Acquisition Provides 75% Revenue Jump & Cash Flow Growth as DCM Drops Merger Synergies to the Bottom Line

DATA Communications Management Corp. (“DCM”) is a Canadian-based provider of marketing and business communication solutions to companies in North America. Its technology-enabled content and workflow management capabilities solve the complex branding, communications, logistics, and regulatory requirements of leading enterprises so its customers can accomplish more in less time. Its services include printing, data & content management, labels & asset tracking, location-specific marketing, and multimedia campaign management. (1.0) COMPANY UPDATE (1.1) On August 10, DCM reported Q2/2023 financial results with Revenue of $119.0 million, up 74.7%, which exceeded our estimate by $5.8 million. Unadjusted EBITDA in Q2/2023 was up 33.2% to $10.6 million. (1.2) The year-over-year revenue and EBITDA growth were mainly attributable to the acquisition of Moore Canada Corporation (MCC), which closed during the quarter. We continue to believe this transaction enhances DCM’s capabilities and growth potential, with economies of scale and new products, services, and technology capabilities. (1.3) Gross Margin was 26.9%, down slightly quarter-over-quarter, but in-line with our estimate of 27.0%. MCC's lower average Gross Margin contributed to a decrease in the overall Gross Margin, however, DCM commented that integration synergies should yield Gross Margin improvements in the upcoming quarters. (1.4) The debt increased significantly to $112.7 million due to DCM financing the acquisition with debt, but, during the quarter, it proceeded to make repayments and also closed a $26.1 million Equity Raise and $23.1 million facility sale to help deleverage the Balance Sheet. (2.0) FINANCIAL ANALYSIS & VALUATION: (2.1) We updated our model with the Company’s recent financials and adjusted our model to incorporate the merger with MCC. (2.2) We estimate an equal-weighted price target of $6.90 based on a DCF valuation ($11.69/share), a Revenue Multiple valuation ($4.34/share), and an EBITDA Multiple valuation ($4.60/share). (2.3) We are maintaining a Buy rating and a one-year price target of $6.90.