Data Communications Management Corp.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Data Communications Management Corporation third quarter 2022 financial results conference call. My name is James Lorimer, and I'm pleased to be hosting today's call. Joining me on the call today is Richard Kellum, our president and chief executive officer. Following our prepared remarks, we will be moderating a Q&A session. 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 may have. Before we begin, I'll remind everyone that we will refer 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 CDAR. We've posted a brief video message from Richard along with a summary of our results and key initiatives in the quarter on our website in the form of an infographic. Our detailed information is also available on the website and CDAR. You can also follow us on LinkedIn to keep up to date with some of our business insights on relevant market trends and customer case studies. I'll now turn the call over to Richard.

Thank you, James, and good morning, shareholders, and I guess good afternoon and good evening for some of our shareholders that are dialing in from other time zones. So I've been with the business 20, exactly 20 months now. And 20 months ago, we put a strategy in place to build both a better and a bigger business. And I'm happy to say that we've got fantastic momentum against the strategy of building a better and bigger business. So I'm going to talk about the momentum today. So James, if you don't mind just going forward one slide. I'm going to start off with where we are on the bigger business. And happy to report that after a very strong Q2, shareholders may remember that we actually grew 23.4% in Q2. We continue to deliver strength in Q3 with 11.4% growth over Q3 year ago. Total revenue, 63.4 million, up 6.5 million versus prior year. So very solid quarter from a revenue acceleration perspective off the back of a solid quarter and quarter two. And it puts our year-to-date number at 15.1%. So we're actually really proud of that. of what we're delivering in terms of building that bigger revenue and bigger business through the quarter and through year to date. From a gross profit standpoint, love to see gross profit growing faster than revenue. And we're certainly seeing that. As I said, revenue up 11.4, gross profit up 15.8. We delivered just around $20 million in gross profit on the quarter. And that equated to 31.4% gross margin as a percent of revenue, and that's up a full 1.2% over a year ago. So very positive gross profit momentum, despite raw material headwinds and pricing headwinds that we experienced. So the team has done a fantastic job to ensure that we're getting kind of full value in return on the materials and the cost increases that we're experiencing. As I said, love seeing gross profit exceeding revenue. That means we're doing our job of continuing to build a bigger and a better business here. On the new business side, we have reported just over $30 million in new business this year, and that's a combination of expansion revenue, so expanding revenue, revenue within existing clients, and then new business development as well. And we're winning business across all the key verticals that we work in. And a really important point is that of any new business that we're securing today, 100% of it is really due to our technical capabilities. Not that we're great printers. We're fantastic printers. But we enable that print and that workflow with technology, with digital technologies. And that's really what's differentiated us and allowed us to win a lot of new business out there, helping, as we say, clients and customers simplify their complexity in their marketing communication workflow. And we use technology to help simplify that complexity. So very pleased with our new business development. And we've got a great, you know, the commercial team is doing a fantastic job to lead that. A few key highlights on our better business strategy and results of delivering a better business. Happy to report EBITDA continues to move from strength to strength. We're up 25.7% in EBITDA on the quarter. That's $8 million up over a year ago. Sorry, $8 million over a year ago. We were 6.4 a year ago. And we committed to the street. And we really committed to our shareholders at the beginning of the year that we would have zero restructuring. We said that we've got the perfect footprint. We've got a fantastic kind of organization structure now. And we're delivering as set. We've had zero restructuring year to date. We don't anticipate any through year end. So this is what we call a clean EBITDA, non-restructured EBITDA. So very, very solid progress in EBITDA. We've also had some... Success on delivering net income, obviously, if we're not restructuring our business and we're delivering positive cash flow. Of course, that's going to show up in net income. And our net income is up 176% on the quarter. So we delivered $2.8 million in net income up from $1 million a year ago. And year-to-date, our net income is $10.3 million versus $3.4 million a year ago. So real positive net income delivery as well. Finally, really, really pleased with what the entire team has done on our environmental, social, and governance strategy, and more importantly, deliverables on that strategy. We've got, you know, clear strategy for social and for governance and some really good progress against that, as I said. And we're real proud of the accomplishments on environmental issues. especially uh on our uh on our commitment to reforestation we have reforested a hundred percent of our paper use the paper we use for clients a hundred percent of that we've reforested and that equates to 468 000 so 468 000 trees so approaching a half a million trees in fact you know by the time we uh exit uh exit quarter four will be well north of a half a million trees So really proud of what the team has done and our delivery and our commitment on ESG. Okay, so over to James to talk a little bit more detail on the numbers.

James? Thanks, Richard. For the nine months ended September 30th, revenue was $200 million, and that's up about $26 million from last year, or 15.1%. Likewise, gross profit was also up. In this case, it was up 17%, 17.1%. And as Richard referenced earlier, we're pleased that gross profit is accelerating at a faster clip than the revenue growth. Gross profit margin year-to-date is just over 30%, and we expect that strength that we saw in the third quarter to continue in gross profit in the fourth quarter. SG&A expenses were a little bit higher, and I've got a slide that'll kind of walk through that in a minute. But really pleased here, you know, restructuring expenses last year were fairly significant through this point. Last year's EBITDA also included $4.5 million of wage subsidies. So not only are we, you know, $6.8 million ahead on an EBITDA basis, it's up 34.2%. And that is not only clean from restructuring, it's also clean with no wage subsidy included in that. Got a few charts here just to show you our quarter over quarter growth. For the third quarter this year and actually the fourth quarter in a row now, our revenue has actually exceeded previous year's quarters. We expect that to continue in the fourth quarter. Likewise, gross profit has also been strong and has been pretty consistently in that kind of $20 million range. But we're really pleased that in the third quarter, we exceeded our 31% target, which we had been guiding the street that we had hit that number in the fourth quarter. So we're a little bit ahead of plan on that. From a SG&A productivity perspective, you know, something, you know, we've set out as kind of objectives for the years or for our five-year plans. is an SG&A target of 18% to 20% of our revenue. We're pleased to see that we're making great progress, and that's a combination of keeping our SG&A in check, but it's also a combination of higher revenues. SG&A expenses were a little bit higher in the quarter, or sorry, year-to-date, by about $1.8 million, but a big part of that would be related to, because of higher revenues, we are paying higher commissions to our sales reps, and we have experienced some modest wage inflation in that number. Again, just to call out our restructuring expenses, we're zero through today, and we expect to continue that through the balance of the year. So again, you can see how we've experienced strong year-over-year clean EBITDA, and we did have the benefit again in EBITDA in the first, second, third, and fourth quarter. Actually, the first and second quarter is last year of the wage subsidy program, which we clearly did not have this year. From a debt perspective, we're pleased that we continue to pay down debt. We've paid down $8.9 million of term debt through the first three quarters. So you can see that our term debt is sitting about $25 million today. That's more than 26% lower than it was at the end of last year. Our revolving credit facilities had at about $8.9 million at the end of the year. We did have a cash balance of a little over a million and a half dollars. From a revolving credit facility, it did come down by about $2 million from June, and we expect it to continue to come down through the balance of this year.