Data Communications Management Corp

TSX:DCM

Earnings Call Analysis

DCM's Transformative Acquisition and Returns

In 2023, DCM acquired Moore Canada Corporation, nearly doubling the company's size and team. They closed one facility and are planning to consolidate more to drive efficiency and savings after selling and leasing back three facilities. Revenue soared by 63.5% to $448 million with a 41% increase in gross profit at $118.9 million, though gross margin dipped to 26.6%. The focus for 2024 includes completing MCC integration, improving gross margins, particularly in the new acquisition, with a target to reach 30%, and capitalizing on larger scale and services.

A Story of Transformation and Integration

DCM has undergone a significant metamorphosis in 2023, marked by a landmark event: the acquisition of Moore Canada Corporation (MCC). The merge, which took place in late April, nearly doubled both the company's size and workforce overnight. This acquisition became a catalyst for DCM's transformation, fuelling an ambitious drive to integrate operations rapidly. The company has moved decisively to consolidate its facilities from 14 to 10, hoping to emerge leaner and more cost-efficient. The sale and leaseback of 3 MCC facilities, which totaled $38 million, is strategically directed at reducing the company's debt. It's clear that despite the whirlwind of changes, DCM managed to maintain unwavering focus on client service, leading to revenue growth and new client acquisition, all while promoting their digital and tech-enabled solutions. The merger integration is tracking well, and DCM is poised for a future of success.

Financial Highlights from a Transformative Year

The fiscal year 2023 brought a 63.5% surge in revenue, topping out at $448 million. Gross profit followed suit, with a solid climb of 41%, resulting in $118.9 million. However, the gross margin experienced a slight compression from 30.8% to 26.6%. This decrease aligns with expectations and is attributed to the lower-margin contributions from MCC. Despite this, DCM is committed to improving MCC's gross margins, with a targeted return to the pre-acquisition margin levels of around 30%. These figures paint a picture of a company that's weathering the integration process with forward momentum, promising investors a focused strategy to elevate margins and sustain growth.

Priorities Set for a Profitable 2024

Looking ahead, DCM has set a trio of priorities for 2024; they intend to finalize the MCC integration by advancing plant consolidations and unifying their back-office systems. Additionally, the company is honed in on margin improvement, particularly within the legacy MCC operation. Finally, DCM is committed to harnessing their increased scale and capabilities to drive business growth. The company is eyeing a strengthened product offering and leveraging their teams' expanded capabilities to create a robust momentum in the marketplace.

A Culture of Gratitude and Anticipation

The leadership at DCM extends heartfelt gratitude to its dedicated team, acknowledging their considerable efforts through a transformative year. The harmonious blend of two companies has required adaption and hard work, and it's the people behind the scenes who have built a stronger, larger DCM. As the company stands on the precipice of the future, there's a shared anticipation for continued growth, improvement, and the subsequent reporting of positive advancements in the quarters to come.

Earnings Call Transcript 2023-Q4

[Richard Kellam, executive]

Hello. I'm speaking to you today from our Vipond plant in Mississauga. We just released our Q4 and full year results for 2023. And in this video, I'll recap our financial performance, I'll share highlights of the past year and outline our priorities for 2024.

2023 was a transformative year for DCM. We announced plans to acquire Moore Canada Corporation in late February and celebrated our day 1 as a combined company on April 25th. The acquisition almost doubled the size of our business and our team overnight.

To build on the momentum in our business, we prioritized getting off to a very fast start, bringing our teams together and integrating our operations. During the year, we announced plans to reduce our plant network from 14 to 10 facilities to be more efficient and to drive cost savings. We completed the closure of the first of those facilities in December, and we are on track in our planning to close the remaining plants and transfer production to other DCM facilities. We also completed the planned sale and leaseback of 3 MCC facilities for $38 million and use the proceeds to pay down debt.

Most importantly, we kept our eye on the ball and delivered exceptional service for our clients in a year of significant change. Our combined commercial team delivered solid performance, growing revenue with existing clients and winning new logos with a focus on our expanded suite of digital and tech-enabled solutions.

In summary, I'm very pleased with what we have achieved in our first year together as a combined company. Our merger integration is on track, and we are well positioned for success moving forward.

Turning to our financial performance in 2023. Here are some key takeaways. Our full year revenue for 2023 was $448 million, up 63.5% versus the prior year. Gross profit increased 41% to $118.9 million. Gross margin for the full year was 26.6% compared to 30.8% in 2022. This was very much in line with our expectations and reflected the lower gross margin contributions of the MCC business. As a reminder, we are committed to enhancing MCC gross margins and returning our combined gross margin to pre-acquisition levels in the 30% range.

For 2024, our top 3 priorities are as follows: First, complete the integration of MCC by moving ahead with our plant consolidation plans and harmonizing our back office systems. Second, drive improvement in our gross margin with a focus on enhancing profit margins in the legacy MCC business; and third, deliver on our commitment to growing the business by taking advantage of our larger scale, our expanded product and services, and our capabilities of our combined teams.

Finally, I want to thank the entire DCM team for your outstanding efforts throughout the year and for working together to build a better and a bigger business. I look forward to reporting on our progress in future quarters. Thank you.