Data Communications Management Corp.

Good morning, ladies and gentlemen, and thank you for standing by and welcome to the Data Communications Management Corp. Fiscal 2024 Financial Results Conference Call. My name is James Lorimer, CFO of DCM, and I'm pleased to be hosting today's call. Joining me today is Richard Kellam, 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 will 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 achievements in 2024 on our website in the form of an infographic. 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. And I'll now turn the call over to Richard.

Thank you, James. So here's what we want to accomplish in the next half hour. I want to talk about our special and recurring dividend, have a look at the achievements and highlights of 2024, our financial results, talk about the platform we've built for profitable growth, and we'll turn it over to Q&A. Okay, James. Kicking off with our returning capitalist shareholders, I want to say that the hard work on integration is behind us and happy to report that we are about a half a year ahead of schedule and we're on budget from a restructuring perspective and we're on the 30 to 35 million synergy capture as we'll see a little later on in the presentation. I also want to thank all of our shareholders who have stuck with us through this journey. 2024 was a big year for us in terms of bringing these two sizable businesses together. So thank you for sticking with us. And we are very confident in our plans for future as we move into 2025 and onward. And as such, you saw the announcement we put out to the street a couple of weeks ago, as such, We have put the special dividend in place at 20 cents per share and committed to quarterly dividends of two and a half cents a share in cash. And that would imply a dividend yield of about four and a half percent at the current share price. We're very pleased with where we are. As I said, the heavy work and the restructuring is behind us, and now is the opportunity to move forward and grow this business, and we're happy to return this capital to the shareholders. So having a look at our achievements or accomplishments in 2024, I'm going to spend a little bit of time on this page because I think it's important that we unpack the results. The first pillar here, anybody look at the slides, Our 2024 results, record levels of revenue, as you'll see in a minute, gross profit and adjusted EBITDA, and positive outlook provides opportunities, as I said, to return capital to shareholders. On the integration side, the integration of Moore Canada Corp or RR Donnelly Canada, the plan consolidation is complete. We went from 14 facilities to 10. That all was complete by the end of 2024, as I said, about a half a year ahead of schedule and on budget. We have now moved all of our clients on to the the uh dcm client workflow client digital platform so a lot of client migration hundreds of clients need to be moved between legacy mcc systems to the dcm system so that is all complete Our technology infrastructure migration, and I'm sure a lot of shareholders have been through this in your own companies where you've had to take ERP systems and move from two or three to one. That is complete. We moved SAP, which was a legacy MCC system, into D365, and that is complete. It was completed by end of year, so we now have one invoice for all clients, all customers. Finally, as we think about stepping into 2025, there will be little to no adjustment between EBITDA and adjusted EBITDA because all of our restructuring and integration charges are behind us. So happy that that is all done, as I said, about a half a year ahead of schedule. We've had profitability improvements. We've reduced fixed cost overhead. We exited all of our low-margin businesses that came through the acquisition. We leaned in hard to strategic revenue management process, looking at all of our lines of business and all of our clients, and we reduced outsourcing significantly. This is a product that was put up to third parties, most of it through the acquired company, and we've moved all of that production into our own facilities. And finally, pleased with the capital investments that we've made, new state-of-the-art equipment with very high ROI. I'll give you an example. Our label business, we used to have seven label presses in the Trenton facility. Obviously that was one of the facilities that was closed. We replaced that with three new state-of-the-art presses in Brampton, our Torbram facilities, who went from seven to three. And our production capability and capacity is much higher than these seven originals. So there's one example. There's several I could provide. We've also put some new product and some new market activities into the market. Significant facility improvements in Brampton. know we'll talk a little bit later as well we introduced two new ai enabled sas offerings uh assemble as well as the acquired xavi platform so lots accomplished and achieved in 2024 and uh and built a platform for success for 2025. okay having a look at our results in 2024 i'm going to start off with revenues and then james will take you through gross margin and ebitda revenues up 7.2 percent versus 2023 And if you look at this chart, you go back to 2021, our revenues are actually double what they were in 2021. You see 2021, we were 235, now we're 480. Now, I will say that if you look at that 480, the pro forma or underlying or organic underlying growth certainly was impacted. We expected a number slightly higher than the 480, and it was impacted for a few reasons. One is We exited some lower margin, unprofitable businesses, probably a little bit more than we expected through due diligence. But that is all behind us and those are exited businesses now. We obviously closed facilities and we closed them faster than we planned. And that certainly had some impact on workflow, which is fine because I'd rather have the impact captured so we have a clean year in 2025. Obviously, the consolidation of ERP impacted some of that underlying organic growth as well. And then, of course, we got hit by a postal strike. Canada Post is a large client of ours. We service and provide services to 5,900 post offices across Canada. So that went on longer than we expected and obviously some cancellation of direct mail. So you take that all into consideration. Obviously, it affected our underlying performance a little bit more than we expected, but i'm happy to say that we're still 7.2 percent growth and we built a nice clean and clear platform for growth moving forward into 2025 and onward and i do want to point to this chart as well because i don't think you know shareholders have a lot of opportunities to study this but we do of course uh if you look back to 21 and 22 21 20 21 and 2022 this is when we were a standalone business pre-acquisition and you can see we added 38 million dollars of organic growth into our business between 21 and 2022 so we know how to grow the business and as i said for all the reasons i already said um you know uh it obviously interrupted some of that underlying performance in 2024 uh but we're now back to kind of where we were in 2020 uh 2022 and we've built a great growth muscle so we will see that uh uh performance improve um now that the uh now that the the hard work is behind us if you will okay so moving on to uh gross profit James?

Thanks, Richard. Gross profit hit record levels in 2024 of $130 million, and that was up 9.4% from the prior year. As we say, we like to see gross profit growing at a faster rate than revenue, and that compares to the 7.2% revenue growth we saw. Gross margin also improved over last year, and that was as we completed a lot of the facility integration. I remind shareholders that the two largest facility consolidations happened in the kind of the end of the third quarter and really were fully completed in the fourth quarter. So with those facility closures behind us, you know, we're optimistic in terms of continued margin growth going into 2025. You'll see the 30.8% gross margin that we achieved in 2022. We believe we're well on track to getting back to north of 30% gross margins as we continue to grow the business. Adjusted EBITDA hit also a record $63.9 million in the year and that was up 19%, almost 20% compared to the prior year. And again, the accelerated growth there, you know, higher than the growth rate in revenue and also higher than the growth rate in gross profit. And that was because of a lot of the synergy realization that we achieved in the SG&A line. Again, you'll see that prior to the acquisition, we were in the 15% gross EBITDA margin range. We believe we're tracking north back to that kind of 14% to 15% EBITDA target over the next near term.