DecisionPoint Systems, Inc.

Greetings and welcome to Decision Point Systems third quarter 2023 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.

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 solid third quarter results today within our revenue guidance and above our adjusted EBITDA guidance. The highlight from this quarter is our strategy to shift the mix towards services and software, and it's working. Software and services were a record 45% of revenue in the quarter, which drove record gross margin. On the heels of the success, I'm going to provide you an overview of who is Decision Point Systems, what is our market opportunity, And what is our growth strategy to capture and expand this opportunity? I will then briefly review our third 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. This 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. Retail technology solutions, which encompasses point of sale and other in-store solutions. Cloud and managed services, SAS, 5G, AI, and IoT. Now, these markets represent hundreds of billions of TAM. So we've identified a subset of industries within these markets where we already have expertise, can acquire expertise, or develop expertise, and therefore the ability to become more significant players. Retail is our largest market with a significant presence in apparel, grocery, C-store, quick serve restaurants, along with logistics, hospitality, and healthcare, where we have established customers, industry-specific solutions, the right technology partners, and several under or unpenetrated subsegments for us to go after. Our value proposition to our customers is clear. We position our customers to be their best at moments that matter. We enable frontline employees who work at the edge of the network to make better, faster, more accurate decisions inside and outside the four walls, and create operational efficiency and effectiveness to drive better customer experiences and better outcomes at their moments that matter. Or 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, mass merchants, hospitality, healthcare, transportation and logistics. and their associated warehousing and distribution center operations. The second pillar is to leverage our experience in these verticals into adjacencies. Examples would include big box retail, fast food, specialty retail, 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 mobile services, managed network services, 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 hardware solutions business, which includes a razor blade business model of preparing and staging hardware with software and applications and selling the consumables necessary to use that hardware, has historically grown at a run rate in the mid single digits. Project orders, which can also sometimes introduce lumpiness from quarter to quarter and year to year, are incremental to these numbers. For instance, we had 22 million from two project orders last year that were fulfilled the second through the fourth quarters. This year, we only had one project order for 13 million, mostly fulfilled in the first half of this year. That makes our second half comps tougher this year. Finally, our thriving, accretive M&A strategy accelerates growth to generate combined long-term target 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 achieve more 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 through our system. 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 larger than our previous acquisitions, but we are quickly integrating them into Decision Point, paying down the acquisition debt, and are starting to look at new targets. In general, we're targeting one to two acquisitions a year, adding 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 upmarket 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. The gross margins for these services tend to be significantly higher than when we resell technology hardware. And part of our strategy is to shift the services and software mix over the next few years towards 50% of revenue on a consistent basis, which will drive more recurring revenue and higher gross margins. Our April acquisition of MAS was the next step in our transformation. We combined with the strength in our existing software and services offerings, this acquisition was key to improving services and software mix as 80% of its business is services. Strategically, this couldn't have been a better fit. They brought us five new top 10 customers, new service offerings, filled a geographic gap in the southeast with a 100,000 square foot warehouse facility, and 30,000 of which supports our staging and integration capabilities, and significantly expanded and strengthened our presence in retail industry, especially the supermarket, food service, and hospitality verticals. The last point is an important one as it enabled 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 accelerating our managed services offerings where companies outsource certain IT functions. We're 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 delivery industry, and VigiTrace, which helps manage an RFID implementation. As we mentioned last quarter, we made significant investments to the tune of a million dollars in incremental operating expense in 2023 versus 22 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. We also offer a comprehensive managed services product portfolio to simplify the complexity of designing, deploying, and managing mobile and wired network solutions. These managed services include provisioning, monitoring, and help desk services that improve the visibility of the status of their device landscape. The competitive 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 our new portal for managed services, 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 manage the health, 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. In the fourth quarter, We added three highly respected quota carrying sales and business development managers beyond our original initial $1 million investment to help further accelerate sales of our software and managed services. We expect to see modest incremental contributions in Q4 with significant contributions in 2024 and beyond. Now, moving to our third quarter results, revenue grew over 5% to $27 million, with record gross margins approaching 28%, driven by a 45% mix of software and services, mainly from the MIS acquisition. Also, this year was an especially tough comp, as last year we had two large project orders that were still being fulfilled in Q3, while this year we did not have any Q3 project orders. Despite the significant incremental SG&A investments I mentioned earlier, adjusted EBITDA still increased by roughly 2% to $2.3 million in the quarter. We also continue to pay down our acquisition-related debt during the quarter. Looking to the full year, 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 $111 to $113 million with adjusted EBITDA between $8.9 and $9.2 million. This implies Q4 guidance of 6% to 14% in revenue growth and 14% to 31% adjusted EBITDA growth. In closing, We executed on our strategy and delivered a solid quarter. I want to thank each and every one of our dedicated employees for their contribution and hard work. I look forward to speaking to you again within the fourth quarter call. Now I will turn it over to Melinda to review our financial results in more detail.