DecisionPoint Systems, Inc.

Greetings and welcome to Decision Point Systems' third quarter 2022 earnings conference call and webcast. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Brian Siegel. Thank you. You may begin.

Thank you. Good morning, and welcome to the Decision Point System's third quarter 2022 earnings call. Joining me today are Steve Smith, Chief Executive Officer, and Melinda Wall, Vice President of Finance. For those of you that have not seen today's release, it is available on the investor section at our website at www.decisionpoint.com. Before beginning, I would like to remind everyone that, except for historical information, the matters discussed in this presentation are forward-looking statements that involve several risks and uncertainties. Words like believe, expect, and anticipate mean that these are our best estimates as of this writing, but there can be no assurances that expected or anticipated results or events will actually take place, so our actual future results could differ significantly from those statements. Also, during this call, we will discuss non-GAAP measures, including non-GAAP net income, non-GAAP EPS, and adjusted EBITDA. These non-GAAP financial measures adjust our GAAP net income and EPS for stock-based compensation, any gains on extinguishing debt, M&A and other financial transaction costs, and other non-recurring, non-operating income and expense items. Further information on the company's risk factors is contained in the company's quarterly and annual reports filed with the U.S. SEC. With that, I'll now turn the call over to Steve.

Thank you, Brian. Good morning everyone and thank you for joining us today. I'm excited to say our business remains strong as we reported record third quarter revenues today. Before I discuss these results, I'm going to start the call by discussing who is Decision Point Systems, our market opportunity and our growth strategy to capture and expand this opportunity. I will then briefly review our second quarter and then turn it over to Melinda Wall to discuss our financial results. Decision Point is a mobility-first enterprise services and solutions company. So what does that mean exactly? It means that we aim to be at the center of several emerging secular trends, including enterprise mobility, which encompasses work-from-home and field mobility, cloud and managed services, SaaS, 5G, and IoT. Now, these markets represent hundreds of billions of TAM. So we've identified a subset of industries within these markets where we either have or can acquire or develop expertise and therefore the ability to become significant players. Currently, these industries are retail, logistics, hospitality, and healthcare where we have established customers, industry-specific solutions, the right technology partners, and several under and under-penetrated sub-segments for us to go after. Our value proposition to customers is clear. We enable frontline employees to make better, faster, more accurate business decisions inside and outside the four walls. and create operational efficiency and effectiveness to drive better customer experiences and better business outcomes. Traditionally, companies like us have been classified as value-added reseller, or VAR, of handheld devices such as scanners, printers, point of sale, and other mobile devices. Our OEM partners include Zebra, HP, Apple, Honeywell, Verifone, DataLogic, CradlePoint, and distributors Bluestar and ScanSource and Ingram. This business has historically grown at a run rate at mid single digits, with M&A and project orders being incremental to those numbers, the latter of which can also introduce some lumpiness at times. We also have excellent annuity type business replenishing consumables, for these devices that we sell. So think of the Razor and the Razor Blade model here. That said, over the past three years, we've transformed the company to both organically and inorganically increase these growth rates and margins significantly by aggressively moving up market to include various high margin services, especially ones that generate recurring revenue. Managed services, where companies outsource certain IT functions, are a key investment area for our services-led strategy. We offer a comprehensive product portfolio of managed services designed to simplify the complexity of designing, deploying, and managing a mobile solution. These managed services include provisioning, monitoring, help desk, to improve on the visibility and status of our customer's device landscape. In addition to managed services, we offer professional services, including consulting, staging, deployment, installation, repair, and customer-specific software customization and hardware and software maintenance support. We're also opportunistically building our higher margin, reoccurring revenue SaaS solutions portfolio, which today includes both packaged and custom-developed software, such as Mobile Conductor, Route Manager for direct store delivery, and VigiTrace, which helps manage an RFID implementation. Moving to our four pillars of growth strategy, the first pillar is to increase share in our current verticals. specifically grocery, specialty retail, supply chain, healthcare, warehouse, distribution, and transportation. The second pillar is to leverage our experience in these verticals into adjacencies. Examples would include big box retail, hospitality, and supply chain logistics. The third pillar is to drive growth and margin expansion by increasing services and software attach rates. These include professional services, managed services, ISV, and SAS services, software for partners, and repair and maintenance services. And the fourth pillar is geographic expansion, where we can pick up new customers, expand field sales, and increase our coverage. Our M&A strategy supports these four pillars. and complements our organic growth. Note we aren't just going to make acquisitions to achieve more scale. We have specific requirements of companies we target. These include a track record of positive revenue growth, EBITDA growth, integration-ready solutions and operations, and cultural compatibility. By focusing on these areas, we have deployed a successful integration strategy that allows us to move quickly to reduce SG&A costs, streamline operations, and drive revenue synergies by expanding their offerings nationwide through our system. Our goal is to acquire one to two companies per year, adding between $2 and $5 million or more of EBITDA before synergies expire. at an EBITDA valuation of four to five times. Moving to the third quarter highlights, we once again had record quarterly revenue growth of 41% to $26 million. This strength was broad-based across run rate, follow-on orders and services, the latter of which grew 22%. While large customer equipment orders can skew gross margin within any quarter, The 22% growth in services validates our strategy of growing our software and services revenue over the time to generate higher gross margins and operating margins. Adjusted EBITDA increased 74% to $2.3 million in the quarter. We also saw continued evidence that our M&A strategy is working. The sales and support teams are engaged in cross-selling activities across our expanded customer base by leveraging our services and software portfolio and partnerships. This activity is yielding incremental business for the company. Additionally, we completed the integration and rebrand of our extend data acquisition into decision point systems. As we look to the remainder of the year, we are well positioned to continue our growth trajectory. We now expect to generate between 90 and 93 million dollars in revenue or approximately 36 to 41 percent growth. In terms of mix, we currently expect approximately 19 million of that to come from services. From an adjusted EBITDA perspective, I would expect that we would deliver 6.5 to 7 million dollars within those revenue ranges. In closing, We are in track for another great year with strong revenue, profit, and adjusted EBITDA growth. I also want to thank our dedicated employees for their continued hard work. I look forward to speaking with you again on our fourth quarter call. Now, I will turn it over to Melinda to review our financial results in a bit more detail. Melinda?