Equity Research firm, eResearch Corp. (www.eresearch.com), recently published an 18-page update Equity Research Report on DATA Communications Management Corp. (TSX:DCM | OTCQX:DCMDF) pertaining to the release of its Q2/2022 Financial Results.
DCM is a Canadian-based provider of marketing and business communication solutions to companies in North America. Its technology-enabled content and workflow management capabilities solve the complex branding, communications, logistics, and regulatory requirements of leading enterprises, so they can accomplish more in less time.
The company’s 5-year business transformation continued to drive revenue growth and decrease costs. In Q2/2022, DCM reported its strongest year-over-year quarterly revenue growth since 2018, with revenue of $68.1 million, up 23.4% from $55.2 million in Q2/2021, and higher than eResearch’s estimate of $60.2 million.
From a seasonality perspective, the first quarter is typically the strongest quarter for DCM but revenue in Q2/2022 was only slightly lower than Q1/2022, which bodes well for 2022 revenue growth projections. In the research report, eResearch raised its 2022 Revenue estimate to $259.1 million from $251.2 million, incorporating the higher revenue in Q2/2022.
DCM expects the positive sales momentum to continue and reported that it has received more than $22 million in new business this year and its overall pipeline remained strong with the tech-enabled service pipeline at over $10 million.
In Q2/2022, Gross Margin was 30.0%, up 1.3% from 28.7% in Q2/2021, which continued to benefit from revenue mix and cost-saving initiatives implemented since the pandemic.
The company’s total debt level dropped year-over-year, although supply chain issues led to higher inventory levels and reduced debt payments in the quarter. Total debt stood at $38.5 million, down 1.6% from $39.1 million in Q2/2021, but higher than $33.5 million in the last quarter. DCM expects working capital improvements in the second half of the year to help in further debt reductions.
DCM's Selling, General, and Administrative (SG&A) expenses were $13.8 million in Q2/2022, down 3.8% from $14.3 million in Q2/2021, but up slightly from $13.6 million in the previous quarter. The year-over-year decline in SG&A expenses was attributable to the reduction in salaries and wages realized from the full benefits of the cost-saving initiatives implemented throughout 2021 and early 2022, including the consolidation of the Brampton and Mississauga sites, and the consolidation of the Calgary and Edmonton sites.
In Q2/2022, DCM reported Adjusted EBITDA of $9.5 million, an increase of 30.0% from $7.3 million in the same quarter last year. In the quarter, Adjusted EBITDA was not affected by any restructuring expenses and the Company does not anticipate any restructuring charges for the balance of 2022.
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 being selected as the digital agency of record for Habitat for Humanity Canada and providing DCMFlex, its workflow-management platform, to a U.S. multi-state operator (MSO) of cannabis cultivation and retailing locations.
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 1.1x EV/Revenue and well below the Digital Asset Management (DAM) and Tech-Enabled Workflow providers in the range of 2.3x to 3.8x EV/Revenue.
Chris Thompson, Director of Equity Research of eResearch wrote, “As DCM’s shift to a “digital-first” provider accelerates, and it converts some of its Tech-Enabled services pipeline to sales, it could cause a multiples’ re-rating and an increase in the valuation multiple in-line with other Tech-Enabled Marketing Workflow competitors.”
For more information about eResearch's 18-page update Equity Research Report on DCM, please visit www.eresearch.com.
Disclaimer / No representations, express or implied, are made by eResearch as to the accuracy, completeness or correctness of its research. Opinions and estimates expressed in its research represent eResearch’s judgment as of the date of its reports, are subject to change without notice, and are provided in good faith and without legal responsibility. Its research is not an offer to sell or a solicitation to buy any securities. The securities discussed may not be eligible for sale in all jurisdictions. Neither eResearch, nor any person employed by eResearch, accepts any liability whatsoever for any direct or indirect loss resulting from any use of its research or the information it contains. eResearch reports may not be reproduced, distributed, or published without the express permission of eResearch. eResearch accepts advertising and other fees from companies, financial institutions, other third parties, and Institutional and Retail Investors. The purpose of this policy is to defray the cost of researching small and medium capitalization stocks which otherwise receive little or no research coverage. To ensure complete independence and editorial control over its research reports, eResearch follows the CFA Institute’s “Best Practice Guidelines Governing Analyst/Corporate Issuer Relations”.