DCM’s quarterly financials are online as cost reduction and facility consolidation improve cash flow
andResearch Society (www.eresearch.com) published a 19-page update to stock research report on DATA Communications Management Corp. (TSX:DCM | OTC:DGPIF | STU:18DN) regarding the release of its Q3/2021 financial results.
DCM is a Canadian-based communications and marketing solutions provider that provides businesses with comprehensive online and offline communications and marketing solutions. Its technology-based content and workflow management capabilities solve the complex branding, communications, logistics and regulatory requirements of leading Canadian companies.
Q3/2021 revenue 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, some customers have postponed spending on services and supply chain issues have caused some potential activities to be postponed to Q4 2021 or early 2022.
Gross margin was 30.2% in the quarter, compared to 29.0% in Q3/2020, which benefited from the revenue mix and cost reduction initiatives implemented since the start of the pandemic, including facility consolidation.
In 2020, DCM announced plans to consolidate its Mississauga, Ontario facility into its Brampton, Ontario facility during 2021 and expects savings of at least $1 million.
However, due to corporate consolidation and other workforce reductions, the company continues to accrue restructuring expenses as it consolidates its 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 its debt. Adjusted EBITDA for the quarter was $9.4 million and debt was reduced by $2.8 million. The company also announced that it has refinanced various debt and credit facilities, which is expected to save approximately $1.5 million in interest charges in 2022.
Over the past five years, cost reductions and operational efficiency improvements have been a key focus for DCM to improve margins and cash flow as it transitions from a “print-first” business. to a ‘digital first’ business. Recent sales include the deployment of ASMBL, its end-to-end digital asset management (“DAM”) solution, to a Canadian retailer and DCMFlex, its workflow management platform, to a cannabis operator multistate in the United States.
Based on andAccording to research model estimates, DCM has a low valuation multiple compared to its peers. The company is currently trading at 0.5x enterprise value to revenue (“EV/revenue”) of 0.5x 2022 versus printer components trading at 1.3x EV/revenue and well below technology-enabled digital asset management (DAM) and workflow providers in the 2.6x to 7.1x EV/Revenue range.
Chris Thompson, director of equity research at andResearch wrote: “As DCM’s shift to ‘digital first’ accelerates and increases the share of technology-based marketing workflow and DAM revenue as a percentage of total revenue , this could lead to a revaluation of multiples and an increase in valuation multiples in line with other competitors of Tech-Enabled Marketing Workflow and DAM.
Disclaimer / No representation, express or implied, is made by eResearch as to the accuracy, completeness or correctness of its research. Opinions and estimates expressed in its research represent the judgment of eResearch as of the date of its reports, are subject to change without notice, and are provided in good faith and without legal liability. Its research does not constitute an offer to sell or a solicitation to buy securities. Securities mentioned 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 the use of its research or the information contained therein. eResearch reports may not be reproduced, distributed or published without the express permission of eResearch. eResearch accepts advertising and other fees from corporations, financial institutions, other third parties, and institutional and retail investors. The purpose of this policy is to defray the cost of researching small and mid cap stocks that 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 Governance Analyst/Corporate Issuer Relations.