Data Communications Management Corp.

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the Data Communications Corp. Second Quarter Fiscal 2026 Financial Results Conference Call. My name is James Lorimer, CFO of DCM, and I'm pleased to host today's call. Joining me is Richard Kellam, President and Chief Executive Officer, and Lee Berger, Managing Director of Octocom. After our prepared remarks, we will open the call for Q&A. As a reminder, this conference call is being broadcast live and recorded. Richard and I can also be available after the call for any follow-up questions. Before we begin, I'll remind everyone that today's call will include forward-looking information. This information is subject to risks and uncertainties described in our press release and in our public disclosure filings on CDAR+. We will also be referring to non-IFRS standards measures The details and reconciliations of which to IFRS measures can be found in our most recent public disclosure which is also filed on CDAR+. Presentation, recording and transcript will be available on our website following the call. Additional information relating to DCM is available on our website and on CDAR+. We also invite you to follow DCM on LinkedIn for updates on our business developments and I'll now turn the call over to Richard.

Thank you James and good morning and good afternoon and good evening to any shareholders joining us from other markets or other time zones. As many on the call have likely already reviewed the press release, our second quarter results were generally in line with what we expected. Well, revenue remains slightly below prior levels. Our sales activity did remain very robust. We generated strong free cash flows. We continued to pay down debt quite significantly on the quarter. And we completed, of course, this very strategic acquisition of Octocom. And we're going to spend a majority of our time on the call today reviewing that acquisition. So I'll move pretty quickly through the quarter. As noted on our press release, moving through the third quarter and into the second half of the year, we are seeing very encouraging signs, including an expected return to positive year-over-year revenue growth, a more favorable business mix contributing to improved gross profit, a continued momentum in new business development which I'll talk to you on the next page and then of course continued strong free cash flows. In addition of course the Octocom acquisition is going to deliver enhanced revenue and earnings contribution through the balance of the year and we'll talk a little more detail as we progress through the call here today. So again I'm going to move fairly quickly on the numbers for the quarter because I do want to spend the majority of our time with Lee on this fantastic acquisition of So as I said, kind of in line with what we expected revenue decelerating on the quarter and we're seeing that continue to stabilize and we'll see that obviously stability as we progress into quarter threes and quarter four. From a new business development standpoint, our revenue from new logo wins did accelerate quite significantly, actually. Much higher rate than a year ago, and plus the average value per client is considerably higher. Obviously, this positions as well, and while we're confident we're going to see that return to growth in quarter three and quarter four. Our tech enabled service hardware and revenue from software continues to grow up 10.4% of the quarter. We're now about 7.3% of total revenue. Gross profit was in line with what we expected on the quarter and our SG&A, we continue to build a better business and you can see that our SG&A continues to decrease over a year ago and adjusted EBITDA in line just under 13% of total revenue. and again we'll see that we'll see that that progress as we move into quarter three and quarter four with the base business as well as the addition of Octocom. Free cash flow is extremely strong up 15.7 million in the first half of 2026 and it's about a 16.3 million dollar swing versus a year ago so very solid free cash flow delivery Net debt, we're very pleased with our continued progress on reducing debt. Obviously, this is prior to the Octocom acquisition, which we'll see included into our quarter three results. We're down 26% of the year, and it's the lowest leverage we've seen in three years. So real good progress on continuing to pay down debt. And then, of course, we returned a solid amount of capital to shareholders, about $3.4 million in the quarter. So again, in line with what we expected and kind of decent progress through the quarter. So as I said at the top of the call, we do want to spend a majority of this call with reviewing the OctaCom acquisition. Leah Berger sitting beside me here, our new managing director managing the OctaCom division of DCM. and Lee is going to provide you with an update of the Octocom business, so a good overview of the Octocom business. He's going to talk about the intelligent document processing market, the size and growth of that market, why the market's growing so quickly. He's going to also talk about opportunities for Octocom and IDP as now being part of DCM. So we're, listen, we're very excited about the acquisition. You know, you read the press release and you can hear my excitement in the call today. It's just a month ago. It's actually a month and two days since we completed the acquisition and we're already off to a great start. But I want to be clear to shareholders that the IDP or Intelligent Document Processing market is not new to DCM. We started down the path about two years ago with very serious intentions to build a business here in IDP. We saw lots of kind of inbound coming from clients and we've already built a small, much smaller obviously than Octocomp, but a small piece of business at IDP. that is a fast growing piece of business. So it's not new to us. And the addition of Octocom obviously just allowed us to get there a lot faster, buying versus building and buying one of the fastest growing IDP companies in Canada. So we're very excited and it certainly makes us a much stronger competitor in this space right from day one. So I'm gonna turn the call over now to Lee So Lee, welcome to your first earnings call here and excited to hear about Octocom.

Excellent. Thanks. Thanks, Richard. Thanks, James. Glad to be here with everybody on today's call. And what I plan to do is provide an introduction on Octocom, an introduction to the IDP market as it is probably a relatively new market for some investors here on the call. as well as talk a little bit about how we're collaborating already with DCM in the acceleration of our go-to-market plans now that we're united here. From an investment standpoint, there's some highlights you'll see there on the slides. Ultimately, Opticom is a scaled operation. In the trailing 12-month period, we've generated just over $23 million of revenue. We would be one of the leading IDP players here in Canada. and we deliver our solutions through a combination of different technology platforms largely built in house that allow us to deliver really efficient automated end-to-end solutions for our customers and what that results in is very high recurring revenue, high churn, the ability to augment our solutions over time and drive strength and margins and ultimately drive strong free cash flow. Octogom has been in this market for the last 50 years. I've been with the company for the last 10, driving the latest stage of growth, and we see a tremendous amount of opportunity ahead as we join the DCM team and accelerate our go-to-market plans. So takeaway here, really profitable growth, fast-growing business, sticky customer base, proprietary technology that we continue to augment and intend to augment even faster with the strength of DCM behind us. Moving to the next slide, a little bit of an overview of what IDP is. So there's really a couple different use cases for, many use cases for IDP, but there's a couple different solutions that land in the IDP sphere. And the most comprehensive of those solutions is a workflow that you'll see up on your screen right now, which really entails automating complex document intensive processes, which are the backbone have a large number of large enterprise and government customers and prospects that exist out there. So this is really leveraging a multi-step process to intake, extract, classify, and feed downstream systems with relevant data that's been extracted and validated in the document-intensive workflow. And so that involves a capture stage, a classification stage, an extraction stage, A validation stage, typically some form of workflow automation, whether it be within our Otis platform, our proprietary web-based platform where clients can interact with documents, workflow them, drive automated rules, and ultimately through system integration between Otis and multiple different types of downstream systems. In our process, we use a combination of different innovative tools to drive automation. we use OCR, ICR, we use AI, we use machine learning, we use natural language processing, we use a series of different intelligent tools and really AI augmented tools to allow us to deliver our solutions both efficiently from a delivery time perspective as well as from a cost perspective. With a little bit of a background on what it is that we do and we're sort of that that solution provider behind the scenes within lots of organizations that we would all be familiar with. It's important to understand what does this market look like? And as we've displayed over the last nine years, nine or 10 years of ownership, we're able to grow at a very rapid rate, taking advantage of both a rise in tide in this IDP market as well as this ultimate digitization wave that we're seeing from a lot of our clients. And so as we look at the market looking forward, we're seeing that 30% plus compound annual growth rate continuing. There's a number of drivers for that. There's AI drivers and sort of richness and value and legacy information should it be not yet digitized. there's rising rates in digital adoption in terms of taking physical processes, converting them to digital or bridging the gap, having hybrid environments where there's both digital input and physical input. And ultimately we do stand out in the field of data sovereignty and our services being performed in Canada in secure facilities across both the OctaCom and the DCM network. And we're gonna talk a little bit more about that in the next few slides. From a market driver standpoint, cost is probably what matters most to investors. Manual data entry is generally expensive for large enterprise and government. There's a lot of automation opportunity that exists within these specific spheres that are our target market. IDP can cut the cost of that entry from $5 to $25 a document down to much more diminished rates of between pennies and a dollar per document. And so it allows us to go into new opportunities with a cost lens or an ROI lens that is rather accelerated. And that has been part of what has helped us in our growth trajectory to this point. But ultimately, there's lots of market drivers. presented to you up on screen there, but lots of unstructured data that clients are looking to structure, extract, validate, and use for inputs to data models or otherwise. We're able to leverage in our environments, various different AI models to augment our processing that has been a boon for us and an area in which we've been able to take advantage of AI innovation and changes that are taking place in the market. and building a rather modular platform that allows us to plug and play different models for different use cases to be that compliance layer while delivering value to our clients. And there's a series of other drivers. I mean, I mentioned a few moments ago, general digital transformation. When we look at the government of Canada, the provincial government and municipalities, for instance, we see massive archives of physical information. The same holds true in the healthcare space as well. We see massive archives of historical information that once did not have the value that it does today. And we're seeing budgets coming to bear and opening up, allowing us to digitize that information and leverage that information for use cases and feeding certain models to enable these clients to get more value out of the documents and the data that exist and free up that storage space, physical storage space that that once occupied buildings and buildings worth of space. So just looking at where IDP is relevant, it really is across all industries and all verticals, more so at the large enterprise, mid-market enterprise, less so at sort of the startup level, as you can imagine. and so as we look at industries with the highest opportunity set and the largest addressable market, we're looking primarily to continue to focus on the government sphere. Good examples would be general records modernization, benefits processing, citizen correspondence, application forms for passports, et cetera, et cetera. In the healthcare sphere, we do a fair amount of work in this space. Medical Record Digitization and Data Extraction, Claims Processing, Referral Routing is another great example that you'll see up on screen there. On the BFSI side, Financial Services, we see a host of opportunities, probably the largest opportunity set second to government, in my opinion, exists in the financial services space. And this is a space that DCM has a really strong footing in. and was really one of the drivers for our collaboration and how we're going to market. Octocom had very little exposure to VFSI, DCM holds tremendous relationships with really all of the, or most of the financial services organizations in Canada. And so taking our platform and our solution suite over to assist with things like new account opening, loan and mortgage processing, compliance archiving. These are valuable use cases. Digital mailrooms are another good example. And we talked a little bit in a press release, we talked a little bit about a recent announcement that we'll mention on the next slide. These are really high value, sticky use cases that we anticipate growing across the prospect base that we do have. and finally, Transportation Logistics. OCTECOM is pretty active in this space already, have a really solid solution from a proof of delivery management standpoint. This is managing bills of lading, extensive data extraction off of them, receipt and packing slip gathering. We have quite a comprehensive proof of delivery documentation process and solution that's in place and we see tremendous amount of opportunity scaling that out across the DCM world.