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spk00: Greetings and welcome to the Decision Point Systems third quarter 2021 earnings results conference call. At this time, all participants are in a listen-only mode. 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 our moderator, Carol Arakaki, Vice President, Financial Planning and Analysis. Thank you. You may begin.
spk02: Good afternoon and welcome to Decision Point Systems 2021 Third Quarter Earnings Call. Joining me today is Steve Smith, Chief Executive Officer and Melinda Wohl, Vice President of Finance at Decision Point Systems. Before we start, I would like to remind you of our legal disclaimer that certain forward-looking statements will be made during this call that reflects Decision Point Systems judgment and analysis only as of today, November 18, 2021. And actual results may differ materially from current expectations based on a number of factors affecting decision point systems business. Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of the risk and uncertainties associated with any forward-looking statements, please see the disclaimer regarding forward-looking statements that are included in our 2021 third quarter earnings release. that was issued on November 15th, as well as our SEC filing. Please note that we will not revise or publicly release the results of any revision to the forward-looking statements in light of new information or future events. Also, during this call, we will discuss EBITDA, a non-GAAP financial measure, which adjusts our GAAP net income to eliminate the impact of interest, income tax expense, and depreciation and amortization. You will find additional information regarding EBITDA and a reconciliation of EBITDA to net income in our earnings release that was released on November 15th. For a copy of our earnings press release, please visit the investor section of the company's website at www.decisionpt.com. With that, I'll now turn the call over to Steve.
spk01: Thank you, Carol, and good afternoon, everyone, and thank you for joining us today for our third quarter 2021 earnings call. Q3 was a very strong quarter at decision point, as we grew revenue 64% year over year to $18 million, outperforming our estimates. Gross margin increased 390 basis points, driven by a mixed shift to higher margin services and hardware products. EBITDA was also strong and more than doubled to 1.2 million year-over-year. This was primarily driven by a shift in sales mix to services. Our Vice President of Finance, Melinda Wall, will offer more detail on our financial results shortly. She'll follow me. Our mobility-first enterprise services and solutions approach to the business has always got us to where we are and what will continue to differentiate us as we significantly invest in our services infrastructure and offerings going forward. We believe our services-led strategy will be the biggest driver of new business for us. Our sales team have been an excellent strategic partner offering additional managed mobile and network services that our customers are embracing. We view our customer relationships as long-term partnerships, and we continually innovate to provide new mobile and network solutions for our customers' evolving business needs. As we transform to services, we think customers will love our IT services management platform that we plan on launching in early 2022. This platform will allow our customers and our employees to streamline services and order requests that can be customized based on our customer needs. We expect this shift to services to result in an increased overall gross profit margin going forward. Our customer base consists of 23 customers with revenues greater than $100,000 in the third quarter of 2021 as compared to 13 customers in the prior year period. Two of the additions this year were from new large enterprise customer wins in the healthcare and retail verticals that contributed to 9% of total sales in the third quarter of 2021. Turning to our acquisition of XtendData, we have substantially integrated XtendData operations into our infrastructure. While we incurred one-time integration costs in this effort, primarily in HR and IT, we will see cost synergies in the long term, including systems integration and consolidating overlapping operations such as finance and administrative functions. We also expect to see more value added with cross-selling revenue synergies and increased coverage and share in the new geographic markets we serve. The trends I mentioned earlier to shift the sales mix to services and the integration of Xtend data that have been driving our business will continue to drive our business in the foreseeable future. To recap, our priorities for Q4 2021 and into 2022, we have identified opportunities that we believe will increase shareholder value. Number one is investing in our services IT infrastructure that will create efficiencies for frontline workers and our team to streamline and enhance our mobile solutions. Number two is cross-selling our expanded service offerings to both our existing customer base and new prospects. Our managed services will be value and outcome focused to enable our customers to achieve business results. This transformation of service subscription model offering predictable recurring revenue and provides higher margins than the value-added reseller model. Number three is our M&A acquisitions. Our strategy remains unchanged to target companies that are aligned with our strategy to expand our geographic presence, customer base, and expand into existing markets to achieve greater market penetration. We will also target companies that will broaden our product and service offerings that allow for cross-selling and up-selling to the consolidated customer base. And number four, is to fully integrate Xtend data for core synergies. We will reduce SG&A costs and streamline processes for efficiencies and cost savings. In closing, third quarter was a great quarter and another important step in executing on our managed services subscription strategy. We're excited at the growth prospects with this transformation. Our business is gaining momentum as evidenced by our results. We are positioning ourselves to deliver long-term growth and profitability, and we look forward to sharing our progress with you. Now, I will turn it over to Melinda to review our third quarter results in more detail.
spk03: Thank you, Steve. Details of our 2021 third quarter operating performance compared to 2020's third quarter were as follows. Sales increased by 63.9%, or $7.1 million, during the three months ended September 30th, 2021, as compared to the same periods of the prior year. The increase in net sales was primarily driven by a $3 million increase in overall net sales that were primarily associated with sales by Xtend data, which we acquired in December 2020. And thus, there were not corresponding sales by Xtend data included in our results of operation for the comparable period in 2020. as well as an increase in net sales across all categories in retail and healthcare as a result of many of our customers conducting more normalized operations in the 2020 period compared to the, I'm sorry, the 2021 period compared to the 2020 period where greater COVID-19 restrictions were in place. Gross profit increased 2.1 million for the three months ended September 30th, 2021 as compared to the prior year period, primarily as a result of overall higher sales volume and the other impacts noted above. The increase in growth profit margin for hardware was primarily attributed to a large order of higher margin hardware from one of our retail customers. The increase in growth profit margin for professional services was attributed to higher sales volume leveraging fixed personal costs. Sales and marketing expenses increased by $0.8 million or 77.5% for the three months ended September 30, 2021, as compared to the prior year period due to increased expenses for XtendData operations that was acquired in December 2020. And thus, there were not corresponding sales and marketing expenses of XtendData included in our results of operations for the comparable period in 2020, including marketing licenses and sales integration costs. In addition, sales commissions were higher for the three months ended September 30, 2021, as a result of higher sales volume as compared to the prior year period. As a percentage of sales, sales and marketing expenses increased 70 basis points, primarily due to incremental one-time costs with the sales integration efforts of XtendData. General and administrative expenses increased $0.5 million, or 45.9%, for the three months ended September 30, 2021, as compared to the same period of the prior year. The increase in costs was primarily due to a $0.4 million increase in expenses associated with the acquisition of XtendData in December 2020, and thus, there were not corresponding general and administrative expenses by XtendData included in our results. of operations for the comparable period in 2020, as well as director and executive compensation and benefits and an increase in legal and compliance costs. As a percentage of sales, general and administrative costs decreased 100 basis points, primarily due to leverage of our fixed general and administrative expenses associated with higher sales volume. EBITDA more than doubled to $1.2 million for the third quarter of 2021 versus the third quarter of 2020. Turning over to our balance sheet, we ended the quarter with cash and accounts receivable totaling $14.5 million on September 30th, 2021, compared to $18.4 million at December 30th, 2020. Cash flow from operations in the first nine months of 2021 was $2.2 million as compared to $3.4 million in the first nine months of 2020. Overall debt is lower by $2.4 million than at the beginning of the year. And as of September 30th, 2021, we had no borrowings under the line of credit. With that, I'll turn this back over to Steve for his closing comments.
spk01: Thank you, Melinda. And thank you all for joining us. We look forward to discussing our fourth quarter results with you in March.
spk00: Thank you. This concludes today's conference. All parties may disconnect. Have a good day.
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