DATA Communications Management Q2 2026 Earnings Call Transcript

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Provided by Quartr
August 11, 2026

Key Takeaways

  • Positive Sentiment: Management expects a return to year-over-year revenue growth in Q3 and Q4, supported by stronger new-logo activity, higher average client value, improving business mix, and stabilization in the core business.
  • Positive Sentiment: DCM reported CAD 15.7 million of free cash flow in the first half, a CAD 16.3 million improvement from the prior year, while net debt declined 26% before the Octacom acquisition.
  • Positive Sentiment: The Octacom acquisition adds a business with more than CAD 23 million of trailing-12-month revenue, high recurring revenue, low churn, proprietary technology, and higher gross profit and EBITDA margins; it is expected to contribute beginning in Q3.
  • Positive Sentiment: Management sees a significant opportunity in intelligent document processing, citing a market growing at more than 30% annually and cross-selling potential across DCM’s 2,500-plus customers, particularly in government, financial services, healthcare, and logistics.
  • Negative Sentiment: Revenue remained below prior-year levels in Q2, and the Octacom purchase increased DCM’s debt load; although management intends to maintain the dividend and prioritize debt repayment, larger cross-selling benefits are not expected until the first half of 2027.
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Earnings Conference Call
DATA Communications Management Q2 2026
00:00 / 00:00

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James Lorimer
CFO at DCM

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the DATA Communications Management Corp. second quarter fiscal 2026 financial results conference call. My name is James Lorimer, CFO of DCM, and I am pleased to host today's call. Joining me is Richard Kellam, President and Chief Executive Officer, and Lee Berger, Managing Director of Octacom. After our prepared remarks, we will open the call for Q&A. As a reminder, this conference call is being broadcast live and recorded. Richard and I can also be available after the call for any follow-up questions. Before we begin, I will remind everyone that today's call will include forward-looking information. This information is subject to risks and uncertainties described in our press release and in our public disclosure filings on SEDAR+. We will also be referring to non-IFRS standards measures.

James Lorimer
CFO at DCM

The details and reconciliations of which to IFRS measures can be found in our most recent public disclosure, which is also filed on SEDAR+. Presentation recording and transcript will be available on our website following the call. Additional information relating to DCM is available on our website and on SEDAR+. We also invite you to follow DCM on LinkedIn for updates on our business developments. I will now turn the call over to Richard.

Richard Kellam
President and CEO at DCM

Thank you, James, and good morning, and good afternoon and good evening to any shareholders joining us from other markets or other time zones. As many on the call have likely already reviewed the press release, our second quarter results were generally in line with what we expected. While revenue remained slightly below prior levels, our sales activity did remain very robust. We generated strong free cash flows. We continued to pay down debt quite significantly on the quarter. We completed of course, this very strategic acquisition of Octacom, and we are going to spend a majority of our time on the call today reviewing that acquisition. I will move pretty quickly through the quarter.

Richard Kellam
President and CEO at DCM

As noted on our press release, moving through the third quarter and into the second half of the year, we are seeing very encouraging signs, including an expected return to positive year-over-year revenue growth a more favorable business mix contributing to improved gross profit. A continued momentum in new business development, which I will talk to on the next page, and then of course, continued strong free cash flows. In addition, of course, the Octacom acquisition is going to deliver enhanced revenue and earnings contribution through the balance of the year, and we will talk a little more detail as we progress through the call here today. Again, I am going to move fairly quickly on the numbers for the quarter because I do want to spend the majority of our time with Lee on this fantastic acquisition of Octacom.

Richard Kellam
President and CEO at DCM

So as I said, kind of in line with what we expected, revenue decelerating on the quarter. We are seeing that continue to stabilize, and we will see that, obviously, stability as we progress into Q3 and Q4. From a new business development standpoint, our revenue from new logo wins did accelerate quite significantly. Actually, much higher rate than a year ago, and plus the average value per client is considerably higher. Obviously, this positions us well and why we are confident we are going to see that return to growth in Q3 and Q4. Our tech-enabled service hardware, and revenue from software continues to grow, up 10.4% on the quarter. We are now about 7.3% of total revenue. Gross profit was in line with what we expected on the quarter.

Richard Kellam
President and CEO at DCM

Our SG&A, we continue to build a better business, and you can see that our SG&A continues to decrease over a year ago. Adjusted EBITDA, in line, just under 13% of total revenue. Again, we will see that progress as we move into Q3 and Q4 with the base business as well as the addition of Octacom. Free cash flow is extremely strong, up CAD 15.7 million in the first half of 2026, and it is about a CAD 16.3 million swing versus a year ago.

Richard Kellam
President and CEO at DCM

So very solid free cash flow delivery. Net debt, we are very pleased with our continued progress on reducing debt. Obviously, this is prior to the Octacom acquisition, which we will see included into our Q3 results. We are down 26% of the year, and it is the lowest leverage we have seen in three years. So, real good progress on continuing to pay down debt.

Richard Kellam
President and CEO at DCM

Then, of course, we returned a solid amount of capital to shareholders, about CAD 3.4 million in the quarter. So again, in line with what we expected and decent progress through the quarter. As I said at the top of the call, we do want to spend a majority of this call with reviewing the Octacom acquisition. Lee Berger sitting beside me here, our new Managing Director, managing the Octacom division of DCM. Lee is going to provide you with an update of the Octacom business, so a good overview of the Octacom business. He is going to talk about the intelligent document processing market, the size and growth of that market, why the market is growing so quickly. He is going to also talk about opportunities for Octacom and IDP as now being part of DCM. So we are

Richard Kellam
President and CEO at DCM

Listen, we are very excited about the acquisition. You read the press release, and you can hear my excitement in the call today. It is just a month ago, it is actually a month and two days since we completed the acquisition, and we are already off to a great start. I want to be clear to shareholders that the IDP, or intelligent document processing market is not new to DCM. We started down that path about two years ago with very serious intentions to build a business here in IDP. We saw lots of inbound coming from clients, and we have already built a much smaller obviously, than Octacom, but a small piece of business in IDP that is a fast-growing piece of business. So it is not new to us.

Richard Kellam
President and CEO at DCM

The addition of Octacom obviously just allowed us to get there a lot faster, buying versus building and buying one of the fastest-growing IDP companies in Canada. We are very excited, and it certainly makes us a much stronger competitor in this space right from day one. I am going to turn the call over now to Lee. Lee, welcome to your first earnings call here and excited to hear about Octacom.

Lee Berger
Managing Director at Octacom

Excellent. Thanks, Richard. Thanks, James. Glad to be here with everybody on today's call. What I plan to do is provide an introduction on Octacom, an introduction to the IDP market, as it is probably a relatively new market for some investors here on the call. As well as talk a little bit about how we are collaborating already with DCM in the acceleration of our go-to-market plans now that we are reunited here. From an investment standpoint, there are some highlights you will see there on the slides. Ultimately, Octacom is a scaled operation. In the trailing 12-month period, we have generated just over CAD 23 million of revenue. We would be one of the leading IDP players here in Canada, and we deliver our solutions through a combination of different technology platforms, largely built in-house, that allow us to deliver really efficient, automated end-to-end solutions for our customers.

Lee Berger
Managing Director at Octacom

What that results in is very high recurring revenue, high+ churn, the ability to augment our solutions over time, and drive strength in margins, and ultimately drive strong free cash flow. Octacom has been in this market for the last 50 years. I have been with the company for the last 10, driving the latest stage of growth, and we see a tremendous amount of opportunity ahead as we join the DCM team and accelerate our go-to-market plans. Takeaway here really profitable growth, fast-growing business, sticky customer base, proprietary technology that we continue to augment and intend to augment even faster with the strength of DCM behind us. Moving to the next slide, a little bit of an overview of what IDP is. There are many use cases for IDP, but there are a couple different solutions that land in the IDP sphere.

Lee Berger
Managing Director at Octacom

The most comprehensive of those solutions is a workflow that you will see up on your screen right now, which really entails automating complex document-intensive processes, which are the backbone of a large number of large enterprise and government customers and prospects that exist out there. This is really leveraging a multi-step process to intake, extract, classify, and feed downstream systems with relevant data that has been extracted and validated in the documents intensive workflow. That involves a capture stage, a classification stage, an extraction stage, a validation stage. Typically, some form of workflow automation, whether it be within our ODAS platform, our proprietary web-based platform where clients can interact with documents, workflow them, drive automated rules, and ultimately through system integration between ODAS and multiple different types of downstream systems. In our process, we use a combination of different innovative tools to drive automation.

Lee Berger
Managing Director at Octacom

We use OCR, ICR, we use AI, we use machine learning, we use natural language processing. We use a series of different intelligent tools and really AI-augmented tools to allow us to deliver our solutions both efficiently from a delivery time perspective as well as from a cost perspective. With a little bit of a background on what it is that we do, we're sort of that solution provider behind the scenes within lots of organizations that we would all be familiar with. It is important to understand what does this market look like. As we have displayed over the last nine or 10 years of ownership, we are able to grow at a very rapid rate, taking advantage of both a rise in tide in this IDP market, as well as this ultimate digitization wave that we are seeing from a lot of our clients.

Lee Berger
Managing Director at Octacom

As we look at the market looking forward, we are seeing that 30%+ compound annual growth rate continuing. There is a number of drivers for that. There are AI drivers and sort of richness and value and legacy information, should it be not yet digitized. There are rising rates in digital adoption in terms of taking physical processes, converting them to digital or bridging the gap, having hybrid environments where there is both digital input and physical input. Ultimately, we do stand out in the field of data sovereignty and our services being performed in Canada in secure facilities across both the Octacom and the DCM network. We are going to talk a little bit more about that in the next few slides. From a market driver standpoint, really cost is probably what matters most to investors. Manual data entry is generally expensive for large enterprise and government.

Lee Berger
Managing Director at Octacom

There is a lot of automation opportunity that exists within these specific spheres that are our target market. IDP can cut the cost of that entry from CAD 5-CAD 25 a document down to much more diminished rates of between pennies and CAD 1 per document. It allows us to go into new opportunities with a cost lens or an ROI lens that is rather accelerated. That has been part of what has helped us in our growth trajectory to this point. Ultimately, there are lots of market drivers that are presented to you up on screen there, but lots of unstructured data that clients are looking to structure, extract, validate, and use for inputs to data models or otherwise. We are able to leverage, in our environment, various different AI models to augment our processing.

Lee Berger
Managing Director at Octacom

That has been a boon for us and an area in which we have been able to take advantage of AI innovation and changes that are taking place in the market, and building a rather modular platform that allows us to plug and play different models for different use cases to be that compliance layer while delivering value to our clients. There is a series of other drivers. I mentioned a few moments ago, general digital transformation. When we look at the Government of Canada, the provincial government and municipalities, for instance, we see massive archives of physical information. The same holds true in the healthcare space as well. We see massive archives of historical information that once did not have the value that it does today.

Lee Berger
Managing Director at Octacom

We're seeing budgets coming to bear and opening up, allowing us to digitize that information and leverage that information for use cases and feeding certain models to enable these clients to get more value out of the documents and the data that exist and free up that storage space, physical storage space that once occupied buildings and buildings worth of space. Just looking at where IDP is relevant, it really is across all industries and all verticals, more so at the large enterprise, mid-market enterprise, less so at sort of the startup level, as you can imagine. As we look at industries with the highest opportunity set and the largest addressable market. We're looking primarily to continue to focus on the government sphere. Good examples would be general records modernization, benefits processing, citizen correspondence, application forms for passports, et cetera.

Lee Berger
Managing Director at Octacom

In the healthcare sphere, we do a fair amount of work in this space. Medical record digitization and data extraction, claims processing, referral routing is another great example that you'll see up on screen there. On the BFSI side, financial services, we see a host of opportunities, probably the largest opportunity set second to government in my opinion, exists in the financial services space. This is a space that DCM has a really strong footing in and was really one of the drivers for our collaboration in how we're going to market. Octacom had very little exposure to BFSI. DCM holds tremendous relationships with really all of the, or most of the financial services organizations in Canada. Taking our platform and our solution suite over to assist with things like new account opening, loan and mortgage processing, compliance archiving, these are valuable use cases.

Lee Berger
Managing Director at Octacom

Digital mail rooms are another good example, and we talked a little bit in a press release. We talked a little bit about our recent announcement that we'll mention on the next slide. These are really high-value, sticky use cases that we anticipate growing across the prospect base that we do have. Finally, transportation logistics. Octacom's pretty active in this space already, have a really solid solution from a proof of delivery management standpoint. This is managing bills of lading, extensive data extraction off of them, receipt and packing slip gathering. We have quite a comprehensive proof of delivery documentation process and solution that's in place, and we see tremendous amount of opportunity scaling that out across the DCM world. I've gotten the question a few times, why DCM? I think it really can be distilled to a couple of key drivers.

Lee Berger
Managing Director at Octacom

Octacom really brings a platform, a team, and an incredibly strong base of blue-chip business. This is a business that's strengthened over the years. We've invested as we've profitably grown the business in our technology and our team. We hit an inflection point where we felt that another organization, and it's an institution almost, with a broad enterprise client base could help us accelerate the growth of Octacom into this next stage. DCM really brings the commercial reach, those enterprise and government relationships that we don't already have, the know-how and the ability to drive outbound pipeline generation in a more scaled manner, and a national infrastructure. When I talk national infrastructure, I'm really talking about leveraging existing DCM premises to broaden the IDP footprint and service offering. There is somewhat of a local element to some of the IDP services that are provided.

Lee Berger
Managing Director at Octacom

The ability to have, with relative ease, a new facility added and low CapEx, or a relatively new facility added in several new locations allows us to both drive margin as well as drive top-line growth through new customers in those respective geographies. Between the two organizations, there really is a tremendous fit culturally and a tremendous moat from a go-to-market standpoint. That is, we have top-tier security compliance and privacy standards across both organizations, so the fit has been incredibly smooth. We also hold, between the two organizations, MSAs with over 70 of the top 100 large enterprise and government organizations in Canada, which gives us a great pool of prospective customers to continue to push our use cases into. That's really exciting.

Lee Berger
Managing Director at Octacom

The last note that I'll throw in there before passing it back or opening it up is we really are off to a strong start. We closed, as Richard mentioned, July 8th, so not that long ago. Lots of integration activities underway, lots of sales and marketing collaboration opportunities that we're deep in pursuit on already, which is fantastic. As just one case study or case in point was a recent announcement of a Schedule 1 Canadian bank that we are now onboarding and have signed on with for a large, broad-based digital mailroom operation that is currently in implementation. We're incredibly excited about taking our platform into an existing DCM customer and having collaborated on a very quick execution point here that we anticipate replicating going forward. Maybe last point, lots of cross-sell opportunity.

Lee Berger
Managing Director at Octacom

I think you probably picked that up from me throughout the discussion over the last 10 or 15 minutes. Ultimately, there's active collaboration with the sales and marketing team here at DCM and across DCM's 2,500+ customers. We should see a tremendous amount of opportunity to sustain and potentially accelerate the Octacom growth rate looking forward. So I'm incredibly excited about that. I'm excited about being invested alongside you all and the team here in helping drive the future of the business.

Richard Kellam
President and CEO at DCM

Thank you, Lee. I'll just add one other point to what Lee said. We don't need to go back to the chart but if you think about government, BFSI, healthcare, and transportation, and you think about the physical element. When I say physical, the physical paper or forms that are now converted through the Octacom IDP process into intelligence. We actually print a significant percentage of those physical forms. So think of the value we can now bring to our client base, and that's what made this deal super attractive as well. So yeah, just closing you can see on the left-hand side of the slide here, clearly Octacom and DCM. We've got a very bright future together. It truly allows us to accelerate our IDP leadership in a market that's growing and expanding very quickly.

Richard Kellam
President and CEO at DCM

We've got built-in operating leverage with the existing facilities that are fully compliant, and very low CapEx. The revenue and the margin and profitability of Octacom coming into DCM world, very strong to build off of very new complementary business, building on the point that I said earlier, serving large regulated enterprises and government. Again, we can now offer that value-added service on top of the forms and paper we're producing for these clients. You read in the original release that we have an enhanced credit facility and lots of bandwidth to grow. We're going to continue the commitment to shareholders with quarterly cash dividends. So, very strong acquisition and certainly a stronger DCM right from day one. I'm going to close on our priorities for 2026. Obviously, the top left box here, we're going to maintain high revenue retention and drive new business development.

Richard Kellam
President and CEO at DCM

Again, we've been off to a really good run recently on new business, and we're moving from strength to strength there, and we'll see that continue through the balance of the year. We're going to continue to focus on improved gross margins, and those gross margins will flow through, obviously with the addition of the Octacom acquisition. Importantly, as well as that base business stabilizes and starts to grow, and we see better utilization of our assets then that obviously naturally improves gross margin. We've been improving mix quite considerably as well. We're going to generate robust cash flow to support our debt reduction.

Richard Kellam
President and CEO at DCM

Finally, if you look at that top box there our main strategy, in addition to obviously driving that base business and that growth and continue to build a better and bigger base business is to fuel the Octacom's growth by leveraging the DCM commercial reach and the supply chain that we've got. Our team is just there to assist Lee and his team on continuing to accelerate. As Lee said, we're off to a very good start in the first four weeks Outlook. I'll just close on this page. We'll turn it over to Q&A. Building momentum in the second half. Lots of new logos that we've won. A good, healthy pipeline. We're seeing that market stabilize. Obviously, Octacom contributes to the quarter in quarter three.

Richard Kellam
President and CEO at DCM

Strong cash flow and liquidity to fund growth, and certainly well-positioned as I said to deliver this expanded IDP opportunity, the operational discipline and profitable growth that we're committed to deliver. We're still committed, obviously to that quarterly dividend program. We will continue as we always have to monitor any trade policy or tariffs or macro uncertainty. We're not having any headwinds right now with the recent announcement from south of the border, but we'll continue to monitor that. That's the outlook, and we'll now turn it over to questions.

James Lorimer
CFO at DCM

Thanks, Richard. We'll now take questions from the audience. If you are joining through Teams, please use the raise your hand feature, and we'll queue up questions. You may also submit questions through the chat bar. When called on, please unmute and introduce yourself before asking your question. We have some questions here. Why don't we take Noel Atkinson, please?

Noel Atkinson
Noel Atkinson
Analyst at Clarus Securities

Yeah. Hi, guys. It's Noel Atkinson from Clarus Securities. Good morning. Richard and James, and welcome, Lee. Thanks for taking our questions.

Richard Kellam
President and CEO at DCM

[You're welcome].

Noel Atkinson
Noel Atkinson
Analyst at Clarus Securities

Okay. First off, just on Octacom, and the overall IDP division for DCM. Can you guys talk a little bit about what you've seen for momentum within that division so far in 2026?

Lee Berger
Managing Director at Octacom

For me? Yeah. We really came into the deal on strength. Our pipeline has been robust through the entire duration of 2026 to date, and continues to be rather robust. The DCM opportunity set that's coming in is really augmenting our pipeline, and we're working on how to scale our ability to manage that pipeline. That's where some of our focus has been. It's, A, educating the DCM team on the IDP solution set to help drive opportunities and then, B, to be able to intake, manage, and ultimately execute on those opportunities from the Octacom execution standpoint. So I would say we've come in strong. We've continued to be strong. We're seeing substantial growth year-over-year in 2026 over 2025.

Lee Berger
Managing Director at Octacom

With Octacom, we do have a fiscal year change. We're moving from a May fiscal year to a December fiscal year as we join the DCM team. We're working through syncing up all of our KPIs to be able to report that in a way that's valuable to you.

Noel Atkinson
Noel Atkinson
Analyst at Clarus Securities

Great. In terms of building the sales funnel and this is both for the DCM guys and for Lee on the Octacom side. Have you been building your sales funnel? You've been outbound marketing through your sales teams, or has it been inbounds and pursuing RFPs?

Lee Berger
Managing Director at Octacom

Maybe I'll talk first.

Noel Atkinson
Noel Atkinson
Analyst at Clarus Securities

Sure. Yeah.

Lee Berger
Managing Director at Octacom

From the Octacom side pre-DCM, the vast majority of Octacom's business has come through what I'll call inbound. So a combination of quite literally, inbound into the website from content that we have out there from RFPs and from referrals. So those have really been the core drivers of the Octacom pipeline historically. We have had candidly little to no outbound targeted effort historically. That was a function of our lack of scaling our commercial go-to-market team, and one of the reasons for this particular partnership, for us believing that there's a tremendous amount of upside here. So yeah, Noel, I'd say it's largely been inbound from the Octacom side. There are certain pockets, certain industries, certain use cases where we've had some marked success. In those scenarios, we do build a bit of a consultant network for referrals.

Lee Berger
Managing Director at Octacom

At times we have done outbound campaigns, but we are talking incredibly sparse. This is a lot of the value add that is currently being actioned from the DCM side to help augment that funnel.

Richard Kellam
President and CEO at DCM

Yeah, maybe just building on that. The first thing we did as well, Noel and shareholders is as I said, IDP is not new to DCM. We had a leader that was actually reporting directly to me, Andrew Varga, who was our IDP subject matter expert and commercial leader. First thing he did was put him directly into Lee and Lee's team. So we have that conduit now between call it the DCM commercial team and the Octacom team. So that has already been implemented, and we obviously brought.

Richard Kellam
President and CEO at DCM

We did not come with an empty funnel either, right? So Andrew was working on a pretty active funnel for the last several months, well actually over the last year. So that funnel is now part of the Octacom world. Then we are just actually preparing for all the marketing optimization and outbound programming. So we got the marketing team working on that.

Richard Kellam
President and CEO at DCM

You will see a lot of activity as we progress into Q3, and certainly September, October, you see a lot of activity. If you actually went and you Googled intelligent document processing Canada, you would see that DCM comes up ranked as number one or number two. And we are much smaller than Octacom, right? So we know how to optimize and drive marketing optimization. So you will see that all shift to the Octacom world. I said the marketing team is very active on that right now.

Noel Atkinson
Noel Atkinson
Analyst at Clarus Securities

Great. Just lastly from me going back to the printing segment. Can you guys talk a little bit about how the revenue activity progressed through the quarter? Were you seeing improved momentum as you got through the Q2?

Richard Kellam
President and CEO at DCM

Yeah. You want to go with that?

James Lorimer
CFO at DCM

Yeah. I'd say generally through the second quarter Noel, we were tracking quite well. We had a bit of a blip in one of the months, but overall I'd say we're tracking well and early stages, but optimistic about Q3 and the balance of the year. As Richard mentioned, the new logo, call it maybe value and number of opportunities is helping contribute to that. It seems to have accelerated this year compared to last year. Some of the vertical markets that were challenged last year have shown some improvements. We talked about that in our MD&A.

James Lorimer
CFO at DCM

Particularly, manufacturing, lottery, and a couple of others. Other vertical markets largely stabilized and have positive outlook for the balance of the year. The one vertical that has been a little bit tougher for us is the financial services market. But we're hard at work in that market. As you can imagine, a lot of the IDP opportunities that we had in our pipeline, DCM alone, were in the financial services market. So we're optimistic there that we'll have good conversion rates.

Noel Atkinson
Noel Atkinson
Analyst at Clarus Securities

Okay, great. All right. Thanks very much.

James Lorimer
CFO at DCM

Thanks, Noel. Next question we have is from Daniel Rosenberg at Paradigm. Morning, Daniel.

Daniel Rosenberg
Daniel Rosenberg
Analyst at Paradigm

Hi. Good morning, guys. Thanks for taking my question. My first one goes to Richard and Lee. I'm curious on the roadmap for integration. Are there any milestones, key targets that you guys are hoping to achieve? Is there much work on the integration front? Just any color there would be helpful. Thanks.

Richard Kellam
President and CEO at DCM

Yeah, maybe I'll just kick that off and then turn it over to Lee. To be clear, Octacom is a division of DCM, so we're not physically integrating Octacom into the DCM world for obvious reasons, right? They're a rocket ship in terms of growth. We just want to help fuel the growth and provide the services, the commercial services, supply chain services, the financial services, HR services that we have at DCM into the Octacom organization. A lot of those would be shared services as opposed to embedded services.

Lee Berger
Managing Director at Octacom

Yeah, I think that's spot on. Good to meet you, first of all. We really are looking at a few specific shared services. Some elements include infrastructure and security. IT infrastructure and security and finance are the two biggest bang areas to help alleviate some of our bottlenecks, and allow us to focus on the commercial side of the equation. That's probably all that's worth noting at this point, quite candidly. We continue to operate independently. There's a lot of collaboration going on across the organization. If we want to call that integration, we can but it's very much collaboration and supporting the Octacom team and continuing to hit internal milestones and revenue milestones that we have set for ourselves.

Richard Kellam
President and CEO at DCM

Yeah, I would just add, this is very different than the Moore Canada Corporation acquisition, which was really a synergy deal and it was direct integration. We consolidated four facilities, had to bring a sales force together had to bring two ERP solutions together. So massive amount of integration. Also a massive amount of disruption to the business as well, as we went through that heavy integration process. None of that obviously happening on the Octacom side. We're just there to fuel and help Lee and his team accelerate their growth agenda.

Daniel Rosenberg
Daniel Rosenberg
Analyst at Paradigm

Thanks for that. Just turning to the sales cycle at Octacom, I was curious about what the lead times look like from an introduction to a customer, standing them up. Obviously, there's various amount of solutions, but just sort of generalized. I was a bit surprised to hear that a lot of it came from inbound referrals. So, I was curious how does that come about? Do customers refer other customers? Is there some network effects in terms of what you're doing? If you could speak to that, please.

Lee Berger
Managing Director at Octacom

Yeah, sure. Maybe I'll speak to that first. These are highly embedded solutions, to a large extent. About 90% of our revenue comes from what we call day-forward services, so highly embedded, typically technically integrated solutions with our clients, and we've become relied upon as an integrated partner to our clients under our service model. From a referral standpoint, we do see a tremendous amount of referrals, whether it's folks that have left one company and moved to another and given us a call to say, "Hey, you've done a good job with us at the last organization. Here's the problems that we're having. Can you help us?" Some use cases are pretty particular, I would say.

Lee Berger
Managing Director at Octacom

As the prospect is poking around for vendors that may be able to support them, oftentimes they'll find some of our content online, perhaps ask around about us and then give us a call. So yeah, when I talk inbound. I'm genuinely talking, we're filling a need that exists in a particular use case. We're identified, and then there's outreach that occurs. I don't want to underweight, though there is RFP activity. Those are public boards. Generally, we're often invited to different bids, but often from a Government of Canada standpoint, there's often boards that these bids are posted on. We do attend conferences as well, and we've seen opportunity flow open from conferences and networking and so forth. But that hopefully gives you a flavor that when I talk inbound, I'm really just excluding targeted outbound, pick up the phone and call or email campaigns.

Lee Berger
Managing Director at Octacom

That's not the type of activity that we've pursued historically. It's usually been a use case driven or divisional specific driven entry point. We do have a little bit of a land and expand opportunity that we've opened up over the years. So once we're in large enterprise A with department A, oftentimes there's opportunities to broaden what we do to other departments within the organization that are also struggling with document-intensive process and challenges. If you don't mind just repeating the first part of the question, that would be great.

Daniel Rosenberg
Daniel Rosenberg
Analyst at Paradigm

I think you kind of covered it, but it was the sales function from first introduction to conversion.

Lee Berger
Managing Director at Octacom

Oh, got it. Yeah. Apologies. Yeah. It varies so, I'll generalize. On the government side, we see anywhere between six and 18 months. On the enterprise side, we see anywhere between, really the quickest to revenue post-implementation is two to three months and at times, that can extend to nine to 12 months. So that hopefully gives you a general sense that a lot of the work that we're doing now with the DCM team is obviously there was an existing pipeline. We're fostering that pipeline, and that will turn to revenue quicker because those opportunities are chunky and have been in the works for some time already. But we do anticipate more of those opportunities, the cross-sell opportunities crystallizing at a later point. I don't believe that we'll see revenue coming from those opportunities in this calendar year.

Lee Berger
Managing Director at Octacom

It just gives you a sense, with the time to revenue that I mentioned a few moments ago and the pipeline that did exist as to what the next quarter or two should look like.

Daniel Rosenberg
Daniel Rosenberg
Analyst at Paradigm

Makes sense. Thanks for that. Last question. I was curious about overall for DCM. I know you spoke to gross profit margin likely improving here in the near term, but balancing that idea of cross-sell and the impacts on the bottom line. Any thoughts whether just directionally somewhat timing on how that margin profile looks like as a combined entity on an EBITDA basis, whether it be next year or what have you? Then I will pass to Lee. Thank you.

Lee Berger
Managing Director at Octacom

Sure. I think, as you recall typically the third quarter is a quieter quarter for us with some of the growth profiles. We see that moderating and returning to a bit of growth compared to last year. We just, in our natural business. We will see, I call it maybe modest margin improvement, but we will have almost three months of the Octacom acquisition when we report Q3 included in that, and their gross profit margins and EBITDA margins are a fair bit higher than ours, Daniel. So we will start to see a little bit of benefit from that. Then I would say particularly as we get into the fourth quarter, which tends to be a bit stronger quarter for us anyways. Octacom does not really have the same kind of seasonality, just given their growth profile.

Lee Berger
Managing Director at Octacom

They are growing every year and they do not seem to, at least at this point, have the kind of seasonality that we have historically had. So, we will really see some of the improvements probably with the benefit of some of these bigger cross-selling opportunities. Given the sales cycle and onboarding, I would really expect to see those in first half of 2027.

Daniel Rosenberg
Daniel Rosenberg
Analyst at Paradigm

Great. Thanks for taking my questions.

James Lorimer
CFO at DCM

Thank you. Thanks, Daniel. Next question is from Chris Thompson at eResearch.

Chris Thompson
Analyst at eResearch

Can you hear me now?

Richard Kellam
President and CEO at DCM

Yeah. Hey, Chris.

Chris Thompson
Analyst at eResearch

Hey, thanks. I am Chris Thompson from eResearch. Thanks for taking my call. Just wanted to ask you a question about the restructuring and acquisition costs. You had about CAD 2.3 million in the first half of the year, and about CAD 1.3 of restructuring and about CAD 1.3 in this quarter. How does this going to sort of go forward for the rest of the year?

James Lorimer
CFO at DCM

Yeah, from a restructuring perspective, Chris, we'll see that come down in the second half of the year. Really some of that was a little bit of the echo from the Moore Canada acquisition as we got the benefit of further kind of systems alignment and finance team alignment and some other kind of fine-tuning. The acquisition and integration costs you saw in the second quarter were related to the Octacom acquisition, so pre-closing costs, kind of legal advisors. We'll see a little bit more of that in the third quarter, and then we're not expecting any restructuring charges at all from the Octacom acquisition. As Richard described earlier, this is really an opportunity for growth as opposed to synergies. So, we're not expecting any restructuring charges from the Octacom acquisition itself, and the DCM charges are largely done.

Chris Thompson
Analyst at eResearch

Okay, great. My second question is can you just sort of review your capital allocation strategy for the rest of the year? Considering you have a much larger debt load and I'm assuming you're going to keep the dividend going forward and also how you're going to factor in your debt covenants.

James Lorimer
CFO at DCM

Yeah, sure. Good question. From a kind of capital allocation, our priority is really, I guess maybe twofold. One, continuing the dividend that we have and secondly, paying down debt. We put a new credit facility in place, which I think you've seen the details on. We're within the kind of debt to EBITDA and fixed charge coverage ratios for that. Given the nice free cash flow generating position that not only DCM is in but also that Octacom is in. We expect to see our kind of net debt to EBITDA decline nicely over the next year-to-year and a half to levels that we were before the acquisition. So, we expect to see debt repayments going to be a real priority. We're going to focus less on M&A, particularly in the traditional print space.

James Lorimer
CFO at DCM

We're still seeing lots of interesting opportunities, but I'd say at this point, our real focus is continuing to build out and support the IDP business here and also continue to feed. I guess, or harvest the traditional kind of DCM business.

Chris Thompson
Analyst at eResearch

Great, thanks. My last question is about your tech side and I guess it's going to be really impacted by the acquisition, but although it was kind of up year-over-year, it was sort of down quarter-over-quarter. How much of that is seasonality, and then how much of the focus is really going to be on the acquisition when it comes to sort of your tech plan?

James Lorimer
CFO at DCM

Yeah, there was some seasonality in that. A large proportion of what we report as tech-enabled services relates to programming services. Last year, some of those services kind of continued in the second quarter. They're typically largely focused on the first quarter of the year, but they do happen throughout the year, and sometimes things happen a little bit earlier. Let's say in the fourth quarter compared to the first quarter, a little bit later in the second quarter as opposed to the first quarter. So that's really kind of largely that, Chris. Yes, going forward, we expect to report the Octacom results in that tech-enabled services bundle. So you should see an increase in that segment.

Chris Thompson
Analyst at eResearch

That's it for all of my questions. Thanks for your time.

James Lorimer
CFO at DCM

Thanks, Chris. Chris?

Chris Thompson
Analyst at eResearch

Yep.

James Lorimer
CFO at DCM

We have no further questions. Did you have any closing comments?

Richard Kellam
President and CEO at DCM

Yeah, no. My closing comments. Thank you to our shareholders. Thanks for listening today. We certainly appreciate your support and commitment. You can hear that we're very excited about the Octacom acquisition. Great company that Lee and his team have built. Tremendous success. So thank you, Lee. We're just there to fuel growth. As I said, we're starting to see stabilization in our core business, in our base business, and we're going to leverage that from a client perspective to drive leads and to help Lee continue to accelerate the growth of IDP. I'd also like to thank the DCM associates and our new associates from Octacom. Thank you for a good, solid quarter. We look forward to continuing the progress through the balance of the year. I would say that, maybe in summary, we're only getting started.

Richard Kellam
President and CEO at DCM

We're four weeks in, and we're only getting started, and we're looking forward to reporting the success of quarter three to shareholders a few months from now. Thank you.

James Lorimer
CFO at DCM

Thanks, Richard. This concludes the Q&A portion of today's call. Thank you everyone for joining us and your continued interest in DCM. As a reminder, Richard and I can be available after call for any follow-up questions. This concludes our call. Have a great day.

Richard Kellam
President and CEO at DCM

Thank you

Analysts
    • James Lorimer
      CFO at DCM
    • Richard Kellam
      President and CEO at DCM
    • Lee Berger
      Managing Director at Octacom
    • Noel Atkinson
      Analyst at Clarus Securities
    • Daniel Rosenberg
      Analyst at Paradigm
    • Chris Thompson
      Analyst at eResearch
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