DecisionPoint Systems, Inc.

Greetings. Welcome to the Decision Point Systems, Inc. Fourth Quarter 2021 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Carol Arakaki. Thank you. You may begin.

Good afternoon and welcome to Decision Point Systems' 2021 Fourth Quarter Earnings Call. Joining me today is Steve Smith, Chief Executive Officer, and Melinda Wall, Vice President of Finance at Decision Point Systems. Before we start, I would like to remind you of our legal disclaimer that certain forward-looking statements will be made during this call that reflect Decision Point Systems' judgment and analysis only as of today, April 1, 2022, and actual results may differ materially from current expectations based on a number of factors affecting Decision Point Systems' business. Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of the risks and uncertainties associated with any forward-looking statements, please see the disclaimer regarding these statements that are included in our 2021 fourth quarter earnings release issued on March 31st, as well as our SEC filings. Please note that we will not revise or publicly release the results of any revision to the forward-looking statements in light of new information or future events. Also, during this call, we will discuss adjusted EBITDA, a non-GAAP financial measure, which adjusts our GAAP net income to eliminate the impact of interest, income tax expense, depreciation, amortization, stock-based compensation, gain on extinguishment of debt, and other non-operating income and expense items. You will find additional information regarding adjusted EBITDA and a reconciliation of adjusted EBITDA to net income in our fourth quarter earnings release. For a copy of our earnings press release, please visit the investor section of the company's website at www.decisionpt.com. With that, I'll now turn the call over to Steve.

Thank you, Carol, and feel better there. Good afternoon, everyone, and thank you for joining us today for our fourth quarter 2021 earnings call. 2021 was another very solid year for Decision Point. We grew in all key measures relative to 2020, a tough compare with its oversized singular top-line event, and did so overcoming industry headwinds caused by global supply chain constraints. While the sale of enterprise hardware such as mobile computers, barcode and RFID scanners, and printers remain a solid core of our business, the provision of associated services including especially managed operational services with its recurring revenue streams is the focus of our strategic intent. The nearly 18% growth in these services in 2021 marks our progress. We plan for services to continue still larger proportions of our growth going forward, yielding margin expansion, increased forward revenue visibility, and the foundation for robust enterprise value growth. Our Vice President of Finance, Melinda Wall, will offer more detail on our financial results shortly. We continue to execute the strategic growth plan we put in place several years ago. That plan is focused on the growth of what we call mobility-first services and on the expansion of our served geographic coverage. We're achieving those goals through both the organic build-out of our business and by select acquisitions. Software as a service is a core strategy to grow our recurring revenue base. In 2020, we acquired Xtend Data's Mobile Conductor, a software platform targeted at direct store delivery and proof-of-delivery markets. In 2022, January, we acquired Advanced Mobile Groups, VisiTrace, a software platform that manages RFID installations. And most recently, just two weeks ago, on March 15, 2022, we completed the acquisition of Boston Technologies, a leading provider of mobile order management and route accounting software for direct store delivery operations. All three software platforms mentioned above are compatible with Android OS and seamlessly integrate with the back-end accounting systems such as QuickBooks, Sage, and others. Mobile Conductor, VisiTrace, and Boston Technologies are now owned platforms of decision points and part of our expanded IP portfolio. They will continue to be sold, supported, and leveraged across our further expanded customer base nationwide while adding to our reoccurring revenue. Managed services is a key component of our services-led strategy that we continue to invest in. We offer a comprehensive product portfolio of managed services designed to simplify the complexity associated with designing, deploying, and managing a mobile solution. We rolled out a new tablet system for field representatives of a large enterprise customer. DecisionPoint co-developed that software in the handhelds. with its customer operations team that is intended to improve the efficiencies of customer field representatives and make it easier for them to record deliveries, pickups, and transact sales on the spot. This tablet system has been a multi-year project, which continues to evolve and improve our customers' competitive position. We are committed to our customers and their success. The field sales and service market is experiencing significant growth. This space has evolved and moved from rugged to consumer technologies in many instances. As a result, Decision Point intends to leverage our experience to expand our offerings and options for our customers as technology changes and evolves. Decision Point intends to provide its complete line of services, including custom or packaged software solutions to these markets representing another area of potential growth and an increase in overall gross profit margins. Now, turning our attention to acquisitions, the first one we did in 2020 was Xtendata. We have substantially integrated Xtendata's operations into our infrastructure. While we incurred one-time integration costs in this effort in 2021, Primarily in HR and IT, we will continue to realize cost synergies in these long term, including systems integration and consolidating overlapping operations such as finance and administration functions. We also expect to see more value-added cross-selling revenue synergies and increased coverage and share in the new geographic markets. The trends I mentioned earlier to shift the sales mix to services and the integration of extend data that have been driving our business and will continue to drive our business in the foreseeable future. We have identified opportunities that we believe will increase shareholder value in 2022. Let me identify them for you. Number one, we will continue to invest in our services IT infrastructure that will create efficiencies for frontline workers and our team to streamline and enhance our mobile solutions while offering predictable and reoccurring revenue streams. As previously mentioned, in connection with the acquisition of Xtendata and AMG, we acquired two software-as-a-service platforms that we plan to cross-sell nationwide to our expanded customer base. Number two. our managed services will be value and outcome-focused to enable our customers to achieve business results. This transformation to services and a subscription model offers predictable, reoccurring revenue and provides higher margins than the value-added reseller model. Number three, we will continue to focus on strategic acquisitions and target companies that will broaden our product and service offerings, and... expand on our geographic presence. In January 22, we acquired Advanced Mobile Group to expand DecisionPoint's mobility-first enterprise solutions and service offerings and grow its capabilities in the Mid-Atlantic region. Advanced Mobile Group is a regional leader, providing services, hardware, software, integration, and wireless network solutions with deep experience in warehousing and distribution, manufacturing, mobile workforce automation, retailing, and healthcare segments with over 600 customers. As previously mentioned, we also acquired Boston Technologies, a leading provider of mobile order management and route accounting software for direct store delivery operations. Both acquisitions, or I should say all three, will result in immediate top-line growth we will continue to target companies to acquire in 22 and beyond to expand our geographic presence and our IP portfolio. And fourth, we will focus on reducing SG&A costs and streamline operations of the newly acquired companies for efficiency and cost savings. In closing, 2021 was a great year and another important step in executing on our managed services subscription strategy. We're excited at the growth prospects with this transformation. Our business is gaining momentum, as evidenced by our results. We are positioning ourselves to deliver long-term growth and profitability, and we look forward to sharing our progress with you going forward. Now, I will turn it over to Melinda to review our fourth quarter and full year results. Melinda?

Thank you, Steve. Details of our 2021 fourth quarter and full year operating performance compared to 2020 fourth quarter and full year were as follows. Q4 total sales was 16.5 million, down 9.9%. We experienced supply chain headwinds in the quarter, and as a result, we could not ship out some of our products impacting hardware sales. We have 31.2 million in the backlog as of December 31st, 2021, that will shift sales into 2022. Q4 last year had a significant equipment upgrade from one of our largest healthcare customers that was non-recurring in 2021. Full year 2021 sales were $65.9 million, up 4.1%. This increase was driven by a $11 million increase in overall net sales associated with sales of Xtend data that we acquired in December 2020, and an increase in our services revenue that has been a primary focus of our growth. Q4 gross profit decreased 15.7% from prior year due to lower sales volume in connection with the supply chain constraints for hardware orders. Full year 2021 gross profit increased 0.5 million or 3.3% for 2021 as compared to 2020, primarily as a result of higher sales volume. Overall gross margin decreased slightly by 20 basis points attributed to lower margin consumable sales. Q4 sales and marketing expenses increased 9.9% and full year 2021 increased 31.6% over prior year. This is driven by expenses and integration costs of Xtend data that we acquired in December 2020. Q4 G&A increased 50.2% and full year 2021 increased 2.3 million or 45.1% over prior year. driven by increased costs associated with extended operations, higher director and executive share-based compensation, and an increase in legal and compliance costs. In Q4, adjusted EBITDA was $0.3 million compared to $1.3 million in the prior year. Full year 2021 adjusted EBITDA was $2.8 million compared to $5 million in 2020. Turning over to our balance sheet, we ended the quarter with cash and accounts receivable totaling $14.9 million, on December 31, 2021, compared to $18.4 million at December 31, 2020. Cash flow from operations in 2021 was $2.4 million as compared to $4.1 million in 2020, while our overall debt is lower by $2.4 million than at the beginning of the year. As of December 31, 2021, we had no borrowings under the line of credit. We improved our working capital by $1.6 million due to the payoff on our line of credit. In summary, we experienced headwinds in 2021 because of the global supply chain disruptions impacting our ability to ship products. We expect this macro trend in 2022. We also incurred significant one-time costs in connection with the acquisition of Xtend data. We have identified cost subsidies, and now that we are fully integrated, we reduce costs in 2022. We also expect to cross-sell and upsell our newly added product and service offerings to our growing customer base. Our recent acquisitions of Advanced Mobile Group and Boston Technologies will result in immediate top-line growth in 2022. Finally, our strategic focus to shift sales to services will result in improved growth margins and more predictable recurring revenue streams. With that, I will turn the call back over to Steve for closing comments.

Thank you, Melinda, and thank you all for joining us. We look forward to discussing our first quarter 2022 results with you in May.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great weekend.