DATA Communications Management Corp. Announces Third Quarter 2020 Results

BRAMPTON, Ontario--()--DATA Communications Management Corp. (TSX: DCM) (“DCM” or the "Company"), a leading provider of marketing and business communication solutions to companies across North America, announces its consolidated financial results for the three and nine months ended September 30, 2020.

Third Quarter Highlights (vs. Q3, 2019)

Third Quarter YTD Highlights (vs. Q3 YTD, 2019)

Revenue of $57.4 million, compared with $63.2 million

Revenue of $198.7 million, compared with $211.4 million

Cost of sales of $40.7 million, compared with $48.0 million

Cost of sales of $140.8 million, compared with $159.7 million

Gross margin of 29.0%, compared with 24.1%

Gross margin of 29.2%, compared with 24.5%

Adjusted EBITDA of $10.2 million, compared with $2.2 million

Adjusted EBITDA of $34.1 million, compared with $14.5 million

Net income of $2.1 million, compared with a net loss of $5.9 million

Net income of $8.6 million, compared with a net loss of $10.0 million

THIRD QUARTER HIGHLIGHTS

  • Revenues for the quarter were $57.4 million compared with $63.2 million in the third quarter of 2019, a decrease of $5.8 million or 9.2%. Revenue in the third quarter was adversely impacted by the decline in revenue associated with those clients whose businesses, owing to COVID, were not fully operational and/or operating normally.
  • Gross profit increased to $16.7 million, up 9.2%, or $1.4 million, compared to the third quarter of 2019.
  • Gross margin of 29.0%, a significant improvement from 24.1% in the third quarter of 2019. Gross margin benefited from the realization of cost saving initiatives implemented throughout 2019 and year to date in 2020 and in continued operational improvements from the ERP system challenges faced in 2019.
  • SG&A expenses declined to $13.3 million, or 23.1% of total revenues, compared to $17.8 million, or 28.2% of total revenues, in the third quarter of 2019.
  • Restructuring expenses incurred of $1.1 million compared to $2.7 million in the third quarter of 2019.
  • Net income was $2.1 million compared with a net loss of $5.9 million in the third quarter of 2019.
  • Adjusted EBITDA was $10.2 million or 17.7% of revenue, a 368.4% improvement when compared to $2.2 million in the third quarter of 2019, or 3.4% of revenue. Adjusted EBITDA was positively impacted by improved gross margins, lower SG&A expenses, and $2.8 million received from the CEWS program.
  • Basic and diluted EPS of $0.05 compared with $(0.27); adjusted basic and diluted EPS of $0.07 compared with $(0.18).
  • Revolving line of credit balance stood at $10.9 million as of October 30, 2020, a reduction from $18.1 million as of September 30, 2020 and its peak of $36.8 million as of March 31, 2020

THIRD QUARTER YEAR TO DATE HIGHLIGHTS

  • Revenues during the first three quarters of 2020 were $198.7 million compared with $211.4 million in the first three quarters of 2019, a decrease of $12.7 million or 6.0%.
  • Gross profit increased to $57.9 million, up 12.0%, or $6.2 million, compared to the first three quarters of 2019 and gross margin improved to 29.2% from 24.5% in the first three quarters of 2019.
  • Net income was $8.6 million compared with a net loss of $10.0 million in the first three quarters of 2019.
  • Adjusted EBITDA was $34.1 million or 17.2% of revenue, a 135.7% improvement when compared to $14.5 million in first three quarters of 2019, or 6.8% of revenue. The increase in Adjusted EBITDA for the first three quarters of 2020 is attributable to: strong revenue in the first quarter of this year, mitigated by COVID-19 impacted levels in the subsequent two quarters of 2020; the realization of additional cost savings initiatives; ERP remediation efforts; and better management of raw materials and other inventory related efficiency gains. Adjusted EBITDA in the first three quarters of 2020 was also positively impacted by $8.9 million received from the CEWS program.
  • Basic and diluted EPS of $0.20 compared with $(0.46); and adjusted basic and diluted EPS of $0.24 compared with $(0.17).

MANAGEMENT COMMENTARY

“Our results over the first three quarters of 2020 speak to our focus on operating efficiencies and improvements in SG&A during an uncertain economic environment,” said Gregory J. Cochrane, Chief Executive Officer. “Revenue from our top 100 clients is up, in aggregate, 6% compared to the first nine months of 2019. The strong performance of our top 100 clients has served to mute the impact of COVID-19 operating constraints on many other clients. While our more traditional business services client spend has remained quite resilient, and in a number of cases has benefited from the current environment, our clients’ marketing solutions spending, which is more discretionary and transactional by nature and can be deferred, has been most impacted. We do, however, expect this discretionary spending will recover in the coming months.”

“Through continued process rationalization efforts, and company-wide efficiencies from the ERP implementation now being realized, we expect to achieve at least an additional $8.5 million of new cost savings in 2021,” added Michael J. Coté, President. “This is in addition to the more than $10.5 million of in-year savings we expect to achieve in 2020 through process and plant improvement efficiencies, personnel reductions, temporary lay-offs and management wage rollbacks, and hiring restrictions, among other things.”

“The conversion of our “bill as released”, or “BAR”, clients to bill and hold warehousing arrangements has to date resulted in the receipt of almost $12 million in client payments. Our plan remains to convert all of our remaining BAR customers to a more appropriate bill and hold warehousing model.”

For the periods ended September 30, 2020 and 2019

July 1 to
September 30, 2020

 

July 1 to
September 30, 2019

 

January 1 to
September 30, 2020

 

January 1 to
September 30, 2019

(in thousands of Canadian dollars, except share and per share amounts, unaudited)

 

Revenues

$

57,374

 

 

$

63,215

 

 

$

198,725

 

 

$

211,387

 

 

 

 

 

 

 

 

 

Gross profit

16,663

 

 

15,253

 

 

57,934

 

 

51,736

 

 

 

 

 

 

 

 

 

Gross profit, as a percentage of revenues

29.0

%

 

24.1

%

 

29.2

%

 

24.5

%

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

13,282

 

 

17,808

 

 

45,908

 

 

50,496

 

As a percentage of revenues

23.1

%

 

28.2

%

 

23.1

%

 

23.9

%

 

 

 

 

 

 

 

 

Adjusted EBITDA

10,151

 

 

2,167

 

 

34,089

 

 

14,462

 

As a percentage of revenues

17.7

%

 

3.4

%

 

17.2

%

 

6.8

%

 

 

 

 

 

 

 

 

Net income (loss) for the period

2,139

 

 

(5,917)

 

 

8,581

 

 

(9,994)

 

 

 

 

 

 

 

 

 

Adjusted net income (loss)

3,026

 

 

(3,900)

 

 

10,476

 

 

(3,732)

 

As a percentage of revenues

5.3

%

 

(6.2)

%

 

5.3

%

 

(1.8)

%

 

 

 

 

 

 

 

 

Basic and diluted earnings (loss) per share

$

0.05

 

 

$

(0.27)

 

 

$

0.20

 

 

$

(0.46)

 

Adjusted net income (loss) per share, basic and diluted

$

0.07

 

 

$

(0.18)

 

 

$

0.24

 

 

$

(0.17)

 

Weighted average number of common shares outstanding, basic

43,047,030

 

21,523,515

 

43,047,030

 

21,523,515

Weighted average number of common shares outstanding, diluted

43,227,051

 

21,523,515

 

43,138,431

 

21,523,515

About DATA Communications Management Corp.

DCM is a communication solutions partner that adds value for major companies across North America by creating more meaningful connections with their customers. DCM pairs customer insights and thought leadership with cutting-edge products, modular enabling technology and services to power its clients’ go-to market strategies. DCM helps its clients manage how their brands come to life, determine which channels are right for them, manage multimedia campaigns, deploy location-specific and 1:1 marketing, execute custom loyalty programs, and fulfill their commercial printing needs all in one place.

DCM's extensive experience has positioned it as an expert at providing communication solutions across many verticals, including the financial, retail, healthcare, consumer health, energy, and not-for-profit sectors. As a result of its locations throughout Canada and in the United States (Chicago, Illinois and New York, New York), it is able to meet its clients’ varying needs with scale, speed, and efficiency - no matter how large or complex the ask. DCM is able to deliver advanced data security, regulatory compliance, and bilingual communications, both in print and/or digital formats.

Additional information relating to DATA Communications Management Corp. is available on www.datacm.com, and in the disclosure documents filed by DATA Communications Management Corp. on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com.

FORWARD-LOOKING STATEMENTS

Certain statements in this press release constitute “forward-looking” statements that involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, objectives or achievements of DCM, or industry results, to be materially different from any future results, performance, objectives or achievements expressed or implied by such forward-looking statements. When used in this press release, words such as “may”, “would”, “could”, “will”, “expect”, “anticipate”, “estimate”, “believe”, “intend”, “plan”, and other similar expressions are intended to identify forward-looking statements. These statements reflect DCM’s current views regarding future events and operating performance, are based on information currently available to DCM, and speak only as of the date of this press release. These forward-looking statements involve a number of risks, uncertainties and assumptions and should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such performance or results will be achieved. Many factors could cause the actual results, performance, objectives or achievements of DCM to be materially different from any future results, performance, objectives or achievements that may be expressed or implied by such forward-looking statements. The principal factors, assumptions and risks that DCM made or took into account in the preparation of these forward-looking statements include: risks relating to the continuing impact of the COVID-19 pandemic, the impact of which could be material on DCM’s business, liquidity and results of operations; DCM's enterprise resource planning ("ERP") system interrupted operational transactions during and following the implementation, which has, and may continue to, materially and adversely affect DCM's financial liquidity and operations and results of operations; there is no assurance that management’s initiatives for dealing with these events and conditions will be successful and there are risks in the expected timing of resolution thereof and the possible effects of these issues if they are not resolved; DCM’s ability to continue as a going concern is dependent upon its ability to comply with its financial covenants for at least the next twelve months which is contingent on management’s ability to meet forecast revenue, profitability and cash collection targets; risks relating to DCM’s ability to access sufficient capital, including, without limitation, under its existing revolving credit facility, on favourable terms to fund its liquidity and business plans from internal and external sources; the risk that a material weakness in internal control of financial reporting, could, if uncorrected, result in a future misstatement of revenues that may result in a material misstatement of DCM's annual or interim consolidated financial statements if not prevented or detected on a timely basis; the risk that DCM will not be successful in negotiating amendments to the terms of its existing credit facilities including, without limitation, the financial covenants of DCM under these facilities; the limited growth in the traditional printing industry and the potential for further declines in sales of DCM’s printed business documents relative to historical sales levels for those products; the risk that changes in the mix of products and services sold by DCM will adversely affect DCM’s financial results; the risk that DCM may not be successful in reducing the size of its legacy print business, realizing the benefits expected from restructuring and business reorganization initiatives, reducing costs, reducing and repaying its long term debt, and growing its digital and marketing communications businesses; the risk that DCM may not be successful in managing its organic growth; DCM’s ability to invest in, develop and successfully market new digital and other products and services; competition from competitors supplying similar products and services, some of whom have greater economic resources than DCM and are well-established suppliers; DCM’s ability to grow its sales or even maintain historical levels of its sales of printed business documents; the impact of economic conditions on DCM’s businesses; risks associated with acquisitions and/or investments in joint ventures by DCM; the failure to realize the expected benefits from the acquisitions it has made and risks associated with the integration and growth of such businesses; increases in the costs of paper and other raw materials used by DCM; and DCM’s ability to maintain relationships with its customers and suppliers. Additional factors are discussed elsewhere in this press release and under the headings "Liquidity and capital resources" and “Risks and Uncertainties” in DCM’s management’s discussion and analysis and in DCM’s other publicly available disclosure documents, as filed by DCM on SEDAR (www.sedar.com). Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results may vary materially from those described in this press release as intended, planned, anticipated, believed, estimated or expected. Unless required by applicable securities law, DCM does not intend and does not assume any obligation to update these forward-looking statements.

NON-IFRS MEASURES

This press release includes certain non-IFRS measures as supplementary information. Except as otherwise noted, when used in this press release, EBITDA means earnings before interest and finance costs, taxes, depreciation and amortization. Adjusted EBITDA means EBITDA adjusted for restructuring expenses, one-time business reorganization costs, goodwill impairment charges, and acquisition costs. Adjusted net income (loss) means net income (loss) adjusted for restructuring expenses, one-time business reorganization costs, goodwill impairment charges, acquisition costs and the tax effects of those items. Adjusted net income (loss) per share (basic and diluted) is calculated by dividing Adjusted net income (loss) for the period by the weighted average number of common shares of DCM (basic and diluted) outstanding during the period. In addition to net income (loss), DCM uses non-IFRS measures including Adjusted net income (loss), Adjusted net income (loss) per share, EBITDA and Adjusted EBITDA to provide investors with supplemental measures of DCM’s operating performance and thus highlight trends in its core business that may not otherwise be apparent when relying solely on IFRS financial measures. DCM also believes that securities analysts, investors, rating agencies and other interested parties frequently use non-IFRS measures in the evaluation of issuers. DCM’s management also uses non-IFRS measures in order to facilitate operating performance comparisons from period to period, prepare annual operating budgets and assess its ability to meet future debt service, capital expenditure and working capital requirements. Adjusted net income (loss), Adjusted net income (loss) per share, EBITDA and Adjusted EBITDA are not earnings measures recognized by IFRS and do not have any standardized meanings prescribed by IFRS. Therefore, Adjusted net income (loss), Adjusted net income (loss) per share, EBITDA and Adjusted EBITDA are unlikely to be comparable to similar measures presented by other issuers.

Investors are cautioned that Adjusted net income (loss), Adjusted net income (loss) per share, EBITDA and Adjusted EBITDA should not be construed as alternatives to net income (loss) determined in accordance with IFRS as an indicator of DCM’s performance. For a reconciliation of net income (loss) to EBITDA and a reconciliation of net income (loss) to Adjusted EBITDA, see Table 3 in the most recent Management's Discussion & Analysis filed on www.sedar.com. For a reconciliation of net income (loss) to Adjusted net income (loss) and a presentation of Adjusted net income (loss) per share, see Table 4 in the most recent Management's Discussion & Analysis filed on www.sedar.com.

Condensed interim consolidated statements of financial position

(in thousands of Canadian dollars, unaudited)

September 30, 2020

 

December 31, 2019

 

$

 

$

 

 

 

 

Assets

 

 

 

Current assets

 

 

 

Cash and cash equivalents

1,517

 

 

 

Trade receivables

78,621

 

 

86,451

 

Inventories

11,141

 

 

12,580

 

Prepaid expenses and other current assets

3,638

 

 

2,611

 

 

94,917

 

 

101,642

 

Non-current assets

 

 

 

Other non-current assets

596

 

 

828

 

Deferred income tax assets

3,651

 

 

6,648

 

Restricted cash

515

 

 

515

 

Property, plant and equipment

10,442

 

 

13,062

 

Right-of-use assets

48,118

 

 

56,381

 

Pension assets

 

 

156

 

Intangible assets

14,984

 

 

18,167

 

Goodwill

16,973

 

 

16,973

 

 

 

 

 

 

190,196

 

 

214,372

 

 

 

 

 

Liabilities

 

 

 

Current liabilities

 

 

 

Bank overdraft

 

 

1,093

 

Trade payables and accrued liabilities

48,839

 

 

51,743

 

Current portion of credit facilities

6,068

 

 

3,887

 

Current portion of promissory notes

1,164

 

 

492

 

Current portion of lease liabilities

8,297

 

 

8,252

 

Provisions

1,640

 

 

3,886

 

Income taxes payable

2,102

 

 

2,068

 

Deferred revenue

1,271

 

 

2,133

 

 

69,381

 

 

73,554

 

Non-current liabilities

 

 

 

Provisions

239

 

 

192

 

Credit facilities

54,942

 

 

74,760

 

Promissory notes

973

 

 

2,095

 

Lease liabilities

46,084

 

 

53,514

 

Deferred income tax liabilities

274

 

 

402

 

Pension obligations

8,648

 

 

7,958

 

Other post-employment benefit plans

3,053

 

 

2,938

 

 

183,594

 

 

215,413

 

 

 

 

 

Equity

 

 

 

Shareholders’ equity / (Deficit)

 

 

 

Shares

256,045

 

 

256,045

 

Warrants

892

 

 

853

 

Contributed surplus

2,349

 

 

2,300

 

Translation reserve

281

 

 

254

 

Deficit

(252,965)

 

 

(260,493)

 

 

6,602

 

 

(1,041)

 

 

 

 

 

 

190,196

 

 

214,372

 

Condensed interim consolidated statements of operations

(in thousands of Canadian dollars, except per share amounts, unaudited)

For the three
months ended
September 30, 2020

 

For the three
months ended
September 30, 2019

 

For the nine
months ended
September 30, 2020

 

For the nine
months ended
September 30, 2020

 

$

 

$

 

$

 

$

 

 

 

 

 

 

 

 

Revenues

57,374

 

 

63,215

 

 

198,725

 

 

211,387

 

 

 

 

 

 

 

 

 

Cost of revenues

40,711

 

 

47,962

 

 

140,791

 

 

159,651

 

 

 

 

 

 

 

 

 

Gross profit

16,663

 

 

15,253

 

 

57,934

 

 

51,736

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

Selling, commissions and expenses

5,982

 

 

8,545

 

 

20,438

 

 

25,527

 

General and administration expenses

7,300

 

 

9,263

 

 

25,470

 

 

24,969

 

Restructuring expenses

1,065

 

 

2,724

 

 

2,073

 

 

7,595

 

 

14,347

 

 

20,532

 

 

47,981

 

 

58,091

 

 

 

 

 

 

 

 

 

Income (loss) before finance costs, other income and income taxes

2,316

 

 

(5,279)

 

 

9,953

 

 

(6,355)

 

 

 

 

 

 

 

 

 

Finance costs

 

 

 

 

 

 

 

Interest expense on long term debt and pensions, net

1,008

 

 

1,356

 

 

3,316

 

 

3,760

 

Interest expense on lease liabilities

796

 

 

904

 

 

2,500

 

 

2,707

 

Debt modification losses

 

 

 

 

625

 

 

 

Amortization of transaction costs

146

 

 

177

 

 

407

 

 

400

 

 

1,950

 

 

2,437

 

 

6,848

 

 

6,867

 

Other income

 

 

 

 

 

 

 

Government grant income

2,759

 

 

 

 

8,928

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

3,125

 

 

(7,716)

 

 

12,033

 

 

(13,222)

 

 

 

 

 

 

 

 

 

Income tax (recovery) expense

 

 

 

 

 

 

 

Current

(327)

 

 

395

 

 

263

 

 

(79)

 

Deferred

1,313

 

 

(2,194)

 

 

3,189

 

 

(3,149)

 

 

986

 

 

(1,799)

 

 

3,452

 

 

(3,228)

 

 

 

 

 

 

 

 

 

Net Income (loss) for the period

2,139

 

 

(5,917)

 

 

8,581

 

 

(9,994)

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

Items that may be reclassified subsequently to net income (loss)

 

 

 

 

 

 

 

Foreign currency translation

69

 

 

4

 

 

27

 

 

16

 

 

69

 

 

4

 

 

27

 

 

16

 

Items that will not be reclassified to net income (loss)

 

 

 

 

 

 

 

Re-measurements of pension and other post-employment benefit obligations

(1,461)

 

 

791

 

 

(1,373)

 

 

67

 

Taxes related to pension and other post-employment benefit adjustment above

342

 

 

(201)

 

 

320

 

 

(13)

 

 

(1,119)

 

 

590

 

 

(1,053)

 

 

54

 

Other comprehensive (loss) income for the period, net of tax

(1,050)

 

 

594

 

 

(1,026)

 

 

70

 

 

 

 

 

 

 

 

 

Comprehensive income (loss) for the period

1,089

 

 

(5,323)

 

 

7,555

 

 

(9,924)

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

0.05

 

 

(0.27)

 

 

0.20

 

 

(0.46)

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share

0.05

 

 

(0.27)

 

 

0.20

 

 

(0.46)

 

Condensed interim consolidated statements of cash flows

(in thousands of Canadian dollars, unaudited)

For the nine months
ended September 30, 2020

 

For the nine months
ended September 30, 2019

 

$

 

$

 

 

 

 

Cash provided by (used in)

 

 

 

 

 

 

 

Operating activities

 

 

 

Net income (loss) for the period

8,581

 

 

(9,994)

 

Adjustments to net income (loss)

 

 

 

Depreciation of property, plant and equipment

2,779

 

 

3,109

 

Amortization of intangible assets

3,156

 

 

2,672

 

Depreciation of right-of-use-assets

6,725

 

 

6,563

 

Interest expense on lease liabilities

2,500

 

 

2,707

 

Share-based compensation expense

49

 

 

167

 

Pension expense

364

 

 

446

 

(Gain) loss on disposal of property, plant, and equipment

(27)

 

 

84

 

Provisions

2,073

 

 

7,595

 

Amortization of transaction costs and debt modification losses

1,032

 

 

400

 

Accretion of non-current liabilities and capitalized interest expense

625

 

 

238

 

Other post-employment benefit plans, net

115

 

 

206

 

Tax credits recognized

 

 

(89)

 

Income tax expense (recovery)

3,452

 

 

(3,228)

 

 

31,424

 

 

10,876

 

Changes in working capital

5,137

 

 

(8,957)

 

Contributions made to pension plans

(785)

 

 

(763)

 

Provisions paid

(4,272)

 

 

(4,661)

 

Income taxes paid

(121)

 

 

(1,391)

 

 

31,383

 

 

(4,896)

 

 

 

 

 

Investing activities

 

 

 

Purchase of property, plant and equipment

(96)

 

 

(820)

 

Purchase of intangible assets

(35)

 

 

(3,899)

 

Proceeds on disposal of property, plant and equipment

27

 

 

254

 

Proceeds on sale of business

 

 

675

 

 

(104)

 

 

(3,790)

 

 

 

 

 

Financing activities

 

 

 

Proceeds from credit facilities

 

 

26,097

 

Repayment of credit facilities

(18,958)

 

 

(3,262)

 

Repayment of other liabilities

(300)

 

 

(300)

 

Proceeds from promissory notes and warrants

 

 

1,000

 

Repayment of promissory notes

(533)

 

 

(3,905)

 

Transaction costs

(227)

 

 

(327)

 

Lease payments

(8,640)

 

 

(8,075)

 

 

(28,658)

 

 

11,228

 

 

 

 

 

Change in Cash (Bank overdraft) during the period

2,621

 

 

2,542

 

(Bank overdraft) – beginning of period

(1,093)

 

 

(3,999)

 

Effects of foreign exchange on cash balances

(11)

 

 

(18)

 

Cash and cash equivalents (Bank overdraft) – end of period

1,517

 

 

(1,475)

 

 

Contacts

Mr. Gregory J. Cochrane
Chief Executive Officer
DATA Communications Management Corp.
Tel: (905) 791-3151

Mr. James E. Lorimer
Chief Financial Officer
DATA Communications Management Corp.
Tel: (905) 791-3151
ir@datacm.com

Release Summary

DCM announces third quarter 2020 results

Contacts

Mr. Gregory J. Cochrane
Chief Executive Officer
DATA Communications Management Corp.
Tel: (905) 791-3151

Mr. James E. Lorimer
Chief Financial Officer
DATA Communications Management Corp.
Tel: (905) 791-3151
ir@datacm.com