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spk03: Greetings and welcome to Decision Point Systems fourth quarter and year-end 2022 earnings call and webcast. At this time, all participants are in 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 with Hayden IR. Thank you. You may begin.
spk04: Good morning and welcome. Joining me today are Steve Smith, Chief Executive Officer, and Melinda Wohl, 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.decisionpt.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 that 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 the extinguishment of debt, M&A, and other financial transaction costs, and other non-recurring, non-operating income and expense items. Further information of the company's risk factors is contained in the quarterly and annual reports filed with the SEC. With that, I'll turn the call over to Steve.
spk05: Thank you, Brian, and good morning, everyone, and thank you for joining us today. I'm excited to say our business remains strong as we reported record fourth quarter and full year 2022 revenues today. Before I discuss these results, I'm going to start the call by discussing who is Decision Point Systems, our market opportunity, our growth strategy to capture and expand on this opportunity. I will then briefly review our fourth quarter and then turn it over to Melinda to discuss our financial results. DecisionPoint Systems 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-based and managed services, SaaS, 5G, the Internet of Things. Now, these markets represent hundreds of billions of dollars of TAM. So we've identified a subset of industries within these markets where we either already have, 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- or under-penetrated segments for us to go after. Our value proposition to customers is clear. We enable our customers to be their best at moments that matter. We do this by enabling frontline employees Those task workers who work at the edge of the networks to make better, faster, more accurate business decisions inside and outside the four walls and create operational efficiency, effectiveness to drive better customer experiences and business outcomes at their moments that matter. Or we like to say, the decision points. Traditionally, companies like us have been classified as a 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, ScanSource, and Ingram. This business has historically grown at a run rate in the 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. So think in this instance of the Razor and the Razor Blade model here, where we sell hardware and then we sell the consumables that run through that hardware. 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 reoccurring revenue. For example, we offer professional services, including consulting, staging, deployment, installation, repair, and customer-specified software customization and hardware and software maintenance support. We also offer managed services where companies outsource their IT functions and are opportunistically building our high-margin, reoccurring revenue SaaS solutions portfolio, which today includes both packaged and custom-developed software solutions such as Mobile Conductor, and route manager for the direct store delivery industry, and VisiTrace, which helps manage an RFID implementation. As we mentioned in the press release, we've made some investments in developing products in these areas and adding sales and business development headcount to go after these higher margin opportunities and drive growth over the mid to long term. All in, we expect to add about a million dollars of operating expense in 23 versus 2022 related to this effort. Looking at managed services, we offer a comprehensive product portfolio designed to simplify the complexity of designing, deploying, managing a mobile solution. These managed services include provisioning, monitoring, and help desk to improve on the visibility and status of a customer's landscape of devices. Our company has spent the year developing our own new portal for managed services. We called it Vision. We announced it this past January. The competitive landscape for our services is broad and diverse, depending on the customers and industry that each industry needs and each client. Vision offers our customers a customizable solution for the monitoring actions on everything in their IT infrastructure. DecisionPoint can now manage their entire lifecycle of mobility and IT infrastructures all in one view. Vision provides real-time visibility to manage the health, location, and status of our mission-critical IT assets. No matter where they are located, in the enterprise. Vision also enables customers to manage the progress of a major rollout. This enables our customers to minimize downtime and simplify management of large distributed enterprises. Moving to our four pillars on growth strategy, the first pillar is to increase share in our current verticals, specifically grocery and specialty retail. supply chain, healthcare, warehousing, distribution, and transportation. The second is to leverage our expertise in these verticals into adjacencies. Examples will include big box retail, hospitality, supply chain, et cetera. The third pillar is to drive growth and margin expansion by increasing service and software attach rates. These include professional services, managed services, ISV, and SAS services, software from partners, and repair and maintenance services. The fourth pillar is a 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 complement our organic growth. We aren't going to just make acquisitions to acquire more scale. We have specific requirements of the companies we target. These include a track record of positive revenue growth and EBITDA, integration-ready solutions and operations, and a cultural compatibility. By focusing on these areas, we have developed 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 two plus million of EBITDA before synergies at an EBITDA valuation of five times plus or minus. Moving to our results, our fourth quarter capped off a record year on a high note. as we once again had record quarterly revenue growing 49% to $25 million. This strength was broad-based across run rate, follow-on orders and services, the latter of which grew 21%. While large customer equipment orders can skew gross margin within any quarter, the 21% growth in services validates our strategy of growing our software and services revenue over time to generate higher gross margin and operating margins. Adjusted EBITDA increased 274% to $1.8 million in the quarter. Revenue for the full year was up 48%, driven by product orders from key accounts. Despite it being an equipment-heavy year, gross margin expanded by 50 basis points, as our higher margin software services and consumables were up 19%. We also reported non-GAAP EPS of 54 cents and adjusted EBITDA of 7.8 million, which in my opinion makes the $6.50 stock price and $48 million market cap as of yesterday's close seem inexpensive. We left 2022 with a strong backlog of over $30 million, which, as I mentioned on prior calls, is due to customers placing orders with large, longer lead times to ensure access to supply. We have very strong relationships with our vendors, and as such, we tend not only to have taken on some inventory to ensure delivery, but we are well positioned with them should we get additional orders beyond those in our backlog and our run rate business. For the first quarter, which closes on Friday, we are expecting to report revenue in the range of $20 to $21 million with an adjusted EBITDA between $800,000 and $1 million. In closing, we delivered on a great year with strong revenue and profit and adjusted EBITDA growth. I want to thank our dedicated employees for their continued hard work. Without them, we would have never realized these results. I look forward to speaking with you again on our first quarter call in May. Now, I will turn it over to Melinda to review our financial results in more detail.
spk02: Thank you, Steve. Details of our fourth quarter operating performance compared to 2021's fourth quarter were as follows. We saw continued strong demand in Q4 with total revenue up 49% to $24.5 million. During the quarter, we worked through a portion of our $29 million backlog from last quarter, and we built it to $30.3 million, which is still about four times our historical norm. Backlog remains higher than normal due to the global supply chain issues that are impacting many companies. As a result, our clients are putting in orders with longer lead times, and as Steve mentioned, we have fortunately been able to leverage our strong partnerships with OEMs such as Zebra, and our distributors to gain access to products to ship and build up inventory. Moving to gross profit, we saw a 68% increase from the prior year, which is a result of the higher sales volume and an increase in gross margins of hardware sales as well as consumables and services. GAAP operating expenses were 23.1% of revenues versus 28.5% last year, demonstrating our operating leverage The absolute increase was a result of increased commissions on higher sales volume, rent costs, and operating expenses from the acquisitions we made in the first quarter. We expect to continue to realize the benefits of cost synergies and improve operating leverage over time. Gap net income and diluted EPS were approximately $0.4 million and 7 cents. Weighted average shares outstanding decreased by 30,000 to 7.6 million from last year. Our non-GAAP net income and diluted EPS were 0.7 million and 10 cents compared to 400,004 cents last year. The non-GAAP net income and EPS excluded the following. Stock-based compensation of 250,000 this year versus 900,000 last year. M&A related expenses of $40,000 versus $176,000 last year and uplifting costs of $88,000 this year. Adjusted EBITDA was $1.8 million, up 274% compared to $0.5 million last year. Turning to our balance sheet, we ended the quarter with cash and cash equivalents totaling $7.6 million versus $2.6 million at December 31, 2021. As I mentioned earlier, we continue to receive orders with longer lead times leading to a 31% increase in deferred revenue. Total debt at the end of the quarter was about $146,000, and we had no borrowings on our line of credit. Net cash provided by operating activities increased to $12.4 million versus $2.4 million last year. And with that, operator, we can move to questions.
spk03: Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Howard Halpern with Taglet Brothers. Please proceed with your question.
spk01: Congratulations on the year and especially a great finish in the fourth quarter. So in terms of, you know, you talked about hiring new sales and business development professionals. What do you expect them to, you know, contribute moving forward and how quickly will they be able to potentially get you into new verticals or accelerate some of the service sales?
spk05: Yeah, so thanks, Howard, for the question. First, all four individuals were hired to grow our services strategy. So two of the four were business development people that are focused exclusively on mobile conductor that can be sold in a pickup and delivery way and a direct store delivery way. And also the second individual has expertise in RFID, and they will lead – they will lead those sales campaigns in a business development way. So we're tapping into intellectual property in our company in hiring those two individuals, and both of them are industry experts and subject matter experts in their respective discipline, and I'm expecting them to produce quickly. Now, how quickly will they produce? I mean, you have to allow for some time to get into sales campaigns, identify prospects, speak to the value proposition of those two pieces of software IP that we have, Mobile Conductor and VisiTrace, and it's going to take time. These are longer-term bets. I think they'll contribute in 2023, but they're really meant to drive longer-term growth around our services strategy. The other two individuals are salespeople that are dedicated to selling services, which is the balance of our services portfolio. Think deployments and and provisioning around consumer-grade devices and enterprise-grade devices. And those sales cycles could be a little shorter because they don't involve software, and I'm expecting all four individuals to contribute in 23, but more materially in 24 and 25. Okay.
spk01: And, I mean, you see a long runway to penetrate to where you can have a base of annualized growth in the services area of at least 20% over the long term?
spk05: Yeah, so just on a look back, and another good question, Howard, thank you. You know, our services revenue in Q4 grew 21.3, and overall for the year grew 18.6%. And we have strategies in place to continue to focus on that, hence the hires that I made to expand on our organic growth. And it also is the primary focus of our integrated growth strategy and acquisition strategy. So we absolutely have that as a company target. We measure it religiously, weekly, monthly, quarterly. And we're looking to drive more stickiness with my customers. And I'm looking to increase the services portfolio for our shareholders to add margins and margin percents. So, yes, very much a focus of ours.
spk01: Okay. Are you seeing – this isn't with the backlog because obviously that's established, but when you go visit a potential new customer or potential customers, on the hardware side, are you seeing any kind of hesitation in spending on some of those customers?
spk05: No. Listen, we're all aware of the macro – economic times that we're in. There's inflation, there's recession, there's geopolitical uncertainty throughout the world. I mean, all those things many companies beyond decision point are facing. And so are my customers as they look at CapEx spends and making commitments to companies like me. But our technology and a solution stack is not a nice to have. It's a must have for our customers. As I mentioned, we help our customers be their best at moments that matter. So When Avis returns a car, they've got to do that in an efficient fashion to compete with their competitors. And when hospitals deliver medication, they have to do that, make sure that the meds are delivered in the right doses to the right patient at the right time. And so those are critical, mission-critical moments for our customers to deliver on. And there are many, many more examples, by the way, that they must execute on. And so we think confidently – that customers are going to continue to tap into our solution stack, and I think we can outpace as we have on a go-forward basis. I think we can, you know, you should assume that TAGA growth in our industry is mid-single digits, but, you know, we've been fortunate enough to outpace that, and we have plans and strategies in place to do so going forward. I don't know if it's going to be realized. The hope is it'll be realized, but That's our plan, and we're going to continue to execute on our plan.
spk01: Okay. Two final ones for me. On the vision offering, what kind of feedback are you receiving from the initial customer use, and how important is that going to be moving forward and getting it into other large customers?
spk05: Yeah, great feedback, Howard. First thing we did was we went out to existing customers, and we told them, that we were building a portal, and we had them at the table as we were designing screenshots and layouts and functionality. They had input to that, our customers. And so we invested in it in 2022. We stood it up in an announcement in January, and we started to load customers, production-ready customers here in March, and we'll have 30 of them on the system, on the Vision portal by the end of April. So first-order businesses, great feedback as we were developing it. and even better feedback as we've started to bring customers on in a production way. We think it's a great differentiator for us, and we're excited about it, and so are our customers.
spk01: Okay, and this is more of a forecasting question, but you had very good adjusted EBITDA margins in the current year. Can you get those without acquisitions, just organically with services growing, higher margin services, can you get that into the the mid-teens level on revenue to EBITDA basis?
spk05: That is a real lofty target, Howard. As you know, if you do the math, my EBITDA to revenue ratio is 7.8%, right?
spk01: Right.
spk05: So I would set your expectations. Let's get to 8%, 9% before we get to 16% in fairness.
spk01: Okay, and any kind of acquisition should enhance that rate going forward. We should expect that if that occurs.
spk05: Yes, our focus on a go-forward basis on acquisitions are to be more services-centric, and so that's our strategy. We have several in the pipeline, and I would anticipate us closing on one this year.
spk01: Okay, I will hop back in the queue. Congratulations, and I look forward to this upcoming year.
spk05: Thank you, so do we.
spk03: Thank you. Ladies and gentlemen, as a reminder, it's star one to join the question queue. We'll pause a moment to allow for any other questions. Ladies and gentlemen, it seems there are no other questions at this time. I'd like to now conclude the call. Thank you for your participation and your interest. You may now disconnect your lines.
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