Welcome to Communications Systems, Inc. Annual Meeting of Shareholders

Transcription

1 infrastructure & services for global communications Welcome to Communications Systems, Inc. Annual Meeting of Shareholders 2015 Communications Systems, Inc

2 infrastructure & services for global communications Agenda» Introductions Curt Sampson» Management Reports CSI Update Roger Lacey Suttle Solutions Bruce Blackwood Transition Networks Scott Otis JDL Technologies Scott Fluegge» Q&A Communications Systems, Inc

3 CSI Update A business in transformation»the Facts» Established business c. 1969» NASDAQ listed since 1981» Credible brands» Product portfolio focused on Network Equipment and Services» Solid balance sheet, no goodwill and attractive dividend»the Situation» Recent difficult operating performance» Thinly traded < 10,000 shares per day NASDAQ: JCS Infrastructure and Services for Global Communications 3

4 CSI Historic Operating Performance Millions $143.8 $15.71 $131.3 $119.1 $18.00 $16.00 Stock Price $ $104.2 $11.89 $10.78 $11.79 $14.00 $12.00 $ $ $ $17.5 $ $9.8 $3.4 $2.2 $1.2 $3.3 $2.0 $2.00 (10.0) $(1.0) Sales OI Net Income Stock Price * $0.00 *Annual average stock price= calculated using the close price at the end of each month.

5 Business Overview A business in transformation»the Facts» Established business c. 1969» NASDAQ listed since 1981» Credible brands» Product portfolio focused on Network Equipment and Services» Solid balance sheet, no goodwill and attractive dividend»the Situation» Recent difficult operating performance» Thinly traded < 10,000 shares per day»the Resolution» Stabilize and grow core business» Develop breakthrough products in growth markets» Cost improvements through Lean operations Investment thesis, significant potential for breakout value change NASDAQ: JCS Infrastructure and Services for Global Communications 5

6 2014 Business Performance» CSI Revenues $119.1MM (9% decrease) Net Income $2.0MM» Suttle Innovative solutions for gigabit broadband deployments Blue chip telecom client 24% increase in Sales & 78% increase in Operating Income» Transition Networks Media Converter product line update. R&D 10% of Sales Solid product gross margins, >44% Stabilized sales decline (2% reduction on 2014) $67.3 CSI Sales Breakdown 2014 ($ in millions) 57% Total: $ % 7% $43.2» JDL Technologies Sales decrease 74% vs due to loss of E rate funding and capital project completion Actively developing new verticals and geographies, e.g. Health Care data protection NASDAQ: JCS Infrastructure and Services for Global Communications 6 $8.6

7 Q Performance» Q was challenging as key accounts minimized purchases Major Key Account in Suttle Federal Systems in Transition Networks Education Key Accounts in JDL» Key investment elements e.g. R&D and Sales remained in place with some adjustments in Supply Chain» Solid New Product progress >25% growth, ~10% of Sales» Cash position ($24.6MM) and Working capital ($52MM) remained strong» Maintained excellent dividend ~6% annualized return NASDAQ: JCS Infrastructure and Services for Global Communications 7

8 Well positioned for success» All businesses have good growth opportunities» Reinvested in R&D >7%, IP portfolio developing» New management structure in place, >20 key industry appointments» Corporate cost structure reduced ~$1m» Substantial Lean operations cost gains >$1m in 2015» Significant tax opportunities exist >500 bps» Solid Balance sheet, no Goodwill Investment thesis, significant potential for breakout value change NASDAQ: JCS Infrastructure and Services for Global Communications 8

9 Strong Financial Profile Solid balance sheet and attractive dividend yield Balance Sheet Summary ($ in millions, except share figure) 12/31/14 Cash, equivalents, investments $29.9 Annual Dividend of $0.64 Per Share Equates to a Yield of 6.1% 2 Total assets $100.3 Total long term debt $0.6 Working capital $56.9 Stockholders equity $86.0 Cash per share 1 $3.45 Year Div $ 0.19 $ 0.29 $ 0.36 $ 0.44 $ 0.48 $ 0.54 $ 0.59 $ 0.60 $ 0.64 $ 0.64 $ Consecutive Quarters of Dividend Payments 1 NASDAQ: based on 8,658,784 JCS CSI shares outstanding as of 3/1/ Infrastructure and Services for Global Communications 9 based on CSI s fourth quarter ending share price of $10.50 on 12/31/14

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11 Market Forces The Gig is Everything Service providers are looking to optimize networks with end to end solutions to deliver the coveted Gigabit service.

12 North America Market Growth North American FTTH and Advanced Broadband Review and Forecast RVA Market Research and Consulting The total North American investment to date is valued at about $30B. While these are big numbers, in reality they represent only a beginning. A total of 94% of North American homes are yet to be connected with FTTH, and the broader industry being built around advanced broadband consumers is still in its infancy. Verizon accounts for 78% of FTTH connections to date. 13M Households with 100 mgbs service by ,000Households with 1 G service by 2017

13 Brands that Enable Gigabit Service MediaMAX TM Brownfield Extender (4 Deep Cover) Modular Enclosures Gateway Access Module

14 Brands that Enable Gigabit Service FutureLink TM Fiber for OSP and Premise High Speed Copper for OSP and Premise

15 Suttle s Increasing Per Home Revenue Opportunity $180 $160 Increasing to over $160 Per Home $140 $120 $100 $80 Market Requirements Fast Deployments Lower Cost of Ownership $60 Updated Technology $40 $20 $0 Jacks Copper Wall Plates Wall Plates Fiber Passive Hubs Fiber Passive Terminals Drops Wiring Closures CPE Maximum Coverage & Mobility in the Home Greenfield/Brownfield Ready Per Home Expectation Accumulative

16 Customer Expansion Tier 1 Accounts Legacy Products SOHO Access CorroShield SpeedStar DSL Filters FIOS U verse Gigabit Broadband Targeted Accounts Prism New Products FutureLink OSP Enclosures High Speed Building Entrance Terminals SFIT G.hn Endpoints Fiber Panels & Frames Hardened Terminals Fiber Termination Traditional Voice Telco Tier 2 & 3 (Telecommunications Service Providers) MSOs (Multiple System Operators) CLECs (Competitive Local Exchange Carrier) MediaMAX Enclosures Modules

17 Increasing Performance Customer Engagement and Strategic Innovation Model Research and Development Spend o $3.5M in 2014 o $1.4 M in Q Innovation Partner to Customers Strengthening Organization Flattened Leadership Organization Evolve Finance and Supply Chain Practices New ERP System Margin Management Expense Management Cash Management

18 Enabling the Truly Connected Home High Speed Copper Fiber Wireless 1 Gigabit Broadband Distribution Enabling Truly Connected Home

19 Media Conversion Network Interface Cards SFPs Power over Ethernet Carrier Grade Ethernet & Fiber Access

20 Trusted Media Conversion Provider for Enterprise Networks Twenty eight years providing mixed media connectivity solutions Physical layer & protocol conversion; e.g., Copper to Fiber, USB to Ethernet, and POE Diversified customer base: Enterprise, Federal, Service Provider, and Industrial Established distribution channels Growth opportunity in embedded copper Ethernet Provide solutions to overcome bandwidth, distance and security challenges Lead with ION platform

21 Solutions to address existing network limitations 4 Double data rate of existing embedded UTP copper 6 Extend fiber distance to remote locations 5 Add digital solutions while using embedded RG coax 3 Add capacity in verticals with fiber 2 Extend fiber to desktop, AV equipment Public Network 7 Remotely managed, smart connected devices 1 Use existing embedded copper devices Providing solutions to address bandwidth, security, and distance limitations

22 Reaching Beyond The Enterprise Solutions for the Evolving Network Carrier offering for TDM & ISDN over IP Significant embedded legacy infrastructure Consolidates old services onto IP network using existing CPE Uses existing sales channels in NA, Latin America Builds on carrier platforms in US and UK Market launch 2H 15

23 Improving Execution in All Functions Coveted customer listing, strong channels, more diversity needed Significant improvement in new product release Better control of supply chain functions Improved customer service, reduced inventory and better cash flow

24 Enabling Your IT To Do More Named to the 2015 Elite 150 Managed Service Providers in North America

25 Enabling Your IT To Do More Transforming the Business Recognized managed services provider Large, rapidly growing market Repeatable revenue model Remotely supportable (cloud) HIPAA compliant (for Healthcare market) Now E Rate eligible (for Education market) Reputation for quality and reliability Named to Elite 150 MSPs in North America (part of 2015 CRN MSP 500 list) Managed Services Trustmark credential State of the art JDL MS Operations Center 2014 Best IT Services Award 2014 CRN Solution Provider 500 (Top VARs) Strategic Execution in 2015» Expand geographic footprint» Continue to grow Managed IT» Maintain laser focus on Healthcare

26 Ongoing Success in Florida Education Broward County Public Schools Technology Inspires Learning Sixth largest public school district in U.S. 280 schools, 260,000 students On-premise Network Ops Center designed and managed by JDL for 15 years; NOC currently staffed by dedicated JDL employees Field support for school district projects, such as current wireless upgrade (5,523 access points installed as of Jan. 2015) Awarded 2 large five year contracts in Q Valued at approx. $83 million over five-year contract period E-rate funding est. $30 million over 5 years Bond funding est. $35 million over 3 years Capital funding est. $15 million over 5 years Continuing penetration of public and private K 16

27 Enabling Your IT To Do More Expanding Footprint via Managed IT Services Verticals Education K 12 Wireless classroom E Rate funding Historical Focus Other Diverse range of commercial enterprises VAR solutions Education Public K 16 Private K 16 Wireless campus E Rate funding initiatives Commercial Targeted verticals (logistics, insurance) Leveraging compliance capabilities Growth Strategy Healthcare Top provider of HIPAA Compliant IT services SRAs, Training, tiered MS offerings Financial / Legal Leveraging data security requirements of Gramm Leach Bliley Act IP protection Geography : IT Services Leader in South Florida : Expansion Upstate and Nationally (18 States) Growth through recurring revenue model and reduced revenue volatility

28 Compliance, Because You Care Leader in Florida Healthcare Managed IT Florida s Growth Market: Healthcare 5,000 4,000 3,000 Healthcare Pro Serve 2,000 Fin Serve 1,000 Transport JDL HIPAA compliant IT Services Managed IT Services Security Risk Assessment Security Essentials Package EHR Audit Log Monitoring Wireless Security Assessment Cloud Readiness Evaluation Network Security Assessment HIPAA Compliance Training IPP Verified Company IT Spending Ave. Low Ave. High Est. Market Opp. Healthcare and Social Assistance $ 273,115 $ 408,800 $ 1,308,253,315 Prof, Scientific and Tech Services $ 189,678 $ 312,600 $ 742,233,867 Finance and Insurance $ 219,133 $ 366,400 $ 254,121,177 Transportation and Warehousing $ 240,438 $ 303,200 $ 223,435,363 IPP Office of Industrial Practice Programs

29 Compliance, Because You Care Organic Growth Minneapolis St. Paul Market Minnesota s Healthcare Market Second in U.S. in number employed in medical instrument manufacture 152,000 employed in healthcare Twin Cities ranks #10 in concentration of healthcare practitioners in U.S. cities Projections: Demand for Healthcare Services in MN The demand for physicians per thousand population will increase from 2.8 in 2000 to 3.1 in The demand for RNs will increase from 7 to 7.5 per thousand in the same period. In 2000, physicians spent an estimated 32% of patient care hours on people 65 years or older; by 2020 this will be 39%. An aging health workforce raises concerns that many will retire at the same time that demands for services are increasing. The types of services needed for the 65 and over population may change, as trends indicate lower disability rates for today s elderly.

30 Inorganic Growth Atlanta Metro Compliance, Because You Care Georgia s Healthcare Market 167,000 employed as healthcare practitioners and supporting roles Atlanta metro market ranks #7 in concentration of healthcare practitioners in U.S. cities Bureau of Labor Statistics May 2014 Top Five Industries in Georgia Targets for Managed IT Services Agriculture: $72 Billion / 14% of employment Tourism: $53.6 Billion / 411,000 jobs Energy: $35 Billion / 26,000 jobs Automotive: $9.5 Billion / 18,000 jobs Entertainment: 4th largest in U.S. / $5.1 Billion Entry through Acquisition Competitive market 200 health IT service providers in metro Atlanta Acquisition target is small, well established Strong focus on healthcare IT and managed services, with engineering staff

31 Enabling Your IT To Do More Future Plans Strategic geographic and vertical growth in Managed Services Grow Managed IT Services business in Healthcare Continue shift to larger healthcare IT targets (20 50 staff) Leverage marquee EMR solution to penetrate medical centers and hospitals Grow Managed IT Services in Education Maintain outstanding support of Broward Schools NOC and contracted projects Promote Managed IT Services in health and health related verticals Strategic acquisitions in targeted markets Health IT Service Providers Managed Service Providers Leverage new hubs to grow regionally Southeast Midwest Northwest

32 infrastructure & services for global communications Q&A Communications Systems, Inc

33 infrastructure & services for global communications Communications Systems, Inc

34 infrastructure & services for global communications Corporate Financials Communications Systems, Inc

35 Financial Results Overview CSI Consolidated ($ MMs, except share figures) Q 14 1Q 15 Revenues $104.2 $131.3 $119.1 $25.2 $19.5 Gross Profit Operating Income (Loss) 1, (0.3) (5.7) Net Income (Loss) $2.2 $(1.0) $2.0 $(0.1) $(4.2) Diluted Shares 8,518,613 8,531,073 8,640,416 8,565,426 8,660,819 Earnings (Loss) Per Share $0.26 $(0.11) $0.23 $(0.02) $(0.48) Cash Dividends Per Share $0.64 $0.64 $0.64 $0.16 $ NASDAQ: 2014 gross JCS profit and operating income includes an inventory Infrastructure reserve charge and of Services $1.1 million for at Global Transition Communications Networks operating income includes a goodwill impairment charge of $5.8 million at Transition Networks

36 Summary of Segment Results ($ MMs, except share figures) Q 14 1Q 15 Suttle Revenues $45.0 $54.3 $67.3 $12.9 $10.6 Gross Profit Operating Income (2.9) Transition Networks Revenues $53.8 $43.9 $43.2 $9.7 $8.1 Gross Profit Operating Income (Loss) 1,2 3.3 (5.8) (2.4) (0.7) (2.1) JDL Technologies Revenues $5.4 $33.1 $8.6 $2.6 $0.9 Gross Profit Operating Income (Loss) (1.0) 3.2 (0.9) 0.1 (0.8) 1 NASDAQ: 2014 gross JCS profit and operating income includes an inventory Infrastructure reserve charge and of Services $1.1 million for at Global Transition Communications Networks operating income includes a goodwill impairment charge of $5.8 million at Transition Networks