Mr. Richard Kellam reports

DATA COMMUNICATIONS MANAGEMENT CORP. REPORTS FOURTH QUARTER AND FULL YEAR 2023 FINANCIAL RESULTS

Data Communications Management Corp. has released its fiscal 2023 and fourth quarter 2023 financial results.

Full year highlights

• Revenues of $447.7-million were up 63.5 per cent, or $173.9-million versus 2022.
• Gross profit of $118.9-million increased 41.2 per cent or $34.7-million.
• Gross profit came in at 26.6 per cent of revenue came compared with 30.8 per cent last year reflecting lower MCC gross profit margin contributions. As a reminder, the opportunity to enhance MCC gross profit margins was one of the key attributes of the MCC acquisition deal logic and improving the company's consolidated gross profit margins remains a strategic focus of its business.
• SG&A (selling, general and administrative) expenses were $87.2-million for the full year or 19.5 per cent of revenues, compared with 19.9 per cent of revenues in 2022.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $53.4-million for the full year, an increase of 30.3 per cent vs. the prior year.
• Adjusted EBITDA represented 11.9 per cent of revenues for the full year, compared with 15.0 per cent for 2022. Growth in adjusted EBITDA was driven by the addition of the MCC business, continuing the company's focus on improving gross profit margins, and controlling its SG&A expenses.
• Total credit facilities outstanding at year-end of $101.9-million, down approximately 30.0 per cent since the MCC acquisition. Net debt, after deducting a $16.1-million cash balance (net of bank overdraft), was $84.2-million, down 39.0 per cent since that time.

Management commentary

"We are pleased to report on the results of our performance in 2023," said Richard Kellam, president and chief executive officer of Data Communications. "This was a transformative year for DCM highlighted by the completion of our acquisition of Moore Canada Corp. (MCC) and the significant progress we made in our post-merger planning and execution.

"Our focus throughout the year was to build on the positive momentum we experienced in our business prior to the announcement of the MCC acquisition and to set a clear direction for our entire team beginning on day 1 of the combined business in late April. We moved quickly to bring our teams together, design our new organization and select key leadership to take us forward, prioritizing our large commercial and operations teams. We completed this effort within the first six months of day 1.

"We also moved quickly to complete a thorough analysis of our manufacturing footprint and announced a decision in early July to consolidate our plant network from 14 to 10 facilities to drive greater efficiencies in producing and delivering our products and services. We completed the closure of the first of these facilities in Edmonton, Alta., before the end of the year and are on track with our detailed plan to close the remaining three plants and transfer production to other facilities in our network.

"Our commercial team delivered solid performance throughout the year, expanding revenue with existing clients, winning new logos and building a strong new business pipeline focused on the value we can deliver to clients with our combined product and service offerings. We are pleased to report that in a year of significant change, the team delivered organic year over year revenue growth of 2 per cent, which we believe is a great start for this new team."

Fourth quarter results

• Revenues of $130.0-million were up 77.9 per cent, or $56.9-million, compared with the fourth quarter of 2022.
• Gross profit of $32.8-million, increased 39.1 per cent, or $9.2-million compared with last year.
• Gross profit came in at 25.2 per cent of revenue compared with 32.2 per cent last year.
• SG&A expenses were 19.5 per cent of revenues or $25.3-million, up modestly from 18.7 per cent of revenue year over year.
• Adjusted EBITDA was $15.0-million, up 19.5 per cent compared with the fourth quarter of 2022.
• Adjusted EBITDA represented 11.6 per cent of revenues compared with 17.2 per cent of revenues last year.

Other business highlights

In June, 2023, and December, 2023, respectively, Data Communications completed the sale and leaseback of its Oshawa, Ont., warehouse facility and its Fergus, Ont., manufacturing plant, each of which was acquired as part of the company's acquisition of MCC. The total gross proceeds from these transactions amounted to $30.5-million. Total net proceeds of $29.5-million were used to repay an acquisition-related credit facility.

On Jan. 11, 2024, Data Communications completed the sale and leaseback of its Trenton, Ont., warehouse facility, also acquired as part of the company's acquisition of MCC. Data Communications realized gross proceeds on the Trenton sale of $9-million and net proceeds of $8.5-million have been applied toward paying down the company's revolving credit facility.

Data Communications management to date has focused on four key areas of postmerger integration in connection with the MCC acquisition:

1. Operational initiatives primarily intended to drive higher levels of gross profit as a percentage of revenues by reducing the company's overall cost of goods sold and implementing operating efficiencies, including the planned consolidation of four plants.
2. Organizational initiatives primarily intended to drive both higher levels of gross profit and lower levels of SG&A expenses, including the integration of key functional teams, particularly its commercial and operations teams, and the reduction of duplicative positions.
3. Procurement initiatives, primarily intended to lower the company's consolidated purchasing costs and secure improved terms.
4. Revenue growth focus, primarily through aligning the company's commercial selling efforts, including expanding and leveraging its combined print and communications workflow solutions and its digital offerings.

Data Communications continues to expect total annualized synergies from the MCC acquisition of between $30-million to $35-million to be substantially realized over the next 12 months from these operational, organizational and procurement initiatives.

2024 priorities

Data Communications has established the following strategic priorities for 2024:

1. To substantially complete the integration of MCC by moving ahead with its plant consolidation plans and harmonizing the company's back-office systems;
2. Remain focused on driving improvements in the company's gross profit margins, particularly in the legacy MCC business;
3. Continue to focus on growing the company's business, by taking advantage of its larger-scale, its expanded product and service offerings, and the capabilities of its combined team;
4. Generate continued increases in free cash flow, to enable the company to reduce its net debt further and allow the company to consider further strategic opportunities for investment and capital allocation.

Fiscal 2023 and fourth quarter 2023 earnings call

The company will host a conference call and webcast on Wednesday, March 20, 2024, at 9 a.m. Eastern Time. Mr. Kellam, and James Lorimer, chief financial officer, will present the fiscal 2023 and fourth quarter 2023 results followed by a live Q&A (question-and-answer) period.

Instructions on how to access both the webcast and telephone call are available herein. For those unable to join live, a replay of the webcast will be available on the Data investor relations page.

Data Communications will be using Microsoft Teams to broadcast its earnings call.

Meeting ID:  291 583 190 545

Pass code:  9334kz

Or call-in (audio only):  1-647-749-9154, 120708552 followed by the pound key, Canada, Toronto

Phone conference ID:  120 708 552 followed by the pound key

The company's full results will be posted on its investor relations page and on SEDAR+. A video message from Mr. Kellam will also be posted on the company's website.

About Data Communications Management Corp.

Data Communications is a marketing and business communications partner that helps companies simplify the complex ways they communicate and operate, so they can accomplish more with fewer steps and less effort. Data Communications serves major brands in vertical markets, including financial services, retail, health care, energy, other regulated industries and the public sector. It integrates seamlessly into its clients' businesses as a result of its deep understanding of their needs, transformative technology-enabled solutions and end-to-end service offering. Whether running technology platforms, sending marketing messages or managing print workflows, the goal is to make everything surprisingly simple.

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