Delays offset Strength in Service at DecisionPoint

Zacks Small Cap Research
May 16, 2013

By Ken Nagy, CFA

On May 15, 2013, DecisionPoint Systems, Inc.,  (DPSI) the enterprise mobility and RFID systems integrator, reported financial results for its fiscal 2013 first quarter, ended March 31, 2012.

Revenues for the quarter declined year over year to $13.772 million from $17.810 million for the three months ended March 31, 2012.

The decrease was primarily due to the Company’s hardware sales decreasing by 35.1 percent as a result of delays in delivery of hardware due to upgrades in Apple's iOS operating system and the delivery of custom software applications combined with fewer customers implementing new technologies or updating systems during the period. Partially offsetting the decline in hardware sales was an increase in professional services and proprietary software revenues.

Gross margin declined slightly year over year from 21.1 percent in the first quarter of 2012 to 20.5 percent for the three months ended March 31, 2013.

The drop in gross margin was primarily due to due to amortization of intangible software assets, classified as part of cost of goods sold, offset by the lower volume of hardware sales which carry a lower gross margin. In the fourth quarter of 2012, the amortization of intangible software assets was a component of Selling, general and administrative expense.

Selling, general and administrative expenses in the first quarter increased year over year by $1.198 million to $5.033 million.

The year-over-year increase was attributable to SG&A costs of the acquired APEX and Illume businesses, an increase of $0.4 million in sales headcount related expenses and professional service fees, mainly accounting, tax and capital raising costs of $0.3 million.

DecisionPoint acquired the Burlington, Ontario, Canada based supplier of wireless mobile work force solutions, Apex Systems Integrators Inc., in June 2012.

The Company's APEXWare™ suite of products provides mobile productivity solutions in the areas of merchandizing, sales and delivery, field service, logistics and transportation, and warehouse management that serve multiple vertical industries in the mid-market.

In July 2012, DecisionPoint acquired Illume Mobile Software, a division of MacroSolve, Inc., based in Tulsa, OK, which has patent protected domain expertise in developing Enterprise mobile software for Android and Apple (iOS) mobile devices.

The acquisitions broadened the Company’s software products and professional services capabilities, opened new markets and deepened relationships with customers by allowing the Company to offer the full range of mobile solutions to meet the requirements of any enterprise mobility strategy as well as generate higher margins than other divisions in the Company, which in turn should lead to improved corporate gross margins.

Operating loss increased year over year by $2.127 million to a loss of $2.209 million from an operating loss of $82,000 for the three months ended March 31, 2012.

The drop was primarily a result of lower revenues and margins and higher selling, general and administrative expenses.

Net loss attributable to common shareholders was $2.322 million for the fiscal 2013 first quarter, compared to a net loss attributable to common shareholders of $459,000 for three months ended March 31, 2012.

Based on a weighted average number of basic and diluted shares of 8.620 million, basic and diluted net loss per share resulted in a net loss of $0.27 per share for the first quarter of fiscal 2013. This compared to a basic and diluted net loss per share of $0.06 based on a weighted average number of basic and diluted shares of 7.392 million during the three months ended March 31, 2012.

The Company ended the quarter with $335,000 million in cash and a working capital deficit of $10.3263 million as of March 31, 2013. This compares to $1.103 million in cash and a working capital deficit of $9.093 million as of December 31, 2012.

Along the same lines, as of March 31, 2013, DicisionPoint had approximately $4.1 million available under its revolving credit facility with its lenders.

In January 2013, DecisionPoint announced that it launched a new sales and marketing initiative and dedicated a team to accelerate the Company's expansion into enterprise mobile software, software subscriptions and professional services.

The newly created Enterprise Solutions Group will lead the new effort by expanding the sales and marketing of APEXWare™ software throughout the United States.

The Company’s sales and services pipeline remains very strong, and management remains very excited about its new strategic initiatives and the acceptance in the marketplace of its field mobility solutions.

Likewise, DecisionPoint’s retail, warehouse and distribution segments continue to expand, giving management confidence that double-digit revenue growth will return as 2013 progresses. As a result management expects second quarter revenues in the range of $16.5 million to $18 million.

With premium mobile data applications estimated to have generated carrier revenues of over $2.3 billion in 2008 and expected to grow at a CAGR of 35 percent or to as much as $10.3 billion in 2013, Apex’s presence in this important growing market will help DecisionPoint grow its revenues and margins and to drive increasing shareholder value.

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