INX 8-K Needham & Company 11th Annual Growth Conference Presentation

Needham & Company 11th Annual
Growth Conference Presentation

INX Inc.

Nasdaq: INXI

www.INXI.com

January 7, 2009

Jim Long, Chairman & CEO

Presentation Agenda:

Operations

Financial performance & position

Market conditions

Updated Q4 guidance & comments on recent trends

2

GAAP Reconciliation and
Forward-Looking Statements

All financial results shown are for continuing operations unless otherwise noted

GAAP Reconciliation

Safe Harbor Statement

3

Overview - - INX Inc.

NASDAQ GM:INXI

Shares Outstanding: ~8.7MM

Float:~6.7MM

Diluted shares:~9.3MM

90-day avg. volume:~20,000

Headquarters:Houston, Texas
(corporate administration) and
Dallas, Texas (operations)

4

Managed Services

Professional Services

Products

The INX Solutions Set

Selling network, IP telephony,
network security, wireless,
security, network storage and
virtualization products

Network assessment and
design consulting and
implementation services,
billed hourly or by project

15%-19% target gross margin,
a level we have been
achieving

30%-35% target gross margin,
trending towards this range

12%-15% of total revenue

Monitoring and management
of the customer’s network
and network-related devices

40%-50% target gross
margin, trending towards this
range

1%-3% of total revenue and
growing

80%-85% of total revenue

33% growth for 2007

29% growth for 2007

70% growth for 2007

No working capital required

Modest working capital
required

Modest working capital and
substantial investment capital
required

5

Increasing IP Network Importance & Complexity
Benefits Focused Solutions Providers Like INX

Voice / Video

Wireless Access

Storage

Collaboration

Security

Demand For Focused Solutions Provider Services

Routing & Switching

Enterprise organizations are realizing
that the IP network is rapidly becoming
the platform for all forms of
communications, while at the same time
the network is becoming more complex.
INX is benefiting from this trend.

Virtualization

6

Growth Strategies

Expand into select, complementary categories of technology such as recent
additions of network security, network storage and virtualization as focused practice
areas (most of which has now been accomplished)

Geographic expansion-to grow the number and size of customers

Make selective, strategic, accretive acquisitions

7

Geographic Expansion -

3X Growth Since Mid-2005

Houston

San Antonio

Dallas

El Paso

Albuquerque

Los Angeles

Eugene

Portland

Seattle

Washington

(Federal)

Boston

(2)

Boise

Sacramento

8

Increasing Number and Size of Customers

We serve U.S. “enterprise”
organizations - - corporate, state and
local government, federal government,
and education - with 200 to 50,000
employees

As we have become more of a
“national” scope organization, we have
been able to win larger customers and
transactions

As we continue to grow our national
presence we believe our ability to win
larger-sized customers will continue to
be enhanced

No material direct exposure to
problematic industry sectors such as
homebuilding, mortgage companies,
investment banking, etc.

9

Customer Categories and Mix

(Dollars in thousands; based on customer billings)

52%

of

2007

A disproportionate percentage of 2007 business was with
customers that are well positioned to benefit from probable
federal government stimulus during next several years

10

Competition:National Presence +
Focus & Expertise Are Competitive Advantages

High focus

& expertise

Low focus

& expertise

Low geographic

presence

High geographic

presence

INX’s increasingly

national presence,

combined with a high

level of focus and

expertise, is a

competitive advantage

with large, national-

presence customers

Small, focused,

regional solutions

providers

Large IT solutions

providers and

telecom carriers

Small, generalist

VARs & IT solutions

providers

In addition, INX’s
balance sheet strength
is increasingly
becoming a
competitive advantage
in the current tight
credit environment

Operating Financial Performance

12

Improving Per Diluted Share Operating Results

On a per diluted share basis, INX has materially improved key areas of operating performance:

Revenue per share +30% over past 7 quarters; +16% over past 4 quarters

Gross profit per share +34% over past 7 quarters; +23% over past 4 quarters

Operating income per share +154% over past 7 quarters; +57% over past 4 quarters

This improvement is a result of organic revenue growth, accretive acquisitions and improving
employee productivity

TTM Revenue / Share

TTM Gross Profit / Share

TTM Oper. Income / Shr.

+ 30%

+ 34%

+ 154%

13

Improving Return On Capital Used In Operations
(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
deployed to generate such operating income

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
substantially

TTM Operating Income

TTM Average Capital Used

Ratio

+ 212%

+ 32%

Balance Sheet,

Liquidity

& Credit Availability

15

Improving Balance Sheet

INX’s balance sheet has shown substantial improvement; currently stronger balance sheet
than at any recent time

Stockholders equity and net cash per diluted share have both improved substantially over
the past 7 quarters

Maximum leverage, measured in terms of the debt/equity ratio, has been around a maximum
of 20%, and is at 0% at 9/30/2008

Stockholder’s Equity / Share

Net Cash / Share

Debt / Equity Ratio

16

Balance Sheet Data

(Dollars in thousands)

17

Simple Balance Sheet / High Quality Assets

(Dollars in thousands)

Tangible Assets at 9/30/2008

% of Total A/R Aged Over 60 Days At Month End

INX has a very simple balance sheet

Accounts receivable is the largest
tangible asset, followed by cash

INX has high quality enterprise
organizations as customers

No deterioration in aging of accounts
receivables over past year

18

Credit Availability and Liquidity
- At September 30, 2008

During Q3 we spent $557,000 to repurchase 79,940 shares under our repurchase plan

Record levels of cash on hand at $15.8 million, or $1.82 per share in cash

No funded (interest bearing) debt outstanding under credit lines

$60 million operating credit facility used to purchase product from vendors for resale to
customers had an outstanding balance of $39.4 million (subject to collateral availability)

$10 million credit facility available for acquisitions with zero balance

Generating positive cash flow from operations of the business:

Weak Q3 net income was $426,000

Q3 non-cash equity compensation expense was $429,000

Q3 non-cash depreciation and amortization expense was $664,000

Q3 non-cash income tax expense was $395,000

$1.9 million

Stock Price

20

Recent Stock Price
Reflects Fears About The Future, Not Fundamentals

Daily Chart

As of 12/31/2008

4-year:-44%

2008:-58%

21

Stock Price Does Not Reflect
Improvement In Fundamentals

As of 12/31/2008, the price of INXI
common stock has decreased 44%
compared to 4 years earlier

There is no correlation with the
substantial improvement in
fundamentals over the past 4 years

A comparison of YTD 9-month results provides a reasonable view of the fundamental
improvement that has occurred over the past 4 years:

Revenue / diluted share increased 98%

Operating income / diluted share increased 249%

Stockholders’ equity / diluted share increased 97%

Debt / diluted share decreased from $1.15 per share to $0, and cash, net of debt,
increased from negative $0.35 per share to positive $1.69 per share, resulting in reduced
leverage and risk

Update On Recent Trends In Business

&

Outlook

23

Q4-2008 Outlook Provided On November 6, 2008
& Update to Previous Guidance as of January 7, 2009

When we provided guidance on 11/6/2008 we expanded our range of expectations somewhat due
to lower visibility as compared to recent quarters, which reduced visibility was driven by macro-
economic and credit market uncertainty

For Q4-2008 ended December, 31, 2008 we expected:

Total revenue in the range of $61-$68 million, an increase of 8% to 20% compared to prior
year period revenue of $56.6 million

Services revenue in the range of $10-$12 million, an increase of 25%-50% compared to
prior year period service revenue of $8.0 million

Updated guidance:We currently expect Q4-2008 revenue to be above the low end of the
previous range of guidance, and possibly as high as the middle of the range of guidance

We continue to maintain our long-term target ranges for gross profit margin 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

While we do not provide earnings guidance, we do expect that for the next two to three quarters
that both gross margin percentage and operating profit margin percentage will be pressured
somewhat due to our efforts to expand newer practice areas and our efforts to aggressively gain
market share

24

Market Developments & Recent Customer Demand

Over one year ago, on November 5, 2007, we reported that tight credit markets and worries
over a possible recession were causing slowing customer demand

Customer demand hit a low point in March 2008 and rebounded each month from that point
through July, peaked in July, and then softened somewhat August and September

For Q3-08, organic (excluding acquisitions) product order bookings increased by 34% y/y,
with the strongest y/y growth occurring early in the quarter in the month of July, and
slowing in August and July

Financial market turmoil in late September and early October caused a pause in customer
decision making, which together with credit availability issues, caused customer demand to
slow substantially in early October; organic product bookings decreased by 26% y/y for the
month of October

However, organic order bookings improved somewhat in November (~ flat y/y), and further
improved in December (+44% y/y)

Consensus thinking indicates that the U.S. economy has moved from a “slowdown” to a
true economic recession with negative y/y GDP growth expected over the upcoming
several quarters, and perhaps longer

25

Impact Of Recent Market Developments

The recessionary economic environment, combined with tight credit availability, will
continue to negatively impact industry-wide customer demand near-term, and possibly
for several quarters, or even longer

INX’s industry is well positioned on a relative basis because unified communications
and data center virtualization are areas of cap-ex that result in tangible cost savings

Tight credit availability will likely cause some leveraged competitors to experience
capital constraints and related performance issues, and there will likely be a
redistribution of industry revenues based on balance sheet strength and credit capacity

INX can benefit because of our strong balance sheet and credit capacity

To take advantage of this market opportunity we will selectively hire top sales and
engineering talent that becomes available, as well as make acquisitions

Hiring during a period of weakened customer demand will negatively impact operating
profit margin percentage in the near-term, but will improve earnings potential when
customer demand improves

26

Recent Measures We Have Taken

In December INX made staff reductions of approximately 7.5% of its total staff

These staff reductions will result in one-time charges of approximately $230,000, or about
$0.026 per share on a pre-tax basis, which will impact Q4 results

Ongoing expense reduction starting 1/1/2009 resulting from these staff reductions is
approximately $1.2 million per quarter, or about $0.14 per share on a pre-tax basis

We undertook these measures in order to:

Materially reduce the level of ongoing fixed expenses and better position the
company for continued weak market conditions

Position the company for a higher content of “data center” oriented business as
compared to “unified communications” business

We plan to continue to selectively hire top sales and engineering talent, particularly in our
newer virtualization practice area, and we plan to continue to hire for positions that we
believe will directly result in revenue production

27

Why We Are Optimistic About INX’s Prospects

INX currently has a small share of its target markets, which markets
include some of the best areas of technology, from a growth perspective

Well positioned to gain market share against competitors because of our
strong balance sheet in market conditions in which some competitors will
be credit constrained

Well positioned to make acquisitions on favorable terms due to the fact
that some acquisition candidates will be credit constrained and more willing
to sell on terms favorable to INX

Focused on some of the highest growth areas of enterprise technology,
and many of these areas of technology provide a compelling tangible
return on investment

28

Why We Are Optimistic About The Future For
The Areas Of Technology INX Provides

Unified communications is still in a state of relative infancy;the majority of enterprise
phone systems are still antiquated TDM PBX technology;many organizations can experience
a tangible ROI from deploying UC, beneficial in good or bad times

Network security issues will continue unabated, irrespective of economic conditions, and
failure to resolve security issues “is not an option” for most enterprises

Growth in network storage capacity, which occurs irrespective of economic conditions, will
continue to drive demand for upgrading storage;the natural path of upgrade is to newer
technology that INX is focused on deploying - INX started storage practice < 3 years ago

Virtualization of servers has one of the most compelling ROI metrics of any area of IT and
communications enterprise spending, and delaying the deployment of virtualization because
of an economic downturn is therefore illogical - new for INX since June ‘08

Virtualization of servers within the datacenter often requires an upgrade of the network
infrastructure within the datacenter, leading to “data center virtualization”

Web 2.0 enterprise applications are moving into the enterprise environment and will
increase the use of video in the enterprise, in turn increasing network load

TelePresence video communications solutions help save money by reducing travel costs
and this area of technology is expected to continue to grow - new for INX since April ‘08

29

Summary

Revenue in millions

Excellent long-term track record of industry-leading
organic growth and executing on acquisitions

Superior financial performance in the face of the
economic slowdown that is now over 15 months old:

TTM revenue / diluted share + 16%

TTM non-GAAP net income / diluted share +53%

Well positioned for the economic recession:

Focused on best growth areas of technology

Strong balance sheet

Plan to take advantage of current market conditions