Data Communications Management Corp.

Good morning, ladies and gentlemen, and thank you for standing by, and welcome to the Data Communications Management Corp. Second Quarter 2023 Financial Results Conference Call. My name is James Lorimer, 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&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'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 CDAR. We have posted a brief video message from Richard along with a summary of our results and key initiatives for the quarter on our website in the form of an infographic. This presentation will be added to our website for your reference along with a post-view recording and transcript. Our detailed information is also available on our website and CDAR. Please also follow us on LinkedIn to keep up to date with other business developments. I'd now like to turn the call over to Richard.

Thank you, James. And good morning. And for some of our international people dialing in, good afternoon and good evening. James and I are in different locations today doing some new business development. So James will be driving the slides. So hopefully technology will work here. Objectives for today, we want to talk about our consolidated results for Q2. We'll actually unpack those as we typically do under our bigger and better theme, and then we'll turn it over to shareholders for any questions at the end. Before we get into it, I want to remind shareholders that this quarter two of 2023 consists of one week of integration or one week of the acquisition in April, and then all of May and all of June, given we closed the transaction for Moore Canada Corp on April 24th. So it's not a full quarter of full, you know, full acquisition of MCC into the quarter. It's two months plus a week. Okay. So just want to remind shareholders that before we get into the data here. So James, if you just go to the next slide. I'm going to start with a bigger business and we're really pleased with the progress we're making to continue to build a bigger business. As you'll see, our growth is quite significant with the acquisition of Moore Canada Corp at just under 75% on the quarter. We added $51 million in revenue to our top line on the quarter, coming out at $119 million. Really important to note as well, if you look at the next slide, you know, I want to put that 75% into context. If you look at our underlying business, so the underlying business revenue of both Moore Canada Corp and DCM, you look at that bar on the right, you can see our underlying performance continues to be very strong at 8.2% growth. So not all that 75 or 74.7% came from acquisition growth. Our underlying business is very strong. On the back, as you can see in this slide, up to very strong, very strong halves prior. Okay. Our revenue growth in quarter two is now seven consecutive quarters of year over year growth. And you can see From the slide here, you know, the continued performance quarter on quarter. So, strength to strength. So, very proud of the momentum we've got in our business and underlying and, of course, now post-acquisition growth as well and integration growth. So, very good momentum from a revenue perspective and lots of reasons why that momentum is continuing. New business development, expansion revenue with existing clients, and just moving strength to strength with our commercial teams. Moving on to... Gross profit, gross profit also growing well post acquisition at 56.7%. 32 million in gross profit. And our gross margin is coming in at 26.9%. I want to put this into context because a big part of the deal logic here when we did this deal with MCC was MCC had a lower margin than DCM. And obviously that was very attractive from a value creation perspective. We're now applying the DCM operating model to move margin forward. And in fact, the margin that we have, the combined margin we have in the quarter is a little higher than what we had planned at 26.9%. But we have an active plan, active process, active program to bring margin back into the 30 and north of 30 range. So again, it was very much as expected, slightly ahead of target on the quarter at 26.9%. And you can see the overall gross profit margin continuing to be very solid. And we're very pleased. If you look at the next slide, I talked about seven quarters of revenue growth. We actually have eight quarters of gross profit growth. We actually turned the corner on gross profit in Q2 or Q3 rather of 2020. uh of 2021 and we've had solid momentum since then so very very good progress on uh on rev on on gross profit growth uh quarter by quarter okay eight consecutive gross growth quarters all right uh turning it over to share price momentum james yeah we our share price has certainly performed very well this year as we talked about uh last quarter

There's a little bit of noise in our earnings because of the fair value adjustments related to our long term incentive compensation. So for the current quarter, we've broken the kind of variations related to RSUs and DSUs and mark to market out as a separate line item. And in our EBITDA reconciliation, you'll see that going forward, we'll be reporting that as a separate line item. We have at the end of this presentation, including a reconciliation going back on a quarterly basis from the beginning of the first quarter in 2022. And we'll be posting that on our website so that you can look and get kind of a comparable perspective. But those fair value adjustments represented about $2.3 million in the quarter, given our share price appreciated by almost 23%. And year to date, our share price is up almost 133%. And the total kind of adjustments here to date are about $7.5 million. As a result, we've reported adjusted EBITDA of $13.8 million in the quarter. This also includes add backs for restructuring expenses and other one time charges relating to the acquisition. We're very pleased that EBITDA was up almost 50% compared to a year ago. And as Richard referenced earlier, this includes two months plus a week of the MCC results. And certainly in the third quarter will be the first kind of full quarter reporting the combined results of MCC. EBITDA did come down a little bit as a percentage of revenue at 11.6% compared to 13.7%. But this is really, as Richard noted, because of the lower overall gross margins in the MCC business. And we have a clear plan not only to grow gross profit back north of 30%, but also to grow adjusted EBITDA back to north of 14%. Included in this table is a summary of how adjusted EBITDA looks for the past two years on a quarterly basis. Again, two very strong quarters of adjusted EBITDA, so we're tracking very nicely going into the second half of the year. We've included here a summary of our financial performance compared to last year and variance comparison. Most of the numbers here are reflective of commentary that we've already talked about. What I would like to kind of point out is adjusted net income for the quarter of $3.8 million compared to $3.6 million last year. On an adjusted EPS basis, we came in flat at $0.08. compared to last year at the same number. The adjusted net income impact really kind of adding back restructuring expenses, acquisition and integration costs, fair value gains and losses on financial liabilities and the after-tax impact of those. Really the increase of about $200,000 is mitigated a little bit by higher interest expenses related to the financing of the acquisition of MCC and also slightly higher share count given the equity raise we did a couple months ago.