Communications Systems, Inc. (NASDAQ: JCS) Investor Presentation March 2020 The new CSI….. evolving into an IoT Intelligent Edge Product & Services Company
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. 2
About Communications Systems (CSI) FY 2019 Total Revenue History • Founded in 1969 as a regional $4.7 M telecommunications company • Headquartered in MN • Nasdaq: JCS … public company since 1981 $50.9 M $1.7 M $36.5 M 50+ 5000+ COUNTRIES CLIENTS Efforts supported by… “While 2019 was a transformational year with $24.1 M substantially improved operational and financial performance highlighted by higher revenue, Cash & Cash Equivalents improved margins, lower corporate costs, and a $38.1 M return to profitability…. Working Capital … our strategy for 2020 is to focus on $0 recurring higher-margin revenues in faster Debt growing markets by further expanding our Roger H. D Lacey $47.4 M client and geographic footprint.” CEO & Executive Chairman Data as of Shareholders’ Equity 12/31/2019 3
The New CSI – Investment Highlights 2019 was Transformational / 2020 to be a Year of Expansion Evolved Profitable Focused Grew Net income of $6.5M Revenue up 20.1% Shifted resources to Into an IoT intelligent Returned to operating New products & markets, faster-growing and edge products and profitability due to cost higher-margin with world class business services company saving initiatives opportunities processes & quality control 2019 Operational Achievements 2020 Business Strategy • Sold Suttle’s business lines: products • Business model: “Software as Service” and no longer strategically significant to “Hardware as Service” • Capitalize on opportunities for higher-margin new business model • Electronics & SW R&D expanded solutions domestically and internationally • Possible sale of corporate headquarters • Corporate cost reduced • New CEO appointment / complete Board • Increased impact of IFS ERP system restructuring • Improved SG&A / R&D productivity • Identifying attractive acquisitions and strategic • Aggressive reductions of legacy SKU minority interests 4
CSI Capabilities Services Electronics & Software Network ✔ ✔ Markets Enterprise ✔ ✔ ✔ Residential ✔ Molding Metal forming Process Capabilities Electronic Design ✔ ✔ Application Software ✔ ✔ Media Conversion ✔ ✔ Switching ✔ ✔ Connecting Application Terminating Capabilities Monitoring ✔ ✔ ✔ Data Management ✔ ✔ Security ✔ ✔ ✔ 5
Geographic Footprint 5000+ 50+ 10 Clients Countries Sales/Tech Centers 6
World Class Customer Base North America International 7
New Focus: Faster Growing Addressable Markets Addressable markets > $50B at ~20% CAGR Edge Access 28% Addressable $12B – at ~40% CAGR • Business Ethernet • NFV and SD WAN • G.Fast 38% 34% Managed IT Cloud Services Addressable $18B at ~12% CAGR Industrial IoT • As a Service Solutions • Infrastructure as a Service Addressable $20B at ~20% CAGR • Security as a Service • Security and Surveillance • Network as a Service • Smart City • Desktop as a Service • Factory Automation • Hosted Applications 8
Business Units: Transforming Networks ADDRESSABLE MARKETS AND VERTICALS STRONG FOUNDATION IN NETWORK CONVERTERS Smart city o Brand equity with blue chip customer list o Street corner traffic camera upgrades o Market reputation o Traffic monitoring o Superior customer experience o Track side applications Commercial security USER FRIENDLY TECHNOLOGIES & PARTNERSHIPS o Financial institutions o Power-over-Ethernet (PoE)++; new applications emerging o Government agencies o Universities o APIs to integrate into ecosystem o PoE powered building automation Bluetooth Low Energy and Near Field Communications o Commercial LED Lighting o Network Management Software to ease deployment o Security upgrades o Elevate brand with global integration partners o HVAC telemetry TN Addressable Markets – in $ Billion 100 80 60 40 20 0 2018 2019 2020 2021 2022 2023 2024 2025 9
Business Units: Transforming Networks Segment Financial Overview (data in $ M) $50 $44.9 FY 2018 FY 2019 $36.5 $40 $30 $20.6 $16.7 $20 $5.6 $10 $3.0 $0 Revenue Gross profit Operating income 10
Solutions for the Business Units: Network Edge Net2Edge addresses the challenges presented by the rapid growth of devices connected at the network edge The Network Edge is a rapidly growing market, due to demands of IoT and 5G moving to the data centers New waves of device data Clients: Leading carriers and major global enterprises and the cloud Solutions: Network edge devices. Legacy protocol over IP. OTDR. Focus: Underserved niche markets Cloud ~$50 million Technologies: Carrier Ethernet, LTE, Gfast, Big Data / ISDN, TDM over IP Long-Term Learning IT capability moving to the Network Edge R&D: High caliber UK based team 11
Solutions for the Business Units: Network Edge Segment Financial Overview (data in $ M) $3 $2.3 FY 2018 FY 2019 $1.7 $1.0 $1 $0.5 $-1.5 -$1 $-2.8 Revenue Gross profit Operating loss -$3 Current Portfolio - Wide Range of Solutions for the Network Edge Aggregation Devices CPE Devices Legacy Protocol Solutions 1Gig Carrier Ethernet with LTE 10 Gig Aggregation Switch Packetband & Liberator S Gfast Solution Low Cost 1G Carrier Ethernet Legacy over Carrier Ethernet Gfast. Multi-Dwelling Solution Fully featured 1G Carrier Ethernet . 12
Driving Synergies : + JOINING FORCES: ADDRESSING FAST GROWING MARKETS: Combined sales force addresses global markets Edge Access Solutions, SD WAN, IoT, smart buildings, across multiple sectors. R&D collaboration improves LED lighting, sensors, intelligent transport, security time to market and increases productivity. Increased and surveillance purchasing power in supply chain. FY 2019 Opportunity Future Growth Edge Access Devices Edge Access Devices • uCPE o NFV • ION Ethernet delivery Increasing Value Add o SD WAN • Carrier Ethernet o NIDS Enterprise & Industrial IoT o Aggregation Switches • uCPE • Embedded devices • G.Fast • Sensors • Optical Devices • LTE solutions Industrial IoT CommandPoint Legacy capabilities • PoE (++) switching Management Software • Secure Remote Mgmt Access • Media Conversion • Device management • Power Supplies • NICs • Asset mapping • Integrated Solutions • TDM/ISDN over Ethernet Packetband & Liberator S Development Path 13
Business Units: Managed IT services Comprehensive Managed IT Services Educational sector Managed Datacenter • Storage, Hosting, Colocation 20+ Managed Security • Threat/Vulnerability Management, Compliance years Managed Infrastructure 5 • Desktop & Print, Servers Public school districts Managed Communications • VoIP, Email, Messaging >$15B Addressable Market (in 2018) Managed Networks • Architecture, IP/VPN, Wireless $20 B > $15 B 14
Business Units: Managed IT services Segment Financial Overview (data in $ M) $5.1 $6 $4.7 FY 2018 FY 2019 $4 $1.5 $1.3 $2 -$0.0 -$1 -$0.3 Revenue Gross profit Operating (loss) income Expanding into New Segments Health Care, Financial, Industrial Substantial room for growth 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 15
Financial Highlights Returned to operating profitability (data in $ M) $53 $50.9 $42.4 FY 2018 $43 FY 2019 $33 $22.2 $23 $17.6 $13 6.5 $3 $0.01 -$4.7 -6.8 Revenue Gross profit Operating (loss) income Net (loss) income -$7 16
Financial Highlights Balance Sheet Continues to be Strong Other As of 12/31/2018 As of 12/31/2019 $24.1 M $11.1 M Cash & Cash Equivalents Cash & Cash Equivalents $38.1 M $30.7 M +$10M Working Capital Working Capital Headquarters (possible sale) $0 $0 Debt Debt $47.4 M $41.7 M Shareholders’ Equity Shareholders’ Equity 17
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