DPSI: DecisionPoint Begins to see Margin Expansion

Zacks Small Cap Research
August 22, 2013

By Ken Nagy, CFA

On August 19, 2013, DecisionPoint Systems, Inc. (OTC BB:DPSI), the enterprise mobility and RFID systems integrator, filed its 10-Q Quarterly report for its fiscal 2013 second quarter and six months, ended June 30, 2013.

Revenues for the quarter declined $3.046 million year over year to $14.721 million from $17.767 million for the three months ended June 30, 2012.

Still, on a quarter over quarter basis, revenues improved by $949,000.

The year over year decrease was primarily due to a 28.1 percent decline in relatively low margin hardware sales, as well as to the timing of orders and shipments, which was partially offset by the inclusion of the operating results of DecisionPoint’s Apex and Illume Mobile acquisitions in mid-2012.

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

Gross margin increased by 330 basis points to 24.2 percent in the second quarter 2013, from 20.9 percent in the comparable period of 2012.
Sequentially, gross margin improved from 20.5 percent for the three months ended March 31, 2013.

The year over year improvement was primarily due to continued implementation of increased cost control for the products and services which the company resells, and its professional service costs were positively impacted by better utilization associated with greater recognized revenue from these services in the quarter.

Furthermore, management anticipates that as higher-margin software and service revenue continues to grow, margins will continue to improve. Software and service revenue composed 40 percent of consolidated revenues for the first time during the second quarter 2013.

Adjusted EBITDA for the second quarter of 2013 was negative $16,000, an approximately $1.0 million positive swing from the first quarter of this year.

Net loss improved slightly to a loss of $1.116 million for the second quarter 2013. This compares to a net loss of $1.284 million for second quarter 2012 and a net loss was $2.102 million for the three months ended March 31, 2013.

Based on a weighted average number of basic and diluted shares of 8.698 million, basic and diluted net loss per share resulted in a net loss of $0.15 per share for the second quarter of fiscal 2013. This compared to a basic and diluted net loss per share of $0.20 based on a weighted average number of basic and diluted shares of 7.512 million during the three months ended June 30, 2012.

The Company ended the quarter with $226,000 in cash and $15.414 million in total current assets.

Furthermore, subsequent to the end of the quarter, in August 2013, the Company signed definitive documents for a private placement of common stock, for gross proceeds of $1.8 million, of which $200,000 came from management and existing shareholders.

It should be noted that 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.

Similarly, the company has now added Android Operating Systems to the family of APEXWare software compatibility, which vastly expands the addressable market. 

Additionally, management expects sales to be robust, and margins to continue to climb based on what has been seen in the third quarter to date. 

As a result, management anticipates revenues in the third quarter 2013 to be up by more than 20 percent over revenues reported for the second quarter.

A copy of the full research report can be downloaded here >> 
 DecisionPoint Systems Report

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