EX-99.2 3 ex99_2.htm EXHIBIT 99.2 ex99_2.htm
2nd Quarter
Ended June 30, 2008
INX Inc.
Nasdaq: INXI
www.INXI.com
August 12, 2008
Financial Results
 
 
 
Agenda For Conference Call
1. Brian Fontana, CFO will present the results for the quarter and discuss
 certain financial trends
2. Mark Hilz, President & COO will provide an industry update and discuss
 recent achievements, activities and events
3. Jim Long, Chairman & CEO, will discuss INX’s outlook for the future
4. Take questions
 
 
 
GAAP Reconciliation and
 Forward-Looking Statements
All financial results shown are for continuing operations unless otherwise noted
GAAP Reconciliation
Safe Harbor Statement
 
 
 
Non-GAAP Financial Measures
  Presentation of non-GAAP net income provides a consistent basis for
 comparison to historical periods based on results that management views as the
 key measurements of financial performance
  Non-GAAP net income is net income on a GAAP basis adjusted for:
  Non-cash equity-based compensation
  Non-cash income tax expense
  Discontinued operations
  Realization of deferred tax assets and expectation of future taxable income are
 expected to result in income tax expense for the remainder of 2007 at an
 effective rate of approximately 45%
  Statutory tax rate of approximately 36% will differ from effective tax rate of
 approximately 45% because of timing differences of the deductibility of certain
 book expenses for tax purposes
  Substantially all book tax expense is expected to be non-cash for federal income
 tax purposes during the remainder of 2007 because of a net operating loss
 carryforward of approximately $3.0 million at June 30, 2008.
 
 
 
Second Quarter Ended 6/30/2008 Results
 
 
 
Reconciliation of GAAP to Non-GAAP Net Income
 For 2nd Quarter Ended 6/30/2008
(Dollars in thousands, except EPS)
 
 
 
6 Months Ended 6/30/2008 Results
(Dollars in thousands, except EPS)
 
 
 
Reconciliation of GAAP to Non-GAAP Net Income
 For 6 Months Ended 6/30/2008
(Dollars in thousands, except EPS)
 
 
 
Balance Sheet Data
(Dollars in thousands)
 
 
 
Gross Margin
 Product vs. Services Revenue Sources
  Product gross margin has trended upward slightly over a multi-year period, a function of
 our increasingly high value-add solutions and increasing business from repeat customers
  Services gross margin declined in 2005 and 2006 due to rapid national expansion and
 start-up of new practice areas, both of which increased engineering and other categories
 of costs of service in advance of service revenue production; improving recently as
 benefits are realized; two recent quarters are in our target range of 30%-35%
 
 
 
Gross and Operating Profit Margin
  Gross profit margin on total revenue has trended higher upward over the past several
 years due to improving mix of service revenue and improving gross margin on both
 product revenue and service revenue; in 1H-2008 this trend continued
  Operating profit margin turned positive in 2004, then declined in 2005 and 2006 as we
 executed on rapid geographic expansion and introduced new practice areas, but has
 improved since 2006 as benefits of expansion have begun to be realized
* 2005 results exclude one-time non-cash charge of $5.7 million
 
 
 
Operating Income / Capital Used In Operations
  Improving operating income relative to the amount of capital used to generate such operating
 income is key to improving long-term shareholder value
  Careful use of capital for acquisitions and other investments used to generate improving
 operating income has resulted in substantial improvement on the return on the capital used
 for such operations
  The ratio of operating income to capital used in operations, defined as trailing 12-month
 operating income divided by average equity capital plus debt minus cash, has improved to
 23.7% at 6/30/2008 compared to 13.5% one year earlier
 
 
 
Industry Update
  Unified Communications is still in it’s infancy. Cisco and Microsoft are
 accelerating development of new offerings.
  The movement towards a virtualized Data Center environment that is connected
 via the “IP network” will present a huge new area of opportunity for INX. Storage,
 Security as well as Routing and Switching will be major areas for growth in this
 new environment.
  Web 2.0 enterprise applications are moving into the enterprise environment and
 will increase the use of video in the enterprise.
  Telepresence solutions offer a major step up in interactive video collaboration
 with CD quality audio and HD video that has life-size images.
  Customer ROI in these areas continues to advance and present the customers
 with many compelling improvements in areas such as productivity, reliability and
 consolidation for lower operational cost
 
 
 
Recently Announced Achievements
  1/23/2008 - contract to supply up to $21 million for Department of Defense
  2/14/2008 - gained Cisco “Powered Managed Services Provider” status
  2/20/2008 - gained Cisco “Master of Security” status
  3/25/2008 - began selling Cisco TelePresence solutions and became a Cisco
 TelePresence Advanced Technology Partner
  4/15/2008 - $8.4 million U.S. Corps of Engineers services contract win
  6/4/2008 - Increased senior operating credit facility to support growth
  6/9/2008 - Acquired AccessFlow, Inc. - entering market for virtualization
  6/26/2008 - Closed $9.9 million equity raise to support further growth
 
 
 
Staffing Trends -
 Investing In Staffing To Produce Growth
  We continued to add staff during the most recent quarter, continuing to invest
 for continued growth
  Direct revenue-producing staffing increased 30% in 1H-2008 compared to 13%
 increase for non-direct revenue producing staff
 
 
 
Staffing Trends -
 Recent Quarter
  During the 2nd quarter we continued to add staff
  Entering the virtualization space and adding Cisco TelePresence requires that
 we staff up with talent required to rapidly grow in these new areas
  Direct revenue-producing staffing increased 17% during the 2nd quarter
 compared to a 3% in operations and administrative staffing
 
 
 
Outlook - 2 of 3 Drivers Of Year-Long Industry-Wide
 Slowdown Are Subsiding
 Since ~ July 2007, certain customers have been fearful of the possibility of a
      recession, and certain categories of customers continue to worry about the
      future of the economy and how their business will be impacted, causing them
      to delay moving forward with some capital expenditures
 Since ~ July 2007, large enterprise customers have been anticipating the
      benefits of lower interest rates as the Fed began an easing cycle - the easing
      cycle appears to be at an end, which is prompting some customers to move
      forward with capital expenditure projects
      Since ~ December 2007, corporate enterprise customers began to anticipate
      the possibility of a Federal government economic stimulus package
      containing provisions to stimulate capital spending by businesses - this was
      signed into law in February 2008
 
 
 
 
18
Outlook - Recent Catalysts For Continued Growth
 Recent services contract of $8.4
 million, majority of which will be
 recognized over the remainder of 2008
 calendar year - increase in higher
 margin service revenue
 Recent Cisco relationship
 achievements present opportunities:
 TelePresence Advanced Technology
 Partner; Master of Security; Cisco
 Powered Managed Services Partner
 Year-ago introduction of network
 storage and network security yielding
 results - (242% and 58% growth
 respectively for 2007) + new addition
 of virtualization practice
 Data center trends (storage, iSCSI,
 FBOE) combined with Cisco’s recent
 new product announcements in this area
 (Nexus line) is creating new growth
 opportunities + AccessFlow
 Boston-based Select, Inc. acquisition is at
 the end of its ~6-9 month typical
 integration period, following which we
 have normally seen above-average
 revenue growth from past acquisitions
 Continued recent investment in hiring of
 revenue-generating employees -
 engineering staff +30% and sales staff +
 13% in 1H-2008
 
 
 
 
Outlook - Q2 & Longer-Term Expectations
  For Q2-08 we expect:
  Total revenue in the range of $64-$69 million, an increase of 23%-33%
 compared to prior year period revenue of $52.0 million
  Services revenue in the range of $10-$12 million, an increase of 48%-
 77% from the prior year period service revenue of $6.8 million
  We continue to maintain our long-term target ranges for gross profit of 15%-
 19% for products and 30%-35% for services, and for operating profit margin
 in the range of 4%-7%, the achievement of which is dependent upon
 leveraging certain operating expenses against continued revenue growth
 
 
 
Summary / Highlights
2st Quarter Results
Outlook