Decisionpoint Systems, Inc.
Q1 2022 Earnings Call Transcript

Published: 19 May 2022

[(Transcript provided to Seeking Alpha by the Company):]

[Operator:]

Greetings. Welcome to DecisionPoint Systems, Inc. First Quarter 2022 Earnings Call and Webcast. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brian Siegel with Hayden IR. Thank you. You may begin.

[Brian Siegel:]

Good morning. Welcome to DecisionPoint Systems’ first quarter 2022 earnings call. 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 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 there can be no assurances that expected or anticipated results or events will actually take place and 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 extinguishing 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 U.S. SEC. With that, I’ll now turn the call over to Steve.

[Steve Smith:]

Thank you, Brian. Good morning everyone and thank you for joining us today. I’m very excited to say that 2022 has been an eventful year to date for us. So far, we’ve made two acquisitions, uplisted to the New York Stock Exchange American, and just reported our best revenue quarter ever today. Given this backdrop, I’m going to start the call by discussing who is DecisionPoint Systems, our market opportunity, and our growth strategy to capture and expand on this opportunity. I will then briefly review our first quarter and then turn it over to Melinda to discuss our financial results. DecisionPoint 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 handful of industries where we either already have, can acquire, or develop expertise and therefore, the ability to become a significant player exists. Currently, these industries are retail, logistics, 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 customers is clear. We enable frontline workers, employees, 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. Traditionally, we’ve been a value-added reseller, or a 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. We also have an excellent annuity type business replenishing consumables for these devices. However, over the past three years, we have been moving more aggressively upmarket to include various high-margin services, especially ones that generate recurring revenue. Managed services where companies outsource certain IT functions are a key investment area for our services-led strategy. We offer a comprehensive product portfolio of managed services designed to simplify the complexity of designing, deploying, managing a mobile solution. These managed services include provisioning, monitoring, and help desk services to improve on the visibility and status of their device landscape. In addition to managed services, we offer professional services, including consulting, staging, deployment, installation, repair, and customer-specific software customization, and hardware and software maintenance support. We’re also opportunistically building our high-margin recurring 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 DSD industries, and ViziTrace, which helps manage an RFID implementation. Moving to our four pillar growth strategy. The first is to increase share in our current verticals, specifically, grocery, 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 big box retailers, hospitality, 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 services, ISV, 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 we expect to remain active in this field to complement our organic growth. With respect to M&A, 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. As I mentioned on our last call, we acquired two companies during the first quarter

[Melinda Wohl:]

Thank you, Steve. Details of our first quarter operating performance compared to 2021’s first quarter were as follows. We saw strong demand in Q1 with total revenue up 22.7% to $19.7 million. During the quarter, we worked through a portion of our $31.2 million backlog from last quarter and rebuilt it to around $21 million, which is still about three times our historical norms. This strong performance [Technical Difficulty] in light of the global supply chain issues that are impacting many companies. As a result, our clients are putting in orders with longer lead times and we have fortunately been able to leverage our strong partnerships with OEMs and distributors to gain access to products to ship and build inventory. Moving to gross profit. We saw a 21.8% increase from the prior year. Product mix was heavy on the hardware side, which led to a slightly lower growth rate when compared to revenue. GAAP operating expenses increased by about $0.9 million, mainly as a result of the acquisitions of Advanced Mobile and Boston Technologies. As we move forward with our integration, we expect to realize the benefit of cost synergies [Technical Difficulty]. Within operating expense, sales and marketing expenses increased by about $0.3 million and G&A increased by about $0.6 million. GAAP net income and diluted EPS were approximately point $0.9 million and $0.11. These were down year-over-year due to a $1.0 million gain on extinguishment in debt last year, partially offset by $0.7 million income tax benefit from the exercise of employee stock options in Q1 of 2022. Our non-GAAP net income and diluted EPS were $0.5 million and $0.06 compared to $0.2 million and $0.02 last year. The non-GAAP net income and EPS numbers excluded the following

[Operator:]

Thank you. Ladies and gentlemen at this time we will be conducting a question-and-answer session. Our first question comes from the line of John Nobile with Taglich Brothers. Please proceed with your question.

[John Nobile:]

Hi. Good morning, Steve and Melinda. Thanks for the call and for taking the questions. I have just a couple here. The first one, I was curious because Advanced Mobile was probably a decent part of your first quarter numbers. So, I was wondering if you could actually break out what you believe Advanced Mobile contributed to your revenue in this quarter?

[Steve Smith:]

Yes, Melinda will take it. Yes.

[Melinda Wohl:]

Hi John. Of the $19.7 million of revenue, they consisted about 12.6% of our revenues.

[John Nobile:]

Okay, 12.6% of that came from Advanced Mobile, which actually wasn’t even a full quarter. That was more February and March, I think, was the contribution? I have to think back to when the acquisition actually went in.

[Melinda Wohl:]

January 31. Yes, correct. Two months.

[John Nobile:]

Okay. So, it was really two-thirds of a quarter there. I assume that Boston Technologies—I don’t think I saw a press release on that, so I assume that that was probably a much smaller acquisition?

[Steve Smith:]

Yes.

[John Nobile:]

Okay. Well, let’s see, your current services revenue, when I do the math this quarter, it was about 20% of total came from your services revenue. Now, I do the math on your yearly guidance, it’s anywhere between 23% and 24% of total revenue coming from services. So, I was wondering, you said that you’re going to increase that, obviously, but I was hoping you could actually put some specifics out there on how you plan to drive that increase in your services revenue.

[Steve Smith:]

Yes. Sure, John. In short, there’s about eight to 10, maybe even 12 elements of our portfolio of services that we offer our customers. So, we expect a broad-based execution of just selling more services to existing customers. They include repair services, and staging services, and installation services and deployment services, and software services. So, there’s not any one area we believe that we are poised to deliver on those services, number one, and support them in a best-in-class way, and as such, our customers will opt into other elements of our portfolio. That’s just the way services get sold. While we’re on site, they ask us, “What else can you do?” Before you know it, we’re telling them and we’re securing business around it. So, there’s no one specific area. Just as we roll out projects, we’ll continue to leverage the portfolio of services we offer, and customers will take advantage of that as we go.

[John Nobile:]

Okay. I’m sure with the acquisitions just completed in the quarter that cross-selling is going to be a decent driver of services revenue?

[Steve Smith:]

Well, it’ll be a decent driver, period. Yes, service revenues, for sure. DecisionPoint, the Company, prior to making these acquisitions, we stood up this portfolio and we started to build it out two years ago. It was an investment we made in the business. So, when we acquired these companies, the go-to market team found in their portfolio of things they could sell existing customers an incremental level of services that they didn’t have prior to the acquisition. So, we think that’s a very fertile ground for low-hanging fruit and it just depends on our execution, which we are executing. I’m very encouraged with the level of activity that way. We’re only into the AMG acquisition for three months and I want to say that there are between 10 and 20 active sales campaigns ongoing right now that didn’t exist prior to the acquisitions.

[John Nobile:]

Okay. I just have one final question. I know supply chain issues are impacting everybody. I’m just curious to know if you might even be able to quantify what you think was the impact on your top line numbers, which I know is a record amount, what you feel that supply chain issues might have impacted that number?

[Steve Smith:]

Well, we put several risk mitigation strategies in place to offset the supply chain issues. Namely, we expanded our facility by 3x, and the bulk of that space was warehouse space, John. So, we were no longer at the mercy of keeping products on site with our distributors. We can actually take the product and put it on the shelf and just have it poised and ready to ship to our customers. So, that was probably the most profound element of our risk mitigation strategy. Could we have shipped a million or two more? I don’t know. We had several pull-ins. We took advantage of product that we took early and put it on the shelf to distribute and sell to our customers to satisfy backlog. Don’t forget, we reduced our backlog ending December 31 from $30 million down to $21 million. So, we did feed off that backlog a little bit and that is a strategy that we’re going to continue to embark upon in an effort to mitigate the risk of the supply chain challenges.

[John Nobile:]

Now, your deferred revenue did increase over the quarter. Forgive me, I forgot what Melinda had said it was at the end of the quarter. How much was your deferred revenue?

[Melinda Wohl:]

Our deferred revenue is approximately $18.5 million.

[John Nobile:]

What did that increase by over the quarter?

[Melinda Wohl:]

That increased by about $14 million, John.

[John Nobile:]

Okay. All right. That’s all I have. Thank you.

[Steve Smith:]

You’re welcome.

[Operator:]

There are no further questions in the queue. I’d like to hand the call back over to Steve Smith for closing remarks.

[Steve Smith:]

I want to thank everybody for joining today’s call and we look forward to giving you our next update after Q2, which should be around 45 days after the quarter close. We look forward to seeing and speaking to you then. Thank you.

[Operator:]

Ladies and gentlemen, this does conclude today’s teleconference. Thank you for your participation. You may disconnect your lines at this time. Have a wonderful day.