DATA Communications Management Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 14, 2024

There are 7 speakers on the call.

Operator

Good morning, ladies and gentlemen. Thank you for standing by and welcome to the Data Communications Management Corp. Q1 2024 Financial Results Conference Call. My name is James Lorimer, the CFO of DCM, and I'm pleased to be hosting today's call. Joining me on the call today beside me is Richard Kellum, our President and Chief Executive Officer.

Operator

Following our prepared remarks, we will be holding a Q and A session. As a reminder, this call is being broadcast live and recorded. Before we begin, I'll 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 Plus. We have posted a brief video message from Richard, along with a summary of our results and highlights for the quarter on our website in the form of an infographic.

Operator

Our detailed information is also available on our website and SEDAR Plus. Please also follow us on LinkedIn to keep up to date with other business developments. And I'll now turn the call over to Richard.

Speaker 1

Thank you, James, and good morning, good afternoon, good evening for folks that are joining us from different time zones. Here's what we want to accomplish today. Quick look at our results and some of the highlights on the quarter, talk about the balance of year priorities and then we'll turn it over to Q and A. All right. So starting off with the highlights of the quarter, this to remind shareholders, this is our 3rd full quarter of DCM and MCC results.

Speaker 1

I'd say we're making fantastic progress with overall integration, really kind of on track to deliver what we told shareholders several months ago. Great progress on net debt reduction. You'll see in the deck here that we're down 46 0.1% since we closed the acquisition. Real positive outlook for the balance of 2024 based on what we're seeing around order trends and timing, some of the new logo wins that we secured, which we'll talk about in a minute, some of the operating performance that we're delivering across the organization. We've also done a pretty extensive effort on strategic revenue management to drive margin improvement.

Speaker 1

We'll talk that in a couple minutes as well. We completed the sale and leaseback of the MCC facility in Trenton, Ontario, and that generated gross proceeds of $9,000,000 So happy to get that behind us. We've also advanced the consolidation of our plant integration and systems migrations, so good progress on ERP integration as well. Then we've accelerated some capital investments, so some very good progress on the quarter, and we'll talk a little bit more detail on each of these as we go through the deck here. First of all, turning over to revenue, our revenue growth was just under 70%, so 69.9% for the quarter, delivering just under $130,000,000 in revenue.

Speaker 1

So overall, solid growth, but despite this great growth we would say that we're the quarter came in slightly lower than we expected and that was some shifting of large client projects into further quarters, which I'll talk about on the next slide here. A little detail for shareholders. So we can point to sort of 7 clients where there was just a shifting in timing of 6 of them and one that was, I'll call it a bit of a material loss. So I'll take you through the details here. We had a large healthcare client, that $3,000,000 came out of quarter 1 that will show up in quarters 2 through 4.

Speaker 1

A lot of that is in what we call PPI, positive patient ID, so a lot of kind of hardware that we buy and resell to this client, and you'll see that hardware being refreshed refreshed rather in future quarters. We had a financial client that moved some direct mail programs to specifically into future quarters. You see the red bar for people looking at the slide here, we call it government 1, I can't tell you who that is, what government contract it is, but was a loss of $1,500,000 that's not coming back because that was just a reduction in programming this year versus a year ago. Although I will say we have some very good active government work that we're securing or working to secure right now that will offset that, but that particular work will not flow back into future quarters. We had a QSR client that shifted some work into future quarters, 1,200,000.

Speaker 1

Dollars 1 of our lottery clients did not order in quarter 1, but will be ordering quarter 2 through 4. We had another government contract that obviously is moving through 2 other quarters as well, just timing and we had another retail client. So no material losses in our business in quarter 1, so some good solid growth, little less than we expected as a result of the shifting in timing here of a few of these clients. Also remind shareholders that quarter 1 was a record quarter for DCM, quarter 1 2023, a record quarter for DCM as well as a record quarter for MCC as MCC was working to close their quarter prior to acquisition. So we were up, we already planned a pretty sizable headwind in the quarter versus a year ago.

Speaker 1

And again, we had a few clients that had some work that shifted. But we're very confident in delivering our plan for the year. Okay? And on that, if we look at strong business momentum, this is just, we use what's called Microsoft Dynamics 365 CRM. So this is just a lift straight out of our CRM platform.

Speaker 1

So this is all work that we have booked for future quarters. We obviously won 10 new clients in the, in quarter 1 that will again, that revenue will flow into future quarters about $2,000,000 and we've had some good success in what we call wallet share or expansion revenue within existing clients, about 30 clients where we've expanded and one share in and that'll add about $12,000,000 to revenue as we move forward in quarters 2 through 4. So some very good momentum with new business development. And certainly, it's a muscle that we've been building solidly over the last couple of years.

Operator

Having a

Speaker 1

look at revenue by reported segment, 88% of our revenue comes from product sales. You can see that's up close to 70%. Our technology services at 7,700,000 up 427 percent. Lot of that obviously came from the acquisition of MCC and it's a busy time for programming with tax season in our BCS or Business Communication Services sector, but some came from other digital services as well. I'm going to talk a little bit more detail as we progress through the deck here today.

Speaker 1

Freight, we're doing a lot of picking up a lot of kitting and fulfillment business, so that's obviously helping our freight and warehousing revenues. If you look at the tech enabled hardware that 1.6% down 51%, that's what I was referring to that particular healthcare client where we supply, where we buy and resell hardware solutions as part of that positive patient ID ecosystem. So that's understandable that will come back in quarters 2 through 4. And then marketing and other just other creative services we provide to clients is up a little bit over a year ago, solid year other than that tech enabled hardware solid quarter. Okay.

Speaker 1

Having a quick look at gross profit, gross profit up close to 60% at $37,300,000 and gross margin at 28.9%. We're, as you know, we're actively focused on returning our combined business to pre acquisition margins. And let's just look at that on the next page here, James. And you can see that we're on a path to 30% gross margin improvement. What I did here in this deck or what we did is we pulled quarter 1 2023 as if we were one company.

Speaker 1

Obviously, we didn't have MCC at the time, but on a pro form a basis. And you can see that was 28.3% margin. Again, it was the highest quarter for MCC and a very high quarter for DCM legacy in terms of revenue and in terms of margin. So it's a high watermark. And you can see we even exceeded that watermark in quarter 1, picking up 0.6 point to 28.9.

Speaker 1

So I'm really pleased with the progress we're making on gross margin improvements here. And this is kind of throughout the enterprise, commercial focus and operational excellence that's driving this as well as our strategic revenue management program that's driving this improvement. So we're fully expecting to see that continue to improve in future quarters. And then adjusted EBITDA at 18,700,000 I think James went a little too fast on the deck there 18,700,000 and right in range with what we forecasted and what we projected and presented to The Street. We said we'd be north of 14%, so we're at 14.4%.

Speaker 1

So we're happy with the progress that we're making on EBITDA as well. And then over to James to talk about restructuring and one time costs.

Operator

Thanks, Richard. We had $1,100,000 of restructuring expenses in the quarter and about $300,000 of acquisition and integration expenses. We will continue to see similar levels of these expenses on a kind of combined basis going through the balance of this year. But as we've talked about previously, our objective is to have most of the restructuring charges behind us by the end of 2024. And certainly, the significant amount of restructuring expenses that we booked in 2023, you know, were largely behind us.

Operator

In terms of synergies, we're well on track towards our synergy targets of $30,000,000 to $35,000,000 on an annualized basis. And we've talked about previously the 4 kind of main categories. Where we'll really benefit this year is going to be more on the operational side and over the next 12 months as we continue to close facilities, we have 3 facilities that are on track to be closed within the next 12 months. And that will drive kind of the significant balance of remaining synergy targets that we have. Net debt, we're very pleased that net debt continues to decline.

Operator

We ended the quarter at about $78,300,000 That's down $67,000,000 or about 46% from the acquisition, which closed in April of 2023. SG and A expenses are also down nicely on a pro form a basis. We're down about $2,500,000 compared to where we were pre acquisition. And if we look back at that synergy slide, a lot of these savings are in that organizational bucket. So pleased that we're holding those.

Operator

We did have a one time charge in the quarter, so we will expect to see SG and A come down a little bit as we get into quarter 2, 3 and 4. Revenue per associate, as everyone knows, this has been a focus of us for kind of a quick snapshot on productivity. We're currently sitting around $300,000 per employee or associate as we like to call our employees. We expect to see this grow as we get through the balance of our synergies activities through the next 12 months and also as we have a real focus on revenue growth with which Richard can talk about in a little bit. From a capital investment perspective, we really started to accelerate our investments to drive our gross margin improvements.

Operator

So you'll see $2,800,000 in PP and E investment in the quarter. We are up significantly from where we were in the Q1, but that was before the acquisition. This investment is largely related to facility preparation in advance of facility closures that we're planning the next 12 months. In terms of our 2024 outlook, we are looking to invest in new equipment, which will help further our goals of driving our gross margin improvement. From an ESG perspective, we're pleased to report in the quarter, we were responsible for replanting about 265,000 trees through our partnership with PrintRelief.

Operator

We're now over $1,700,000 sorry, 1,700,000 trees reforested since we began this program. And starting in, I guess it was October, all the MCC plants are now contributing to this initiative. So we're really proud of this program.

Speaker 1

Okay. Thank you, James. We'll now have a look at some of the balance of the year priorities. I'm going to dig a little deeper into digital as well. So obviously priority for us or main priority for us is just completing the integration of MCC, those the plant consolidation and all the back office synergies as well as systems integration as well.

Speaker 1

We are relentlessly focused on improving gross margin. As I mentioned earlier, we've done a very detailed strategic revenue management exercise, and we've got a very good plan. We know kind of what to go after and where to go after and what to go after. Blowing overheads and improving operating costs, Some of the investment that James referenced earlier in capital is all designed to improve that gross margin. And then of course all the operational efficiencies that we have planned into our workflow for this year, the consolidation etcetera.

Speaker 1

Shneem, we're focused on growing our business and that's expanding our product and service offering, leveraging our combined capabilities. Our commercial teams are now together now and they're I mean, they're off to an incredible what's beyond a start because we kind of started working together in October, but they're really running on all cylinders right now as we I shouldn't that doesn't work for electric though, right? But, they're off to an incredible start working together and lots of opportunities they've discovered in the marketplace. So I'm real pleased with that team and how they've come together. Lots of opportunities for us across the verticals enterprise clients that we service.

Speaker 1

And I'm going to talk a little bit more detail on what we're doing on digital acceleration in a minute. And then finally, priority for us is continue to generate high levels of free cash flow, focusing on margin improvement and then really kind of prudent capital allocation.

Operator

So I

Speaker 1

want to give shareholders a little bit more detail on digital acceleration because we haven't talked this in the last couple of quarters. But I can tell you as a company we're very on continuing to drive technology services into our enterprise clients. As I mentioned earlier, we generated $7,700,000 of revenue, 4 28% growth in the quarter. I'm going to talk in detail about you can see on the slide here, there's sort of 6 key offerings we have. I'm going to talk in detail about 3 of them.

Speaker 1

First is the progress we're making on digital signage. I gave a little review of this to shareholders last quarter. We entered into this service in August of last year in what I call sort of a crawl, walk, run. We wanted to kind of understand the market and the value we can bring to clients. And we've had some very good early success with this new offering across multiple verticals.

Speaker 1

You can see on this slide, we've got kind of 5 key verticals that we've referenced here, cannabis retail, healthcare, automotive and not for profit. So we've had some really good success. We have a large project that we are implementing in automotive in quarter 2 and then we've got a very good pipeline through quarter 2 through quarter 4 as well as we continue to expand. So I'd say we're beyond the crawl, we're into the walk base and we're getting ready to run at some point. But we find kind of a unique position in the marketplace with the technology that we've secured.

Speaker 1

Okay, so lots more detail on that as we progress through future quarters. The other technology we're bringing to clients using our DCM Flex platform and this is a platform that we built many years ago, but we've really kind of tuned what we call the customer communication management functionality of this platform. So think of kind of highly personalized communication that you can do at scale, and this quarter we won as a result of tuning the platform and really getting intentional on the CCM space. We actually picked up 4 new client wins, 1 in automotive, 1 in FI, 1 is an alternative lender and 1 in loyalty. So this is, as I said, you know, think of how the world is moving to much more, you know, personalized direct personalized communication and being able to automate and do that at scale, that's exactly what our platform has been designed to do.

Speaker 1

And then finally, we're really excited. We've talked to shareholders a lot about our entry into digital asset management solutioning. We're very happy to report that we will be launching our fully AI enabled DAM solution in July of this year. We've been working on developing this for the last year now. It will have advanced AI keywords, AI smart search, AI smart summaries, AR transcriptions and AI share so it's kind of fully enabled AI, arguably the first fully enabled AI dam in the marketplace and it's kind of out of the box AI.

Speaker 1

So these are not functions that we add in for clients, it's straight out of the box. To remind shareholders, we're playing into a $6,000,000,000 dam market, and that market is growing depending what data you look at, growing anywhere from 13% to 20%. And we will be targeting our 400 enterprise clients with this solution that we have created. So we're quite excited to get this to market in July of this year and a report on progress at our shareholder meeting in August. Okay.

Speaker 1

So that's a little deeper dive on what we're doing in digital and a good review of the quarter and we'll turn it over to Q and A now.

Operator

Thanks, Richard. We'd now like to take questions from the audience. If you have a question and are 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. If you have dialed in, you may press star 5 to raise or lower your hand and pressing star 6 will mute or unmute your microphone.

Operator

Please introduce yourself once you are introduced to the session. We have a hand up here from Nick Orkutin. Go ahead,

Speaker 2

Nick.

Operator

Nick, are you able to connect there?

Speaker 1

Good morning, guys. Can you hear me? Yes, there we go. Oh, yeah, Nick.

Speaker 3

Congrats on the strong margin improvement in the quarter. Just a question on revenue, you gave that revenue bridge in your presentation. I'm just wondering how much visibility you have for timing of those orders through the remainder of the year?

Operator

I'd say we've got pretty good visibility. We just closed April and we see a little bit of that catching up already in the month. So overall, quite good visibility, Nick.

Speaker 3

Yes. Great. And then you mentioned in your prepared remarks the launch of the assemble at Danbury in July. Can you tell me a little bit more about it, the market size and how it compares to the competition?

Speaker 1

Yes. So as I mentioned, the market size is globally, it's about a $6,000,000,000 market. Again depending on what data you look at some reports call it will be even higher that growing super fast. Competitors will be the likes of a Mediabale or a Kanto or a Wyden or a Senshare as an example, there's several competitors in the marketplace. What's different about product is we have, obviously because we've started developing about a year ago and we had to a lot of new AI capabilities, we've built a fully AI enabled dam.

Speaker 1

So ours is I don't want to get into all the details, Nick, but I'll hit the treetops on it. Ours is a folderless structure. And the reason it's a folderless structure is because of the AI capabilities for, you know, meta tagging, auto tagging, natural language search, the ability to find, you don't need a lot of structure in your assets to make them findable and shareable quickly. So a lot simpler platform, a lot simpler product relative to some kind of competitive product out there. And ours is really going to design for enterprise wide.

Speaker 1

Think of not just, you know, marketing teams, but think of, you know all functions in an organization as an example so there's a difference right the ease of use the UI and the AI capabilities, the out of the box capabilities that we built into the platform.

Speaker 3

Thanks. That's good color. I'll pass it on.

Operator

Thanks, Nick. We have a call from Noel

Speaker 1

Atkinson.

Operator

Noel, you should be able to go ahead now.

Speaker 4

Hi, it's Noel Atkinson from Clarus. Can you hear me?

Operator

Yes.

Speaker 4

Hi, guys. Thanks for taking our questions this morning. And again, we are well done on the gross margin improvements. First off, just in terms of some of those order shifts that you saw on bigger some bigger projects in the quarter, like what are you seeing in terms of that sort of activity so far in Q2? Are you seeing that as a continuation?

Speaker 4

Or was that sort of just a onetime lumpy thing that you saw?

Speaker 1

Yes. We're for sure, it was a onetime lumpy thing. As I said, we had a record quarter 1 last year, both MCC legacy and DCM on the back of a solid 2022. We started 2023 very strong and of course MCC was working to close the transaction in quarter 1. So bit of a lumpy quarter for sure.

Speaker 1

We're already seeing good progress in quarter 2. James just referenced, we got our numbers in for April, and we're already seeing some good recovery or some good bounce back of revenue into the 1st month of the quarter, and we've got sight line to May as well. So we're quarter 1 is behind us, and we've got a very good solid pipeline. That's why we're confident in communicating that to shareholders right now.

Speaker 4

Okay. And in terms of your revenue mix, you've talked in the past a little bit about trying to upscale your product mix, go after higher margin business. Is that also was that also an impact at all on your revenue in Q1?

Speaker 1

For sure, there was some business that we it's a great question, Noel. So for sure, there's some business that we intentionally priced up and maybe lost. It was not in any of that step chart I showed you today, by the way, but some smaller business for sure and but nonmaterial, right, not significant. We've been very I'll call it we call it strategic revenue management and all, but we've been very strategic in terms of areas that we're driving mix and profitability improvement. And those actions have not resulted in any material loss, I guess, is probably the best way to say it.

Speaker 1

Right? Some smaller stuff, who cares, quite honestly, right, Because sometimes smaller stuff, the workflow is complex, and it's not worth the low margin. So for sure, there's been a little bit of smaller nonmaterial revenue that we've certainly walked away from, Noel, but nothing material.

Speaker 4

Okay. And then just one more for me, if I may. So you mentioned in the deck, 10 new clients and 30 expanded clients, That was all in Q1?

Speaker 1

Yes, that was all in our so we use as I said, we use a CRM called Microsoft Dynamics so it's all in our CRM very accurate we closed 10 new logos those are brand new logos for us in quarter 1, and that revenue will materialize in quarter 2 and quarter 3, quarter 4, mostly quarter 2, quarter 3 for those clients. And then the expansion revenue, the 32, 33 clients that we actually improved or we got more work from, about $12,000,000 just over $12,000,000 of new work across those clients. That all kind of flows into the future quarters as well. None of that was in quarter 1.

Speaker 4

And is any of that in 2025 or beyond? Or do you expect to capture all that this year?

Speaker 1

It's all reported to be captured in 2024.

Operator

We have, looks like a call from Chris Thompson. Chris, do you want to open your line? Chris, are you there? Looks like Chris fell off. Okay, Chris, if you want to put your hand up again, press star 5 and we'll let you in.

Operator

It looks like we might have lost you. In the interim, we have a call from Scott Morrison. James? Yeah. Hey, Chris is there.

Operator

Okay. Scott, we'll come back to you in a minute.

Speaker 2

Sorry. There's a delay between muting and unmuting. Yeah. It's Chris Thompson from eResearch. How are you today?

Operator

Great, Chris. Great, Chris. How are you?

Speaker 2

Great. Just a couple of accounting questions. First, you seem to be carrying a large cash balance still on your books. Is that something just as you work through the integration that will go down?

Operator

Yes, it is. And a little bit of timing as well, Chris. At the end of the quarter, there was a big payroll kind of a couple of days after the quarter. So we had a little bit of an extra buffer for that. But yes, we do expect the cash balance to come down.

Operator

You know, I'd like to see it kind of below $15,000,000 somewhere in probably the $10,000,000 to $15,000,000 is where I'd like to kind of see that exit the year.

Speaker 2

Okay. And then on the flip side of that, I see the inventory is sort of going up on the other side. Did you pre order some stuff for the year? Or is that just because of your contracts that were delayed from Q1 into Q2 and Q3, Q4?

Operator

Yes, good question, good call. Yes, that's inventory is all related to production planning. And so you can assume that orders are going to be on the other side of that. We had certainly back in 2022, we had pretty high levels of inventory. We brought that down nicely, probably still a little bit more kind of organic work to do.

Operator

But yes, a little bit of increase in advance of production.

Speaker 2

Okay. And my last financial question then for you, James, we seem to be having a net fair value losses on the financial statement sort of a regular occurrence. From a modeling standpoint, like what are we seeing for that? Is that something that's working its way out? Or is that something that's going to be an ongoing quarterly, type of situation?

Operator

Yes. That's going to be a bit of an ongoing quarterly thing, Chris. That's really kind of dependent on our share price and how our share price performs. And perversely, the greater our share price performs, the higher those values are going to be. They're all related to kind of mark to market adjustments for long term incentive plans, a combination of DSUs and RSUs.

Speaker 2

Okay, great. So my last question has to do with your digital on the digital side of things, your business. You talked a little bit about the market for the digital asset management. But on your DCM Flex platform that you're working on, what sort of market do you see that? I mean, it's a very specialized customer communication.

Speaker 2

You need to get sort of ingrained with your client to get their data and share that data. And what sort of size of market are you seeing for that type of product? And are you seeing that and as well as for the dam product, are you seeing any cross border sales that could come into play?

Speaker 1

Yes, let me answer your first question, which is the Flex CCM platform or functionality, if you will. So it's hard to put a number on the actual size of market, but I can tell you that any client that has kind of highly distributed broker network, for example, investor advisor network, retail network, QSR network, any client that's got a lot of either physical retail outlets or brokers or sales agents, all those require in today's world personalized communication. So designing retail signage for a particular QSR outlet or retail outlet as an example or dealer if you're in the automotive space right, I'll come back to that in a second or creating highly or hyper personalized communication if you're an investment adviser to your clients as well as prospecting new clients. So the market is quite sizable if you think of the enterprise clients we work with, Tier 1 banks, we do a lot in insurance, quite a lot in alternative lending, quite a lot in retail. We've been growing our business in automotive.

Speaker 1

So all those have personalized communication opportunities. So the example, I told you we won 4 businesses, Chris, automotive, FI, alternative lending and loyalty. So FI, good example. This is a client that has thousands of brokers across the country and they want those brokers to be able to hyper personalize their communication through their clients. So we've obviously through Flex created the platform to allow them to do that at scale.

Speaker 1

I'll give you the exact I also talked about automotive, it's a completely different use case, but it's hyper personalization. This particular client wants to make sure that their brand is the brand integrity is the same across their dealer network, but dealers want to customize that creative, if you will, and personalize that creative for their dealership in a particular market. So the platform allows for that as well. So 2 different use cases, but both kind of hyper personalized. And so hopefully that answers that question.

Speaker 1

Happy to take it offline if you got more questions for me, Chris. I think your other question is a really good one on Assemble, kind of 2 routes to market. 1 is 400 enterprise clients and we know that we've got already salespeople that are talking to those enterprise clients on a daily basis, so we've got kind of a natural route to market there. And then, marketing automation, which will be small, medium sized businesses, primarily in the U. S.

Speaker 1

And we've built an incredible communication platform to be able to, we call it, we kind of call it high-tech low touch to be able to drive penetration into the U. S. Market with our new assemble dotai platform. So kind of 2 routes to one using marketing automation, another one using our direct drive sales force. So we do expect quite a bit of revenue coming from South of the Border as well.

Speaker 1

Okay?

Speaker 2

Okay, that's great. Thanks. That's it for me. Great quarter. Thank you.

Speaker 2

Thanks,

Operator

Chris. Okay. Scott, sorry to put you on pause here. Are you still with us? We have dueling.

Operator

Okay. Yes. Yes. Go ahead, please.

Speaker 5

Perfect. Good morning, everyone. On the synergies and cost savings side, are you able to say how much has been realized at this point of the $30,000,000 to $35,000,000 goal?

Operator

Yeah. I'd say we're probably we're I think the last quarter we said we're around a little over 50% of the way through there. We're in the kind of $20 to $23,000,000 $24,000,000 range right now, Scott.

Speaker 1

On an annualized run rate.

Operator

On an annualized run rate, yeah. And the big kind of incremental savings, the plants that we talked about closing, We're on track to close our combine our thistle and our Bond Avenue Toronto commercial print plants. That should be completed in July. We'll see some savings there. It won't be material.

Operator

The biggest savings are going to come from when we close our Fergus and Trenton plants and those are kind of well on path here. So we expect to see those completed fully by within the next 12 months.

Speaker 5

So outside of the facility consolidation, would you say most of the synergies cost savings have been realized at this point or are there a few areas outside of that that still have opportunity?

Operator

Yeah. The other 2 kind of buckets would be procurement and organizational. And I'd say from the procurement side, the team's done a great job harmonizing our purchasing. There was a lot of business that used to be outsourced to 3rd parties. And we've pretty much put the brakes on the bulk of that.

Operator

And so we're producing that in house and the incremental margins. So a lot of those procurement savings have already been recognized. That being said, the team is relentlessly focused on continuing to drive better terms with their vendors every day. The other kind of bigger big bucket would be on the organizational side, and that's kind of more on the SG and A side of things rather than the cost of goods sold. So if you look at the SG and A, that slide we had earlier where you can see kind of $2,500,000 in kind of annual savings, it's kind of easy to extrapolate that to $10,000,000 on an annualized basis.

Operator

We think there's still some opportunities there, particularly as we consolidate plants, some of the back office systems that we think we can consolidate and streamline. But that will be probably a later in the year, kind of early Q1 opportunity there.

Speaker 5

That's perfect. Thank you so much.

Operator

Okay. You're welcome. All right. We have a question here from, Mastin Mirza. First of all, congratulations on the good results.

Operator

Just wanted to ask about the long term view of the company. Where can we expect DCM in the next 5 years? And what can shareholders expect in terms of dividends and or share buybacks? Thanks and best of luck for the future. Richard, do you want to handle the first part and

Speaker 1

I'll do the second part? Yes. So short term, I'll just talk short term first and then I'll answer your long term question, right. Short term, obviously our main focus this year is get the MCC integration complete, get all that integration behind us. So we have a nice kind of clean clear year in 2025 and onward.

Speaker 1

And then on the long term, listen, the market is still a sizable market for us, dollars 10,000,000,000 market here in Canada alone. Were $550,000,000 $545,000,000 $560,000,000 of a $10,000,000,000 market. There's a lot of very attractive profit pools in this market that we're well positioned to play in and to deliver client success in. One I've talked about before, which is kind of that hyper personalized or personalized direct mail profit pool, that's a growing profit pool. We bring a lot of value there to clients.

Speaker 1

Large format is another very important profit pool that is growing today as well. So lots of exciting opportunities in the category. Obviously, we're working hard to continue to expand our digital portfolio. So we see that as a sizable opportunity over the next 4 or 5 years as well, not just to support our print, but also kind of some standalone opportunities in the market as well, hence the launch of assemble.ai. So we're we see lots of growth opportunities.

Speaker 1

We did put a 5 year plan to the Street saying that we will we're committed to a 5% CAGR over the next 5 years. We'll certainly look at some small tuck in opportunities as well over the next 5 years. But we see lots of opportunities in the market in the Canadian market before even looking at any other international opportunities. Do you want to talk about the shareholder return?

Operator

Sure. Yeah. I guess kind of broadly in terms of capital allocation, there's a few priorities we have in the near term. And that's really in 2024. We have some capital investment initiatives that we're working on.

Operator

We have the provisions for severance that we'll be working through this year and through next year. And then we also have some new equipment that we're looking at as we consolidate footprint. So this year is really about kind of getting ready for 2025. And we'll be looking as we get into 2025 in terms of capital allocation. Certainly, the capital expenditures will decline in 2025 and that will free up some extra cash for other considerations and it could include a share buyback or potentially some sort of dividend in the future.

Speaker 1

Yes, certainly, once we get all the restructuring complete, the free cash flow that we will generate as we continue to grow and continue to improve margin, continue to build this better business that we've been building will be quite significant. Certainly, we'll be very smart in terms of how we direct that cash flow.

Operator

All right. Well, thanks everyone for calling, dialing in. It appears we don't have any questions, but, oh, it looks like one question has just come in. We have a number here, 416-786. And I will let you join the call now.

Speaker 1

Yeah. No. We lost that. Oh, yeah.

Operator

Okay, I think we Hi.

Speaker 2

Hello. It's Alan Jacobs here. I have one question. You mentioned under the SG and A that there was

Speaker 6

one one time charge in

Speaker 2

the quarter, which may or may not be significant. Can you quantify that, please?

Operator

Yes. The charge in the quarter was about $700,000 Alan, and it was for a consulting project to really kind of help us focus on strategic revenue management and a little bit more on the operational efficiencies. But really the intent is there to focus on continuing to drive increased revenue and growth and also operating efficiencies.

Speaker 2

Okay. Thanks.

Operator

Okay. Okay. So that concludes today's call. Thanks, everyone, for joining and for your interest in DCM. As a reminder, Richard and I can be available after the call for any follow-up questions that you may have.

Operator

I hope everyone enjoys the rest of your day. You may now disconnect your lines. Thank you, everyone.

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Earnings Conference Call
DATA Communications Management Q1 2024
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