DecisionPoint Systems, Inc.

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.

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.

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.