DCM’s Quarterly Financials In-line as Cost-Cutting & Facility Consolidation Improves Cash Flow

eResearch Corp. (www.eresearch.com) published a 19-page update Equity Research Report on DATA Communications Management Corp. (TSX:DCM | OTC:DGPIF | STU:18DN) pertaining to the release of its Q3/2021 Financial Results.

DCM is a Canadian-based communications and marketing solutions provider that offers comprehensive online and offline communications and marketing solutions to businesses. Its technology-enabled content and workflow management capabilities solve the complex branding, communications, logistics, and regulatory requirements of Canada’s leading enterprises.

Revenue for Q3/2021 was $56.9 million, up 3.1% from $55.2 million in Q2/2021 but down 8.2% from their estimate of $62.0 million. The company reported that due to COVID-19, certain clients deferred expenditures on services, and supply chain issues caused some potential business to be delayed into Q4/2021 or early 2022.

Gross Margin was 30.2% in the quarter, up from 29.0% in Q3/2020, which benefited from revenue mix and cost-saving initiatives implemented since the pandemic started that included facility consolidation.

In 2020, DCM announced plans to consolidate its Mississauga, Ontario facility into its Brampton, Ontario facility during 2021 and expects to recognize at least $1 million in savings.

However, due to corporate consolidation and other headcount reductions, the company continues to book Restructuring Expenses as it consolidates operations. Restructuring Expenses were $3.1 million in the quarter compared to $1.1 million in Q3/2020.

But, with its strong cash flow, DCM continued to pay down debt. Adjusted EBITDA in the quarter was $9.4 million and debt was reduced by $2.8 million. The company also announced that it refinanced various debt and credit facilities, which should save approximately $1.5 million in interest expense in 2022.

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Over the last five years, cost reductions and operational efficiency improvements have been a key focus for DCM to improve its margins and cash flow as it transitions from a “print-first” to a “digital-first” company. Recent sales wins include a deployment of ASMBL, its end-to-end solution for digital asset management (“DAM”), to a Canadian retailer and DCMFlex, its workflow-management platform, to a U.S. multi-state cannabis operator.

Based on eResearch’s model estimates, DCM has a low valuation multiple compared to its peers. The company is currently trading at 0.5x 2022 Enterprise Value to Revenue (“EV/Revenue”) compared with printer comps trading at 1.3x EV/Revenue and well below the Digital Asset Management (DAM) and Tech-Enabled Workflow providers in the range of 2.6x to 7.1x EV/Revenue.

Chris Thompson, Director of Equity Research of eResearch wrote, “As DCM’s shift to “digital-first” accelerates, and it grows the share of Tech-Enabled Marketing Workflow and DAM revenue as a percent of total revenue, it could cause a multiples’ re-rating and an increase in the valuation multiples in-line with other Tech-Enabled Marketing Workflow and DAM competitors.”

For more information about eResearch's 19-page update Equity Research Report on DCM, please visit www.eresearch.com.

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