Morning, ladies and gentlemen. Thank you for standing by, and welcome to the DCM Third Quarter Fiscal 2025 Financial Results Conference Call. My name is James Lorimer, the CFO of DCM, and I'm pleased to be hosting today's call. Joining me on the call today is Richard Kellam, our President and Chief Executive Officer. Following our prepared remarks, we will be moderating a Q&A session. As a reminder, this conference call is being broadcast live and recorded. We'd also like to remind everyone that Richard and I are available after the call for any follow-up questions that you may have. Before we begin, I'll remind everyone that we will be referring to forward-looking information on today's call. This information is subject to certain risks and uncertainties, as outlined in the forward-looking information disclosure in our press release and more fully within our public disclosure filings on CDAR Plus.
We will post a brief message from Richard along with highlights of our results on Q3 2025 on our website in the form of an infographic. This presentation will also be added to our website for your reference, along with a post-view recording and transcript. Our detailed information is available on our website and CDAR Plus. Please follow us on LinkedIn to keep up to date with other business developments. I will now turn the call over to Richard.
Thank you, James, and good morning to our shareholders, any shareholders that are joining us from other markets. Good afternoon and good evening as well. The plan to do today is just hit the highlights of our results. As James said, all the details will be up on our website. Talk a little bit about new business development, have a look at our continued priorities for 2025, and turn it over to Q&A. Having a look at a summary or highlights of our quarter, I'd say overall, the results are very much in line with what we forecasted and what we expected as we continue to manage through some market uncertainty. Looking at this first column on the left here, highlights of our Q3, adjusted EBITDA was in line with what we expected. Margin came in a little higher than a year ago, at 11.7% versus 11.6%.
Overall, EBITDA value was 12.3% versus 12.6%, so pretty much in line, as I said, with what we expected. Our revenue was slightly off versus a year ago, but it was significantly decelerated, shall we say, versus Q2. Even with the sustained macro headwinds, we were minus 3.1%. Again, pretty much in line with what we had forecasted. Gross margin slightly lower than a year ago, and that's really due to the reduced fixed cost overhead recovery we get in our factories. We'll see that snap back as we get revenue back into our facilities. The market uncertainty continues to remain. Certainly, the economic and tariff uncertainty is negatively impacting our business confidence. Several, I'll call it discretionary marketing events or marketing spend has been reduced during the year. Again, we'll see that confidence kind of rebuild as we progress into next year.
There's been a direct and an indirect impact from the Canada Post Labor Disputes. Canada Post is a large client of ours, so that's the direct. The indirect, obviously, are other clients that are using mail as part of their marketing efforts, right? Especially direct mail and personalized direct mail. The rotating strikes that we're now in are certainly not helping that. Air Canada, another client of ours, obviously, that strike impacted some of our workflow, especially on the operational side on the quarter. What I can tell you is the team has done a fantastic job at managing overhead and really mitigating the impacts of lower client spending. You'll see that in our favorable SG&A. Over the third column, we are advancing our digital and our AI platforms. Our CCM, our Customer Communication Management platform, was named on the Aspire Leaderboard.
A lot of confidence in that platform. I'll show a little bit more detail later. We launched our AI-powered Content Cloud digital asset management solution, and we're getting some good success with that, early stage in the market. We have picked up a couple of new Flex customers, one significant financial services client that we're just working to onboard now. Some good, definitely some good momentum in our digital solutions. M&A remains a focus for us. The pipeline continues to grow with market activity that remains robust. Certainly, the macro uncertainty is creating opportunities and providing some incentive on the sell side. We're seeing a lot of that activity in the market right now. We are, and James will show you a little later on in the deck, well-capitalized to transact if we see opportunities that we want to act on.
Okay, so a little bit more detail, just kind of unpacking the highlights a little bit. As I said, revenues pretty much in line with what we expected. Deceleration over the prior quarter from a decline perspective, minus 3.1%. We were about CAD 3.4 million shy of a year ago. As I said, kind of the Air Canada, the Canada Post events certainly impacted that, but pretty much what we forecasted. Certainly, the new business development efforts that we have in market offset any other headwinds that we experienced from other clients. Again, we'll talk about that a little bit later in the deck here on the progress we're making on new business. Overall gross profit, as I mentioned, really due to reduced volume in our facilities affected our fixed cost overhead recovery, hence the margin at 23.4% versus 25.8%.
Again, slightly down versus what we delivered a year ago, but pretty much in line with what we had forecast for the quarter as well. Adjusted EBITDA, 11.7% versus 11.6%, as I mentioned earlier, slightly down over a year ago, slightly opposite percentage and slightly down over a year ago. Pretty decent EBITDA delivery given some of the headwinds that we experienced on the revenue line. James, you want to talk about our balance sheet?
Sure. Good quarter in terms of free cash flow. Our net debt came down from CAD 87.5 million at the end of quarter two to CAD 80.6 million. Our net debt to EBITDA just below 1.9 times, actually 1.87 times. Nice improvement there. Our excess availability under credit facilities increased nicely as well. We had a little over just about CAD 17 million of excess availability, as well as CAD 3.7 million of cash.
With the accordion facility we have that's undrawn, we have over CAD 40 million of total credit available. We believe we're well-capitalized, not only for our operations, but also to pursue M&A opportunities.
Okay, having a look at new business first, I'm going to just talk a little bit about our CCM 360 platform. This is a Customer Communication Management platform. We've been working on this for about seven or eight months and getting good traction in the market right now. It does everything from electronic form capture, intelligent document processing, digital data and document routing, secure encryption, robust composition engine, and data-triggered customer communication. You think of a full loop, we call it 360, right, from capture to delivery. It is a fully AI-enabled solution. The electronic capture is AI-enabled. The intelligent document processing backbone is all AI-enabled. The digital data document routing is AI-enabled. Really using AI capabilities to simplify this workflow and, more importantly, to be able to capture information effectively and be able to use it for effective marketing programs.
We're starting to get some very good client traction. The recent win we secured is as a result of this product that we've built. It's a great success. We'll see a lot more of that as we progress into this quarter and importantly into next year. We've got a very active pipeline. As I mentioned, we launched our Content Cloud, which is a fully AI-enabled digital asset management solution. We had launched a product called Assemble about a year, year and a half ago, and this is a rebranding with some significant additional features and functions. It's very active on intelligent automation and some agentic AI as well. New to market, we've already secured a few clients on this platform, and we've got a very active top-of-funnel program right now.
We will be able to report a lot more activity on this as we progress through the next couple of quarters. Very excited about this launch and off to a great start. We shared this with our shareholders, I think the last couple of quarters, we are all in on growth. Again, that decline of around minus 3% would have been far greater if we did not or if we had not built this growth muscle. We are getting some good momentum on new wallet share as well as new business, new logo penetration as well. Our team is all in on growth. We have a lot of active opportunities, a high number of proposals out there. Our number of value wins has gone up, but 22% of our value and opportunities have come from new logos. Our win rate has certainly accelerated versus 2004.
We'll say that time to revenue in our business is long, so you'll see some of that revenue flow in end of year and importantly into next year as well. I mean, if we win a deal now, we wouldn't see revenue until next year as an example, especially if it's large enterprise. So we're pleased with the progress we're making. And as I mentioned, our tech or our AI-enabled solutions, we've got top-of-funnel right now around CAD 7 million in opportunities in funnel for those digital solutions that we see down on the bottom right of this slide. So good progress on our new business development and our all-in-on growth initiatives. Priorities for 2025. Again, we've unpacked these with shareholders several times.
We're consistent with what we reported last quarter, maintained focus on profitable organic growth, deliver return on new capital investments, continue to drive gross margin improvements through operational efficiencies, and we've delivered several operational efficiencies. Once we see revenue flow back into our facilities, we'll see that gross margin improve. Demonstrate our agility and adaptability to navigate these uncertain environments, leveraging our scale, increasing our managing that capacity we've got on our network, and then expanding our product mix and skills and capabilities to drive that profitable growth over time. Those are our priorities. James, you want to talk about our return to shareholders?
Sure. We recently declared our third quarterly dividend of CAD 0.025 per share. That'll be payable at the end of December to shareholders of record in mid-December. This, of course, in addition to the special dividend that we declared earlier this year of CAD 0.20 per share. Current price, we're trading about a 7.5% dividend yield based on the annualized quarterly dividend that we've been declaring.
Okay. Closing, we are certainly in very good control of our business. You can see that our SG&A has improved considerably despite some of the headwinds that we're experiencing in the marketplace. Again, we've all lived through tough environments before, and we will see that turn. We've got a great new business development effort, new business development program in place. We've got strong operational performance. Our cash flows are solid, as you saw from James. Our new business development, as I said, our initiatives are kind of the best we've had in years. We're all in on growth. We certainly have a proven track record of execution. We are well-positioned to pursue any opportunistic M&A that may come our way.
Of course, we've got an experienced leadership team, kind of best in class or world-class in the industry, and we're well-capitalized, as James said, with over CAD 41 million in available capital. We are well-positioned to take advantage of market opportunities as they arise. Certainly, we'll see some of the headwinds we've experienced turn at some point, and we'll be able to capitalize on those opportunities. All right. That's the summary of the quarter, and we'll turn it over to any questions that our shareholders may have.
Thanks, Richard. We'll now take questions from the audience. If you have a question and you're accessing the call through Teams, you can either use the raise your hand feature, or you can use the chat feature, and we'll respond to chat questions as well. We'll unmute your mic when we do cue you into the call. Please introduce yourself once you've joined the session. All right. We have a couple of questions here. Why don't we go with Noel Atkinson, please?
Yeah. Hi, this is Noel Atkinson from Clarus Securities. Good morning, Richard and James. Thanks for taking our questions this morning. Nice to see that the year-over-year results are starting to go the right way here. You mentioned in your prepared remarks about the deep new business pipeline. Is that mainly print? Can you talk about what are you seeing by areas or verticals? Are you winning market share from foreign providers or weakened competitors or whatever you can provide for detail on that, that'd be helpful?
Yeah, I'll provide as much details as I can, Noel. Good to hear from you. Great question. We have an active CRM pipeline. I won't tell you the value of it, but it's sizable. It's across our print, our tech-enabled solutions, as well as our pure-play SaaS solutions and digital signage as well as part of it, as well as resales. We buy printers and scanners for hospitals as an example. It's all of that together. Print, obviously, being the sizable portion of it. On the print side, I'll tell you where the biggest opportunities are. Certainly, labels. We've had really good success on labels, and that's a growing sector in the marketplace. Large format, which has been a growing business for us in 2025.
We see a lot of new business development opportunities there as we close out this year and move into next year. We have won several this year as well. Packaging, especially on the folding carton or paperboard side, we are quite small in it, but it is a growing opportunity for us. Those would be kind of three, and then, of course, digital, but those would be three or four areas that are very active in our pipeline right now. Our forms business is declining slightly. Not a whole lot of new business opportunities in forms. That is a business that we kind of manage for cash flow, Noel. Good business for us, and it spins off some good cash flow, similar to our roles business.
Yeah, as I said, we've got a—I already gave you the number on our pipeline for some of our pure SaaS and digital solutions. I don't know if that answers your question. Maybe second, I think you had a second question, which is around verticals. Obviously, given large format, a lot of that is in retail and QSR. A lot of opportunities there in our pipeline to build that out over time. Interestingly enough, our BCS business, that's the kind of transactional mail business, James, that's roughly kind of flat two years ago, which is understandable. That's an opportunity for us to kind of win or grow share as that market certainly has some headwinds. Transactional mail is not growing from an industry perspective. It's sort of declining at low single digits.
We have maintained pretty flat there or directly flat as a result of some share gain. Hopefully that gives you a little bit of color.
Yeah, that's great. One more quick thing, just in terms of if you're winning RFPs, taking share here, is it foreign providers or weakened competitors or your digital capabilities? What's been driving the wins here for you?
You want to talk about, James?
Yeah, I'd say the RFPs are typically pretty complex, long processes, very detailed responses. Typically, there's a lot of requests around information security and what we're doing from a SOC 2 compliance perspective. We believe the investments we've made in the past several years, but particularly in the last couple of years, have really positioned us well in that market. Given our scale, it's certainly harder for some smaller players to have the same kind of IT security and infrastructure investments that we've been making. We have recently won some smaller jobs, some smaller business from some poorer, less well-capitalized smaller players in the market. That has been a positive.
We have seen a little bit of kind of international, some participants in a couple of sectors, pretty isolated to kind of one or two sectors, but typically most of the competition is domestic. We are exploring a little bit more expansion into the U.S., leveraging some of our kind of unique capabilities across the border. We expect that that could help offset some declines that we've seen in some of the kind of longer-run kind of forms types of businesses that we're in. Hope that helps.
Yeah. A little bit of business we picked up, Noel, on US retailers that may have been servicing their Canadian business out of the US that, given some of the uncertainty of tariffs, want to service that business in Canada. That has led to some opportunities. As James said, one of the areas we are most successful in are clients that have a lot of complexity in their workflow, and they're maybe using multiple providers, and we can help them simplify that complexity with some type of digitally enabled workflow solution and then consolidate that work into our environment. That is where we sort of find the most success. As James said, security is obviously an important one, right?
Okay, great. Just one more for me. On the M&A side, are you looking for tuck-ins or transformational transactions? Can you talk about are you looking to do these transactions to add customers or capabilities or geographies?
Yeah. Good question. Definitely, we're seeing a lot of opportunities on the M&A front right now, Noel. Seems to be a very vibrant market. We're being very selective. The areas that we're really trying to focus in on are some of the growth markets that Richard mentioned earlier. We think about kind of large format and kind of in-store signage. Think about labels. That's a big market. We have some capabilities in kind of paperboard packaging. We would like to kind of expand that through M&A as well as organically, but those would be probably the top kind of three areas that we're looking at. Also just kind of complementary capabilities that might add some regional strength or regional capabilities to our kind of physical footprint of manufacturing plants.
Okay. Great. Thank you very much.
Thanks, Noel. Okay.
We have a question from Chris Thompson. Chris, go ahead and unmute your line.
Hey. Can you hear me now?
Hi, Chris. Yes, hi, Chris.
Great. Thanks. I just want a little more in the general overall Canadian market, your sales market, are you seeing the sales pressure? Does it look like it's going to be visible, say, for the next couple of quarters or for the next year? What's the uncertainty of your sales pipeline in closing deals?
Yeah. It's a great question, right? We talk about this every day. It's unpredictable. We could have a great month, then we forecast a solid month the next month, and we lose a couple of large activities out of our workflow. Obviously, we go backwards on the month. It's very unpredictable at this point. That's why we kind of step back on giving guidance until we get more clarity. You saw some improvements, obviously, in our quarter versus the prior quarter. That's due to the new business development that we brought in. We're very active on doubling down on that new business. In terms of the market, yeah, it's still kind of uncertain and unpredictable at this point.
Okay. Thanks. Just looking at your tech-enabled subscription services being one of your focuses, it seems to be growing slightly year- over- year. Looks like there's a lot of seasonality in it. Do you think you're going to see more of an uptick on this in next year, or is it just going to be one of these slow growth, and then you think you're going to build some momentum and hopefully it takes off more?
Yeah, I guess that's a good question, Chris. There's a number of things that are in that tech services bundle. Some of the offerings are very seasonal, so they tend to kind of ramp up in Q3 and Q4, particularly in the first quarter. Those largely relate to some of the big, we charge professional services fees for programming and kind of getting ready for tax time and a lot of the big annual statements and programs that run in the first quarter. That part of the business is a little bit seasonal. The balance, if we look at some of the tech offerings like Content Cloud and Zavvy, those are a little bit more kind of straight line. We recognize revenue on a kind of a SaaS basis for those. As those businesses grow, you'll see an accelerated growth in those business lines.
Kind of separate sort of fee is Flex fees. Richard mentioned that we won a new fairly substantial client in the quarter. We are in the process of onboarding that. We'll recognize that revenue over the next 12 months. That will be a nice little piece of business on top of that. It will be a little lumpy in terms of the steps up with some of those larger things. Maybe a little bit more gradual with some of the smaller annual license fees from, say, Content Cloud or Zavvy.
Okay. That's all of my questions. Thanks.
Okay. Thanks, Chris. We have a hand up from Daniel Rosenberg. Daniel, please unmute your mic.
Good morning. Daniel Rosenberg from Paradigm Capital. Hi, James. Hi, Richard. My first question comes around just the flexibility in the business. It was nice to see the G&A come down relative to last year. I'm just curious, how much flexibility is inherently in the business as you think about macro ups and downs?
Yeah, I guess good question. There's kind of two parts to the business broadly if you think of a cost of goods sold and then SG&A. Our labor, there's certainly variable components to labor. When we're running hard, we'll add either temporary labor to help, for example, in certain things like kitting and fulfillment and other functions. Kind of the typical kind of fixed labor, so think about kind of pressmen and warehousing and shipping and pre-press and all those functions, those are a little bit less variable because you can't really kind of run out and hire or downsize easily because it's a pretty unique skill set. From the SG&A side, we've got a number of levers. We've got a pretty decent-sized fixed overhead just from staff levels. We do have some variable components of spend on different functions. I guess practically R&D is kind of one of those.
We've been pretty steady from an R&D perspective throughout this year compared to last year. We are certainly looking as we've seen softness in our top-line revenue this year compared to last year. I think we've proven that we're pretty good at adapting where needed. We try to be as flexible as we can within typical kind of constraints of having good people and good talent.
Thanks for that. Just turning to the pipeline, you mentioned some sizable activity within it. I was just curious if you could speak to conversion around the pipeline. As a customer converts, how do you think about selling product sets like one solution versus two solutions versus three and kind of the segmentation of your actual customer base as it fits the product set?
Yeah. I will not talk specifically to our conversion rate because that is sort of a competitive advantage that we have, but we certainly have a high conversion rate once we have the right lead. Obviously, we work through that lead gen into proposal. I will tell you that one thing we are very good at is cross-selling and upselling. We may have a new client that comes into our organization. It could be, I do not know, a retail client that we are offering in-store solutions to. Obviously, we sell digital solutions or other print solutions to them as well. Our team is highly skilled at cross-selling and upselling. We do not have sales reps that specialize in one particular print technology. Our guys sell everything, right? Hence the kind of enterprise solution that we bring to clients. Hopefully that answers your question.
It's not for me to be very specific, obviously, given it's certainly a competitive, I'd say a competitive advantage that we have.
Understood. Appreciate the color. When you think about the digital products, it sounds like you're staying certainly on top of AI implementations. I'm wondering if you could give any insight into early days, but how customers are adopting usage, and does it impact at all how you think about pricing the products given these added features and benefits that AI is offering?
Certainly, I mean, if I talk specifically about our Content Cloud platform, it's fully AI-enabled. Our clients that are using that are kind of all in on that AI solutioning. In fact, I had a talking to a client, a CMO that we onboarded about a couple of months ago, and his comment from him as well as his team was, "I can't believe we've lived without something like this for so long." We have made it super easy for them to manage their massive asset management base with auto tagging, many tagging, using AI so they can find and share stuff at ease and take a lot of time and waste out.
We've got a high level of adoption in the AI solutions that we're bringing to clients today, whether it's in Zavvy that helps kind of automate or better understand the effectiveness of their social campaigns and provides recommendations to improve, whether it's digital asset management, Content Cloud on the whole auto tagging and meta tagging, or whether it's some of the work we're doing on CCM 360, especially the intelligent document processing, being able to look at files and manage them effectively, kind of similar to what we do at Assemble, just a little bit more detail on the CCM 360. We've got obviously the market's moving fast, which is obviously leading to a lot of opportunities for us, but high level of interest and high level of adoption once we have the right conversations with the right people.
Thanks for that. It sounds like you're using it really as a differentiator more than any kind of pricing type thing. Is that how I'm to understand it at this stage at least?
Yeah. I mean, we do not talk about pricing, of course, but yeah, we certainly allow it. We certainly use it to differentiate our offering in the marketplace, but there is a lot of AI activity in the market right now, right? For us to keep pace with the market, we need to obviously lean into all the AI capabilities and make sure we demonstrate our capabilities in that space.
Great. Last one for me. It was nice to see kind of the conversion of EBITDA into strong free cash flow here. Everything seems to be taking shape as you guys worked on integrating the business. I was just curious around usage of capital, that M&A pipeline, anything you could say about size of it or changing valuations. Also, you yourselves have a stock that's at quite an attractive price here. Usage of the NCIB, if you can speak to that, please, and I'll pass the mic. Thank you.
Okay. James?
Sure. Yeah. I guess first with your last question, we have been kind of active on the NCIB. We bought, I guess, almost 265,000 shares back in the quarter. We continue to kind of pick away in the market. Kind of priorities for us really in terms of capital utilization are the dividend and continuing that. Our CapEx needs are certainly much more modest now that we have integrated the Moore Canada business. We will end up probably about CAD 5 million of CapEx, give or take a little bit this year, and probably similar levels next year. The other kind of key priorities continue to pay down debt. We kind of get feedback a little bit from the market that they would like to see our net debt come down, but we are pretty comfortable with the path that we are on.
We'll continue to pay down debt as we go. Then opportunities for M&A, we're certainly looking at things that are creative strategically. Given our kind of market price, we're being very selective in terms of kind of growth profiles and market opportunities that we're pursuing. We do see some pretty interesting things in the market right now.
Thanks for taking my questions.
Thanks, Tim.
Okay.
All right. I have a question from Audrey Telfer. Audrey, go ahead, please.
We unmute Audrey's mic. She is?
Okay. Go ahead, Audrey.
Oh, okay. All right. We seem to be having—oh, there we go. Try now, Audrey. Okay. Maybe we can circle up after the call, Audrey.
Sure.
I think that concludes the Q&A portion of today's call. Thanks, everyone, for joining and your interest in DCM. As a reminder, Richard and I are available after the call if you may have any follow-up questions. That concludes our call. I hope everyone enjoys the rest of their day, and you may now disconnect your lines.
Thank you, everybody.