DATA Communications Management Corp. Announces Third Quarter Financial Results for 2016

HIGHLIGHTS

THIRD QUARTER 2016

  • Net Loss of $1.9 million, including restructuring expenses of $1.8 million, compared to Net Loss of $1.8 million, including restructuring expenses of $5.8 million in the prior comparative period
  • Adjusted Net Loss of $0.5 million, a decrease of $3.0 million compared to the prior comparative period (See Table 3 and "Non-GAAP Measures" below)
  • Adjusted EBITDA of $1.9 million, a decrease of 71.9% year over year (See Table 2 and "Non-GAAP Measures" below)
  • Revenues of $65.8 million, a decrease of 11.2% year over year

YEAR TO DATE 2016

  • Net Income of $1.0 million, including restructuring expenses of $2.5 million, compared to Net Loss of $32.6 million, including a goodwill impairment charge of $26.0 million and restructuring expenses of $12.0 million in the prior comparative period
  • Adjusted Net Income of $2.8 million, an increase of $0.5 million compared to the prior comparative period (See Table 3 and "Non-GAAP Measures" below)
  • Adjusted EBITDA of $12.1 million, a decrease of 5.3% year over year (See Table 2 and "Non-GAAP Measures" below)
  • Revenues of $210.2 million, a decrease of 6.0% year over year

BRAMPTON, ON, Nov. 2, 2016 /CNW/ - DATA Communications Management Corp. (TSX: DCM) ("DATA" or the "Company") announced its consolidated financial results for the third quarter and the nine months ended September 30, 2016.

"In the third quarter of 2016, the DATA team moved several important strategic projects forward. These included: managing the shutdown of our Edmonton, Alberta facility ahead of schedule and at significantly less expense to date than budgeted; the implementation of new computer networks for improving service levels, new data storage facilities and PC platforms; and the advancement of our internal ERP/MRP replacement project. These initiatives are essential for the future success of our business. Offsetting these successes were revenue headwinds, as we continue to compete in a difficult economic and competitive environment," said Michael G. Sifton, President and Chief Executive Officer of DATA.

DATA is ahead of plan to exit its Edmonton, Alberta facility by the end of 2016.  During the third quarter of 2016, DATA incurred restructuring expenses related to that initiative of $0.7 million, and currently expects to incur another $1.1 million of restructuring expenses in the fourth quarter of 2016. The total expected restructuring expenses related to that initiative of approximately $1.8 million is significantly below DATA's original $3.5 million estimate, and is primarily attributed to lower severance expenses than budgeted.  DATA is downsizing significantly in Edmonton to a 10,000 square foot sales, customer experience and high-volume digital print production facility to strategically serve the local market.

Separately, DATA announced that Gregory J. Cochrane will be joining DATA's executive team as President in late November 2016.  Mr. Cochrane brings a long and distinguished background in the communication and marketing services business.  His primary focus will be to drive sales and business development strategies.  Michael G. Sifton will relinquish the title of President but will continue in his role as CEO, primarily focused on financial and strategic initiatives.  Effective today Mr. Cochrane will be stepping down from his role on DATA's board of directors (the "Board of Directors").

For the past several quarters, DATA has been focused on making its business more agile, focused, optimized and unified. DATA is now actively pursuing growth opportunities it sees in its markets which leverage its key competencies of managing complexity and providing superior execution for its clients' business and marketing communications needs.

At November 2, 2016, September 30, 2016 and December 31, 2015, DATA had 11,975,053, 11,975,053 and 9,987,528 common shares outstanding, respectively.  On May 27, 2016, DATA announced that it intended to complete a non-brokered private placement of up to 198,751,793 common shares at a price of $0.014 per common share for gross proceeds to DATA of approximately $2.8 million in two tranches.  On May 31, 2016, the first portion of private placement was completed and DATA issued 167,856,012 common shares. On July 4, 2016, following receipt of disinterested shareholder approval at DATA's annual and special meeting of shareholders held on June 30, 2016, the second portion of the private placement was completed and DATA issued 30,895,781 common shares.  On July 4, 2016, DATA consolidated its issued and outstanding common shares on the basis of one post-consolidation common share for each 100 pre-consolidation common shares (the "Share Consolidation"). After giving effect to the Share Consolidation, the 1,197,504,525 common shares then outstanding were consolidated into 11,975,053 common shares. No fractional common shares were issued, and any fractional share entitlements resulting from the Share Consolidation were rounded up to the nearest whole number of common shares. The exercise price and number of common shares issuable, and other entitlements, under awards granted pursuant to DATA's long-term incentive plan have been proportionately adjusted to reflect the Share Consolidation.  Additionally, the conversion price of DATA's outstanding 6.00% Convertible Unsecured Subordinated Debentures (the "6.00% Convertible Debentures") was proportionately adjusted to reflect the Share Consolidation.

RESULTS OF OPERATIONS
All financial information in this press release is presented in Canadian dollars and in accordance with generally accepted accounting principles ("GAAP") measured under International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB") for publicly accountable entities, unless otherwise noted.

Table 1     

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

 









For the periods ended September 30, 2016 and 2015

July 1 to
Sept. 30,
2016


July 1 to
Sept. 30,
2015


Jan. 1 to
Sept. 30,
2016


Jan. 1 to
Sept. 30,
2015

(in thousands of Canadian dollars, except per share amounts,
unaudited)

$


$


$


$

Revenues

65,842


74,116


210,172


223,565

Cost of revenues

51,537


55,730


160,345


172,268

Gross profit

14,305


18,386


49,827


51,297









Selling, general and administrative expenses

13,944


13,439


42,540


43,581

Restructuring expenses

1,787


5,756


2,479


12,015

Impairment of goodwill




26,000









(Loss) income before finance costs and income taxes

(1,426)


(809)


4,808


(30,299)









Finance costs









Interest expense

838


1,481


2,575


4,229


Interest income

(4)


(3)


(8)


(10)


Amortization of transaction costs

111


135


467


305


945


1,613


3,034


4,524









(Loss) income before income taxes

(2,371)


(2,422)


1,774


(34,823)









Income tax expense (recovery)









Current

46


167


1,378


250


Deferred

(552)


(826)


(612)


(2,496)


(506)


(659)


766


(2,246)









Net (loss) income for the period

(1,865)


(1,763)


1,008


(32,577)









Net (loss) income attributable to common shareholders

(1,865)


(1,763)


1,008


(32,577)

Basic (loss) earnings per share

(0.16)


(7.51)


0.09


(138.68)

Diluted (loss) earnings per share

(0.15)


(7.51)


0.09


(138.68)

Weighted average number of common shares outstanding









- basic

11,964,978


234,906


10,840,273


234,906

Weighted average number of common shares outstanding









- diluted

12,534,940


234,906


11,025,630


234,906

















As at September 30, 2016 and December 31, 2015

As at
Sept. 30,
2016


As at
Dec. 31,
2015





(in thousands of Canadian dollars, unaudited)

$


$





Current assets

71,565


80,125





Current liabilities

55,905


90,298













Total assets

122,705


134,067





Total non-current liabilities

45,558


24,750













Shareholders' equity

21,242


19,019





                                                                                        

Table 2     

The following table provides reconciliations of net income (loss) to EBITDA and of net income (loss) to Adjusted EBITDA for the periods noted. See "Non-GAAP Measures".

 

EBITDA and Adjusted EBITDA Reconciliation















For the periods ended September 30, 2016 and 2015


July 1 to
Sept. 30,
2016


July 1 to
Sept. 30,
2015


Jan. 1 to
Sept. 30,
2016


Jan. 1 to
Sept. 30,
2015

(in thousands of Canadian dollars, unaudited)


$


$


$


$

Net (loss) income for the period


(1,865)


(1,763)


1,008


(32,577)










Interest expense


838


1,481


2,575


4,229

Interest income


(4)


(3)


(8)


(10)

Amortization of transaction costs


111


135


467


305

Current income tax expense


46


167


1,378


250

Deferred income tax recovery


(552)


(826)


(612)


(2,496)

Depreciation of property, plant and equipment


988


1,198


3,237


3,572

Amortization of intangible assets


517


487


1,532


1,445

EBITDA


79


876


9,577


(25,282)










Restructuring expenses


1,787


5,756


2,479


12,015

Impairment of goodwill





26,000

Adjusted EBITDA


1,866


6,632


12,056


12,733

 

Table 3     

The following table provides reconciliations of net income (loss) to Adjusted net income (loss) and a presentation of Adjusted net income (loss) per share and Pro forma Adjusted net income (loss) per share for the periods noted. See "Non-GAAP Measures".

 

Adjusted Net Income (Loss) Reconciliation


















For the periods ended September 30, 2016 and 2015


July 1 to


July 1 to


Jan. 1 to


Jan. 1 to



Sept. 30,


Sept. 30,


Sept. 30,


Sept. 30,



2016


2015


2016


2015

(in thousands of Canadian dollars, except share and









per share amounts, unaudited)


$


$


$


$

Net (loss) income for the period


(1,865)


(1,763)


1,008


(32,577)










Restructuring expenses


1,787


5,756


2,479


12,015

Impairment of goodwill





26,000

Tax effect of the above adjustments


(468)


(1,490)


(649)


(3,111)

Adjusted net (loss) income


(546)


2,503


2,838


2,327










Adjusted net income (loss) per share, basic


(0.05)


10.66


0.26


9.91

Adjusted net income (loss) per share, diluted


(0.04)


10.66


0.26


9.91

Pro forma Adjusted net income (loss) per share,









basic (1)


(0.05)


0.21


0.24


0.19

Pro forma Adjusted net income (loss) per share,









diluted (1)


(0.04)


0.20


0.23


0.19

Weighted average number of common shares









outstanding - basic


11,964,978


234,906


10,840,273


234,906

Weighted average number of common shares









outstanding - diluted


12,534,940


234,906


11,025,630


234,906

Number of common shares outstanding


11,975,053


234,906


11,975,053


234,906

 

Note:

(1)

Pro forma Adjusted net income (loss) per share, basic, a non-GAAP measure, assumes Adjusted net income (loss) per share, basic were calculated on the basis of the total number of common shares outstanding of 11,975,053 at September 30, 2016, rather than the weighted average number of common shares outstanding at the respective period ends, given the significant changes in the number of common shares of DATA outstanding during comparable periods. Pro forma Adjusted net income (loss) per share, diluted, assumes Adjusted net income (loss) per share, diluted were calculated on the basis of the total diluted number of common shares outstanding of 12,545,015 at September 30, 2016, rather than the weighted average diluted number of common shares outstanding at the respective period ends, given the significant changes in the number of common shares of DATA outstanding during comparable periods.

 

Revenues
For the quarter ended September 30, 2016, DATA recorded revenues of $65.8 million, a decrease of $8.3 million or 11.2% compared with the same period in 2015.  The decrease in revenues was due to non-recurring projects from last year, general volume declines from customers for print-related products and services, the threatened Canada Post labour interruption, which reduced demand for work destined directly or indirectly for the mail stream, and economic softness in Western Canada and was partially offset by growth in revenues from new customer orders. For the nine months ended September 30, 2016, DATA recorded revenues of $210.2 million, a decrease of $13.4 million or 6.0% compared with the same period in 2015. The decrease in revenues for the nine months ended September 30, 2016 was primarily due to non-recurring projects and a greater decline in volume from existing customers for print-related products and services than offsetting growth in revenues from new customers.

Cost of Revenues and Gross Profit
For the quarter ended September 30, 2016, cost of revenues decreased to $51.5 million from $55.7 million for the same period in 2015. Gross profit for the quarter ended September 30, 2016 was $14.3 million, which represented a decrease of $4.1 million or 22.2% from $18.4 million for the same period in 2015.  Gross profit as a percentage of revenues decreased to 21.7% for the quarter ended September 30, 2016 compared to 24.8% for the same period in 2015. For the nine months ended September 30, 2016, cost of revenues decreased to $160.3 million from $172.3 million for the same period in 2015.  Gross profit for the nine months ended September 30, 2016 was $49.8 million, which represented a decrease of $1.5 million or 2.9% from $51.3 million for the same period in 2015. Gross profit as a percentage of revenues increased to 23.7% for the nine months ended September 30, 2016 compared to 22.9% for the same period in 2015.  The decrease in gross profit as a percentage of revenues for the quarter ended September 30, 2016 was due to the decrease in revenues, product mix, which was skewed towards certain higher paper content and lower margin business and compressed margins on recently negotiated large repeat contracted customers and was partially offset by the cost reductions realized from prior cost savings initiatives implemented in 2015. Those cost savings initiatives included headcount reductions, which helped reduce direct and indirect labour costs, respectively.  The increase in gross profit as a percentage of revenues for the nine months ended September 30, 2016 was due to the cost reductions realized from prior cost savings initiatives implemented in 2015 and was partially offset by the decrease in revenues, product mix and compressed margins on recently negotiated large repeat contracted customers.

Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses for the quarter ended September 30, 2016 increased $0.5 million or 3.8% to $13.9 million compared to $13.4 million in the same period in 2015. As a percentage of revenues, these costs were 21.2% of revenues for the quarter ended September 30, 2016 compared to 18.1% of revenues for the same period in 2015. SG&A expenses for the nine months ended September 30, 2016 decreased $1.0 million or 2.4% to $42.5 million compared to $43.6 million for the same period of 2015. As a percentage of revenues, these costs were 20.2% and 19.5% of revenues for the nine month periods ended September 30, 2016 and 2015, respectively. The increase in SG&A expenses for the quarter ended September 30, 2016 was primarily attributable to higher third quarter SG&A expenses related to share-based compensation expense, increased marketing expenses and additional corporate costs related to the change in DATA's legal name on July 4, 2016 (the "Name Change").  The decrease in SG&A expenses for the nine months ended September 30, 2016 was primarily attributable to cost savings initiatives implemented in 2015, including headcount reductions across sales, general and administration functions, and was partially offset by higher SG&A expenses related to share-based compensation expense, increased marketing expenses and additional corporate costs related to changes in the Board of Directors in the second quarter of 2016, the Name Change and the Share Consolidation.

Restructuring Expenses
For the three and nine month periods ended September 30, 2016, DATA incurred total restructuring expenses of $1.8 million and $2.5 million, respectively, primarily related to headcount reductions and a charge to onerous contracts in both periods. The charge to onerous contracts of $0.4 million related to a lease exit charge for a closed facility in Richmond Hill, Ontario.  For the three months ended September 30, 2015, DATA incurred restructuring expenses of $5.8 million due to changes in senior management, headcount reductions across DATA's operations and a charge to onerous contracts.  The charge to onerous contracts of $0.7 million during the three months ended September 30, 2015 related to a lease exit charge for a closed warehouse facility in Brampton, Ontario.  For the nine months ended September 30, 2015, DATA incurred restructuring expenses of $12.0 million comprised of (i) $10.6 million of restructuring expenses due to changes in senior management, headcount reductions across DATA's operations and the closure of certain manufacturing locations, and a (ii) charge to onerous contracts of $1.4 million for lease exit charges for closed facilities in Calgary, Alberta and in Brampton Ontario.

Adjusted EBITDA
For the quarter ended September 30, 2016, Adjusted EBITDA was $1.9 million, or 2.8% of revenues. Adjusted EBITDA for the quarter ended September 30, 2016 decreased $4.8 million or 71.9% from the same period in the prior year and Adjusted EBITDA margin for the quarter, as a percentage of revenues, decreased from 8.9% of revenues in 2015 to 2.8% of revenues in 2016. For the nine months ended September 30, 2016, Adjusted EBITDA was $12.1 million, or 5.7% of revenues. Adjusted EBITDA for the nine months ended September 30, 2016 decreased $0.7 million or 5.3% from the same period in the prior year and Adjusted EBITDA margin for the period, as a percentage of revenues, remained largely unchanged from the prior year at 5.7% of revenues in 2016. The decrease in Adjusted EBITDA for the three and nine month periods ended September 30, 2016 was attributable to lower levels of revenues and gross profit compared to the prior comparable periods and higher SG&A expenses in the quarter ended September 30, 2016.

Interest Expense
Interest expense, including interest on debt outstanding under DATA's credit facilities, on its outstanding 6.00% Convertible Debentures, on certain unfavourable lease obligations related to closed facilities and on DATA's employee benefit plans, was $0.8 million for the quarter ended September 30, 2016 compared to $1.5 million for the same period in 2015, and was $2.6 million for the nine months ended September 30, 2016 compared to $4.2 million for the same period in 2015.  Interest expense for the three and nine month periods ended September 30, 2016 was lower than the same periods in the prior year primarily as a result of reductions in the aggregate principal amount of outstanding 6.00% Convertible Debentures and debt outstanding under DATA's credit facilities, respectively.

Income Taxes
DATA reported a loss before income taxes of $2.4 million and a deferred income tax recovery of $0.6 million for the quarter ended September 30, 2016 compared to a loss before income taxes of $2.4 million, a current income tax expense of $0.2 million and a deferred income tax recovery of $0.8 million for the quarter ended September 30, 2015.  DATA reported income before income taxes of $1.8 million, a current income tax expense of $1.4 million and a deferred income tax recovery of $0.6 million for the nine months ended September 30, 2016 compared to a loss before income taxes of $34.8 million, a current income tax expense of $0.3 million and a deferred income tax recovery of $2.5 million for the nine months ended September 30, 2015.  The current income tax expense was due to the taxes payable on DATA's estimated taxable income for the three and nine month periods ended September 30, 2016, respectively.  In addition, the current tax expense for the nine months ended September 30, 2016 includes a recovery of taxes paid in a prior period offset by a reclassification from deferred taxes.  The deferred income tax recoveries were due to changes in estimates of future reversals of temporary differences and new temporary differences that arose during the three and nine month periods ended September 30, 2016 and 2015, respectively.

Net (Loss) Income
Net loss for the three months ended September 30, 2016 was $1.9 million compared to net loss of $1.8 million for the same period in 2015.  Net income for the nine months ended September 30, 2016 was $1.0 million compared to a net loss $32.6 million for the same period in 2015. The decrease in comparable profitability for the three months ended September 30, 2016 was substantially due to lower restructuring and interest expenses and was partially offset by lower gross profit during the three months ended September 30, 2016. The increase in comparable profitability for the nine months ended September 30, 2016 was substantially due to lower restructuring and interest expenses and was partially offset by lower gross profit during the nine months ended September 30, 2016 and a goodwill impairment charge during the nine months ended September 30, 2015.  The increase in comparable profitability for the nine months ended September 30, 2016 was partially offset by a larger current income tax expense and a smaller deferred income tax recovery during the nine months ended September 30, 2016.

Adjusted Net (Loss) Income
Adjusted net loss for the three months ended September 30, 2016 was $0.5 million compared to Adjusted net income of $2.5 million for the same period in 2015.  Adjusted net income for the nine months ended September 30, 2016 was $2.8 million compared to Adjusted net income of $2.3 million for the same period in 2015.  The decrease in comparable profitability for the three months ended September 30, 2016 was attributable to lower revenues, gross profit and higher SG&A expenses which was partially offset by lower interest expense in 2016. The increase in comparable profitability for the nine months ended September 30, 2016 was attributable to lower SG&A and interest expenses and was partially offset by lower revenues and gross profit in 2016.

WORKING CAPITAL

Working capital in the third quarter of 2016 was negatively impacted by:

  • Differences in the timing of receivables and payables, which resulted in a higher relative reduction in trade payables;
  • Declines in deferred revenue resulting from lower activity from certain large customers who pay in advance for production to be held in inventory, and
  • Lower volumes from some of DATA's larger customers resulting in lagging inventory turns, together with inventory management associated with the Edmonton move.

INVESTING ACTIVITIES

Capital expenditures for the three and nine months ended September 30, 2016 were $0.5 million and $1.3 million, respectively. These capital expenditures, which were financed by cash flow from operations, were related primarily to maintenance capital expenditures.

FINANCING ACTIVITIES

On May 31, 2016, DATA completed a portion of a non-brokered private placement and issued a total of 1,678,567 common shares at a price of $1.40 per common share. On July 4, 2016, following receipt of disinterested shareholder approval at the annual and special meeting of DATA's shareholders held on June 30, 2016, DATA completed the remaining portion of the private placement and issued an additional 308,958 common shares at a price of $1.40 per common share.  During the three months ended September 30, 2016, DATA received gross proceeds of $0.4 million, less issue expenses of $0.1 million for net proceeds of $0.4 million from the remaining portion of the private placement. During the nine months ended September 30, 2016, DATA received gross proceeds of $2.8 million, less issue expenses of $0.1 million for net proceeds of $2.7 million in aggregate from both portions of the private placement.

During the three months ended September 30, 2016, DATA repaid $1.4 million of principal amounts outstanding under its credit facilities and obtained $5.6 million in advances under its credit facilities.  During the nine months ended September 30, 2016, DATA obtained $49.5 million in cash from advances under its credit facilities and repaid $43.3 million and $11.6 million of the principal amounts outstanding under its prior and existing credit facilities, respectively. During the nine months ended September 30, 2016, DATA incurred $1.3 million of transaction costs related to the establishment of new credit facilities.

About DATA Communications Management Corp.

At DATA, we are experts at planning and driving business communications. We help marketers and agencies unify and execute communications campaigns across multiple channels, and we help operations teams streamline and automate document and communications management processes.  Our core capabilities include direct marketing, commercial print services, labels and automated identification solutions, event tickets and gift cards, logistics and fulfilment, content and workflow management, data management and analytics, and regulatory communications. We serve clients in key vertical markets such as financial services, healthcare, lottery and gaming, retail, not-for-profit, and energy.  We are strategically located across Canada to support clients on a national basis, and serve the U.S. market through our facilities in Chicago, Illinois.

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 DATA, 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 DATA's current views regarding future events and operating performance, are based on information currently available to DATA, 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 DATA 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 DATA made or took into account in the preparation of these forward-looking statements include: the limited growth in the traditional printing industry and the potential for further declines in sales of DATA'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 DATA which are related to reduced demand for its printed products will adversely affect DATA's financial results; the risk that DATA may not be successful in reducing the size of its legacy print business, reducing costs, reducing its long-term debt, repaying or refinancing its outstanding 6.00% convertible unsecured subordinated debentures, and growing its digital communications business; the risk that DATA may not be successful in managing its organic growth; DATA'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 DATA and are well-established suppliers; DATA's ability to grow its sales or even maintain historical levels of its sales of printed business documents; the impact of economic conditions on DATA's businesses; risks associated with acquisitions by DATA; increases in the costs of paper and other raw materials used by DATA; and DATA's ability to maintain relationships with its customers. Additional factors are discussed elsewhere in this press release and under the headings "Risk Factors" and "Risks and Uncertainties" in DATA's management's discussion and analysis and in DATA's other publicly available disclosure documents, as filed by DATA 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, DATA does not intend and does not assume any obligation to update these forward-looking statements.

NON-GAAP MEASURES

This press release includes certain non-GAAP 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 net income (loss) means net income (loss) adjusted for the impact of certain non-cash items and certain items of note on an after- tax basis.  Adjusted EBITDA for the three and nine month periods ended September 30, 2016 and the three months ended September 30, 2015 each means EBITDA adjusted for restructuring expenses.  Adjusted EBITDA for the nine months ended September 30, 2015 means EBITDA adjusted September 30, 2015 for restructuring expenses and goodwill impairment charges. Adjusted net income (loss) for the three and nine month periods ended September 30, 2016 and the three months ended September 30, 2015 each means net income (loss) adjusted for restructuring expenses and the tax effects of those items.  Adjusted net income (loss) for the nine months ended September 30, 2015 means net income (loss) adjusted for restructuring expenses, goodwill impairment charges and the tax effects of those items.  Adjusted net income (loss) per share, (basic and diluted) is calculated by dividing Adjusted net income for the period by the weighted average number of common shares (basic and diluted) outstanding during the period.  Pro forma Adjusted net income (loss) per share, basic and diluted each assumes Adjusted net income (loss) per share was calculated on the basis of the total number of common shares outstanding at September 30, 2016, rather than the weighted average or the weighted average diluted number of common shares outstanding at the respective period ends, given the significant changes in the number of common shares of DATA outstanding during those periods. DATA believes that, in addition to net income (loss), Adjusted net income (loss), Adjusted net income (loss) per share, Pro forma Adjusted net income (loss) per share, EBITDA and Adjusted EBITDA are useful supplemental measures in evaluating the performance of DATA. Adjusted net income (loss), Adjusted net income (loss) per share, Pro forma 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, Pro forma 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, Pro forma 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 DATA's performance.   For a reconciliation of net income (loss) to EBITDA and a reconciliation of net income (loss) to Adjusted EBITDA, see Table 2 above. For a reconciliation of net income (loss) to Adjusted net income (loss) and a presentation of Adjusted net income (loss) per share and Pro forma Adjusted net income (loss) per share, see Table 3 above.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION






(in thousands of Canadian dollars, unaudited)


September 30, 2016


December 31, 2015



$


$






Assets





Current assets






Cash and cash equivalents



871


Trade receivables


29,366


38,051


Inventories


37,344


37,053


Prepaid expenses and other current assets


4,855


4,150



71,565


80,125

Non-current assets






Deferred income tax assets


3,340


2,070


Restricted cash


425



Property, plant and equipment


12,076


14,422


Pension asset



770


Intangible assets


4,233


5,614


Goodwill


31,066


31,066








122,705


134,067






Liabilities





Current liabilities






Bank overdraft


829



Current portion of Credit facilities


5,827


43,095


Current portion of Convertible debentures


11,040



Trade payables


24,565


29,766


Provisions


3,446


5,723


Income taxespayable


1,941


903


Deferred revenue


8,257


10,811



55,905


90,298

Non-current liabilities






Provisions


773


1,483


Credit facilities


30,994



Convertible debentures



10,912


Deferred income tax liabilities


4


76


Other non-current liabilities


1,616


1,362


Pension obligations


9,418


8,354


Other post-employment benefit plans


2,753


2,563



101,463


115,048






Equity





Shareholders' equity






Shares


237,432


234,782


Conversion options


128


128


Contributed surplus


1,103


385


Accumulated other comprehensive income


215


306


Deficit


(217,636)


(216,582)



21,242


19,019








122,705


134,067

 


CONSOLIDATED STATEMENTS OF LOSS










(in thousands of Canadian dollars, except per


For the three


For the three

share amounts, unaudited)


months ended


months ended



September 30, 2016


September 30, 2015



$


$






Revenues


65,842


74,116






Cost of revenues


51,537


55,730






Gross profit


14,305


18,386






Expenses






Selling, commissions and expenses


7,676


7,549


General and administration expenses


6,268


5,890


Restructuring expenses


1,787


5,756



15,731


19,195






Loss before finance costs and income taxes


(1,426)


(809)






Finance costs






Interest expense


838


1,481


Interest income


(4)


(3)


Amortization of transaction costs


111


135



945


1,613






Loss before income taxes


(2,371)


(2,422)

Income tax expense (recovery)






Current


46


167


Deferred


(552)


(826)



(506)


(659)






Net loss for the period


(1,865)


(1,763)






Basic loss per share


(0.16)


(7.51)






Diluted loss per share


(0.15)


(7.51)

 


CONSOLIDATED STATEMENTS OF INCOME (LOSS)






(in thousands of Canadian dollars, except per


For the nine


For the nine

 share amounts, unaudited)


months ended


months ended



September 30, 2016


September 30, 2015



$


$






Revenues


210,172


223,565






Cost of revenues


160,345


172,268






Gross profit


49,827


51,297






Expenses






Selling, commissions and expenses


23,855


25,347


General and administration expenses


18,685


18,234


Restructuring expenses


2,479


12,015


Impairment of goodwill



26,000



45,019


81,596






Income (loss) before finance costs and





income taxes


4,808


(30,299)






Finance costs






Interest expense


2,575


4,229


Interest income


(8)


(10)


Amortization of transaction costs


467


305



3,034


4,524






Income (loss) before income taxes


1,774


(34,823)






Income tax expense (recovery)






Current


1,378


250


Deferred


(612)


(2,496)



766


(2,246)






Net income (loss) for the period


1,008


(32,577)






Basic earnings (loss) per share


0.09


(138.68)






Diluted earnings (loss) per share


0.09


(138.68)

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS





(in thousands of Canadian dollars, unaudited)

For the three


For the three


months ended


months ended


September 30, 2016


September 30, 2015


$


$





Net loss for the period

(1,865)


(1,763)





Other comprehensive income (loss):








Items that may be reclassified subsequently to net loss





Foreign currency translation

26


80


26


80





Items that will not be reclassified to net loss





Re-measurements of post-employment benefit obligations

(646)


(391)


Taxes related to post-employment adjustment above

169


102


(477)


(289)





Other comprehensive loss for the period, net of tax

(451)


(209)





Comprehensive loss for the period

(2,316)


(1,972)













CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS








(in thousands of Canadian dollars, unaudited)

For the nine


For the nine


months ended


months ended


September 30, 2016


September 30, 2015


$


$





Net income (loss) for the period

1,008


(32,577)





Other comprehensive income (loss):








Items that may be reclassified subsequently to net income (loss)





Foreign currency translation

(91)


153


(91)


153





Items that will not be reclassified to net income (loss)





Re-measurements of post-employment benefit obligations

(2,791)


760


Taxes related to post-employment adjustment above

729


(198)


(2,062)


562





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

(2,153)


715





Comprehensive loss for the period

(1,145)


(31,862)

 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)








(in thousands of Canadian dollars,




Accumulated



unaudited)




other


Total



Conversion

Contributed

comprehensive


equity


Shares

options

surplus

income

Deficit

(deficit)


$

$

$

$

$

$








Balance as at December 31, 2014

215,336

513

92

(197,528)

18,413








Net loss for the period

(32,577)

(32,577)

Other comprehensive income for the period

153

562

715

Total comprehensive income (loss) for the period

153

(32,015)

(31,862)








Balance as at September 30, 2015

215,336

513

245

(229,543)

(13,449)















Balance as at December 31, 2015

234,782

128

385

306

(216,582)

19,019








Net income for the period

1,008

1,008

Other comprehensive loss for the period

(91)

(2,062)

(2,153)

Total comprehensive loss for the period

(91)

(1,054)

(1,145)








Issuance of common shares

2,650

2,650

Share-based compensation expense

718

718








Balance as at September 30, 2016

237,432

128

1,103

215

(217,636)

21,242

 

CONSOLIDATED STATEMENTS OF CASH FLOWS






(in thousands of Canadian dollars, unaudited)


For the three


For the three



months ended


months ended



September 30, 2016


September 30, 2015



$


$






Cash provided by (used in)










Operating activities





Net loss for the period


(1,865)


(1,763)

Adjustments to net loss






Depreciation of property, plant and equipment


988


1,198


Amortization of intangible assets


517


487


Share-based compensation expense


142



Pension expense


147


152


Loss (gain) on disposal of property, plant and equipment


49


(5)


Provisions


1,787


5,756


Amortization of transaction costs


111


135


Accretion of convertible debentures


21


76


Other non-current liabilities


(277)


368


Other post-employment benefit plans, net


64


77


Income tax credits recognized


(124)


(181)


Income taxes recovery


(506)


(659)



1,054


5,641

Changes in working capital


(5,113)


(1,042)

Contributions made to pension plans


(481)


(458)

Provisions paid


(1,405)


(3,018)

Income taxes received (paid)


57


(10)



(5,888)


1,113






Investing activities





Purchase of property, plant and equipment


(459)


(526)

Purchase of intangible assets



(302)

Proceeds on disposal of property, plant and equipment


10


7



(449)


(821)






Financing activities





Proceeds from issuance of common shares, net


370


Proceeds from credit facilities


5,601


Repayment of credit facilities


(1,422)


(1,000)

Proceeds from loan payable



341

Repayment of loan payable


(55)


(13)

Finance and transaction costs



(20)

Finance lease payments



(9)



4,494


(701)






Decrease in cash and cash equivalents during the period


(1,843)


(409)

Cash and cash equivalents – beginning of period


1,003


3,514

Effects of foreign exchange on cash balances


11


48

(Bank overdraft) cash and cash equivalents – end of period


(829)


3,153

 

CONSOLIDATED STATEMENTS OF CASH FLOWS










(in thousands of Canadian dollars, unaudited)


For the nine


For the nine



months ended


months ended



September 30, 2016


September 30, 2015



$


$






Cash provided by (used in)










Operating activities





Net income (loss) for the period


1,008


(32,577)

Adjustments to net income (loss)






Depreciation of property, plant and equipment


3,237


3,572


Amortization of intangible assets


1,532


1,445


Share-based compensation expense


718



Pension expense


442


456


Loss on disposal of property, plant and equipment


238


34


Impairment of goodwill



26,000


Provisions


2,479


12,015


Amortization of transaction costs


467


305


Accretion of convertible debentures


64


137


Other non-current liabilities


394


438


Other post-employment benefit plans, net


190


213


Tax credits recognized


(124)


(181)


Income tax expense (recovery)


766


(2,246)



11,411


9,611

Changes in working capital


(77)


7,534

Contributions made to pension plans


(1,399)


(1,397)

Provisions paid


(5,466)


(6,962)

Income taxes paid


(211)


(148)



4,258


8,638






Investing activities





Purchase of property, plant and equipment


(1,282)


(4,019)

Purchase of intangible assets


(151)


(302)

Proceeds on disposal of property, plant and equipment


134


639



(1,299)


(3,682)






Financing activities





Proceeds from issuance of common shares, net


2,650


Proceeds from credit facilities


49,532


Repayment of credit facilities


(54,868)


(3,000)

Proceeds from loan payable



341

Repayment of loan payable


(135)


(13)

Increase in restricted cash


(425)


Finance and transaction costs


(1,341)


(13)

Finance lease payments


(18)


(27)



(4,605)


(2,712)






(Decrease) increase in cash and cash equivalents






during the period


(1,646)


2,244

Cash and cash equivalents – beginning of period


871


812

Effects of foreign exchange on cash balances


(54)


97

(Bank overdraft) cash and cash equivalents – end of period


(829)


3,153

 

SOURCE DATA Communications Management Corp.

Image with caption: "DATA Communications Logo (CNW Group/DATA Communications Management Corp.)". Image available at: http://photos.newswire.ca/images/download/20161102_C8183_PHOTO_EN_810423.jpg

For further information: Mr. Michael G. Sifton, 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

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