Data Communications Mgmt Corp (DCMDF)

[genlou]

Net Income of $1.9 million, including restructuring expenses of $0.3 million, compared to Net Loss of $1.1 million, including restructuring expenses of $2.1 million, in the prior comparative period
Adjusted Net Income of $2.1 million, an increase of 442.5% year over year (See Table 3 and "Non-GAAP Measures" below)
EBITDA of $5.3 million, an increase of 268.7% year over year (See Table 2 and "Non-GAAP Measures" below)
Adjusted EBITDA of $5.7 million, an increase of 61.6% year over year (See Table 2 and "Non-GAAP Measures" below)
Revenues of $74.6 million, a decrease of 1.8% year over year

RECENT EVENT

Resignation of President and Chief Executive Officer, effective July 3, 2016

BRAMPTON, ON, May 4, 2016 /CNW/ - DATA Group Ltd. (TSX: DGI) ("DATA" or the "Company") announced its consolidated financial results for the three months ended March 31, 2016.

"Our financial results for the first quarter of 2016 continued to demonstrate the benefits of the restructuring initiatives we implemented in fiscal 2015. Despite revenue declining year over year this quarter by approximately 2%, we continued to demonstrate year over year improvements in gross margin percentage, Adjusted EBITDA margin, Adjusted EBITDA and net income. We have now experienced three successive quarters of year over year improvements in margins and profitability", said Michael G. Sifton, President and Chief Executive Officer of DATA.

On April 6, 2016, DATA announced that Mr. Sifton had tendered his resignation as an officer of the Company for personal reasons, with an effective date of July 3, 2016. Mr. Sifton remains a director of the Company. DATA's Board of Directors has commenced a search for Mr. Sifton's successor and expects to announce his replacement prior to the effective date of his resignation. Under the terms of the credit agreement with one of DATA's lenders, if the Chief Executive Officer of the Company voluntarily resigns as an officer of DATA, the Company will have 60 days from the effective date of the officer's resignation to replace such officer, such replacement officer to be satisfactory to the lender, acting reasonably. A failure by DATA to comply with its obligations under either of DATA's credit agreements, together with certain other events, including in relation to a change in DATA's chief executive officer, could result in an event of default which, if not cured or waived, could permit acceleration of the indebtedness outstanding under each of those agreements.

Over the past several months, DATA's senior leadership team has implemented significant changes that have made DATA more focused, optimized, united and ultimately more agile to adapt to the dramatic changes being experienced in the printing and communications management industry. DATA's senior leadership team has developed and executed a number of key initiatives over the past year with the objective of enhancing long-term shareholder value. DATA's senior leadership team is focused on continuing to realize the benefits from those recent initiatives and on stabilizing - and ultimately growing - revenues.

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 March 31, 2016 and 2015


Jan. 1 to


Jan. 1 to



Mar. 31,


Mar. 31,



2016


2015

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


$


$

Revenues


74,614


76,002

Cost of revenues


56,241


58,717

Gross profit


18,373


17,285




Selling, general and administrative expenses


13,833


14,935

Restructuring expenses


324


2,054

Amortization of intangible assets


505


479

Income (loss) before finance costs and income taxes


3,711


(183)




Finance costs



Interest expense


868


1,284



Interest income


(3)


(4)



Amortization of transaction costs


247


36




1,112


1,316

Income (loss) before income taxes


2,599


(1,499)




Income tax expense (recovery)





Current


176


7



Deferred


541


(375)




717


(368)

Net income (loss) for the period


1,882


(1,131)




Net income (loss) attributable to common shareholders


1,882


(1,131)

Basic and diluted earnings (loss) per share


0.00


(0.05)

Weighted average number of common shares outstanding


998,752,732


23,490,592

As at March 31, 2016 and December 31, 2015


As at


As at



Mar. 31,


Dec. 31,



2016


2015

(in thousands of Canadian dollars, unaudited)


$


$

Current assets


75,389


80,125

Current liabilities


46,384


90,298




Total assets


127,584


134,067

Total non-current liabilities


61,183


24,750




Shareholders' (deficiency) equity


20,017


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 March 31, 2016 and 2015





(in thousands of Canadian dollars, unaudited)


Jan. 1 to

Mar. 31,

2016

$


Jan. 1 to

Mar. 31,

2015

$

Net income (loss) for the period


1,882


(1,131)




Interest expense


868


1,284

Interest income


(3)


(4)

Amortization of transaction costs


247


36

Current income tax expense


176


7

Deferred income tax expense (recovery)


541


(375)

Depreciation of property, plant and equipment


1,115


1,150

Amortization of intangible assets


505


479

EBITDA


5,331


1,446




Restructuring expenses


324


2,054

Adjusted EBITDA


5,655


3,500



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 March 31, 2016 and 2015


Jan. 1 to


Jan. 1 to



Mar. 31,


Mar. 31,



2016


2015

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


$


$

Net income (loss) for the period


1,882


(1,131)




Restructuring expenses


324


2,054

Tax effect of the above adjustments


(85)


(532)

Adjusted net (loss) income


2,121


391




Adjusted net income (loss) per share, basic and diluted


0.0021


0.0200

Pro forma Adjusted net income (loss) per share, basic and diluted (1)


0.0021


0.0004

Weighted average number of common shares outstanding


998,752,732


23,490,592

Number of common shares outstanding


998,752,732


23,490,592

Note:

(1)


On December 23, 2015, DATA issued 975,262,140 common shares in connection with the redemption of approximately 75% of the aggregate principal amount of its outstanding 6.00% Convertible Unsecured Subordinated Debentures (the "6.00% Convertible Debentures"). Pro forma Adjusted net income (loss) per share, a non-GAAP measure, assumes Adjusted net income (loss) per share for the periods ended March 31, 2016 and 2015 were calculated on the basis of the total number of shares outstanding at March 31, 2016, rather than the weighted average number of shares outstanding at the respective period ends, given the significant dilution that occurred with eight days left in the 2015 fiscal year due to the issuance of 975,262,140 common shares as described above.

Revenues
For the three months ended March 31, 2016, DATA recorded revenues of $74.6 million, a decrease of $1.4 million or 1.8% compared with the same period in 2015. The decrease in revenues for the three months ended March 31, 2016 was primarily due to a greater decline in orders 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 three months ended March 31, 2016, cost of revenues decreased to $56.2 million from $58.7 million for the same period in 2015. Gross profit for the quarter ended March 31, 2016 was $18.4 million, which represented an increase of $1.1 million or 6.3% from $17.3 million for the same period in 2015. Gross profit as a percentage of revenues increased to 24.6% for the three months ended March 31, 2016 compared to 22.7% for the same period in 2015. The increase in gross profit as a percentage of revenues for the three months ended March 31, 2016 was largely due to 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.

Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses, excluding amortization of intangible assets, for the three months ended March 31, 2016 decreased $1.1 million or 7.4% to $13.8 million compared to $14.9 million in the same period in 2015. As a percentage of revenues, these costs were 18.5% of revenues for the three months ended March 31, 2016 compared to 19.7% of revenues for the same period in 2015. The decrease in SG&A expenses for the three months ended March 31, 2016 was primarily attributable to cost savings initiatives implemented in 2015, including headcount reductions across sales, general and administration functions.

Restructuring Expenses
For the three months ended March 31, 2016, DATA incurred restructuring expenses related to headcount reductions of $0.3 million. For the three months ended March 31, 2015, DATA incurred restructuring expenses of $2.1 million comprised of (i) $1.4 million of restructuring expenses due to headcount reductions across DATA's operations and the closure of certain manufacturing locations, and a (ii) charge to onerous contracts of $0.7 million for a lease exit charge for a closed facility in Calgary, Alberta.

Adjusted EBITDA
For the three months ended March 31, 2016, Adjusted EBITDA was $5.7 million, or 7.6% of revenues. Adjusted EBITDA for the three months ended March 31, 2016 increased $2.2 million or 61.6% from the same period in the prior year and the Adjusted EBITDA margin for the quarter, as a percentage of revenues, increased from 4.6% of revenues in 2015 to 7.6% of revenues in 2016. The increase in Adjusted EBITDA for the three months ended March 31, 2016 was attributable to improved gross margins as a result of prior cost savings initiatives which lowered direct and indirect labour costs and improved utilization rates at DATA's key plants, despite lower levels of revenues compared to the prior comparable period.

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 $0.9 million for the quarter ended March 31, 2016 compared to $1.3 million for the same period in 2015. Interest expense for the three months ended March 31, 2016 was lower than the same period 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.

Income Taxes
DATA reported income before income taxes of $2.6 million, a current income tax expense of $0.2 million and a deferred income tax expense of $0.5 million for the quarter ended March 31, 2016 compared to a loss before income taxes of $1.5 million and a deferred income tax recovery of $0.4 million for the three months ended March 31, 2015. The current income tax expense was due to the taxes payable on DATA's estimated taxable income for the three months ended March 31, 2016. The deferred income tax expense and deferred income tax recovery were due to changes in estimates of future reversals of temporary differences and new temporary differences that arose during for the three months ended March 31, 2016 and 2015.


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