EX-99.1 2 csi191158_ex99-1.htm ANNUAL MEETING OF SHAREHOLDERS SLIDE PRESENTATION, MAY 22, 2019

 

Exhibit 99.1

Investor Presentation May 2019 Communications Systems, Inc. (NASDAQ: JCS) The new CSI ….. evolving into an IoT & Edge Management product and services company

 

Meeting Agenda 2 1. Opening Remarks 2. Open Business Meeting 3. Vote on Matters Presented in Proxy 4. Adjourn Business Meeting 5. Company Update 6. Shareholder Questions 7. Adjourn Meeting

 

Vote on Matters Presented in Proxy 3 Proposal No. 1 Election of Directors Proposal No. 2 Ratifying and approving appointment of Baker Tilly Virchow Krause, LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2019 Proposal No. 3 Approval of a 100,000 share increase in the Communications Systems, Inc. Employee Stock Purchase Plan Other Business

 

Other Business Meeting Adjourned 4

 

Investor Presentation May 2019 Communications Systems, Inc. Business Update Agenda - Annual Financial Update Mark Fandrich CFO - Business Updates Roger Lacey CEO

 

Forward Looking Statement This presentation includes certain forward - looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding future financial performance, future growth and future acquisitions. These statements are based on Communications Systems’ current expectations or beliefs and are subject to uncertainty and changes in circumstances. Actual results may vary materially from those expressed or implied by the statements here due to changes in economic, business, competitive or regulatory factors, and other risks and uncertainties affecting the operation of Communications Systems’ business. These risks, uncertainties and contingencies are presented in the Company’s Annual Report on Form 10 - K and, from time to time, in the Company’s other filings with the Securities and Exchange Commission. The information set forth herein should be read in light of such risks. Further, investors should keep in mind that the Company’s financial results in any particular period may not be indicative of future results. Communications Systems is under no obligation to, and expressly disclaims any obligation to, update or alter its forward - looking statements, whether as a result of new information, future events, changes in assumptions or otherwise. 6

 

Financial Highlights 7 $82.3 M Revenue $20.8 M Gross Profit 25.3% Gross Margin ($7.9 M) Operating Loss before Goodwill Impairment and Restructuring ($11.8 M) Net Loss For Full Year 2017 Starting the Positive Turn For Full Year 2018 $ 65.8 M Revenue $21.3 M Gross Profit 32.4% Gross Margin ($6.2 M) Operating Loss before Restructuring ($6.8 M) Net Loss $18.7 M Revenue $6.9 M Gross Profit 37.0% Gross Margin $0.1 M Operating Loss before Restructuring ($0.7 M) Net Loss For Q4 2018

 

Financial Highlights 8 $82.3 M Revenue $20.8 M Gross Profit ($11.8 M) Operating Loss $2.3 M restructuring $1.6 M impairment ($7.9 M) Operating Loss before Goodwill Impairment and Restructuring For Full Year 2017 Non - GAAP Financial Measures Reconciliation of Operating Income (Loss) to Operating Income (Loss) before Restructuring Expense For Full Year 2018 $ 65.8 M Revenue $21.3 M Gross Profit ($6.6 M) Operating Loss $0.4 M restructuring - ($6.2 M) Operating Loss before Restructuring $18.7 M Revenue $6.9 M Gross Profit ($0.3 M) Operating Loss $0.4 M restructuring - $0.1 Operating Income before Restructuring For Q4 2018

 

Financial Highlights 9 $1.4 M ($7.5 M) $0.7 M ($2.4 M) For Full Year 2017 Operating Income (Loss ) (before Goodwill Impairment and Restructuring) For Full Year 2018 $1.9 M ($4.7 M) ($0.6 M) ($2.8 M) $1.1 M ($1.0 M) $0.6 M ($0.6 M) For Q4 2018 ($7.9 M) CSI Consolidated ($6.2 M) CSI Consolidated $0.1 M CSI Consolidated

 

Financial Highlights 10 As of 12 - 31 - 2017 Balance Sheet As of 12 - 31 - 2018 $18.0 M Cash & Cash Equivalents & Investments $36.5 M Working Capital $0 Debt $49.2 M Shareholders’ Equity $11.1 M Cash & Cash Equivalents $30.7 M Working Capital $0 Debt $41.7 M Shareholders’ Equity

 

Financial Highlights 11 $16.8 M Revenue $5.2 M Gross Profit 31.0% Gross Margin ($2.0 M) Operating Loss ($1.9 M) Net Loss For Q1 2018 Returning to operating profitability as reorganization is gaining traction For Q1 2019 $16.7 M Revenue $6.4 M Gross Profit 38.4% Gross Margin $0.2 M Operating Income $0.2 M Net Income

 

Financial Highlights 12 $0.5 M ($0.6 M) ($0.4 M) ($0.8 M) ($0.6 M) For Q1 2018 Operating Income (Loss) For Q1 2019 $0.1 M $0.7 M $0.5 M ($0.5 M) ($0.6 M) ($2.0 M) CSI Consolidated $0.2 M CSI Consolidated Other Corporate Costs

 

Operating Income Trend 13 - $2.7 - $1.6 $0.1 $0.2 -3 -2.5 -2 -1.5 -1 -0.5 0 0.5 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Net (loss) income Excluding Restructuring ($ 000)

 

Financial Highlights 14 As of 12 - 31 - 2018 Balance Sheet Continues to be Strong As of 03 - 31 - 2018 $11.1 M Cash & Cash Equivalents $30.7 M Working Capital $0 Debt $41.7 M Shareholders’ Equity $9.5 M Cash & Cash Equivalents $31.2 M Working Capital $0 Debt $42.1 M Shareholders’ Equity +$5M FutureLink (sold in April 2019) +$10M Headquarters (possible sale) Other

 

Dividend History 15 $ 18.8 M distributed in the last 5 years $0.16 per share paid in FY 2018 16+ Years of dividend history $1.5 M Total paid in FY 2018 Insiders, 15% ESOP, 7% Investors, 77% 9.1M Shares Outstanding (12 - 31 - 2018)

 

$36.5 M $1.7 M $23.4 M $5.1 M FY 2018 Total Revenue About Communications Systems (CSI) History • Founded in 1969 as a regional telecommunications company • Headquartered in MN • Nasdaq: JCS … public company since 1981 16 50+ COUNTRIES 5000+ CLIENTS “We have recognized the absolute need to move away from rapidly declining commodity businesses , and are shifting CSI’s corporate focus towards solutions for IoT and network edge management. Roger H. D Lacey CEO & Executive Chairman Efforts supported by… $9.5 M Cash & Cash Equivalents $31.2 M Working Capital $0 Debt $42.1 M Shareholders’ Equity Data as of 3/31/2019 We believe that 2019 will mark an inflection point in our ongoing corporate transformation highlighted by a return to operating profitability .” $65.7 M

 

The New CSI – Investment Highlights 17 I. Redeploy resources on faster - growing and higher - margin businesses II. Establish world - class business processes III. Build a leadership team for the future Pillars of re - organization strategy Steps completed In progress / Ongoing Cost saving initiatives - return to operating profitability Profitable Shifted resources to faster - growing and higher - margin opportunities Into an IoT & Edge Management product and services company New products & markets, with world class business processes & quality control Focus Grow 2019 Transformational Year • Suttle rightsized & FutureLink TM sold • Electronics & SW R&D expanded • Corporate cost reduction programs $0.75 M from Lean Six Sigma projects • Increased impact of IFS ERP system • New Chair and Board Member • Simplified organization with Group Presidents appointments and leadership turnover • International expansion • Possible sale of corporate headquarters • Improvements in SG&A / R&D productivity • Working capital turns • Aggressive legacy SKU reductions • New CEO appointment • Complete Board restructuring Evolve

 

CSI Capabilities 18 Process Capabilities Molding ✔ Metal forming ✔ Electronic Design ✔ ✔ Application Software ✔ ✔ Application Capabilities Media Conversion ✔ ✔ ✔ Switching ✔ ✔ Connecting ✔ Terminating ✔ Monitoring ✔ ✔ ✔ Data Management ✔ ✔ Security ✔ ✔ ✔ ✔ Markets Network ✔ ✔ ✔ Enterprise ✔ ✔ ✔ Residential ✔ ✔ Electronics & Software Services Components

 

Geographic Footprint 19 50+ Countries 5000+ Clients 10 Sales/Tech Centers

 

World Class Customer Base 20 North America International

 

New Focus on Faster Growing Addressable Markets 21 Managed IT Cloud Services Addressable $18B at ~12% CAGR • As a Service Solutions • Infrastructure as a Service • Security as a Service • Network as a Service • Desktop as a Service • Hosted Applications Edge Access Addressable $12B – at ~40% CAGR • Business Ethernet • NFV and SD WAN • G.Fast Industrial IoT Addressable $20B at ~20% CAGR • Security and Surveillance • Smart City • Factory Automation Addressable markets > $50B at ~20% CAGR 38% 34% 28%

 

Business Units: 22 STRONG FOUNDATION IN NETWORK CONVERTERS o Brand equity with blue chip customer list o Market reputation o Superior customer experience o Power - over - Ethernet (PoE)++; new applications emerging o APIs to integrate into ecosystem o Bluetooth Low Energy and Near Field Communications o Network Management Software to ease deployment o Elevate brand with global integration partners USER FRIENDLY TECHNOLOGIES & PARTNERSHIPS Transforming Networks ADDRESSABLE MARKETS AND VERTICALS Smart city o Street corner traffic camera upgrades o Traffic monitoring o Track side applications Commercial security o Financial institutions o Government agencies o Universities PoE powered building automation o Commercial LED Lighting o Security upgrades o HVAC telemetry 0 20 40 60 80 100 2018 2019 2020 2021 2022 2023 2024 2025 TN Addressable Markets – in $ Billion

 

Business Units: 23 Transforming Networks FY 2019 Expectations • Higher revenue due to strong pipeline from federal & commercial clients • Higher - margin product mix to improve profitability • International growth restart $9.2 $3.9 $0.5 $8.9 $3.8 $0.06 $0 $2 $4 $6 $8 $10 Revenue Gross profit Operating income Segment Financial Overview (data in $ M) Q1 2018 Q1 2019

 

Business Units: 24 Clients: Leading carriers and major global enterprises Solutions: Network edge devices. Legacy protocol over IP. OTDR. Focus: Underserved niche markets ~$50 million Technologies: Carrier Ethernet, LTE, Gfast, ISDN, TDM over IP R&D: High caliber UK based team Net2Edge addresses the challenges presented by the rapid growth of devices connected at the network edge Solutions for the Network Edge Cloud IT capability moving to the Network Edge New waves of device data moving to the data centers and the cloud Big Data / Long - Term Learning The Network Edge is a rapidly growing market, due to demands of IoT and 5G

 

Business Units: 25 Current Portfolio - Wide Range of Solutions for the Network Edge Low Cost 1G Carrier Ethernet 1Gig Carrier Ethernet with LTE 10 Gig Aggregation Switch Legacy over Carrier Ethernet Gfast. Multi - Dwelling Solution Packetband & Liberator S $0.2 $0.1 $ - 0.8 $0.4 $0.2 $ - 0.5 -$1 $0 $1 Revenue Gross profit Operating loss Segment Financial Overview (data in $ M) Q1 2018 Q1 2019 FY 2019 Expectations • 1 st Qtr growth accelerating in the 2 nd half • Widen market access with new uCPE products • Improving profitability thru scale Solutions for the Network Edge Aggregation Devices CPE Devices Legacy Protocol Solutions Fully featured 1G Carrier Ethernet Gfast Solution .

 

Edge Access Devices • ION Ethernet delivery • Carrier Ethernet o NIDS o Aggregation Switches • uCPE • G.Fast • Optical Devices Driving Synergies : 26 Packetband & Liberator S Development Path Increasing Value Add Legacy capabilities • Media Conversion • NICs • TDM/ISDN over Ethernet Industrial IoT • PoE (++) switching • Secure Remote Mgmt Access • Power Supplies • Integrated Solutions Edge Access Devices • uCPE o NFV o SD WAN Enterprise & Industrial IoT • Embedded devices • Sensors • LTE solutions FY 2019 Opportunity Future Growth JOINING FORCES : Combined sales force addresses global markets across multiple sectors. R&D collaboration improves time to market and increases productivity. Increased purchasing power in supply chain. ADDRESSING FAST GROWING MARKETS : Edge Access Solutions, SD WAN, IoT, smart buildings, LED lighting, sensors, intelligent transport, security and surveillance + CommandPoint Management Software • Device management • Asset mapping

 

Business Units: 27 > $15 B $20 B Managed Datacenter • Storage, Hosting, Colocation Managed Security • Threat/Vulnerability Management, Compliance Managed Infrastructure • Desktop & Print, Servers Managed Communications • VoIP, Email, Messaging Managed Networks • Architecture, IP/VPN, Wireless Managed IT services >$15B Addressable Market (in 2018) Comprehensive Managed IT Services 20+ years 5 Public school districts Educational sector

 

Business Units: 28 Addressable Florida Education Market Districts Schools Students Public Schools 76 4,269 2,962,162 Private Schools 65 2,540 345,796 Charter Schools 46 654 283,755 Substantial room for growth $0.7 - $0.02 - $0.4 $ 2.2 $0.9 $0.5 -$1 $0 $1 $2 $3 Revenue Gross (loss) profit Operating (loss) income Segment Financial Overview (data in $ M) Q1 2018 Q1 2019 Managed IT services FY 2019 Expectations • Revenue growth to continue • Quarterly performance may vary due to timing of contracts • Larger opportunities with higher margins • Cost savings of ~100K/year due to office relocation Expanding into New Segments Health Care, Financial, Industrial

 

Business Units: 29 Smart Home Technology 1) Cost Savings Plan • Tier 1 Service Operators focused on services and content • Network engineering driven by cost • Limited value of / or demand for legacy high spec plastic parts • Sold FutureLink™ suite of fiber solutions for $5M • FutureLink™ products no longer strategically significant to CSI’s business model • MediaMAX™ product line remains part of portfolio • Evaluating several additional proposals • Reduced operating cost • Optimized factory operations • Identified non Telco OEM opportunities • Employed LSS trained and flex workforce • Despite aggressive cost reductions overcapacity remains a challenge 2) Restructuring Plan $7.0 $ 1.4 - $ 0.6 $5.5 $ 1.8 $ 0.7 -$1 $2 $5 $8 Revenue Gross profit Operating income (loss) Segment Financial Overview (data in $ M) Q1 2018 Q1 2019 FY 2019 Expectations • Revenue and operating margin decline due to sale of FutureLink products in April 2019 The Challenge

 

Key applications • Video, Security, Health care, Home management Increased demand for secure bandwidth Leading builders offer network packages Business Units: 30 Smart Home Technology A/C Battery Backup Internet/Service Provider Data $30 - $500 Revenue opportunity to Suttle per household

 

Management Team 31 Roger H. D Lacey Chief Executive Officer Executive Chairman • SVP of Strategy and Corporate Development for 3M Corporation • Partner CGMR Capital Mark Fandrich Chief Financial Officer Group President JDL Technologies & Suttle • Corporate Controller for The Bergquist Company Curtis A. Sampson Founder Chairman Emeritus • CEO of Hector Communications Corp • Co - founder of Canterbury Park Holding Corp. Scott Otis Group President Transition Networks & Net2Edge • VP, Operations - Professional Services for TE Connectivity, Inc. • VP, Marketing and Business Development for ADC Professional Services

 

Investment Considerations 2019 to be TRANSFORMATIONAL due to the ongoing enterprise - wide restructuring process 32 Cost saving initiatives - return to operating profitability Shifted towards faster - growing and higher - margin businesses Into an IoT and Edge Management product and services company New products, new markets, world class business processes and quality control Profitable Focus Grow Evolve

 

Contact Us 33 Lena Cati (212) 836 - 9611 lcati@equityny.com Devin Sullivan (212) 836 - 9608 dsullivan@equityny.com Mark D. Fandrich Chief Financial Officer 952 - 582 - 6416 mark.fandrich@commsysinc.com Roger H. D. Lacey Chief Executive Officer 952 - 996 - 1674

 

Investor Presentation May 2019 Communications Systems, Inc. (NASDAQ: JCS) The new CSI ….. evolving into an IoT & Edge Management product and services company