Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the DATA Communications Management Corp. first quarter 2023 financial results conference call. My name is James Lorimer, CFO of DCM. I'm pleased to be hosting today's call. Joining me on the call today is Richard Kellam, our CEO and President. Following our prepared remarks, we will be moderating a question-and-answer session. As a reminder, this conference call is being recorded live and broadcast live. We'd also like to remind everyone that Richard and I can be available for calls afterwards if anyone has any follow-up questions. I'd like to 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 SEDAR.
We have posted a brief video message from Richard, along with a summary of our results and key initiatives for the quarter on our website in the form of an infographic. Our presentation today will also be added to our website for your reference, along with a post-view recording and transcript. Our detailed information is also available on our website and SEDAR. Please follow us on LinkedIn to keep up to date with other business developments. I'll now turn the call over to Richard.
Thank you, James, good morning and good afternoon, good evening. I see there's some international investors on the call today or shareholders, good afternoon, good evening to you, and good morning to everyone. Here's what we wanna accomplish on the call today. We wanna take you through an update on our quarter, obviously, and talk a little bit about how we are becoming bigger and better together with the recent close of our transaction acquiring our RRD Canada or Moore Canada Corp. Then we'll turn it over to any questions that attendees will have for today. Okay? First off, looking at our 2023 results, I'm gonna break this into our theme of bigger and better business. I'll start off with the bigger side.
Happy to report that we had a very, very positive quarter in terms of growth. Growth, just under 10%, at 9.8% versus a year ago. To remind shareholders, that was off of an 11.1% growth on the quarter last year, good positive momentum at the start of the year. Great revenue quarter at $76.1 million, up from $69.3 million a year ago. That growth of $6.8 million came from a combination of what we call expansion revenues, growing revenue with existing clients, as well as new business development. We brought in several new logos, and lots of new logos that we have the opportunity to land and expand as we call. Lots of good, kinda positive opportunities moving forward to expand that revenue.
Really good, solid growth in the quarter. Really pleased with the success that our commercial teams are having with our whole client or customer leadership agenda. Looking at that revenue momentum, you can see on this chart, we look at a 3-year kinda time horizon, and you can see how we, how we've built that over 3 years. We've actually had this is our sixth consecutive quarter of year-over-year growth, so you can certainly see we've got positive momentum in our business now. You know, if you look at this chart, anybody, you know, that's kinda dialed into our call here, you know, on the Teams call, you can see that CAD 76.1 actually is higher than our quarter four, and quarter four is generally our strongest quarter.
Off to a great start in quarter one, 2022, and great momentum. Also, pleased to report that our gross profit is growing faster than revenue, which is always positive. That means your gross margin is improving. As I say to the team, gross margin is our best friend. You can see our gross margin as a percent of revenue is 31.1%, and we're up a full $3.3 million in gross profit versus a year ago. Continued relentless focus on driving a better business and a bigger business and playing in the right margin pools in the category. You know, not all margin pools are treated equal. Certainly, the team has done a fantastic job at really kinda driving that, that margin agenda.
That 31.1% is actually one of our highest quarters ever. So we're certainly very pleased with the progress we're making on that gross margin agenda. Okay? Very, very solid. You can see the growth that we're achieving on gross profit and gross margin quarter-on-quarter. This chart kinda illustrates the progress we've made over the last three years from 18.8% in 2021 up to 23.6% in 2022. So a $4.8 million increase over the course of two years on that quarter. Now, I'm gonna sort of unpack this. The only, I'd say, I'll call this a positive headwind we experienced in our business was we had to do a mark-to-market adjustment in our long-term RSUs and DSUs.
There was a non-cash impact of $4.5 million in our EBITDA to adjust for that significant appreciation in share value. Why I call this a positive headwind is, you know, we're certainly all shareholders and we've all benefited from an increase in that share price. At this time in the quarter, it was a 63.4% increase in share price, and that obviously had an impact on that long-term comp. It's a positive headwind. It's a non-cash accrual, as said, related to that long-term incentive comp. Taking that into consideration, and adjusting for that as well as, and James will talk to you in a minute, adjusting for what was a planned, very well-planned and very well-architected acquisition costs. Our adjusted EBITDA was up 30.1% of the quarter, really, really solid progress.
You can see that's $12.3 million. Also really, you know, positive is as a percent of revenue, we're up north of 16%. We gave some guidance that we saw a path to north of 14%. You can see we're at the 16.2% of revenue once we adjust for those one-time, that one-time impact of mark-to-market and of course, the acquisition expenses. Great positive momentum on EBITDA as well, obviously driven through or driven by accelerated revenue and improvement in gross margin, and then obviously operating pretty tightly from an SG&A perspective, as you'll see in a minute.
If you look at our adjusted EBITDA progress over the last three years as well, you can see it's certainly very positive at the $12.3 versus $9.4 a year ago. James, you just wanna talk to this chart?
Yeah. Just another presentation of some of the information that Richard previously described. You can see the performance on a comparable dollar basis compared to last year in the first quarter, breaking out the mark-to-market adjustments and the $6.1 million of acquisition and integration costs, which we had planned for. Richard will talk as we talk a little bit more about the acquisition of Moore Canada in a few minutes, how well prepared we are for closing and how prepared we were literally on day one for closing. We're very well prepared for the integration, and we're making great progress on that.
EBITDA as a percentage of revenue, you can see, 16.2% when we adjust for the one-time acquisition and integration costs as well as the mark-to-market adjustments. I would also point out the cash flow from operations was very strong. In the quarter, we generated $6.3 million of cash from operations compared to $4.7 million last year.
Okay. Thank you, James. Certainly a lot of progress in terms of building a bigger business. Now I'm gonna talk about some of the key metrics around the better business that we have built and continue to build as well. From an SG&A perspective, SG&A was up slightly over a year ago at 5.2%. The key metric we look at is how we're operating relative to revenue. If you look at the far right-hand side here, we're 18.7% of revenue versus 19.7% year ago. This is actually what we call NOG, which is negative overhead growth. It puts us in the range.
We put the 5-year plan out there, said that we wanna be between 18% and 20% of SG&A, and I think at the time, we were around 23% or 24%. You can see we're 18.7% now on the quarter, we're right kinda in that range, in the midpoint of that range. Very happy with the progress we're making in terms of kind of managing our costs and investing where those investments matter. Good progress in terms of managing SG&A and, as I said, operating at negative overhead growth as a percentage of revenue. This chart kinda illustrates that as well. If you look at our headcount, we're pretty much flat at 916. I have said many a times pre-acquisition that we had the perfect footprint, and now it was the need or the opportunity to grow off that footprint.
We had 0 restructuring expenses in 2022, and actually we've had other than the deal restructuring expenses or the deal costs rather, there's no restructuring either in the first quarter. If you look at the right-hand side of this chart, what we're proud of is the revenue we're generating per headcount. You see that continues to improve. We're at $306,000 per associate now, up 2% versus a year ago and up, you know, significantly 49%, almost 50% since 2017. This will continue to be a focus of our organization, our entire team, as we work the integration process with the acquisition as well. We'll see these numbers improve considerably. I've talked to shareholders about the progress we're making on our ESG strategy and ESG initiatives.
You know, it's sort of in our better business theme. We put some targets to the street around waste reduction, sustainability, footprint, our carbon footprint reduction, renewable energy. Lots of work happening on social and governance as well. A lot of momentum over the last, you know, couple of years and this momentum continues to accelerate as we move quarter through quarter. Maybe just to highlight one area that we're, you know, very proud of. We're proud of all this stuff, by the way, but one area that we're particularly proud of is the progress we're making on reforestation.
We have used Since we signed onto this program, which was the end of 2021, so we're just kind of a year and a quarter into it, we've actually reforested 812,000 trees, and 100% of our clients' paper use is reforested. You maybe first I think I mentioned this, Cheryl, just a couple of times before, but maybe just remind them. We actually flow this credit directly through to our clients so clients can get the benefit of the credit in their ESG efforts or their sustainability efforts, and it's proven to be very, very favorable from a client standpoint.
We actually had our first client cross 100,000 trees reforested since the program began, and we actually gave a nice little award to that client on Friday last week. They were certainly very happy, very proud of what they've accomplished and what we've helped them accomplish in terms of reforesting 100% of their paper use. A great program, fully committed to it and great, you know, great client momentum around this program as well. Next area that we're building a better business in is digital. We've talked a lot about our digital acceleration and we've got kind of five platforms that we bring to clients. Our Flex-enabled platform, which is a workflow optimization platform.
We've got four others that are more in the kind of pure ARR space. Just launched our Personalized Video platform and that's off to a good start. We've got a couple of key clients that we're working on some customized and personalized videos for. You can see in the chart some of the other activities of the other platforms. The one we're really gonna be putting a lot of energy behind, of course, is the digital asset management solutioning platform called ASMBL. If you look at the right-hand side of this chart, early days, we're just kind of starting our digital journey. You can see we had 27% growth on the quarter, $1.5 million in revenue.
You know, you can, you guys can straight line that to understand what that could look like on the year, we certainly plan to progress well beyond well beyond that straight line. Lots happening from a digital acceleration with our DCM digital team. I wanna remind, you know, shareholders that, you know, we love print and we love digital and we wanna be a, you know, our strategy is very clear, a digital, you know, a digital-first company that does print versus a print-first company that does digital. They work very synergistically together, but really good progress in terms of building a better business and really getting very intentional and delivering success under our DCM digital team. You just wanna talk debt reduction, James?
Sure. As everyone knows, debt reduction has been a real primary focus of us of ours over the past several years. At the end of the first quarter, our debt was down to about $22 and a half million, down 17% compared to year-end, so, you know, continued progress there. You know, being in that position as we've talked about before, really putting us in a great position to be able to make the acquisition that we recently closed on. We'll talk a little bit more about what our debt looks like in a few slides. pro forma at the transaction.
Okay. Thank you, James. All right. Now we'll talk a little bit about Moore Canada Corporation. The reason we're calling it Moore Canada Corporation is this is the legal entity that we acquired. RRD Canada's legal entity is Moore Canada Corporation. So you'll see us referring to MCC or Moore Canada Corp. James, you just wanna talk about performance on MCC in the quarter?
Sure. MCC continued to have very strong momentum in the quarter. Their revenue was up more than 10%, and their operating income and other metrics were also very positive. You know, really nice to see this momentum going into the deal. I will point out, during the first quarter, we were competitors. Now that we're collaborators, we're really excited about the opportunities to grow the combined business. We will be reporting in the second quarter, a consolidated picture, and the reporting for Moore Canada will be effective April 24th. We'll have basically 2 months plus a week of their numbers when we report the second quarter, and that's expected to be in early August.
Yeah. Maybe I'll just kind of amplify this a little bit, and, you know, in addition to what James said. A great start for the RRD Canada organization or Moore Canada Corporation in quarter one, growing at 10%. You know, we showed you our numbers growing at 10%. Remember, we were competitors in that quarter. Now, now we are collaborators, and we kicked off a really accelerated move from competitors to collaborative ways of working sort of immediately upon close. Imagine the opportunities now moving forward. Off to a great start.
Now we'll talk about the new DCM and the better and bigger theme as a better and bigger company here and a little bit about kind of where we are on the post-merger integration process. This is how we communicate how we are better together as two companies, and we communicate this both internally and externally to clients. You know, 8 key areas. 1 is around our expanded product offerings. This is a very nice kind of complementary deal that brings more services and more product into our clients. Obviously, the superior service we can bring to clients, the incredible execution capabilities we now have together, the speed to market that we can deliver on those new products.
We certainly have exceptional client leadership, and especially at the enterprise level. We've talked a lot about our top 250. You're gonna be hearing a lot more about our top 400. We now have 400 enterprise clients who represent a significant percent of revenue. Our people, we've got exceptional people across our new co, the new company, post the acquisition. We've got some incredible innovation, not just in digital, but also some other product innovation that's that we're bringing to clients as well, and innovation that's kind of horizon 2 and horizon 3 in the pipeline. Of course, we've got even more scale or greater scale to invest. Eight key areas why this is a great deal, why we're better together, and how we communicate this across to our clients.
Lots of work happening post-merger on all of these areas. I can tell you that we've come together very, very fast as an organization. We were very well prepared for day one, thanks to all the work we were doing with our with Boston Consulting Group to help us get prepared, as well as, you know, how well our teams have kinda leaned into the program or to the acquisition. You know, we've gone through this with shareholders and investors in the past, but worth kind of repeating, and I'll just kinda unpack this very quickly. The final purchase price was CAD 130.8 million.
The original number was 123, so it's just kind of working capital adjustments that took the price up. That was mostly around kinda inventory and payables and receivables. The way to think about it is $100 million for the business and $30 million for 3 owned facilities, and I'm sure most of our shareholders know that 3 owned facilities came with the deal. The revenue, the pro forma revenues were about $520. I think they're around $525 to be exact. Expected synergies, we've communicated in the range of $25 million-$30 million. In fact, we've got a very detailed program to deliver the $25 million and opportunities to expand up to $30 million and maybe even beyond that.
We're certainly well prepared, and those will be delivered over the next 18-24 months. The transaction was fully funded. We closed on the 24th of April. Also important for shareholders to know that those 3 owned facilities, we've already sold one of them. It's a facility out in Oshawa, and the net proceeds are CAD 23 million, and that will close soon, certainly before the end of the quarter. Those proceeds will go directly into that CAD 30 million debt facility that we have, so immediately into that debt stack. You know, happy to get that property sold and that's an important property in our network as well, out in Oshawa. Releasing that back.
Of course from a financing standpoint, you know, Bank of Montreal, a great lending partner, stepped up and, with a $90 million expanded revolver. We also got the $30 million term loan facility, the one I'm referencing for real estate. Again, $23 of that $30 will be gone very shortly. Fiera Debt, who's been a great partner of ours for a number of years, you know, kind of helped us with the deal, the financing. Leverage 3.25. Deleveraging very quickly to 2.65 after those sale and lease backs are completed. Okay? I just wanna remind shareholders that sort of the deal and how it was structured. I can tell you we're off to a great.
an incredible start with the new team. We've also been working on updating our 5-year plan because, of course, shareholders may remember that we put a 5-year plan in place about a year and a half ago, so about 4 or 5 months after I joined. Obviously, we blew through that pretty quickly, so we needed to revise the 5-year plan. These are just some key metrics on it. We'll be going through a lot more details with shareholders. We see a path to north of 5% growth. Remember our last 5-year plan, we said between 5 and 10, so we're kinda still holding that range. North of 14% adjusted EBITDA. Within that time, that 5-year horizon will certainly be less than 1x debt to EBITDA.
We see a real acceleration in our MarTech growth at north of 60% over that 5-year horizon with some of the new platforms that we've stood up and the bets we're making in the market and of course, the opportunities we have with existing those 400 enterprise clients now. All that MarTech business is high gross margin. Now, I will say, I said earlier, that we're now thinking like a digital company that has print, not a printing company that has digital. Now, that's not to say print is bad. We love print. We wouldn't have done this acquisition if we didn't love print.
Really, enabling that print with digital technology or digital solutions allows us to deliver even more value, help simplify complexity for clients, deliver more value for clients. Then, you know, obviously, the more we're embedded in clients' digital stacks, the more value we're delivering to that client and the higher level of retention. It's a perfect what we call kind of virtuous circle. You know, the print market is a CAD 10 billion marketing in Canada alone, and depending on what data you look at, is growing from, you know, from 2%, 3%. Lots of opportunities for us to expand our presence and business in that market and do that with technology to enable that workflow. Okay? That's our strategy. A clear five-year plan.
Lots of working behind this. Clear commitment to drive accelerated growth over the next five years with, you know, real positive EBITDA progression as well. Okay? Those are the key areas we wanna take you through, how we did in the quarter, how we're performing from a bigger business, from a better business. A little bit on where we are post-closure of the deal. I can tell you, we've just hit the treetops for the meeting today, but we are very, very well-planned, and the teams have come together extremely well. I've done a lot of deals in my time, and I'd say this is sort of the best execution that we have orchestrated, and I've certainly seen.
A great start and very good momentum in our business overall. I wanna turn it over to any Q&As now.
Thanks, Richard. We'll now take questions from the audience. If you have a question and you're accessing the call directly through Teams, you can use the Raise Your Hand feature, and we will queue up questions. Alternatively, you can also use the chat feature in Teams, and we will respond to chat questions as well. If you have dialed in, you can press star five to raise or lower your hand, and pressing star six will mute or unmute your microphone, and we'll let you into the call. Please introduce yourself once you're invited into the session. Thanks. I have a question from phone number end 0469. Go ahead, please.
Information center one.
It's, Chris Thompson calling from eResearch. How are you guys doing today?
All right, Chris.
Hi, Chris. All good.
I just wondering, moving forward, looking at your G&A going forward, are you looking to see that that's gonna be sort of like the new normal, with your expenses, or is this just a one-time sort of adjustment?
Yeah. From a G&A perspective, you know, on our own, we'd see that run rate being fairly steady, adjusting for that $4.5 million that we talked about earlier of non-cash adjustments. Other than that, our SG&A, you know, on a standalone basis should be pretty consistent. We will be reporting consolidated numbers for the combined company in early July once we file a business acquisition report. At that point, that'll have the pro forma numbers for Moore Canada Corporation on a standalone basis. They currently report under US GAAP, and we'll be converting that to IFRS.
We'll be also providing pro forma statements that reconcile as if the two businesses had operated together in 2022 and updated kinda Q1 numbers on a pro forma basis as well.
You're saying that's July, so that'll be Q3 will be the first time you'll be presenting the combined company, so Q2 will still be separate?
No. We'll file what's called a business acquisition report. That'll be filed on SEDAR in early July. Starting in Q2, we will be reporting on a consolidated basis. We'll report Q2. I think our plan to report Q2 is around August tenth right now. That first kind of quarter, with including Moore Canada, will have basically two months plus a week of their results in the quarter. It won't be a full quarter for them. We'll do our best to explain what a full quarter would've looked like when we report Q2.
Yeah. Yeah, Chris.
going forwa-
Chris, I just wanna build on your question around SG&A as well. We are, we're holding firm with our commitment. Our, you know, the plan we put to the street, the five-year plan of that range between 18% and 20%. You can see we're 18.7% on the, on the quarter, and we're, you know, committed to that, to that range, over the course of the next five years.
Okay. For the acquisition costs, for this quarter, is this sort of the high watermark?
Yes, it is. It, acquisition costs should come down quite a bit from there. That was, you know, largely due diligence costs and consulting costs kind of in preparation for the integration, which were, you know, pretty much, you know, peaked in Q1. You know, you saw, when we reported Q4, I think we had about CAD 1.8 million-CAD 1.9 million of deal costs that were in Q4. That'll come down considerably in Q2.
Okay. Just a last question. I mean, you covered off the tech growth. It seems to be moving slowly, but, you know, I mean, quarter-over-quarter, you know, high % gains but still a low %. Just looking at, you talked last year a little bit about U.S. growth, I know that this acquisition, probably put a little bit of a dent in that, but are you still looking at, the U.S. market?
Yeah. We are still looking at it. The interesting thing on this acquisition, it came with a business called Anton Burtch, which is a large format printer, part of the Donnelley Group, part of Moore Canada Corporation. 75% of the revenue is actually done in the U.S., Chris. This actually accelerates some of our intentionality for the U.S. marketplace as a result.
Okay, great. Those are my questions for now. Thanks. Great quarter.
Thanks, Chris.
I look forward to seeing the changes of the acquisition.
Thank you, Chris.
Thanks, Chris.
Do we have any further Q&A? We have someone in the chat line here. Don't see it. Right there. Q&A. Sorry there. So we have a question here from one of our longstanding shareholders. Great quarter one, guys. Any update on the ASMBL standalone rollout?
Yeah, sure. You know, reminding shareholders that we went to market with ASMBL, well, about a year, a year and a half ago, with a white labeled solution, which we've added some features and functions around. We've actually been quite successful early days with that with a few key clients. In fact, we just secured a large client with a new ASMBL win a couple of weeks ago. We haven't reported on it yet, but we will soon. While we've gone to market with a white label, we call it sort of a tech-enabled white label solution that we've added value to, we've also been building our own platform, and we're now in beta.
We've got beta clients, as well, you know, beta clients and beta users. Then we'll be launching that in August, September, is will be our go live date with our, you know, kind of fully built out ASMBL platform. You'll be hearing a lot more. We're actually extremely excited about it. It's a fantastic platform that the team has built. We've got a clear, unique selling proposition in the marketplace. Again, you'll be seeing and hearing a lot more about that once we go live. That is, you know, August, September, when we go live with the, with the, our own kind of fully built out ASMBL platform.
In the chat, we have a question from Manny. Adding back the acquisition cost of $6.1 million and the $4.5 million non-cash charge, non-GAAP EPS for the quarter is closer to $0.17. I did a little bit of math on that earlier. I got about $0.125 on a basic basis and about $0.116 on a diluted basis. That's applying a 25% assumed tax rate on the differences. In our tables in the MD&A, we report adjusted net income of $2.1 million. If we're to tax effect that and adjust for that adjusted net income includes an adjustment for the $6.1 million of
Sorry, $4.5 million of mark-to-market adjustments and $6.1 million of the deal costs. I get to kind of an adjusted net income of about $5.5 million when that's tax affected. Call it $0.115-$0.125, either basic or fully diluted. Okay. Are there any further questions? Okay, if there's no further questions. Yeah, I don't see any further questions. Thanks everyone for attending our call, and thank you for your interest. As a reminder, Richard and I can be available after the call if there's any follow-up questions. Certainly hope everyone enjoys the rest of your day.
Yeah. I'd just like to say thanks to all of our, I'll call it the new DCM associates, right? All of our associates across the company for delivering such a solid quarter. We're making great progress in our business. Very pleased with the momentum, and we certainly planning to continue to deliver the momentum as a now a bigger and even a better company. Thanks for thanks for joining us today and excited to continue to report on progress.
Thanks, everyone.