Data Communications Management Corp.'s (DCM:TSX; DCMDF:OTCQX) Q2/23 financial results were notable for a 75% year-over-year (YOY) increase in revenue, attributed to its acquisition of Moore Canada Corp. (MCC), reported Chris Thompson, eResearch's director of equity research, in an Aug. 17 update note.
"The combined businesses achieved growth through expanded revenue with existing clients, successful acquisition of new clients and ongoing efforts to mitigate the impact of raw material cost increases by passing them on to the customers," Thompson wrote.
Attractive 114% return
The Canadian marketing and business communication solutions provider offers investors a significant potential return, of 114%, noted Thompson. It is trading now at about CA$3.22 per share whereas eResearch's target price on it is CA$6.90 per share.
Data Communications Management is a Buy.
Growth record maintained
Thompson reviewed Data Communications Management's financial results from Q2/23, the company's seventh consecutive quarter of year-over-year growth.
Revenue was a beat, coming in $119 million ($119M) versus eResearch's $113.2M forecast. Also, Q2/23 revenue was 74.7% higher than Q2/22's of $68.1M.
"Data Communications Management reported that it believes it can still achieve its targeted organic annual revenue growth rate of 5%," wrote Thompson.
Gross profit in Q2/23 was $32M, up 56.7% YOY. Gross margin in Q2/23, however, was 26.9%, down 3.1% YOY but consistent with eResearch's 27% estimate.
The tech solutions firm aims to achieve gross margins of greater than 30% in the upcoming quarters. Following closing of the MCC acquisition in late April, Data Communications Management began initiatives to reach this target through synergies and greater efficiencies in organization, operations, procurement and revenue, Thompson noted.
Adjusted EBITDA in Q2/23 was $13.8M, up 45.8% YOY from $9.5M and partly due to the MCC acquisition.
As far as costs, Q2/23 sales, general and administrative expenses were $23M, up from $18.8M in Q1/23 and up from $13.8M in Q2/22. Data Communications Management aims to achieve savings from synergies in the $25−30M range over the next 18−24 months, and has already realized $4.2M in this regard.
Overall for Q2/23, Data Communications Management reported a $2.9M net loss, whereas last year at this time it had achieved a net profit of $3.8M. Similarly, Q2/23 earnings per share was ($0.06) compared to a $0.09 gain in Q2/22.
Review of balance sheet
In May of Q2/23 the company generated $26.1M of gross proceeds from a private placement of common shares offering, reported Thompson.
The following month, it yielded $24.1M of gross proceeds from the sale and leaseback of its warehouse in Oshawa, Ontario.
At Q2/23's end, Data Communications Management had $21M in cash and $112.7M in debt, after having paid it down by $60.4M.
| Want to be the first to know about interesting Technology investment ideas? Sign up to receive the FREE Streetwise Reports' newsletter. | Subscribe |
