Data Communications Management Corp.

Good morning, ladies and gentlemen. Thank you for standing by and welcome to the Data Communications Management Corp second quarter fiscal 2025 financial results conference call. I'm 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 chief executive officer. Following our prepared remarks, we will be moderating a Q&A session. As a reminder, this conference 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 might have. Before we begin, I'll 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+. The highlights of our results will be posted on our website in the form of an infographic along with other material. This information or 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 CDAR+. Please follow us on LinkedIn to keep up to date with other business developments. That will now turn the call over to Richard.

Thank you, James, and good morning, everyone. And I know we might have some people in Europe listening, so good afternoon to you as well. I want a quick look at today's agenda. We're going to hit the highlights and results of the quarter, talk a little bit about some new business development opportunities, priorities for 2025, and we'll turn it over to Q&A. So starting off the highlights and results, I guess our key theme before I get into the highlights is that we've delivered solid performance amidst some pretty challenging market conditions, which I'll get into in a little bit more detail. Looking at this slide, kind of four highlights here. First pillar is the Q2 2025 results. Our adjusted EBITDA beat consensus. EBITDA margin was 14.6% versus 13.4%, and our value was 16.6% versus 16.9%, so sort of essentially flat a year ago, 98.2% index over a year ago. So very good, solid EBITDA, despite revenue being below expectations, really given the stronger than planned macro headwinds that we experienced. Again, a little bit more detail in a minute on that. Gross margin held pretty solid given the revenue headwinds at 26.8 versus 27.3. you know, despite, again, despite that decline in revenue. So just a fixed cost overhead recovery. Obviously, we couldn't recoup as a result of the revenue decline, but good solid gross margin performance despite that. Market uncertainty, and I think the key word is uncertainty that we're experiencing here, remains. The economic and tariff uncertainty has certainly negatively impacted business confidence. That obviously has resulted in less or smaller orders, so fewer or smaller orders, and then some inventory drawdowns as well. And then, of course, we had both direct and indirect impact from Canada Post. The ongoing labour disruptions started back in November of last year, continued through until the summer, and they're still not settled. Doesn't seem to be any strike action right now, but certainly still unsettled given the contract is not completed. And then, however, with all that, I'd say the team has done a great job managing overhead to mitigate impacts of a lower client spending. And you see those results in our financial results. On the third pillar here, our new business development and outlook, our sales pipeline continues to grow. And it has reached the highest level that we've seen in years. I'll give you a little fact here. We've actually won 45 new logos in the first half of the year, and that's the equivalent of about $9 million in annualized revenue. So new logo development is certainly far surpassed where we were in the last couple of years. So we're all in. We have a phrase, all in on growth. We're all in on growth. And we'll expect to more fully realize these opportunities as market conditions improve. And the final outlook on new businesses, I can tell you that we have had no material client losses. Our top 10 enterprise clients are still the same, our top 20, our top 30. It's just the order flow and work that they're doing has obviously been impacted given the uncertainty in tariffs, economy, and postal disruptions. But no material losses at all in clients. Then from an M&A perspective, certainly coming into focus for us, industry dynamics are creating more opportunities, I'd say. So our activities increased quite significantly. We've got a very robust M&A pipeline. And as you'll see later in the presentation, we're well capitalized to take advantage of opportunities in the marketplace. So some of the highlights, we'll get a little bit more detail as we progress through the deck here. Revenues, as I said, impacted by client budget reductions, delayed orders, inventory drawdowns due to market uncertainty, the macro economy, of course, and the Canadian labor disruptions, and you saw that in our numbers we reported, down 9.5%, down about 12 million versus a year ago. Okay. Gross margin, decline really is all due to the headwinds we experienced in revenues. And really it's around not being able to get some of the fixed cost overhead recovery. So we'll see that improve considerably when we move back into positive momentum. And you can see the gross margin profits down about 3.8% or 11% and about 50 basis points. But again, no kind of underlying issues with gross margins, really just related to the headwinds in revenues. We're actually very pleased with our financial performance despite the revenue headwinds. As I mentioned earlier, our adjusted EBITDA is at $16.6 million, so essentially flat a year ago. Our 98.2% index, I guess we call that close to flat a year ago, right, James? And adjusted EBITDA margin of 14.6%. So clearly you can see that we benefited from all the hard work that we've done to kind of restructure and integrate the acquisition we did a couple of years ago. And that's certainly putting us in a good, solid kind of financial position as we manage through some of the market uncertainty. So we're proud of the team here and what we've accomplished from an EBITDA perspective. Revenue by reported segment, broke this into kind of four segments here. Product sales, you can see, are minus 9.1, so very consistent to the minus 9.5 in the quarter. Logistics are quite interesting. So in our logistics numbers, we have warehousing and and distribution or freight. And you can see that it's down 22.7%. And that really reflects a comment I made earlier on inventory drawdowns. As there's inventory drawdowns, obviously that affects our warehousing revenue. And that's where we're seeing the logistics headwinds at a higher rate than our product sales headwinds. So again, you'll see that kind of all correct as we get back into positive momentum. Very positive progress on tech revenues. Tech revenues are up 16%. That's really due to the progress that we're making on Assemble, on Savvy, and our DCM Flex platform and our whole kind of workflow optimization for clients, which we're getting return on. And then our tech hardware is down about 23% of a year ago, and that's really just – a year ago overlap, a timing overlap. We had a large digital signage install for a pretty large automotive client a year ago, and we're overlapping that, but we'll see that turn as we progress through the year, because we've got a lot of good stuff happening on our digital signage business, okay?

James, you want to talk productivity? Sure. Productivity proxy we use as revenue per employee was just under $300,000. You know, our target is $350,000 and greater. So despite the lower revenue, we certainly are kind of close to our minimum threshold there and look to see this grow in the future. From a balance sheet perspective, our net debt came down a little bit compared to the first quarter. and we're down about 40% since our Moore Canada acquisition. That's despite the 20 cent special dividend we did earlier this year and holding up nicely with the kind of free cash flow that we're generating. You know, overall credit availability, very strong, over $35 million. We had almost $13 million in excess availability under a credit facility, an extra $20 million accordion facility that we can draw upon, and we had about $3 million of cash in the balance sheet. And I'll turn it back to you, Richard.