DecisionPoint Systems, Inc.

Greetings. Welcome to Decision Point Systems, Inc. First Quarter 2023 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. Please note this conference is being recorded. I will now turn the conference over to Brian Siegel with Hayden IR. Thank you. You may begin.

Hello, and welcome to the Decision Coin Systems 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 in the investor section of 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 of 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, the gains on extinguishing debt, M&A and other financial transaction costs and other 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 SEC. With that, I'll now turn it over to Steve. Take it away, 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 last First 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'll then briefly review our first quarter and then turn it over to Melinda to discuss our financial results. Decision Point. is a mobility-first enterprise services and solutions company. So what does that mean? 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 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. Simply, 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 network 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. The 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 bluntness at times. We also have an excellent annuity-type business replenishing consumables for these devices. So think of the Razor and the Razorblade model here. That said, over the past decade, three to five years, we've transformed the company to both organically and inorganically increase these growth rates and margins significantly by aggressively moving up market to increase 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. The gross margins for these services tend to be significantly higher than when we resell technology hardware. And part of our strategy is to increase the services mix within our portfolio to drive higher gross margin and more reoccurring revenue. We also offer managed services, where companies outsource certain 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 or the DSD 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 biz dev headcounts to go after these higher margin opportunities and drive growth over the mid to long term. We said last quarter that we expected this to add about a million dollars in incremental operating expense in 2023 versus 2020. Looking at managed services, we offer a comprehensive product portfolio designed to simplify the complexity of designing, deploying, and managing a mobile solution. These managed services include provisioning, monitoring, and help desk to improve on the visibility and status of our customers' device landscape. Our company has spent this past year developing our new portal for managed services, Vision. The comprehensive landscape of our services is broad and diverse, depending on the customer and industry needs of each client. Vision offers our customers a customizable solution for monitoring actions on everything in their IT infrastructure. Decision Point can now manage the entire lifecycle of mobility and IT infrastructure all in one view. Vision provides real-time visibility to manage the health, location, and status of your mission-critical IT assets, no matter where they are located in the enterprise. Vision also enables customers to monitor the progress of rollouts. This enables our customers to minimize downtime and simplify the management of a large distributed enterprise. Moving to our four pillars of growth strategy, the first pillar is to increase share in our current verticals, specifically grocery, hospitality, and specialty retail, supply chain, healthcare, warehousing, distribution, and transportation. The second pillar is to leverage our experience in these verticals into adjacencies. Examples would include in retail, grocery, quick serve restaurants, and convenience stores, along with big box retail, hospitality, and supply chain logistics. 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 SaaS services, software from partners, and repair and maintenance services. 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 going to just make acquisitions to achieve 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 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 throughout our system. We'll generally look to add one or two acquisitions per year at $2 million plus in EBITDA. If you look at our four pillars growth strategy, plus M&A, you will see that our acquisition of macro integration services, or MIS, at the beginning of Q2, hits every one of these on the head. MIS has a service mix of about 70%, therefore significantly higher gross margin than Decision Point. They will strengthen our presence in the broader retail vertical while expanding our capabilities in grocery, food service, and hospitality parts of retail. They also brought us a presence in the southeast and the mid-Atlantic area with a 100,000 square foot warehouse, staging, and integration center, a complete go-to-market team including sales, technical, and project management personnel, as well as adding additional solutions and capabilities and access to new customers. We expect that in Q2 through Q4 of this year, they will add at least $12 million in revenue, and at least $1.2 million in incremental EBITDA. Moving to our results. Our first quarter continued the streak of record quarters, with revenue growth 37% to $27 million. The strength was broad-based across run rate, follow-on orders and services, the latter of which grew by 18%. A large retail customer equipment order skewed gross margin, while the 18% growth in services validates our strategy of growing our software and services revenue over time to generate higher gross and operating margins. Adjusted EBITDA increased 98% to $2.2 million in the quarter. 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 longer lead times to ensure access to supply. We have a strong relationship with our vendors, and as such, we tend to not only 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 run rate business. For the second quarter, including MIS, we are expecting to report revenues in the range of $29 to $31 million, with adjusted EBITDA between $1.5 and $1.8 million. In closing, we delivered a great quarter with strong revenue and adjusted EBITDA growth. And I want to thank every dedicated employee within this company for their continued hard work enabling us to deliver on these results. I look forward to speaking with you again on our second quarter call in August. Now, I will turn it over to Melinda to review our financials.