DATA Group Inc. Announces First Quarter Results for 2012

Highlights

Q1 2012

• First quarter 2012 ("Q1") Revenues of $86.6 million, Q1 Gross Profit of $23.2 million, and Q1 Net Income of $3.7 million
• Q1 Dividends declared of $3.8 million or $0.163 per share
• Q1 Adjusted EBITDA of $7.7 million (See Table 2 and "Non-GAAP Measures" below)

BRAMPTON, May 9, 2012 /CNW/ - DATA Group Inc. (TSX: DGI) ("DATA Group") announced its financial and operating results for the first quarter ended March 31, 2012, which includes the operating results of its subsidiaries DATA Group Ltd., The Fulfillment Solutions Advantage Inc. ("FSA") and FSA Datalytics Canada Inc. ("Datalytics").

"In the first quarter of 2012 we continued our extremely focused implementation of our strategic growth plan.  This involves investing in the business for sustainable, long-term growth while also managing the cost of this growth plan in order to achieve our 2012 financial goals.  We achieved growth in revenue and gross profit, while Adjusted EBITDA declined slightly.  At the same time, we made significant progress on a number of growth related initiatives during the quarter.", said Michael Suksi, President and Chief Executive Officer.

Outlook

DATA Group presented its new strategic growth plan in March of 2011.  The implementation of this plan, with its focus on stabilizing and revitalizing DATA Group's business, has been successful in year one and DATA Group is fully focused on growth in 2012.  DATA Group has implemented numerous initiatives to establish new revenue streams and to generate incremental cost savings to improve its profitability.  DATA Group will remain focused on the successful, ongoing execution of this plan in a prudent, well managed fashion, balancing its investment in the growth plan with the other aspects of its business, such as its dividend policy and capital structure.  DATA Group's accomplishments in the first quarter of 2012 and strategic goals for the remainder of 2012 include:

1. Achieved growth in the first quarter of 2012.  In the first quarter of 2012, DATA Group experienced growth in revenues and gross profit compared to the first quarter of 2011.  Adjusted EBITDA was down slightly due to DATA Group's ongoing investment in its growth strategy.
2. Develop new, high growth digital products and services.  In September 2011, DATA Group launched two exciting new products: a set of integrated web-based direct marketing capabilities; and an innovative web-based digital photo book service.  Customer response has been positive and DATA Group had increasing revenue from these products in the first quarter of 2012, as compared to the fourth quarter of 2011.  While the overall revenue from these products is small relative to the total business, DATA Group is encouraged by their growth potential.  DATA Group will continue to research additional new products and services in both the digital direct marketing and the digital document management categories for future launch.  In the first quarter of 2012, DATA Group hired two significant executives who will further accelerate its growth strategy.  Alan, Roberts, one of North America's leaders in digital print production and marketing communication fulfillment joined DATA Group in February.  In March, Ian Halliday, an internationally proven leader in electronic document management and document outsourcing solutions, joined the DATA team.  DATA Group is now readying additional new products and services that will enhance the value it provides to its document management clients.
3. Complete acquisitions that are aligned with DATA Group's growth plan and that are accretive immediately.  In November 2011, the DATA Group completed the acquisition of FSA and a 70% interest in Datalytics.  The products and services offered by FSA and Datalytics fit extremely well with DATA Group's recently launched web-based direct marketing services such as its gift card, direct mail and other marketing services.  The acquisition of FSA was immediately accretive.  DATA Group will continue to pursue additional acquisitions in the areas of digital direct marketing and digital document management.
4. Continue DATA Group's aggressive sales effort to expand its market share in its core markets of document management and marketing services in order to generate new business.  During 2011, DATA Group expanded its capability in the growing areas of short run, on demand marketing print, and retail gift card and loyalty card production.  DATA Group has also expanded its sophisticated web-based ordering systems for digital print solutions, and has implemented a number of initiatives to gain market share, which include changes in its sales compensation program, additional sales resources, increased sales training, and direct marketing campaigns to promote its products and services in the marketplace.  DATA Group will continue these and other growth-orientated initiatives in 2012.  In the first quarter of 2012, DATA Group won $4.6 million in new business.
5. Find innovative new ways to generate incremental cost savings.  DATA Group's strategic sourcing department, process improvement initiatives and a focus on lease costs continued to generate incremental savings of approximately $1.0 million in the first quarter of 2012 which contributed to DATA Group's improved gross profit.  DATA Group expects material cost savings from these initiatives in 2012.

DATA Group's Board of Directors will continue to closely monitor DATA Group's progress in balancing its investment in DATA Group's growth plan with other aspects of the business, including DATA Group's dividend policy and capital structure, and will take actions necessary for the long-term health of the business.

DATA Group will continue its strategic focus on being the leading document management service provider in Canada, while expanding in direct marketing and concentrating on providing high value-added products and services.

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

Consolidated Financial Information

For the periods ended March 31, 2012 and 2011 (in thousands of Canadian dollars, except per share/unit amounts, unaudited)		Jan. 1 to Mar. 31, 2012 $	Jan. 1 to Mar. 31, 2011 $
Revenues		86,648	84,288
Cost of revenues		63,421	62,873
Gross profit		23,227	21,415
Selling, general and administrative expenses		16,995	14,867
Corporate conversion costs		84	161
Amortization of identifiable intangible assets		2,311	2,566
Income before finance costs and income taxes		3,837	3,821
Finance costs
	Interest expense	1,480	1,356
	Interest income	(9)	(26)
	Change in fair value of conversion options	-	(147)
	Amortization of transaction costs	152	130
		1,623	1,313
Income before income taxes		2,214	2,508
Income tax expense (recovery)
	Current	1,248	587
	Deferred	(2,686)	167
		(1,438)	754
Net income for the period		3,652	1,754
Basic and diluted income per share/unit		0.16	0.07
Number of common shares/units outstanding		23,490,592	23,490,592
Consolidated Statements of Financial Position Information (in thousands of Canadian dollars, unaudited)		As at Mar. 31, 2012 $	As at Mar. 31, 2011 $
Current assets		87,464	91,168
Current liabilities		40,601	37,887
Total assets		280,634	285,571
Total non-current liabilities		122,141	121,648
Shareholders' equity		117,587	-
Non-controlling interests		305	-
Total equity		117,892	-
Unitholders' equity		-	126,036

Table 2     The following table provides a reconciliation of net income (loss) to Adjusted EBITDA for the periods noted.  See "Non-GAAP Measures".

Adjusted EBITDA Reconciliation

For the periods ended March 31, 2012 and 2011 (in thousands of Canadian dollars, unaudited)	Jan. 1 to Mar. 31, 2012 $	Jan. 1 to Mar. 31, 2011 $
Net income for the period	3,652	1,754
Interest expense	1,480	1,356
Interest income	(9)	(26)
Change in fair value of conversion options	-	(147)
Amortization of transaction costs	152	130
Depreciation of property, plant and equipment	1,423	1,422
Amortization of identifiable intangible assets	2,311	2,566
Corporate conversion costs	84	161
Current income tax expense	1,248	587
Deferred income tax (recovery) expense	(2,686)	167
Adjusted EBITDA	7,655	7,970

Results of Operations

Revenues

For the quarter ended March 31, 2012, DATA Group recorded revenues of $86.6 million, an increase of $2.4 million or 2.8% compared with the same period in 2011.  The increase, before intersegment revenues, was the result of a $2.5 million increase in the DATA East and West segment and a $0.3 million increase in the Multiple Pakfold segment, respectively.  Beginning November 1, 2011, the results of FSA and Datalytics are included in the DATA East and West segment.

Cost of Revenues and Gross Profit

For the quarter ended March 31, 2012, cost of revenues increased to $63.4 million from $62.9 million for the same period in 2011.  Gross profit for the quarter ended March 31, 2012 was $23.2 million, which represented an increase of $1.8 million or 8.5% from $21.4 million for the same period in 2011.  The increase in gross profit for the quarter ended March 31, 2012 was attributable to a gross profit increase of $1.7 million in the DATA East and West segment and a gross profit increase of $0.1 million in the Multiple Pakfold segment, respectively.  Gross profit as a percentage of revenues increased to 26.8% for the quarter ended March 31, 2012 compared to 25.4% for the same period in 2011.

Selling, General and Administrative Expenses and Severance Expenses

Selling, general and administrative ("SG&A") expenses, including administrative expenses of DATA Group but excluding amortization of identifiable intangible assets, for the quarter ended March 31, 2012 increased $2.1 million to $17.0 million compared to $14.9 million in the same period in 2011.  As a percentage of revenues, these costs were 19.6% of revenues for the quarter ended March 31, 2012 compared to 17.6% of revenues for the same period in 2011.  The increase in SG&A expenses for the three months ended March 31, 2012 was attributable to the inclusion of FSA and Datalytics in DATA Group's results of operations and investments to launch new products and services initiatives.  For the quarter ended March 31, 2012 and 2011, DATA Group incurred $0.1 million and $0.2 million of severance expenses.  Severance costs for the three months ended March 31, 2012 and 2011 were included in SG&A and were related to DATA Group's ongoing productivity improvements and cost reduction initiatives.

Corporate Conversion Costs

During the quarters ended March 31, 2012 and 2011, DATA Group incurred total professional fees of $0.1 million and of $0.2 million related to the conversion to a corporation on January 1, 2012, respectively.

Adjusted EBITDA

For the quarter ended March 31, 2012, Adjusted EBITDA was $7.7 million, or 8.8% of revenues.  Adjusted EBITDA for the quarter ended March 31, 2012 decreased $0.3 million or 4.0% from the same period in the prior year primarily due to cost of DATA Group's investment it its growth strategy.  The Adjusted EBITDA margin for the quarter, as a percentage of revenues, decreased from 9.5% of revenues in 2011 to 8.8% of revenues in 2012.

Interest Expense and Finance Costs

Interest expense on long-term debt outstanding under DATA Group's credit facilities and DATA Group's outstanding $45.0 million aggregate principal amount of 6.00% Convertible Unsecured Subordinated Debentures (the "6.00% Convertible Debentures") was $1.5 million for the three months ended March 31, 2012 compared to $1.4 million for the same period in 2011.  The increase in interest expense resulted from a higher balance outstanding and higher rates of interest charged on DATA Group's credit facilities.

Finance costs for the three months ended March 31, 2011 included a recovery of $0.1 million related to the change in the fair value of the Fund's conversion options.  The conversion options were the conversion feature in each of the Fund's outstanding convertible debentures, which is measured at fair value at each reporting date.  The Fund's obligations under those convertible debentures were assumed by the Corporation in connection with the Arrangement.  As a result of the Fund's conversion to a corporation on January 1, 2012, those conversion option liabilities were classified as equity on the financial statements of the Corporation due to the change in the nature of the underlying security to shares from units and are not re-measured at fair value at each reporting date.

Income Taxes

DATA Group reported income before income taxes of $2.2 million, a current income tax expense of $1.2 million and a deferred income tax recovery of $2.7 million for the three months ended March 31, 2012 compared to income before income taxes of $2.5 million, current income tax expense of $0.6 million and a deferred income tax expense of $0.2 million for the three months ended March 31, 2011.  The current tax expense for the three months ended March 31, 2012 was higher than the same period in 2011 due to the Fund's conversion to a corporation on January 1, 2012, which resulted in more income being subject to income taxes.  The deferred income tax recovery was due the conversion to a corporation on January 1, 2012, a change in estimates of future reversals of temporary differences and new temporary differences that arose during the three months ended March 31, 2012.  As a result of the Fund's conversion to a corporation on January 1, 2012, DATA Group re-measured its deferred tax assets and liabilities at the corporate tax rates applicable to corporations, which are lower than the top marginal tax rate for individuals used by the Fund.  As a result of the Fund's conversion to a corporation, the Fund's conversion option liabilities were reclassified as equity on January 1, 2012 and the associated deferred tax liability was reversed.  As a result of these changes, DATA Group recorded a deferred income tax recovery $2.0 million during the first quarter of 2012.

Net Income

Net income for the quarter ended March 31, 2012 was $3.7 million compared to a net income of $1.8 million for the quarter ended March 31, 2011.  The increase in comparable profitability for the quarter ended March 31, 2012 was substantially due the deferred income tax recovery as a result of the conversion of the Fund to a corporation, higher gross profit in the first quarter of 2012 as a result of cost savings realized from DATA Group's ongoing productivity improvement and cost reduction initiatives and the acquisition of FSA.  The increase in comparable profitability was partially offset by higher SG&A expenses, finance costs, and current income tax expense in the first quarter of 2012, respectively.

Investing Activities

Capital expenditures for the quarter ended March 31, 2012 of $0.3 million related primarily to maintenance capital expenditures and of $0.4 million related to the investment in identifiable intangible assets consisting of software licences.  These capital expenditures were financed by cash flow from operations and existing cash resources.

Financing Activities

During the three months ended March 31, 2011, DATA Group repaid $1.0 million of its Revolving Bank Facility outstanding.  For the three months ended March 31, 2012, DATA Group paid aggregate cash distributions of $1.3 million to holders of the common shares of DATA Group (formerly unitholders of the Fund).  For the three months ended March 31, 2012, DATA Group paid aggregate cash dividends of $2.5 million to its shareholders.

About DATA Group Inc.

DATA Group Inc. is a leading provider of document management and marketing solutions.  We provide integrated web and print based communications, information management and associated professional services.  We differentiate ourselves and provide value to our customers by focusing on innovative, high value solutions and on exceptional performance at delivering on our promises and commitments.  We have over 1,950 employees working from 34 locations across Canada to accomplish this.

Additional information relating to DATA Group Inc. is available on www.datagroup.ca, and in the disclosure documents filed by DATA Group Inc. on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com.

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.  Financial figures presented prior to January 1, 2012 are those of The DATA Group Income Fund, predecessor to DATA Group Inc.

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 Group, 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 Group's current views regarding future events and operating performance, are based on information currently available to DATA Group, 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 Group 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 Group made or took into account in the preparation of these forward-looking statements include the risk that DATA Group may not be successful in growing its business or in managing its organic growth; DATA Group's ability to develop and successfully market new products and services; competition from competitors supplying similar products and services; DATA Group'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 Group's businesses; risks associated with acquisitions by DATA Group; increases in the costs of paper and other raw materials used by DATA Group and DATA Group's ability to maintain relationships with its customers. Additional factors are discussed elsewhere in this press release and under the heading "Risks and Uncertainties" in DATA Group's management's discussion and analysis and in DATA Group's other publicly available disclosure documents, as filed by DATA Group 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 Group 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. When used in this press release, EBITDA means earnings before interest and finance costs, taxes, depreciation and amortization.  Adjusted EBITDA for the three months ended March 31, 2012 and 2011 means EBITDA adjusted for corporate conversion costs, respectively.  DATA Group believes that, in addition to net income (loss), EBITDA and Adjusted EBITDA are useful supplemental measures in evaluating the performance of DATA Group and its predecessors.  EBITDA and Adjusted EBITDA are not earnings measures recognized by IFRS and do not have any standardized meanings prescribed by IFRS.  Therefore, EBITDA and Adjusted EBITDA are unlikely to be comparable to similar measures presented by other issuers.

Investors are cautioned that EBITDA and Adjusted EBITDA should not be construed as an alternative to net income (loss) determined in accordance with IFRS as an indicator of DATA Group's performance.  For a reconciliation of net income (loss) to Adjusted EBITDA, see Table 2 above.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(in thousands of Canadian dollars, unaudited)			March 31, 2012 $		December 31, 2011 $
Assets
Current assets
	Cash and cash equivalents		223		4,046
	Trade receivables		40,835		43,647
	Inventories		42,005		40,786
	Prepaid expenses and other current assets		4,401		4,691
			87,464		93,170
Non-current assets
	Deferred income tax assets		482		887
	Property, plant and equipment		23,017		24,149
	Identifiable intangible assets		24,471		26,367
	Goodwill		145,200		145,200
			280,634		289,773
Liabilities
Current liabilities
	Trade payables		30,463		32,466
	Provisions		144		163
	Income taxes payable		1,277		1,933
	Deferred revenue		7,443		9,039
	Dividends/distributions payable		1,274		1,273
			40,601		44,874
Non-current liabilities
	Revolving bank facility		59,062		60,123
	Convertible debentures		41,862		42,229
	Deferred income tax liabilities		2,005		5,686
	Other non-current liabilities		2,522		2,617
	Pension obligations		14,098		14,043
	Other post-employment benefit plans		2,592		2,525
			162,742		172,097
Equity
Shareholders' equity
	Shares		215,336		-
	Units		-		215,336
	Conversion options		516		-
	Deficit		(98,265)		(97,973)
			117,587		117,363
Non-controlling interests			305		313
			117,892		117,676
			280,634		289,773

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(in thousands of Canadian dollars, except per share/unit amounts, unaudited)		For the three months ended March 31, 2012	For the three months ended March 31, 2011
		$	$
Revenues		86,648	84,288
Cost of revenues		63,421	62,873
Gross profit		23,227	21,415
Expenses
	Selling, commissions and expenses	9,786	8,859
	General and administration expenses excluding amortization of identifiable intangible assets	7,209	6,008
	Corporate conversion costs	84	161
	Amortization of identifiable intangible assets	2,311	2,566
		19,390	17,594
Income before finance costs and income taxes		3,837	3,821
Finance costs
	Interest expense	1,480	1,356
	Interest income	(9)	(26)
	Change in fair value of conversion options	-	(147)
	Amortization of transaction costs	152	130
		1,623	1,313
Income before income taxes		2,214	2,508
Income tax expense (recovery)
	Current	1,248	587
	Deferred	(2,686)	167
		(1,438)	754
Net income for the period		3,652	1,754
Other comprehensive loss (income)
	Deferred income tax recovery on conversion to a corporation	(406)	-
	Actuarial losses on post-employment benefit obligations	722	-
	Taxes post-employment adjustment above	(184)	-
		132	-
Comprehensive income for the period		3,520	1,754
ATTRIBUTABLE TO
SHAREHOLDERS' or UNITHOLDERS'
	Net income	3,660	1,754
	Other comprehensive loss	(132)	-
Comprehensive income for the period		3,528	1,754
NON-CONTROLLING INTERESTS
	Net loss	(8)	-
	Other comprehensive income (loss)	-	-
Comprehensive loss for the period		(8)	-
Basic income per share/unit		0.16	0.07
Diluted income per share/unit		0.16	0.07

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

	Attributable to Shareholders'
(in thousands of Canadian dollars, unaudited)	Shares	Units	Conversion options	Deficit	Total Shareholders' Equity	Non- controlling interests	Total Equity
	$	$	$	$	$	$	$
Balance as at December 31, 2010	-	215,336	-	(87,234)	128,102	-	128,102
Net income for the period	-	-	-	1,754	1,754	-	1,754
Total comprehensive income for the period	-	-	-	1,754	1,754	-	1,754
Distributions declared	-	-	-	(3,820)	(3,820)	-	(3,820)
Balance as at March 31, 2011	-	215,336	-	(89,300)	126,036	-	126,036
Balance as at December 31, 2011	-	215,336	-	(97,973)	117,363	313	117,676
Effect of conversion to a corporation	215,336	(215,336)	516	-	516	-	516
	215,336	-	516	(97,973)	117,879	313	118,192
Net income (loss) for the period	-	-	-	3,660	3,660	(8)	3,652
Other comprehensive loss for the period	-	-	-	(132)	(132)	-	(132)
Total comprehensive income (loss) for the period	-	-	-	3,528	3,528	(8)	(3,520)
Dividends declared	-	-	-	(3,820)	(3,820)	-	(3,820)
Balance as at March 31, 2012	215,336	-	516	(98,265)	117,587	305	117,892

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of Canadian dollars, unaudited)			For the three months ended March 31, 2012		For the three months ended March 31, 2011
			$		$
Cash provided by (used in)
Operating activities
Net income for the period			3,652		1,754
Adjustments to net income
	Depreciation of property, plant and equipment		1,423		1,422
	Amortization of identifiable intangible assets		2,311		2,566
	Pension expense		108		123
	Contributions made to pension plans		(775)		(726)
	Loss on disposal of property, plant and equipment		1		19
	Financing costs		(138)		-
	Change in fair value of conversion options		-		(147)
	Amortization of transaction costs		152		130
	Accretion of convertible debentures		74		74
	Other non-current liabilities		(95)		(64)
	Other post-employment benefit plans		67		41
	Deferred income tax (recovery) expense		(2,686)		167
			4,094		5,359
Changes in working capital			(2,391)		(3,802)
			1,703		1,557
Investing activities
Purchase of property, plant and equipment			(292)		(561)
Purchase of identifiable intangible assets			(415)		-
			(707)		(561)
Financing activities
Repayment of revolving bank facility			(1,000)		-
Dividends or distributions paid			(3,819)		(3,820)
			(4,819)		(3,820)
Decrease in cash and cash equivalents during the period			(3,823)		(2,824)
Cash and cash equivalents - beginning of period			4,046		7,995
Cash and cash equivalents - end of period			223		5,171
Supplemental cash flow information
	Interest paid		715		537
	Income taxes paid		1,904		-

 

 

 

 

Mr. Michael Suksi                   
President and Chief Executive Officer    
DATA Group Inc.   
Tel: [phone]

    
Mr. Paul O'Shea
Chief Financial Officer
DATA Group Inc.
Tel: [phone]