Data Communications Management Corp To Acquire Canadian Operations of R.R. Donnelley & Sons- M&A Call (source Sentieo)
BRAMPTON Feb 23, 2023 (Thomson StreetEvents) -- Edited Transcript of Data Communications Management Corp M&A conference call or presentation Thursday, February 23, 2023 at 2:00:00pm GMT
TEXT version of TranscriptCorporate Participants
* James E. Lorimer DATA Communications Management Corp. - CFO & Corporate Secretary
* Richard Clarence Kellam DATA Communications Management Corp. - President, CEO & Director
Presentation
James E. Lorimer, DATA Communications Management Corp. - CFO & Corporate Secretary
Good morning, everyone, and thank you for joining us today for our call. We'd like to welcome all our DCM shareholders as well as any RRD Canada employees that may be listening in today.
Speaking on the call this morning will be Richard Kellam, our President and CEO; and myself, James Lorimer, CFO. We'd like to remind everyone that Richard and I can be 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 releases that we issued last night and more fully -- in our fully public -- in our public disclosure filings on SEDAR.
We will be adding a brief video from Richard along with the summary of our press releases from the last night on our website following the call. And our detailed information will ultimately be published on our website as well. You can also follow us on LinkedIn for some additional color and information on our recent press releases. With that, I'd like to introduce Richard Kellam, our President and CEO.
Richard Clarence Kellam, DATA Communications Management Corp. - President, CEO & Director [
Thank you, James, and good morning, good afternoon, good evening, everybody that's dialing in from another time zone. Here's what we want to accomplish on our call today.
First, we want to have a quick look at our preliminary 2022 results. We did a press release last night. So we're going to bring a little color to those. And then we want to dive a little deeper on the announcement we made last evening of the acquisition of RRD Canada, talk about some of the transaction highlights, have a quick look at RRD Canada, some of the benefits of the transaction and then talk about how we're going to be better together. So that's what we want to achieve on the call today. So thank you for joining us.
Starting off with DCM full year 2022 preliminary results. You've heard me say this many times, we've got great momentum in our business. And as we like to say, momentum builds momentum and you're certainly seeing that in our performance.
Before I get into the results here and unpack some of the details, I just want to thank the entire DCM team. Without the team that we've got here in DC, there's no way we could be delivering the results we're delivering. So congratulations and thank you to the entire team.
We had a very solid year on revenue and revenue acceleration. Our range is between $270 million and $274 million and that would lead to a 15% to a 16.5% growth versus 2021. So one of the best growth years that we've delivered on record here in DCM. We're very proud of the revenue acceleration and the value we're bringing to clients in the marketplace.
Our gross profit also improved despite some of the raw material headwinds we experienced in the marketplace are ranged between 30.5% to 31%. And that's an improvement in overall gross profit between 20% to 21%. Now one thing we always like to see is gross profit growing faster than revenue, and you're seeing that there. Revenue 15% to 16.5% and gross profit 20% to 21% growth versus last year. So again, team has done a fantastic job to make sure we're continuing to deliver high value to our clients, and we're recouping that value for the value we bring.
Another important metric is SG&A. We talked a lot about delivering a better business. And our range in SG&A is between 21% of revenue to 21.5% of revenue, and that's a full 2.8% to 3.3% percentage points versus last year. So very good momentum, doing more with less and driving productivity, and we're really working hard on our 0 overhead growth momentum. So very happy with the team and the results that we're delivering there. So standard revenue, great gross profit and continuing to build a better business on the SG&A side.
From an EBITDA perspective, our EBITDA range between $35.5 million and $36.5 million and that's a full 41% to 45% increase over 2021. So fantastic results in EBITDA, obviously driven from solid revenue that solid gross margin, that improvement in SG&A.
Also really happy to report that our debt is down over 35% versus last year. And we delivered on our commitment. At the beginning of the year, we said we will have no restructuring expenses and we delivered on 0 restructuring, which obviously means that our net income will be solid. We'll report that in March versus a $9.7 million restructuring charge last year. So all metrics, revenue metrics, margin metrics, operating metrics are very, very positive in 2022 versus where we were a year ago.
So we've been focusing on obviously building both a better and a bigger business. And I trust these results show our -- demonstrate our capabilities to do both at the same time. So we'll give you a lot more details, obviously, on the 21st of March, once we get our final audit complete. And we'll give you more details on the final quarter and the year, but those are the preliminary results. And again, we're very proud of the momentum that the entire team is delivering here.
Now I want to move to the second point of the agenda, which is the acquisition we announced last night of RRD Canada. So here are some of the transaction highlights. We've entered into a definitive agreement for a share purchase of the Canadian operations of RRD Canada. Our total purchase price is $123 million, and that's obviously subject to working capital and other customary post-closing adjustments. I'll come back to reference on that $123 million in a minute.
And RRD Canada, I'll give you a little bit more detail on them in a minute. But they've got total revenues of approximately $250 million in 2022. We expect to close the transaction sometime in quarter 2 of this year. And this transaction is subject to customary closing conditions and regulatory approvals, including under the Canada Competition Act, and we will be filing our -- with the Competition Bureau today.
From a financing perspective, 100% of the financing will be -- is fully committed through facilities from a Canadian Chartered Bank and Fiera Private Debt. So we're funding this with 100% facility.
And this is what I want to come back to on that purchase price of $123 million. Our lending includes a $30 million bridge facility related to 3 owned properties that are being acquired. So part of that $123 million is a $30 million tranche, if you will, for real estate. And we certainly planned to sell and lease back that real estate. In fact, we already have interest in those properties right now.
And then we'll take our leverage from 3.25x down to 2.65x following that intended sale and leaseback. So we're very pleased with how we've architected the finance to get this deal, and we appreciate the partners -- our lending partners here.
So a quick look at RRD Canada. They provide print and related services to over 1,000 customers across Canada. They've got very deep roots in Canada. They started off as more business forms back in 1882. I'll show you a map of RRD's presence in a minute. They serve key verticals from financial institutions, retail, insurance, transportation, government and other regulated industries. So a lot of diversification in their client base sort of similar to DCM, the diversification we have. So client base and verticals and serving highly complementary to the operating model that we have here at DCM. So what we say is sort of a perfect fit.
Some of the benefits of the transaction, it obviously combines 2 companies with complementary operating models and best-in-class products, strong -- and very strong customer relationships. It's also very complementary to some of the digital-first technology capabilities we've built here at DCM and the opportunity to expand those into RRD's clients. There's many meaningful benefits for our clients and for our customers, being bigger and better together and obviously, attractive financial benefits and value creation opportunities for DCM.
Now a quick look at DCM and RRD Canada together. So as I said earlier, the DCM revenues are just north of $270 million, RRD's have got $250 million. So combined revenue as a start from day 1 will be just north of $520 million in revenue.
At DCM, we have 280 enterprise clients. RRD has 250 enterprise clients. We deliver a lot of value to those enterprise highly complex clients across Canada. DCM, we've got 11 locations and 10 locations at Donnelley. And our business is well north of 900 employees here and about 1,000 employees across. So lots of opportunities here to be better together over time, and you can see the numbers on the right hand of the slide, north of $500 million in revenue together, over 400 enterprise clients, just around 21 locations and just under 2,000 employees.
So I know there's still a lot of time for anybody that's looking at the video here, but people on audio, looking at a map of Canada that has the footprint for DCM and for RRD. And you can see that we got great coverage as a combined entity across Canada to be able to meet those -- all clients and including those kind of highly -- those high enterprise clients across Canada. So very good footprint to meet the needs of the Canadian marketplace.
Now I just want to talk about just for a minute here. What we're really excited about on this deal is the market is still a very sizable market in Canada. There are significant opportunities for future growth being a combined entity. The marketing and advertising services market in Canada is north of a $68 billion market. The marketing and print media market and marketing technology market is north of a $22 billion market.
And if we zoom a little narrower to where -- to some of the work that we do here at DCM and Donnelley, that's a $19 billion market. Zooming a little bit further, just the print market alone is around a $10 billion market. So there's a sizable market here in Canada for us to play into. And we're confident that we can do that better together and continue to drive accelerated growth.
So some of the rationale for doing the deal is the proven track record that we've built here at DCM. You saw the numbers earlier, our revenue growth between 15% and 16% this year, and we've got very strong business momentum. We've got a relentless focus on providing enhanced value to our clients and our clients have really love working with us and they see the value that we create for them.
We've got strong operational focus. The DCM, our gross margins have improved from the low 20s in 2015. So numbers I showed you today north of 30% in 2022. And these results reflect priority of driving operational efficiencies and also delivering good value to our clients.
We also have a very deep leadership bench here at DCM. We've got extensive experience in print, in marketing, in communications and digital. And we've got experience in doing M&A transactions, large and small. Personally, I've been responsible for several 5 or 6 very large transactions in my prior role. So we have great experience in M&A, both as a leadership team as well as an entire company.
We've also proven that we can reduce debt quickly. We've got great cash flows from our business. You saw on the slide earlier that in 2020 -- in 2022 versus '21, we reduced that by 35%. Actually, in the last 2 years or 3 years, we reduced it by 65%. And we remain committed to targeting a less than 1% debt to EBITDA. And again, with the cash flows, we deliver certainly a very achievable objective. And again, we've proven that over the last few years.
Then from an acquisition perspective, as I said earlier, we've done 5 deals very successfully here at DCM that we've integrated over the last 10 years, and that's certainly created value to our business.
And then we'll be partnering with Boston Consulting Group. We actually work with Boston Consulting Group. I'm sure most listeners on the call understand that they're kind of best-in-class in -- and world-class in merger integration and due diligence. Boston Consulting Group helped us through the entire due diligence process and will help us through the post-merger integration process well, the pre- and post-merger integration process. I personally have a lot of experience working with Boston Consulting Group and the team that we're working with is a team that I've worked with several times in the past. So we're very comfortable that we will deliver the targets that we're -- we've set up to deliver, okay?
So certainly a proven track record. So we are very excited about this acquisition, about the announcement we made last night, and we strongly believe that we will build a better and bigger business together. Now I'm just going to move my glasses on here, so I want to read this clearly. So thank you for joining our call this morning. And over the next several weeks, our focus will remain on running DCM as a separate and competing business, really important to understand well the Competition Bureau -- while the Competition Bureau reviews this acquisition, right, we've got a process. We've got to go through with the Competition Bureau. We will remain separate companies as that Competition Bureau reviews the filing.
We expect the transaction to close during the second quarter and then to begin our merger integration planning thereafter. And as this work proceeds, we'll be in a better position to provide guidance on our expectation for the combined company.
And then we also look forward, obviously, to speaking to all of our shareholders on March 21, following the release of our full year financial results, and we'll give you a little bit more color on the progress we're making through the Competition Bureau and what our plans are moving forward.
So thank you for attending our call today. As I said, we're super excited as a team here at DCM and hopefully, our new team over Donnelley is excited, as well, though building it better and a bigger business together. Thank you.
