DecisionPoint Systems, Inc.

Greetings. Welcome to Decision Point Systems Incorporated's second 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 call is being recorded. I will now turn the conference over to Brian Siegel with Hayden IR. Thank you. You may begin.

Good morning and welcome to the Decision Point Systems Earnings Call. Joining me today are Steve Smith, Chief Executive Officer, and Melinda Wohl, Chief Financial Officer. For those of you that have not seen today's release, it is available on 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 could 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 comp, any gains on extinguishment of 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 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. We reported strong second quarter results today. at the high end of our revenue guidance and above our adjusted EBITDA guidance. 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 to discuss our financial results. Decision Point is a mobility-first enterprise services and retail technology 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-managed services, SaaS, 5G, and IoT. 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, retail is our largest market with a significant presence in logistics, hospitality, and healthcare, where we have established customers, industry-specific solutions, the right technology partners, and several under or under-penetrated sub-segments for us to go after. Our value proposition to customers is clear. We position our customers to be their best at their 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 and effectiveness to drive better customer experiences and business outcomes at the moments that matter. What we like to say, the decision points. Moving to our four pillar growth strategy, the first pillar is to increase share in our current verticals, specifically retail, including grocery, convenience stores, and mass merchants, hospitality, healthcare, transportation logistics, and their associated warehouse and distribution center operations. The second pillar is to leverage our experience in these verticals into adjacencies. Examples here would include big box retail, fast food, specialty retail, and supply chain logistics. The third pillar is to drive and margin expansion by increasing services and software attach rates. These include professional services, managed mobile services, managed network services, staff 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 overall coverage. Our hardware solutions business, which includes razor blade business model of preparing and staging hardware with software and applications and selling the consumables necessary to use the hardware, has historically grown at a run rate in the mid single digits. Project orders, which can also sometimes introduce some lumpiness, are incremental to those numbers. Finally, our thriving, accretive M&A strategy accelerates growth to generate combined long-term CAGR of 20% or more consistently. Our M&A strategy supports these four pillars and complements our organic growth. Note, we aren't going to make acquisitions just to acquire scale. We have specific criteria for 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 quickly reduce SG&A costs, streamline operations, and drive revenue synergies by expanding their offerings nationwide throughout our system. And macro integration systems, or MIS, was a perfect example. It hit three of our four strategic growth areas and met our M&A criteria. It also was a little bigger than our previous acquisitions, but we are quickly integrating them into DecisionPoint, and we will look to move back into acquisition mode by the end of this year. In general, We are targeting one to two acquisitions per year. That will add two million or more in EBITDA. Over the past three and a half years, we've transformed the company to increase growth rates while increasing 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-specific 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 services and software mix significantly within our portfolio to 35-plus percent and drive higher gross margins and more recurring revenue. Our April acquisition of MAS was the next step in our transformation. We acquired them for $13 million in cash with an earn-out paid over two years of up to $10 million. Based on current performance and expectations, we believe it is probable that we will pay out this year's portion. In the final two quarters of 2023, we expect them to do over 16 million in revenue at a low to mid 30% gross margin, well above our company average. Strategically, this couldn't have been a better fit. First, MIS's business is 70% services, adding to our shift in revenue mix. They also brought us five new top 10 customers, new service offerings, filled a geographic gap with 100,000 square foot warehouse facility in the Southeast, 30,000 of which to support our staging and integration capabilities and significantly expand and strengthen our presence in the retail industry, especially the supermarket, food service, and hospitality verticals. The last point is real important as it enables us to become more than an enterprise mobility company over time. It also sets the stage for us to become a retail point of sale and technology solutions company. Another part of our software and services strategy is to accelerate our margin service offerings where companies outsource certain IT functions. We are opportunistically building our higher 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 and DSD industry, and VisiTrace, which helps manage an RFID implementation. As we mentioned last quarter, we made some investments to the tune of a million dollars in incremental operational expense in 2023 versus 22 in developing products in these areas and adding sales and BD heads to go after these high margin opportunities and drive growth over the mid to long term. We also offer a comprehensive managed services product portfolio to simplify the complexity of designing, deploying and managing mobile and wild networks. These managed services include provisioning, monitoring, and help desk services that improve the visibility and status of their device landscape. The competition landscape for our services is broad and diverse, depending on each client's customer and industry needs. Our company has spent the past year developing a new portal, for the managed services called Vision. Vision offers our customers a customizable solution for monitoring actions on everything in their IT infrastructure. DecisionPoint can now manage the entire lifecycle of mobility and IT infrastructure all in one view. Vision provides real-time visibility to the managed the health and location and status of a customer's mission-critical IT assets, regardless of their enterprise location. Vision also enables customers to monitor the progress of major rollouts, which enables our customers to minimize downtime and simplify the overall management of a large distributed enterprise. Now, moving to our results. Our second quarter continued the streak of record quarters, with revenue growth over 12% to $31 million and gross margins of 25%. Both were helped by the mixed shift brought on by the MIS acquisition, with software and services making up a larger percentage of overall revenue. Adjusted EBITDA decreased by 9% to $2.5 million in the quarter, mainly due to the investments we made making this year in sales and business dev to drive medium to longer term growth in our higher margin software and managed service offerings. Finally, by the end of the second quarter, we generated enough cash from operations to pay down over $4 million of the $12 million in debt we took on at the end of Q1 related to the MIS acquisition. Looking to the third quarter, we expect our run rate business to continue to perform well. And with the addition of MIS, we are expecting to report revenue in the range of $27 to $29 million with adjusted EBITDA between $2 and $2.3 million. In closing, we delivered a solid quarter with strong revenue and adjusted EBITDA. And I want to thank our dedicated employees for their continued hard work. I look forward to speaking with you again on our third quarter call. Now I will turn it over to Melinda to review our financial results in more detail.