DATA Communications Management Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2024

There are 4 speakers on the call.

Operator

And gentlemen, and thank you for standing by, and welcome to the Data Communications Management Corp. 2nd quarter fiscal 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 is Richard Kellum, our President and CEO. Following our prepared remarks, we will be moderating a Q and A session.

Operator

As 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 might have. Before we begin, I'd like to remind everyone that we will be referring to forward looking information on today's call. This information is subject to certain risks and uncertainties as outlined in the forward looking information disclosure in our press release and more fully within our public disclosure filings on SEDAR Plus. We will also be referring to certain non IFRS measures and accounting measures, which are more fully defined in our public disclosure records as well.

Operator

We have posted a brief message from Richard along with a summary of our results and key initiatives for the quarter and the coming year on our website in the form of an infographic. Our detailed information is also available on our website and SEDAR Plus. Please follow us on LinkedIn to keep up to date with other business developments. And I'll now turn the call over to Richard.

Speaker 1

Thank you, James, and good morning and good afternoon, good evening to anybody joining us from other time zones or overseas. Thank you for joining us today. We're super excited to talk about our quarter. Today's agenda, we're going to quickly look at highlights of the quarter and the first half. We'll talk about some balance of the year priorities and we'll turn it over to attendees to ask any questions.

Speaker 1

So looking at highlights for the first quarter and first half. We call it, we've been executing our game plan 1 quarter at a time, and we made some tremendous progress, tremendous progress especially around integration execution. We've advanced our consolidation planning and systems migration. We successfully completed the integration or consolidation of our thistle facility that was in Don Mills here in Toronto into our bond facility about what James, about 7 or 8 kilometers down the road. Right?

Speaker 1

That was completed in June. It was actually out of the facility a couple of weeks ago, and things are going fantastic there. Our Trenton and Brampton consolidation is on path to be completed before year end. And our Fergus into Drummondville consolidation is also due to be completed by year end. We've also accelerated our capital investment.

Speaker 1

We'll talk a little bit about it later. Synergies are ahead of plan. As presented last quarter, we're targeting $30,000,000 to $35,000,000 versus our original plan of $20,000,000 to $25,000,000 So certainly on track for solid synergy delivery. They're actually going to be ahead schedule. So originally we were planning completion of our synergy work by mid-twenty 25.

Speaker 1

That will happen by end of 2024. And then our cost of integration is tracking at 1 times the synergies anticipated, which is a best in class return. So very good progress on our integration effectiveness. Focusing on profitable growth has been a key theme for us through the year, really driving transitioning from low client, low margin clients to high margin clients, improving work around, which we call strategic revenue management. So that's really kind of optimization client by client.

Speaker 1

We've secured a lot of new logo wins for the first half of the year. We'll talk about that in a minute. And our gross margin or gross profit is certainly moving in a very favorable direction, which we'll get into in a couple of minutes here. So very good progress in terms of our building our growth platform. In terms of new business development, we've secured 30 new client wins in the first half of the year, roughly $4,200,000 in revenue.

Speaker 1

Now that $4,200,000 in revenue gives us a lot of opportunities to what we call land and expand. So we'll see that expand over time. And our wins, our client wins, I mean, across multiple verticals. Some significant wins in government, in loyalty, in grocery, healthcare, and utilities. And one, maybe honorable mention here is automotive, which has typically been an underserved vertical for us.

Speaker 1

We've really moved into strength in that vertical, and we've picked up a few large automotive clients, and they're very well set for success over time. So we're really understanding how to win in that automotive vertical. From an expansion revenue standpoint, as we call it, or wallet share increase, we've generated $19,200,000 Not all that flows in the quarter, obviously, that flows into quarter 3 quarter 4, But some good expansion revenue and to remind shareholders, when we talk about expansion revenue, that's new services we're bringing to existing clients, right? And new product and new sales we're bringing to existing clients. And again, you'll see that's across multiple verticals from government transportation, lottery, retail, finance, healthcare.

Speaker 1

So good diversification in that wallet share expansion as well. We're also making a fantastic pace on contract renewals. We have 100% of the contracts that came up for renewal so far this year. We have renewed and retained. On the government side, dollars 12,000,000 in revenues through the next 1 to 5 years.

Speaker 1

That's across 2 clients in government. So 100% retention there. On healthcare, we renewed 2 client contracts, terms between 1 3 years, but $9,000,000 in revenue over that time frame. From a financial standpoint, we've retained 4 clients across different FIs, notably 1 large bank. We certainly retain a secured retention between 2 3 years.

Speaker 1

Then transportation, really that's a courier, 2 clients. 1 is a large kind of courier and a large airline. Those contracts have been retained as well. So 5% retention team is doing a fantastic job of continuing to add value within our existing client base. And that's certainly been reflected in the contract renewals.

Speaker 1

From a revenue perspective, on the quarter, we're up 5.7%, about $126,000,000 and a lot of positivity reflected from that MCC acquisition. Looking at revenues by reported segment, we've been breaking this up for the last couple of quarters for shareholders. You see our product sales about $110,000,000 up 1.3% versus a year ago. Our technology services 4,500,000 of revenue. You can see that's up significantly.

Speaker 1

I'll talk about that in a minute, 111% increase. Our freight team has done a great job making sure we're recovering and generating revenue from freight. It's about 4,000,000 up 14%. Warehousing up, 73%. So again, we're we're generating a lot of revenue from from warehousing and kitting and fulfillment from a client perspective.

Speaker 1

That's 4.4000000, our tech enabled hardware. So think of that as some of the digital displays that we're selling as well as some of the, purchases scanners that we're reselling for healthcare. That's up 32% on the quarter. And our marketing services, again, pretty strong. The value we're bringing to clients for some creative and development work and strategy work, about 16% growth.

Speaker 1

So solid growth across all of our 6 segments. Notably, the technology services segment, as I said, dollars 4,400,000 in revenue, up 111 percent. And maybe James, you just jump to the next slide. We're happy to announce that we have just launched Assemble. I'm sure shareholders saw the press release the other day.

Speaker 1

We've actually been working this platform for the last couple of years and really kind of full time development over the last 11 or 12 months. It's now live in market. It's our 1st pure play SaaS product that we have moving out of DCM here into the marketplace. It's a fully AI enabled product, extremely user friendly with high UX. We have a very unique route to market because we're talking to 400 of the largest enterprise clients in Canada with 63 or 64 of our sales reps.

Speaker 1

So certainly, we'll leverage that route to market. And we've got a strong integration story with our DCM Flex platform. And we've got a fantastic kind of onboarding and support model. So we're very excited to get this to market. And we're already active.

Speaker 1

We launched a couple of weeks ago. We're already active with a lot of demos set up with clients. And it is a very highly competitive product to what other dams are out there from a market perspective. Okay? And the AI is incredible that we've incorporated in the platform.

Speaker 1

So really pleased with the team and really excited about the future of that platform. From a tech enabled service win, so think of this as our DCM Flex platform, which does a whole lot of things, kind of workflow automation and customized and personalized communication. A lot of recent customer wins. The team is doing a fantastic job. Customer wins across alternative lenders.

Speaker 1

We picked up a large bank, 1 of the largest banks here in Canada that will be now using the platform for all other workflow. Again, automotive, you know, those automotive wins I talked about from a new client perspective, those are all tech enabled. We picked up 2 providers of loyalty services who want a retailer and want a pure loyalty provider. We picked up a couple of airlines as well, actually one airline and one airport that's using our platform for all of their workflow. And a couple of new clients in healthcare, one notably that's using the platform for email communication, customized and personalized email communication distribution.

Speaker 1

So a lot of good wins. Some of these obviously wins will generate revenue for the Flex platform, but also downstream revenue for print and e mail distribution. In fact, in total, it's about $6,500,000 in revenue that this technology enables across these 6 verticals that we secured wins in. So very good momentum. I'm pleased with the progress the team is making here and great support from the clients.

Speaker 1

As we get this in front of clients and they understand the power of Flex, it's a pretty compelling sales shall we say. Year to date revenues at 30 point or up 30.7 percent over a year ago, but 255,000,000 so we're 60,000,000 up over the same period a year ago. Gross profit, I like to say to James, it's always easy math here, my simple marketing math. If gross profit is growing faster than revenue, then you know your gross margin is moving in the right direction. That's certainly our strategy.

Speaker 1

So as I said, revenue growing 5.7%, gross profit growing 7.2%, about 34,000,000 on the quarter. And you can see our gross margin is set 27.3%, up 0.4% versus a year ago. So we're on track to get back up into that 30% level, which is where we were prior to transacting or prior to acquiring MCC. Year to date, we're up 28.4 percent in gross profit. You can see our gross margin is at 28.1%.

Speaker 1

It's obviously down versus year over year, and that's really strictly due to the overlap of not having MCC in our world. So a higher margin in that first half last year and now obviously consolidating a lower margin business into our work. So you'll see that correct itself as we move through quarter 3 quarter 4 now that we're fully 1 company in those quarters. Okay. So that was exactly plan.

Speaker 1

In fact, we're ahead of what we planned from a gross margin perspective, okay, overall on the half. Adjusted EBITDA, very strong at up 22%, just under $17,000,000 up $3,100,000 over a year ago. And you can see that we're 13.4% on our path to 2014%, which we kind of stated as our 5 year goal. So well on track to deliver that, up from 11.6% in the quarter last year. And on the half, we're up close to 34%, about $35,000,000 or $36,000,000,000 in growth and or $36,000,000 in total rather $26,000,000 or $27,000,000 in growth.

Speaker 1

And you can see, I talked about that $14,500,000 we're at $13,900,000 So we're approaching that $14,000,000 Zone, which we're very comfortable in crossing that in the next couple of quarters. Okay. So very good progress on our year to date adjusted EBITDA as well. Now I'll turn it over to James to just talk about our one time restructuring and some of our

Operator

debt as well. James? Thanks, Richard. We had about $1,300,000 of restructuring and one time charges in the quarter. As we've noted before, most of our heavy restructuring charges were taken in 2023.

Operator

And so we see kind of similar levels going forward in Q3 and Q4, but most of the significant charges are now nicely behind us. Year to date, certainly down considerably versus last year. And just remind everyone that in the Q4, we did take charges for Ferguson Trenton, and those will be closed later this year. The reason we took the charges in the Q4 last year was because with our contracts and union agreements, we substantially were able to determine what the cost of closing those facilities would be. And of course, we're pleased to announce that we do expect those to be fully completed by the end of this year.

Operator

And we've already been advancing workflow out of those plants to the Brampton and Durbanville plants, which are going to be receiving that work. Net income, dollars 4,800,000 which was up from a negative net loss last year. EPS as well, dollars 0.07 versus a negative $0.06 loss last year. Year to date, we're up about $200,000 So adjusted net income is about 4,000,000 dollars and adjusted EPS is about $0.07 The one line item that's making a little bit of noise is the fair value adjustment for our long term compensation. And we've seen some share price decreases this year where so that's been actually a benefit to us from a P and L perspective.

Operator

Last year, we saw some significant increases in our share price. So that was a kind of a larger expense last year. Year to date income, net income, dollars 5,500,000 up from a significant loss about that amount last year and EPS up to $0.10 versus a negative $0.11 last year. You don't see as much in kind of the adjusted net income because we're tax affecting that net fair value gain and loss. But certainly with restructuring and one time charges behind us, you should start to see net income and adjusted net income more closely aligned going forward.

Operator

From a synergies perspective, we're maintaining our target of $30,000,000 to $35,000,000 in annualized synergies. We do expect to have most of our major consolidation and initiatives completed by the end of this year. So we expect to pretty much fully complete those synergies. The big contributors are going to be the ultimate final closures of our Ferguson and Trenton facilities later this year. Net debt, we're pleased to continue to pay down net debt even since the Q1 despite some increased investment in plant equipment and capital equipment.

Operator

Our net debt was down a little over $3,000,000 compared to the quarter. And since the acquisition, we're down $70,000,000 or almost 48%. So we're continuing to focus on paying down debt. Our Fiera private debt, dollars 50,000,000 facility, which we put in place for the acquisition, is now amortizing. So we are seeing kind of regular monthly payments on that as well as the other Fiera piece that we have in place, which was about $7,000,000 at the end of the quarter.

Operator

So continued path there to paying down debt through free cash flow. Do you want to talk about SG and

Speaker 1

A Richard? Yes, sure. SG and A, you can see in the slide here, we're just under 20 $4,000,000 So we're operating at negative overhead growth because you can see we're at $25,400,000 over a year ago, which was on plan. And we're at the 19% range. We'll see that as we continue to operate a negative overhead growth and we continue to grow our revenues to see that number decline or that percentage of revenue come down over time as well.

Speaker 1

So exactly what we planned. Our year to date we're at 49,200,000. Obviously we're up over a year ago and that's just the effect of the timing of the acquisition. Right. We didn't have it.

Speaker 1

We didn't have MCC in our world in the comparative period. Now we do, but you can see that the percentage is up slightly as well as a result of that. And again, if you look at that quarterly trend, you'll see it kind of normalize in quarter 3 and quarter 4 as we are now fully 1 company. So it's just some noise in comparables versus a year ago. But overall, great improvement in driving that negative overhead growth agenda.

Speaker 1

And you can see that on the next slide, if you look at our headcount, our headcount has gone down from call it, roughly 1900 to 1673. We'll see that decrease as we close a couple more facilities. And you can see our productivity per associate or revenue per associate has improved up to just under 304,000 per associate. Again, you'll see both these heading in the right direction as we get into quarter 3 and quarter 4 as well. So great improvement from an SG and A perspective.

Speaker 1

Why don't you talk capital, James?

Operator

Yes. Capital Investment, the first half of this year has been a big focus on integration planning and readiness for some of the big moves that are happening this year. As we previously noted, the thistle and bond closure happened. And so a significant piece of the PP and E investment so far was related to that closure. We upgraded the facility and most of those PP and E investments are related to either preparing facilities with electrical or HVAC or otherwise.

Operator

We've also been making equipment investments. You'll see on our cash flow statement year to date, we're about $6,900,000 of capital investment. We do see that kind of tapering off through the balance of the year. We still probably have a couple of $1,000,000 of capital investment on the PP and E side. There's about $6,500,000 of I guess the technical term is kind of construction and process for equipment that we ultimately plan to lease.

Operator

But given some of the timing of the equipment, we had advanced deposits. We will be getting that capital back from the leasing companies that have actually received some of it already in July. As that equipment gets refinanced, we intend to lease a lot of that kind of new capital that's sitting in a kind of a let's call it a temporary holding account for now, but it will ultimately flow into lease liabilities as we install that equipment. Yes. And I'd just say

Speaker 1

that I'd just add that I've been around the network with and have a look at the new capital that we're investing in. We have really built a world class factory, world class network here that is going to allow us to grow quite significantly off of this new platform. So really proud of the team in terms of what they've accomplished in terms of the consolidation, new capital, new capital deployment. And it's going to be fantastic for our clients in the market here. So, yes, congrats to the team for a lot of hard work.

Speaker 1

But, again, we've really optimized the network very effectively. Just having a look at our sustainability effort here, as shareholders know, we reforest 100% of the paper that we use on behalf of clients. So think of it every £83 of paper we use in client workflow, we put a tree in the ground for that client, and the client takes advantage of that credit in their ESG efforts. So you can see on the quarter, we reforested 244,000 trees and I'm happy to announce, we're going to do a little celebration in September that we've actually crossed 2,000,000 trees since we commenced the program kind of mid to late 2022. So Looking at the balance of the year priorities before we turn it over to Q and A.

Speaker 1

Any shareholders joining us, this page should look familiar and intentionally familiar because our priorities haven't changed. We're driving hard on the MCC integration. Quarter 3 and quarter 4 will be the first full quarters that we're fully integrated as one company. A lot of harmonization, obviously, in back office and already referenced the plan consolidations, which will be complete by year end. So thanks to the entire team for all the work, the heavy lifting and work that's happening here.

Speaker 1

We're running a business as we integrate a business. We're building a bigger business as we build a better business at the same time. So some great work happening across the organization. We're relentlessly focused on improving gross margin and getting to pre acquisition levels. That's through what we call our strategic revenue management process, driving those lower overheads and operating costs.

Speaker 1

We already talked about the capital, which is going to significantly improve our productivity and effectiveness, which obviously flows directly into gross margin and then driving hard on the operational efficiencies. And again, a ton of work across the network. We've obviously built a perfect platform for growth and we're seeing that in new business development. So as we're building a better business, we're not forgetting about going out and winning new business and securing new business in the market. The 30 new clients kind of speak to that.

Speaker 1

We've built a real solid growth muscle and our 63, 64 frontline salespeople, All of our sales leaders wake up every morning and they dream about growth. And I can tell you that the conversations are fantastic. We see a very bright future, lots of opportunities in the marketplace, lots of opportunities around cross selling and upselling. I talked about some vertical focus. I said automotive, but there's other verticals as well that we're penetrating.

Speaker 1

And then great pace on our digital acceleration and really pleased with the progress we're making on Flex. And again, the launch of Assemble, which we'll see great results as we move through Q3, Q4 and into next year. And then we're generating we want to continue to focus on generating higher levels of free cash flow. And as we get through all this restructuring, we're going to we'll certainly see that we'll certainly see that into 2025, right. So 2025 will be a very clean year as our restructuring will be behind us, our capital will be deployed, and our platform for growth will have been built.

Speaker 1

It's already been built today, and will enter into a, you know, highly productive year as we move forward in 2025. So that's our focus for this year. You know, lots of lots of heavy lifting. Team has done a fantastic job. Maybe a big shout out.

Speaker 1

Thanks to the entire team. We couldn't be here without ever being working and heading in the right direction here. So congrats and thank you for all your hard efforts. So now we'll turn it over to any Q and A that our investors have here.

Operator

Thanks, Richard. We'll now like to take questions from the audience. If you have a question and you're accessing the call through the Teams function, please raise your hand and we will queue up questions. Alternatively, you can use the chat feature and we'll respond to chat questions as well. I see a couple of questions here.

Operator

So I will get my deck. And I have a question from Max Ingram. Max, do you want to go ahead, please?

Speaker 2

Yes, can you guys hear me okay?

Operator

Yes, we can. Thanks, Max.

Speaker 2

Okay. Thanks for taking my question. So just a couple for me. First one was, it sounds like you're expecting incremental year over year growth in Q3 to Q4. If I'm thinking about the timing of MCC, this implies a return to organic growth.

Speaker 2

So I guess my question is, I'm thinking about that correctly and maybe you can touch on what's driving the visibility you have because based on my calc, I think organic growth was still negative this quarter.

Speaker 1

Yes. No, great question. And you're absolutely right. Your calc is correct. Negative growth sorry, organic growth was negative on the quarter, positive obviously overall with integration.

Speaker 1

But that was planned, Max, given all the integration work that we're completing. We've just brought 2 sales forces together. We've moved books of business across our teams. We're going through a massive ERP implementation, MCC and SAP and DCM legacy D365. So you can imagine we're working through 2 systems to bring those together.

Speaker 1

Those are kind of planned programs. And you are correct, we are anticipating organic growth in quarter 3 and quarter 4. Now that we've kind of settled down a lot of the integration work, our teams, all the books have transferred across to the 63 or 64 frontline salespeople. And we're seeing lots of opportunities with existing and new businesses as we move into the next couple of quarters. I will remind you as well that quarter 4 will be a softer comp.

Speaker 1

I mean quarter 4, we were pretty active bringing teams together as well. So we're up against underlying comps were a little stronger in quarter 1 and quarter 2 and a little softer in quarter 3 and quarter 4. So we have that kind of tailwind as well to our advantage. So combination of work that's completed, what we can see in our funnel at this point from existing client workflow and new business development And then some of the softer comps, we're expecting positive organic growth in 3 and 4.

Speaker 2

Okay. Thanks very much. That's helpful. And then my next question is also sort of related to demand. I know that you guys have been focusing on the higher margin business, which has caused some customers to fall off, which makes sense.

Speaker 2

And then there's also some deferral in projects to later quarters. So my question is, do you see anything outside of these two dynamics? Like any comments about softening of the demand or is demand still strong and it's just these two factors at play?

Speaker 1

Yes, I know. It's a great question. Overall, we see demand as still strong. We have a couple of anomalies with a couple large FIs that actually reduce some of their workflow this year. When I say reduce workflow, think of kind of personalized direct mail campaigns, a cup, 2 fewer campaigns, which were sizable campaigns.

Speaker 1

We think that's just timing. We don't think it's anything underlying from a market standpoint. It's just sometimes you experience those year on year. You may have a couple of programs in the prior year that don't repeat this year. So we don't think that's anything due to demand.

Speaker 1

It's just sort of, you know, program timing with clients. And you always have moves between clients. 1 year, a program may run, next year it may not, etcetera. But what I can tell you, Max, is, and I referenced it earlier, we see continued opportunities in the market. And that's why we stay growth obsessed and bring and hunt for new clients.

Speaker 1

We've got a very focused strategic leadership model that are that all of our client reps work on, if you will, and identify opportunities in the marketplace to secure wins. So if there are any clients where we're seeing some work move between years or programs that may not be repeating, we certainly look to offset that with new business development and expense revenue between clients as well. But a long way to answer your question, we're not seeing any significant headwinds from a marketing planning, marketing budget, marketing execution perspective.

Speaker 2

Okay. Thanks, Richard. Thanks, James, for taking my questions. I'll pass the line.

Operator

Okay. Thanks. We have a question from Noel Atkinson. Sorry, no, I'm having a problem getting you in here.

Speaker 1

As we wait for Noah to come in, I think there's one other question that I didn't answer of Max. So Max, I'm going to just reflecting on this. We have intentionally walked away from some business where we've worked to improve the margin and clients have gone elsewhere and that's okay for us. That was planned, not significant. And we think we've got most of that cleaned up at this point.

Speaker 1

So we won't see that in our numbers in quarter 3 and quarter 4 as well. So most of that work again has already been completed, at least the sizable clients that were legacy clients that needed to be margin approved, shall we say.

Speaker 2

Yes. Okay. That makes sense. Thanks.

Operator

Okay. Great. And maybe we'll figure out the audio here for Noel. I have a call from, it looks like Chris Thompson. Chris, dialing in, you can use star 5 to enable your microphone.

Speaker 3

James, can you hear me now?

Operator

Yes. Got you live, Chris.

Speaker 3

Okay. Great. How are you?

Operator

Excellent. Thanks. Hi, Chris.

Speaker 3

Hey, how are you? Just a quick question on the positive side, just looking at your admin expenses, on your expense side, it looks like you've done a good job coming down again quarter over quarter. Is that sort of your new benchmark? And I know that you mentioned that the headcount will come down probably a little further as the facilities close. So can you just give a little guidance because it was a good incremental change even quarter over quarter?

Operator

Yes, I'd say from an SG and A perspective, the second quarter is a pretty good run rate to use for the balance of the year, Chris. Most of the kind of additional changes that we'll see through the balance of the year will be more in the cost of goods line as we finish some of the plant closures in Trenton and Fergus. So that will be kind of more an impact that we should start to see through Q3 and particularly kind of Q4 and then really kind of a fully loaded improvement in Q1 of 'twenty five.

Speaker 3

Okay. So great, because I did notice that there was a slightly high lower gross margins this quarter quarter over quarter, but you think that that's going to start turning around towards the end of the year?

Operator

Yes, a little of the gross margin quarter over quarter. Remember the first quarter is typically very strong, not only for kind of the DCM legacy business, but also it's historically been the MCC legacy business, strongest quarter from a revenue and a gross margin perspective. And that's because of a lot of the transactional print work that's done in the Q1 relating to year end statements and tax forms and things like that.

Speaker 3

Okay. And just I don't necessarily want to continue to talk about this, but the Q2 of last year was only sort of a 2 month of 3. And so the incremental, but I think Richard, you mentioned that you don't really see any headwinds. It's just a matter of some timing and a little bit of a change. But I also did notice that even though your tech enabled subscription fee is up substantially year over year, quarter over quarter, it kind of dropped.

Speaker 3

And I'm just wondering how much of that may have been one time purchases in Q1 versus other items of a trend?

Operator

Yes. Because of the stronger Q1 that MCC typically has, that also has higher programming fees which fall into that tech services bucket. And so that's why that would typically be stronger in the Q1 as well, Chris. So there are kind of higher programming fees. You'll see a bit of a blip in that line in the Q4 as well for work that's gearing up for the Q1.

Operator

But then also in the Q1 would be kind of a lump of that programming work that gets done for annual statements.

Speaker 3

Great. And then sort of my last question is on the equipment purchases. Q1, you did $2,200,000 Q2, you did $4,300,000 I know you were consolidating, buying new equipment, upgrading to help with the gross margins, which is all great. What are you sort of forecasting for the rest of the year similar to Q1, similar to Q2 or where do you see things hitting in?

Operator

Yes, I'd say Q2 was kind of a big quarter because we certainly advanced payments for a number of pieces of equipment and making ready some of the facilities, particularly the bond facility to receive thistle, but also some other work that was done in Torbjorn and Drummondville to get ready for the move. So most of that is now behind us. I'd see it's kind of more second and third quarters should look more like the Q1, maybe even a little bit lower kind of total kind of purchase of property, plant and equipment. And a lot of the equipment that we plan to lease has been kind of prepayments and advance payments have already been made. So we're kind of well down that path.

Operator

Some of that equipment has already been installed in the first and second quarter. Some of that equipment is going to land in particularly in Brampton in the 3rd and 4th quarters of this year, some new label equipment and some other kind of related workflow equipment.

Speaker 3

Okay, great. That's it for me. Thanks.

Operator

Thanks, Christian. Noel, do you want to try again, see if we've got our mic working? No. No. Okay.

Operator

Okay. All right. Well, apologies for that, Noel. It doesn't appear that we have any other questions. Richard, do you want to have all the closing remarks?

Speaker 1

Yes, sure. Listen, thank you everybody for joining us today. Solid quarter, looking forward to continuing our integration and acceleration journey in quarter 3 to quarter 4. Again, maybe we'll just close on thanking the entire DCM team for the hard work and delivery on the quarter and look forward to the progress we're going to make through the rest of the year. Thank you, everybody, and thanks to all of our shareholders for continuing to follow our journey.

Speaker 1

Appreciate it. Thank you, everybody.

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Key Takeaways

  • Integration & Synergies: Completed the Don Mills–Bond facility consolidation and accelerated capital investments, with $30–35 M targeted synergies now ahead of schedule and expected to be fully realized by end 2024 at a 1× cost-to-synergy ratio.
  • Revenue & Profit Growth: Q2 revenue rose 5.7% to $126 M and gross profit increased 7.2% to $34 M (27.3% margin), while YTD adjusted EBITDA climbed 22% to $17 M (13.4% margin) and net income turned positive at $4.8 M versus a prior-year loss.
  • Tech & SaaS Expansion: Technology services revenue jumped 111% to $4.4 M and the new AI-enabled SaaS platform, Assemble, was launched to 400+ enterprise clients, complementing DCM Flex wins that represent a $6.5 M revenue pipeline across key verticals.
  • New Business & Retention: Secured 30 new client wins generating $4.2 M in initial revenue and $19.2 M in expansion deals, and achieved 100% renewal on contracts up for expiry (approx. $33 M over 1–5 years) across government, healthcare, finance, and transportation.
  • Debt Reduction & CapEx: Invested $6.9 M in H1 capital for facility upgrades and equipment (to taper in H2), and reduced net debt by over $70 M (48%) since the MCC acquisition, with ongoing amortization of the $50 M private debt facility.
AI Generated. May Contain Errors.
Earnings Conference Call
DATA Communications Management Q2 2024
00:00 / 00:00