TSE:DCM DATA Communications Management Q1 2023 Earnings Report C$1.77 0.00 (0.00%) As of 04/28/2025 03:58 PM Eastern Earnings HistoryForecast DATA Communications Management EPS ResultsActual EPSC$0.04Consensus EPS N/ABeat/MissN/AOne Year Ago EPSN/ADATA Communications Management Revenue ResultsActual Revenue$76.08 millionExpected Revenue$71.90 millionBeat/MissBeat by +$4.18 millionYoY Revenue GrowthN/ADATA Communications Management Announcement DetailsQuarterQ1 2023Date5/10/2023TimeN/AConference Call DateThursday, May 11, 2023Conference Call Time9:00AM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckInterim ReportEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by DATA Communications Management Q1 2023 Earnings Call TranscriptProvided by QuartrMay 11, 2023 ShareLink copied to clipboard.There are 3 speakers on the call. Operator00:00:00Good morning, ladies and gentlemen. Thank you for standing by and welcome to the Data Communications Management Corp. Q1 2023 Financial Results Conference Call. My name is James Lorimer, CFO of DCM, and I'm pleased to be hosting today's call. Joining me on the call today is Richard Kellum, our CEO and President. Operator00:00:21Following our prepared remarks, we will be moderating a question and answer session. As a reminder, this conference call is being recorded live and broadcast live. We'd also like to remind everyone that Richard and I can be available for calls afterwards if anyone has any follow-up questions. I'd like to remind everyone that we will be referring to forward looking information on today's call. This information is subject to certain risks and uncertainties as outlined in the forward looking information disclosure in our press release and more fully within our public disclosure filings on SEDAR. Operator00:01:02We have posted a brief video message from Richard along with a summary of our results and key initiatives for the quarter on our website in the form of an infographic. Our presentation today will also be added to our website for your reference along with a post view recording and transcript. Our detailed information is also available on our website and SEDAR. Please follow us on LinkedIn to keep up to date with other business developments. And I'll now turn the call over to Richard. Speaker 100:01:30Thank you, James, and good morning and good afternoon, good evening. I see there are some international investors on the call today for shareholders. So good afternoon, good evening to you and good morning to everyone. Here is what we want to accomplish on the call today. I want to take you through update on our quarter obviously and talk a little bit about how we are becoming bigger and better together with the recent close of our transaction acquiring our Donnelley Canada OR Moore Canada Corp. Speaker 100:02:03And then we'll turn it over to any questions that attendees will have for today. Okay. So, first off, looking at our 23 results and I'm going to break this into our theme of bigger and better business and I'll start off with the bigger side. Happy to report that we had a very, very positive quarter in terms of growth, growth just under 10% at 9.8% versus a year ago. And to remind shareholders that was off of 11.1% growth on the quarter last year, so good positive momentum at the start of the year. Speaker 100:02:43Great revenue quarter at $76,100,000 up from $69,300,000 a year ago. That growth of $6,800,000 came from a combination of what we call expansion revenues, so growing revenue with existing clients as well as new business development. We brought in several new logos and lots of new logos that we have the opportunity to land and expand as we call. So lots of good kind of positive opportunities moving forward to expand that revenue. So really good solid growth in the quarter, really pleased with the success that our commercial teams are having with our whole client or customer leadership agenda. Speaker 100:03:24Looking at that revenue momentum, you can see on this chart, we look at a 3 year kind of time horizon and you can see how we built that over 3 years. We've actually had 6 this is our 6th consecutive quarter of year over year growth. So you can certainly see that we've got positive momentum in our business now. And If you look at this chart, anybody has kind of dialed into our call here from a or on the team's call, you can see that 76.1% actually is higher than our quarter 4 and quarter 4 is generally our strongest quarter. So off to a great start in quarter 1, 2022 and great momentum. Speaker 100:04:03Also pleased to report that our gross profit is growing faster than revenue, which is always positive, that means your gross margin is improving. And as I said to the team, gross margin is our best friend. And you can see our gross margin as a percent of revenue is 31.1 percent and we're up a full $3,300,000 in gross profit versus a year ago. So continued relentless focus on driving a better business and a bigger business and playing in the right margin pools in the category. Not all margin pools are treated equal and certainly the team has done a fantastic job at really kind of driving that margin agenda. Speaker 100:04:45And that 31.1 is actually one of our highest quarters ever. So we're certainly very pleased with the progress we're making on that gross margin agenda, okay, so very, very solid. And you can see the growth that we're achieving on gross profit and gross margin quarter on quarter and this chart kind of illustrates progress we've made over the last 3 years from 18.8 in 2021 up to 23.6 in 2022, so $4,800,000 increase over the course of 2 years on that quarter. No, I'm going to sort of unpack this. The only I'd say, I'll call this a positive headwind we experienced in our business was we had to do a mark to market adjustment in our long term RSUs and DSUs. Speaker 100:05:42So there was a non cash impact of $4,500,000 in our EBITDA to adjust for that significant appreciation in share value. Why I call this a positive headwind is, we're certainly all shareholders and we've all benefited from an increase in that share price. At this time in the quarter, it was a 63.4% increase in share price and that obviously had an impact on that long term comp. So it's a positive headwind. It's a non cash accrual as said related to that long term incentive comp. Speaker 100:06:17Taking that into consideration and adjusting for that as well as, and James will talk to you in a minute, adjusting for what was a planned, very well planned and very well architected acquisition costs. Our adjusted EBITDA was up 30.1% of the quarter, so really, really solid progress. You see that's $12,300,000 and also really positive is as a percent of revenue, we're up north of 16%. We gave some guidance that we saw path to north of 14%. You see we're at the 16.2% of revenue once we adjust for those one time that one time impact of mark to market and of course the acquisition expenses. Speaker 100:07:05So great positive momentum on EBITDA as well, obviously driven through or driven by accelerated revenue and improvement in gross margin and then obviously operating pretty tightly from an SG and A perspective, which you'll see in a minute. If you look at our adjusted EBITDA progress over the last 3 years as well, you can see it's certainly very positive at the 12.3 versus 9.4 year ago. And James, you just want to Operator00:07:33talk to this chart? Yes, just another presentation of some of the information that Richard previously described. You can see the performance on a comparable dollar basis compared to last year in the Q1, breaking out the mark to market adjustments and the $6,100,000 of acquisition and integration costs, which we had planned for and Richard will talk as we talk a little bit more about the acquisition of Moore Canada in a few minutes, how well prepared we are foreclosing and how prepared we were literally on day 1 for closing. So we're very well prepared for the integration and we're making great progress on that. EBITDA as a percentage of revenue, you can see 16.2% when we adjust for the one time acquisition and integration costs as well as the mark to market adjustments. Operator00:08:31I would also point out the cash flow from operations was very strong. In the quarter, we generated $6,300,000 of cash from operations compared to $4,700,000 last year. Speaker 100:08:45Okay. Thank you, James. So, certainly a lot of progress in terms of building a bigger business. Now I'm going to talk about some of the key metrics around the better business that we have built and continue to build as well. From an SG and A perspective, SG and A was up slightly over a year ago at 5.2%. Speaker 100:09:05But the key metric we look at is how we're operating PIF to revenue and if you look at the far right hand side here, we're 18.7% of revenue versus 19.7 percent year ago. So this is actually what we call NOG, which is negative overhead growth and it puts in the range, we put the 5 year plan out there, said that we want to be between 18% 20% of SG and A and I think at a time we were around 23% or 24%. You can see we're 18.7% now on the quarter. So we're right kind of in that range, in the midpoint of that range. So very happy with the progress we're making in terms of kind of managing our costs and investing where those investments matter. Speaker 100:09:47So good progress in terms of managing SG and A and as I said operating at negative overhead growth as a percentage of revenue. And this chart kind of illustrates that as well. If you look at our headcount were pretty much flat at 916. I have said many times pre acquisition that we had the perfect footprint and that was the need or the opportunity to grow off that footprint. We had 0 restructuring expenses in 2022 and actually we've had other than the deal restructuring expenses or the deal costs rather, there's no restructuring either in the Q1. Speaker 100:10:25But if you look at the right hand side of this chart, what we're proud of is the revenue we generated per headcount, you see that continues to improve, we're at 300 and 1,000 per associate now, up 2% versus a year ago and up significantly 49%, almost percent since 2017 and this will continue to be a focus of our organization, our entire team as we work integration process with the acquisition as well and we'll see these numbers improve considerably. Also, I've talked to shareholders about progress we're making on our ESG strategy and ESG initiatives, it's sort of been our better business team. We put some targets discrete around waste reduction, sustainability, footprint our carbon footprint reduction, renewable energy, lots of work happening on social and governance as well. So a lot of momentum over the last couple of years and this momentum continues to accelerate as we move quarter through quarter. And maybe just to highlight one area that we're very proud of. Speaker 100:11:32We're proud of all this stuff by the way, but one area that we're particularly proud of is the progress we're making on reforestation. And we have used since we signed on to this program, which was the end of 2021. So we're just kind of a year and a quarter into it. We've actually reforested 812,000 trees and 100% of our clients' paper use is reforested. And you may be first, I think I mentioned to Sheryl this couple of times before, but maybe just remind them, we actually flow this credit directly through to our clients. Speaker 100:12:14So clients can get the benefit of the credit in their ESG efforts are the sustainability efforts and it's proven to be very, very favorable from a client standpoint. And we actually had our first client across 100,000 trees reforested since the program began and we actually gave a nice little award to that client on Friday last week and we're certainly very happy, very proud of what they've accomplished and what we've helped them accomplish in terms of reforesting 100% of their pay per use. So a great program, fully committed to it and a great client momentum around this program as well. Other next area that we're building a better business in is digital. We've talked a lot about our digital acceleration and we've got kind of 5 platforms that we bring to clients are our Flexenabled platform, which is a workflow optimization platform. Speaker 100:13:14And then we've got 4 others that are more in the kind of pure ARR space, just launched our personal video platform and that's off to a good start. We've got a couple of key clients that we're working on some customized and personalized videos for. And you can see on the chart some of the other activities of the other platforms. The one we're really going to be putting a lot of energy behind of course is the digital asset management solutioning platform called Assemble. But if you look at the right hand side of this chart, early days, we're just kind of starting our digital journey. Speaker 100:13:45We can see we had 27% growth on quarter, dollars 1,500,000 of revenue. You guys can straight line that to understand what that could look like on the year, but we certainly plan to progressed well beyond that straight line. So lots happening from a digital acceleration with our DCM digital team. I want to remind our shareholders that we love print and we love digital and we want to be a strategy is very clear, a digital first company that does print versus a print first company that does digital. So they work very synergistically together, but really good progress in terms of building a better business and really getting very intentional and delivering success under our DCM Digital team. Speaker 100:14:37If you want to talk debt reduction, James? Sure. Operator00:14:41As everyone knows, debt reduction has been a real primary focus of us of ours over the past several years. At the end of the Q1, our debt was down to about $22,500,000 down 17% compared to year end, so continued progress there. And being in that position, as we've talked about before, really putting us in a great position to be able to make the acquisition that we recently closed on. So we'll talk a little bit more about what our debt looks like in a few slides, pro form a of the transaction. Speaker 100:15:18Okay. Thank you, James. All right. Now we'll talk a little bit about Moore Canacc Corporation. The reason we're calling Moore Canacc Corporation is This is the legal entity that we acquired, RR Donnelley Canada's legal entity is Moore Canada Corporation. Speaker 100:15:32So you'll see us referring to MCC or more Canada Corp. And James, just want to talk about performance on MCC in the quarter? Operator00:15:40Sure. MCC continued to have very strong momentum in the quarter. Their revenue was up more than 10% and their operating income and other metrics were also very positive. Really nice to see this momentum going into the deal. I will point out during the Q1, we were competitors. Operator00:16:02Now that we're collaborators, we're really excited about the opportunities to grow the combined business. We will be reporting in the Q2 a consolidated picture and the reporting for Amore Canada will be effective April 24th. So we'll have basically 2 months plus a week of their numbers when we report the Q2 and that's expected to be in early August. Speaker 100:16:27Yes, so maybe I'll just kind of amplify this a little bit. In addition to what James said, a great start for the RRD Canadian Organization or more Canada Corp. In quarter 1 growing at 10%. We showed you our numbers growing at 10% and remember we were competitors in that quarter and now we are collaborators and we kicked off a really accelerated move from competitors to collaborative ways of working sort of immediately upon close. So imagine the opportunities now moving forward. Speaker 100:17:05So, after great start. So now we'll talk about the new DCM and the better and bigger theme as a better and bigger company here and a little bit, but kind of where we are on the post merger integration process. So, this is how we communicate, how we are better together as 2 companies and we communicate this both internally and externally to clients. 1, 8 key areas. 1 is around our expanded product offerings. Speaker 100:17:39This is a very nice kind of complementary deal that brings more services and more product into our clients. Obviously, the superior service we can bring to clients, the incredible execution capabilities we now have together, the speed to market that we can deliver on those new products. We certainly have exceptional client leadership and especially in the at the enterprise level, we've talked a lot about our top 250. You're going to be hearing a lot more about our top 400. We now 400 enterprise clients represent a significant percent of revenue. Speaker 100:18:15Our people, we got exceptional people across our NewCo, the new company post the acquisition. We've got some incredible innovation, not just in digital, but also some other product innovation that we're bringing to clients as well and innovation that's kind of horizon 2 and horizon 3 in the pipeline. And then of course, we've got even more scale or greater scale to invest. So, 8 key areas why this is a great deal, why we're better together and how we communicate this across to our clients. So and lots of work happening post merger on all of these areas and I can tell you that we've come together very, very fast as an organization. Speaker 100:18:56We were very well prepared for day 1. Thanks to all the work we were doing with our with Boston consulting group to help us get prepared as well as how well our teams have kind of leaned to the program or to the acquisition. We've gone through this with shareholders and investors in the past, but worth kind of repeating and I'll just kind of unpack this very quickly. The final purchase price was $130,800,000 The original number was $123,000,000 So it's just kind of working capital adjustments that took the price up. That was mostly around kind of inventory and payables and receivables. Speaker 100:19:43So, the way to think about it is dollars 100,000,000 for the business and dollars 30,000,000 for 3 owned facilities and I'm sure most of our shareholders know that 3 owned facilities came with the deal. The revenue, the pro form a revenues were about $520,000,000 I think they are around $525,000,000 to be exact. Expected synergies we've communicated in the range of 25 to 30. In fact, we've got a very detailed program to deliver the 25 and opportunities to expand up to 30 and maybe even beyond that. So we're certainly well prepared and those will be delivered over the next 18 months to 24 months. Speaker 100:20:25The transaction was fully funded. We closed on the 24th April and also important for shareholders to know that those 3 owned facilities, we've already sold one of them. It's a facility at Nashua and the net proceeds are $23,000,000 and that will close soon, certainly before the end of the quarter, and those proceeds will go directly into that $30,000,000 debt facility that we have, so immediately into that debt stack. So happy to get that property sold and that's an important property in our network as well out in Oshawa. So we're leasing that back. Speaker 100:21:09And then of course from a financing standpoint, Bank of Montreal, great lending partners stepped up and with a $90,000,000 expander revolver, we also got the $30,000,000 term loan facility, the one I'm referencing for real estate, that again $23,000,000 of that $30,000,000 will be gone very shortly. And then Ferre Adette who has been a great partner of ours for a number of years kind of helped us with the deal, the financing. Leverage 3.25, deleveraging very quickly to 2.65 after those sale and leasebacks are completed. Okay. So, I just want to remind shareholders that sort of the deal and how it was structured and I can tell you we're off to a great an incredible start with the new team. Speaker 100:21:56We've also been working on updating our 5 year plan because of course shareholders may remember that we put a 5 year plan in place about a year and a half ago, so about 4 or 5 months after I joined and obviously we blew through that pretty quickly, so we needed to revise the 5 year plan and these are just some key metrics on it. We will be going through a lot more details with shareholders, but we see a path to north of 5% growth. Remember our last 5 year plan, we said between 5% 10%, so we are kind of still holding that range, north of 14% adjusted EBITDA. Within that time, that 5 year horizon will certainly be less in one times debt to EBITDA and we see a real acceleration in our martech growth at north of 60% over that 5 year horizon with some of the new platforms that we've stood up and the best we're making in the market and of course the opportunities we have with existing those 400 enterprise clients now and all that Martech businesses is high gross margin. I will say, I said earlier that we're now thinking like a digital company that has print, not a printing company that has digital. Speaker 100:23:11Now that's not to say print is bad. We love print. We wouldn't have done this acquisition if we didn't love print, but really enabling that print with digital technology or digital solutions allows us to deliver even more value, help simplify complexity for clients, deliver more value for clients. And obviously, the more we're embedded in clients' digital stacks, the more value we're delivering to the client and the higher level of retention. So it's a perfect what we call kind of virtual circle. Speaker 100:23:42Print market is a $10,000,000,000 market in Canada alone and depending on what data you look at is growing from 2%, 3% and lots of opportunities for us to expand our presence and business in that market and do that with technology to enable that workflow, okay. So that's our strategy. A clear 5 year plan, lots of working behind this, but clear commitment to drive accelerated growth over the next 5 years with real positive EBITDA progression as well, okay? So those are the key areas we want to take you through, how we did in quarter, how we're performing from a bigger business, from a better business, a little bit on where we are post closure of the deal and I can tell you we just hit the treetops for the meeting today, but we are very, very well planned and the teams have come together extremely well. I've done a lot of deals in my time and I'd say this is sort of the best execution that we have orchestrated and I have certainly seen, so great a great start and very good momentum in our business overall. Speaker 100:24:57So I want to turn it over to Any Q and A's now? Operator00:25:02Thanks, Richard. We'll now take questions from the audience. Speaker 100:25:06If you Operator00:25:07have a question and you're accessing the call directly through Teams, you can use the raise your hand feature and we will queue up questions. Alternatively, you can also use the chat feature in Teams and we will respond to chat questions as well. If you have dialed in, you can press star 5 to raise or lower your hand and pressing star 6 will mute or unmute your microphone and we'll let you into the call. Please introduce yourself once you're invited into the session. Thanks. Operator00:25:47I have a question from phone number in 0469. Go ahead, please. Speaker 200:26:11It's Chris Thompson calling from eResearch. How are you guys doing today? Operator00:26:15All right, Chris. Hi, Chris. All good. Speaker 200:26:18I just wondered, moving forward, looking at Your G and A going forward, are you looking to see that that's going to be sort of like the new normal with your expenses? Or Is this just a one time sort of adjustment? Operator00:26:35Yes. From a G and A perspective, on our own, we would see that run rate being fairly steady adjusting for that $4,500,000 that we talked about earlier of non cash adjustments. Other than that, our SG and A on a standalone basis should be pretty consistent. We will be reporting consolidated numbers for the combined company in early July once we file a business acquisition report. And at that point, that will have the pro form a numbers for more Canada Corporation on a standalone basis. Operator00:27:12They currently report under U. S. GAAP in the and we'll be converting that to IFRS and then we'll be also providing pro form a statements that reconcile as if the two businesses had operated together in 2022 and updated kind of Q1 numbers on a pro form a basis as well. Speaker 200:27:35So will that be you're saying that July, so that'll be Q3 will be the first time you'll be presenting the combined company, so Q2 will still be separate? Operator00:27:44No, so we'll file what's called a business acquisition report that will be filed on SEDAR in early July and then starting in Q2, we will be reporting on a consolidated basis. We'll report Q2, I think our plan to report Q2 is around August 10 right now. And that first kind of quarter with including more Canada will have basically 2 months plus a week of their results in the quarter. So it won't be a full quarter for them. So we'll do our best to explain what a full quarter would have looked like when we report Q2. Operator00:28:23Yes. Speaker 100:28:25Going forward So, Chris, I just want to build on your question around SG and A as well. We are holding firm with our commitment, the plan we put to the street, the 5 year plan of that range between 18 20. You see we're 18.7 on the quarter and we're committed to that range over the course of the next 5 years. Speaker 200:28:45Okay. And then for the acquisition costs for this quarter, is this sort of the high watermark? Operator00:28:52Yes, it is. Acquisition costs should come down quite a bit from there. That was largely due diligence costs and consulting costs kind of in preparation for the integration, which were pretty much peaked in Q1. You saw when we reported Q4, I think we had about $1,800,000 $1,900,000 of deal costs that were in Q4. That will come down considerably in Q2. Speaker 200:29:21Okay. And just a last question, I mean, you covered off the tech growth. It seems to be moving slowly, but I mean quarter over quarter, high percentage gains, but still a low percentage. Just looking at you had talked last year a little bit about U. S. Speaker 200:29:37Growth and I know that this acquisition probably put a little bit of a dent in that, but are you still Looking at the U. S. Market? Speaker 100:29:47Yes. We're certainly we are still looking at it. The interesting thing on this acquisition, it came with a business, business called Annenberg, which is a large format printer, part of the DAWNLEY Group, pardon more, Canada Corporation. And 75% of the revenue is actually done in the U. S, Chris. Speaker 100:30:05So, this actually accelerates some of our intentionality for the U. S. Place as a result? Speaker 200:30:11Okay, great. Those are my questions for now. Thanks. Great quarter. And I look forward to seeing the changes of the acquisition. Operator00:30:22Do we have any further Q and A? We have someone in the chat line here. So we have a question here from one of our long standing shareholders. Great quarter 1 guys, any update on the Assemble standalone rollout? Speaker 100:31:11Yes, sure. So, shareholders, reminding shareholders that we have we went to market with Assemble well about a year, year and a half ago with a white label solution, which we've added some features and functions around. We've actually been quite successful early days with that with a few key clients and in fact we just secured a large client with a new assemble win a couple of weeks ago. We haven't reported on it yet, but we will soon. But our while we've gone to market with a white label, we call it sort of a tech enabled white label solution that we've added value to, we've also been building our own Forum and we're now in beta. Speaker 100:31:55So we've got beta clients as well as beta clients and beta users and then we'll be launching that in August, September will be our go live date with our kind of fully built out Assemble platform. So you'll be hearing a lot more. We're actually extremely excited about it. It's a fantastic platform that the team has built. We've got a clear unique selling proposition in the marketplace and again you'll be seeing and hearing a lot more about that once we go live, but that is August, September when we go live with the our own kind of fully built out assemble platform. Operator00:32:45In the chat, we have a question from Manny. Adding back the acquisition cost of $6,100,000 and the $4,500,000 non cash charge, non GAAP EPS for the quarter is closer to $0.17 I did a little bit of math on that earlier. I got it's about $0.125 on a basic basis and about $0.11 6 on a diluted basis. That's applying a 25% assumed tax rate on the differences. So in our tables in the MD and A, we report adjusted net income of $2,100,000 if we were to tax effect that and adjust for the that adjusted net income includes an adjustment for the $6,100,000 of sorry, dollars 4,500,000 of mark to market adjustments $6,100,000 of the deal costs. Operator00:33:49So I get to kind of an adjusted net income of about 5 point dollars 5,000,000 when that's tax affected, so call it $0.115 to $0.125 either basic or fully diluted. Okay. Are there any further questions? Okay, if there's no further questions, no. Yes, I don't see any further questions. Operator00:34:16So thanks everyone for attending our call and thank you for your interest. As a reminder, Richard and I can be available after the call if there's any follow-up questions. Certainly hope everyone enjoys the rest of your day. Speaker 100:34:28Yes, I'd just like to say thanks to all of our, I'll call it the new DCM associates, right, all of our associates across the for delivering such a solid quarter. We're making great progress in our business, very pleased with the momentum and we certainly planning to continue to deliver the momentum as now a bigger and even a better company. So thanks for joining us today and excited to continue to report on progress.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallDATA Communications Management Q1 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckInterim report DATA Communications Management Earnings HeadlinesAMI Unveils AMI Data Center Manager Version 6 0 Enhancing AI and GPU Management in Data CentersFebruary 27, 2025 | msn.comData Communications Management Corp. 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Email Address About DATA Communications ManagementDATA Communications Management (TSE:DCM) Corp is a communication solutions partner that adds value for major companies across North America by creating more meaningful connections with their customers. It pairs customer insights and thought leadership with cutting-edge products, modular enabling technology and services to power its clients' go-to market strategies. The company helps its clients manage how their brands come to life, determine which channels are right for them, manage multimedia campaigns, deploy location-specific and 1:1 marketing, execute custom loyalty programs, and fulfill their commercial printing needs all in one place.View DATA Communications Management ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Alphabet Rebounds After Strong Earnings and Buyback AnnouncementMarkets Think Robinhood Earnings Could Send the Stock UpIs the Floor in for Lam Research After Bullish Earnings?Texas Instruments: Earnings Beat, Upbeat Guidance Fuel RecoveryMarket Anticipation Builds: Joby Stock Climbs Ahead of EarningsIs Intuitive Surgical a Buy After Volatile Reaction to Earnings?Seismic Shift at Intel: Massive Layoffs Precede Crucial Earnings Upcoming Earnings QUALCOMM (4/30/2025)Automatic Data Processing (4/30/2025)Microsoft (4/30/2025)Meta Platforms (4/30/2025)KLA (4/30/2025)Equinix (4/30/2025)Lloyds Banking Group (4/30/2025)Itaú Unibanco (4/30/2025)Banco Santander (4/30/2025)UBS Group (4/30/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 3 speakers on the call. Operator00:00:00Good morning, ladies and gentlemen. Thank you for standing by and welcome to the Data Communications Management Corp. Q1 2023 Financial Results Conference Call. My name is James Lorimer, CFO of DCM, and I'm pleased to be hosting today's call. Joining me on the call today is Richard Kellum, our CEO and President. Operator00:00:21Following our prepared remarks, we will be moderating a question and answer session. As a reminder, this conference call is being recorded live and broadcast live. We'd also like to remind everyone that Richard and I can be available for calls afterwards if anyone has any follow-up questions. I'd like to remind everyone that we will be referring to forward looking information on today's call. This information is subject to certain risks and uncertainties as outlined in the forward looking information disclosure in our press release and more fully within our public disclosure filings on SEDAR. Operator00:01:02We have posted a brief video message from Richard along with a summary of our results and key initiatives for the quarter on our website in the form of an infographic. Our presentation today will also be added to our website for your reference along with a post view recording and transcript. Our detailed information is also available on our website and SEDAR. Please follow us on LinkedIn to keep up to date with other business developments. And I'll now turn the call over to Richard. Speaker 100:01:30Thank you, James, and good morning and good afternoon, good evening. I see there are some international investors on the call today for shareholders. So good afternoon, good evening to you and good morning to everyone. Here is what we want to accomplish on the call today. I want to take you through update on our quarter obviously and talk a little bit about how we are becoming bigger and better together with the recent close of our transaction acquiring our Donnelley Canada OR Moore Canada Corp. Speaker 100:02:03And then we'll turn it over to any questions that attendees will have for today. Okay. So, first off, looking at our 23 results and I'm going to break this into our theme of bigger and better business and I'll start off with the bigger side. Happy to report that we had a very, very positive quarter in terms of growth, growth just under 10% at 9.8% versus a year ago. And to remind shareholders that was off of 11.1% growth on the quarter last year, so good positive momentum at the start of the year. Speaker 100:02:43Great revenue quarter at $76,100,000 up from $69,300,000 a year ago. That growth of $6,800,000 came from a combination of what we call expansion revenues, so growing revenue with existing clients as well as new business development. We brought in several new logos and lots of new logos that we have the opportunity to land and expand as we call. So lots of good kind of positive opportunities moving forward to expand that revenue. So really good solid growth in the quarter, really pleased with the success that our commercial teams are having with our whole client or customer leadership agenda. Speaker 100:03:24Looking at that revenue momentum, you can see on this chart, we look at a 3 year kind of time horizon and you can see how we built that over 3 years. We've actually had 6 this is our 6th consecutive quarter of year over year growth. So you can certainly see that we've got positive momentum in our business now. And If you look at this chart, anybody has kind of dialed into our call here from a or on the team's call, you can see that 76.1% actually is higher than our quarter 4 and quarter 4 is generally our strongest quarter. So off to a great start in quarter 1, 2022 and great momentum. Speaker 100:04:03Also pleased to report that our gross profit is growing faster than revenue, which is always positive, that means your gross margin is improving. And as I said to the team, gross margin is our best friend. And you can see our gross margin as a percent of revenue is 31.1 percent and we're up a full $3,300,000 in gross profit versus a year ago. So continued relentless focus on driving a better business and a bigger business and playing in the right margin pools in the category. Not all margin pools are treated equal and certainly the team has done a fantastic job at really kind of driving that margin agenda. Speaker 100:04:45And that 31.1 is actually one of our highest quarters ever. So we're certainly very pleased with the progress we're making on that gross margin agenda, okay, so very, very solid. And you can see the growth that we're achieving on gross profit and gross margin quarter on quarter and this chart kind of illustrates progress we've made over the last 3 years from 18.8 in 2021 up to 23.6 in 2022, so $4,800,000 increase over the course of 2 years on that quarter. No, I'm going to sort of unpack this. The only I'd say, I'll call this a positive headwind we experienced in our business was we had to do a mark to market adjustment in our long term RSUs and DSUs. Speaker 100:05:42So there was a non cash impact of $4,500,000 in our EBITDA to adjust for that significant appreciation in share value. Why I call this a positive headwind is, we're certainly all shareholders and we've all benefited from an increase in that share price. At this time in the quarter, it was a 63.4% increase in share price and that obviously had an impact on that long term comp. So it's a positive headwind. It's a non cash accrual as said related to that long term incentive comp. Speaker 100:06:17Taking that into consideration and adjusting for that as well as, and James will talk to you in a minute, adjusting for what was a planned, very well planned and very well architected acquisition costs. Our adjusted EBITDA was up 30.1% of the quarter, so really, really solid progress. You see that's $12,300,000 and also really positive is as a percent of revenue, we're up north of 16%. We gave some guidance that we saw path to north of 14%. You see we're at the 16.2% of revenue once we adjust for those one time that one time impact of mark to market and of course the acquisition expenses. Speaker 100:07:05So great positive momentum on EBITDA as well, obviously driven through or driven by accelerated revenue and improvement in gross margin and then obviously operating pretty tightly from an SG and A perspective, which you'll see in a minute. If you look at our adjusted EBITDA progress over the last 3 years as well, you can see it's certainly very positive at the 12.3 versus 9.4 year ago. And James, you just want to Operator00:07:33talk to this chart? Yes, just another presentation of some of the information that Richard previously described. You can see the performance on a comparable dollar basis compared to last year in the Q1, breaking out the mark to market adjustments and the $6,100,000 of acquisition and integration costs, which we had planned for and Richard will talk as we talk a little bit more about the acquisition of Moore Canada in a few minutes, how well prepared we are foreclosing and how prepared we were literally on day 1 for closing. So we're very well prepared for the integration and we're making great progress on that. EBITDA as a percentage of revenue, you can see 16.2% when we adjust for the one time acquisition and integration costs as well as the mark to market adjustments. Operator00:08:31I would also point out the cash flow from operations was very strong. In the quarter, we generated $6,300,000 of cash from operations compared to $4,700,000 last year. Speaker 100:08:45Okay. Thank you, James. So, certainly a lot of progress in terms of building a bigger business. Now I'm going to talk about some of the key metrics around the better business that we have built and continue to build as well. From an SG and A perspective, SG and A was up slightly over a year ago at 5.2%. Speaker 100:09:05But the key metric we look at is how we're operating PIF to revenue and if you look at the far right hand side here, we're 18.7% of revenue versus 19.7 percent year ago. So this is actually what we call NOG, which is negative overhead growth and it puts in the range, we put the 5 year plan out there, said that we want to be between 18% 20% of SG and A and I think at a time we were around 23% or 24%. You can see we're 18.7% now on the quarter. So we're right kind of in that range, in the midpoint of that range. So very happy with the progress we're making in terms of kind of managing our costs and investing where those investments matter. Speaker 100:09:47So good progress in terms of managing SG and A and as I said operating at negative overhead growth as a percentage of revenue. And this chart kind of illustrates that as well. If you look at our headcount were pretty much flat at 916. I have said many times pre acquisition that we had the perfect footprint and that was the need or the opportunity to grow off that footprint. We had 0 restructuring expenses in 2022 and actually we've had other than the deal restructuring expenses or the deal costs rather, there's no restructuring either in the Q1. Speaker 100:10:25But if you look at the right hand side of this chart, what we're proud of is the revenue we generated per headcount, you see that continues to improve, we're at 300 and 1,000 per associate now, up 2% versus a year ago and up significantly 49%, almost percent since 2017 and this will continue to be a focus of our organization, our entire team as we work integration process with the acquisition as well and we'll see these numbers improve considerably. Also, I've talked to shareholders about progress we're making on our ESG strategy and ESG initiatives, it's sort of been our better business team. We put some targets discrete around waste reduction, sustainability, footprint our carbon footprint reduction, renewable energy, lots of work happening on social and governance as well. So a lot of momentum over the last couple of years and this momentum continues to accelerate as we move quarter through quarter. And maybe just to highlight one area that we're very proud of. Speaker 100:11:32We're proud of all this stuff by the way, but one area that we're particularly proud of is the progress we're making on reforestation. And we have used since we signed on to this program, which was the end of 2021. So we're just kind of a year and a quarter into it. We've actually reforested 812,000 trees and 100% of our clients' paper use is reforested. And you may be first, I think I mentioned to Sheryl this couple of times before, but maybe just remind them, we actually flow this credit directly through to our clients. Speaker 100:12:14So clients can get the benefit of the credit in their ESG efforts are the sustainability efforts and it's proven to be very, very favorable from a client standpoint. And we actually had our first client across 100,000 trees reforested since the program began and we actually gave a nice little award to that client on Friday last week and we're certainly very happy, very proud of what they've accomplished and what we've helped them accomplish in terms of reforesting 100% of their pay per use. So a great program, fully committed to it and a great client momentum around this program as well. Other next area that we're building a better business in is digital. We've talked a lot about our digital acceleration and we've got kind of 5 platforms that we bring to clients are our Flexenabled platform, which is a workflow optimization platform. Speaker 100:13:14And then we've got 4 others that are more in the kind of pure ARR space, just launched our personal video platform and that's off to a good start. We've got a couple of key clients that we're working on some customized and personalized videos for. And you can see on the chart some of the other activities of the other platforms. The one we're really going to be putting a lot of energy behind of course is the digital asset management solutioning platform called Assemble. But if you look at the right hand side of this chart, early days, we're just kind of starting our digital journey. Speaker 100:13:45We can see we had 27% growth on quarter, dollars 1,500,000 of revenue. You guys can straight line that to understand what that could look like on the year, but we certainly plan to progressed well beyond that straight line. So lots happening from a digital acceleration with our DCM digital team. I want to remind our shareholders that we love print and we love digital and we want to be a strategy is very clear, a digital first company that does print versus a print first company that does digital. So they work very synergistically together, but really good progress in terms of building a better business and really getting very intentional and delivering success under our DCM Digital team. Speaker 100:14:37If you want to talk debt reduction, James? Sure. Operator00:14:41As everyone knows, debt reduction has been a real primary focus of us of ours over the past several years. At the end of the Q1, our debt was down to about $22,500,000 down 17% compared to year end, so continued progress there. And being in that position, as we've talked about before, really putting us in a great position to be able to make the acquisition that we recently closed on. So we'll talk a little bit more about what our debt looks like in a few slides, pro form a of the transaction. Speaker 100:15:18Okay. Thank you, James. All right. Now we'll talk a little bit about Moore Canacc Corporation. The reason we're calling Moore Canacc Corporation is This is the legal entity that we acquired, RR Donnelley Canada's legal entity is Moore Canada Corporation. Speaker 100:15:32So you'll see us referring to MCC or more Canada Corp. And James, just want to talk about performance on MCC in the quarter? Operator00:15:40Sure. MCC continued to have very strong momentum in the quarter. Their revenue was up more than 10% and their operating income and other metrics were also very positive. Really nice to see this momentum going into the deal. I will point out during the Q1, we were competitors. Operator00:16:02Now that we're collaborators, we're really excited about the opportunities to grow the combined business. We will be reporting in the Q2 a consolidated picture and the reporting for Amore Canada will be effective April 24th. So we'll have basically 2 months plus a week of their numbers when we report the Q2 and that's expected to be in early August. Speaker 100:16:27Yes, so maybe I'll just kind of amplify this a little bit. In addition to what James said, a great start for the RRD Canadian Organization or more Canada Corp. In quarter 1 growing at 10%. We showed you our numbers growing at 10% and remember we were competitors in that quarter and now we are collaborators and we kicked off a really accelerated move from competitors to collaborative ways of working sort of immediately upon close. So imagine the opportunities now moving forward. Speaker 100:17:05So, after great start. So now we'll talk about the new DCM and the better and bigger theme as a better and bigger company here and a little bit, but kind of where we are on the post merger integration process. So, this is how we communicate, how we are better together as 2 companies and we communicate this both internally and externally to clients. 1, 8 key areas. 1 is around our expanded product offerings. Speaker 100:17:39This is a very nice kind of complementary deal that brings more services and more product into our clients. Obviously, the superior service we can bring to clients, the incredible execution capabilities we now have together, the speed to market that we can deliver on those new products. We certainly have exceptional client leadership and especially in the at the enterprise level, we've talked a lot about our top 250. You're going to be hearing a lot more about our top 400. We now 400 enterprise clients represent a significant percent of revenue. Speaker 100:18:15Our people, we got exceptional people across our NewCo, the new company post the acquisition. We've got some incredible innovation, not just in digital, but also some other product innovation that we're bringing to clients as well and innovation that's kind of horizon 2 and horizon 3 in the pipeline. And then of course, we've got even more scale or greater scale to invest. So, 8 key areas why this is a great deal, why we're better together and how we communicate this across to our clients. So and lots of work happening post merger on all of these areas and I can tell you that we've come together very, very fast as an organization. Speaker 100:18:56We were very well prepared for day 1. Thanks to all the work we were doing with our with Boston consulting group to help us get prepared as well as how well our teams have kind of leaned to the program or to the acquisition. We've gone through this with shareholders and investors in the past, but worth kind of repeating and I'll just kind of unpack this very quickly. The final purchase price was $130,800,000 The original number was $123,000,000 So it's just kind of working capital adjustments that took the price up. That was mostly around kind of inventory and payables and receivables. Speaker 100:19:43So, the way to think about it is dollars 100,000,000 for the business and dollars 30,000,000 for 3 owned facilities and I'm sure most of our shareholders know that 3 owned facilities came with the deal. The revenue, the pro form a revenues were about $520,000,000 I think they are around $525,000,000 to be exact. Expected synergies we've communicated in the range of 25 to 30. In fact, we've got a very detailed program to deliver the 25 and opportunities to expand up to 30 and maybe even beyond that. So we're certainly well prepared and those will be delivered over the next 18 months to 24 months. Speaker 100:20:25The transaction was fully funded. We closed on the 24th April and also important for shareholders to know that those 3 owned facilities, we've already sold one of them. It's a facility at Nashua and the net proceeds are $23,000,000 and that will close soon, certainly before the end of the quarter, and those proceeds will go directly into that $30,000,000 debt facility that we have, so immediately into that debt stack. So happy to get that property sold and that's an important property in our network as well out in Oshawa. So we're leasing that back. Speaker 100:21:09And then of course from a financing standpoint, Bank of Montreal, great lending partners stepped up and with a $90,000,000 expander revolver, we also got the $30,000,000 term loan facility, the one I'm referencing for real estate, that again $23,000,000 of that $30,000,000 will be gone very shortly. And then Ferre Adette who has been a great partner of ours for a number of years kind of helped us with the deal, the financing. Leverage 3.25, deleveraging very quickly to 2.65 after those sale and leasebacks are completed. Okay. So, I just want to remind shareholders that sort of the deal and how it was structured and I can tell you we're off to a great an incredible start with the new team. Speaker 100:21:56We've also been working on updating our 5 year plan because of course shareholders may remember that we put a 5 year plan in place about a year and a half ago, so about 4 or 5 months after I joined and obviously we blew through that pretty quickly, so we needed to revise the 5 year plan and these are just some key metrics on it. We will be going through a lot more details with shareholders, but we see a path to north of 5% growth. Remember our last 5 year plan, we said between 5% 10%, so we are kind of still holding that range, north of 14% adjusted EBITDA. Within that time, that 5 year horizon will certainly be less in one times debt to EBITDA and we see a real acceleration in our martech growth at north of 60% over that 5 year horizon with some of the new platforms that we've stood up and the best we're making in the market and of course the opportunities we have with existing those 400 enterprise clients now and all that Martech businesses is high gross margin. I will say, I said earlier that we're now thinking like a digital company that has print, not a printing company that has digital. Speaker 100:23:11Now that's not to say print is bad. We love print. We wouldn't have done this acquisition if we didn't love print, but really enabling that print with digital technology or digital solutions allows us to deliver even more value, help simplify complexity for clients, deliver more value for clients. And obviously, the more we're embedded in clients' digital stacks, the more value we're delivering to the client and the higher level of retention. So it's a perfect what we call kind of virtual circle. Speaker 100:23:42Print market is a $10,000,000,000 market in Canada alone and depending on what data you look at is growing from 2%, 3% and lots of opportunities for us to expand our presence and business in that market and do that with technology to enable that workflow, okay. So that's our strategy. A clear 5 year plan, lots of working behind this, but clear commitment to drive accelerated growth over the next 5 years with real positive EBITDA progression as well, okay? So those are the key areas we want to take you through, how we did in quarter, how we're performing from a bigger business, from a better business, a little bit on where we are post closure of the deal and I can tell you we just hit the treetops for the meeting today, but we are very, very well planned and the teams have come together extremely well. I've done a lot of deals in my time and I'd say this is sort of the best execution that we have orchestrated and I have certainly seen, so great a great start and very good momentum in our business overall. Speaker 100:24:57So I want to turn it over to Any Q and A's now? Operator00:25:02Thanks, Richard. We'll now take questions from the audience. Speaker 100:25:06If you Operator00:25:07have a question and you're accessing the call directly through Teams, you can use the raise your hand feature and we will queue up questions. Alternatively, you can also use the chat feature in Teams and we will respond to chat questions as well. If you have dialed in, you can press star 5 to raise or lower your hand and pressing star 6 will mute or unmute your microphone and we'll let you into the call. Please introduce yourself once you're invited into the session. Thanks. Operator00:25:47I have a question from phone number in 0469. Go ahead, please. Speaker 200:26:11It's Chris Thompson calling from eResearch. How are you guys doing today? Operator00:26:15All right, Chris. Hi, Chris. All good. Speaker 200:26:18I just wondered, moving forward, looking at Your G and A going forward, are you looking to see that that's going to be sort of like the new normal with your expenses? Or Is this just a one time sort of adjustment? Operator00:26:35Yes. From a G and A perspective, on our own, we would see that run rate being fairly steady adjusting for that $4,500,000 that we talked about earlier of non cash adjustments. Other than that, our SG and A on a standalone basis should be pretty consistent. We will be reporting consolidated numbers for the combined company in early July once we file a business acquisition report. And at that point, that will have the pro form a numbers for more Canada Corporation on a standalone basis. Operator00:27:12They currently report under U. S. GAAP in the and we'll be converting that to IFRS and then we'll be also providing pro form a statements that reconcile as if the two businesses had operated together in 2022 and updated kind of Q1 numbers on a pro form a basis as well. Speaker 200:27:35So will that be you're saying that July, so that'll be Q3 will be the first time you'll be presenting the combined company, so Q2 will still be separate? Operator00:27:44No, so we'll file what's called a business acquisition report that will be filed on SEDAR in early July and then starting in Q2, we will be reporting on a consolidated basis. We'll report Q2, I think our plan to report Q2 is around August 10 right now. And that first kind of quarter with including more Canada will have basically 2 months plus a week of their results in the quarter. So it won't be a full quarter for them. So we'll do our best to explain what a full quarter would have looked like when we report Q2. Operator00:28:23Yes. Speaker 100:28:25Going forward So, Chris, I just want to build on your question around SG and A as well. We are holding firm with our commitment, the plan we put to the street, the 5 year plan of that range between 18 20. You see we're 18.7 on the quarter and we're committed to that range over the course of the next 5 years. Speaker 200:28:45Okay. And then for the acquisition costs for this quarter, is this sort of the high watermark? Operator00:28:52Yes, it is. Acquisition costs should come down quite a bit from there. That was largely due diligence costs and consulting costs kind of in preparation for the integration, which were pretty much peaked in Q1. You saw when we reported Q4, I think we had about $1,800,000 $1,900,000 of deal costs that were in Q4. That will come down considerably in Q2. Speaker 200:29:21Okay. And just a last question, I mean, you covered off the tech growth. It seems to be moving slowly, but I mean quarter over quarter, high percentage gains, but still a low percentage. Just looking at you had talked last year a little bit about U. S. Speaker 200:29:37Growth and I know that this acquisition probably put a little bit of a dent in that, but are you still Looking at the U. S. Market? Speaker 100:29:47Yes. We're certainly we are still looking at it. The interesting thing on this acquisition, it came with a business, business called Annenberg, which is a large format printer, part of the DAWNLEY Group, pardon more, Canada Corporation. And 75% of the revenue is actually done in the U. S, Chris. Speaker 100:30:05So, this actually accelerates some of our intentionality for the U. S. Place as a result? Speaker 200:30:11Okay, great. Those are my questions for now. Thanks. Great quarter. And I look forward to seeing the changes of the acquisition. Operator00:30:22Do we have any further Q and A? We have someone in the chat line here. So we have a question here from one of our long standing shareholders. Great quarter 1 guys, any update on the Assemble standalone rollout? Speaker 100:31:11Yes, sure. So, shareholders, reminding shareholders that we have we went to market with Assemble well about a year, year and a half ago with a white label solution, which we've added some features and functions around. We've actually been quite successful early days with that with a few key clients and in fact we just secured a large client with a new assemble win a couple of weeks ago. We haven't reported on it yet, but we will soon. But our while we've gone to market with a white label, we call it sort of a tech enabled white label solution that we've added value to, we've also been building our own Forum and we're now in beta. Speaker 100:31:55So we've got beta clients as well as beta clients and beta users and then we'll be launching that in August, September will be our go live date with our kind of fully built out Assemble platform. So you'll be hearing a lot more. We're actually extremely excited about it. It's a fantastic platform that the team has built. We've got a clear unique selling proposition in the marketplace and again you'll be seeing and hearing a lot more about that once we go live, but that is August, September when we go live with the our own kind of fully built out assemble platform. Operator00:32:45In the chat, we have a question from Manny. Adding back the acquisition cost of $6,100,000 and the $4,500,000 non cash charge, non GAAP EPS for the quarter is closer to $0.17 I did a little bit of math on that earlier. I got it's about $0.125 on a basic basis and about $0.11 6 on a diluted basis. That's applying a 25% assumed tax rate on the differences. So in our tables in the MD and A, we report adjusted net income of $2,100,000 if we were to tax effect that and adjust for the that adjusted net income includes an adjustment for the $6,100,000 of sorry, dollars 4,500,000 of mark to market adjustments $6,100,000 of the deal costs. Operator00:33:49So I get to kind of an adjusted net income of about 5 point dollars 5,000,000 when that's tax affected, so call it $0.115 to $0.125 either basic or fully diluted. Okay. Are there any further questions? Okay, if there's no further questions, no. Yes, I don't see any further questions. Operator00:34:16So thanks everyone for attending our call and thank you for your interest. As a reminder, Richard and I can be available after the call if there's any follow-up questions. Certainly hope everyone enjoys the rest of your day. Speaker 100:34:28Yes, I'd just like to say thanks to all of our, I'll call it the new DCM associates, right, all of our associates across the for delivering such a solid quarter. We're making great progress in our business, very pleased with the momentum and we certainly planning to continue to deliver the momentum as now a bigger and even a better company. So thanks for joining us today and excited to continue to report on progress.Read morePowered by