of enterprise customers. It allows Sysorex to own patent-pending technology on the analytics side of our business, instead of being dependent entirely on third-party providers. We believe that with LMS we can provide a very competitive product, in terms of technology while offering our customers more cost effective solution than competitors. We believe this will significantly increase our role in value proposition to customers. LMS also provides the analytical platform for all the data the AirPatrol customers will be collecting and want to capture, store and analyze. This acquisition gives us the complete robust analytics solution that will be leveraged by all Sysorex business units. We have an updated product that we believe will be competitive with those of Netezza acquired by IBM and Greenplum acquired by EMC. As this frontier of big data continues, Sysorex believes in the position to capitalize on it. Our product has several delivery options. We have an on-premise option. We have an option of putting the platform in co-location facility or cloud. And we got fully managed and hosted platform option. Today’s customers trying to tackle big data analytics require algorithms that are computationally demanding. The more difficult statistical algorithms may require hours or days to finish processing. Data scientist and analysts in most organizations has either simplify their algorithms, give up on the pursuit altogether, constrain time coverage in the data to weeks instead of years or do such restrictive sampling that the predictive accuracy of results are virtually affected. Hence the drive to create faster optimized data structures, such as Vertica and Hadoop. Groups that can execute these more sophisticated algorithms and queries in a timely way we’ll drive competitive advantage over those who cannot. Our LightMiner product can for example accelerate database performance and statistical analysis from 10X to 300X, comparable products to 20X to 40X, speed increases in SQL queries. The performance advantage offers every organization the ability to uncover new power, profit potential hidden in their data. Now, let me hand it back over to Nadir.

[Nadir Ali:]

Thanks, Bret. Before I hand it off to Wendy to read the numbers, I want to go another announcement you probably saw today in our 8-K or in the Bridge Bank press release. We expanded our borrowing capacity with Bridge Bank to increase our credit limit from $6 million to $10 million and extended a new term loan of $2 million. We felt it was important to take this step with the recent contract awards and anticipated growth. With that, I will now turn the call over to Wendy to discuss the financial results for the quarter-ended March 31, 2015. Wendy?

[Wendy Loundermon:]

Thanks, Nadir. Total revenues for the three months ended 31, 2015 were $14.1 million compared to $16.3 million for the comparable period in the prior year. The $2.2 million decrease in revenues or approximately 13% was attributable to an unusually large storage and computing we fulfilled during the three months ended March 31, 2014, but did not repeat in three months ended March 31, 2015. Gross profits with the three months ended March 31, 2015 was $4 million compared to $4.4 million for the comparable period in the prior year. Gross profit margin for the three months ended March 31, 2015 was approximately 29% compared to approximately 27% for the period ending March 31, 2014. The increase in gross profit margins was a result of our sales shifting to higher margin products and an increase in revenue from our Data Analytics to Managed Services and the Professional Services operating segment. GAAP net loss attributable to common stockholders for the three months ended March 31, 2015 was $2.9 million compared to a net loss of $780,000 for the comparable period in the prior year. GAAP net loss per share for the three months ending March 31, 2015 was $0.15, compared to a GAAP net loss per share of $0.05 per share for the comparable period in the prior year. The increase in net loss was primarily attributable to the inclusion of AirPatrol’s operating expenses during the first quarter of 2015, and the additional professional fees and administrative costs associated with being a public company. Non-GAAP net loss for the three months ended March 31, 2015 was $1.6 million compared to non-GAAP net loss of $131,000 for the quarter ending March 31, 2014. The non-GAAP net loss per share for the three months ended March 31, 2015 was $0.08 a share compared to the non-GAAP net loss per share of $0.01 per share for the comparable period in the prior year. We defined non-GAAP net loss per share as GAAP net loss adjusted for non-cash items including stock-based compensation, amortization of intangibles and one time charges including acquisition costs and the costs associated with the public offering. Non-GAAP adjusted EBITDA for the three months ended March 31, 2015 was a loss of $1.3 million compared to income of $51,000 for the period ending March 31, 2014. We defined non-GAAP adjusted EBITDA as GAAP net income or loss, before interest, income taxes, depreciation and amortization plus adjustments for other income or expense items, non-recurring items and non-cash stock-based compensation. On the balance sheet, we ended the quarter with cash and cash equivalents of $2.7 million and total current assets of $22.8 million. Our net cash used in operations was approximately $2.3 million for the quarter. This concludes my comments. And I’ll now turn the call back over to Nadir.

[Nadir Ali:]

Thanks, Wendy. We continue to build our sales pipeline and technology portfolio to further transform Sysorex into a technology company. With AirPatrol and now LightMiner we are building an integrated platform, we believe that will take us a long way toward implementing the strategy. In fact, Big Data Analytics as a Service is being picked up by others, which we believe further validates our strategy. The recent Forbes article by Bernard Marr talks about how the Big Data Analytics as a Service opportunity is the next big thing. In the article, he mentioned that some has made the proportion of business IT spending that is cloud-based, acts as a service activity, will increase from about 15% today to 35% by 2021. He goes to say that the global big data market is estimated to be worth $88 billion by that point. Therefore, we can see that the forecast value of the Big Analytics as a Service market could be $30 billion. More importantly, he talks about why Big Data Analytics as a Service is useful and how companies will not want to carry the total cost of ownership, when they can get this as a service. Certainly through AirPatrol and our LightMiner big data analytics platform, we are focused on building our higher margin segments of our business, while not ignoring all other business lines, as proven with the recent NASA SEWP and CIO-CS awards. We continue to be very enthusiastic about the growth opportunities ahead for Sysorex in 2015 and beyond. I appreciate the time you have given us today. With that Frank, we are ready to open the call to any questions.

[Operator:]

Thank you, sir. At this time, we have allotted 30 minutes to address questions from participants. [Operator Instructions] First question comes from David Riedel from Riedel Research.

[David Riedel:]

Hey, guys. It’s David Riedel here. Congratulations on a solid quarter. With particular focus on the AirPatrol sensor’s business, can you talk a little bit about the sales process, the sales team, the sales timing, the sales growth, sort of how that’s working and how you feel that’s going and growing? And what the outlook is for that? We’ve heard some spectacular case studies for it, and I just want to understand how that fits in the timeline and pipeline going forward?

[Nadir Ali:]

Hi, David. Yes, thanks for the question. So we talked about the AirPatrol use cases over the last couple of calls and the pipeline that we’ve really been working hard to diversify it from the government vertical into commercial areas, such as retail. We talked about partners in the prison sector, casinos, telcos, et cetera. And that continues to grow and the pipeline is expanding but we - as we’ve discussed on previous call, this is a product that is in its early adoption. In terms of technology, it’s new cutting-edge technology. And we do see longer sales cycles. Even the commercial sectors we are seeing 6 to 12 month sales cycles. And that will continue to be, as I’ve stated before, a lumpy part of our business in 2015. I think we’re going to have some quarters where we’ll do much better than others and we’re certainly seeing interest from customers and an impact on the pipeline, but the deal could take some time. And so I think it will be 2016 before it completely stabilizes but we expect to definitely show some wins this year, so people can start seeing the traction in these various verticals we’ve talked about.

[David Riedel:]

That’s great. Thank you very much.

[Nadir Ali:]

Thank you, David.

[Operator:]

Next question comes from Joe Maxa from Dougherty & Company.

[Joe Maxa:]

Thank you. So I was wondering if you could just talk a little bit more about the LightMiner, just how you came about, that you’re using it currently in projects. Just wondering your familiarity with the product and what customers are saying about it.

[Nadir Ali:]

We start to talking to LightMiner as a potential partner and being a part of our big data analytics platform and licensing their technology, and that led to the acquisition discussions. But yes, we certainly have had significant interest from customers around our big data analytics platform. This is one key piece of technology in terms of fast performing databases, in-memory databases, that we think are relevant to the analytics play, and a key component. So it’s nice to be able to own that technology and as I said in the past, this is something that we’ve been thinking about. Which pieces of this ecosystem makes sense for us to own and then where we partner and license. But I’ll let Bret chime in and see if he’s anything add to that in terms of customer interest.

[Bret Osborn:]

What I would say is that the need for a solution in this space and as a service play is what we’re hearing over and over again from customers. So we are very excited about having a complete solution off of the customer base. And as the integration continues with the rest of other products, I think that we’ll be putting up some very solid sales from this.

[Joe Maxa:]

Does the acquisition come with a backlog, do they have existing customers?

[Nadir Ali:]

This is an early stage company, so it’s more about the technology. They were in beta with some customers and relationships, but we will really be taking them to market under our platform.

[Joe Maxa:]

I see, okay. And then on the government contracts and again contracts on being and getting those. Sounds like you got your response to your task order at least with AirPatrol. Are you seeing more task orders come out? Can you give us a sense on timing of when you might start to see some potential revenue from these contracts?

[Nadir Ali:]

Yes. So we are seeing task orders come out. We had a couple of 100 show up on the first day, probably due to pent-up demand. I don’t think that’s going to be a daily occurrence, but there is a significant volume that you do see on these contracts. Now, not all of those task orders are going to be of interest to us. We’re very focused on certain product lines around our capabilities in products. So we may not respond to all of those task orders, right? So that will vary. But in terms of revenue from these task orders, as I mentioned, we’ve already one for AirPatrol. We’ll start seeing task orders every week that we will be responding to. So I think on NASA SEWP at least that has kicked off. CIO-CS is few weeks away still. And you’ll start seeing some revenue probably more so in Q3, maybe we’ll start seeing some revenue this quarter.

[Joe Maxa:]

Okay. One more question for me. If you just think about your pipeline on your big data analytics and your managed services, can you just talk about what you’re seeing now, maybe how big that pipeline is compared to, maybe six months ago or a year ago or how it’s grown over that timeframe?

[Nadir Ali:]

Well. So last quarter I talked about, we’ve grown the services business, which includes the big data analytics, consulting work, and managed services et cetera. That grew 67% last quarter, again, this quarter, we had a record number of deals and opportunities in revenue for that segment, in particular. So I think it is something that it’s one of our fastest growing pieces. We’ll continue - we’d expect to continue to see that kind of growth in that segment, because there is definitely demand for data analytics as a service, managed services around this whole space, and that’s what one of our key focus areas is.

[Joe Maxa:]

All right. Thank you.

[Nadir Ali:]

Thanks, Joe.

[Operator:]

Next question comes from Suhez Ahmet [ph] a private investor.

[Nadir Ali:]

Hello.

[Unidentified Analyst:]

Hello. You purchased AirPatrol, this is a question both to Nadir and to Wendy. You purchased AirPatrol about 12 months ago, right? So AirPatrol potentially had some backlog and you must have executed some orders from AirPatrol. How much was the revenue that’s related to AirPatrol in this quartet? And what has happened to that backlog of orders that was with AirPatrol 12 months ago?

[Nadir Ali:]

So, what we’ve talked about is, as you will see in our 10-K for 2014, AirPatrol revenue was approximately $2 million for 2014. In this quarter in the Mobile, IoT operating segment, so you can see that in the queue, sorry, in our earnings press release, it was roughly $150,000. But it’s - the pipeline for AirPatrol has been significant when we acquired them. We had several deals that were delayed, because that was primarily government contracts or government customer deals. Those deals have not necessarily gone away. We’re just continuing to work with those clients, as they go through their budgetary issues, procurement processes, sequestration last year was an issue for some of them. But that’s why we’ve been shifting the focus to commercial customers and helping up new verticals to really help AirPatrol develop a pipeline of opportunity that we can close faster.

[Unidentified Analyst:]

So just - you had a press release earlier about VMware about six months ago I believe. So VMware apparently was testing the zone checking of AirPatrol software. Can you tell me what happened to that?

[Nadir Ali:]

So VMware - well, a subsidiary of VMware AirWatch is a partner for our AirPatrol product line. They along with other mobile device management companies, such as MobileIron, Good, et cetera are integrating with your product line and taking us to their customers, and that continues. So we are working with them on some opportunities that they have brought us into. But as we mentioned, the sales cycle is - could be 6 months to 12 months in these types of sales. So we are working through those opportunities.

[Operator:]

And our next question comes from Rene Jevi [ph], private investor.

[Unidentified Analyst:]

Hi, I wonder if there’s - are there any bugs in this software? Is it working properly? [indiscernible] software.

[Nadir Ali:]

Yes. We have AirPatrol deployed in several accounts. And several of those customers, government agency customers, we talked about special ops command before have over 1 million square feet covered with our AirPatrol technology. So, yes, thank you.

[Unidentified Analyst:]

All right. Thanks.

[Operator:]

Next question comes from Ross Silver from Vista Partners.

[Ross Silver:]

Oh, hey, Nadir and congratulations on an excellent quarter, and some of the successes that you’ve been able to announce here over the past few weeks. Just a question more so of the environment for big data analytics and how Sysorex fits specifically in the direction that big data analytics is heading? Could you just talk about sort of the Blue Sky, if you will, or how the industry is kind of taking shape, and sort of how you fit into the industry and what sort of niche you’ve kind of carved out and sort of the total market size as it is now, and kind of where some of the industry analysts think it’s going?

[Nadir Ali:]

Sure. Thanks, Ross. We’ve talked about in - even in earlier my call, we’ve mentioned big data analytics as a service, is being a multibillion-dollar industry. I think the sports article mentioned something that $80 billion. But we really think that the trend is going to be towards the analytics as a service play, right? And I’ll let Bret get into specifics about how we’re positioning ourselves there, but the - this really has been that, customers whether government or commercial are being inundated with Data Vault sports right? And we have a slide that talks about how 90% of the world’s data was created in the last two years. And that’s just - it’s going to continue to grow. And so being able to really capture inside or useful information out of that data, you need a superfast analytics platform that can ingest all that data, processes in real-time, and get it back out to the edge, whether it’s on a mobile device or some application et cetera. So that consumers or executives can make business decisions, right? And that’s why we feel building out analytics platform as a service will really get us significant traction in the marketplace. But let me ask Bret chime in here.

[Bret Osborn:]

Okay. Yes, so the reason that we made display and went after the big data services, we have many customers come to us and say that they know they need to analyze their data, but they don’t exactly know how to do it. So not only they don’t know how to do it, they don’t know who to hire, how to hire them, what platform or process and what data to actually analyze. And so what we found was that there was many people out there that that knew that they needed to do something, but didn’t have the skills to get it done, and there’s a certain - excuse me, there is a deficiency or lack of people out there in order to make it happen. So what we went after to build is something that is 80% to 90% baked, already finished, and 10% to 20% customization necessary in order to get value out of analyzing your data, that’s with the LMS acquisition and the rest of our platform will be able to provide customers. The beauty of that is that, it makes it really easy for customers to adopt big data and get value out of big data clearly. The other thing is that we find and the reason that we believe as a services is the way for us to continue to do this is that, in the jobs that we - in projects that we have helped customers with, we will go in there and have one of our data and scientist complete a project and they will create a data model. That data model will be asking the data some question and there will be an actionable result at the end of the query that says, do this. Well, the customer then puts this information back into their product development or product enhancement or customer acquisition strategy or whatever maybe. And then what happens is if that question that they’re asking is no longer relevant over time, and they need to know data scientist to come back and write a new series of questioning. So we believe that what happens in that instance is, the data model gets stale and they’re no longer getting the value. So as we offer these things as a services, this will be something that we can continue to offer customers and they can continue to see faster data analytic answers faster time to revenue, faster time to profitability, and that will benefit Sysorex as a whole from [indiscernible] solutions for them.

[Ross Silver:]

So just and I don’t mean it take up too much of a queue here. But - so as a real-time application, so let’s say, me Ross Silver, I walk into Macy’s. I just happen to have the Macy’s app downloaded on my phone. I walk into Macy’s, I look at a pair of jeans, I look at some socks, I look at some T-shirts right? I decided to buy the pair of jeans. AirPatrol has been integrated within Macy’s. It knows essentially, exactly where I have been inside that Macy’s with exact precision not just that I’m somewhere near jeans or somewhere on near socks, it gives you that precision to know exactly what I look at and specifically what I purchase. So then you will then provide data to that - to Macy’s stating, Ross Silver purchased a pair jeans, but he looked at socks, he looked at T-shirts. And then they can send me, say, an advertisement within the next day or so, saying, hey, here’s 15% off for socks or 15% off shirts, because they know and it’s so - and then it’s personal, it’s getting your software or your product offering is allowing more personalization from a retailer or whatever the specific vertical is, is that the correct way to think about it?

[Nadir Ali:]

Sure. Yes, that’s a good example of - so the AirPatrol side is doing the locationing and detectioning precisely in the retail environment. And the analytics are being handled through our LightMiner platform in the cloudm and sending back to that location the appropriate marketing campaign, or notice, or security alert that may be required for that person while they are in the mall, right? And so and you can think of scaling that to hundreds of thousands of people in a mall, or whoever may be, or a mall operator that has 200, 300 malls across the country. They need a platform that can provide these real-time analytics back out, because there’s no point sending me that coupon in Macy’s for discount on those jeans I’m looking at when I walked away, right?

[Ross Silver:]

Right.

[Nadir Ali:]

You need to pull the trigger right then. And so that’s why you need to be able to ingest all these data in real-time. And it’s also not just the location data from our AirPatrol clients at that point. It’s also - we maybe tying in data from the Macy’s out on customer profile, history, purchasing habits et cetera, other third-party data sources as well. So we’ve got to integrate, ingest, and then analyze all that and deliver a quick response in terms of a marketing campaign or whatever maybe.

[Ross Silver:]

Great. Thank you so much for taking my question. I apologize for taking so much of the queue. And, again, congratulations on the quarter and look forward to the upcoming quarters here in 2015.

[Nadir Ali:]

Thanks, Ross.

[Operator:]

This concludes our question-and-answer session. I would now like to turn the conference back over to Nadir Ali for closing remarks.

[Nadir Ali:]

Thank you, Frank. I want to thank everyone for their time today. We are going to be presenting at the B. Riley Conference next week in LA, and then Marcum later this month in New York. We hope to see you one of these events, and we appreciate your time and interesting in Sysorex. Thank you.

[Operator:]

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect the line.