DATA Communications Management (TSE:DCM) reported third-quarter revenue growth of 8.2%, helped by its acquisition of Octacom and a return to organic growth in its core business. Management said it expects that momentum to continue into the fourth quarter.
Revenue rose to CAD 114 million from CAD 105 million a year earlier, while organic revenue grew 2.9%. President and CEO Richard Kellam attributed the improvement in the core business to new customer wins, a stronger sales pipeline and signs of stabilization in its market.
Margins and Cash Flow Improve
Gross profit increased 22.7% to CAD 30.2 million, and gross margin expanded to 26.5% from 23.4% a year earlier. Kellam said the improvement reflected a better mix and more profitable growth in the core business, as well as the addition of higher-margin Octacom revenue.
Adjusted EBITDA rose to CAD 15.9 million from CAD 12.3 million. As a percentage of revenue, it increased to 13.9% from 11.7%, Chief Financial Officer James Lorimer said.
Adjusted net income was CAD 1.3 million, compared with approximately CAD 100,000 a year earlier. Lorimer said adjustments included charges associated with repayment of Fiera debt and other debt modifications, restructuring and acquisition integration costs, and net fair-value gains related to compensation expense.
For the first nine months of the year, free cash flow rose to CAD 15.5 million from CAD 8.2 million. Lorimer said cash from operations increased to approximately CAD 27.3 million from CAD 16.8 million, while capital spending was at a similar level to the prior year.
Octacom Integration and Government Opportunities
Lee Berger, managing director of DCM’s intelligent document processing, or IDP, division, said Octacom had retained its customer base and secured key renewals since the acquisition. He also cited new and expanded relationships in utilities, health care, municipal government, and lottery and sweepstakes services.
Berger said the combined company had secured two wins through existing DCM relationships, including a digital mailroom for a Schedule I bank. The companies have also identified shared government and Crown corporation accounts as potential cross-selling opportunities.
Government is a focus for the division. Octacom has a federal standing offer that can be used by a range of government buyers, although Berger said a large proportion of government work still comes through competitive tenders. The business serves more than 100 municipalities in Ontario and is seeking to expand beyond the province.
Octacom now leads DCM’s digitization operations in Montreal and Mississauga, Ontario. Berger said DCM plans to migrate its existing IDP services onto Octacom’s platform in 2027 to improve productivity and margins. He said the work would be handled by the existing technical team without incremental hiring or spending specifically for the transition.
A Chicago-area IDP operation opened in October within an existing DCM site. Berger said the facility will allow the company to serve U.S. customers internally rather than through subcontractors, though Canada remains the primary market for its sales efforts.
Fourth-Quarter Outlook and Spending
Kellam said he expects organic growth to continue in the fourth quarter, with opportunities in both physical print and technology-related product sales. In response to an analyst’s question, he said no revenue had been pulled forward from the fourth quarter into the third.
Management said tariffs have had an immaterial impact, in part because DCM diversified its sourcing of materials. Kellam said less than 10% of revenue involves products shipped from Canada to the U.S. and that those products are not subject to tariffs. The company continues to monitor trade policy.
Lorimer said capital spending through the third quarter was approximately CAD 3.5 million across the business, with roughly another CAD 1 million expected in the fourth quarter. He expects capital spending to rise modestly next year, with relatively limited spending associated with Octacom.
DCM also has an additional CAD 25 million acquisition facility included in its credit agreement, Lorimer said. Any draw would require lender approval for a specific acquisition. Kellam said the company remains committed to its quarterly dividend while seeking to generate cash flow, reduce debt and consider acquisition opportunities.
About DATA Communications Management (TSE:DCM)
DCM is a leading Canadian tech-enabled provider of print and digital solutions that help simplify complex marketing communications and operations workflow. DCM serves over 2,500 clients including 70 of the 100 largest Canadian corporations and leading government agencies. Our core strength lies in delivering individualized services to our clients that simplify their communications, including customized printing, highly personalized marketing communications, campaign management, digital signage, and digital asset management.
