DATA Communications Management Corp. — Interim / Quarterly Report 2021

Nov 9, 2021

DATA Communications Management Corp. Announces Third Quarter Financial Results For 2021

BRAMPTON, Ontario--(BUSINESS WIRE)--November 9, 2021--DATA Communications Management Corp. (TSX: DCM) (“DCM” or the "Company"), a leading provider of marketing and business communication solutions to companies across North America, announces its consolidated financial results for the three and nine months ended September 30, 2021.

THIRD QUARTER HIGHLIGHTS

• Revenues in the quarter were $56.9 million, in line with $57.4 million in the third quarter of 2020. In addition, sequential revenue was 3.1% ahead of the second quarter of 2021. Consumer movements have started to return to pre-pandemic levels, which has positively contributed to revenue.

• Gross margin was 30.2% of revenue, and gross profit was $17.2 million, up from 29.0% and $16.7 million, respectively, in the third quarter of 2020. Our continued focus on operational excellence, factory consolidation, client mix, and revenue management are contributing to these positive trends. SG&A expenses in the quarter were $11.9 million, down 10% from $13.3 million in the third quarter of 2020, reflecting our continued progress on overheads.

• Total debt decreased by $2.8 million in the quarter, and is now down by $11.9 million, or 24.6%, since December 31, 2020.

• Net income was $0.6 million compared with a net income of $2.1 million in the third quarter of 2020. Excluding the receipt of COVID-19 government grant income, net income would be $0.4 million in the third quarter of 2021 compared to a net loss of $0.6 million in the third quarter of 2020. Adjusted EBITDA was $9.4 million or 16.6% of revenue, compared to $10.2 million or 17.7% of revenue in the third quarter of 2020. Excluding the receipt of COVID-19 government grant income, Adjusted EBITDA would be $9.2 million in the third quarter of 2021, 24.8% ahead of $7.4 million in the third quarter of 2020. Please see the information set out under the headings "Non-IFRS Measures" and "Table 2", respectively, in DCM's management’s discussion and analysis ("MD&A") for the third quarter of 2021 dated November 9, 2021, all of which information is incorporated by reference in this press release. The Company’s MD&A for the third quarter of 2021 is available on SEDAR at www.sedar.com. See also, “Non-IFRS Measures” and Table 2 below.

• Basic and diluted EPS of $0.01 compared with $0.05; basic and diluted Adjusted net income EPS of $0.07 compared with $0.07. Please see "Non-IFRS Measures" and Table 3 below.

RECENT ANNOUNCEMENTS

• DCM is deploying ASMBL, an end-to-end solution for marketing workflow and asset management, to one of Canada’s preeminent retailers. ASMBL is a key element of our “digital first” strategy, and will enable our client to create, execute, price-validate and traffic all promotional material including flyers, POP, web assets, and social and display media.

• We entered into a new partnership with PrintReleaf, a technology platform that measures customers' paper usage and reforests that usage on an equivalent basis all over the world. This is one of the many ways we are accelerating our sustainability efforts.

• We have refinanced a portion of our Crown Capital credit facility, with a new, lower cost, term loan provided by our existing bank credit provider. In addition, we have entered into a commitment letter with Fiera Private Debt Fund VI LP (“FPD VI”), pursuant to which FPD VI has committed to provide an $11 million term loan to refinance the balance of our Crown Capital credit facility, subject to finalizing mutually acceptable definitive documentation. We expect to realize approximately $1.5 million of interest savings in 2022, and these new term loans will effectively extend the amortization period of the Crown Capital facility, which has a “bullet” maturity in May 2023.

• DCM has been selected to provided tech-enabled marketing support to a leading multi-state operator of cannabis cultivation and retail locations in the U.S. Through DCMFlex™, coupled with our advanced content creation and North American production network, our client will have a single source through

which to create, audit, change and execute digital assets, including packaging, B2C communications, instore collateral, and training material.

• We are partnering with Canon Canada Inc., a leader in digital imaging solutions, to adopt a new digital inkjet technology. Canon’s new state-of-the-art varioPRINT iX3200 will expand DCM’s product offering, and, along with DCM’s solutions-driven and customer-focused expertise, further enhance the many creative opportunities and applications for our clients. We expect to realize operating expense savings of approximately $1 million in connection with planned operational efficiencies related to this equipment upgrade, in addition to the anticipated $1 million of savings previously announced related to the consolidation of our Mississauga and Brampton plants.

MANAGEMENT COMMENTARY

"We are pleased with the financial performance we delivered in the third quarter of 2021, with positive revenue trends, continued margin improvements and a focus on controlling our overheads," said Richard Kellam, CEO and President of DCM. "We are entering the fourth quarter of the year with great momentum in our business and the whole team is driving hard to finish strongly. With our focus on talent, business intelligence, operational excellence, client engagement and importantly our technology-enabled services, I’m confident in our outlook for success going forward. Our team is relentlessly committed to building both a bigger and better business."

THIRD QUARTER EARNINGS CALL

The Company will host a conference call and webcast to review Q3 2021 results on Wednesday, November 10, 2021 at 9.00 a.m. Eastern time. DCM will be using Microsoft Teams to broadcast the call, which will be accessible via the options below:

Join on your computer or mobile app

Click here to join the meeting

Or call in (audio only)

+1 647-749-9154, 365 856 836# Canada, Toronto Phone Conference ID: 365 856 836# Find a local number

Website URL

https://bit.ly/3EFz54d

A replay of the call will also be available on the Company’s website following the call.

TABLE 1 The following table sets out selected historical consolidated financial information for the periods noted.

For the periods ended September 30,
2021 and 2020		July 1 to		July 1 to		January 1 to		January 1 to
(in thousands of Canadian dollars, except share and per share amounts,		September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
unaudited)
Revenues	$	56,892	$	57,374	$	174,460	$	198,725
Gross profit		17,187		16,663		51,822		57,934
Gross profit, as a percentage of
revenues		30.2%		29.0%		29.7%		29.2%
Selling, general and administrative
expenses		11,900		13,282		42,329		45,908
As a percentage of revenues		20.9%		23.1%		24.3%		23.1%

Adjusted EBITDA		9,437		10,151		26,016		34,089
As a percentage of revenues		16.6%		17.7%		14.9%		17.2%
Net income for the period		573		2,139		2,072		8,581
Adjusted net income		2,897		3,026		6,534		10,476
As a percentage of revenues		5.1%		5.3%		3.7%		5.3%
Basic and diluted earnings per share	$	0.01	$	0.05	$	0.05	$	0.20
Adjusted net income per share, basic
and diluted	$	0.07	$	0.07	$	0.15	$	0.24
Weighted average number of common
shares outstanding, basic		44,056,907		43,047,030		43,970,128		43,047,030
Weighted average number of common
shares outstanding, diluted		46,477,944		43,227,051		46,025,059		43,138,431

TABLE 2 The following table provides reconciliations of net income to EBITDA and of net income to Adjusted EBITDA for the periods noted.

EBITDA and Adjusted EBITDA reconciliation

For the periods ended September 30,

For the periods ended September 30,
2021 and 2020		July 1 to	July 1 to	January 1 to	January 1 to
		September 30,	September 30,	September 30,	September 30,
(in thousands of Canadian dollars,		2021	2020	2021	2020
unaudited)
Net income for theperiod	$	573$	2,139$	2,072$	8,581
Interest expense, net		1,587	1,804	4,715	5,816
Debt modification losses		—	—	—	625
Amortization of transaction costs		117	146	438	407
Current income tax expense (recovery)		383	(327)	2,055	263
Deferred income tax (recovery) expense		(273)	1,313	(1,241)	3,189
Depreciation of property, plant and
equipment		820	910	2,402	2,779
Amortization of intangible assets		1,045	1,045	3,110	3,156
Depreciation of the ROU Asset		2,101	1,929	6,508	6,725
EBITDA	$	6,353$	8,959$	20,059$	31,541
Restructuring expenses		3,084	1,065	7,409	2,073
Other income		—	—	(1,452)	—
One-time business reorganization costs(1)		—	127	—	475
Adjusted EBITDA	$	9,437$	10,151$	26,016$	34,089

(1) One-time business reorganization costs include non-recurring headcount reduction expenses for employees that did not qualify as restructuring costs.

TABLE 3 The following table provides reconciliations of net income to Adjusted net income and a presentation of Adjusted net income per share for the periods noted.

Adjusted net income reconciliation

Adjusted net income reconciliation
For the periods ended September 30,
2021 and 2020	July 1 to	July 1 to	January 1 to	January 1 to
	September 30,	September 30,	September 30,	September 30,
(in thousands of Canadian dollars, except	2021	2020	2021	2020
share andper share amounts, unaudited)

Net income for theperiod	573	2,139	2,072	8,581
Restructuring expenses	3,084	1,065	7,409	2,073
One-time business reorganization costs(1)	—	127	—	475
Other income	—	—	(1,452)	—
Tax effect of the above adjustments	(760)	(305)	(1,495)	(653)
Adjusted net income	2,897	3,026	6,534	10,476
Adjusted net income per share, basic
and diluted	0.07	0.07	0.15	0.24
Weighted average number of common
shares outstanding, basic	44,056,907	43,047,030	43,970,128	43,047,030
Weighted average number of common
shares outstanding, diluted	46,477,944	43,227,051	46,025,059	43,138,431
Number of common shares outstanding,
basic	44,062,831	43,047,030	44,062,831	43,047,030
Number of common shares outstanding,
diluted	46,483,868	43,227,051	46,117,762	43,138,431

(1) One-time business reorganization costs include non-recurring headcount reduction expenses for employees that did not qualify as restructuring costs.

About DATA Communications Management Corp.

DCM is a leading provider of marketing and workflow solutions that solve the complex branding, communications, logistics and regulatory challenges of some of North America’s biggest brands. Powered by purpose-built technology like our DCMFlex™ workflow management platform and our ASMBL digital asset management solution, we help clients bring their brands to life and create more meaningful connections with customers. We serve market leaders in key verticals such as financial services, retail, health care, cannabis, energy, and the public sector, supporting them with marketing scale, speed, efficiency and insight that drives their competitiveness and improves their performance.

Additional information relating to DATA Communications Management Corp. is available on www.datacm.com , and in the disclosure documents filed by DATA Communications Management Corp. on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com .

FORWARD-LOOKING STATEMENTS

Certain statements in this press release constitute “forward-looking” statements that involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, objectives or achievements of DCM, or industry results, to be materially different from any future results, performance, objectives or achievements expressed or implied by such forward-looking statements. When used in this press release, words such as “may”, “would”, “could”, “will”, “expect”, “anticipate”, “estimate”, “believe”, “intend”, “plan”, and other similar expressions are intended to identify forward-looking statements. These statements reflect DCM’s current views regarding future events and operating performance, are based on information currently available to DCM, and speak only as of the date of this press release. These forward-looking statements involve a number of risks, uncertainties and assumptions and should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such performance or results will be achieved. Many factors could cause the actual results, performance, objectives or achievements of DCM to be materially different from any future results, performance, objectives or achievements that may be expressed or implied by such forward-looking statements. The principal factors, assumptions and risks that DCM made or took into account in the preparation of these forward-looking statements include: risks relating to the continuing impact of the COVID-19 pandemic, the impact of which could be material on DCM’s business, liquidity and results of operations; increases in the costs of paper, freight, and other raw materials inputs used by DCM and supply chain disruptions which may limit availability of raw materials and impact our production and revenues; DCM’s ability to continue as a going concern is dependent

upon its ability to comply with its financial covenants for at least the next twelve months which is contingent on management’s ability to meet forecast revenue, profitability and cash collection targets; risks relating to DCM’s ability to access sufficient capital, including, without limitation, under its existing revolving credit facility, on favourable terms to fund its liquidity and business plans from internal and external sources; DCM’s ability to finalize with FPD VI the terms of definitive documentation related to the proposed $11 million term loan and repay the outstanding balance of the Crown Capital credit facility and realize the anticipated interest savings and other benefits attributable to refinancing the Company’s credit facilities; the risk that DCM will not be successful in negotiating amendments to the terms of its existing credit facilities including, without limitation, the financial covenants of DCM under these facilities; the limited growth in the traditional printing industry and the potential for further declines in sales of DCM’s printed business documents relative to historical sales levels for those products; the risk that changes in the mix of products and services sold by DCM will adversely affect DCM’s financial results; the risk that DCM may not be successful in reducing the size of its legacy print business, realizing the benefits expected from restructuring and business reorganization initiatives, reducing costs, reducing and repaying its long term debt, and growing its digital and marketing communications businesses; the risk that DCM may not be successful in managing its organic growth; DCM’s ability to invest in, develop and successfully market new digital and other products and services; competition from competitors supplying similar products and services, some of whom have greater economic resources than DCM and are well-established suppliers; DCM’s ability to grow its sales or even maintain historical levels of its sales of printed business documents; the impact of economic conditions on DCM’s businesses; risks associated with acquisitions and/or investments in joint ventures by DCM; the failure to realize the expected benefits from the acquisitions it has made and risks associated with the integration and growth of such businesses; and DCM’s ability to maintain relationships with its customers and suppliers. Additional factors are discussed elsewhere in this press release and under the headings "Liquidity and capital resources" and “Risks and Uncertainties” in DCM’s management’s discussion and analysis and in DCM’s other publicly available disclosure documents, as filed by DCM on SEDAR ( www.sedar.com ). Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results may vary materially from those described in this press release as intended, planned, anticipated, believed, estimated or expected. Unless required by applicable securities law, DCM does not intend and does not assume any obligation to update these forward-looking statements.

NON-IFRS MEASURES

This press release includes certain non-IFRS measures as supplementary information. Except as otherwise noted, when used in this press release, EBITDA means earnings before interest and finance costs, taxes, depreciation and amortization and Adjusted EBITDA means EBITDA adjusted for restructuring expenses, other income, and one-time business reorganization costs. Adjusted net income (loss) means net income (loss) adjusted for restructuring expenses, other income, one-time business reorganization costs and the tax effects of those items. Adjusted net income (loss) per share (basic and diluted) is calculated by dividing Adjusted net income (loss) for the period by the weighted average number of common shares of DCM (basic and diluted) outstanding during the period. In addition to net income (loss), DCM uses non-IFRS measures including Adjusted net income (loss), Adjusted net income (loss) per share, EBITDA and Adjusted EBITDA to provide investors with supplemental measures of DCM’s operating performance and thus highlight trends in its core business that may not otherwise be apparent when relying solely on IFRS financial measures. DCM also believes that securities analysts, investors, rating agencies and other interested parties frequently use non-IFRS measures in the evaluation of issuers. DCM’s management also uses non-IFRS measures in order to facilitate operating performance comparisons from period to period, prepare annual operating budgets and assess its ability to meet future debt service, capital expenditure and working capital requirements. Adjusted net income (loss), Adjusted net income (loss) per share, EBITDA and Adjusted EBITDA are not earnings measures recognized by IFRS and do not have any standardized meanings prescribed by IFRS. Therefore, Adjusted net income (loss), Adjusted net income (loss) per share, EBITDA and Adjusted EBITDA are unlikely to be comparable to similar measures presented by other issuers.

Investors are cautioned that Adjusted net income (loss), Adjusted net income (loss) per share, EBITDA and Adjusted EBITDA should not be construed as alternatives to net income (loss) determined in accordance with

IFRS as an indicator of DCM’s performance. For a reconciliation of net income (loss) to EBITDA and a reconciliation of net income (loss) to Adjusted EBITDA, see Table 3 in the most recent Management's Discussion & Analysis filed on www.sedar.com. For a reconciliation of net income (loss) to Adjusted net income (loss) and a presentation of Adjusted net income (loss) per share, see Table 4 in the Company's most recent Management's Discussion & Analysis filed on www.sedar.com.

Condensed interim consolidated statements of financial position

Condensed interim consolidated statements of financialposition
(in thousands of Canadian dollars, unaudited)	September 30, 2021 $ December 31, 2020 $
Assets Current assets Cash and cash equivalents Trade receivables Inventories Prepaid expenses and other current assets Income taxes receivable Non-current assets Other non-current assets Deferred income tax assets Restricted cash Property, plant and equipment Right-of-use assets Pension assets Intangible assets Goodwill Liabilities Current liabilities Bank overdraft Trade payables and accrued liabilities Current portion of credit facilities Current portion of promissory notes Current portion of lease liabilities Provisions Income taxes payable Deferred revenue Non-current liabilities Provisions Credit facilities Promissory notes Lease liabilities Deferred income tax liabilities Pension obligations Other post-employment benefit plans Equity Shareholders’ equity / (Deficit) Shares Warrants Contributed surplus	— 578 54,385 65,290 10,222 8,514 1,634 1,521 857 —
	67,098 75,903 670 581 3,735 3,163 515 515 7,996 9,783 35,486 42,341 1,694 203 12,425 14,459 16,973 16,973
	146,592 163,921
	1,265 — 33,702 39,999 6,494 6,172 — 1,154 6,629 8,032 3,207 1,186 3,480 1,608 2,133 2,798
	56,910 60,949 252 90 29,414 39,567 — 975 34,724 40,321 101 282 7,427 8,271 3,611 3,507
	132,439 153,962
	256,478 256,260 881 850 2,723 2,354

Translation reserve Deficit Condensed interim consolidated statements of operations	183 192 (246,112) (249,697)
	14,153 9,959
	146,592 163,921
(in thousands of Canadian dollars, except per share amounts, unaudited)	For the three months ended September 30, 2021 $ For the three months ended September 30, 2020 $
Revenues Cost of revenues Gross profit Expenses Selling, commissions and expenses General and administration expenses Restructuring expenses Income before finance costs, other income and income taxes Finance costs Interest expense on long term debt and pensions, net Interest expense on lease liabilities Amortization of transaction costs Other income Government grant income Income before income taxes Income tax expense Current Deferred Net Income for the period Other comprehensive income: Items that may be reclassified subsequently to net income Foreign currency translation Items that will not be reclassified to net income Re-measurements of pension and other post-employment benefit obligations Taxes related to pension and other post-employment benefit adjustment above Other comprehensive income (loss) for the period, net of tax	56,892 57,374 39,705 40,711
	17,187 16,663
	5,516 5,982 6,384 7,300 3,084 1,065
	14,984 14,347
	2,203 2,316 988 1,008 599 796 117 146
	1,704 1,950
	184 2,759
	683 3,125
	383 (327) (273) 1,313
	110 986
	573 2,139
	42 69
	42 69
	540 (1,461) (126) 342
	414 (1,119)
	456 (1,050)

Other comprehensive income (loss) for the period, net of tax

Comprehensive income for the period Basic earnings per share Diluted earnings per share Condensed interim consolidated statements of operations	1,029 1,089
	0.01 0.05
	0.01 0.05
(in thousands of Canadian dollars, except per share amounts, unaudited)	For the nine months ended September 30, 2021 $ For the nine months ended September 30, 2020 $
Revenues Cost of revenues Gross profit Expenses Selling, commissions and expenses General and administration expenses Restructuring expenses Income before finance costs, other income and income taxes Finance costs Interest expense on long term debt and pensions, net Interest expense on lease liabilities Debt modification losses Amortization of transaction costs Other income Government grant income Other income Income before income taxes Income tax expense Current Deferred Net income for the period Other comprehensive income: Items that may be reclassified subsequently to net income Foreign currency translation Items that will not be reclassified to net income Re-measurements of pension and other post-employment benefit obligations Taxes related to pension and other post-employment benefit adjustment above	174,460 198,725 122,638 140,791
	51,822 57,934
	18,319 20,438 24,010 25,470 7,409 2,073
	49,738 47,981
	2,084 9,953 2,794 3,316 1,921 2,500 — 625 438 407
	5,153 6,848
	4,503 8,928 1,452 —
	2,886 12,033
	2,055 263 (1,241) 3,189
	814 3,452
	2,072 8,581
	(9) 27
	(9) 27
	2,001 (1,373) (488) 320

Other comprehensive income (loss) for the period, net of tax Comprehensive income for the period Basic earnings per share Diluted earnings per share Condensed interim consolidated statements of cash flows	1,513 (1,053)
	1,504 (1,026)
	3,576 7,555
	0.05 0.20
	0.05 0.20
(in thousands of Canadian dollars, unaudited)	For the nine months ended September 30, 2021 $ For the nine months ended September 30, 2020 $
Cash provided by (used in) Operating activities
Net income for the period Items not affecting cash Depreciation of property, plant and equipment Amortization of intangible assets Depreciation of right-of-use-assets Interest expense on lease liabilities Share-based compensation expense Pension expense (Gain) loss on disposal of property, plant, and equipment Provisions Amortization of transaction costs and debt modification losses Accretion of non-current liabilities and capitalized interest expense Other post-employment benefit plans, net Income tax expense Changes in working capital Contributions made to pension plans, net Provisions paid Income taxes paid Investing activities	2,072 8,581 2,402 2,779 3,110 3,156 6,508 6,725 1,921 2,500 420 49 358 364 — (27) 7,409 2,073 438 1,032 64 625 104 115 814 3,452
	25,620 31,424 2,033 5,137 (692) (785) (5,226) (4,272) (1,035) (121)
	20,700 31,383
Purchase of property, plant and equipment Purchase of intangible assets Proceeds on disposal of property, plant and equipment Financing activities	(615) (96) (1,076) (35) — 27
	(1,691) (104)
Exercise of warrants Repayment of credit facilities Repayment of other liabilities Repayment of promissory notes Transaction costs Lease payments	118 — (10,277) (18,958) — (300) (2,185) (533) — (227) (8,503) (8,640)

Change in(bank overdraft) cash during theperiod	(20,847) (28,658)
	(1,838) 2,621
Cash and cash equivalents(bank overdraft) – beginning ofperiod	578 (1,093)
Effects of foreign exchange on cash balances	(5) (11)
(Bank overdraft) Cash and cash equivalents – end ofperiod	(1,265) 1,517

Contacts

Mr. Richard Kellam

President and Chief Executive Officer DATA Communications Management Corp. Tel: (905) 791-3151

Mr. James E. Lorimer Chief Financial Officer DATA Communications Management Corp. Tel: (905) 791-3151 ir@datacm.com