TSE:DCM DATA Communications Management Q2 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$0.08Consensus EPS C$0.03Beat/MissBeat by +C$0.05One Year Ago EPSN/ADATA Communications Management Revenue ResultsActual Revenue$118.96 millionExpected Revenue$111.55 millionBeat/MissBeat by +$7.41 millionYoY Revenue GrowthN/ADATA Communications Management Announcement DetailsQuarterQ2 2023Date8/10/2023TimeN/AConference Call DateFriday, August 11, 2023Conference Call Time9:00AM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckInterim ReportEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by DATA Communications Management Q2 2023 Earnings Call TranscriptProvided by QuartrAugust 11, 2023 ShareLink copied to clipboard.There are 4 speakers on the call. Operator00:00:00Good morning, ladies and gentlemen, and thank you for standing by, and welcome to the Data Communications Management Corp. 2nd Quarter 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 President and CEO. Following our prepared remarks, we will be moderating a Q and A session. Operator00:00:26As a reminder, this conference call is being broadcast live and recorded. We'd also like to remind everyone that Richard and I can be available after the call for any follow-up questions that you may have. 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. We 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. Operator00:01:15This presentation will be added to our website for your reference, along with the post view recording and transcript. Our detailed information is also available on our website and SEDAR. Please also follow us on LinkedIn to keep up to date with other business developments. I'd now like to turn the call over to Richard. Speaker 100:01:35Thank you, James, and good morning. And for some of our international people dialing in, good afternoon and good evening. James and I are in different locations today doing some new business development. So James will be driving the slides. So hopefully technology will work here. Speaker 100:01:51Objectives for today, I want to talk about our consolidated results for Q2. We'll actually unpack those as we typically do under our bigger and better theme, and then we'll turn it over to shareholders for any questions at the end. Before we get into it, I want to remind shareholders that this quarter 2 of 2023 consists of 1 week of integration or 1 week of the acquisition in April and then all of May and all of June, given we closed the transaction for Amur Canada Corp. On April 24. So it's not a full quarter of full acquisition of MCC into the quarter. Speaker 100:02:38It's 2 months plus a week, okay? So just want to remind shareholders of that before we get into the data here. So James, if you just go to the next slide. To talk about, I'm going to start with bigger business. And we're really pleased with the progress we're making to continue to build a bigger business. Speaker 100:02:54As you'll see, Our growth is quite significant with the acquisition of North Canada Corp. At just under 75% in the quarter. We added $51,000,000 in revenue to our top line on the quarter, coming out at 119,000,000 Really important to note as well, if you look at the next slide, I want to put that 75% into context. If you look at our underlying business, So the underlying business of revenue of both Moore Canada Corp. And DCM, you look at that bar on the right, you can see our underlying performance continues to be very strong at 8.2% growth. Speaker 100:03:38So not all of that 75% or 74.7% came from acquisition growth. Our underlying business is very strong. On the back, as you can see in this slide, up 2 very strong, very strong halves prior, okay? Our revenue growth in quarter 2 is now 7 consecutive quarters of year over year growth, and you can see from the slide here, the continued performance quarter on quarter, so strength to strength. So we're very proud of the momentum we've got in our business in underlying and of course now post acquisition growth as well and integration growth. Speaker 100:04:16So very good momentum from a revenue perspective and Lots of reasons why that momentum is continuing new business development, expansion revenue with existing clients and just moving strength to strength with our commercial teams. Moving on to gross profit. Gross profit also growing well post acquisition at 56.7 percent, dollars 32,000,000 in gross profit and our gross margin is coming in at 26.9%. I want to put this into context because a big part of the deal logic here, when we did this deal with MCC was MCC had a lower margin than DCM. And obviously, that was very attractive from a value creation perspective. Speaker 100:05:06We're now applying the DCM operating model to move margin forward. And in fact, the margin that we have, the combined margin we have in the quarter is a little higher than what we had planned at 26.9%. But we have an active plan, active process, active program to bring margin back into the 30% and north of 30% range. So again, it was very much as expected, slightly ahead of target on the quarter at 26.9%. And you can see the overall gross profit margin continuing to be very solid. Speaker 100:05:38And we're very pleased. If you look at the next slide, I talked about 7 quarters of revenue growth. We actually had 8 quarters of gross profit growth. We actually turned the corner on gross profit in Q2 or Q3 rather of 2021, and we've had solid momentum since then. So very, very good progress on gross profit growth quarter by quarter, okay, 8 consecutive growth, of course. Speaker 100:06:13All right. Turning it over to share price momentum. James? Operator00:06:18Yes. We our share price has certainly performed very well this peer. As we talked about last quarter, there's a little bit of noise in our earnings because of the fair value adjustments related to our long term incentive compensation. So for the current quarter, we've broken the kind of variations related to RSUs and DSUs and mark to market out as a separate line item. And in our EBITDA reconciliation, you'll see that going forward. Operator00:06:49We'll be reporting that as a separate line item. We have at the end of this presentation including a reconciliation going back on a quarterly basis from the beginning of the Q1 in 2022, and we'll be posting that on our website so that you can look and get kind of a comparable perspective. But those fair value adjustments represented about $2,300,000 in the quarter, given our share price appreciated by almost 23%, and year to date, our share price is up almost 133%, and total kind of adjustments year to date are about $7,500,000 As a result, we've reported adjusted EBITDA of $13,800,000 in the quarter. This also includes add backs for restructuring expenses and other one time charges relating to the acquisition. We're very pleased that EBITDA was up almost 50% compared to a year ago. Operator00:07:51And as Richard referenced earlier, This includes 2 months plus a week of the MCC results. And certainly in the 3rd quarter will be the first and a full quarter reporting the combined results of MCC. EBITDA did come down a little bit as a percentage of revenue at 11.6% compared to 13.7%. But this is really, as Richard noted, because of the lower overall gross margins in the MCC business, and we have a clear plan not only to grow gross profit back north of 30%, but also to grow adjusted EBITDA back to north of 14%. Included in this table is a summary of how adjusted EBITDA looks for the past 2 years on a quarterly basis. Operator00:08:45Again, 2 very strong quarters of adjusted EBITDA. So we're tracking very nicely going into the second half of the year. We've included here a summary of our financial performance compared to last year and variance comparison. Most of the numbers here are reflective of commentary that we've already talked about. What I would like to kind of point out is adjusted net income for the quarter of $3,800,000 compared to $3,600,000 last year. Operator00:09:24On an adjusted EPS basis, we came in flat at $0.08 compared to last year at the same number. The adjusted net income impact, really kind of adding back restructuring expenses, acquisition and integration costs, fair value gains and losses on financial liabilities and the after tax impact of those. Really the increase of about $200,000 is mitigated a little bit by higher interest expenses related to the financing of the acquisition of MCC and also slightly higher share count given the equity raise we did a couple of months ago. For the first half of twenty twenty three. You can see the comparisons here were at $195,000,000 of revenue, which is up $57,700,000 compared to last year. Operator00:10:25Gross profit again up and on a year to date basis were 28.6% compared to 29.7%. That 110 basis point difference really attributed to the lower overall gross margins of the MCC business. But we are in our core business certainly experiencing improved volume and also good margins from some of the product mix that we're seeing this year. Again, adjusted net loss for sorry, net income for the year of $9,700,000 is up from $7,700,000 last year, and this only reflects, as noted, partial results of MCC in the quarter. So adjusted EBITDA is still on a year to date basis 13.6% that does benefit particularly in the Q1 of us having higher overall adjusted EBITDA margins in the MCC business, but we do have a plan to continue to drive a higher level of adjusted EBITDA margin. Operator00:11:36Now I'll turn it back to Richard. Speaker 100:11:39Thank you, James. So clearly, great progress building a bigger business. Now we'll talk about what we're doing to build a better with us. So from an SG and A perspective, obviously, our total SG and A costs went up post acquisition. To remind shareholders, we brought on just north of 900 new associates into the business. Speaker 100:12:05So obviously, that increased our total SG and A. If you look at the SG and A component of those 900, but again, less than revenue. Most important to look to the far right hand side of the slide that actually our SG and A as a percent of revenue went down quite significantly, 18.3% versus 20.5% year ago, so well within our 5 year range of 'eighteen to 'twenty. We see a path to the low end of that range actually as a result of some of the work that we're going to do to continue to optimize the SG and A line and grow the revenue line as well at the same time. So we're very much in line with the deal logic and deal model that we completed as in our due diligence as part of this acquisition. Speaker 100:12:56So well on track from an SG and A standpoint. We're happy at the 19.3% range versus 25% year ago 20.5% year ago. Okay, James. So if we look at James, you want to take this one on? Operator00:13:11Sure. We did incur approximately $2,700,000 of restructuring expenses. And I'll remind everyone that our target of 25 to $30,000,000 in annualized synergies. We'll come with some restructuring expenses. We're certainly working hard to try and contain all the initiatives that we're working on within not only this year, but also 2024 and working hard to have a very clean kind of 2025 as we get out there. Operator00:13:43So some of these things are going to take a little bit of heavy lifting, but as you can see from the results on the right hand side of this page, the initiatives that we've already implemented have generated approximately $4,200,000 of annualized savings going forward. So really kind of 2.5, I guess, really 100 days now into our acquisition. We're about 15% of the way to our target of annualized synergies. We did have about $3,800,000 of acquisition and integration expenses. These are kind of post closing tidy ups. Operator00:14:22That number will certainly go down in future quarters. Speaker 100:14:29Okay. So this is what I was referring to when I was talking about SG and A. You can see we went from $910,000,000 to $18,22,000,000 post acquisition. But importantly, if you look at the right hand side of the slide here, Our revenue per associate was at $300,000 Did not drop very much at all, in fact, pretty much flat post acquisition at $2.99 As we work through our integration efforts, we see a path easily into the mid-3s and as we grow revenue up into the high-3s and low-4s on a revenue per employee or revenue per associate. So very good progress here and you can see the glide path we've been on over a number of years. Speaker 100:15:16Okay. So certainly building a better business here from a productivity per associate perspective. And we continue to be proud of our ESG efforts, a lot of work on the sustainability side with waste reduction and with renewable energy and carbon footprint. We've also actively started to bring these programs into the acquired facilities of MCC. A lot of great work on social. Speaker 100:15:48I think I've told shareholders we're pretty active with Habitat for Humanity and many other supplier diversity programs. And certainly, governance and our governance capabilities extended to the new MCC, to the new bigger and better company. I think the one that we're very proud of and we're proud of a lot of results we're delivering on our ESG strategy, but I think the one we're very proud of James. If you jump to the next page, is our print relief effort. To remind shareholders, we reforest 100% of our paper use for clients. Speaker 100:16:25And since we got into this program just over a year and a half ago, we have we forested close to 1,000,000 trees, 959,000 trees, about 79,000,000 pounds of paper used. We flow these credits directly through to our clients as well. If clients want to pick up the credits for their ESG for their ESG efforts. So it's a very solid program and we will cross a 3,000,000 trees reforested in September, and certainly, we'll press release that and we'll celebrate that. And to put it in perspective, what a 1000000 trees actually looks like, it's roughly 20,000 acres of reforestation, about 80 square kilometers, 15,000 football fields and for some of our American friends that are on the call today, it's 23 Central Parks. Speaker 100:17:21So significant effort here on reforestation, which we're super proud of and certainly our clients are extremely supportive of this program as well. We're also making good progress From a DCM digital perspective, you can see that our first half growth is north of 18%, just under $3,000,000 in revenue on our digital offering. So a lot more we'll report a lot more on this to shareholders over the course of the next kind of 3 to 6 months, but good progress from a digital penetration perspective. Operator00:18:05From a debt perspective, shareholders know we've been on a very good glide path over the past several years paying down debt. We did incur some incremental debt, of course, with the fully financed transaction of MCC. We're pleased to say on a pro form a basis, while our debt spiked up to approximately $145,000,000 with the position. We've reduced that number by approximately 20% through the quarter. Probably more important is net debt, and we exited Q1 at approximately just under $20,000,000 of net debt. Operator00:18:47The MCC acquisition net of cash was approximately $126,000,000 we repaid $24,000,000 of working capital as a result of the private placement we completed in May and then the Oshawa sale in June generated approximately $23,000,000 and then just additional working capital payments allowed us to to the Q2 at approximately $93,600,000 in net debt, and that's, I think, after including approximately $21,000,000 of cash at the end of the quarter. I will point out during the quarter or actually really, yes, I guess during the quarter, we finalized the final purchase price adjustments for the acquisition of Moore. There was a subsequent $4,900,000 adjustment to the purchase price, which is showed in our accrued payables. And that was largely due to stronger working capital in the business than we had expected when we closed the deal. A big chunk of that was cash and as you see below, there's approximately $4,800,000 of kind of net cash when we close the transaction. Speaker 100:20:10So certainly great progress from building a better business as you saw, improving productivity per associate, significantly reducing debt, the ESG efforts that we're delivering. Now I just want to really talk about where we are on our integration. Talk to shareholders about a 20 $5,000,000 to $30,000,000 annual synergy target across 4 areas: operation, organization, procurement and revenue. To remind shareholders we actually used Boston Consulting Group to help us prepare for pre merger integration. We're obviously now well into post merger integration process. Speaker 100:20:50We've got Rael Fisher, who was the President of Moore Canada Corp. Leading Our Integration Management Office. So a large team executing integration and the team is off to an incredible start. Combination of Real and his team as well as all the program managers that are in function I do an outstanding job. Obviously, being well prepared helped, but now it's about execution. Speaker 100:21:17The team is doing an outstanding job in execution. We did announce the closure of 2 plants, 2 facilities from an operation perspective. Those were announced about 6 weeks ago. Lots of work happening on organizational optimization, some already great work delivered from a procurement perspective. And then our teams have come together very quickly from a commercial perspective to drive revenue and there's a lot of great results that we delivered on both revenue expansion, so expansion within existing clients and several new businesses or new logos that we brought on. Speaker 100:21:59So we're more than comfortable delivering this $25,000,000 to $30,000,000 in annual synergies. In fact, we'll likely be to the high end of that range. And I can tell you the team is executing with excellence here. So off to a fantastic start. Remind shareholders that Wednesday of last week was our 100 days and there's been a lot done in those first 100 days. Speaker 100:22:23Again, we were well prepared. And no matter how well prepared you are, you need to be able to an organization that knows how to execute. And Certainly, our organization knows how to execute. So we're moving strength across all areas here. Okay, James? Speaker 100:22:41And then maybe just to close on this before moving to Q and A. We updated our 5 year strategic financial objectives. We did present this at at our last shareholder meeting. We saw a path to north of 5% organic revenue CAGR. You can see the rate, 8.2% through the first half of this year. Speaker 100:23:01We see a path to north of 14% from an adjusted EBITDA perspective over the next 5 years. So we're well on track there. James, take you through the our relentless focus on reducing debts. You see that glide path is a pretty quick one. We'll easily be in target here within the 5 year plan and then Martech Solutions are starting to ramp and and we'll see good progress on our digital expansion over the course of those that 5 year time horizon as well. Speaker 100:23:30So we've got a very detailed 5 year plan that we're executing against in addition obviously to all the integration efforts that we're executing against. Okay? So pleased with the progress we're making here. Operator00:23:42And I Speaker 100:23:42think we're over to Q and A now, right James? Operator00:23:45Yes, we are Richard. We'd like to certainly welcome questions from the audience. If you have a question and you're accessing the call directly through Teams, you can use the raise your hand feature in Teams 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. Will mute or unmute to your microphone. Operator00:24:19Please introduce yourself once you are welcomed into the session. And I have a question from, looks like Noel Atkinson. Okay, while we're waiting for Noel, we have a question in the chat. The question is, can you give an estimate of the synergies expected to achieve for the second half of twenty twenty three? Richard, do you want to run with that? Speaker 100:25:34Yes, I think I'll leave that one for you, James, just from a more comfortable for a disclosure perspective, if you answer that one. Yes, okay, sure. Operator00:25:45The synergies we talked about, kind of $25,000,000 to $30,000,000 in aggregate, We're trying to get at those over the next 18 to 24 months. We see probably about almost a third of those being implemented by the end of this year. As we have talked a little bit about costs related to those are probably about a dollar for dollar. We're a little ahead of plan kind of in the second quarter with the restructuring expenses kind of versus the annualized savings. But as we get into some of the bigger kind of plant moves, those costs will maybe kind of being switched the other way. Operator00:26:28So yes, I'd look at kind of roughly about a third of those would be before the end of this year. And relate mostly to organizational changes. The Edmonton plant that we've talked about that we're closing. That's a relatively a smaller plant, so that'll be completed by the end of December. And then the Fergus, Ontario plant. Operator00:26:52We've talked about that being kind of an 18 to 24 month project. So pretty complicated to move production. The plan is with Fergus to move that to our Drummondville, Quebec plant, which does very similar type of work. Speaker 100:27:08I'll just add to that. So if you think about the 4 areas, operation, organization, procurement and revenue, operation takes longer, obviously, because we're talking about moving the equipment around to James' point. Organization, a lot of detailed plans will happen, already started to happen. Procurement, we're already well into delivering procurement synergies, so a lot of those will be complete by year end. And then revenue, which we've actually modeled quite conservatively from a growth perspective, is a big opportunity for us. Speaker 100:27:40And you saw the numbers, we continue to delivered strong kind of revenue growth. So there's opportunities to deliver even kind of more revenue synergies if we continue to accelerate that revenue line. Operator00:27:54Okay, thanks. I'm going to try Noel here again, and I think I've had a little bit figured something out here. So Noel, do you want to go ahead? Speaker 200:28:09Hi. It's Noel Atkinson from Clarus. Can you hear me? Speaker 100:28:12Hey, Noel. We got you. Speaker 200:28:13Okay. Yes, sorry, it wasn't letting me unmute. So congrats on a really strong Q2 there overall and So very well done. You've mentioned a few of the questions I was already going to ask, but I guess just so far with the MCC integration, how has that been proceeding? Like are you seeing any client churn out of that unit or out of the other DCM units that we would commonly see after a big acquisition. Speaker 100:28:45Yes, I can take that on, James. So one thing we did, Noel, is we were very well prepared on day 1 of the acquisition day 1 of the integration. So we closed the deal on the 24th. On the 25th morning, we had 120 salespeople together in 6 locations across Canada with a theme we called Moving from Competitors to Collaborators. And it was a 2 day session, well planned to talk about how we work together and how we protect and build our enterprise clients, especially as you know, enterprise clients represent 94%, 95% of revenue, and there certainly was some crossover in clients. Speaker 100:29:30So as a result of that, our teams are working extremely well together. We're off to an incredible start as true collaborators. And we have not lost any clients on this turn. In fact, if anything, we've secured and picked up some new business as a result of our the start how we started this, most important thing. And I think it's a good point, right? Speaker 100:29:56Deals that I've done in the past, you got to protect that client and that revenue line. So as a result of just being well prepared for day 1, I don't think you talk to any of our commercial teams, they will tell you the same story, but we're working very, very well together and have had very good success as we kind of align our commercial teams, right, or integrate our commercial teams. So a really good start from that perspective. So no client losses at all. Speaker 200:30:28Okay. And then you mentioned, I think it was like 8% TRV revenue growth for the combined business on a pro form a basis in the first half of twenty twenty three. Do you see The environment out there for commercial print activity, do you still see such a robust environment? Are you still seeing kind of passing through price increases, that sort of things. How are you looking about the second half of the year? Speaker 100:30:58Yes. As you know, Noah, we kind of mapped all the profit pools in the industry. Not all of them are equal, of course. So we understand where to focus and how to focus and where to win and how to win. We still see positive Operator00:31:14momentum in the marketplace. James, I don't Speaker 100:31:14know if you want to plays. James, I don't know if you want to comment outlook for the second half or not, but certainly, experience we're seeing right now from a client standpoint, where we're seeing certainly positive momentum as we look out through the balance of the year. But James, I don't want to get any more specific. Operator00:31:33Yes, I think our Richard talked about our kind of 5 year objectives, and we think we can certainly exceed kind of 5 year over year growth and year to date our combined kind of pro form a business is certainly tracking ahead of that. From an inflationary perspective, I'd say we have certainly seen that moderate and we're not we haven't seen any significant price increases on raw materials for the last couple of months. We are continuing to kind of pass price increases a little bit of a kind of a lag on some of our contracts still. But the kind of inflationary benefit is going to moderate. I think a lot of the benefit is going to be from the collaboration across our a combined business and the capabilities that MCC brings to us and vice versa that we bring to their sales team. Speaker 100:32:31The other thing I'd add as well, Noah, is we're a very growth obsessed organization. And we kind of look at the 3 is north of a $10,000,000,000 industry, even if it's flat or modest growth or modest decline. We're $540,000,000 on $10,540,000,000 on $10,000,000,000 So lots of opportunities for us to go after and that's how we look at the market. Every day we sort of wake up, we dream about opportunities and we'll wake up and we go and secure and source those opportunities. Speaker 200:33:00Okay, great. And then just lastly, Maybe just if you could talk a bit about the assemble. I know you mentioned that you're excited about talking about this in coming quarters. But is it are you sort of where are you in the development process and the rollout process for Assemblance specifically? Speaker 100:33:24Yes, great question. So as you know, we've been in market with a white labeled solution over the last year and a half, and we've got a few clients that are using that white label solution. At the same time, we've been building our own platform to compete against some of the other dams out there in the marketplace. We actually have a beta product in market right now. And by end of year, we will release our final version or final product once we get through the beta testing. Speaker 100:33:56So we got some active beta clients using it right now. And that will be a pure kind of SaaS offering, if you will, and all that will have high-tech, low touch, marketing automation route to market. I think there's lots of opportunities even outside Canada with that platform in addition obviously to our own kind of enterprise route to market. Operator00:34:26We've got a question from phone caller ending in 0469. Star 6 that should mute or unmute your microphone. Okay. I think I've just done that. I don't think that question has already been answered. Speaker 300:34:51Yes. Hey, Can you just quickly just go back and talk about the organic growth in the quarter, it was fairly quick. And as a percentage, was that for the DCM organic growth or was that organic growth at both DCM and MCC. Speaker 100:35:15James, you want to talk Operator00:35:18Yes, I'd say the organic growth was at both businesses, Chris. Excuse me, in the The MCC business has certainly been solid even before we bought it. They had a strong Q1. I'd say our product mix has shifted a little bit. We had some very strong orders for technology hardware equipment last year and some other resales products. Operator00:35:48Those were off a little bit this quarter, really nothing unexpected, but our production revenue kind of more than made up for those declines. And production revenue for us certainly is beneficial because that more throughput through the factories helps our overall gross margin. Gross margins on both sides of the house were nicely above plan. Speaker 300:36:18Okay, great. And when you're talking about the acquisition costs versus the restructuring costs, I'm assuming restructuring will be similar moving forward for at least a couple more quarters. But the acquisition costs, Are they going to come down then next quarter because you sort of closed everything off? Or how do you see that going forward for Q2 to Q3? Operator00:36:44Yes, I think that's a good way to look at it, Chris. Restructuring expenses, probably similar to maybe a little bit higher over the next couple of quarters and acquisition integration costs will go down significantly in Q3 and Q4. Speaker 300:37:02Okay. And then finally, you break down your product sales by categories. I did a quick scan, so I couldn't really see a breakdown by NCC versus DCM. Are you is it going to be merged together then going from this point forward, so there'll be no separation of the 2 companies? Operator00:37:23Yes, we didn't break their results out quite same as ours. They don't quite they don't have technology hardware equipment sales like we do. They do have freights and warehousing fees, so those have been broken out with our results. They do have what they refer to as sourcing, but in our kind of jargon would be resales revenue and that would be products that they outsource either things like envelopes or other commercial print applications that they didn't have capabilities in house for. Those are all kind of in or at least those would be in their product sales, so that would be in the kind of combined product sales bucket. Operator00:38:10Going forward, and then historically, they're kind of what we call program management fees and subscription services fees. They have some professional services fees. At least for the time being, those are kind of included in their product sales. So they're typically attached to some of their programming management where they're doing transactional print work, which is pretty good margins in that business for them, particularly in the Q1, which is year end statements and tax statements. But going forward, we'll be carving in some of their technology fees like us. Operator00:38:51They charge for their they have a platform called Custom Point, which is kind of a legacy RRD platform that would be kind of the equivalent of our DCM Flex. We actually have a couple of customers that we're transitioning from that platform to our platform, kind of starting to work plans on that already. So we expect to see positive contributions to our technology services and subscription fees going forward. Speaker 100:39:22Yes, Chris, as well as Chris, I'd also add your question. Yes, as we continue to fully integrate, It's going to be tougher and tougher to report separate line items, separate growth between two businesses because we're already moving product around between facilities and we're already moving product around between clients. So we think it's better run a Lotto client through an MCC facility and invoice it through an MCC facility versus DCM facility or vice versa. So we're doing it for the best interest of obviously margin, the best interest of client and client service. So We definitely are down the path. Speaker 100:40:07We've already started to move a lot of volume between facilities to deliver that client experience and maximize revenue and maximize gross margin. So we will it will be top of the report independent businesses. Speaker 300:40:21Okay. Dan, one final question. You mentioned that you had digital growth of about 18% to $2,900,000 I think if I'm Correct in one of those slides. But when I try to correlate that with your sort of your breakout, it looks like your technology sort of when you break out your revenue, the technology solutions haven't really increased and there's not sort of a one to one correlation. So how do you when looking at that those technology sales, how might how do you sort of try to figure out Speaker 100:40:54what the actual growth is? Yes, Operator00:40:57that Chris, that was a little bit of a subset of the tech enabled subscription services and fees, and you see that is about $3,600,000 year to date. There's some other fees that are bit kind of in lumped in there, program management fees and other things, and we had a couple of things that kind of wound off, but the actual kind of tech services fees were growing as we showed in the deck. Speaker 300:41:21Okay. So that's I'll just keep on using that as the growth metric then as opposed to the numbers in the financial statements. Speaker 100:41:29Okay, that's Speaker 300:41:30it for me. Thanks. Great quarter. I look forward to seeing the continued integration. Speaker 100:41:36Okay. Operator00:41:38We have a question in the chat. Congrats on a good quarter. Is the current level of cash lease payments in the quarter a good run rate? Or do you expect it to increase over the next 12 to 24 months considering the partial quarter with MCC. Yes, in terms of kind of lease payments, cash lease payments, I would look at historically last year, our business was about, I think, about $9,000,000 the MCC business is about it has been kind of 3 to $3,500,000 That will increase a little bit. Operator00:42:201 of the as we because included in that not only equipment leases, but also facility leases. 3 of the sites that we acquired, Oshawa, Fergus and Trenton were owned facilities and so there wasn't any rent on those with the Oshawa site. We will see kind of lease expenses increase a little bit on an annual basis. And then we still hold the Ferguson Trent sites. We still sorry, Ferguson Trenton sites. Operator00:42:53We do have a strategy on those to move forward with those and we hope to be able to report back in next quarter on some progress there. So there will be some incremental lease rates, but really not significant. I'd say kind of good number to use kind of for the annual year is probably dollars 14,000,000 to $15,000,000 on a combined basis on a kind of an annual basis. Speaker 100:43:25Okay. Yes, it looks like Operator00:43:28we don't have any further questions. Richard, do you want to wrap up? Speaker 100:43:32No. Thanks for joining us on this call today. Certainly, we're very focused on continuing to build both a bigger and a better business and drive success in this integration. We're off to a great start. As I said, we celebrated 100 days last week. Speaker 100:43:50I'm very proud of our team, our DCM our new DCM team and all the hard work hard efforts and results the team is delivering. So congratulations to the team for a great kind of first 100 days into our bigger and better company and look forward to reporting on Q3 results in 3 months from now, I guess, right, James? Operator00:44:18That's right. Yes. All right. Speaker 100:44:20Thank you, everybody. Enjoy the rest of the summer. Operator00:44:23All right. That concludes our call. Hope everyone enjoys to the rest of the summer. And you may now disconnect your lines. Speaker 100:44:31Thank you.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallDATA Communications Management Q2 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. Announces Preliminary Financial Results for Fiscal 2024February 27, 2025 | finance.yahoo.com$2 Trillion Disappears Because of Fed's Secretive New Move$2 trillion has disappeared from the US government's books. 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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 4 speakers on the call. Operator00:00:00Good morning, ladies and gentlemen, and thank you for standing by, and welcome to the Data Communications Management Corp. 2nd Quarter 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 President and CEO. Following our prepared remarks, we will be moderating a Q and A session. Operator00:00:26As a reminder, this conference call is being broadcast live and recorded. We'd also like to remind everyone that Richard and I can be available after the call for any follow-up questions that you may have. 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. We 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. Operator00:01:15This presentation will be added to our website for your reference, along with the post view recording and transcript. Our detailed information is also available on our website and SEDAR. Please also follow us on LinkedIn to keep up to date with other business developments. I'd now like to turn the call over to Richard. Speaker 100:01:35Thank you, James, and good morning. And for some of our international people dialing in, good afternoon and good evening. James and I are in different locations today doing some new business development. So James will be driving the slides. So hopefully technology will work here. Speaker 100:01:51Objectives for today, I want to talk about our consolidated results for Q2. We'll actually unpack those as we typically do under our bigger and better theme, and then we'll turn it over to shareholders for any questions at the end. Before we get into it, I want to remind shareholders that this quarter 2 of 2023 consists of 1 week of integration or 1 week of the acquisition in April and then all of May and all of June, given we closed the transaction for Amur Canada Corp. On April 24. So it's not a full quarter of full acquisition of MCC into the quarter. Speaker 100:02:38It's 2 months plus a week, okay? So just want to remind shareholders of that before we get into the data here. So James, if you just go to the next slide. To talk about, I'm going to start with bigger business. And we're really pleased with the progress we're making to continue to build a bigger business. Speaker 100:02:54As you'll see, Our growth is quite significant with the acquisition of North Canada Corp. At just under 75% in the quarter. We added $51,000,000 in revenue to our top line on the quarter, coming out at 119,000,000 Really important to note as well, if you look at the next slide, I want to put that 75% into context. If you look at our underlying business, So the underlying business of revenue of both Moore Canada Corp. And DCM, you look at that bar on the right, you can see our underlying performance continues to be very strong at 8.2% growth. Speaker 100:03:38So not all of that 75% or 74.7% came from acquisition growth. Our underlying business is very strong. On the back, as you can see in this slide, up 2 very strong, very strong halves prior, okay? Our revenue growth in quarter 2 is now 7 consecutive quarters of year over year growth, and you can see from the slide here, the continued performance quarter on quarter, so strength to strength. So we're very proud of the momentum we've got in our business in underlying and of course now post acquisition growth as well and integration growth. Speaker 100:04:16So very good momentum from a revenue perspective and Lots of reasons why that momentum is continuing new business development, expansion revenue with existing clients and just moving strength to strength with our commercial teams. Moving on to gross profit. Gross profit also growing well post acquisition at 56.7 percent, dollars 32,000,000 in gross profit and our gross margin is coming in at 26.9%. I want to put this into context because a big part of the deal logic here, when we did this deal with MCC was MCC had a lower margin than DCM. And obviously, that was very attractive from a value creation perspective. Speaker 100:05:06We're now applying the DCM operating model to move margin forward. And in fact, the margin that we have, the combined margin we have in the quarter is a little higher than what we had planned at 26.9%. But we have an active plan, active process, active program to bring margin back into the 30% and north of 30% range. So again, it was very much as expected, slightly ahead of target on the quarter at 26.9%. And you can see the overall gross profit margin continuing to be very solid. Speaker 100:05:38And we're very pleased. If you look at the next slide, I talked about 7 quarters of revenue growth. We actually had 8 quarters of gross profit growth. We actually turned the corner on gross profit in Q2 or Q3 rather of 2021, and we've had solid momentum since then. So very, very good progress on gross profit growth quarter by quarter, okay, 8 consecutive growth, of course. Speaker 100:06:13All right. Turning it over to share price momentum. James? Operator00:06:18Yes. We our share price has certainly performed very well this peer. As we talked about last quarter, there's a little bit of noise in our earnings because of the fair value adjustments related to our long term incentive compensation. So for the current quarter, we've broken the kind of variations related to RSUs and DSUs and mark to market out as a separate line item. And in our EBITDA reconciliation, you'll see that going forward. Operator00:06:49We'll be reporting that as a separate line item. We have at the end of this presentation including a reconciliation going back on a quarterly basis from the beginning of the Q1 in 2022, and we'll be posting that on our website so that you can look and get kind of a comparable perspective. But those fair value adjustments represented about $2,300,000 in the quarter, given our share price appreciated by almost 23%, and year to date, our share price is up almost 133%, and total kind of adjustments year to date are about $7,500,000 As a result, we've reported adjusted EBITDA of $13,800,000 in the quarter. This also includes add backs for restructuring expenses and other one time charges relating to the acquisition. We're very pleased that EBITDA was up almost 50% compared to a year ago. Operator00:07:51And as Richard referenced earlier, This includes 2 months plus a week of the MCC results. And certainly in the 3rd quarter will be the first and a full quarter reporting the combined results of MCC. EBITDA did come down a little bit as a percentage of revenue at 11.6% compared to 13.7%. But this is really, as Richard noted, because of the lower overall gross margins in the MCC business, and we have a clear plan not only to grow gross profit back north of 30%, but also to grow adjusted EBITDA back to north of 14%. Included in this table is a summary of how adjusted EBITDA looks for the past 2 years on a quarterly basis. Operator00:08:45Again, 2 very strong quarters of adjusted EBITDA. So we're tracking very nicely going into the second half of the year. We've included here a summary of our financial performance compared to last year and variance comparison. Most of the numbers here are reflective of commentary that we've already talked about. What I would like to kind of point out is adjusted net income for the quarter of $3,800,000 compared to $3,600,000 last year. Operator00:09:24On an adjusted EPS basis, we came in flat at $0.08 compared to last year at the same number. The adjusted net income impact, really kind of adding back restructuring expenses, acquisition and integration costs, fair value gains and losses on financial liabilities and the after tax impact of those. Really the increase of about $200,000 is mitigated a little bit by higher interest expenses related to the financing of the acquisition of MCC and also slightly higher share count given the equity raise we did a couple of months ago. For the first half of twenty twenty three. You can see the comparisons here were at $195,000,000 of revenue, which is up $57,700,000 compared to last year. Operator00:10:25Gross profit again up and on a year to date basis were 28.6% compared to 29.7%. That 110 basis point difference really attributed to the lower overall gross margins of the MCC business. But we are in our core business certainly experiencing improved volume and also good margins from some of the product mix that we're seeing this year. Again, adjusted net loss for sorry, net income for the year of $9,700,000 is up from $7,700,000 last year, and this only reflects, as noted, partial results of MCC in the quarter. So adjusted EBITDA is still on a year to date basis 13.6% that does benefit particularly in the Q1 of us having higher overall adjusted EBITDA margins in the MCC business, but we do have a plan to continue to drive a higher level of adjusted EBITDA margin. Operator00:11:36Now I'll turn it back to Richard. Speaker 100:11:39Thank you, James. So clearly, great progress building a bigger business. Now we'll talk about what we're doing to build a better with us. So from an SG and A perspective, obviously, our total SG and A costs went up post acquisition. To remind shareholders, we brought on just north of 900 new associates into the business. Speaker 100:12:05So obviously, that increased our total SG and A. If you look at the SG and A component of those 900, but again, less than revenue. Most important to look to the far right hand side of the slide that actually our SG and A as a percent of revenue went down quite significantly, 18.3% versus 20.5% year ago, so well within our 5 year range of 'eighteen to 'twenty. We see a path to the low end of that range actually as a result of some of the work that we're going to do to continue to optimize the SG and A line and grow the revenue line as well at the same time. So we're very much in line with the deal logic and deal model that we completed as in our due diligence as part of this acquisition. Speaker 100:12:56So well on track from an SG and A standpoint. We're happy at the 19.3% range versus 25% year ago 20.5% year ago. Okay, James. So if we look at James, you want to take this one on? Operator00:13:11Sure. We did incur approximately $2,700,000 of restructuring expenses. And I'll remind everyone that our target of 25 to $30,000,000 in annualized synergies. We'll come with some restructuring expenses. We're certainly working hard to try and contain all the initiatives that we're working on within not only this year, but also 2024 and working hard to have a very clean kind of 2025 as we get out there. Operator00:13:43So some of these things are going to take a little bit of heavy lifting, but as you can see from the results on the right hand side of this page, the initiatives that we've already implemented have generated approximately $4,200,000 of annualized savings going forward. So really kind of 2.5, I guess, really 100 days now into our acquisition. We're about 15% of the way to our target of annualized synergies. We did have about $3,800,000 of acquisition and integration expenses. These are kind of post closing tidy ups. Operator00:14:22That number will certainly go down in future quarters. Speaker 100:14:29Okay. So this is what I was referring to when I was talking about SG and A. You can see we went from $910,000,000 to $18,22,000,000 post acquisition. But importantly, if you look at the right hand side of the slide here, Our revenue per associate was at $300,000 Did not drop very much at all, in fact, pretty much flat post acquisition at $2.99 As we work through our integration efforts, we see a path easily into the mid-3s and as we grow revenue up into the high-3s and low-4s on a revenue per employee or revenue per associate. So very good progress here and you can see the glide path we've been on over a number of years. Speaker 100:15:16Okay. So certainly building a better business here from a productivity per associate perspective. And we continue to be proud of our ESG efforts, a lot of work on the sustainability side with waste reduction and with renewable energy and carbon footprint. We've also actively started to bring these programs into the acquired facilities of MCC. A lot of great work on social. Speaker 100:15:48I think I've told shareholders we're pretty active with Habitat for Humanity and many other supplier diversity programs. And certainly, governance and our governance capabilities extended to the new MCC, to the new bigger and better company. I think the one that we're very proud of and we're proud of a lot of results we're delivering on our ESG strategy, but I think the one we're very proud of James. If you jump to the next page, is our print relief effort. To remind shareholders, we reforest 100% of our paper use for clients. Speaker 100:16:25And since we got into this program just over a year and a half ago, we have we forested close to 1,000,000 trees, 959,000 trees, about 79,000,000 pounds of paper used. We flow these credits directly through to our clients as well. If clients want to pick up the credits for their ESG for their ESG efforts. So it's a very solid program and we will cross a 3,000,000 trees reforested in September, and certainly, we'll press release that and we'll celebrate that. And to put it in perspective, what a 1000000 trees actually looks like, it's roughly 20,000 acres of reforestation, about 80 square kilometers, 15,000 football fields and for some of our American friends that are on the call today, it's 23 Central Parks. Speaker 100:17:21So significant effort here on reforestation, which we're super proud of and certainly our clients are extremely supportive of this program as well. We're also making good progress From a DCM digital perspective, you can see that our first half growth is north of 18%, just under $3,000,000 in revenue on our digital offering. So a lot more we'll report a lot more on this to shareholders over the course of the next kind of 3 to 6 months, but good progress from a digital penetration perspective. Operator00:18:05From a debt perspective, shareholders know we've been on a very good glide path over the past several years paying down debt. We did incur some incremental debt, of course, with the fully financed transaction of MCC. We're pleased to say on a pro form a basis, while our debt spiked up to approximately $145,000,000 with the position. We've reduced that number by approximately 20% through the quarter. Probably more important is net debt, and we exited Q1 at approximately just under $20,000,000 of net debt. Operator00:18:47The MCC acquisition net of cash was approximately $126,000,000 we repaid $24,000,000 of working capital as a result of the private placement we completed in May and then the Oshawa sale in June generated approximately $23,000,000 and then just additional working capital payments allowed us to to the Q2 at approximately $93,600,000 in net debt, and that's, I think, after including approximately $21,000,000 of cash at the end of the quarter. I will point out during the quarter or actually really, yes, I guess during the quarter, we finalized the final purchase price adjustments for the acquisition of Moore. There was a subsequent $4,900,000 adjustment to the purchase price, which is showed in our accrued payables. And that was largely due to stronger working capital in the business than we had expected when we closed the deal. A big chunk of that was cash and as you see below, there's approximately $4,800,000 of kind of net cash when we close the transaction. Speaker 100:20:10So certainly great progress from building a better business as you saw, improving productivity per associate, significantly reducing debt, the ESG efforts that we're delivering. Now I just want to really talk about where we are on our integration. Talk to shareholders about a 20 $5,000,000 to $30,000,000 annual synergy target across 4 areas: operation, organization, procurement and revenue. To remind shareholders we actually used Boston Consulting Group to help us prepare for pre merger integration. We're obviously now well into post merger integration process. Speaker 100:20:50We've got Rael Fisher, who was the President of Moore Canada Corp. Leading Our Integration Management Office. So a large team executing integration and the team is off to an incredible start. Combination of Real and his team as well as all the program managers that are in function I do an outstanding job. Obviously, being well prepared helped, but now it's about execution. Speaker 100:21:17The team is doing an outstanding job in execution. We did announce the closure of 2 plants, 2 facilities from an operation perspective. Those were announced about 6 weeks ago. Lots of work happening on organizational optimization, some already great work delivered from a procurement perspective. And then our teams have come together very quickly from a commercial perspective to drive revenue and there's a lot of great results that we delivered on both revenue expansion, so expansion within existing clients and several new businesses or new logos that we brought on. Speaker 100:21:59So we're more than comfortable delivering this $25,000,000 to $30,000,000 in annual synergies. In fact, we'll likely be to the high end of that range. And I can tell you the team is executing with excellence here. So off to a fantastic start. Remind shareholders that Wednesday of last week was our 100 days and there's been a lot done in those first 100 days. Speaker 100:22:23Again, we were well prepared. And no matter how well prepared you are, you need to be able to an organization that knows how to execute. And Certainly, our organization knows how to execute. So we're moving strength across all areas here. Okay, James? Speaker 100:22:41And then maybe just to close on this before moving to Q and A. We updated our 5 year strategic financial objectives. We did present this at at our last shareholder meeting. We saw a path to north of 5% organic revenue CAGR. You can see the rate, 8.2% through the first half of this year. Speaker 100:23:01We see a path to north of 14% from an adjusted EBITDA perspective over the next 5 years. So we're well on track there. James, take you through the our relentless focus on reducing debts. You see that glide path is a pretty quick one. We'll easily be in target here within the 5 year plan and then Martech Solutions are starting to ramp and and we'll see good progress on our digital expansion over the course of those that 5 year time horizon as well. Speaker 100:23:30So we've got a very detailed 5 year plan that we're executing against in addition obviously to all the integration efforts that we're executing against. Okay? So pleased with the progress we're making here. Operator00:23:42And I Speaker 100:23:42think we're over to Q and A now, right James? Operator00:23:45Yes, we are Richard. We'd like to certainly welcome questions from the audience. If you have a question and you're accessing the call directly through Teams, you can use the raise your hand feature in Teams 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. Will mute or unmute to your microphone. Operator00:24:19Please introduce yourself once you are welcomed into the session. And I have a question from, looks like Noel Atkinson. Okay, while we're waiting for Noel, we have a question in the chat. The question is, can you give an estimate of the synergies expected to achieve for the second half of twenty twenty three? Richard, do you want to run with that? Speaker 100:25:34Yes, I think I'll leave that one for you, James, just from a more comfortable for a disclosure perspective, if you answer that one. Yes, okay, sure. Operator00:25:45The synergies we talked about, kind of $25,000,000 to $30,000,000 in aggregate, We're trying to get at those over the next 18 to 24 months. We see probably about almost a third of those being implemented by the end of this year. As we have talked a little bit about costs related to those are probably about a dollar for dollar. We're a little ahead of plan kind of in the second quarter with the restructuring expenses kind of versus the annualized savings. But as we get into some of the bigger kind of plant moves, those costs will maybe kind of being switched the other way. Operator00:26:28So yes, I'd look at kind of roughly about a third of those would be before the end of this year. And relate mostly to organizational changes. The Edmonton plant that we've talked about that we're closing. That's a relatively a smaller plant, so that'll be completed by the end of December. And then the Fergus, Ontario plant. Operator00:26:52We've talked about that being kind of an 18 to 24 month project. So pretty complicated to move production. The plan is with Fergus to move that to our Drummondville, Quebec plant, which does very similar type of work. Speaker 100:27:08I'll just add to that. So if you think about the 4 areas, operation, organization, procurement and revenue, operation takes longer, obviously, because we're talking about moving the equipment around to James' point. Organization, a lot of detailed plans will happen, already started to happen. Procurement, we're already well into delivering procurement synergies, so a lot of those will be complete by year end. And then revenue, which we've actually modeled quite conservatively from a growth perspective, is a big opportunity for us. Speaker 100:27:40And you saw the numbers, we continue to delivered strong kind of revenue growth. So there's opportunities to deliver even kind of more revenue synergies if we continue to accelerate that revenue line. Operator00:27:54Okay, thanks. I'm going to try Noel here again, and I think I've had a little bit figured something out here. So Noel, do you want to go ahead? Speaker 200:28:09Hi. It's Noel Atkinson from Clarus. Can you hear me? Speaker 100:28:12Hey, Noel. We got you. Speaker 200:28:13Okay. Yes, sorry, it wasn't letting me unmute. So congrats on a really strong Q2 there overall and So very well done. You've mentioned a few of the questions I was already going to ask, but I guess just so far with the MCC integration, how has that been proceeding? Like are you seeing any client churn out of that unit or out of the other DCM units that we would commonly see after a big acquisition. Speaker 100:28:45Yes, I can take that on, James. So one thing we did, Noel, is we were very well prepared on day 1 of the acquisition day 1 of the integration. So we closed the deal on the 24th. On the 25th morning, we had 120 salespeople together in 6 locations across Canada with a theme we called Moving from Competitors to Collaborators. And it was a 2 day session, well planned to talk about how we work together and how we protect and build our enterprise clients, especially as you know, enterprise clients represent 94%, 95% of revenue, and there certainly was some crossover in clients. Speaker 100:29:30So as a result of that, our teams are working extremely well together. We're off to an incredible start as true collaborators. And we have not lost any clients on this turn. In fact, if anything, we've secured and picked up some new business as a result of our the start how we started this, most important thing. And I think it's a good point, right? Speaker 100:29:56Deals that I've done in the past, you got to protect that client and that revenue line. So as a result of just being well prepared for day 1, I don't think you talk to any of our commercial teams, they will tell you the same story, but we're working very, very well together and have had very good success as we kind of align our commercial teams, right, or integrate our commercial teams. So a really good start from that perspective. So no client losses at all. Speaker 200:30:28Okay. And then you mentioned, I think it was like 8% TRV revenue growth for the combined business on a pro form a basis in the first half of twenty twenty three. Do you see The environment out there for commercial print activity, do you still see such a robust environment? Are you still seeing kind of passing through price increases, that sort of things. How are you looking about the second half of the year? Speaker 100:30:58Yes. As you know, Noah, we kind of mapped all the profit pools in the industry. Not all of them are equal, of course. So we understand where to focus and how to focus and where to win and how to win. We still see positive Operator00:31:14momentum in the marketplace. James, I don't Speaker 100:31:14know if you want to plays. James, I don't know if you want to comment outlook for the second half or not, but certainly, experience we're seeing right now from a client standpoint, where we're seeing certainly positive momentum as we look out through the balance of the year. But James, I don't want to get any more specific. Operator00:31:33Yes, I think our Richard talked about our kind of 5 year objectives, and we think we can certainly exceed kind of 5 year over year growth and year to date our combined kind of pro form a business is certainly tracking ahead of that. From an inflationary perspective, I'd say we have certainly seen that moderate and we're not we haven't seen any significant price increases on raw materials for the last couple of months. We are continuing to kind of pass price increases a little bit of a kind of a lag on some of our contracts still. But the kind of inflationary benefit is going to moderate. I think a lot of the benefit is going to be from the collaboration across our a combined business and the capabilities that MCC brings to us and vice versa that we bring to their sales team. Speaker 100:32:31The other thing I'd add as well, Noah, is we're a very growth obsessed organization. And we kind of look at the 3 is north of a $10,000,000,000 industry, even if it's flat or modest growth or modest decline. We're $540,000,000 on $10,540,000,000 on $10,000,000,000 So lots of opportunities for us to go after and that's how we look at the market. Every day we sort of wake up, we dream about opportunities and we'll wake up and we go and secure and source those opportunities. Speaker 200:33:00Okay, great. And then just lastly, Maybe just if you could talk a bit about the assemble. I know you mentioned that you're excited about talking about this in coming quarters. But is it are you sort of where are you in the development process and the rollout process for Assemblance specifically? Speaker 100:33:24Yes, great question. So as you know, we've been in market with a white labeled solution over the last year and a half, and we've got a few clients that are using that white label solution. At the same time, we've been building our own platform to compete against some of the other dams out there in the marketplace. We actually have a beta product in market right now. And by end of year, we will release our final version or final product once we get through the beta testing. Speaker 100:33:56So we got some active beta clients using it right now. And that will be a pure kind of SaaS offering, if you will, and all that will have high-tech, low touch, marketing automation route to market. I think there's lots of opportunities even outside Canada with that platform in addition obviously to our own kind of enterprise route to market. Operator00:34:26We've got a question from phone caller ending in 0469. Star 6 that should mute or unmute your microphone. Okay. I think I've just done that. I don't think that question has already been answered. Speaker 300:34:51Yes. Hey, Can you just quickly just go back and talk about the organic growth in the quarter, it was fairly quick. And as a percentage, was that for the DCM organic growth or was that organic growth at both DCM and MCC. Speaker 100:35:15James, you want to talk Operator00:35:18Yes, I'd say the organic growth was at both businesses, Chris. Excuse me, in the The MCC business has certainly been solid even before we bought it. They had a strong Q1. I'd say our product mix has shifted a little bit. We had some very strong orders for technology hardware equipment last year and some other resales products. Operator00:35:48Those were off a little bit this quarter, really nothing unexpected, but our production revenue kind of more than made up for those declines. And production revenue for us certainly is beneficial because that more throughput through the factories helps our overall gross margin. Gross margins on both sides of the house were nicely above plan. Speaker 300:36:18Okay, great. And when you're talking about the acquisition costs versus the restructuring costs, I'm assuming restructuring will be similar moving forward for at least a couple more quarters. But the acquisition costs, Are they going to come down then next quarter because you sort of closed everything off? Or how do you see that going forward for Q2 to Q3? Operator00:36:44Yes, I think that's a good way to look at it, Chris. Restructuring expenses, probably similar to maybe a little bit higher over the next couple of quarters and acquisition integration costs will go down significantly in Q3 and Q4. Speaker 300:37:02Okay. And then finally, you break down your product sales by categories. I did a quick scan, so I couldn't really see a breakdown by NCC versus DCM. Are you is it going to be merged together then going from this point forward, so there'll be no separation of the 2 companies? Operator00:37:23Yes, we didn't break their results out quite same as ours. They don't quite they don't have technology hardware equipment sales like we do. They do have freights and warehousing fees, so those have been broken out with our results. They do have what they refer to as sourcing, but in our kind of jargon would be resales revenue and that would be products that they outsource either things like envelopes or other commercial print applications that they didn't have capabilities in house for. Those are all kind of in or at least those would be in their product sales, so that would be in the kind of combined product sales bucket. Operator00:38:10Going forward, and then historically, they're kind of what we call program management fees and subscription services fees. They have some professional services fees. At least for the time being, those are kind of included in their product sales. So they're typically attached to some of their programming management where they're doing transactional print work, which is pretty good margins in that business for them, particularly in the Q1, which is year end statements and tax statements. But going forward, we'll be carving in some of their technology fees like us. Operator00:38:51They charge for their they have a platform called Custom Point, which is kind of a legacy RRD platform that would be kind of the equivalent of our DCM Flex. We actually have a couple of customers that we're transitioning from that platform to our platform, kind of starting to work plans on that already. So we expect to see positive contributions to our technology services and subscription fees going forward. Speaker 100:39:22Yes, Chris, as well as Chris, I'd also add your question. Yes, as we continue to fully integrate, It's going to be tougher and tougher to report separate line items, separate growth between two businesses because we're already moving product around between facilities and we're already moving product around between clients. So we think it's better run a Lotto client through an MCC facility and invoice it through an MCC facility versus DCM facility or vice versa. So we're doing it for the best interest of obviously margin, the best interest of client and client service. So We definitely are down the path. Speaker 100:40:07We've already started to move a lot of volume between facilities to deliver that client experience and maximize revenue and maximize gross margin. So we will it will be top of the report independent businesses. Speaker 300:40:21Okay. Dan, one final question. You mentioned that you had digital growth of about 18% to $2,900,000 I think if I'm Correct in one of those slides. But when I try to correlate that with your sort of your breakout, it looks like your technology sort of when you break out your revenue, the technology solutions haven't really increased and there's not sort of a one to one correlation. So how do you when looking at that those technology sales, how might how do you sort of try to figure out Speaker 100:40:54what the actual growth is? Yes, Operator00:40:57that Chris, that was a little bit of a subset of the tech enabled subscription services and fees, and you see that is about $3,600,000 year to date. There's some other fees that are bit kind of in lumped in there, program management fees and other things, and we had a couple of things that kind of wound off, but the actual kind of tech services fees were growing as we showed in the deck. Speaker 300:41:21Okay. So that's I'll just keep on using that as the growth metric then as opposed to the numbers in the financial statements. Speaker 100:41:29Okay, that's Speaker 300:41:30it for me. Thanks. Great quarter. I look forward to seeing the continued integration. Speaker 100:41:36Okay. Operator00:41:38We have a question in the chat. Congrats on a good quarter. Is the current level of cash lease payments in the quarter a good run rate? Or do you expect it to increase over the next 12 to 24 months considering the partial quarter with MCC. Yes, in terms of kind of lease payments, cash lease payments, I would look at historically last year, our business was about, I think, about $9,000,000 the MCC business is about it has been kind of 3 to $3,500,000 That will increase a little bit. Operator00:42:201 of the as we because included in that not only equipment leases, but also facility leases. 3 of the sites that we acquired, Oshawa, Fergus and Trenton were owned facilities and so there wasn't any rent on those with the Oshawa site. We will see kind of lease expenses increase a little bit on an annual basis. And then we still hold the Ferguson Trent sites. We still sorry, Ferguson Trenton sites. Operator00:42:53We do have a strategy on those to move forward with those and we hope to be able to report back in next quarter on some progress there. So there will be some incremental lease rates, but really not significant. I'd say kind of good number to use kind of for the annual year is probably dollars 14,000,000 to $15,000,000 on a combined basis on a kind of an annual basis. Speaker 100:43:25Okay. Yes, it looks like Operator00:43:28we don't have any further questions. Richard, do you want to wrap up? Speaker 100:43:32No. Thanks for joining us on this call today. Certainly, we're very focused on continuing to build both a bigger and a better business and drive success in this integration. We're off to a great start. As I said, we celebrated 100 days last week. Speaker 100:43:50I'm very proud of our team, our DCM our new DCM team and all the hard work hard efforts and results the team is delivering. So congratulations to the team for a great kind of first 100 days into our bigger and better company and look forward to reporting on Q3 results in 3 months from now, I guess, right, James? Operator00:44:18That's right. Yes. All right. Speaker 100:44:20Thank you, everybody. Enjoy the rest of the summer. Operator00:44:23All right. That concludes our call. Hope everyone enjoys to the rest of the summer. And you may now disconnect your lines. Speaker 100:44:31Thank you.Read morePowered by