2022 Annual Report
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DATA Communications Management Corp.
Letter to shareholders
Dear Fellow Shareholders,
We are pleased to report on our success in 2022, which demonstrates our continued progress building both a better
and a bigger business. With our recent announcement of the planned acquisition of the Canadian operations of R.R.
Donnelley & Sons (“RRD Canada”), we believe we are well-positioned to further accelerate our positive momentum.
The fourth quarter of 2022 represented our fifth sequential quarter of year over year revenue growth. Fourth quarter
revenues of $73.0 million were up +20.0%, or +$12.2 million, compared to the fourth quarter of 2021, and revenues of
$273.8 million for fiscal 2022 were up +16.3%, or +$38.5 million, compared to $235.3 million in 2021. We well over-
exceeded our stated five-year average revenue growth rate target of +5% to +10% per year. Our commercial team’s
efforts really shone through, not only growing expansion revenue with our existing trusted relationships, but also
earning a record number of new logos.
Despite 2022 representing the most challenging supply chain environment in recent history, we achieved record
results, not only in revenue growth, but also in gross profit, gross margin, and other profitability metrics. Finishing
with a 32.2% gross profit margin in the fourth quarter, we achieved a 30.8% gross margin for the full fiscal year,
generating $84.2 million in gross profit in 2022, up +21.1% or +$14.7 million from 2021. For those of you listening to
my quarterly videos, you’ve heard me say if gross profit is growing faster than revenue, you know we are doing
something right.
SG&A expenses for the year were 20.9% of revenues, much improved from 23.8% of revenues in 2021, and within
reach of our long-term target of 18% - 20% of revenue.
Clearly, the operational efficiency initiatives we have implemented are paying off – we also finished the year with zero
restructuring expenses, the first such achievement in many years.
As a result, we saw improvements in EBITDA ($36.4 million in 2022, 13.3% of revenues, up +45.3% or +$11.3 million
year over year), Adjusted EBITDA ($38.3 million, 14.0% of revenues, up +14.9% or +$5.0 million, Net Income ($14.0
million, 5.1% of revenues, up +792.4% or +$12.4 million), and earnings per share ($0.32 per share basic, $0.30 per
share diluted, up +$0.28 and +$0.27, respectively). Notably, our five-year plan has a target adjusted EBITDA as a
percent of revenue in the range of 18% - 25%, so we are also on track for that objective.
We also continued with our commitment to pay down debt. Total debt was down -26.2% year over year, and net debt
(after deducting cash and equivalents) was down -36.0%.
Higher revenue, along with effective management of headcount, resulted in productivity per associate of $300
thousand, up a full +18% compared to year end 2021.
We are happy with our progress on employee engagement, client engagement and ESG. We completed our third
employee engagement survey in the past year, and our Gallup scores for “mean engagement levels” are up 8%, while
our overall percentile ranking grew 18 points. We completed our second “Voice of the Customer” survey, and our
Apex Score measuring overall client engagement was up 14% from a year ago. With regards to ESG, one our
proudest accomplishments is in sustainability – we have now reforested over 700,000 trees in connection with our
PrintReleaf initiative, offsetting one hundred percent of our clients’ paper usage.
Fiscal 2022 was a pivotal year for our DCM Digital Team, and has positioned us for accelerated digital penetration as
we invested in our workflow platforms, continued to align our DCM Flex platform with our clients’ needs, advanced our
digital asset management solutioning, and launched PRSNL, our personalized video platform.
We are particularly excited about the planned acquisition of RRD Canada. We are confident that RRD Canada will be
an excellent strategic fit with our business and that the acquisition will enable us to better serve our customers by
adding new capabilities to our existing offerings and accelerating our speed to market for new innovations.
Importantly, we believe that combining DCM and RRD Canada will better position our business for sustainable and
long-term success serving customers across North America.
We believe the transaction also represents a compelling strategic opportunity for shareholders, as we expect the
combined company to benefit from accelerated sales growth, reduced costs, enhanced financial performance, further
operational efficiencies, and ultimately value creation.
I would like to thank the entire DCM team for a strong finish to 2022, and a special thanks to the team’s continued,
relentless focus on building both a better and a bigger business. Results like these only come when everyone is
moving forward together.
And again, I would also like to thank our clients for continuing to trust DCM with their complex communication and
workflow needs.
We look forward to reporting on quarter one and continuing our positive momentum through fiscal 2023.
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For a full description of our financial results for fiscal 2022, please refer to our audited consolidated financial
statements for the year ended December 31, 2022 and related management’s discussion and analysis (“MD&A”),
copies of which are available at www.sedar.com. Certain statements in this letter 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 DCM, or industry results, to be materially different from any
future results, performance, objectives or achievements expressed or implied by such forward-looking statements.
See “Forward-Looking Statements" in our MD&A.
Yours truly,
(Signed) "Richard Kellam"
Richard C. Kellam
President & CEO
DATA Communications Management Corp.
March 2023
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DATA Communications Management Corp.
Management’s discussion and analysis of financial condition and results of operations
The following management’s discussion and analysis (“MD&A”) is intended to assist readers in understanding the
business environment, strategies, performance and risk factors of DATA Communications Management Corp. (TSX:
DCM; OTCQX: DCMDF) and its subsidiary (referred to herein as “DCM” or the “Company”) for the years ended
December 31, 2022 and 2021. This MD&A should be read in conjunction with the audited consolidated financial
statements and accompanying notes of DCM for the years ended December 31, 2022 and 2021. Additional
information about the Company, including its most recently filed audited consolidated financial statements, Annual
Information Form and Management Information Circular may also be obtained on SEDAR (www.sedar.com). Unless
otherwise indicated, all amounts are expressed in Canadian dollars.
The Company's Board of Directors, on the recommendation of its Audit Committee, approved the contents of this
MD&A on March 21, 2023. This MD&A reflects information as of March 21, 2023.
Basis of presentation
DCM prepares its consolidated financial statements in accordance with International Financial Reporting Standards
as issued by the International Accounting Standards Board (“IFRS"). The accounting policies applied in these
consolidated financial statements are based on IFRS effective for the year ending December 31, 2022, as issued and
outstanding as of March 21, 2023 the date the Board of Directors ("Board") approved these financial statements.
Forward-looking statements
Certain statements in this MD&A 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 DCM,
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 MD&A, 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 DCM’s current views regarding future events and
operating performance, are based on information currently available to DCM, and speak only as of the date of this
MD&A. 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 DCM 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 DCM made or took into account in the preparation of these forward-looking statements
include: there is limited growth in the traditional printing business, which may impact our ability to grow our sales or
even maintain historical levels of sales of printed business communications documents; increases in the cost of, and
supply constraints related to, paper, ink and other raw material inputs used by DCM, as well as increases in freight
costs, may adversely impact the availability of raw materials and our production, revenues and profitability; our ability
to continue as a going concern is dependent upon management’s ability to meet forecast revenue and profitability
targets for at least the next twelve months in order to comply with our financial covenants under its credit facilities or
to obtain financial covenant waivers from our lenders if necessary; we may not be successful in obtaining capital to
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fund our business plans on satisfactory terms (or at all), including, without, limitation, with respect to investments in
digital innovation (such as the development and successful marketing and sale of new digital capabilities), capital
expenditures, and potential acquisitions; all of our outstanding indebtedness under our bank credit facility is subject to
floating interest rates, and therefore is subject to fluctuations in interest rates; our credit agreements governing our
senior indebtedness contain numerous restrictive covenants that limit us with respect to certain business matters,
including, without limitation, our ability to incur additional indebtedness, re-pay certain indebtedness, pay dividends,
make investments, sell or otherwise dispose of assets and merge or consolidate with another entity; we may not be
able to successfully implement our digital growth strategy on a timely basis or at all; competition from competitors
supplying similar products and services, some of whom have greater economic resources than us and are well-
established suppliers; and our operating results are sensitive to economic conditions, which can have a significant
impact on us, and uncertain economic conditions may have a material adverse effect on our business, results of
operations and financial condition, including, without limitation, our ability to realize the benefits expected from
restructuring and business reorganization initiatives, reducing costs, and reducing and paying our long-term debt; the
ability of DCM to obtain the applicable regulatory approvals of the acquisition; the ability of the combined company to
realize anticipated benefits from the combination of DCM and RRD Canada; the ability of DCM to complete the
proposed sales and leasebacks of certain properties'; and our success in integrating RRD Canada.
Additional factors are discussed elsewhere in this MD&A under the headings "Liquidity and capital resources" and
“Risks and Uncertainties” and in DCM’s publicly available disclosure documents, as filed by DCM 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 MD&A
as intended, planned, anticipated, believed, estimated or expected. Unless required by applicable securities law,
DCM does not intend and does not assume any obligation to update these forward-looking statements.
Non-IFRS measures
This MD&A includes certain non-IFRS measures and ratios as supplementary information. Except as otherwise
noted, when used in this MD&A, EBITDA means earnings before interest and finance costs, taxes, depreciation and
amortization and Adjusted EBITDA means EBITDA adjusted for restructuring expenses, and acquisition costs.
Adjusted net income (loss) means net income (loss) adjusted for restructuring expenses, acquisition costs, and the
tax effects of those items. Adjusted net income (loss) per share (basic and diluted) is calculated by dividing Adjusted
net income (loss) for the period by the weighted average number of common shares of DCM (basic and diluted)
outstanding during the period. Adjusted EBITDA as a percentage of revenues means Adjusted EBITDA divided by
revenues and Adjusted net income (loss) as a percentage of revenues means adjusted net income (loss) divided by
revenues, in each case for the same period. In addition to net income (loss), DCM uses non-IFRS measures and
ratios, including Adjusted net income (loss), Adjusted net income (loss) per share, Adjusted net income (loss) as a
percentage of revenues, EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of revenues to provide
investors with supplemental measures of DCM’s operating performance and thus highlight trends in its core business
that may not otherwise be apparent when relying solely on IFRS financial measures. DCM also believes that
securities analysts, investors, rating agencies and other interested parties frequently use non-IFRS measures in the
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evaluation of issuers. DCM’s management also uses non-IFRS measures in order to facilitate operating performance
comparisons from period to period, prepare annual operating budgets and assess its ability to meet future debt
service, capital expenditure and working capital requirements. Adjusted net income (loss), 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, 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, EBITDA and Adjusted
EBITDA should not be construed as alternatives to net income (loss) determined in accordance with IFRS as an
indicator of DCM’s performance. For a reconciliation of net income (loss) to EBITDA and a reconciliation of net
income (loss) to Adjusted EBITDA, see Table 3 below. For a reconciliation of net income (loss) to Adjusted net
income (loss) and a presentation of Adjusted net income (loss) per share, see Table 4 below.
Business of DCM
OVERVIEW
DCM is a marketing and business communications partner that helps companies simplify the complex ways they
communicate and operate, so they can accomplish more with fewer steps and less effort. For over 60 years, DCM
has been serving major brands in vertical markets including financial services, retail, healthcare, energy, other
regulated industries, and the public sector. We integrate seamlessly into our clients’ businesses thanks to our deep
understanding of their needs, transformative tech-enabled solutions, and end-to-end service offering. Whether we’re
running technology platforms, sending marketing messages, or managing print workflows, our goal is to make
everything surprisingly simple.
Customer agreements and terms typically include provisions consistent with industry practice, which generally allow
DCM to pass along increases in the cost of paper and other raw materials used to manufacture products.
DCM has approximately 910 employees in Canada and the United States and had revenues of $273.8 million in
2022. Website: www.datacm.com.
RECENT DEVELOPMENTS
On February 22, 2023, DCM announced that it has entered into a share purchase agreement ("the Purchase
Agreement") to acquire the Canadian operations of R.R. Donnelley & Sons (“RRD Canada”) for a total cash
purchase price of CDN $123 million (subject to working capital and other customary post-closing adjustments).
“This transaction brings together two companies with complementary operating models, best-in-class products and
strong customer relationships across a broad range of industries,” said Richard Kellam, President & Chief Executive
Officer of DCM. “RRD Canada will be an excellent strategic fit with our business and will enable us to better serve our
customers by adding new capabilities to our existing offerings and accelerating our speed to market for new
innovations.”
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BENEFITS OF THE TRANSACTION
Combines two companies with complementary operating models, best-in-class products, and strong
customer relationships: The combined company will have a larger presence in Canada from day 1 with more than
$500 million in annual sales, an expanded customer base, enhanced product portfolio, and stronger execution
capabilities to deliver greater value and innovation to customers. DCM expects the transaction will deliver a long-
term, sustainable business serving Canadian and U.S. customers.
Leverages DCM’s digital-first technology capabilities: DCM expects the combined company will be well
positioned to meet the increasingly complex marketing and communications needs of customers by leveraging DCM’s
tech-enabled workflow and digital asset management offerings in addition to both companies’ established expertise in
conventional print solutions.
Creates meaningful benefits for customers: DCM expects the combination will enable DCM to accelerate its go-to-
market strategy by expanding the services and solutions it offers to its full customer base and leveraging joint
capabilities to accelerate product development and innovation, all while delivering superior customer support.
Delivers attractive financial benefits: DCM believes the transaction is a compelling strategic opportunity for the
combined company to accelerate sales growth, reduce costs, enhance financial performance, drive greater
operational efficiency, and position DCM for long-term success and value creation.
REVENUE RECOGNITION POLICY
DCM recognizes revenue when control of the products or services it provides to its customers has been transferred.
The following is a description of principal activities from which DCM generates its revenue, along with the
corresponding revenue recognition accounting policies.
PRODUCT SALES
DCM manufactures customized products based on specifications pre-approved by its customers. At its customers'
request, DCM will also purchase product from third-party vendors and resell that to its customers (including
technology enabled hardware solutions - see (e) below) For products that DCM purchases and resells to its
customers, DCM is typically a principal in these arrangements as it is responsible for making key decisions over the
purchasing of product and has the economic risks and rewards that are customary with control. Accordingly, third
party product revenue is typically presented on a gross basis in revenue with the corresponding product purchase
cost and associated costs recognized in costs of revenue. DCM recognizes revenue when control over the product
transfers to the customer, which is effectively transferred upon the completion of production or when resale product is
purchased from a third party vendor and inducted into DCM's warehouses or shipped directly to customers from third
party vendors due to the custom nature of the product, as it does not have an alternative use to DCM, such that DCM
is entitled to payment once the quantity of product pursuant to an individual purchase order is produced or purchased
from a third-party vendor and inducted into its warehouses. Given manufactured products are customized or
purchased specifically at the customer’s request, product returns are insignificant.
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In some instances, DCM's customers obtain the product directly from DCM following the completion of production or
directly from third-party vendors. In other instances, DCM’s contracts involve the provision of warehousing and
shipment services, in addition to manufacturing or purchasing of third-party products. Based on DCM's contractual
arrangements with its customers related to product, certain of DCM's contracts with customers include the provision
of warehousing, freight, marketing and other services, in addition to manufacturing or purchase from third-parties of
customized products based on specifications pre-approved by its customers. For bundled pricing arrangements, DCM
allocates the transaction price to each performance obligation based on their relative stand alone selling prices.
Management applied judgment and assumptions in determining the stand-alone selling prices in allocating revenue
between the various performance obligations based on non-bundled pricing arrangements and comparable market
data, where applicable. DCM stores customized or purchased product at the request of the customer; the product is
identifiable as the customer’s product; the product is ready for transfer to the customer upon the customer’s request;
and DCM cannot re-direct the product nor use the product to fulfill another customer’s product order under the
contract. DCM recognizes product revenues when control has transferred over the product upon product
manufacture by DCM or upon receipt of third-party product into DCM's warehouses. Based on the contractual terms
with its customers, DCM either issues an invoice when product that is manufactured by DCM or purchased from third-
party vendors and is inducted into DCM's warehouse, or alternatively the invoice is issued for some customers when
product is dispatched from, its warehouses. In instances where DCM issues an invoice on dispatch of product from its
warehouses, rather than at the date of transfer of control, DCM is still entitled to payment for the purchased or
manufactured product. Accordingly, revenue is recognized for the product manufactured by DCM or purchased from
third parties and a corresponding balance for “unbilled receivables” are recognized within trade receivables in the
consolidated statement of financial position. Unbilled receivables are transferred to accounts receivables when the
invoices are issued to the customers. Deferred revenue represents amounts that have been invoiced to the customer
but not yet recognized as revenue, including advance payments and billings in excess of revenue. Deferred revenue
is recognized as revenue when DCM completes production of product or upon receipt of third-party product into its
warehouses.
WAREHOUSING SERVICES
DCM provides custodial services to store customer product in its warehouse over a specified agreed upon period of
time. For non-bundled pricing arrangements, warehousing revenues are recognized over the period that warehousing
services are provided to the customer. For bundled pricing arrangements, DCM allocates a portion of the initial
transaction price for warehousing services and recognizes revenue on a straight-line basis over the period of the
warehousing as it best represents the pattern of performance. Amounts are typically invoiced as warehousing
services are performed in accordance with agreed upon contractual terms at periodic intervals. When DCM receives
advance payments or issues billings in excess of revenue, these are recognized as deferred revenue in the statement
of financial position. Deferred revenue is recognized as revenue when or as DCM provides custodial services over
the agreed upon warehouse term.
FREIGHT SERVICES
DCM has identified it has a distinct performance obligation for shipment of product for certain contracts where it has
an obligation to arrange shipment services where control of the product has been transferred to the customer prior to
shipment. DCM frequently contracts with third parties to deliver product. DCM is typically a principal for such
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shipment services as it is responsible for making key decisions over the shipment arrangements and has the
economic risks and rewards associated with such control. As a principal DCM recognizes shipment revenues when
performance of the shipping service has occurred as products are shipped.
OTHER SERVICES
This includes marketing services and other ancillary services such as fees related to financing charges associated
with customers where DCM stores customer product in the warehouse over a period of time and invoices the
customer when the product is dispatched from DCM's warehouse. Revenue from marketing services is recognized
over time as the services are performed. Revenue for other ancillary services is recognized upon completion of the
performance obligations to its customers. Financing income is recognized as DCM provides custodial services to its
customers over the agreed upon warehouse term.
TECHNOLOGY-ENABLED HARDWARE SOLUTIONS
DCM procure certain products and services from third party providers to ensure that our clients’ complete business
and marketing communications needs are met while providing comprehensive vendor management strategies.
Technology enabled hardware solutions include scanners, printers, tablets, and other technology applications, often
with barcoding and RFID functionality, and combine with our print consumables, creating an integrated ecosystem.
Tech-enabled hardware solutions represent a distinct performance obligation (from our print consumables) and
revenue is recognized when the product is shipped from the vendor, or inducted into DCM warehouse.
TECHNOLOGY-ENABLED SUBSCRIPTION SERVICES AND FEES
DCM's tech-enabled subscription services and fees include the provision of marketing technology workflow
applications and digital asset management, or DAM, software subscription fees, managed technology services,
program management services, professional services fees, and implementation and development fees. Typically,
these services and fees are contracted on either a project basis in the case of professional services, implementation,
and development services fees, or for periods of three to five-year terms, with one to two-year renewal options, in the
case of software subscription fees and managed technology services. Revenue is measured based on the
consideration DCM expects to be entitled to in exchange for providing services as they are delivered, or rateably over
the term of the contract, and represent a distinct performance obligation.
COST OF REVENUES AND OTHER EXPENSES
DCM’s cost of revenues primarily consists of raw materials, manufacturing salaries and benefits, occupancy costs,
depreciation of owned equipment, and depreciation of the right-of-use asset ("ROU Asset") for property leases and
equipment leases. DCM’s raw material costs consist primarily of paper, carbon and ink. Manufacturing salaries and
benefits costs primarily consist of employee salaries and health benefits at DCM’s printing and warehousing facilities.
Occupancy costs consist primarily of depreciation of the ROU Asset for property leases, and costs related to utilities,
insurance and building maintenance. DCM’s other expenses consist of selling, depreciation and amortization, and
general and administration expenses. Selling expenses consist primarily of employee salaries, health benefits and
commissions, and include related costs for travel, corporate communications, trade shows, and marketing programs.
Depreciation and amortization represent the allocation to income of the cost of property, plant and equipment, the
ROU Asset, and intangible assets over their estimated useful lives. General and administration expenses consist
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primarily of employee salaries, health benefits, and other personnel related expenses for executive, financial and
administrative personnel, as well as depreciation of the ROU Asset for property leases, telecommunications, pension
plan expenses and professional service fees.
DCM has incurred restructuring expenses in 2021 which primarily consisted of severance costs associated with
headcount reductions and costs related to the closure of certain facilities.
Selected Consolidated Financial Information
The following tables set out summary consolidated financial information and supplemental information for the periods
indicated. The summary annual financial information for each of Fiscal 2022 and Fiscal 2021 has been derived from
consolidated financial statements, prepared in accordance with IFRS. The unaudited financial information presented
has been prepared on a basis consistent with our audited consolidated financial statements. In the opinion of
management, such unaudited financial data reflects all adjustments, consisting of normal and non-recurring
adjustments, necessary for a fair presentation of the results for those periods.
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TABLE 1
The following table sets out selected historical consolidated financial information for the periods noted.
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except share and per share
amounts, unaudited)
January 1 to
December 31, 2022
January 1 to December
31, 2021
$
273,804 $
189,580
84,224
235,331
165,796
69,535
55,957
9,691
—
65,648
3,887
5,839
473
941
7,253
1,452
4,558
2,644
2,238
(1,159)
1,079
1,565
0.04
0.03
57,150
—
1,870
59,020
25,204
4,965
—
344
5,309
—
—
19,895
5,456
473
5,929
13,966 $
0.32 $
0.30 $
$
$
$
$
$
$
$
$
44,062,831
43,993,494
46,572,066
46,136,507
As at December 31,
2022
As at December 31,
2021
82,057 $
69,479 $
149,481 $
57,155 $
22,847 $
68,041
62,845
140,084
69,198
8,041
Revenues
Cost of revenues
Gross profit
Selling, general and administrative expenses
Restructuring expenses
Acquisition costs
Income before finance costs, other income, and income taxes
Finance costs
Interest expense, net
Debt modification losses and prepayment fees
Amortization of transaction costs
Other Income
Other income
Government grant income
Income before income taxes
Income tax expense
Current
Deferred
Net income for the year
Basic earnings per share
Diluted earnings per share
Weighted average number of common shares outstanding,
basic
Weighted average number of common shares outstanding,
diluted
As at December 31, 2022 and 2021
(in thousands of Canadian dollars, unaudited)
Current assets
Current liabilities
Total assets
Total non-current liabilities
Shareholders’ equity
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TABLE 2
The following table sets out selected historical consolidated financial information for the periods noted.
See the “Non-IFRS Measures” section above for more details and Tables 3 and 4 below for
reconciliations of net income to Adjusted EBITDA and net income to Adjusted net income.
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentage
amounts, unaudited)
January 1 to December
31, 2022
January 1 to December
31, 2021
Revenues
Gross profit
Gross profit, as a percentage of revenues
Selling, general and administrative expenses
As a percentage of revenues
Adjusted EBITDA (see Table 3)
As a percentage of revenues
Net income for the year
Adjusted net income (see Table 4)
As a percentage of revenues
$
$
$
$
$
$
273,804
84,224
$
$
235,331
69,535
30.8 %
29.5 %
57,150
$
20.9 %
38,254
$
14.0 %
13,966
15,363
5.6 %
$
$
55,957
23.8 %
33,286
14.1 %
1,565
7,684
3.3 %
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TABLE 3
The following table provides reconciliations of net income to EBITDA and of net income to Adjusted
EBITDA for the periods noted. See “Non-IFRS Measures” section above for more details.
EBITDA and Adjusted EBITDA reconciliation
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, unaudited)
January 1 to December
31, 2022
January 1 to December
31, 2021
Net income for the year
Interest expense, net
Debt modification losses and prepayment fees
Amortization of transaction costs
Current income tax expense
Deferred income tax expense (recovery)
Depreciation of property, plant and equipment
Amortization of intangible assets
Depreciation of the ROU Asset
EBITDA
Acquisition costs
Restructuring expenses
Other income
Adjusted EBITDA
$
13,966 $
4,965
—
344
5,456
473
2,965
1,606
6,609
36,384 $
1,870
—
—
38,254 $
$
$
1,565
5,839
473
941
2,238
(1,159)
3,133
3,589
8,428
25,047
—
9,691
(1,452)
33,286
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TABLE 4
The following table provides reconciliations of net income to Adjusted net income and a presentation of
Adjusted net income per share for the periods noted. See “Non-IFRS Measures” section above for
more details.
Adjusted net income reconciliation
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except share and per share
amounts, unaudited)
January 1 to
December 31, 2022
January 1 to December
31, 2021
Net income for the year
Acquisition costs
Restructuring expenses
Other income
Tax effect of the above adjustments
Adjusted net income for the year
Adjusted net income per share, basic
Adjusted net income per share, diluted
Weighted average number of common shares
outstanding, basic
Weighted average number of common shares
outstanding, diluted
Number of common shares outstanding, basic
Number of common shares outstanding, diluted
$
$
$
$
13,966 $
1,870
—
—
(473)
15,363 $
0.35 $
0.33 $
1,565
—
9,691
(1,452)
(2,120)
7,684
0.17
0.17
44,062,831
43,993,494
46,572,066
44,062,831
46,572,066
46,136,507
44,062,831
46,205,844
Results of operations
REVENUES
For the year ended December 31, 2022, DCM recorded revenues of $273.8 million, an increase of $38.5 million or
16.3% compared with the same period in 2021. This year over year revenue growth is primarily driven by a
combination of expansion revenue of existing clients, delay in fulfillment of orders into the current year due to the
COVID-19 pandemic, new business wins, substantially related to tech-enabled solutions, and passing paper price
increases driven by inflation and supply chain sourcing challenges to our customers.
COST OF REVENUES AND GROSS PROFIT
For the year ended December 31, 2022, DCM recorded cost of revenues of $189.6 million, an increase of $23.8
million or 14.3% from $165.8 million for the same period in 2021.
Gross profit for the year ended December 31, 2022 was $84.2 million, an increase of $14.7 million or 21.1% from
$69.5 million for the same period in 2021. Gross profit as a percentage of revenues increased to 30.8% for the year
ended December 31, 2022, compared to 29.5% for the same period in 2021. Gross profit as a percentage of
revenues for the year ended December 31, 2022 increased from the prior period due to higher levels of client
demand, price increases, favourable product mix, cost synergies realized from the consolidation of our Brampton and
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DATA Communications Management Corp.
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Mississauga facilities at the end of 2021 and consolidation of our Calgary and Edmonton in June 2021. Gross
margins held strong despite some of the supply chain challenges and inflationary raw material price increases.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (“SG&A”) expenses for the year ended December 31, 2022 were $57.2 million, or
20.9% of total revenues, an increase of $1.2 million or 2.1%, from $56.0 million, or 23.8% of total revenues, for the
same period in 2021.
SG&A expenses for the year ended December 31, 2022 increased from the prior year, however SG&A as a
percentage of revenues declined. The increase in SG&A (in dollars) is related to higher sales commissions costs
commensurate with the increase in revenues, an increase in the accrual under the short-term incentive plan ("STIP")
and an increase in research & development costs related to our new tech-enabled products. These costs were offset
by a decline in general and administrative expenses as we realized the full benefits from cost savings initiatives
implemented in the prior year and a reduction in amortization of intangible assets as certain technology was fully
amortized as of December 31, 2021.
RESTRUCTURING EXPENSES
Cost reductions and enhancement of operating efficiencies have been an area of focus for DCM in order to improve
margins and better align costs with the declining revenues experienced by the Company in its traditional business, a
trend being faced by the traditional printing industry for several years now. Notably, we did not incur any restructuring
expenses for the year ended December 31, 2022; nor any other “adjustments” or one-time costs, other than one-time
add backs of $1.9 million for acquisition costs related to the announced RRD Canada acquisition.
Restructuring costs of $9.7 million for the year ended December 31, 2021 related primarily to the departure of senior
executive team members (reorganization initiative to a broader, more horizontal organizational structure with fewer
layers of organization), and included other headcount reductions to direct and indirect labour from various facilities
across DCM as cost savings initiatives to improve gross margin and SG&A including the permanent termination of a
number of employees who had been on temporary lay-off due to COVID-19. Restructuring costs also included the
consolidation costs of the Brampton and Mississauga facilities at the end of 2021, and consolidation of our Calgary
and Edmonton facilities in June 2021.
DCM will continue to evaluate its operating costs for further efficiencies as part of its commitment to improving its
gross margins and lowering its selling, general and administration expenses.
ACQUISITION COSTS
DCM incurred $1.9 million for acquisition costs related to the announced RRD Canada acquisition which is expected
to close in Q2 2023 (see "Recent Developments").
OTHER INCOME
Other income included government grant income received from the CEWS and CERS. For the year ended December
31, 2022, DCM did not qualify for government grant income, compared to $4.6 million in 2021. Other income also
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DATA Communications Management Corp.
included a one-time gain of $1.5 million for the year ended December 31, 2021, of which $1.2 million related to the
termination of an option agreement with an arms' length third party and a former subsidiary, and $0.3 million related to
settlement of an outstanding litigation.
EBITDA AND ADJUSTED EBITDA
For the year ended December 31, 2022, EBITDA was $36.4 million or 13.3% of revenues compared to $25.0 million
or 14.0% of revenues in the same period in 2021. For the year ended December 31, 2022, Adjusted EBITDA was
$38.3 million or 14.0% of revenues after adjusting EBITDA for $1.9 million in acquisition costs compared to $33.3
million or 14.1% of revenues after adjusting EBITDA for $9.7 million of restructuring expenses and $1.5 million of
other income for the same period in 2021. Furthermore in the prior year, we received government grant income of
$4.6 million. Excluding government grant income for the year ended December 31, 2021, Adjusted EBITDA would be
$28.7 million; on this basis, Adjusted EBITDA for the year ended December 31, 2022 was $9.6 million higher than the
prior year.
The increase in EBITDA and Adjusted EBITDA for the year ended December 31, 2022 over the prior year was due to
the increase in overall revenues and gross margin (in dollars). The increase was mitigated by an increase in SG&A
due to higher sales commission costs and research and development expenses.
FINANCE COSTS
Finance costs include interest on debt outstanding under DCM’s credit facilities, interest accretion expense related to
certain debt obligations discounts / premiums, interest on pension obligations, debt modification losses, amortization
of debt transaction costs and interest expense on lease liabilities under IFRS 16. For the year ended December 31,
2022, DCM incurred $5.3 million of finance costs compared to $7.3 million for the same period in 2021.
Interest expense for the year ended December 31, 2022 decreased due to the repayment of the Crown Facility with
refinancing of the Bank and FPD at lower interest rates in the fourth quarter of 2021, and a one-time expense to
derecognize the Crown Facility, and prepayment fees for early termination in 2021 (no costs recorded in the current
year), resulting in lower interest expense the year ended December 31, 2022. There were also further reductions in
interest expense due to termination/exiting of leases, repayment of all promissory notes throughout 2021, and
monthly repayments on the FPD facilities (thereby reducing the term loan balances). This was offset by an increase in
interest expense on the Bank revolver as prime rate increases were implemented throughout 2022, and the Bank
revolver balance as of December 31, 2022 was higher than the prior year.
INCOME TAXES
DCM reported income before income taxes of $19.9 million and a net income tax expense of $5.9 million for the year
ended December 31, 2022 compared to income before income taxes of $2.6 million and net income tax expense of
$1.1 million for the same period in 2021.
The deferred income tax expense was adjusted for any changes in estimates of future reversals of temporary
differences, including estimated changes in tax loss carryforwards.
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DATA Communications Management Corp.
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NET INCOME
Net income for the year ended December 31, 2022 was $14.0 million compared to a net income of $1.6 million for the
same period in 2021.
The increase in comparable profitability for the year ended December 31, 2022 was primarily due to the increase in
overall revenues and gross margin (in dollars), reduction in restructuring expenses down to nil compared to
$9.7 million in the prior year and a reduction in interest expense largely due to the Crown Facility refinancing
(offsetting any increases in the expense from the prime rate hikes). DCM was able to achieve increased profitability
despite significant supply chain challenges and inflationary raw material price increases experienced in 2022.
ADJUSTED NET INCOME
Adjusted net income for the year ended December 31, 2022 was $15.4 million compared to $7.7 million for the same
period in 2021. For a reconciliation of net income (loss) to Adjusted net income for the periods noted, see Table 4
above.
The increase in comparable profitability for the year ended December 31, 2022 was primarily due to the increase in
overall revenues and gross margin (in dollars) and a reduction in interest expense largely due to the Crown Facility
refinancing (offsetting any increases in the expense from the prime rate hikes).
Liquidity and capital resources
CREDIT AGREEMENTS
BANK FACILITIES
DCM has established a revolving credit facility (as amended, the “Bank Credit Facility”) pursuant to an agreement
("the Bank Credit Agreement") with a Canadian chartered bank (the “Bank”). Under the terms of the Bank Credit
Agreement, the maximum principal amount available under the Bank Credit Facility is $15.0 million and the Bank
Credit Facility matures on November 8, 2024. The Revolving Facility is available to be drawn by way of either Prime
Rate Loans, Base Rate Loans, Canadian Dollar Offered Rate (CDOR Loans), London Interbank Offered Rate (LIBOR
Loans), and/or Letters of Credit. Prime rate loans charge interest at the greater of the Bank's published reference rate
on Canadian Dollar denominated commercial loans and the CDOR rate for a period of 30 days plus 100 basis points
per annum. Currently advances under the Bank Credit Facility may not, at any time, exceed the lesser of $15.0 million
and a fixed percentage of DCM’s aggregate accounts receivable and inventory (less certain amounts). Advances
under the amended Bank Credit Facility are subject to floating interest rates based upon the Canadian prime rate plus
an applicable margin of 0.5% for a rate of 6.95% as at December 31, 2022. On November 8, 2021, DCM established
a term loan ("Bank Term Loan") with the Bank for $10.0 million to in part refinance the Crown Facility. The Bank Term
Loan matures on May 8, 2024 and is subject to a floating interest rate based upon the Canadian prime rate plus an
applicable margin of 3.50% for a rate of 9.95% as at December 31, 2022. DCM has the right to make a prepayment at
any time in respect of any outstanding advances under the Bank Credit Facility without penalty subject to a minimum
repayment of $500. On May 16, 2022 Refinitiv Benchmark Services Limited, the benchmark administrator of the
CDOR announced that the calculation and publication of all tenors of CDOR will permanently cease after June 28,
2024. The Canadian Overnight Repo Rate Average (CORRA) has been nominated as a replacement for CDOR.
When CDOR is phased out we expect the Bank Credit Facility will be amended to remove the CDOR borrowing
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DATA Communications Management Corp.
option and the Prime rate will then be based solely on the Bank's reference rate. The amended facility also includes
an “accordion” feature which can provide of up to $10.0 million of additional capacity under the revolving facility. As at
December 31, 2022, DCM had access to $8.6 million of available credit under the Bank Credit Facility. DCM had cash
and cash equivalents of $4.2 million shown on the consolidated statement of financial position as at December 31,
2022 compared to $0.9 million as at December 31, 2021.
FPD FACILITIES
DCM has four amortizing term loan facilities with interest and principal payable quarterly (the "FPD Credit Facilities"
and, collectively with the Bank Credit Facility, the "Credit Facilities") with Fiera Private Debt Fund III L.P., Fiera Private
Debt Fund IV L.P., Fiera Private Debt V L.P., and Fiera Private Debt VI L.P., all of which are funds managed by Fiera
Private Debt Fund GP Inc. ("FPD").
CROWN FACILITY
DCM had a non-revolving term loan facility with Crown Capital Partner Funding, LP, a fund managed by Crown
Capital LP Partner Funding Inc. The total advances under this facility were $19.0 million. Interest of $2.5 million had
been deferred and capitalized to the outstanding principal obligation, increasing the total advances to $21.5 million
prior to the refinancing of this debt. These advances were repayable on maturity on May 7, 2023 and bore interest at
12% per annum, payable quarterly. DCM's obligations under the Crown Facility were subordinated to its other senior
credit facilities and secured by a conventional security on all of the assets of DCM and its subsidiaries.
A total of 1,510,000 warrants were issued to Crown in connection with these loans which entitle Crown to acquire one
DCM common share per warrant at an exercise price of $0.26. The warrants expire on May 7, 2023.
The Crown Facility was prepayable in full at any time, subject to prepayment fees of: (a) 2% on the principal loan
outstanding if the prepayment option was exercised prior to May 2022 or (b) 1% on the principal loan outstanding if
the prepayment option was exercised thereafter.
During the fourth quarter of 2021, the Crown Facility was prepaid and refinanced through amended and new credit
facilities from the Bank and FPD (see amendments to credit facilities). A prepayment fee of $0.4 million was incurred
which is included within finance costs. The carrying value of the Crown Facility was nil as of December 31, 2022 and
2021.
AMENDMENTS TO CREDIT FACILITIES
On January 22, 2021, DCM entered into a ninth amendment to its Bank Credit Facility. The applicable margin payable
on DCM's borrowings under the Bank Credit Facility was reduced from 1.35% to 0.60% for an interest rate of 3.05%
taking into account then current floating reference rates and the applicable margin payable by DCM. The Minimum
Cash Flow Requirement covenant (as defined in the Sixth Amending Agreement) was also terminated.
On November 8, 2021, DCM entered into an amended and restated credit facility (the “Amended Bank Facility”) with
the Bank. The Amended Bank Facility includes a revolving credit facility of up to $15.0 million, a term loan of $10.0
million and an “accordion” feature which can provide of up to $10.0 million of additional capacity under the revolving
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DATA Communications Management Corp.
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facility. The term loan will amortize in equal monthly payments over 30 months. The maturity date of the Amended
Bank Facility has been extended from January 31, 2023 to November 8, 2024. The revolving facility is available to
finance the working capital needs of the Company. Advances under the Amended Bank Facility are subject to floating
interest rates based upon the Canadian prime rate plus an applicable margin of 0.50% and 3.50% for the revolving
and term components, respectively. In connection with this amendment, DCM recognized a loss on modification of
$0.3 million, which is included in finance costs in the consolidated statement of operations. For the year-ended
December 31, 2021, DCM capitalized transaction costs of $0.2 million.
On December 17, 2021, DCM also entered into an agreement with FPD VI, by its general partner, FPD, pursuant to
which FPD provided an $11.0 million term facility, with a term of 60 months from closing. 71.5% of the FPD VI term
loan is being repaid in equal monthly principal payments over 59 months, with the remaining 28.5% being repayable
at maturity in a bullet payment. A fixed interest rate of 5.95% per annum is payable on the FPD VI term loan. For the
year-ended December 31, 2021, DCM capitalized transaction costs of $0.3 million. Concurrently with the entering into
of the FPD VI term loan, the terms of the loans with FPD III, FPD IV and FPD V, were amended such that the terms of
the agreements are the same, other than in respect of interest rates, maturity dates and amortization.
Collectively, the proceeds from the new term loans provided by the Bank and FPD, and the drawings on the revolving
facility, were used to repay the $21.5 million Crown Facility.
COVENANT REQUIREMENTS
Each of the Bank Credit Agreement and the FPD Credit Agreements contains customary representations and
warranties, certain financial covenant requirements, as well as certain restrictive covenants which limit the discretion
of the Board and management with respect to certain business matters including the declaration or payment of
dividends on the common shares of DCM without the consent of the Bank, FPD III, FPD IV, FPD V and FPD VI as
applicable. The Company’s current financial covenant requirements include a working capital current ratio, total
funded debt to EBITDA ratio and a fixed charge coverage ratio test as well as limits on our annual capital
expenditures and total funded debt levels. As of December 31, 2022, DCM was in compliance with all of its financial
covenants.
INTER-CREDITOR AGREEMENT
DCM's obligations under its Credit Facilities are secured by conventional security charging all of the property and
assets of DCM and its subsidiaries. DCM entered into an inter-creditor agreement between the Bank, FPD III, FPD IV,
FPD V, and FPD VI, respectively, which, among other things, establishes the rights and priorities of the respective
liens of the Bank, FPD III, FPD IV, FPD V and FPD VI on the present and after acquired property of DCM and its
subsidiaries.
CASH FLOW FROM OPERATIONS
During the year ended December 31, 2022, cash flows generated by operating activities were $22.7 million compared
to cash flows generated by operating activities of $26.9 million during the same period in 2021. Current period cash
flow from operations, before adjusting for changes in working capital, generated a total of $26.3 million compared with
$19.8 million for the same period last year. Current period cash flows from operations before adjusting for changes in
working capital were higher than the previous year due to higher levels of profitability.
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DATA Communications Management Corp.
Changes in working capital during the year ended December 31, 2022 used $3.6 million in cash compared with $7.1
million of cash generated in the prior year. The outflow during the year ended December 31, 2022 was a direct result
of higher revenues in the year, thereby increasing the trade receivables balance as of December 31, 2022 when
compared to December 31, 2021. Furthermore, there was an outflow of $8.1 million from inventories. Due to the
supply chain constraints being experienced and to support higher levels of near-term production revenue, DCM built
up raw materials inventory to ensure sufficient stock is on-hand to meet customer demands in 2023. This lead to a
higher level of debt drawn on the Bank revolver (discussed in financing activities below) and lower relative payments
for the trade and accrued liabilities, resulting in a cash inflow of $6.9 million.
INVESTING ACTIVITIES
For the year ended December 31, 2022, $1.5 million in cash flows were used for investing activities compared with
$3.2 million during the same period in 2021, of which $1.4 million related to purchase of property, plant and
equipment. The low level of capital expenditures for property, plant and equipment is consistent with DCM's initiative
to maintain modest levels of capital spend, and finance new digital equipment through leases.
FINANCING ACTIVITIES
For the year ended December 31, 2022, cash flow used in financing activities was $17.9 million compared with $23.4
million used during the same period in 2021.
A total of $12.6 million was repaid in the year ended December 31, 2022 on DCM's credit facilities compared to
repayment of $30.7 million during the same period in 2021, which is consistent with the lower levels of term debt as of
December 31, 2022. During the year ended December 31, 2022, due to the supply chain constraints as discussed in
operating activities above, combined with continued strong levels of revenue, DCM only drew an additional $2.9
million on the Bank revolver compared to $21.0 million in the prior year. Lease payments also declined from $11.2
million to $8.7 million in the current year as a result of lease terminations throughout 2021. Lastly, the restricted cash
balance of $0.5 million was no longer required to be held as part of the terms of the refinancing of debt in the fourth
quarter of 2021.
PENSION FUNDING OBLIGATIONS
DCM maintains a defined benefit and defined contribution pension plan (the “DATA Communications Management
Pension Plan”) for some of its employees.
During the year ended December 31, 2022, DCM engaged actuaries to complete an updated actuarial valuation of
the defined benefit provision of the DATA Communications Management Pension Plan, which confirmed that, as at
January 1, 2021,the solvency position of the defined benefit provision of the DATA Communications Management
Pension Plan had improved since the previous valuation. Based upon the January 1, 2021 actuarial report, DCM's
annual minimum funding obligation for the defined benefit provision of the DATA Communications Management
Pension Plan for 2023 and 2024 is $0.3 million each year.
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DATA Communications Management Corp.
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DCM makes contributions to the Québec Graphic Communication Pension Plan (the “GCPP”), based on a
percentage of the wages of its unionized employees covered by the respective collective bargaining agreements, all
of whom are employed at DCM facilities located in the Province of Québec.
The GCPP is a negotiated contribution defined benefit multi-employer pension plan which provides retirement
benefits to unionized employees in the printing industry. The GCPP is administered by a joint Board of Trustees
composed of representatives of participating employers and of the unions representing plan members in collective
bargaining. Based upon the terms of those applicable collective agreements, DCM’s estimated annual negotiated
contribution to the GCPP for 2023 is $0.4 million.
The GCPP’s most recent funding actuarial report (as at December 31, 2021) disclosed a going concern surplus of
113% and that negotiated contributions are in excess of the current service cost of the plan. On a solvency basis (or
wind up basis) the valuation shows a deficit on a solvency or wind up basis of 10%. No actuarial valuation was
required for the GCPP for the year ended December 31, 2022.
Bill 34 was adopted by Québec in April 2015 to clarify Québec pension legislation for negotiated contribution defined
benefit multi-employer pension plans to, among other things:
•
•
•
limit required employer contributions only to those amounts specified in the applicable collective agreements
negotiated with the relevant unions;
eliminate the employer's obligation to fund deficiencies;
require the Board of Trustees to develop and implement a recovery plan when the negotiated contributions
are not sufficient to fund the plan, including the reduction of accrued benefits of all members.
Outstanding share data
At March 21, 2023 and December 31, 2022, there were 44,062,831 common shares of DCM (“Common Shares”)
outstanding. At December 31, 2021, there were 44,062,831 Common Shares outstanding.
At March 21, 2023 and December 31, 2022, there were options outstanding to purchase up to 4,700,886 Common
Shares. At December 31, 2021, there were options outstanding to purchase up to 3,950,886 Common Shares.
During the year ended December 31, 2022, options to purchase up to 750,000 common shares were awarded to a
member of management. Once vested, the options are exercisable for a period of seven years from the grant date at
an exercise price of $1.30 per share, representing the fair value of the Common Shares on the date of grant. The
750,000 options vest at a rate of 1/3 each year beginning on April 4, 2023.
During the year ended December 31, 2021, options to purchase up to 2,500,000 common shares were awarded to
DCM's new President and CEO. Once vested, the options are exercisable for a period of seven years from the grant
date at an exercise price of $0.69 per share, representing the fair value of the Common Shares on the date of grant.
Of the total options granted, 1,000,000 options vested immediately. The remaining 1,500,000 options vest at a rate of
1/3 each year beginning on March 8, 2022.
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DATA Communications Management Corp.
During the year ended December 31, 2021, options to purchase up to 125,000 common shares were awarded to the
Chief Financial Officer ("CFO"). Once vested, the options are exercisable for a period of seven years from the grant
date at an exercise price of $0.85 per share, representing the fair value of the Common Shares on the date of grant.
All 125,000 options vest at a rate of 1/3 each year beginning on May 14, 2022.
At March 21, 2023 and at December 31, 2022, there were warrants outstanding to purchase up to 1,648,157
Common Shares. At December 31, 2021, there were warrants outstanding to purchase up to 1,863,607 Common
Shares.
On February 3, 2021, DCM issued 67,866 warrants in connection with the Related Party Promissory Notes. Each
warrant entitles the holder to acquire one Common Share at an exercise price of $0.32 for a period of 2.25 years,
commencing on February 3, 2021.
Financial instruments and Risk management
DCM’s financial instruments consist of cash, restricted cash, trade receivables, trade payables and accrued liabilities,
credit facilities, and lease liabilities, as indicated in DCM’s statements of consolidated financial position as at
December 31, 2022 and December 31, 2021, respectively. All of DCM's financial instruments are non-derivative in
nature. DCM does not enter into financial instruments for trading or speculative purposes.
FAIR VALUE
Non-derivative financial instruments are recognized initially at fair value plus, for instruments not at fair value through
profit or loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial
instruments are measured as described below.
The fair value for other non-derivative financial instruments such as cash, trade receivables, trade payables and
accrued liabilities approximates their carrying value because of the short-term maturity of these instruments. The fair
value of restricted cash approximates its carrying value because it is a deposit held with a Canadian chartered bank.
Credit facilities and lease liabilities are initially recognized at the discounted present value of the amounts required to
be paid to derive its fair value and are then measured at amortized costs using the effective interest method, less any
impairment losses.
CREDIT RISK
Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its
contractual obligations. Financial instruments that potentially subjected DCM to credit risk consisted of cash,
restricted cash and trade receivables. The carrying amount of assets included in the consolidated statements of
financial position represents the maximum credit exposure.
DCM grants credit to customers in the normal course of business. DCM typically does not require collateral or other
security from customers; however, credit evaluations are performed prior to the initial granting of credit terms when
warranted and periodically thereafter. Normal credit terms for amounts due from customers call for payment within 0
to 60 days.
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DCM has trade receivables from clients engaged in various industries including financial institutions, insurance,
healthcare, lottery and gaming, retailing, not-for-profit, energy and governmental agencies that are not concentrated
in any specific geographic area. DCM does not believe that any single industry or geographic region represents
significant credit risk. Credit risk concentration with respect to trade receivables is mitigated by DCM’s large client
base.
To measure the ECLs, trade receivables, including unbilled receivables, have been grouped based on similar credit
risk characteristics, past due status and other relevant factors. The expected default rates are calculated based on
management’s estimate as well as historical credit losses. The historical loss rates are adjusted to reflect current and
forward-looking information on economic factors affecting the ability of the customers to settle the trade receivable.
On that basis, the loss allowance as at December 31, 2022 was determined using default rates under the provision
matrix for an amount of $1.6 million (2021 – $1.3 million), of which $1.2 million (2021 – $0.8 million) relates to unbilled
receivables.
The following default rates are used to calculate the ECLs on billed receivables as at December 31, 2022 and
December 31, 2021, respectively:
December 31, 2022 (in thousands of
Canadian dollars, except percentage
amounts)
Default rates
Billed receivables balance
Billed receivables ECL
December 31, 2021 (in thousands of
Canadian dollars, except percentage
amounts)
Default rates
Billed receivables balance
Billed receivables ECL
Total
Current
period
Over 30
days
Over 60
days
Over 90
days
$41,554
$415
0.13%
$26,316
$34
0.13%
$10,369
$13
0.33%
$3,291
$11
22.60%
$1,578
$357
Total
Current
period
Over 30
days
Over 60
days
Over 90
days
$35,643
$533
0.32%
$19,351
$61
0.57%
$10,429
$59
0.65%
$2,863
$19
13.14%
$3,000
$394
The following default rates are used to calculate the ECLs on unbilled receivables as at December 31, 2022 and
December 31, 2021, respectively:
December 31, 2022 (in thousands of Canadian
dollars, except percentage amounts)
Unbilled receivables
Unbilled receivables balance
Unbilled receivables ECL
Total
Less than
30 days
Over 30
days
Over 60
days
Over 90
days
$14,641
$1,150
0.86%
3,840
$33
1.56%
2,765
$43
1.28%
1,327
$17
15.75%
6,709
$1,057
December 31, 2021 (in thousands of Canadian
dollars, except percentage amounts)
Total
Current
period
Over 30
days
Over 60
days
Over 90
days
Default rates
Unbilled receivables balance
Unbilled receivables ECL
$17,207
$750
0.22%
$5,111
$11
0.47%
$2,245
$11
1.07%
$2,138
$23
9.14%
$7,713
$705
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DATA Communications Management Corp.
At the end of each reporting period, management re-assesses the default rates. Default rates are applied to the billed
and unbilled receivable balances to calculate the credit default reserve. Management assesses the adequacy of this
reserve quarterly, taking into account historical experience, current collection trends, the age of receivables and,
when warranted and available, the financial condition of specific counterparties. When collection efforts have been
reasonably exhausted, specific balances are written off. As at December 31, 2022 the Company has $1.6 million
(5%) of its billed receivables that are over 90 days old (2021 - $3.0 million or 8%).
LIQUIDITY RISK
In assessing DCM’s liquidity requirements, DCM takes into account its level of cash, together with currently projected
cash to be provided by operating activities, cash available from its unused credit facilities, cash from investing
activities such as sales of redundant assets, access to the capital markets and anticipated reductions in operating
costs projected to result from existing restructuring activities, as well as its ongoing cash needs for its existing
operations.
Market conditions and DCM's financial condition and capital structure could affect the availability and terms of any
replacement credit facilities or other funding sought by DCM from time to time or upon the maturity of the amended
Bank Credit Facility, and the FPD Credit Facilities, as amended, or other indebtedness of DCM.
The continued ability to comply with financial covenants on the Company's credit facilities for at least the next twelve
months is contingent on management’s ability to meet budgeted revenue, profitability and working capital targets. The
estimate of future cash flows in the Company’s 2023 budget include a number of key assumptions to support the
financial covenant calculations, specifically related to forecast revenues and gross margins (which in turn impact
earnings before interest, income taxes, depreciation and amortization (EBITDA)). Management are satisfied that the
Company’s forecasts and projections, taking account of reasonably possible changes in results and other
uncertainties will not result in any breach of the financial covenants on its credit facilities within the next year.
There can be no assurances that DCM will be successful in meeting its financial covenants for at least the next twelve
months or that future waivers will be provided by the lenders if the covenants are not met.
Liquidity risk is the risk that DCM may encounter difficulties in meeting obligations associated with financial liabilities
as they become due. DCM believes that the currently projected cash flow from operations and cash on hand will be
sufficient to fund its currently projected operating requirements, including expenditures related to its growth strategy,
payments associated with provisions as a result of on-going productivity improvement initiatives, payment of income
tax liabilities, contributions to its pension plans, maintenance or investment in new capital expenditures, and interest
and scheduled repayments of borrowings under its credit facilities. See “Contractual obligations” section below which
contains additional information on the contractual undiscounted cash flows of DCM’s significant financial liabilities and
the future commitments of the Company.
As at December 31, 2022, DCM had access to $8.6 million of available credit under the Bank Credit Facility.
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DATA Communications Management Corp.
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MARKET RISK
INTEREST RATE RISK
Interest rate risk refers to the risk that the value of a financial instrument or cash flows associated with the financial
instrument will fluctuate due to changes in market interest rates. Interest rate risk arises from interest bearing
financial assets and liabilities. DCM’s interest rate risk arises from credit facilities issuances at floating interest rates.
At December 31, 2022, $5.9 million of DCM’s indebtedness outstanding was subject to floating interest rates of
6.95% per annum and $5.9 million of DCM's indebtedness outstanding was subject to floating interest rates of 9.95%.
At December 31, 2022, $6.1 million was subject to a fixed rate of interest of 6.95% per annum and $9,429 was
subject to a fixed interest rate of 5.95% per annum.
CURRENCY RISK
Currency risk is the risk that the fair value of future cash flows arising from a financial instrument will fluctuate
because of changes in foreign currency exchange rates. In the normal course of business, DCM does not have
significant foreign exchange transactions and, accordingly, the amounts and currency risk are not expected to have
adverse material impact on the operations of DCM. Management considers the currency risk to be low and does not
hedge its currency risk and therefore sensitivity analysis is not presented.
Note 22 to the audited consolidated financial statements of DCM for the year ended December 31, 2022 contains
additional information on DCM’s financial instruments.
Contractual obligations
DCM believes it will have sufficient resources from its operating cash flow, existing cash resources and borrowing
under available credit facilities to meet its contractual obligations as they become due. Contractual obligations have
been defined as contractual commitments in existence but not paid for as at December 31, 2022. Short-term
commitments such as month-to-month office leases, which are easily cancelled, are excluded from this definition.
DCM believes that its existing cash resources and projected cash flows from operations will be sufficient to fund its
currently projected operating requirements and that it will continue to remain compliant with its covenants and other
obligations under its credit facilities.
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DATA Communications Management Corp.
TABLE 5
The following table sets out DCM's significant contractual obligations and commitments as of
December 31, 2022.
(in thousands of Canadian dollars, unaudited)
Pension funding contributions (1)
Lease liabilities
Long-term debt (2)
Total
Total
Less than
a year
1 to 3 years
4 years and
greater
4,922 $
$
$ 56,531
$ 31,112
$ 92,565 $
868 $
1,736 $
9,094
14,137
21,245
16,975
24,099 $
39,956 $
2,318
26,192
—
28,510
(1) DCM is required under applicable pension legislation to make monthly, annual and/or one-time cash
contributions to the DATA Communications Management Pension Plan to fund current or future funding
deficiencies which may emerge in the defined benefit provision of the DATA Communications Management
Pension Plan. See “Liquidity and capital resources – Pension funding obligations” above. The table above
includes amounts payable under the SERP. DCM's obligations under the SERP consist of benefits payable as a
single life annuity with a five year guarantee. The duration of these payments is dependent on the length of each
participant's life and, in certain cases, that of their designated beneficiary, and their age in any given year.
(2) Credit facilities as at December 31, 2022 subject to floating interest rates consisting of the Bank Credit Facility,
expiring on November 8, 2024, and the Bank Term Loan, expiring on May 8, 2024. As at December 31, 2022,
the outstanding balances totaled $5.9 million and $5.9 million, respectively, and bore interest at a floating rate of
6.95% and 9.95%, respectively, per annum. The amounts at December 31, 2022 include estimated interest
totaling $0.4 million for 2023, and $0.5 million for 2024. The estimated interest was calculated based on the total
borrowings outstanding at the end of the year and the annual floating interest rate in effect as at December 31,
2022. Credit facilities at December 31, 2022 subject to fixed interest rates consisting of the FPD III Credit
Facility, which expired on October 15, 2022, the FPD IV Credit Facility, expiring on March 10, 2023, the FPD V
Credit Facility expiring on May 15, 2023 and the FPD VI Facility expiring on December 15, 2026. As at
December 31, 2022, the outstanding balances totaled $15.5 million, of which $6.1 million bore interest at a fixed
rate of 6.95% per annum and $9.4 million bore interest at a fixed rate of 5.95% per annum. Monthly blended
principal and interest payments of $0.4 million and of $0.1 million, are due on the FPD IV and FPD V facilities
respectively, and $0.1 million on the FPD VI facility.
Transactions with related parties
During the year ended December 31, 2022, there were regular intercompany activities between DCM and its
subsidiaries during the normal course of business. These transactions and balances are eliminated in the
consolidated financial statements of DCM. Related parties are defined as individuals who can influence the direction
or management of DCM or any of its subsidiaries and therefore, the directors and officers of DCM’s subsidiaries are
considered related parties.
On January 4, 2021, DCM entered into an agreement with PBI, an arms’ length third party and former subsidiary of
DCM, pursuant to which DCM agreed to terminate an option to purchase an equity interest in PBI acquired by DCM in
connection with the prior disposition of PBI. DCM received total gross proceeds of $1.2 million as consideration for
terminating the option.
On June 1, 2022, DCM entered into a sublease agreement with a related party, ending on November 29, 2024 for a
total of $0.1 million annual rent. This sublease agreement was recorded as a reduction to the right-of-use asset.
These transactions are measured at the exchange amount, which represents the amount of consideration established
and agreed to by the related parties.
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Operating results for the fourth quarter of 2022 and 2021
TABLE 6
The following table sets out selected consolidated quarterly financial information for the periods noted.
(in thousands of Canadian dollars, except share and per share
amounts, unaudited)
October 1 to
December 31, 2022
October 1 to December
31, 2021
Revenues
Cost of revenues
Gross profit
Selling, general and administrative expenses
Restructuring expenses
Acquisition costs
$
Income before finance costs, other income and income taxes
Finance costs
Interest expense, net
Debt modification losses
Amortization of transaction costs
Other Income
Government grant income
Income (loss) before income taxes
Income tax expense (recovery)
Current
Deferred
73,045 $
49,491
23,554
14,861
—
1,870
16,731
6,823
1,134
—
87
1,221
—
5,602
1,653
269
1,922
Net income (loss) for the period
$
3,680 $
60,871
43,158
17,713
15,431
2,282
—
17,713
—
1,124
473
503
2,100
55
(2,045)
183
(371)
(188)
(1,857)
(0.04)
(0.04)
0.08
0.08
44,062,831
44,062,831
46,796,407
46,439,445
Basic earnings per share
Diluted earnings per share
Weighted average number of common shares outstanding,
basic
Weighted average number of common shares outstanding,
diluted
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DATA Communications Management Corp.
TABLE 7
The following table provides reconciliations of net income to EBITDA and of net income to Adjusted
EBITDA for the periods noted. See “Non-IFRS Measures” section above for more details.
EBITDA and Adjusted EBITDA reconciliation
(in thousands of Canadian dollars, unaudited)
October 1 to
December 31,
2022
October 1 to
December 31,
2021
Net income (loss) for the period
$
3,680 $
(1,857)
Interest expense, net
Debt modification losses and prepayment fees
Amortization of transaction costs
Current income tax expense
Deferred income tax expense (recovery)
Depreciation of property, plant and equipment
Amortization of intangible assets
Depreciation of the ROU Asset
EBITDA
Acquisition costs
Restructuring expenses
Adjusted EBITDA
1,134
—
87
1,653
269
644
393
1,610
9,470 $
1,870
—
11,340 $
$
$
1,124
473
503
183
(371)
731
2,282
1,920
4,988
—
2,282
7,270
TABLE 8
The following table provides reconciliations of net income (loss) to Adjusted net income (loss). See
“Non-IFRS Measures” section above for more details.
Adjusted net income (loss) reconciliation
(in thousands of Canadian dollars, unaudited)
October 1 to
December 31,
2022
October 1 to
December 31,
2021
Net income (loss) for the period
$
3,680 $
(1,857)
Acquisition costs
Restructuring expenses
Tax effect of above adjustments
Adjusted net income (loss)
Adjusted net income per share, basic
Adjusted net income per share, diluted
1,870
—
(473)
5,077 $
0.12 $
0.11 $
—
2,282
(625)
(200)
0.00
0.00
$
$
$
Weighted average number of common shares outstanding, basic
Weighted average number of common shares outstanding, diluted
44,062,831
44,062,831
46,796,407
46,439,445
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DATA Communications Management Corp.
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REVENUES
For the quarter ended December 31, 2022, DCM recorded revenues of $73.0 million, an increase of $12.2 million or
20.0% compared with the same period in 2021. For the quarter ended December 31, 2022, the increase in revenues
is primarily driven by a combination of expansion revenue of existing clients, new business wins, substantially related
to tech-enabled solutions, and passing paper price increases driven by inflation and supply chain sourcing challenges
to our customers.
COST OF REVENUES AND GROSS PROFIT
For the quarter ended December 31, 2022, DCM recorded cost of revenues of $49.5 million, an increase of $6.3
million or 14.7% from $43.2 million for the same period in 2021.
Gross profit for the quarter ended December 31, 2022 was $23.6 million, an increase of $5.8 million or 33.0% from
$17.7 million for the same period in 2021. Gross profit as a percentage of revenues for the quarter ended December
31, 2022 was 32.2%, an increase from the prior period of 29.1%. Gross profit as a percentage of revenues for the
quarter ended December 31, 2022 increased from the prior period due to higher levels of client demand, price
increases, favourable product mix, cost synergies realized from the consolidation of our Brampton and Mississauga
facilities at the end of 2021 and consolidation of our Calgary and Edmonton. Gross margins held strong despite some
of the supply chain challenges and inflationary raw material price increases.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the quarter ended December 31, 2022 were $14.9 million or 20.3% of total revenues, a decrease
of $0.6 million or (4)%, from $15.4 million, or 25.4% of total revenues, in the same period in 2021. The decrease in
SG&A expenses for the quarter ended December 31, 2022 is related to a decline in general and administrative
expenses as we realized the full benefits from cost savings initiatives implemented in the prior year and a reduction in
amortization of intangible assets as technology was fully amortized as of December 31, 2021. This decrease was
offset by higher sales commissions costs commensurate with the increase in revenues, and an increase in the
accrual under the STIP.
RESTRUCTURING EXPENSES
We did not incur any restructuring expenses for the quarter ended December 31, 2022; nor any other “adjustments”
or one-time costs, other than one-time add backs of $1.9 million for acquisition costs related to the announced RRD
Canada acquisition. For the quarter ended December 31, 2021, DCM incurred a restructuring expense of $2.3 million
primarily related to the consolidation of the Brampton and Mississauga facilities at the end of 2021, and other various
headcount reductions to indirect labour as cost savings initiatives to improve gross margin.
ACQUISITION COSTS
DCM incurred $1.9 million for acquisition costs related to the announced RRD Canada acquisition which is expected
to close in Q2 2023 (see "Recent Developments").
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DATA Communications Management Corp.
EBITDA AND ADJUSTED EBITDA
For the quarter ended December 31, 2022, EBITDA was $9.5 million or 13.0% of revenues compared to $5.0 million
or 8.2% of revenues in the same period in 2021. For the quarter ended December 31, 2022, Adjusted EBITDA was
$11.3 million or 15.5% of revenues after adjusting EBITDA for $1.9 million in acquisition costs compared to $7.3
million or 11.9% of revenues after adjusting EBITDA for $2.3 million of restructuring expenses for the same period in
2021.
The increase in EBITDA and Adjusted EBITDA for the quarter ended December 31, 2022 over the prior period was
due to the increase in overall revenues and gross margin (in dollars).
FINANCE COSTS
Finance costs include interest on debt outstanding under DCM’s credit facilities, interest accretion expense related to
certain debt obligations discounts / premiums, interest on pension obligations, debt modification losses, amortization
of debt transaction costs and interest expense on lease liabilities under IFRS 16. For the quarter ended December
31, 2022, finance costs were $1.2 million compared to $2.1 million for the same period in 2021. Interest expense for
the quarter ended December 31, 2022 decreased from the prior period due to the Crown Facility refinancing, resulting
in a one-time expense to derecognize the Crown Facility, and prepayment fees for early termination. There were also
further reductions in interest expense due to monthly repayments on the FPD facilities, thereby reducing the term
loan balances. This was offset by an increase in interest expense on the Bank revolver as prime rate increases were
implemented throughout 2022, and the Bank revolver balance as of December 31, 2022 was higher than the prior
year.
INCOME TAXES
DCM reported income before income taxes of $5.6 million and a net income tax expense of $1.9 million for the
quarter ended December 31, 2022 compared to loss before income taxes of $2.0 million and a net income tax
recovery of $0.2 million for the quarter ended December 31, 2021.
NET INCOME (LOSS)
Net income for the quarter ended December 31, 2022 was $3.7 million compared to net loss of $1.9 million for the
quarter ended December 31, 2021. For a reconciliation of net income (loss) to Adjusted net income (loss) for the
periods noted, see Table 8 above.
The increase in comparable profitability for the quarter ended December 31, 2022 was primarily due to the increase in
overall revenues and gross margin (in dollars), reduction in restructuring expenses down to nil compared to $2.3
million in the prior period and a reduction in interest expense largely due to the Crown Facility refinancing (offsetting
any increases in the expense from the prime rate hikes).
ADJUSTED NET INCOME (LOSS)
Adjusted net income for the quarter ended December 31, 2022 was $5.1 million compared to adjusted net loss of
$0.2 million for the same period in 2021. The increase in comparable profitability for the quarter ended December 31,
2021 was primarily due to the increase in overall revenues and gross margin (in dollars) and a reduction in interest
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expense largely due to the Crown Facility refinancing (offsetting any increases in the expense from the prime rate
hikes).
Summary of eight quarter results
TABLE 9
The following table summarizes quarterly financial information for the past eight quarters.
(in thousands of Canadian dollars, except per share amounts, unaudited)
2022
Q4
Q3
Q2
Q1
Q4
2021
Q3
Q2
Q1
Revenues
Net income (loss)
attributable to
shareholders
Basic earnings (loss)
per share
Diluted earnings (loss)
per share
$ 73,045 $ 63,399 $ 68,103 $ 69,257 $ 60,871 $ 56,892 $ 55,207 $ 62,361
3,680
2,816
3,757
3,713
(1,857)
1,023
637
1,762
0.08
0.06
0.09
0.08
(0.04)
0.02
0.01
0.04
0.08
0.06
0.08
0.08
(0.04)
0.02
0.01
0.04
The variations in DCM’s quarterly revenues and net income (loss) over the eight quarters ended December 31, 2022
can be attributed to several principal factors: the impact of COVID-19 which commenced in the second quarter of
2020, increases in the costs of freight, paper, ink, and other raw material inputs used by DCM in the conduct of its
business; supply chain disruptions which impacted operations; revenue declines in DCM’s traditional print business
due to production volume declines largely related to technological change, price concessions and competitive activity,
seasonal variations in customer spending, refinement of DCM's pricing discipline, the impact of paper and other raw
materials price increases and compressed margins on contracts with certain existing customers, debt modification
losses, and restructuring expenses and business reorganization costs related to DCM’s ongoing productivity
improvement and cost reduction initiatives.
DCM’s net income for the fourth quarter of 2022 included improved revenues and margins (offset by supply chain
disruptions which impacted operations), acquisition costs of $1.9 million and no restructuring expenses. DCM’s net
income for the fourth quarter of 2021 included improved margins due to cost saving initiatives, increases in the costs
of freight, paper, ink, and other raw material inputs used by DCM in the conduct of its business; supply chain
disruptions which impacted operations, receipt of CEWS of $0.1 million, and restructuring expenses of $2.3 million.
DCM’s net income for the third quarter of 2022 included improved revenues and margins, an expense of $1.2 million
for DSUs and RSUs (including the mark-to-market expense to reflect the increase in the DCM's common share price),
and no restructuring expenses. DCM’s net income for the third quarter of 2021 included reduction in revenues and
margins due to COVID-19, receipt of CERS of $0.2 million, and restructuring expenses of $3.1 million.
DCM’s net income for the second quarter of 2022 included improved revenues and margins, and no restructuring
expenses. DCM’s net income for the second quarter of 2021 included reduction in revenues and margins due to
COVID-19, one-time fair market value adjustment of RSUs and DSUs of approximately $2.0 million included in cost of
sales and SG&A, receipt of CEWS and CERS of $2.4 million, and restructuring expenses of $0.9 million.
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DATA Communications Management Corp.
DCM’s net income for the first quarter of 2022 included improved revenues and margins, and no restructuring
expenses. DCM’s net income for the first quarter of 2021 included reduction in revenues due to COVID-19, improved
margins due to cost saving initiatives implemented throughout 2020 and the first quarter of 2021, receipt of CEWS
and CERS of $1.9 million, restructuring expenses of $3.4 million, and $1.5 million of other income.
Accounting policies
CHANGES IN ACCOUNTING POLICIES
The accounting policies used in the preparation of the consolidated financial statements are outlined in notes 2 and 3
of the Notes to the consolidated financial statements of DCM for the year ended December 31, 2022.
NEW AND AMENDED STANDARDS ADOPTED
IFRS 3 REFERENCE TO CONCEPTUAL FRAMEWORK
In May 2020, the IASB issued an amendment to IFRS 3 to (i) clarify references to the 2018 Conceptual Framework in
order to determine what constitutes an asset or liability in a business combination, (ii) add an exception for certain
liabilities and contingent liabilities to refer to IAS 37 or IFRIC 21 and (iii) clarify that an acquirer should not recognize
contingent assets at the acquisition date. The amendments were adopted effective January 1, 2022 and did not have
an impact on the consolidated financial statements.
IAS 37 ONEROUS CONTRACTS: COST OF FULFILLING A CONTRACT
In May 2020, the IASB issued an amendment to IAS 37 to clarify which costs to include in estimating the cost of
fulfilling a contract for the purpose of assessing whether that contract is onerous. The amendments were adopted
effective January 1, 2022 and did not have an impact on the consolidated financial statements.
IFRS 9 FINANCIAL INSTRUMENTS: FEES IN THE '10 PER-CENT' TEST FOR DERECOGNITION OF FINANCIAL
LIABILITIES
In May 2020, the IASB issued Annual Improvements to IFRS Standards 2018 - 2020. This amendment clarifies which
fees an entity includes when it applies the ‘10 per cent’ test of IFRS 9 in assessing whether to derecognize a financial
liability. An entity includes only fees paid or received between the entity and the lender, including fees paid or received
by either the entity or the lender on the other’s behalf. The amendments were adopted effective January 1, 2022 and
did not have an impact on the consolidated financial statements.
FUTURE ACCOUNTING STANDARDS NOT YET ADOPTED
AMENDMENTS TO IAS 1, PRESENTATION OF FINANCIAL STATEMENTS AND IAS 8, ACCOUNTING
POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS
These standards were amended to introduce the definition of an accounting estimate and include other amendments
to IAS 8 to help entities distinguish changes in accounting estimates from changes in accounting policies. The
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DATA Communications Management Corp.
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amendments are effective for annual periods beginning on or after January 1, 2023. DCM is currently evaluating the
impact on the consolidated financial statements.
AMENDMENTS TO IAS 12, DEFERRED TAXES RELATED TO ASSETS AND LIABILITIES ARISING FROM A
SINGLE TRANSACTION
This standard was amended to require companies to recognize deferred tax on particular transactions that, on initial
recognition, give rise to equal amounts of taxable and deductible temporary differences. This amendment is effective
for annual periods beginning on or after January 1, 2023. DCM is currently evaluating the impact on the consolidated
financial statements.
IAS 1 PRESENTATION OF FINANCIAL STATEMENTS: CLASSIFICATION OF LIABILITIES AS CURRENT OR
NON-CURRENT
In January 2020, the IASB issued Classification of Liabilities as Current or Non-current (Amendments to IAS 1). The
amendments aim to promote consistency in applying the requirements by helping companies determine whether debt
and other liabilities with an uncertain settlement date should be classified as current (due or potentially due to be
settled within one year) or non-current. The amendments include clarifying the classification requirements for debt a
company might settle by converting it into equity. On October 31, 2022, the IASB published an amendment to clarify
how conditions with which an entity must comply within twelve months after the reporting period affect the
classification of a liability. The amendments are effective for reporting periods beginning on or after January 1, 2024.
DCM is currently evaluating the impact on the condensed interim consolidated financial statements.
There are no other IFRS or International Financial Reporting Interpretations Committee (‘IFRIC’) interpretations that
are not yet effective that would be expected to have a significant impact on DCM.
Critical accounting estimates and judgments
The preparation of the financial statements requires management to make judgments, estimates and assumptions
that are not readily apparent from other sources about the carrying amounts of assets and liabilities, and reporting of
income and expenses. The estimates and associated assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results may differ materially from these estimates. The estimates
and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized
during the period in which the estimate is revised if the revision affects only that period or in the period of the revision
and future periods if the revision affects both current and future periods.
IMPAIRMENT OF GOODWILL
Goodwill is tested for impairment annually at the end of each fiscal year or more frequently if events or changes in
circumstances indicate there may be impairment. The determination of the impairment of goodwill is impacted by the
determination of the CGUs, estimates of the recoverable value of those CGUs, assumptions of future cash flows, and
achieving forecasted business results.
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DATA Communications Management Corp.
In management’s judgment DCM has a single goodwill CGU, being the Company as a whole, reflecting the manner in
which the operating results are being reviewed by the CODM to make decisions about resources to be allocated and
to assess the Company's performance as an integrated marketing and business solutions provider to its customers.
The recoverable amount of this CGU was determined based on its estimated fair value less cost of disposal using a
discounted cash flow method. Management applied considerable judgment in estimating the recoverable amounts of
its CGU, which included the use of key assumptions relating to revenue growth rates, gross margins and discount
rates. While the recoverable amount from the discounted cash flow model is sensitive to key assumptions used for
forecast revenues, gross margins and discount rate, management are satisfied that the Company’s forecasts and
assumptions, taking account of reasonably possible changes in results and other uncertainties will not change the
result of DCM's impairment analysis.
Management’s report on internal controls over financial reporting
DISCLOSURE CONTROLS AND PROCEDURES
DCM maintains a set of disclosure controls and procedures (as defined in Multilateral Instrument 52-109) designed to
provide reasonable assurance that information required to be disclosed in its public filings or otherwise under
securities legislation is recorded, processed, summarized and reported on a timely basis and that such controls and
procedures are designed to ensure that information required to be so disclosed is accumulated and communicated to
its management, including its certifying officers, as appropriate to allow timely decisions regarding required
disclosure. With the supervision and participation of DCM’s senior management team, the Chief Executive Officer of
DCM and the Chief Financial Officer ("CFO") of DCM have evaluated the effectiveness of disclosure controls and
procedures of DCM as of December 31, 2022. Based on that evaluation, those officers have concluded that, as of
December 31, 2022, such disclosure controls and procedures were effective to provide reasonable assurance that (i)
material information relating to DCM was made known to management and (ii) information required to be disclosed by
DCM in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded,
processed, summarized and reported within the time periods specified in the securities legislation.
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MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROLS OVER FINANCIAL REPORTING
Multilateral Instrument 52-109 requires the CEO and CFO to certify they are responsible for establishing and
maintaining internal control over financial reporting (“ICFR”) for the Company and that ICFR has been designed and
is effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements in accordance with IFRS. The CEO and CFO are also responsible for disclosing any changes to
the Company’s internal controls during the most recent period that have materially affected, or are reasonably likely to
materially affect, its internal controls over financial reporting. DCM’s internal control over financial reporting is a
process designed by, or under the supervision of, the CEO and CFO, or persons performing similar functions, and
effected by DCM's Board of Directors, management and other personnel. DCM’s internal control over financial
reporting includes those policies and procedures that pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the Company; provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with IFRS, and that receipts and expenditures of the Company are being made only in accordance with authorizations
of management and directors; and provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial
statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Furthermore, projections of any evaluation of effectiveness for future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. A material weakness is a deficiency, or a combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of
DCM's annual or interim financial statements will not be prevented or detected on a timely basis.
Based on management’s assessment, DCM's CEO and CFO have certified that, based on their knowledge, the
Company's internal controls over financial reporting are effective and the financial statements fairly present in all
material respects the financial condition, results of operations and cash flows of the Company as of, and for, the year
ended December 31, 2022.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
As at December 31, 2022, there were no changes in the Company’s internal control over financial reporting that
occurred during the twelve months ended December 31, 2022 that have materially affected, or are reasonably likely
to materially affect, DCM's internal control over financial reporting.
Outlook
"We are pleased to report on our success in 2022, which demonstrates our continued progress building both a better
and a bigger business. With our recent announcement of the planned acquisition of RRD Canada, we believe we are
well-positioned to further accelerate our positive momentum," says Richard Kellam, CEO and President of DCM.
"We are confident that RRD Canada will be an excellent strategic fit with our business and that the acquisition will
enable us to better serve our customers by adding new capabilities to our existing offerings and accelerating our
speed to market for new innovations. Importantly, we believe that combining DCM and RRD Canada will better
position our business for sustainable and long-term success serving customers across North America. We believe
32
. . M D & A . .
DATA Communications Management Corp.
the transaction also represents a compelling strategic opportunity for shareholders, as we expect the combined
company to benefit from accelerated sales growth, reduced costs, enhanced financial performance, further
operational efficiencies, and ultimately value creation."
"I would like to thank the entire DCM team for a strong finish to 2022, and a special thanks to the team’s continued,
relentless focus on building both a better and a bigger business. Results like these only come when everyone is
moving forward together. We look forward to reporting on quarter one and continuing our positive momentum through
fiscal 2023."
Risks and uncertainties
An investment in DCM’s securities involves risks. In addition to the other information contained in this report,
investors should carefully consider the risks described in DCM’s most recent Annual Information Form and other
continuous disclosure filings made by DCM with Canadian securities regulatory authorities before investing in
securities of DCM. The risks described in this report, the Annual Information Form and those other filings are not the
only ones facing DCM. Additional risks not currently known to DCM, or that DCM currently believes are immaterial,
may also impair the business, results of operations, financial condition and liquidity of DCM.
33
DATA Communications Management Corp.
Financial reporting responsibility of management
The accompanying consolidated financial statements of DATA Communications Management Corp. (“DCM”) have
been prepared by management and approved by the Board of Directors of DCM. Management of DCM is
responsible for the preparation and presentation of the consolidated financial statements and all the financial
information contained within this Annual Report within reasonable limits of materiality. The consolidated financial
statements have been prepared in accordance with International Financial Reporting Standards. In the preparation of
the consolidated financial statements, estimates are sometimes necessary because a precise determination of certain
assets and liabilities is dependent on future events. Management believes such estimates have been based on
available information and careful judgements and have been properly reflected in the accompanying consolidated
financial statements. The financial information throughout the text of this Annual Report is consistent with that in the
consolidated financial statements.
To assist management in discharging these responsibilities, DCM maintains a system of internal controls which are
designed to provide reasonable assurance that DCM’s consolidated assets are safeguarded, that transactions are
executed in accordance with management’s authorization and that the financial records form a reliable base for the
preparation of accurate and timely financial information.
Management recognizes its responsibilities for conducting DCM’s affairs in compliance with established financial
standards and applicable laws, and for the maintenance of proper standards of conduct in its activities.
PricewaterhouseCoopers LLP are appointed by the shareholders and have audited the consolidated financial
statements of DCM in accordance with Canadian generally accepted auditing standards. Their report outlines the
nature of their audit and expresses their opinion on the consolidated financial statements of DCM.
The Board of Directors has appointed an Audit Committee composed of three directors who are not members of
management of DCM. The Audit Committee meets periodically with management and the auditors to discuss internal
controls over the financial reporting process, auditing matters and financial reporting issues. It is responsible for
reviewing DCM’s annual and interim consolidated financial statements and the report of the auditors. The Audit
Committee reports the results of such reviews to the Board of Directors and makes recommendations with respect to
the appointment of DCM’s auditors. In addition, the Board of Directors may refer to the Audit Committee other
matters and questions relating to the financial position of DCM.
The Board of Directors are responsible for ensuring that management fulfills its responsibilities for financial reporting,
and are responsible for approving the consolidated financial statements of DCM.
(Signed) "Richard Kellam"
(Signed) "James E. Lorimer"
Richard Kellam
James E. Lorimer
President and Chief Executive Officer
Chief Financial Officer
DATA Communications Management Corp.
DATA Communications Management Corp.
March 21, 2023
Brampton, Ontario
34
Independent auditor’s report
To the Shareholders of DATA Communications Management Corp.
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of DATA Communications Management Corp. and its subsidiaries (together, the
Company) as at December 31, 2022 and 2021, and its financial performance and its cash flows for the
years then ended in accordance with International Financial Reporting Standards as issued by the
International Accounting Standards Board (IFRS).
What we have audited
The Company’s consolidated financial statements comprise:
the consolidated statements of financial position as at December 31, 2022 and 2021;
the consolidated statements of operations for the years then ended;
the consolidated statements of comprehensive income for the years then ended;
the consolidated statements of changes in shareholders’ equity for the years then ended;
the consolidated statements of cash flows for the years then ended; and
the notes to the consolidated financial statements, which include significant accounting policies and
other explanatory information.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of
the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant to our
audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities
in accordance with these requirements.
PricewaterhouseCoopers LLP
PwC Centre, 354 Davis Road, Suite 600, Oakville, Ontario, Canada L6J 0C5
T: +1 905 815 6300, F: +1 905 815 6499
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements for the year ended December 31, 2022. These matters were
addressed in the context of our audit of the consolidated financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the key audit matter
Goodwill impairment assessment
Refer to note 2 – Significant accounting policies
and note 9 – Goodwill to the consolidated financial
statements.
The Company’s goodwill carrying value was $17
million as at December 31, 2022. The Company
has a single goodwill cash generating unit (CGU),
being the Company as a whole, which is the level
at which goodwill is monitored for internal
management purposes.
Management performs a goodwill impairment
assessment annually at the end of each fiscal
year or more frequently if events or changes in
circumstances indicate that the carrying value of
goodwill may be impaired. Impairment is
determined by assessing if the carrying value of
the Company exceeds its recoverable amount.
The recoverable amount of the Company was
determined based on its estimated fair value less
cost of disposal using a discounted cash flow
method.
Management applied considerable judgment in
estimating the recoverable amount of the
Company, which included the use of key
assumptions relating to revenue growth rates,
gross margins and the discount rate. Management
concluded that there was no impairment of the
Company’s goodwill carrying value as at
December 31, 2022.
Our approach to addressing the matter included
the following procedures, among others:
Evaluated the appropriateness of
management’s determination of the goodwill
CGU by considering the Company’s structure
of its internal organization and management
reporting.
Tested how management estimated the
recoverable amount of the Company:
– Tested the mathematical accuracy of the
discounted cash flow model.
– Tested the underlying data used in the
discounted cash flow model.
– Evaluated the reasonableness of key
assumptions used by management
related to revenue growth rates and gross
margins by considering (i) the current and
past performance of the Company; (ii) the
consistency with external industry data;
and (iii) whether these assumptions were
consistent with evidence obtained in other
areas of the audit.
– Professionals with specialized skill and
knowledge in the field of valuation
assisted in evaluating the appropriateness
of management’s discounted cash flow
model and in testing the reasonableness
of the discount rate assumption used by
management.
Key audit matter
How our audit addressed the key audit matter
We considered this a key audit matter due to the
magnitude of the matter and the considerable
judgment by management in estimating the
recoverable amount of the Company. This led to a
high degree of auditor judgment, subjectivity and
effort in performing procedures and evaluating
management’s key assumptions. The audit effort
involved the use of professionals with specialized
skill and knowledge.
Other information
Assessed the disclosures in the consolidated
financial statements, including management’s
sensitivity disclosures on key assumptions
related to revenue growth rates, gross
margins and the discount rate.
Management is responsible for the other information. The other information comprises the Management’s
Discussion and Analysis and the information, other than the consolidated financial statements and our
auditor’s report thereon, included in the Annual report.
Our opinion on the consolidated financial statements does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate
the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting
process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report
to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Company to
cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Company to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group audit. We
remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Simon Kent.
/s/PricewaterhouseCoopers LLP
Chartered Professional Accountants, Licensed Public Accountants
Oakville, Ontario
March 21, 2023
FINANCIAL STATEMENTS
DATA Communications Management Corp.
Consolidated statements of financial position
(in thousands of Canadian dollars)
December 31, 2022
December 31, 2021
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Trade receivables (note 4)
Inventories (note 5)
Prepaid expenses and other current assets
Income taxes receivable
NON-CURRENT ASSETS
Other non-current assets
Deferred income tax assets (note 14)
Restricted cash
Property, plant and equipment (note 6)
Right-of-use assets (note 7)
Pension assets (note 15)
Intangible assets (note 8)
Goodwill (note 9)
LIABILITIES
CURRENT LIABILITIES
Trade payables and accrued liabilities
Current portion of credit facilities (notes 1 and 12)
Current portion of lease liabilities (note 11)
Provisions (note 10)
Income taxes payable (note 14)
Deferred revenue
NON-CURRENT LIABILITIES
Provisions (note 10)
Credit facilities (notes 1 and 12)
Lease liabilities (note 11)
Pension obligations (note 15)
Other post-employment benefit plans (note 16)
EQUITY
SHAREHOLDERS’ EQUITY
Shares (note 17)
Warrants (note 17)
Contributed surplus
Translation reserve
Deficit
$
4,208 $
54,630
20,220
2,984
15
82,057
466
4,830
—
6,779
33,505
2,364
2,507
16,973
149,481 $
44,133 $
11,667
6,791
1,316
1,630
3,942
69,479
—
15,380
33,011
6,069
2,695
126,634 $
256,478 $
869
3,131
207
(237,838)
22,847 $
149,481 $
$
$
$
$
$
$
Commitments and Contingencies (note 20); Subsequent events (note 28)
Approved by Board of Directors
(Signed) "J.R. Kingsley Ward" Director (Signed) "Richard Kellam" Director
901
51,567
12,133
2,580
860
68,041
625
5,465
515
8,416
33,476
2,531
4,042
16,973
140,084
37,589
11,743
6,123
3,280
841
3,269
62,845
1,196
24,556
32,976
7,499
2,971
132,043
256,478
881
2,791
173
(252,282)
8,041
140,084
40
DATA Communications Management Corp.
FINANCIAL STATEMENTS
Consolidated statements of operations
(in thousands of Canadian dollars, except per share amounts)
REVENUES (note 24)
COST OF REVENUES
GROSS PROFIT
EXPENSES
Selling, commissions and expenses
General and administration expenses
Restructuring expenses (note 10)
Acquisition costs (note 28)
INCOME BEFORE FINANCE COSTS, OTHER INCOME, AND
INCOME TAXES
FINANCE COSTS
Interest expense on long term debt and pensions, net
Interest expense on lease liabilities (note 11)
Debt modification losses and prepayment fees
Amortization of transaction costs (note 12)
OTHER INCOME
Other income (note 27)
Government grant income (note 26)
INCOME BEFORE INCOME TAXES
INCOME TAX (RECOVERY) EXPENSE
Current (note 14)
Deferred (note 14)
NET INCOME FOR THE YEAR
BASIC EARNINGS PER SHARE (note 18)
DILUTED EARNINGS PER SHARE (note 18)
$
$
$
13,966 $
0.32 $
0.30 $
For the year ended
December 31, 2022
For the year ended
December 31, 2021
$
273,804 $
235,331
189,580
84,224
165,796
69,535
29,198
27,952
—
1,870
59,020
25,204
2,742
2,223
—
344
5,309
—
—
19,895
5,456
473
5,929
24,888
31,069
9,691
—
65,648
3,887
3,318
2,521
473
941
7,253
1,452
4,558
2,644
2,238
(1,159)
1,079
1,565
0.04
0.03
41
FINANCIAL STATEMENTS
DATA Communications Management Corp.
Consolidated statements of comprehensive income
(in thousands of Canadian dollars)
For the year ended
December 31, 2022
For the year ended
December 31, 2021
NET INCOME FOR THE YEAR
$
13,966 $
1,565
OTHER COMPREHENSIVE (LOSS) INCOME:
ITEMS THAT MAY BE RECLASSIFIED SUBSEQUENTLY TO
NET INCOME
Foreign currency translation
ITEMS THAT WILL NOT BE RECLASSIFIED TO NET INCOME
Re-measurements of pension and other post-employment benefit
obligations (note 15)
Taxes related to pension and other post-employment benefit
adjustment above (note 14)
34
34
640
(162)
478
(19)
(19)
2,643
(648)
1,995
OTHER COMPREHENSIVE INCOME FOR THE YEAR, NET OF
TAX
COMPREHENSIVE INCOME FOR THE YEAR
$
$
512 $
1,976
14,478 $
3,541
42
DATA Communications Management Corp.
FINANCIAL STATEMENTS
Consolidated statements of changes in shareholders' equity
(in thousands of Canadian
dollars)
BALANCE AS AT
DECEMBER 31, 2020
Net income for the year
Other comprehensive income
for the year
Total comprehensive loss for
the year
Issuance of common shares,
net (note 17)
Exercise of warrants (note 17)
Share-based compensation
expense (note 17)
Issuance of warrants, net
(note 17)
Balance as at December 31,
2021
BALANCE AS AT
DECEMBER 31, 2021
Net income for the year
Other comprehensive income
for the year
Total comprehensive income
for the year
Share-based compensation
expense (note 17)
Expiration of warrants (note
17)
BALANCE AS AT
DECEMBER 31, 2022
Shares
Warrants
Contributed
surplus
Translation
reserve
Deficit
Total equity
$
256,260 $
850 $
2,354 $
192 $
(255,842) $
3,814
—
—
—
40
178
—
—
—
—
—
—
—
—
(9)
—
40
—
—
—
(51)
488
—
(19)
(19)
—
—
—
—
1,565
1,565
1,995
1,976
3,560
3,541
—
—
—
—
40
118
488
40
$
256,478 $
881 $
2,791 $
173 $
(252,282) $
8,041
$
256,478 $
881 $
2,791 $
173 $
(252,282) $
8,041
—
—
—
—
—
—
—
—
—
—
—
—
328
(12)
12
—
34
34
—
—
13,966
13,966
478
512
14,444
14,478
—
—
328
—
$
256,478 $
869 $
3,131 $
207 $
(237,838) $
22,847
43
FINANCIAL STATEMENTS
DATA Communications Management Corp.
Consolidated statements of cash flows
(in thousands of Canadian dollars)
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net income for the year
Items not affecting cash
Depreciation of property, plant and equipment (note 6)
Amortization of intangible assets (note 8)
Depreciation of right-of-use-assets (note 7)
Interest expense on lease liabilities (note 11)
Share-based compensation expense (note 17)
Shares issued as payment for services (note 17)
Pension expense (note 15)
Loss on disposal of property, plant and equipment
(Gain) on disposal of leases
Provisions (note 10)
Amortization of transaction costs (note 12)
Accretion of non-current liabilities, capitalized interest expense and
accretion of debt modification losses (note 12)
Other post-employment benefit plan expense (note 16)
Income tax expense (note 14)
Changes in working capital (note 19)
Contributions made to pension plans (note 15)
Contributions made to other post-employment benefit plans (note 16)
Provisions paid (note 10)
Income taxes paid (note 14)
Total cash generated from operating activities
INVESTING ACTIVITIES
Purchase of property, plant and equipment (note 6)
Purchase of intangible assets (note 8)
Proceeds on disposal of property, plant and equipment
Total cash used in investing activities
FINANCING ACTIVITIES
Decrease in restricted cash
Proceeds from credit facilities (note 12)
Repayment of credit facilities (note 12)
Exercise of warrants
Repayment of promissory notes (note 13)
Transaction costs (note 12)
Lease payments (note 11)
Total cash provided by financing activities
CHANGE IN CASH DURING THE YEAR
CASH AND CASH EQUIVALENTS – BEGINNING OF YEAR
EFFECTS OF FOREIGN EXCHANGE ON CASH BALANCES
CASH AND CASH EQUIVALENTS – END OF YEAR
$
$
44
For the year ended
December 31, 2022
For the year ended
December 31, 2021
$
13,966 $
2,965
1,606
6,609
2,223
328
—
351
98
—
—
344
120
(16)
5,929
(3,632)
(869)
(365)
(3,160)
(3,822)
22,675
(1,475)
(71)
70
(1,476)
515
2,900
(12,616)
—
—
—
(8,730)
(17,931)
3,268
901 $
39
4,208 $
1,565
3,133
3,589
8,428
2,521
488
40
480
66
(196)
9,691
1,201
(441)
(118)
1,079
7,135
(970)
(390)
(6,491)
(3,865)
26,945
(1,832)
(1,390)
—
(3,222)
—
21,000
(30,696)
118
(2,144)
(489)
(11,202)
(23,413)
310
578
13
901
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
1 General information and basis of preparation
DATA Communications Management Corp ("DCM" or the "Company") is a marketing and business communications
partner that helps companies simplify the complex ways they communicate and operate, so they can accomplish
more with fewer steps and less effort. For over 60 years, DCM has been serving major brands in vertical markets
including financial services, retail, healthcare, energy, other regulated industries, and the public sector. We integrate
seamlessly into our clients’ businesses thanks to our deep understanding of their needs, transformative tech-enabled
solutions, and end-to-end service offering. Whether we’re running technology platforms, sending marketing
messages, or managing print workflows, our goal is to make everything surprisingly simple.
These financial statements have been prepared using International Financial Reporting Standards as issued by the
International Accounting Standards Board ("IFRS") applicable to a going concern, which contemplates the realization
of assets and settlement of liabilities in the normal course of business as they become due.
The Company's ability to continue as a going concern is dependent upon management’s ability to meet forecast
revenue and profitability targets for at least the next twelve months in order to comply with its financial covenants on
its credit facilities or to obtain financial covenant waivers from its lenders if necessary.
The estimate of future cash flows in the Company's forecasts for the period to March 31, 2024 took into consideration
the increased demand experienced in 2022 as the economy started to recover from the effects of the COVID-19
pandemic and the uncertainty of the continued impact of inflationary pressures resulting from global supply chain
challenges, rising interest rates and the prospect of an economic recession on the ongoing demand for the
Company's services, the effects and duration of which are difficult to project with respect to the Company’s business
and financial results.
While estimated forecast compliance with financial covenants is sensitive to key assumptions used for forecast
revenues, gross margins and expenses (which in turn impact earnings before interest, income taxes, depreciation
and amortization (EBITDA)), management are satisfied that the Company’s forecasts and projections, taking account
of reasonably possible changes in results and other uncertainties will not result in any breach of the financial
covenants on its credit facilities. For this reason, management continues to believe that there is no material
uncertainty regarding the ability of the Company to continue as a going concern.
The common shares of DCM are listed on the Toronto Stock Exchange (“TSX”) under the symbol “DCM” and on
OTCQX under the symbol "DCMDF". The address of the registered office of DCM is 9195 Torbram Road, Brampton,
Ontario. These consolidated financial statements were approved by the Board of Directors ("Board") of DCM, on
March 21, 2023.
2 Significant accounting policies
The significant accounting policies set out below have been applied consistently to all periods presented in these
consolidated financial statements.
BASIS OF MEASUREMENT
The consolidated financial statements have been prepared under the historical cost convention, except for the
revaluation of certain financial assets and financial liabilities to fair value, including derivative instruments.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date, regardless of whether that price is directly observable or
estimated using another valuation technique. In estimating the fair value of an asset or liability, DCM takes into
account the characteristics of the asset or liability if market participants would take those characteristics into account
when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes
45
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
in these consolidated financial statements is determined on such a basis, except for share-based payment
transactions that are within the scope of IFRS 2 Share based-payments, IFRS 16 Leases, and measurements that
have some similarities to fair value but are not fair value, such as net realizable value in IAS 2 Inventories or value in
use in IAS 36 Impairment of assets.
In addition, for financial reporting purposes, fair value measurements are categorized into Level 1, 2 or 3 based on
the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the
fair value measurements in its entirety, which are described as follows:
•
•
•
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can
access at the measurement date;
Level 2 inputs are inputs, other than quoted prices included within Level 1; that are observable for the asset or
liability; either directly or indirectly; and
Level 3 inputs are unobservable inputs for the asset or liability.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of DCM and its subsidiary. All intercompany transactions,
balances and unrealized gains and losses from intercompany transactions are eliminated upon consolidation.
i.Subsidiaries
Subsidiaries are all entities (including structured entities) over which DCM has control. Control exists when DCM is
exposed to, or has the rights to, variable returns from its involvement with the entity and has the ability to affect those
returns through its power over the entity. Subsidiaries are fully consolidated from the date which control is obtained.
They are unconsolidated from the date that control ceases. DCM has one remaining wholly owned subsidiary, being
Data Communications Management (US) Corp. ("DCM USA"). Perennial Inc. was amalgamated into DCM and
rebranded as DCM's Marketing, Strategy & Creative Group as of January 1, 2022.
ii.Changes in ownership interests in subsidiaries without change of control
Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions
– that is, as transactions with the owners in their capacity as owners. The difference between fair value of any
consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in
equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.
iii.Disposal of subsidiaries
When DCM ceases to have control, any retained interest in the entity is re-measured to its fair value at the date when
control is lost, with the change in carrying amount recognized in profit or loss. The fair value is the initial carrying
amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or
financial asset. In addition, any amounts previously recognized in other comprehensive loss in respect of that entity
are accounted for as if DCM had directly disposed of the related assets or liabilities. This may mean that amounts
previously recognized in other comprehensive income (loss) are reclassified to the statement of operations.
BUSINESS COMBINATIONS
Business combinations are accounted for using the acquisition method, and their operating results are included in the
consolidated financial statements as of the acquisition date. The consideration transferred is the total fair value of the
assets acquired, equity instruments issued, liabilities incurred or assumed by DCM and contingent considerations, on
the acquisition date, in exchange for control of the acquired entity. The excess of the consideration transferred over
the fair value of the identifiable assets acquired and liabilities assumed is recognized as goodwill. The transaction
costs attributable to the acquisition are recognized in the statement of operations when they are incurred.
46
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
If the agreement includes a contingent consideration, it is measured at fair value as of the acquisition date and added
to the consideration transferred, and a liability for the same amount is recognized. Any subsequent change to the fair
value of the contingent consideration will be recognized in the statement of operations.
If the initial recognition of the business combination is incomplete when the financial statements are issued for the
period during which the acquisition occurred, DCM records a provisional amount for the items for which measurement
is incomplete. Adjustments to the original recognition of the business combination will be recorded as an adjustment
to the assets acquired and liabilities assumed during the measurement period, and the adjustments must be applied
retroactively. The measurement period is the period from the acquisition date to the date on which DCM has received
complete information on the facts and circumstances that existed as of the acquisition date.
If a business combination is achieved in stages, DCM reassesses the share it held previously in the acquiree at fair
value at the acquisition date and includes the gain or loss resulting, if any, to the statement of operations.
In the case of a business combination of less than 100%, a non-controlling interest is measured, either at fair value or
at the non-controlling interest's share of the net identifiable assets of the acquiree. The basis of measurement is
determined on a transaction-by-transaction basis.
FOREIGN CURRENCY TRANSLATION
Items included in the financial statements of each entity within DCM are measured using the currency of the primary
economic environment in which the entity operates (the “functional currency”). These consolidated financial
statements are presented in Canadian dollars, which is DCM’s functional currency. The functional currency of DCM’s
United States operations is U.S. dollars. All financial information presented in Canadian dollars has been rounded to
the nearest thousand.
Monetary assets and liabilities denominated in foreign currencies are translated into each entity's functional currency
at rates of exchange in effect at the statement of financial position date. Revenues and expenses denominated in
foreign currencies are translated into each entity's functional currency at rates prevailing on the transaction dates.
Gains and losses resulting from translation of monetary assets and liabilities denominated in currencies other than
each entity's functional currency are included in the determination of income for the year.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisitions,
are translated to Canadian dollars at exchange rates at the reporting date. The income and expenses of foreign
operations are translated to Canadian dollars at average exchange rate during the period. Foreign currency
differences are recognized in other comprehensive income (loss) in the foreign currency translation reserve account.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand, deposits held with banks and bank overdraft and highly liquid
short-term interest-bearing securities with maturities of three months or less at the date of purchase.
TRADE RECEIVABLES
Trade receivables are recognised initially at the amount of consideration that is unconditional, unless they contain
significant financing components when they are recognised at fair value. They are subsequently measured at
amortised cost using the effective interest method, less loss allowance. See note 4 for further information about the
group’s accounting for trade receivables and note 22 for a description of the group’s impairment policies.
47
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
INVENTORIES
Raw materials inventories, base stock finished goods and work-in-progress are recorded at the lower of cost and net
realizable value. Raw materials are recorded at standard cost. Cost of finished goods and work-in-process are
determined using the first-in, first-out method. Inventory manufactured includes the cost of materials, labour and
production overheads (based on normal operating capacity) including applicable depreciation on property, plant and
equipment. Net realizable value is the estimated selling price less cost to complete and applicable selling expenses.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost less accumulated depreciation and impairments. Costs include
expenditures that are directly attributable to the acquisition of the asset. Subsequent costs are included in the asset’s
carrying value or recognized as a separate asset, as appropriate, only when it is probable that future economic
benefits associated with the item will flow to DCM and the cost can be measured reliably. The carrying value of a
replaced asset is derecognized when replaced. Maintenance and repairs are expensed as incurred. Property, plant
and equipment are depreciated from the point at which the asset is ready for use. Depreciation is computed using the
methods and rates based on the estimated useful lives of the property, plant and equipment as outlined below:
Leasehold improvements
Office furniture and equipment
Presses and printing equipment
Computer hardware
Vehicles
Basis
straight-line
straight-line
straight-line
straight-line
straight-line
Rate
Shorter of life or
lease term
5 years
3 to 10 years
2 to 5 years
3 years
DCM allocates the amount initially recognized in respect of an item of property, plant and equipment to its significant
parts and depreciates separately each such part. Residual values, the method of depreciation and useful lives of the
assets are reviewed annually and adjusted if appropriate.
Gains and losses on disposals of property, plant and equipment are determined by comparing the proceeds with the
carrying amount of the asset and are included in general and administration expenses in the statement of operations.
INTANGIBLE ASSETS
Separately acquired intangible assets are initially measured at cost. Customer relationships, trade names, trademarks
and non-compete agreements acquired in a business combination are recognized at fair value at the acquisition date
which is their deemed cost. Where these assets have a finite life, they are subsequently carried at cost less
accumulated amortization and impairment losses.
Research costs are recognized as an expense as incurred. Development costs that are directly attributable to the
design and testing of identifiable and unique software products controlled by DCM are recognized as intangible
assets when the following criteria are met:
•
it is technically feasible to complete the software so that it will be available for use
• management intends to complete the software and use or sell it
there is an ability to use or sell the software
it can be demonstrated how the software will generate probable future economic benefits
adequate technical, financial and other resources to complete the development and to use or sell the
software are available, and
the expenditure attributable to the software during its development can be reliably measured.
•
•
•
•
48
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
Certain configuration and customization activities undertaken in implementing such arrangements may give rise to a
separate asset in limited circumstances where DCM controls the intellectual property of the underlying software code
(e.g. the development of bridging modules to existing on-premise systems or bespoke additional software capability).
In all other instances, configuration and customization costs are expensed as incurred. Directly attributable costs that
are capitalized as part of the software include employee costs and an appropriate portion of relevant overheads.
Capitalized development costs are recorded as intangible assets and amortized from the point at which the asset is
ready for use.
Management’s judgment is required to determine the useful lives of intangible assets including reviewing the length of
customer relationships and other factors. These finite life assets are amortized over their estimated useful lives as
outlined below.
Customer relationships and customer backlog
Software and technology
Computer software development costs
Basis
straight-line
straight-line
straight-line
Trademarks, trade names and non-compete agreements
straight-line
Rate
1.5 to 12 years
1 to 7 years
1 to 5 years
2 to 10 years
Residual values, the method of amortization and useful lives of the assets are reviewed annually and adjusted if
appropriate
GOODWILL
Goodwill represents the excess of the aggregate of consideration transferred in a business combination and the non-
controlling interest in the acquired business over the fair value of net identifiable assets and liabilities acquired.
Adjustments to fair value assessments are recorded to goodwill over the measurement period, not exceeding one
year from the date of acquisition. Goodwill is allocated to the cash generating unit (“CGU”) or a group of CGUs to
which it relates. A CGU is an identifiable group of assets that are largely independent of the cash flows from other
assets or group of assets, which is not higher than an operating segment.
Goodwill is evaluated for impairment annually or more frequently if events or circumstances indicate there may be
impairment. Impairment is determined for goodwill by assessing if the carrying value of a cash generating unit,
including the allocated goodwill, exceeds its recoverable amount determined as the greater of the estimated fair value
less costs to sell or the value in use. Impairment losses recognized in respect of a CGU are first allocated to the
carrying value of goodwill and any excess is allocated to the carrying amount of assets in the CGU. Any goodwill
impairment is charged to income in the period in which the impairment is identified. Impairment losses on goodwill
are not subsequently reversed.
IMPAIRMENT OF NON-FINANCIAL ASSETS
Property, plant and equipment and definite life intangible assets are tested for impairment when events or changes in
circumstances indicate that the carrying amount may not be recoverable. For the purpose of measuring recoverable
amounts, assets are grouped at the lowest levels for which there are separately identifiable cash flows (CGUs). The
recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use (being the present
value of the expected future cash flows of the relevant asset or CGU). The projections of future cash flows take into
account the relevant operating plans and management’s best estimate of the most probable set of conditions
anticipated to prevail including a number of estimates and assumptions such as projected revenue growth rates,
gross margin and discount rates.
An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable
amount. Impairment losses are recorded as impairment provisions within accumulated depreciation for depreciable
assets. DCM evaluates impairment losses, other than goodwill impairment, for potential reversals when events or
circumstances warrant such consideration. Where an impairment loss subsequently reverses the carrying amount of
49
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
the asset or CGU is increased to the lesser of the revised estimate of recoverable amount and the carrying amount
that would have been recorded had no impairment loss been recognized previously.
SHARE-BASED COMPENSATION
DCM has share-based compensation plans as part of DCM’s long-term incentive plan, as described in note 17. All
transactions involving share-based payments are recognized as an expense in the statement of operations over the
vesting period.
Equity-settled share-based payment transactions, such as stock option awards, are measured at the grant date at the
fair value of employee services received in exchange for the grant of options or share awards and, for non-employee
transactions, at the fair value of the goods or services received at the date on which the entity recognizes the goods
or services. The total amount of the expense recognized in the statement of operations is determined by reference to
the fair value of the share awards or options granted, which factors in the number of options expected to vest. Equity-
settled share-based payment transactions are not remeasured once the grant date fair value has been determined.
Cash-settled share-based payment transactions are measured at the fair value of the liability. The liability is
remeasured at each reporting date and at the date of settlement, with changes in fair value recognized in the
statement of operations.
EMPLOYEE BENEFITS
DCM maintains a defined benefit and defined contribution pension plan (the “DATA Communications Management
Pension Plan”) for some of its employees. Pension benefits are primarily based on years of service, compensation
and accrued contributions with investment earnings. DCM's funding policy is to fund the annual amount required to
meet or exceed the minimum statutory requirements. Actuarial valuations are required to be completed every three
years.
DCM also contributes to the Québec Graphic Communication Pension Plan (the “GCPP”) for certain employees at its
Drummondville plant in Québec. In addition, DCM sponsors a number of multi-employer, defined benefit employee
pension and non-pension benefit plans which are administered by Unifor Local 591G for the hourly employees of
Thistle ("Unifor Pension & Benefit Plans"). The GCPP and Unifor Pension & Benefit Plans provide post-employment
benefits to unionized employees in the printing industry jointly-trusteed by representatives of the employers and the
unions. DCM's obligation to the GCPP and Unifor Pension & Benefit Plans are limited to the amounts agreed to in the
respective collective bargaining agreements of each plan.
Certain former senior executives of a predecessor corporation participated in a Supplementary Executive Retirement
Plan (“SERP”), which provides for pension benefits payable as a single life annuity with a five-year guarantee.
(a)
Defined contribution plan
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a
separate entity and has no legal or constructive obligation to pay further amounts. Pension benefits for defined
contribution formula are based on the accrued contributions with investment earnings. DCM’s annual pension
expense is based on the amounts contributed in respect of eligible employees when they are due.
50
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
(b)
Defined benefit plans
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. Pension benefits for
the defined benefit formula are generally calculated based on the number of years of service and the maximum
average eligible earnings of each employee during any period of five consecutive years. DCM accrues its obligations
for the defined benefit provision and related costs, net of plan assets, where applicable. The cost of pensions earned
by employees covered by these plans are actuarially determined using the projected unit credit method taking into
account management’s best estimate of salary escalation, retirement ages and longevity of employees, where
applicable. When the calculation results in a benefit to DCM, the recognized asset is limited to the present value of
economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the
plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding
requirements that apply to any plan in DCM. An economic benefit is available to DCM if it is realizable during the life
of the plan, or on settlement of the plan liabilities.
Improvements to the pension plans are recognized as past service costs in the period of the plan amendment.
Current service costs are expensed in the period that the benefits are accrued. Current service costs, administration
costs and past services costs are recognized as period costs in general and administration expenses in the statement
of operations. Net interest is calculated by applying the discount rate at the beginning of the period to the net benefit
liability or asset and is recognized in finance costs (income) in the statement of operations.
The discount rate used to determine the accrued benefit obligation is determined by reference to yields on high
quality corporate bonds and that have terms to maturity approximating the terms of the related pension liability.
Actuarial gains and losses arise from the difference between actual rate of return on plan assets and the discount rate
for that period, from changes in actuarial assumptions used to determine the accrued benefit obligation and from
changes to accrued benefit obligation resulting from actual experience differing from long-term assumptions used to
determine the accrued benefit obligation. Re-measurements, comprising actuarial gains and losses, the effect of the
changes to the asset ceiling (if applicable) and the actual return on plan assets (excluding interest), is reflected
immediately in the statement of financial position with a charge or credit recognized in other comprehensive income
(loss) in the period in which they occur. Re-measurements recognized in other comprehensive income (loss) are
reflected immediately in retained earnings (deficit) and will not be reclassified to the statement of operations.
The retirement benefit obligation recognized in the statement of financial position represents the actual deficit or
surplus in the DCM’s defined benefit plans. When the payment in the future of minimum funding requirements related
to past service would result in a net defined benefit surplus or an increase in a surplus, the minimum funding
requirements are recognized as a liability to the extent that the surplus would not be fully available as a refund or a
reduction in future contributions to the plans.
A liability for termination benefits is recognized at the earlier of when the entity can no longer withdraw the offer of the
termination benefit and when the entity recognizes any related restructuring costs. Termination benefits that require
future services are required to be recognized over the periods the future services are provided.
The SERP is unfunded.
The GCPP and the Unifor Pension & Benefit Plans are negotiated contribution, defined benefit multi-employer plans,
however, the trustees of these plans are not able to provide sufficient information for DCM to account for these plans
as a defined benefit plan. DCM has accounted for these plans on a defined contribution basis as DCM does not
believe there is sufficient information to recognize participation on a defined benefit basis.
(c)
Other post-employment and long-term employee benefit plans
DCM provides non-pension post-employment benefits, including health care and life insurance benefits on retirement
to certain former employees, their beneficiaries and covered dependents ("DCM OPEB Plans"). DCM’s net obligation
in respect of its DCM OPEB Plans is the amount of future benefit that employees have earned in return for their
51
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
service in the current and prior periods; that benefit is discounted to determine its present value. The calculation is
performed using the projected unit credit method. Any actuarial gains and losses related to non-pension post-
employment benefit plans are recognized in other comprehensive loss in the period in which they arise and will not be
reclassified to statement of operations.
DCM also provides other long-term employee benefit plans including pension, health care and dental care benefits for
certain employees on long-term disability ("DCM OPEB LTD Plan"). DCM’s net obligation in respect of its DCM
OPEB LTD Plan is the actuarial present value of all future projected benefits determined as at the valuation date. Any
actuarial gains and losses related to other long-term employee benefit plans are recognized in the statement of
operations in the period in which they arise.
The discount rate is the yield at the reporting date on yields on high quality corporate bonds that have maturity dates
approximating the terms of DCM’s obligations. The DCM OPEB Plans and DCM OPEB LTD Plan are funded on a
pay-as-you-go basis.
PROVISIONS
Provisions are liabilities of uncertain timing or amount. A provision is recognized if, as a result of a past event, DCM
has a present legal or constructive obligation for which the amount can be estimated reliably, and it is more likely than
not that an outflow of economic benefits will be required to settle the obligation. Provisions are measured at
management’s best estimate of the expenditure required to settle the obligation. When the effect of discounting is
significant, the amount of the provision is determined by discounting the expected cash flows at a pre-tax rate that
reflects current market assessments of the time value of money and the risks specific to the liability. Provisions are
reviewed at each reporting date and any changes to estimates are reflected in the statement of operations. The
unwinding of the discount is recognized as a finance cost.
(i) Restructuring: A provision for restructuring is recognized when DCM has approved a detailed and formal
restructuring plan, and the restructuring either has commenced or has been announced publicly. Future
operating losses are not provided for.
(ii) Onerous contracts: DCM performs evaluations to identify onerous contracts and, where applicable, records
provisions against such contracts.
INCOME TAXES
Income tax expense comprises current and deferred tax. Current income tax and deferred income tax are recognized
in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or
in other comprehensive income (loss), in which case the current and/or deferred tax is also recognized directly in
equity or other comprehensive income (loss).
Current income taxes is the expected tax payable or receivable on the taxable income or loss for the year, using tax
rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous
years that are expected to be paid. Management periodically evaluates positions taken in tax returns with respect to
situations in which applicable tax regulation is subject to interpretation. DCM establishes provisions where
appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is recognized in
respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. Deferred income tax is not recognized for the following
temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination
and that affects neither accounting nor taxable profit or loss, and temporary differences relating to investments in
subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable
future. In addition, deferred income tax is not recognized for taxable temporary differences arising on the initial
recognition of goodwill. Deferred income tax is measured on a non-discounted basis at the tax rates that are
expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or
substantively enacted by the reporting date.
52
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
A deferred income tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to
the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred
income tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that
the related tax benefit will be realized in the foreseeable future.
Deferred income tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities
and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on
different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and
liabilities will be realized simultaneously.
Deferred income tax assets and liabilities are presented as non-current.
LEASES
DCM leases various offices, warehouses and machinery and office equipment. Rental contracts are typically made for
fixed periods of 1 to 13 years but may have extension options. Lease terms are negotiated on an individual basis and
contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but
leased assets may not be used as security for borrowing purposes. DCM has options to purchase certain
manufacturing equipment for a nominal amount or the then fair market value, to extend the term, or return the
equipment at the end of the lease term. The obligations are secured by the lessors’ title to the leased asset for such
leases. DCM also enters into sub-leases as an intermediate lessor.
The accounting policies for leases are as follows:
AS A LESSEE
DCM assesses, at the inception of a contract, whether a contract is, or contains, a lease. A lease is a contract in
which the right to control the use of an identified asset is granted for an agreed upon period of time in exchange for
consideration. DCM assesses whether a contract conveys the right to control the use of an identified asset when
there is both the right to direct the use of the asset and obtain substantially all the economic benefits from that use.
At the commencement of a lease contract:
(i) a lease liability is initially measured at the present value of the non-cancellable lease payments over the lease
term and discounted at DCM's incremental borrowing rate which represents the rate DCM would pay to borrow
funds to obtain the underlying asset over a similar term and with similar security. Lease payments include fixed
payments and such variable payments that depend on an index or a rate; less any lease incentives receivable. In
determining the lease term, management considers all facts and circumstances that create an economic
incentive to exercise an extension option or not exercise a termination option. Extension options (or periods after
termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not
terminated). The assessment is reviewed if a significant event or a significant change in circumstances occurs
which affects this assessment and that is within the control of the lessee.
(ii) a right-of-use asset ("ROU Asset") is initially measured at cost, which comprises the initial lease liability, lease
payments made at or before the lease commencement date, initial direct costs and restoration obligations less
lease incentives.
The ROU Asset is depreciated in subsequent periods over the shorter of the asset's useful life and the lease term on
a straight-line basis. The lease term includes periods covered by an option to extend if DCM is reasonably certain to
exercise that option. The ROU Asset is assessed for impairment in accordance with the requirements of IAS 36
Impairment of Assets.
The lease liability is measured in subsequent periods at amortized cost using the effective interest method. The lease
liability is remeasured when there is a change in future lease payments arising from a change in an index or rate, if
there is a change in DCM’s estimate of the amount expected to be payable under a residual value guarantee, or if
53
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
DCM changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease
liability is remeasured, a corresponding adjustment is made to the carrying amount of the ROU Asset, with any
difference recorded in the consolidated statement of operations.
On a lease by lease basis, DCM also exercises the option available for contracts comprising lease components as
well as non-lease components, not to separate these components. Payments to the lessor for variable costs
associated with the lease, including variable payments to the lessor related to non-lease components, are not
included in the measurement of the lease liability, and are expensed as incurred in the consolidated statement of
operations.
Extension and termination options exist for DCM’s property leases. DCM re-measures the lease liability, when there is
a change in the assessment of the inclusion of the extension option in the lease term, resulting from a change in facts
and circumstances.
Payments associated with short-term leases and leases of low-value assets are recognized on a straight-line basis as
an expense in the condensed interim consolidated statement of operations. Short-term leases are leases with a lease
term of twelve months or less. Low value assets comprise IT equipment and small items of office furniture.
AS AN INTERMEDIATE LESSOR
For sub-leases where DCM is an intermediate lessor, the interest in the head lease and sub-lease are accounted for
separately. DCM assesses the lease classification of a sub-lease as either an operating lease or a finance lease with
reference to the ROU Asset arising from the head lease.
GOVERNMENT GRANTS
Grants from the government are recognized at their fair value when there is reasonable assurance that the grant will
be received and DCM will comply with all attached conditions. The Company has elected to present government
grants related to income as "other income" in the consolidated statement of operations. DCM has applied this policy
to the CEWS and CERS (note 26).
SHARE CAPITAL AND WARRANTS
Common shares and warrants are classified as equity instruments. Incremental costs directly attributable to the issue
of common shares and warrants are recognized as a deduction from equity, net of any tax effects.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares
outstanding during the period. Diluted earnings (loss) per share is calculated by adjusting net income (loss) and
weighted average number of shares outstanding during the period for the effects of dilutive potential shares, which
includes any options granted.
REVENUE RECOGNITION
DCM recognizes revenue when control of the goods or services has been transferred. Revenue is measured at the
amount of consideration to which DCM expects to be entitled to, net of incentives given to its customers including
volume-based incentives, price concessions and cash discounts.
The following is a description of the principal activities from which DCM generates its revenue, along with the
corresponding revenue recognition accounting policies applied:
(a) Product sales - DCM manufactures customized products based on specifications pre-approved by its customers.
At its customers' request, DCM will also purchase product from third-party vendors and resell that to its
customers (including technology enabled hardware solutions - see (e) below) For products that DCM purchases
54
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
and resells to its customers, DCM is typically a principal in these arrangements as it is responsible for making
key decisions over the purchasing of product and has the economic risks and rewards that are customary with
control. Accordingly, third party product revenue is typically presented on a gross basis in revenue with the
corresponding product purchase cost and associated costs recognized in costs of revenue. DCM recognizes
revenue when control over the product transfers to the customer, which is effectively transferred upon the
completion of production or when resale product is purchased from a third party vendor and inducted into DCM's
warehouses or shipped directly to customers from third party vendors due to the custom nature of the product, as
it does not have an alternative use to DCM, such that DCM is entitled to payment once the quantity of product
pursuant to an individual purchase order is produced or purchased from a third-party vendor and inducted into its
warehouses. Given manufactured products are customized or purchased specifically at the customer’s request,
product returns are insignificant.
In some instances, DCM's customers obtain the product directly from DCM following the completion of production
or directly from third-party vendors. In other instances, DCM’s contracts involve the provision of warehousing and
shipment services, in addition to manufacturing or purchasing of third-party products. Based on DCM's
contractual arrangements with its customers related to product, certain of DCM's contracts with customers
include the provision of warehousing, freight, marketing and other services, in addition to manufacturing or
purchase from third-parties of customized products based on specifications pre-approved by its customers. For
bundled pricing arrangements, DCM allocates the transaction price to each performance obligation based on
their relative stand alone selling prices. Management applied judgment and assumptions in determining the
stand-alone selling prices in allocating revenue between the various performance obligations based on non-
bundled pricing arrangements and comparable market data, where applicable. DCM stores customized or
purchased product at the request of the customer; the product is identifiable as the customer’s product; the
product is ready for transfer to the customer upon the customer’s request; and DCM cannot re-direct the product
nor use the product to fulfill another customer’s product order under the contract. DCM recognizes product
revenues when control has transferred over the product upon product manufacture by DCM or upon receipt of
third-party product into DCM's warehouses. Based on the contractual terms with its customers, DCM either
issues an invoice when product that is manufactured by DCM or purchased from third-party vendors and is
inducted into DCM's warehouse, or alternatively the invoice is issued for some customers when product is
dispatched from, its warehouses. In instances where DCM issues an invoice on dispatch of product from its
warehouses, rather than at the date of transfer of control, DCM is still entitled to payment for the purchased or
manufactured product. Accordingly, revenue is recognized for the product manufactured by DCM or purchased
from third parties and a corresponding balance for “unbilled receivables” are recognized within trade receivables
in the consolidated statement of financial position. Unbilled receivables are transferred to accounts receivables
when the invoices are issued to the customers. Deferred revenue represents amounts that have been invoiced to
the customer but not yet recognized as revenue, including advance payments and billings in excess of revenue.
Deferred revenue is recognized as revenue when DCM completes production of product or upon receipt of third-
party product into its warehouses.
(b) Warehousing services - DCM provides custodial services to store customer product in its warehouse over a
specified agreed upon period of time. For non-bundled pricing arrangements, warehousing revenues are
recognized over the period that warehousing services are provided to the customer. For bundled pricing
arrangements, DCM allocates a portion of the initial transaction price for warehousing services and recognizes
revenue on a straight-line basis over the period of the warehousing as it best represents the pattern of
performance. Amounts are typically invoiced as warehousing services are performed in accordance with agreed
upon contractual terms at periodic intervals. When DCM receives advance payments or issues billings in excess
of revenue, these are recognized as deferred revenue in the statement of financial position. Deferred revenue is
recognized as revenue when or as DCM provides custodial services over the agreed upon warehouse term.
(c) Freight services - DCM has identified it has a distinct performance obligation for shipment of product for certain
contracts where it has an obligation to arrange shipment services where control of the product has been
transferred to the customer prior to shipment. DCM frequently contracts with third parties to deliver product.
DCM is typically a principal for such shipment services as it is responsible for making key decisions over the
55
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
shipment arrangements and has the economic risks and rewards associated with such control. As a principal
DCM recognizes shipment revenues when performance of the shipping service has occurred as products are
shipped.
(d) Other services - This includes marketing services and other ancillary services such as fees related to financing
charges associated with customers where DCM stores customer product in the warehouse over a period of time
and invoices the customer when the product is dispatched from DCM's warehouse. Revenue from marketing
services is recognized over time as the services are performed. Revenue for other ancillary services is
recognized upon completion of the performance obligations to its customers. Financing income is recognized as
DCM provides custodial services to its customers over the agreed upon warehouse term.
(e) Technology enabled hardware solutions - We procure certain products and services from third party providers to
ensure that our clients’ complete business and marketing communications needs are met while providing
comprehensive vendor management strategies. Technology enabled hardware solutions include scanners,
printers, tablets, and other technology applications, often with barcoding and RFID functionality, and combine
with our print consumables, creating an integrated ecosystem. Tech-enabled hardware solutions represent a
distinct performance obligation (from our print consumables) and revenue is recognized when the product is
shipped from the vendor, or inducted into DCM warehouse.
(f) Technology enabled subscription services and fees - Our tech-enabled subscription services and fees include the
provision of marketing technology workflow applications and digital asset management, or DAM, software
subscription fees, managed technology services, program management services, professional services fees, and
implementation and development fees. Typically, these services and fees are contracted on either a project basis
in the case of professional services, implementation, and development services fees, or for periods of three to
five-year terms, with one to two-year renewal options, in the case of software subscription fees and managed
technology services. Revenue is measured based on the consideration DCM expects to be entitled to in
exchange for providing services as they are delivered, or rateably over the term of the contract, and represent a
distinct performance obligation.
VARIABLE CONSIDERATION
Some contracts with customers provide volume-based incentives specific to product sales. In addition price
concessions (adjustments to the amount charged to a customer made outside of the initial contact terms) are
sometimes provided to customers if there are billing disputes or customers have experienced some level of
dissatisfaction in order to encourage customers to pay for previous purchases and continue making future purchases.
Such incentive offerings and price concessions give rise to variable consideration and are required to be estimated at
contract inception by using either the expected value or the most likely amount, depending on which method better
predicts the amount of consideration to which the customer will be entitled. The estimates are based on various
assumptions including past experience with customers and other relevant factors. DCM uses the most likely amount
when determining the expected amount of volume-based incentives and price concessions it will give to its customers
and records these as a reduction to revenue in the consolidated statement of operations. DCM reduces the
transaction price for any price concessions expected to be provided to customers, as revenue can only be recognized
to the extent that it is highly probable that a significant reversal in the amount of revenue will not occur when the
uncertainty associated with the variable consideration is subsequently resolved.
CONTRACT COSTS
Contract costs represent incremental costs incurred, such as sales commissions for sales made to certain customers.
Contract costs are deferred and included within prepaid expenses and other assets for contracts expected to be
delivered after more than one year and then amortized over their estimated useful lives. Contract costs are carried at
cost less accumulated amortization. For the years ended December 31, 2022 and 2021, DCM did not have any
significant balances or transactions.
56
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
FINANCIAL INSTRUMENTS
CLASSIFICATION AND MEASUREMENT
Financial assets are classified and measured based on these categories: amortized cost, fair value through other
comprehensive income ("FVTOCI"), and fair value through profit and loss (“FVTPL”).
Financial liabilities are classified and measured based on two categories: amortized cost or FVTPL. Derivatives
embedded in contracts where the host is a financial asset in the scope of the standard are not separated, but the
hybrid financial instrument as a whole is assessed for classification.
Financial assets and liabilities at FVTPL: A financial asset or liability is classified in this category if acquired principally
for the purpose of selling or repurchasing in the short-term. Derivatives are also included in this category unless they
are designated as hedges. Financial instruments in this category are recognized initially and subsequently at fair
value. Transaction costs are expensed in the statement of operations and are included in finance costs. Gains and
losses arising from changes in fair value are presented in the statement of operations within other gains and losses in
the period in which they arise. Financial assets and liabilities at FVTPL are classified as current except for the portion
expected to be realized or paid beyond twelve months of the statement of financial position date, which is classified
as non-current.
Financial assets and liabilities at amortized cost: Financial assets and liabilities at amortized cost are initially
recognized at fair value, except for trade receivables that do not contain a significant financing component which are
measured at the transaction price, plus or minus transaction costs, respectively, and subsequently carried at
amortized cost less any impairment.
Financial assets through other comprehensive income: Financial assets carried at FVOCI are measured at fair value.
Interest, dividends and impairment gains and losses are recognized in the consolidated statement of operations on
the same basis as for amortized cost assets. Changes in fair value are recognized initially in other comprehensive
income. When the assets are derecognized or reclassified the cumulative changes in fair value are reclassified to the
consolidated statement of operations (except where they relate to investments in equity instruments). The Company
has no financial instruments measured at fair value through other comprehensive loss.
DCM determines the classification of financial assets and liabilities at initial recognition. The classification of DCM's
financial assets and liabilities is disclosed in note 22.
IMPAIRMENT OF FINANCIAL ASSETS
DCM applies the 'expected credit loss' ("ECL") model to assess the impairment of its financial assets at each balance
sheet date. The ECL model requires considerable judgment, including consideration of how changes in economic
factors affect ECLs, which are determined on a probability-weighted basis. IFRS 9 outlines a three-stage approach to
recognizing ECLs which is intended to reflect the increase in credit risks of a financial instrument based on 1) 12-
month expected credit losses or 2) lifetime expected credit losses. DCM measures loss allowance at an amount equal
to lifetime ECLs.
DCM applies the simplified approach to determine ECLs on trade receivables by using a provision matrix based on
historical credit loss experiences. The historical results were used to calculate the run rates of default which were
then applied over the expected life of the trade receivables, adjusted for forward looking information of economic and
other factors (such as potential impacts from the current high inflationary and high interest rate economic environment
and potential economic recession affecting the ability of customers to settle the billed trade receivables). Trade
receivables are written off when there is no reasonable expectation of recovering the asset or a portion, thereof.
Impairment losses are recorded in general and administration expenses in the consolidated statements of operations.
Where there is a change that will cause a significant reduction in the loss, the impairment loss previously recognized
is reversed through the consolidated statements of operations.
57
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
DERECOGNITION
Financial Assets: The Company derecognizes financial assets only when the contractual rights to cash flows from the
financial assets expire, or when it transfers the financial assets and substantially all of the associated risks and
rewards of ownership to another entity. Gains and losses on derecognition are generally recognized in the
consolidated statements of operations.
Financial liabilities: The Company derecognizes financial liabilities only when its obligations under the financial
liabilities are discharged, cancelled or expired. Generally, the difference between the carrying amount of the financial
liability derecognized and the consideration paid and payable, including any non-cash assets transferred or liabilities
assumed, is recognized in the consolidated statements of operations.
USE OF ESTIMATES, MEASUREMENT UNCERTAINTY AND JUDGMENTS
The preparation of consolidated financial statements requires management to make critical judgments, estimates and
assumptions that affect the reported amount of certain assets and liabilities and the disclosure of the contingent
assets and liabilities at the date of the consolidated financial statements and revenues and expenses for the period
reported. Management must also make estimates and judgments about future results of operations, related specific
elements of the business and operations in assessing recoverability of assets and recorded value of liabilities.
Significant areas of estimates, measurement uncertainty and judgments are summarized below. For each item,
actual results could differ from estimates and judgments made by management.
IMPAIRMENT OF GOODWILL
Goodwill is tested for impairment annually at the end of each fiscal year or more frequently if events or changes in
circumstances indicate there may be impairment. The determination of the impairment of goodwill is impacted by the
determination of the CGUs, estimates of the recoverable value of those CGUs, assumptions of future cash flows, and
achieving forecasted business results.
In management’s judgment DCM has a single goodwill CGU, being the Company as a whole, reflecting the manner in
which the operating results are being reviewed by the CODM to make decisions about resources to be allocated and
to assess the Company's performance as an integrated marketing and business solutions provider to its customers.
The recoverable amount of this CGU was determined based on its estimated fair value less cost of disposal using a
discounted cash flow method. Management applied considerable judgment in estimating the recoverable amounts of
its CGU, which included the use of key assumptions relating to revenue growth rates, gross margins and discount
rates. While the recoverable amount from the discounted cash flow model is sensitive to key assumptions used for
forecast revenues, gross margins and discount rate, management are satisfied that the Company’s forecasts and
assumptions, taking account of reasonably possible changes in results and other uncertainties will not change the
result of DCM's impairment analysis (see also note 9 for the sensitivity of the model to changes in these key
assumptions).
3 Change in accounting policies
New and amended standards adopted
IFRS 3 REFERENCE TO CONCEPTUAL FRAMEWORK
In May 2020, the IASB issued an amendment to IFRS 3 to (i) clarify references to the 2018 Conceptual Framework in
order to determine what constitutes an asset or liability in a business combination, (ii) add an exception for certain
liabilities and contingent liabilities to refer to IAS 37 or IFRIC 21 and (iii) clarify that an acquirer should not recognize
contingent assets at the acquisition date. The amendments were adopted effective January 1, 2022 and did not have
an impact on the consolidated financial statements.
58
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
IAS 37 ONEROUS CONTRACTS: COST OF FULFILLING A CONTRACT
In May 2020, the IASB issued an amendment to IAS 37 to clarify which costs to include in estimating the cost of
fulfilling a contract for the purpose of assessing whether that contract is onerous. The amendments were adopted
effective January 1, 2022 and did not have an impact on the consolidated financial statements.
IFRS 9 FINANCIAL INSTRUMENTS: FEES IN THE '10 PER-CENT' TEST FOR DERECOGNITION OF FINANCIAL
LIABILITIES
In May 2020, the IASB issued Annual Improvements to IFRS Standards 2018 - 2020. This amendment clarifies which
fees an entity includes when it applies the ‘10 per cent’ test of IFRS 9 in assessing whether to derecognize a financial
liability. An entity includes only fees paid or received between the entity and the lender, including fees paid or received
by either the entity or the lender on the other’s behalf. The amendments were adopted effective January 1, 2022 and
did not have an impact on the consolidated financial statements.
(b) Future accounting standards not yet adopted
AMENDMENTS TO IAS 1, PRESENTATION OF FINANCIAL STATEMENTS AND IAS 8, ACCOUNTING
POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS
These standards were amended to introduce the definition of an accounting estimate and include other amendments
to IAS 8 to help entities distinguish changes in accounting estimates from changes in accounting policies. The
amendments are effective for annual periods beginning on or after January 1, 2023. DCM is currently evaluating the
impact on the consolidated financial statements.
AMENDMENTS TO IAS 12, DEFERRED TAXES RELATED TO ASSETS AND LIABILITIES ARISING FROM A
SINGLE TRANSACTION
This standard was amended to require companies to recognize deferred tax on particular transactions that, on initial
recognition, give rise to equal amounts of taxable and deductible temporary differences. This amendment is effective
for annual periods beginning on or after January 1, 2023. DCM is currently evaluating the impact on the consolidated
financial statements.
IAS 1 PRESENTATION OF FINANCIAL STATEMENTS: CLASSIFICATION OF LIABILITIES AS CURRENT OR
NON-CURRENT
In January 2020, the IASB issued Classification of Liabilities as Current or Non-current (Amendments to IAS 1). The
amendments aim to promote consistency in applying the requirements by helping companies determine whether debt
and other liabilities with an uncertain settlement date should be classified as current (due or potentially due to be
settled within one year) or non-current. The amendments include clarifying the classification requirements for debt a
company might settle by converting it into equity. On October 31, 2022, the IASB published an amendment to clarify
how conditions with which an entity must comply within twelve months after the reporting period affect the
classification of a liability. The amendments are effective for reporting periods beginning on or after January 1, 2024.
DCM is currently evaluating the impact on the condensed interim consolidated financial statements.
There are no other IFRS or International Financial Reporting Interpretations Committee (‘IFRIC’) interpretations that
are not yet effective that would be expected to have a significant impact on DCM.
59
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
4 Trade receivables
Trade receivables
Provision for expected credit losses (note 22)
December 31,
2022
December 31,
2021
56,195 $
(1,565)
54,630 $
52,850
(1,283)
51,567
$
$
As at December 31, 2022, trade receivables include unbilled receivables of $13,491 (2021 – $16,457), net of an
expected credit loss allowance of $1,150 (2021 – $750).
5 Inventories
Raw materials
Work-in-progress
Finished goods
December 31,
2022
December 31,
2021
$
$
14,719 $
2,827
2,674
20,220 $
6,519
2,662
2,952
12,133
Raw materials inventory amount is net of obsolescence reserves of $629 (2021 – $277). Finished goods consist of
base stock items.
6 Property, plant and equipment
The following tables present changes in property, plant and equipment for the years ended December 31, 2022 and
2021:
Leasehold
improvements
Office
furniture
and
equipment
Presses
and
printing
equipment
Computer
hardware Vehicles
Total
8,416
1,475
21
(168)
(2,965)
2,595 $
957
94 $
31
5,129 $
302
582 $
185
—
(1)
(1,010)
—
(15)
(50)
15
(152)
6
—
(1,630)
(269)
16
—
—
—
(6)
2,541 $
60 $
3,664 $
504 $
10 $
6,779
13,878 $
(11,337)
1,476 $ 33,971 $
(1,416)
(30,307)
3,028 $
(2,524)
2,541 $
60 $
3,664 $
504 $
31 $
(21)
10 $
52,384
(45,605)
6,779
Year ended December 31, 2022
Opening net book value
Additions
Effect of movement in exchange
rates
Disposals
Depreciation for the year
Closing net book value
At December 31, 2022
Cost
Accumulated depreciation
Net book value
$
$
$
$
60
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
Leasehold
improvements
Office
furniture
and
equipment
Presses
and
printing
equipment
Computer
hardware Vehicles
Total
Year ended December 31, 2021
Opening net book value
Additions, net of transfers from CIP
Effect of movement in exchange rates
Disposals
Depreciation for the year
Closing net book value
At December 31, 2021
Cost
Accumulated depreciation
Net book value
7 Right-of-use asset
$
$
$
$
2,380 $
1,264
2
181 $
29
—
6,609 $
335
(2)
(32)
(9)
(21)
613 $
188
—
(4)
(1,019)
(107)
(1,792)
(215)
—
16
—
—
—
9,783
1,832
—
(66)
(3,133)
2,595 $
94 $
5,129 $
582 $
16 $ 8,416
13,064 $
(10,469)
1,566 $ 43,179 $
(1,472)
(38,050)
2,948 $
(2,366)
90 $ 60,847
(74) (52,431)
2,595 $
94 $
5,129 $
582 $
16 $ 8,416
The following tables present changes in the right-of-use assets for for the years ended December 31, 2022 and 2021:
Year ended December 31, 2022
Opening net book value
Additions
Modifications
Depreciation for the year
Derecognition of subleased asset
Effect of movement in exchange
rates
Closing net book value
At December 31, 2022
Cost
Accumulated depreciation
Net book value
$
$
$
$
Property
Office
Equipment
Production
Equipment
28,308 $
1,814
340
(3,398)
(202)
(28)
26,834 $
141 $
3,448
241
(746)
—
—
3,084 $
5,027 $
821
194
(2,465)
—
10
3,587 $
Total
33,476
6,083
775
(6,609)
(202)
(18)
33,505
42,677 $
(15,843)
26,834 $
6,496 $
(3,412)
3,084 $
16,672 $
(13,085)
3,587 $
65,845
(32,340)
33,505
61
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
Year ended December 31, 2021
Opening net book value
Additions
Modifications
Disposal
Depreciation for the year
Effect of movement in exchange
rates
Closing net book value
At December 31, 2021
Cost
Accumulated depreciation
Net book value
$
$
$
$
Property
Office
Equipment
Production
Equipment
33,698 $
574
(1,442)
(334)
(4,176)
(12)
28,308 $
682 $
96
270
—
(907)
—
141 $
Total
42,341
670
(759)
(334)
7,961 $
— $
413 $
— $
(3,345) $
(8,428)
(2)
5,027 $
(14)
33,476
40,753 $
(12,445)
28,308 $
2,807 $
(2,666)
141 $
15,647 $
(10,620)
5,027 $
59,207
(25,731)
33,476
During the year ended December 31, 2022, DCM modified certain leases by entering into renewal and/or amending
agreements to extend or reduce a lease term and/or increase/reduce the lease payments.
During the year ended December 31, 2022, DCM entered into a sublease agreement and recognized an asset which
is recorded under prepaid expenses and other current assets on the statement of financial position.
During the year ended December 31, 2021, DCM modified certain leases by entering into renewal and/or amending
agreements to extend or reduce a lease term and/or increase/reduce the lease payments, including the termination of
two facilities that were consolidated into one new facility. During the year ended December 31, 2021, DCM reduced
the assumed duration of various leased facilities to exclude extension options as management determined that it was
no longer considered reasonably certain that they would be exercised.
62
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
8 Intangible assets
The following tables present changes in intangible assets for the years ended December 31, 2022 and 2021:
Year ended December 31, 2022
Opening net book value
Additions
Amortization for the year
Closing net book value
At December 31, 2022
Cost
Accumulated amortization
Net book value
Year ended December 31, 2021
Opening net book value
Additions
Amortization for the year
Closing net book value
At December 31, 2021
Cost
Accumulated amortization
Net book value
Customer
relationships
Software and
technology
Trademarks,
trade names
and non-
compete
agreements
3,872 $
—
(1,475)
2,397 $
113 $
71
(118)
66 $
57 $
—
(13)
44 $
Total
4,042
71
(1,606)
2,507
87,733 $
11,952 $
8,697 $
108,382
(85,336)
(11,886)
(8,653)
(105,875)
2,397 $
66 $
44 $
2,507
Customer
relationships
Software and
technology
Trademarks,
trade names and
non-compete
agreements
5,449 $
—
(1,577)
3,872 $
657 $
1,390
(1,934)
113 $
135 $
—
(78)
57 $
Total
6,241
1,390
(3,589)
4,042
87,733 $
11,881 $
8,697 $
108,311
(83,861)
(11,768)
(8,640)
(104,269)
3,872 $
113 $
57 $
4,042
$
$
$
$
$
$
$
$
The remaining useful lives of the customer relationships are between 1 and 5 years.
During the fourth quarter of 2021 the unamortized amount of $1,508 relating to a terminated software development
project was written off and recorded within amortization expense.
63
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
9 Goodwill
DCM has a single operating segment, being the Company as a whole, which is the level at which goodwill is
monitored for internal management purposes reflecting the way DCM manages its operations.
At December 31, 2022, DCM performed its annual review for impairment of goodwill by comparing the fair value of
the Company's goodwill CGU to its respective carrying value. DCM did not make any changes to the valuation
methodology used to assess for impairment since its last annual impairment test. The recoverable amount of its CGU
has been determined based on the fair value less cost of disposal. DCM uses the income approach to estimate the
recoverable amount of its CGU considering estimated cash flows from the perspective of an independent market
participant, which would be classified within Level 3 of the fair value hierarchy. The income approach is predicated on
the value of the future cash flows that a business will generate going forward. The discounted cash flow method was
used which involves projecting cash flows and converting them into a present value through discounting. The
discounting uses a rate of return that is commensurate with the risk associated with the business and the time value
of money. This approach required key assumptions about projected revenue growth rates, gross margins and
discount rates.
Revenue growth rates and gross margins were based on the 2023 budget internally approved and presented to the
Board and further projected over a five-year forecast period. The average annual cumulative revenue growth rates
over the forecast period was 2.9% (2021 – 5.0%) was applied to revenue over the forecast period in consideration of
the current economic conditions that existed as at December 31, 2022 and the specific trends of the business
services and marketing solutions industries. A perpetual long-term growth rate of 0% (2021 – 0%) was used thereafter
to derive the recoverable amount of the CGU. The forecasted gross margin over the five-year forecast period is
31.8% (2021 – 31.0% to 35.1%).
Furthermore, DCM derived an after-tax discount rate to calculate the present value of the projected cash flows using
a weighted average cost of capital (“WACC”). This represents an estimate of the total overall required rate of return
on an investment for both debt and equity owners. Determination of the WACC requires separate analysis of cost of
equity and debt, and considers a risk premium based on the assessment of risks related to the projected cash flows.
A discount rate of 13.5% was used (2021 – 15.0%). The change in discount rates reflect management’s judgment as
to the specific risks relating to the CGU and industry in which it operates.
The estimated recoverable amount exceeded its carrying value by $143,004 (2021 – $160,907). While the
recoverable amount from the discounted cash flow model is sensitive to key assumptions used for forecast revenues,
gross margins and discount rate, management are satisfied that the Company’s forecasts and assumptions, taking
account of reasonably possible changes in results and other uncertainties will not change the result of DCM's
impairment analysis. As a result of these tests, it was concluded that there was no impairment of goodwill during the
year.
The recoverable amount would equal its carrying value if the key assumptions were changed to the following (in each
case with all other assumptions remaining unchanged).
Discount rate
Revenue growth rate over 5-year forecast period and in perpetuity
Gross Margin
December 31,
2022
December 31,
2021
44.4 %
(4.4) %
23.9 %
50.1 %
(5.3) %
23.0 %
64
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
10 Provisions
Balance – December 31, 2021
Utilized during the year
Balance - December 31, 2022
Less: Current portion of provisions
As at December 31, 2022
Balance – December 31, 2020
Additional charge during the year
Utilized during the year
Balance – December 31, 2021
Less: Current portion of provisions
As at December 31, 2021
TERMINATION PROVISIONS
Termination
provisions Plant Closure
3,926 $
(2,610)
1,316 $
(1,316)
— $
550 $
(550)
— $
—
— $
Termination
provisions
Plant Closure
1,276 $
8,631
(5,981)
3,926 $
(2,730) $
1,196 $
— $
1,060
(510)
550 $
(550)
— $
$
$
$
$
$
$
Total
4,476
(3,160)
1,316
(1,316)
—
Total
1,276
9,691
(6,491)
4,476
(3,280)
1,196
During the year ended December 31, 2021, DCM continued its restructuring and ongoing productivity improvement
initiatives to reduce it cost of operations, resulting in $8,631 of restructuring expenses due to headcount reduction
across DCM's operations.
For the year ended December 31, 2022, cash payments of $3,160 (2021 - $6,491) were made to former employees
for severances, to a landlord for closure of a manufacturing location and for other restructuring costs. The remaining
severance and restructuring accruals of $1,316 at December 31, 2022 are expected to be paid in 2023.
11 Lease liabilities
(i) LEASE LIABILITIES
DCM currently leases office space, office equipment and production equipment. A lease liability has been recognized
equal to the present value of remaining lease payments discounted at the interest rate implicit in the lease, or if that
rate cannot be readily determined, DCM’s weighted average incremental borrowing rate.
Office
Equipment
Production
Equipment
Balance - January 1, 2022
Additions
$
Modifications
Payments during the year
Interest charge for the year
Effects of movement in FX rates
Balance - December 31, 2022
Property
34,359 $
2,159
183
(5,919)
1,868
(2)
116 $
3,448
421
(783)
106
3
$
32,648 $
3,311 $
4,624 $
821
171
(2,028)
249
6
3,843 $
Total
39,099
6,428
775
(8,730)
2,223
7
39,802
65
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
Balance - January 1, 2021
Additions
$
Modifications
Disposals
Payments during the year
Interest charge for the year
Effects of movement in FX rates
Balance - December 31, 2021
Property
39,033 $
574
(572)
(396)
(6,345)
2,065
—
Office
Equipment
Production
Equipment
1,018 $
96
28
—
8,302 $
—
(288)
—
Total
48,353
670
(832)
(396)
(1,054)
(3,803)
(11,202)
28
—
116 $
428
(15)
4,624 $
2,521
(15)
39,099
$
34,359 $
The contractual undiscounted cash flows of DCM’s lease liabilities are as follows:
Contractual
Cash Flows
Extension
Options
Not later than one year
Later than one and not later than five years
Later than five years
Total undiscounted lease liabilities
$
$
Discounted using the incremental borrowing rate
Lease liabilities
Current
Non-current
9,094 $
20,189
520
Total December
31, 2022
9,094
21,245
26,192
— $
1,056
25,672
29,803 $
26,728 $
$
$
$
56,531
(16,729)
39,802
6,791
33,011
(ii) AMOUNTS RECOGNIZED IN THE STATEMENT OF OPERATIONS
Variable lease payments not included in the measurement of
lease liabilities
Income from sub-leasing right-of-use assets
Expenses relating to short-term leases and leases of low value
assets
$
$
$
5,670 $
(29) $
487 $
5,744
(124)
808
For the year ended
December 31, 2022
For the year ended
December 31, 2021
All extension options that are reasonably certain to be exercised have been included in the measurement of the lease
obligation. The Company reassesses the likelihood of extension option to be exercised when there was a significant
event or change in circumstances. During the year ended December 31, 2022, extension options that are not
reflected in the measurement of the lease liability total $650 (2021 - $1,063).
66
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
12 Credit facilities
December 31,
2022
December 31,
2021
Term loans
- 6.10% term debt, maturing October 15, 2022 (FPD III
Credit Facility)
- 6.95% term debt, maturing March 10, 2023 (FPD IV
Credit Facility)
- 6.95% term debt, maturing May 15, 2023 (FPD V Credit
Facility)
- 5.95% term debt, maturing December 17, 2026 (FPD VI
Credit facility)
- floating rate debt, maturing May 8, 2024 (Bank Term
Loan)
Revolving facilities
- floating rate debt, maturing November 8, 2024 (Bank
Credit Facility)
Credit facilities
Unamortized debt premiums and discount
Unamortized transaction costs
Less: Current portion of Credit facilities
Credit facilities
CREDIT AGREEMENTS
$
$
$
$
— $
4,882
1,225
9,429
5,913
5,869
27,318 $
260
(531)
27,047 $
(11,667)
15,380 $
1,743
9,432
2,200
11,000
9,690
2,969
37,034
140
(875)
36,299
(11,743)
24,556
BANK FACILITIES
DCM has established a revolving credit facility (as amended, the “Bank Credit Facility”) pursuant to an agreement
("the Bank Credit Agreement") with a Canadian chartered bank (the “Bank”). Under the terms of the Bank Credit
Agreement, the maximum principal amount available under the Bank Credit Facility is $15,000 and the Bank Credit
Facility matures on November 8, 2024. The Revolving Facility is available to be drawn by way of either Prime Rate
Loans, Base Rate Loans, Canadian Dollar Offered Rate (CDOR Loans), London Interbank Offered Rate (LIBOR
Loans), and/or Letters of Credit. Prime rate loans charge interest at the greater of the Bank's published reference rate
on Canadian Dollar denominated commercial loans and the CDOR rate for a period of 30 days plus 100 basis points
per annum. Currently advances under the Bank Credit Facility may not, at any time, exceed the lesser of $15,000 and
a fixed percentage of DCM’s aggregate accounts receivable and inventory (less certain amounts). Advances under
the amended Bank Credit Facility are subject to floating interest rates based upon the Canadian prime rate plus an
applicable margin of 0.5% for a rate of 6.95% as at December 31, 2022. On November 8, 2021, DCM established a
term loan ("Bank Term Loan") with the Bank for $10,000 to in part refinance the Crown Facility. The Bank Term Loan
matures on May 8, 2024 and is subject to a floating interest rate based upon the Canadian prime rate plus an
applicable margin of 3.50% for a rate of 9.95% as at December 31, 2022. DCM has the right to make a prepayment at
any time in respect of any outstanding advances under the Bank Credit Facility without penalty subject to a minimum
repayment of $500. On May 16, 2022 Refinitiv Benchmark Services Limited, the benchmark administrator of the
CDOR announced that the calculation and publication of all tenors of CDOR will permanently cease after June 28,
2024. The Canadian Overnight Repo Rate Average (CORRA) has been nominated as a replacement for CDOR.
When CDOR is phased out we expect the Bank Credit Facility will be amended to remove the CDOR borrowing
option and the Prime rate will then be based solely on the Bank's reference rate. The amended facility also includes
an “accordion” feature which can provide of up to $10,000 of additional capacity under the revolving facility. As at
December 31, 2022, DCM had access to $8,593 of available credit under the Bank Credit Facility. DCM had cash and
cash equivalents of $4,208 shown on the consolidated statement of financial position as at December 31, 2022.
67
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
FPD FACILITIES
DCM has four amortizing term loan facilities with interest and principal payable quarterly (the "FPD Credit Facilities"
and, collectively with the Bank Credit Facility, the "Credit Facilities") with Fiera Private Debt Fund III L.P., Fiera Private
Debt Fund IV L.P., Fiera Private Debt V L.P., and Fiera Private Debt VI L.P., all of which are funds managed by Fiera
Private Debt Fund GP Inc. ("FPD").
CROWN FACILITY
DCM had a non-revolving term loan facility with Crown Capital Partner Funding, LP, a fund managed by Crown
Capital LP Partner Funding Inc. The total advances under this facility were $19,000. Interest of $2,496 had been
deferred and capitalized to the outstanding principal obligation, increasing the total advances to $21,496 prior to the
refinancing of this debt. These advances were repayable on maturity on May 7, 2023 and bore interest at 12% per
annum, payable quarterly. DCM's obligations under the Crown Facility were subordinated to its other senior credit
facilities and secured by a conventional security on all of the assets of DCM and its subsidiaries.
A total of 1,510,000 warrants were issued to Crown in connection with these loans which entitle Crown to acquire one
DCM common share per warrant at an exercise price of $0.26. The warrants expire on May 7, 2023.
The Crown Facility was prepayable in full at any time, subject to prepayment fees of: (a) 2% on the principal loan
outstanding if the prepayment option was exercised prior to May 2022 or (b) 1% on the principal loan outstanding if
the prepayment option was exercised thereafter.
During the fourth quarter of 2021, the Crown Facility was prepaid and refinanced through amended and new credit
facilities from the Bank and FPD (see amendments to credit facilities). A prepayment fee of $429 was incurred which
is included within finance costs. The carrying value of the Crown Facility was nil as of December 31, 2022 and 2021.
AMENDMENTS TO CREDIT FACILITIES
On January 22, 2021, DCM entered into a ninth amendment to its Bank Credit Facility. The applicable margin payable
on DCM's borrowings under the Bank Credit Facility was reduced from 1.35% to 0.60% for an interest rate of 3.05%
taking into account then current floating reference rates and the applicable margin payable by DCM. The Minimum
Cash Flow Requirement covenant (as defined in the Sixth Amending Agreement) was also terminated.
On November 8, 2021, DCM entered into an amended and restated credit facility (the “Amended Bank Facility”) with
the Bank. The Amended Bank Facility includes a revolving credit facility of up to $15,000, a term loan of $10,000 and
an “accordion” feature which can provide of up to $10,000 of additional capacity under the revolving facility. The term
loan will amortize in equal monthly payments over 30 months. The maturity date of the Amended Bank Facility has
been extended from January 31, 2023 to November 8, 2024. The revolving facility is available to finance the working
capital needs of the Company. Advances under the Amended Bank Facility are subject to floating interest rates based
upon the Canadian prime rate plus an applicable margin of 0.50% and 3.50% for the revolving and term components,
respectively. In connection with this amendment, DCM recognized a loss on modification of $260, which is included in
finance costs in the consolidated statement of operations. For the year-ended December 31, 2021, DCM capitalized
transaction costs of $210.
On December 17, 2021, DCM also entered into an agreement with FPD VI, by its general partner, FPD, pursuant to
which FPD provided an $11,000 term facility, with a term of 60 months from closing. 71.5% of the FPD VI term loan is
being repaid in equal monthly principal payments over 59 months, with the remaining 28.5% being repayable at
maturity in a bullet payment. A fixed interest rate of 5.95% per annum is payable on the FPD VI term loan. For the
year-ended December 31, 2021, DCM capitalized transaction costs of $279. Concurrently with the entering into of the
FPD VI term loan, the terms of the loans with FPD III, FPD IV and FPD V, were amended such that the terms of the
agreements are the same, other than in respect of interest rates, maturity dates and amortization.
Collectively, the proceeds from the new term loans provided by the Bank and FPD, and the drawings on the revolving
facility, were used to repay the $21,496 Crown Facility.
68
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
COVENANT REQUIREMENTS
Each of the Bank Credit Agreement and the FPD Credit Agreements contains customary representations and
warranties, certain financial covenant requirements, as well as certain restrictive covenants which limit the discretion
of the Board and management with respect to certain business matters including the declaration or payment of
dividends on the common shares of DCM without the consent of the Bank, FPD III, FPD IV, FPD V and FPD VI as
applicable. The Company’s current financial covenant requirements include a working capital current ratio, total
funded debt to EBITDA ratio and a fixed charge coverage ratio test as well as limits on our annual capital
expenditures and total funded debt levels. As of December 31, 2022, DCM was in compliance with all of its financial
covenants.
The continued ability to comply with financial covenants on the Company's credit facilities for at least the next twelve
months is contingent on management’s ability to meet budgeted revenue, profitability and working capital targets. The
estimate of future cash flows in the Company’s 2023 budget include a number of key assumptions to support the
financial covenant calculations, specifically related to forecast revenues and gross margins (which in turn impact
earnings before interest, income taxes, depreciation and amortization (EBITDA)). Management are satisfied that the
Company’s forecasts and projections, taking account of reasonably possible changes in results and other
uncertainties will not result in any breach of the financial covenants on its credit facilities within the next year.
For purposes of the Bank Credit Agreement, the FPD Credit Agreements, “EBITDA” means net income or net loss for
the relevant period, calculated on a consolidated basis, plus amounts deducted, or minus amounts added, in
calculating net income or net loss in respect of: the aggregate expense incurred for interest on debt and other costs of
obtaining credit; income taxes, whether or not deferred; depreciation and amortization; non-cash expenses resulting
from employee or management compensation, including the grant of stock options or restricted options to employees;
any gain or loss attributable to the sale, conversion or other disposition of property out of the ordinary course of
business; interest or dividend income; foreign exchange gain or loss; gains resulting from the write-up of property and
losses resulting from the write-down of property (except allowances for doubtful accounts receivable and non-cash
reserves for obsolete inventory); any gain or loss on the repurchase or redemption of any securities (including in
connection with the early retirement or defeasance of any debt); goodwill and other intangible asset write-downs;
lease payments to convert on a pre IFRS 16 basis; and any other extraordinary, nonrecurring or unusual items such
as restructuring costs as agreed to by the lender. The pro forma financial results from any acquisitions completed by
DCM during a given year are included on a trailing twelve month basis effective as of the closing date of the
acquisitions for the purposes of DCM’s covenant calculations.
A failure by DCM to comply with its obligations under the Bank Credit Agreement or, the FPD Credit Agreement,
together with certain other events, including a change of control of DCM and a change in DCM’s Chief Executive
Officer, President or Chief Financial Officer (unless a replacement officer acceptable to FPD, acting reasonably, is
appointed within 60 days of the effective date of such officer’s resignation), 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.
In addition, under the terms of the FPD IV Credit Agreement and the FPD V Credit Agreement, DCM is required to
deposit and hold cash in a blocked account of $425 and of $90 to be used for repayments of principal and interest of
indebtedness outstanding under the FPD IV Credit Facility and indebtedness outstanding under the FPD V Credit
Facility, respectively. These requirements were eliminated effective January 2022. As at December 31, 2022, there
was a balance of $nil (December 31, 2021 - $515) in the blocked account related to the FPD IV Credit Facility and
FPD V Credit Facility which is recognized as restricted cash on the consolidated statement of financial position.
INTER-CREDITOR AGREEMENT
DCM's obligations under its Credit Facilities are secured by conventional security charging all of the property and
assets of DCM and its subsidiaries. DCM entered into an inter-creditor agreement between the Bank, FPD III, FPD IV,
FPD V, and FPD VI, respectively, which, among other things, establishes the rights and priorities of the respective
69
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
liens of the Bank, FPD III, FPD IV, FPD V and FPD VI on the present and after acquired property of DCM and its
subsidiaries.
The movement in credit facilities during the years ended December 31, 2022 and 2021 are as follows:
$
$
Balance - Beginning of year, net of transaction costs and debt
premiums and discounts
Changes from financing cash flows
Proceeds from credit facilities
Repayment of credit facilities
Transaction costs
Total change from financing cash flows
Non-cash movements
Amortization of transaction costs
Debt modification losses
Capitalized interest on Crown advances
Accretion of premium and discount
December 31,
2022
December 31,
2021
36,299 $
45,739
2,900
(12,616)
—
26,583
344
—
—
120
21,000
(30,696)
(489)
35,554
941
260
585
(1,041)
36,299
Balance - End of year, net of transaction costs and debt
premiums and discounts
$
27,047 $
The scheduled principal repayments on the long-term debt are as follows:
December 31,
2022
—
11,667
9,364
1,571
4,716
27,318
$
$
2022
2023
2024
2025
2026
70
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
13 Promissory notes
The movement in the promissory note balances during the year ended December 31, 2021 are as follows:
2021
Balance - Beginning of year
Unwinding of discount
Payments during the year
Balance - End of year
BOLDER
Graphics
acquisition
Perennial
acquisition
Related Party
Promissory
Notes
$
174 $
—
980 $
(10)
(174)
(970)
$
— $
— $
975 $
25
(1,000)
— $
Total
2,129
15
(2,144)
—
The Related Party Promissory Notes bore interest at a rate of 12% per annum, payable quarterly on the first business
day of each fiscal quarter beginning September 3, 2019, with principal repayable on or before the May 7, 2023
maturity date. In June 2021, the Related Party Promissory Notes balance of $1,000 was repaid early. A total of 75,571
warrants were issued in connection with the issuance of the Related Party Promissory Notes. Each warrant entitles
the holder to acquire one DCM common share at an exercise price of $1.08 prior to March 31, 2023.
14 Income taxes
Significant components of DCM’s deferred income tax assets and liabilities as of December 31, 2022 and 2021 are as
follows:
December 31, 2022
Assets
Liabilities
Pension obligations and other post-employment benefit plans
$
1,618 $
— $
Property, plant and equipment, ROU assets and lease liabilities
Benefit of income tax loss and other carry-forwards
Deferred finance fees and debt premiums
Deductible reserves
Intangible assets
Other
1,071
65
144
1,408
543
—
—
—
—
—
—
(19)
Net
1,618
1,071
65
144
1,408
543
(19)
Total deferred income tax assets (liabilities)
$
4,849 $
(19) $
4,830
Set-off of deferred income tax assets (liabilities) pursuant to set off
provisions
(19)
19
—
Net deferred income tax assets (liabilities)
$
4,830 $
— $
4,830
71
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
December 31, 2021
Assets
Liabilities
Net
Pension obligations and other post-employment benefit plans
$
1,957 $
— $
1,957
Property, plant and equipment, ROU assets and lease liabilities
Benefit of income tax loss and other carry-forwards
Deferred finance fees and debt premiums
Deductible reserves
Intangible assets
Other
646
579
139
1,394
561
189
—
—
—
—
—
—
646
579
139
1,394
561
189
Total deferred income tax assets (liabilities)
$
5,465
— $
5,465
Set-off of deferred income tax assets (liabilities) pursuant to set off
provisions
Net deferred income tax assets (liabilities)
—
$
5,465
— $
— $
—
5,465
As at December 31, 2022, DCM recorded net deferred income tax assets of $4,830 (2021 – $5,465) and net deferred
income tax liabilities of nil (2021 – nil) in its consolidated statements of financial position. The deferred income tax
assets are only offset against deferred income tax liabilities where DCM has a legally enforceable right to offset these
amounts and the deferred income tax assets and deferred income tax liabilities are related to income taxes levied by
the same taxation authority.
Changes in deferred income tax assets and liabilities during the years ended December 31, 2022 and 2021 are as
follows:
Pension obligations and other post-
employment benefit plans
Property, plant and equipment, ROU
assets and lease liabilities
Benefit of income tax loss and other carry-
forwards
Deferred finance fees and debt premiums
Deductible reserves
Intangible assets
Other
Deferred income tax assets (liabilities),
net
Balance at
January 1,
2022
Recognized
in statement
operations
Recognized in
comprehensive
income
Balance at
December 31,
2022
$
1,957 $
(177) $
(162) $
1,618
646
579
139
1,394
561
189
425
(514)
5
14
(18)
(208)
—
—
—
—
—
—
1,071
65
144
1,408
543
(19)
$
5,465 $
(473) $
(162) $
4,830
72
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
Pension obligations and other post-
employment benefit plans
Property, plant and equipment, ROU assets
and lease liabilities
Benefit of income tax loss and other carry-
forwards
Deferred finance fees and debt premiums
Deductible reserves
Intangible assets
Promissory notes
Other
Balance at
January 1, 2021
Recognized
in statement
operations
Recognized in
comprehensive
income
Balance at
December 31,
2021
2,920
364
64
360
595
716
2
(67)
(315)
282
515
(221)
799
(155)
(2)
256
(648)
1,957
—
—
—
—
—
—
—
646
579
139
1,394
561
—
189
Deferred income tax assets (liabilities), net
$
4,954 $
1,159 $
(648) $
5,465
The realization of the deferred income tax assets is dependent on the generation of future taxable income during the
years in which those temporary differences become deductible. Based on management's projections of future taxable
income and tax planning strategies, management expects to realize these net deferred income tax assets in advance
of expiry. As at December 31, 2022, DCM has US Federal tax loss carryforwards of $1,326 and US state tax loss
carryforwards of $2,235 for which no deferred tax asset has been recognized. The loss carryforwards expire in
varying amounts starting in 2039 (2021 – 2039 to 2040).
In the ordinary course of business, DCM and its subsidiaries and predecessors have entered into transactions where
the ultimate tax determination may be uncertain. These uncertainties require management to make estimates of the
ultimate tax liabilities and, accordingly, the provision for income taxes. Since there are inherent uncertainties,
additional tax liabilities may result if tax matters are ultimately resolved or settled at amounts different from those
estimates. As at December 31, 2022, DCM has provided for $1,407 (2021 - $1,407) included in income taxes
payable related to past transactions where the ultimate tax determination is unclear.
The major components of income tax expense (recovery) for the years ended December 31, 2022 and 2021 are set
out below:
Current income tax expense:
Current tax on profits for the year
Adjustment for current tax of prior periods
Total current income tax expense
Total deferred income tax expense (recovery)
Total income tax expense for the year
For the year ended
December 31, 2022
For the year ended
December 31, 2021
$
$
$
5,456 $
—
5,456 $
473
5,929 $
2,238
—
2,238
(1,159)
1,079
For the year ended December 31, 2022, deferred income tax expense (recovery) on the recognition of actuarial gains
(losses) related to DCM's defined benefit plans of $162 (2021 – $648) were recognized in the statements of
comprehensive income.
73
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
The following are reconciliations of income tax expense (recovery) calculated at the statutory rate of Canadian
corporate income taxes to the income tax expense (recovery) for the years ended December 31, 2022 and 2021.
For the year ended
December 31, 2022
For the year ended
December 31, 2021
Income before income taxes
$
19,895 $
Expected income tax expense calculated at statutory income
tax rate (1)
Adjustment to income taxes resulting from:
Difference between Canadian rates and rates applicable to
subsidiary in another country or rates applicable to wholly
owned Canadian subsidiaries
Unrecognized tax losses and temporary differences
Adjustment for current tax of prior periods and other
Non-deductible expenses and other items
Total income tax expense for the year
$
5,028
9
248
35
609
5,929 $
2,644
651
73
333
(89)
111
1,079
(1) The calculation of the current income tax is based on a combined federal and provincial statutory income tax rate
of 25.28% (2021 – 24.64%).
The combined federal and provincial statutory income tax rate for the current year is 0.64% higher than 2021 due to
the effect of changes in statutory tax rates and the allocation of taxable income between provinces. Deferred income
tax assets and liabilities are measured at tax rates that are expected to apply to the period when the asset is realized
or the liability is settled. Deferred income tax assets and liabilities have been measured using an expected average
combined statutory income tax rate of 25.28% (2021 – 24.64%) based on the tax rates in years when the temporary
differences are expected to reverse.
15 Pension obligations, assets and expenses
Effective January 1, 2008, no further services credits will accrue under the defined benefit provision of the DATA
Communications Management Pension Plan. Actuarial valuations are typically performed at least every three years.
Based on those valuations, the annual cash contributions in respect of the defined benefit provision of the DATA
Communications Management Pension Plan are dependent on the plan’s investment performance and changes in
long-term interest rates, estimates of the price of annuities, and other elements of pension plan experience such as
demographic changes and administration expenses, among others. Under applicable pension regulations, the plan’s
solvency deficiency can be funded over a maximum period of five years.
During the year ended December 31, 2022, DCM engaged actuaries to complete an updated actuarial valuation of
the defined benefit provision of the DATA Communications Management Pension Plan, which confirmed that, as at
December 31, 2021. the solvency position of the defined benefit provision of the DATA Communications Management
Pension Plan had improved since the previous valuation. Based upon the December 31, 2021 actuarial report, DCM's
annual minimum funding obligation for the defined benefit provision of the DATA Communications Management
Pension Plan for 2023 and 2024 is $322 each year.
74
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
The following is a summary of DCM’s net pension obligations for the defined benefit provision of the funded DATA
Communications Management Pension Plan and unfunded SERP:
Present value of funded obligations
Less: Fair value of plan assets
Surplus of funded plan
Present value of unfunded obligations
Pension obligations, net
December 31,
2022
December 31,
2021
45,062 $
(47,426)
(2,364)
6,069
3,705 $
61,137
(63,668)
(2,531)
7,499
4,968
$
$
CHANGE IN THE PRESENT VALUE OF DEFINED BENEFIT PLAN OBLIGATIONS
The following is a summary of the change in DCM’s net pension obligations for the defined benefit provision of the
funded DATA Communications Management Pension Plan and unfunded SERP:
Balance – Beginning of year
Interest expense
Benefits paid
Re-measurements:
- Gain from change in demographic assumptions
- Gain from change in financial assumptions
- Experience (gains) losses
Funded
Unfunded
$
61,137 $
7,499 $
1,763
(2,906)
(523)
(12,115)
(2,294)
217
(546)
—
(1,182)
81
Balance – End of year
$
45,062 $
6,069 $
Balance – Beginning of year
Interest expense
Benefits paid
Re-measurements:
- Gain from change in financial assumptions
- Experience (gains) losses
Funded
Unfunded
$
67,530 $
8,271 $
1,655
(3,206)
(4,834)
(8)
184
(547)
(494)
85
Balance – End of year
$
61,137 $
7,499 $
December 31,
2022
68,636
1,980
(3,452)
(523)
(13,297)
(2,213)
51,131
December 31,
2021
75,801
1,839
(3,753)
(5,328)
77
68,636
75
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
CHANGE IN THE FAIR VALUE OF PLAN ASSETS
The following is a summary of the change in the fair value of the plan assets for the defined benefit provision of the
funded DATA Communications Management Pension Plan and unfunded SERP:
Funded
Unfunded
December 31,
2022
Balance – Beginning of year
$
63,668 $
Interest income
Employer contributions
Benefits paid
Administrative expenses paid from plan assets
Re-measurements:
- Loss on plan assets, excluding amounts included in
interest income
Balance – End of year
Interest income
Employer contributions
Benefits paid
Administrative expenses paid from plan assets
Re-measurements:
- Loss on plan assets, excluding amounts included in
interest income
Balance – End of year
1,929
323
(2,906)
(300)
— $
—
546
(546)
—
63,668
1,929
869
(3,452)
(300)
(15,288)
$
47,426 $
—
— $
(15,288)
47,426
Funded
Unfunded
December 31,
2021
1,659
423
(3,211)
(300)
— $
—
547
(547)
—
67,733
1,659
970
(3,758)
(300)
(2,636)
$
63,668 $
—
— $
(2,636)
63,668
Balance – Beginning of year
$
67,733 $
DATA COMMUNICATIONS MANAGEMENT PENSION PLAN ASSET COMPOSITION
The following is a summary of the composition in plan assets of the defined benefit provision of the funded DATA
Communications Management Pension Plan:
For the year ended
December 31, 2022
For the year ended
December 31, 2021
Quoted
Percentage of
plan assets
Quoted
Percentage of
plan assets
$
$
$
$
$
$
473
9,838
10,311
6,352
24,056
6,268
36,676
439
47,426
$
22 % $
$
77 % $
484
12,254
12,738
6,625
37,622
6,331
50,578
1 % $
352
100 % $
63,668
20 %
79 %
1 %
100 %
Domestic equities
Foreign equities
Equity instruments
Short and mid-term bonds
Long-term bonds
Commercial mortgages
Debt instruments
Cash and cash equivalents
Total
76
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
ELEMENTS OF DEFINED BENEFIT EXPENSE RECOGNIZED IN THE STATEMENTS OF OPERATIONS
The following is a summary of the expense recognized for the defined benefit provision of the funded DATA
Communications Management Pension Plan and unfunded SERP:
Administration expenses
$
300 $
— $
300
Funded
Unfunded
December 31,
2022
Interest expense
Interest income
Total net interest expenses (income)
Defined benefit expense recognized
Administration expenses
Interest expense
Interest income
Total net interest expense (income)
1,763
(1,929)
(166)
217
—
217
134 $
217 $
1,980
(1,929)
51
351
Funded
Unfunded
December 31,
2021
300 $
— $
300
$
$
1,655
(1,659)
(4)
184
—
184
Defined benefit expense recognized
$
296 $
184 $
1,839
(1,659)
180
480
77
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
AMOUNTS RECOGNIZED IN THE STATEMENT OF COMPREHENSIVE INCOME
The following is a summary of the amounts recognized in the statement of comprehensive income (loss) for the
defined benefit provision of the funded DATA Communications Management Pension Plan and unfunded SERP:
Funded
Unfunded
December 31,
2022
Re-measurements:
- Gain from change in demographic assumptions
- Gain from change in financial assumptions
- Experience (gains) losses
- Loss on plan assets, excluding amounts included in
interest income
$
(523)
(12,115)
(2,294)
15,288
$
(1,182)
81
—
Deferred income tax effect
356
(1,101)
(90)
278
Defined benefit recovery recognized
$
266 $
(823) $
(523)
(13,297)
(2,213)
15,288
(745)
188
(557)
Re-measurements:
- Gain from change in financial assumptions
- Experience (gains) losses
- Loss on plan assets, excluding amounts included in
interest income
Deferred income tax effect
Funded
Unfunded
December 31,
2021
$
(4,834) $
(8)
2,636
(2,206)
544
(494) $
85
—
(409)
101
(5,328)
77
2,636
(2,615)
645
Defined benefit expense recognized
$
(1,662) $
(308) $
(1,970)
DCM manages its pension plans by meeting with an actuarial consultant and the fund managers on a regular basis
and reviews periodic reports outlining changes in the plan liabilities and the return on pension assets relative to the
market. Assumptions are reviewed on an ongoing basis and adjustments are made whenever management believes
that conditions have materially changed.
SIGNIFICANT ACTUARIAL ASSUMPTIONS ADOPTED IN MEASURING DCM’S DEFINED BENEFIT
OBLIGATIONS
DATA Communications Management Pension Plan
Discount rate
Rate of compensation increase
SERP
Discount rate
December 31,
2022
December 31,
2021
5.30 %
3.00 %
3.10 %
3.00 %
5.20 %
3.00 %
DCM increased the discount rate that was used to calculate its defined benefit obligations as at December 31, 2022
to reflect current Canadian economic conditions and long-term interest rates. The salary increase assumption
remained unchanged at December 31, 2022.
78
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics and
experience in Canada. These assumptions translate into an average life expectancy in years for a pensioner retiring
at age 65:
Retiring at the end of the reporting period:
Male
Female
Retiring in 25 years after the end of the reporting period:
Male
Female
December 31,
2022
December 31,
2021
22.0
24.3
23.2
25.5
21.9
24.3
23.2
25.5
Through its defined benefit plans, DCM is exposed to a number of risks, the most significant of which are detailed
below:
ASSET VOLATILITY
For a defined benefit pension plan, fluctuations in the value of plan assets are assessed in the context of fluctuations
in the plan liabilities. The plan liabilities are calculated using a discount rate set with reference to high quality
corporate bond yields. As discount rates change, the value of the plan liabilities will fluctuate, if the growth of plan
liabilities exceeds that of plan assets a deficit will result. The defined benefit provision of the DATA Communications
Management Pension Plan currently holds a small proportion of equities, approximately 22% of total assets, which
are expected to outperform corporate bonds in the long-term while providing volatility and risk in the short-term. The
defined benefit provision of the DATA Communications Management Pension Plan’s investment time horizon and
financial position are key inputs in deciding on the proportion of equities held.
The defined benefit provision of the DATA Communications Management Pension Plan is closed to new membership,
which means the investment time horizon is shrinking as the plan matures. In 2014, the derisking strategy was
reviewed against the investment time horizon and the financial position of the defined benefit provision of the DATA
Communications Management Pension Plan. The investment strategy reflects an ongoing (rather than solvency)
focus following a duration matching strategy using pooled funds in an attempt o match the interest rate sensitivity of
plan assets to plan liabilities. The equity and bond target allocations are 80% and 20%, respectively, and the equity
portfolio structure did not change relative to the previous year.
CHANGES IN BOND YIELDS
A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in
the value of the plan’s bond holdings.
SALARY RISK
The present value of the pension benefit obligations is calculated by reference to the future salaries of plan
participants, so salary increases of the plan participants greater than assumed will increase plan liabilities.
LIFE EXPECTANCY
The majority of the plans’ obligations provide benefits for the life of the member, so increases in life expectancy will
result in an increase in the plans’ liabilities.
The sensitivity of the defined benefit pension obligations for the DATA Communications Management Pension Plan
and SERP to changes in assumptions at December 31, 2022 and at December 31, 2021 are set out below. The
79
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
effects on each plan of a change in an assumption are weighted proportionately to the total plan obligations to
determine the total impact for each assumption presented.
December 31, 2022
Impact on defined benefit obligations
Change in assumption
Increase in assumption Decrease in assumption
Discount rate
Salary growth rate
0.25%
0.25%
Life expectancy
$
$
(1,207) $
113
1,261
(106)
Increase by 1 year in
assumption
Decrease by 1 year in
assumption
1,301 $
(1,331)
December 31, 2021
Impact on defined benefit obligations
Change in assumption
Increase in assumption
Decrease in assumption
Discount rate
Salary growth rate
0.25%
0.25%
Life expectancy
$
$
(2,013) $
356
2,114
(326)
Increase by 1 year in
assumption
Decrease by 1 year in
assumption
2,097 $
(2,120)
Each sensitivity analysis disclosed in this note is based on changing one assumption while holding all other
assumptions constant. In practice, this is unlikely to occur and changes in some of the assumptions may be
correlated. When calculating the sensitivity of the defined benefit obligations to variations in significant actuarial
assumptions, the same method (present value of the defined benefit obligations calculated with the projected unit
credit method at the end of the reporting period) has been applied as for calculating the liability recognized in the
statements of financial position.
The weighted average duration of the defined benefit obligations is 9.65 years (2021 – 12.02 years).
Expected maturity analysis of undiscounted pension benefits:
Less than
a year
Between 1 to 2
years
Between 3 to 5
years
Between 5 to 10
years
At December 31, 2022
At December 31, 2021
$
$
3,498 $
3,481 $
3,533 $
7,164 $
10,983 $
7,475 $
19,197
19,884
The annual pension expense for the defined contribution provision of the DATA Communications Management
Pension Plan is based on the amounts contributed in respect of eligible employees. The annual pension expense for
the GCCP and Unifor Pension & Benefit Plans, which are accounted for as a defined contribution plan, is based on
amounts contributed based on a percentage of wages of unionized employees who are covered by the respective
collective bargaining agreements, all of whom are employed at DCM facilities located in the Province of Québec and
Ontario.
DCM’s pension expense related to DCM’s defined contribution plans are as follows:
Defined contribution plan
Defined benefit multi-employer plans
For the year ended
December 31, 2022
$
$
948 $
372 $
For the year ended
December 31, 2021
954
419
80
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
DCM expects that, in 2023, contributions to the defined benefit provision of the DATA Communications Management
Pension Plan will be approximately $322, contributions to the defined contribution provision of the DATA
Communications Management Pension Plan will be approximately $1,031, contributions to the SERP will be
approximately $546, contributions to the GCPP will be approximately $406 and contributions to the Unifor Pension &
Benefit Plans will be approximately $57.
16 Other post-employment benefit plans
Costs related to the DCM OPEB Plans and the DCM OPEB LTD Plan, are actuarially determined using the projected
unit credit method. The actuarial present value of all future projected benefits determined as at the valuation date and
management’s best assumptions.
The following summarizes the change in the obligations related to the DCM OPEB Plans and DCM OPEB LTD Plan:
December 31,
2022
December 31,
2021
Balance – Beginning of year
$
2,971 $
Current service cost
Interest expense
Benefits paid
Re-measurements:
- Loss (gain) from change in demographic assumptions
- Gain from change in financial assumptions
- Experience losses (gains)
179
92
(365)
21
(312)
109
Balance – End of year
$
2,695 $
3,507
236
89
(390)
(342)
(126)
(3)
2,971
ELEMENTS OF OTHER POST EMPLOYMENT BENEFIT EXPENSE RECOGNIZED IN THE STATEMENTS OF
OPERATIONS
The following summarizes the elements of the benefit expense related to the DCM OPEB Plans and DCM OPEB LTD
Plan:
December 31,
2022
December 31,
2021
Current service cost
Interest expense
Re-measurements:
- Gain from change in demographic assumptions
- Gain from change in financial assumptions
- Experience losses (gains)
Benefit (recovery) recognized
$
$
179 $
92
(127)
(170)
10
(16) $
236
89
(342)
(85)
(11)
(113)
81
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
AMOUNTS RECOGNIZED IN THE COMPREHENSIVE INCOME
The following summarizes the amounts recognized in the statement of comprehensive income (loss) related to the
DCM OPEB Plans:
Re-measurements:
- Loss from change in demographic assumptions
- Gain from change in financial assumptions
- Experience losses
Deferred income tax effect
Benefit expense (recovery) recognized
December 31,
2022
December 31,
2021
$
$
148 $
(142)
99
105
(26)
79 $
—
(36)
8
(28)
3
(25)
SIGNIFICANT ACTUARIAL ASSUMPTIONS ADOPTED IN MEASURING DCM’S OTHER POST-EMPLOYMENT
BENEFIT OBLIGATIONS
DCM OPEB Plans
Discount rate
Health care cost trend rate – Initial
Health care cost trend rate declines by 2040 (2021 – 2040)
DCM OPEB LTD Plan
Discount rate
Health care cost trend rate – Initial
Health care cost trend rate declines by 2040 (2021 – 2040)
December 31,
2022
December 31,
2021
5.30 %
6.11 %
4.00 %
3.10 %
5.88 %
4.00 %
December 31,
2022
December 31,
2021
5.30 %
5.31 %
4.00 %
3.10 %
5.40 %
4.00 %
SENSITIVITY ANALYSIS ON OTHER POST-EMPLOYMENT BENEFIT OBLIGATIONS
The effects on the DCM OPEB Plans and DCM OPEB LTD Plan of a change in an assumption are weighted
proportionately to the total plan obligations to determine the total impact for each assumption presented.
At December 31, 2022
Discount rate
Health care cost trend rates
Life expectancy
Impact on other post-employment benefit obligations
Change in assumption
Increase in
assumption
Decrease in
assumption
0.25%
1.00%
$
(39) $
144
41
(131)
Increase by 1 year in
assumption
Decrease by 1 year in
assumption
$
(47) $
49
82
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
At December 31, 2021
Discount rate
Health care cost trend rates
Life expectancy
Impact on other post-employment benefit obligations
Change in assumption
Increase in assumption Decrease in assumption
0.25%
1.00%
$
(50) $
184
52
(166)
Increase by 1 year in
assumption
Decrease by 1 year in
assumption
$
67 $
(63)
Expected maturity analysis of undiscounted other post-employment benefits:
Less than
a year
Between 1 to
2 years
Between 3 to
5 years
Between 5 to
10 years
At December 31, 2022
At December 31, 2021
$
$
390 $
361 $
329 $
631 $
804 $
501 $
1,025
934
DCM expects that, in 2023, contributions to its DCM OPEB Plans and DCM OPEB LTD Plan will be approximately
$390.
17 Shares and warrants
SHARES
DCM is authorized to issue an unlimited number of common shares. The common shares have a stated capital of
one dollar. Each common share is entitled to one vote at any meeting of shareholders. Each holder of the common
shares will be entitled to receive dividends if, as and when declared by the Board. In the event of the liquidation,
dissolution, winding up of DCM or other distribution of assets of DCM among its shareholders for the purpose of
winding up its affairs, the holders of the common shares will be entitled to receive assets of DCM upon such a
distribution. Such distribution will be made in equal amounts per share on all the common shares at the time
outstanding without preference or distinction.
The following summarizes the change in number of issued and outstanding common shares during the periods below:
Balance – December 31, 2022
Balance – January 1, 2021
Shares issued - January 18, 2021
Shares issued - February 18, 2021
Exercise of warrants - June 20, 2021
Exercise of warrants - July 5, 2021
Balance – December 31, 2021
Number of
Common shares
44,062,831 $
Number of
Common shares
43,867,030 $
35,725
35,725
15,351
109,000
Amount
256,478
Amount
256,260
20
20
21
157
44,062,831 $
256,478
Shares were issued in 2021 in exchange for services provided to DCM by a third party during the year.
83
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
WARRANTS
A summary of warrant activities for the year ended December 31, 2022 and the year ended December 31, 2021 is as
follows:
2022
2021
Number of
Warrants
Weighted
average
Exercise Price
Number of
Warrants
Weighted
average Exercise
Price
Warrants outstanding - beginning of
year
Granted
Expired
Exercised
1,863,607 $
—
(215,450)
—
Warrants outstanding - end of year
1,648,157 $
0.28
—
0.185
—
0.30
1,920,092 $
67,866
—
(124,351)
1,863,607 $
0.33
0.32
—
(0.95)
0.28
The outstanding warrants had an exercise price range as follows:
$0.32
$0.99
$0.26
$0.185
Warrants outstanding
December 31, 2022
December 31, 2021
Number of Warrants
Number of Warrants
61,079
77,078
1,510,000
—
1,648,157
61,079
77,078
1,510,000
215,450
1,863,607
On February 3, 2021, DCM issued 67,866 warrants in connection with the Related Party Promissory Notes. Each
warrant entitles the holder to acquire one Common Share at an exercise price of $0.32 for a period of 2.25 years,
commencing on February 3, 2021. The fair value of the warrants issued was estimated to be $40 using the Black-
Scholes option-pricing model, assuming a risk-free interest of 0.58%, a weighted average life of 2.25 years, a
dividend yield of nil and an expected volatility of 40.00% based on comparable companies and adjusted using a
discount rate of 5% for the statutory hold period.
SHARE-BASED COMPENSATION
DCM has adopted a Long-Term Incentive Plan ("LTIP") to: recruit and retain highly qualified directors, officers,
employees and consultants (the "Participants"); provide Participants with an incentive for productivity and an
opportunity to share in the growth and the value of DCM; and, align the interests of Participants with those of the
shareholders of DCM. Awards to Participants are primarily based on the financial results of DCM and services
provided. The aggregate maximum number of common shares available for issuance from DCM's treasury under the
LTIP is 4,406,283 common shares or 10% of the issued and outstanding common shares of DCM. The shares to be
awarded will be authorized and unissued shares.
DCM's share-based compensation plan consists of five types of awards: restricted share unit ("RSUs"), options,
deferred share unit ("DSUs"), restricted shares or stock appreciation right ("SARs") awards. No restricted shares or
SARs have been granted to date.
84
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
(a)
Restricted share unit ("RSU")
Under the RSU portion of the LTIP, selected employees are granted RSUs where each RSU represents the right to
receive a distribution from DCM in an amount equal to the fair value of one DCM common share. RSUs granted are
performance and non-performance based. The performance component is based on Company specific financial
targets approved by the Board and the non-performance component is based on continued employment. RSUs
generally vest over three years, require continued employment with DCM for the duration of the vesting period and
settle in cash upon final vesting.
A liability for RSUs is measured at fair value on the grant date and is subsequently adjusted for changes in fair value.
The liability is recognized on a graded vesting basis over the vesting period, with a corresponding charge to
compensation expense, as a component of costs of revenues, selling, commissions and expenses, and general and
administration expenses. The RSUs payable are included in trade payables and accrued liabilities. Compensation
expenses for RSUs incorporate an estimate for expected forfeiture rates based on which the fair value is adjusted.
Balance - beginning of year
Units granted
Units forfeited
Units paid out
Balance - end of year
December 31,
2022
December 31,
2021
Number of RSUs
Number of RSUs
2,400,715
904,207
—
(150,617)
3,154,305
2,662,561
1,480,637
(740,701)
(1,001,782)
2,400,715
During the year ended December 31, 2022, the Chief Executive Officer ("CEO") and President of DCM was granted
357,985 RSUs (2021 – 302,529 RSUs) and a total of 546,222 RSUs (2021 – 1,178,108 RSUs) were awarded to other
members of DCM's management.
Of the total outstanding RSUs at December 31, 2022, nil (December 31, 2021 – nil) have vested and are payable.
The carrying amount of the liability relating to the RSUs at December 31, 2022 was $3,501 (2021 – $1,962).
During the year ended December 31, 2022, compensation expense of $1,740 (2021 – $1,614) was recognized in the
consolidated statement of operations related to vesting of RSUs granted, and fair value adjustments. RSUs and
DSUs are categorized as level 2 inputs in the fair value hierarchy given their valuations include inputs other than
quoted prices for which all significant inputs are observable, either directly or indirectly. There were no transfers
between levels 1, 2 or 3 during the period.
85
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
Options ("Options")
(b)
A summary of Options activities for the year ended December 31, 2022 and the year ended December 31, 2021 is as
follows:
2022
2021
Number of
Options
Weighted
average
Exercise Price
Number of
Options
Weighted
average Exercise
Price
Options outstanding - beginning of year
3,950,886 $
Granted
Forfeited
750,000
—
Options outstanding - end of year
4,700,886 $
0.91
1.30
—
0.97
1,587,486 $
2,625,000
(261,600)
3,950,886 $
Exercisable
2,867,553 $
0.99
2,322,253 $
The outstanding Options had an exercise price range as follows:
1.33
0.70
1.29
0.91
1.06
$0.69
$0.85
$1.29
$1.30
$1.38
Options outstanding
December 31, 2022
December 31, 2021
Number of Options
Number of Options
2,500,000
125,000
654,000
750,000
671,886
4,700,886
2,500,000
125,000
654,000
—
671,886
3,950,886
The Black-Scholes option-pricing model inputs used to compute compensation expense for the options granted under
the fair value-based method are as follows:
Expected life (years)
Expected volatility
Dividend yield
Risk free rate of return
Weighted average fair value of options
granted
Forfeiture rate
$
April 4, 2022
March 8, 2021
May 14, 2021
7.0
40 %
— %
2.41 %
0.58
$
10 %
7.0
40 %
— %
1.25 %
0.30
$
10 %
7.0
40 %
— %
1.23 %
0.36
10 %
On April 4, 2022, options to purchase up to 750,000 common shares were awarded to a member of management.
Once vested, the options are exercisable for a period of seven years from the grant date at an exercise price of $1.30
per share, representing the fair value of the Common Shares on the date of grant. The 750,000 options vest at a rate
of 1/3 each year beginning on April 4, 2023.
During the year ended December 31, 2021, options to purchase up to 2,500,000 common shares were awarded to
DCM's new President and CEO. Once vested, the options are exercisable for a period of seven years from the grant
date at an exercise price of $0.69 per share, representing the fair value of the Common Shares on the date of grant.
Of the total options granted, 1,000,000 options vested immediately. The remaining 1,500,000 options vest at a rate of
1/3 each year beginning on March 8, 2022.
During the year ended December 31, 2021, options to purchase up to 125,000 common shares were awarded to the
Chief Financial Officer ("CFO"). Once vested, the options are exercisable for a period of seven years from the grant
86
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
date at an exercise price of $0.85 per share, representing the fair value of the Common Shares on the date of grant.
All 125,000 options vest at a rate of 1/3 each year beginning on May 14, 2022.
During the year ended December 31, 2022, compensation expense of $328 (2021 – $488) was recognized in the
consolidated statement of operations related to options granted.
(c) Deferred share unit ("DSU")
Each director is required to receive at least half of his or her annual retainer in DSUs and had the option to elect to
receive all or part of his or her other compensation in DSUs.
Each DSU represents the right to receive a distribution from DCM in an amount equal to the fair value of one DCM
common share on the date of the termination of service of the respective director. The number of DSUs payable to
each director is determined by multiplying the total Director Fees payable by the percent elected to be paid in DSUs
and dividing the product by the Fair Value of one DCM common share on the grant date. A liability for DSUs is
measured at fair value on the grant date and is subsequently adjusted for changes in fair value. The DSUs payable is
included in trade payables and accrued liabilities.
During the year ended December 31, 2022, 358,582 DSUs (2021 – 303,017 DSUs) were granted and nil DSUs were
paid out (2021 – 183,510). The carrying amount of the liability relating to the 2,433,703 DSUs outstanding at
December 31, 2022 was $3,529 (December 31, 2021 – $2,656 and 2,075,121 DSUs outstanding).
During the year ended December 31, 2022, an expense of $971 (2021 – $1,839) was recognized in the consolidated
statement of operations related to DSUs granted of $573 (2021 - $447), and fair value adjustments of $398 (2021 -
$1,392).
18 Earnings per share
BASIC EARNINGS PER SHARE
Net income for the year attributable to common shareholders
Weighted average number of shares
Basic earnings per share
DILUTED EARNINGS PER SHARE
Net income for the year attributable to common shareholders
Weighted average number of shares
Adjustments for calculation of diluted earnings per share:
Options
Warrants
Weighted average number of shares in calculating diluted
earnings per share
Diluted earnings per share
$
$
$
$
For the year ended
December 31, 2022
For the year ended
December 31, 2021
13,966 $
44,062,831
0.32 $
13,966 $
44,062,831
1,235,008
1,274,227
46,572,066
0.30 $
1,565
43,993,494
0.04
1,565
43,993,494
804,611
1,338,402
46,136,507
0.03
For the year ended December 31, 2022, options to purchase up to 671,886 common shares, where the average
market price of the common shares was less than the exercise price were excluded from the computation of diluted
earnings per share as their effect would have been anti-dilutive. Warrants to purchase up to nil common shares were
excluded from the computation of diluted earnings per share as they were out-of-the-money as of December 31,
2022.
87
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
During the year ended December 31, 2021, options to purchase up to 1,325,886 common shares, where the average
market price of the common shares was less than the exercise price, were excluded in the computation of diluted
earnings per share as their effect would have been anti-dilutive. Warrants to purchase up to nil common shares were
excluded from the computation of diluted earnings per share as they were out-of-the-money as of December 31,
2021.
19 Changes in working capital
Trade receivables
Inventories
Prepaid expenses and other current and non-current assets
Trade and accrued liabilities
Deferred revenue
20 Commitments and Contingencies
For the year ended
December 31, 2022
For the year ended
December 31, 2021
$
$
(3,063) $
(8,087)
(43)
6,888
673
(3,632) $
13,723
(3,619)
(1,030)
(2,410)
471
7,135
DCM and its subsidiaries are subject to various claims, potential claims and lawsuits. While the outcome of these
matters is not determinable, DCM’s management does not believe that the ultimate resolution of such matters will
have a material adverse impact on DCM’s financial position.
Directors and officers are indemnified by the Company for various items including, but not limited to, costs to settle
lawsuits or actions due to their association with the Company, subject to certain restrictions. DCM has purchased
directors’ and officers’ liability insurance to mitigate the costs of any potential future lawsuits or actions. The term of
the indemnification covers the period during which the indemnified party served as a director or officer of the
Company.
In the normal course of business, DCM has entered into agreements that include indemnities in favour of third parties,
such as purchase and sale agreements, confidentiality agreements, engagement letters with advisors and
consultants, leasing contracts and license agreements. These indemnification arrangements may sometimes require
such third parties to compensate counterparties for losses as a result of breaches in representations, covenants and
warranties provided by the Company or as a result of litigation or other third party claims or statutory sanctions that
may be suffered by the counterparties as a consequence of the relevant transaction. In some instances, the terms of
these indemnities are not explicitly defined. No accruals have been required to be made as at December 31, 2022
with respect to these agreements.
Executive employment agreements allow for additional payments of approximately $3,141 if the individuals are
terminated without cause, and approximately $3,141 in the event of a change in control.
DCM makes contributions to the Québec Graphic Communication Pension Plan (the “GCPP”), based on a
percentage of the wages of its unionized employees covered by the respective collective bargaining agreements, all
of whom are employed at DCM facilities located in the Province of Québec.
The GCPP is a negotiated contribution defined benefit multi-employer pension plan which provides retirement
benefits to unionized employees in the printing industry. The GCPP is administered by a joint Board of Trustees
composed of representatives of participating employers and of the unions representing plan members in collective
88
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
bargaining. Based upon the terms of those applicable collective agreements, DCM’s estimated annual negotiated
contribution to the GCPP for 2023 is $406.
The GCPP’s most recent funding actuarial report (as at December 31, 2021) disclosed a going concern surplus of
113% and that negotiated contributions are in excess of the current service cost of the plan. On a solvency basis (or
wind up basis) the valuation shows a deficit on a solvency or wind up basis of 10%. No actuarial valuation was
required for the GCPP for the year ended December 31, 2022.
Bill 34 was adopted by Québec in April 2015 to clarify Québec pension legislation for negotiated contribution defined
benefit multi-employer pension plans to, among other things:
•
•
•
limit required employer contributions only to those amounts specified in the applicable collective agreements
negotiated with the relevant unions;
eliminate the employer's obligation to fund deficiencies; and
require the Board of Trustees to develop and implement a recovery plan when the negotiated contributions
are not sufficient to fund the plan, including the reduction of accrued benefits of all members.
21 Capital structure
DCM’s objectives when managing its capital structure are:
▪ To seek to ensure sufficient liquidity to safeguard DCM’s ability to continue as a going concern;
▪ To maintain a strong capital base so as to maintain shareholders’, creditors’, customers', suppliers' and market
confidence; and
▪ To deploy capital to provide an appropriate investment return to its shareholders
DCM’s capital structure consists of long-term debt (including the current portion) and shareholders’ equity. DCM’s
primary uses of capital are to finance increases in working capital, make payments towards its long-term obligations,
and fund investments in capital expenditures and business acquisitions.
DCM manages its capital structure and makes adjustments to it in light of changes in economic conditions and the
risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, in line with its present
strategic plan, DCM may issue new shares. Management anticipates that any major acquisition or significant growth
initiatives would be financed in part with additional equity and debt.
DCM is not subject to any externally imposed capital requirements other than the covenants and restrictions under
the terms of its Credit Facilities including the requirement to meet certain financial ratios and financial conditions
pertaining to permitted investments, acquisitions, lease agreements, dividends and subordinated debt.
DCM’s capital structure is as follows:
Credit facilities (note 12)
Lease liabilities (note 11)
Total long-term debt
Total equity
December 31,
2022
December 31,
2021
27,047 $
39,802
66,849 $
22,847 $
36,299
39,099
75,398
8,041
$
$
$
89
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
22 Financial instruments
DCM’s financial instruments consist of cash, restricted cash, trade receivables, trade payables and accrued liabilities,
credit facilities, and lease liabilities, as indicated in DCM’s statements of consolidated financial position as at
December 31, 2022 and 2021. DCM does not enter into financial instruments for trading or speculative purposes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
DCM's non-derivative financial instruments are comprised of cash, trade receivables, restricted cash, trade payables
and accrued liabilities, credit facilities, and lease liabilities. Non-derivative financial instruments are recognized
initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction
costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below.
Non-derivative financial instruments at fair value through the profit and loss include restricted share units and director
share units which are recorded as a liability at fair value on the grant date and are subsequently adjusted for changes
in the price of DCM's common shares through the consolidated statements of operations.
The fair value for other non-derivative financial instruments such as cash, trade receivables, trade payables and
accrued liabilities approximates their carrying value because of the short-term maturity of these instruments. The fair
value of restricted cash approximates its carrying value because it is a deposit held with a Canadian chartered bank.
Credit facilities and lease liabilities are initially recognized at the discounted present value of the amounts required to
be paid to derive its fair value and are then measured at amortized costs using the effective interest method, less any
impairment losses.
CATEGORIES OF FINANCIAL ASSETS AND LIABILITIES
The carrying values and the fair values of DCM’s financial instruments are classified into the categories listed below
in accordance with IFRS 9.
December 31, 2022
Financial assets at amortized cost (1)
Financial liabilities at amortized cost (2)
Financial liabilities FVTPL (3)
December 31, 2021
Financial assets at amortized cost (1)
Financial liabilities at amortized cost (2)
Financial liabilities FVTPL(3)
Carrying Value
Fair Value
$58,838
102,193
7,030
Carrying Value
$52,983
107,219
4,618
$58,838
102,724
7,030
Fair Value
$52,983
108,094
4,618
(1)
(2)
(3)
Includes cash and cash equivalents, restricted cash and trade receivables.
Includes trade payables and accrued liabilities (excluding financial liabilities related to commodity taxes that are
not contractual and that arise as a result of statutory requirements imposed by governments and therefore do not
meet the definition of financial assets or financial liabilities), credit facilities, and lease liabilities.
Includes RSUs and DSUs.
Credit facilities, lease liabilities, RSUs and DSUs are categorized as level 2 inputs in the fair value hierarchy given
their valuations include inputs other than quoted prices for which all significant inputs are observable, either directly or
indirectly. There were no transfers between levels 1, 2 or 3 during the year.
90
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
RISKS ARISING FROM FINANCIAL INSTRUMENTS
DCM is exposed to various risks as it relates to financial instruments. These risks and the processes for managing
the risk are set out below.
CREDIT RISK
Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its
contractual obligations. Financial instruments that potentially subjected DCM to credit risk consisted of cash,
restricted cash and trade receivables. The carrying amount of assets included in the consolidated statements of
financial position represents the maximum credit exposure.
DCM grants credit to customers in the normal course of business. DCM typically does not require collateral or other
security from customers; however, credit evaluations are performed prior to the initial granting of credit terms when
warranted and periodically thereafter. Normal credit terms for amounts due from customers call for payment within 0
to 60 days.
DCM has trade receivables from clients engaged in various industries including financial institutions, insurance,
healthcare, lottery and gaming, retailing, not-for-profit, energy and governmental agencies that are not concentrated
in any specific geographic area. DCM does not believe that any single industry or geographic region represents
significant credit risk. Credit risk concentration with respect to trade receivables is mitigated by DCM’s large client
base.
To measure the ECLs, trade receivables, including unbilled receivables, have been grouped based on similar credit
risk characteristics, past due status and other relevant factors. The expected default rates are calculated based on
management’s estimate as well as historical credit losses. The historical loss rates are adjusted to reflect current and
forward-looking information on economic factors affecting the ability of the customers to settle the trade receivable.
On that basis, the loss allowance as at December 31, 2022 was determined using default rates under the provision
matrix for an amount of $1,565 (2021 – $1,283), of which $1,150 (2021 – $750) relates to unbilled receivables.
The following default rates are used to calculate the ECLs on billed receivables as at December 31, 2022 and
December 31, 2021, respectively:
December 31, 2022
Default rates
Billed receivables balance
Billed receivables ECL
December 31, 2021
Default rates
Billed receivables balance
Billed receivables ECL
Total
Less than 30
days
Over 30
days
Over 60
days
$41,554
$415
0.13%
$26,316
$34
0.13%
$10,369
$13
0.33%
$3,291
$11
Over 90
days
22.60%
$1,578
$357
Total
Less than 30
days
Over 30 days Over 60 days Over 90 days
$35,643
$533
0.32%
$19,351
$61
0.57%
$10,429
$59
0.65%
$2,863
$19
13.14%
$3,000
$394
The following default rates are used to calculate the ECLs on unbilled receivables as at December 31, 2022 and
December 31, 2021, respectively:
91
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
December 31, 2022
Default rates
Unbilled receivables balance
Unbilled receivables ECL
December 31, 2021
Unbilled receivables
Unbilled receivables balance
Unbilled receivables ECL
Total
Less than 30
days
Over 30
days
Over 60
days
Over 90
days
$14,641
$1,150
0.86%
$3,840
$33
1.56%
$2,765
$43
1.28%
$1,327
$17
15.75%
$6,709
$1,057
Total
Less than 30
days
Over 30 days Over 60 days Over 90 days
$17,207
$750
0.22%
$5,111
$11
0.47%
$2,245
$11
1.07%
$2,138
$23
9.14%
$7,713
$705
At the end of each reporting period, management re-assesses the default rates. Default rates are applied to the billed
and unbilled receivable balances to calculate the credit default reserve. Management assesses the adequacy of this
reserve quarterly, taking into account historical experience, current collection trends, the age of receivables and,
when warranted and available, the financial condition of specific counterparties. When collection efforts have been
reasonably exhausted, specific balances are written off. As at December 31, 2022 the Company has $1,578 (5%) of
its billed receivables that are over 90 days old (2021 - $3,000 or 8%).
Judgment by management is required to determine both (a) the revenue and billed receivables to be recognized
where price concessions may need to be given to encourage customers to settle older amounts promptly as a result
of billing issues under IFRS 15 (as revenue can only be recognized to the extent that it is highly probable that a
significant reversal in the amount of revenue will not occur when the uncertainty associated with the variable
consideration is subsequently resolved), and (b) ECL provisions required under IFRS 9 to reflect impairments of its
trace receivables as a result of customers inability to settle the billed receivables. The Company recorded a provision
of nil (2021 - $618) within the billed receivable balance (and against revenue) for potential price concessions that may
need to be given to encourage customers to settle older amounts promptly as a result of billing issues, separately
from the expected credit losses in the tables above.
The movement in DCM’s expected credit loss provision for 2022 and 2021 are as follows:
For the year ended
December 31, 2022
For the year ended
December 31, 2021
Balance – Beginning of year
Net reversals (write offs) of receivables during the year
Change in estimated price concession provisions
reclassified to gross carrying amount
Increase (decrease) in loan loss allowance
Balance – End of year
$
$
1,283 $
648
—
(366)
1,565 $
652
255
(51)
427
1,283
LIQUIDITY RISK
Liquidity risk is the risk that DCM may encounter difficulties in meeting obligations associated with financial liabilities
as they become due.
92
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
The contractual undiscounted cash flows of DCM’s significant financial liabilities are as follows:
December 31, 2022
Less than
a year
1 to 3 years
4 years and
greater
Trade payables and accrued liabilities
$
44,133 $
— $
— $
9,094
14,137
21,245
16,975
26,192
—
$
67,364 $
38,220 $
26,192 $
131,776
Trade payables and accrued liabilities
$
37,589 $
— $
— $
Less than
a year
1 to 3 years
4 years and
greater
Total
44,133
56,531
31,112
Total
37,589
58,289
41,108
8,298
13,685
18,086
22,467
31,905
4,956
$
59,572 $
40,553 $
36,861 $
136,986
Lease liabilities
Credit facilities (1)
Total
December 31, 2021
Lease liabilities
Credit facilities (1)
Total
(1) Credit facilities as at December 31, 2022 subject to floating interest rates consisting of the Bank Credit Facility,
expiring on November 8, 2024, and the Bank Term Loan, expiring on May 8, 2024. As at December 31, 2022,
the outstanding balances totaled $5,869 and $5,913, respectively, and bore interest at a floating rate of 6.95%
and 9.95%, respectively, per annum. The amounts at December 31, 2022 include estimated interest totaling
$426 for 2023, and $484 for 2024. The estimated interest was calculated based on the total borrowings
outstanding at the end of the year and the annual floating interest rate in effect as at December 31, 2022. Credit
facilities at December 31, 2022 subject to fixed interest rates consisting of the the FPD IV Credit Facility, expiring
on March 10, 2023, the FPD V Credit Facility expiring on May 15, 2023 and the FPD VI Facility expiring on
December 15, 2026. As at December 31, 2022, the outstanding balances totaled $15,536, of which $6,107 bore
interest at a fixed rate of 6.95% per annum and $9,429 bore interest at a fixed rate of 5.95% per annum. Monthly
blended principal and interest payments of $422 and of $91, are due on the FPD IV and FPD V facilities
respectively, and $131 on the FPD VI facility.
Credit facilities at December 31, 2021 subject to floating interest rates consisting of the Bank Credit Facility,
expiring on November 8, 2024, and the Bank Term Loan, expiring on May 8, 2024. As at December 31, 2021, the
outstanding balance totaled $2,969 and $9,690, respectively, and bore interest at a floating rate of 2.95% and
5.95%, respectively, per annum. The amounts at December 31, 2021 include estimated interest totaling $579 for
2022, $346 for 2023, and $125 for 2024. The estimated interest was calculated based on the total borrowings
outstanding at the end of the year and the annual floating interest rate in effect as at December 31, 2021. Credit
facilities at December 31, 2021 subject to fixed interest rates consisting of the FPD III Credit Facility, expiring on
October 15, 2022, the FPD IV Credit Facility, expiring on March 10, 2023, the FPD V Credit Facility expiring on
May 15, 2023 and the FPD VI Facility expiring on December 15, 2026. As at December 31, 2021, the outstanding
balances totaled $24,375, of which $1,743 bore interest at a fixed rate of 6.10%, $11,632 bore interest at a fixed
rate of 6.95% per annum and $11,000 bore interest at a fixed rate of 5.95% per annum. These facilities require
monthly blended principal and interest payments of $96, of $422 and of $91, respectively.
DCM also has contingent obligations in the form of letters of credit. DCM believes that the currently projected cash
flow from operations and cash on hand will be sufficient to fund its currently projected operating requirements,
including expenditures related to its growth strategy, payments associated with provisions as a result of on-going
productivity improvement initiatives, payment of income tax liabilities, contributions to its pension plans, maintenance
or investment in new capital expenditures, and interest and scheduled repayments of borrowings under its credit
facilities.
Cash flows from operations could be, negatively impacted if demand for DCM’s products and services declines as a
result of the continued impact of inflationary pressures resulting from global supply chain challenges, rising interest
rates and the prospect of an economic recession. While estimated forecast compliance with financial covenants is
93
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
sensitive to key assumptions used for forecast revenues, gross margins and expenses (which in turn impact earnings
before interest, income taxes, depreciation and amortization (EBITDA)), management are satisfied that the
Company’s forecasts and projections, taking account of reasonably possible changes in results and other
uncertainties will not result in any breach of the financial covenants on its credit facilities. As a result, the Company
has concluded that it will have adequate access to liquidity to satisfy its obligations within one year after the date the
financial statements are issued
MARKET RISK
INTEREST RATE RISK
Interest rate risk refers to the risk that the value of a financial instrument or cash flows associated with the financial
instrument will fluctuate due to changes in market interest rates. Interest rate risk arises from interest bearing
financial assets and liabilities. DCM’s interest rate risk arises from credit facilities issuances at floating interest rates.
At December 31, 2022, $5,869 of DCM’s indebtedness outstanding was subject to floating interest rates of 6.95% per
annum and $5,913 of DCM's indebtedness outstanding was subject to floating interest rates of 9.95%; a 1% increase/
decrease in interest rates would have resulted in an increase/decrease in profit or loss and comprehensive loss by
$118 for the year ended December 31, 2022 (2021 – $127), respectively. At December 31, 2022, $6,107 was subject
to a fixed rate of interest of 6.95% per annum and $9,429 was subject to a fixed interest rate of 5.95% per annum.
CURRENCY RISK
Currency risk is the risk that the fair value of future cash flows arising from a financial instrument will fluctuate
because of changes in foreign currency exchange rates. In the normal course of business, DCM does not have
significant foreign exchange transactions and, accordingly, the amounts and currency risk are not expected to have
adverse material impact on the operations of DCM. Management considers the currency risk to be low and does not
hedge its currency risk and therefore sensitivity analysis is not presented.
23 Expenses by nature
For the year ended
December 31, 2022
For the year ended
December 31, 2021
Raw materials and other purchases
$
123,929 $
Wages and benefits
Occupancy costs
Restructuring expenses
Depreciation and amortization
Tech enabled subscription services
Acquisition costs
Research and development
Other expenses
91,040
8,088
—
11,160
854
1,870
1,015
10,644
Total cost of revenues and operating expenses
$
248,600 $
97,327
86,691
9,103
9,691
15,143
1,780
—
—
11,709
231,444
94
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
24 Segmented information
The CEO of DCM is the chief operating decision maker ("CODM"). The CODM reviews and assesses DCM’s
performance and makes decisions about resources to be allocated for each operating segment.
DCM has a single operating segment, being the Company as a whole, reflecting the manner in which the operating
results are being reviewed by the CODM to make decisions about resources to be allocated and to assess the
Company's performance.
Management evaluates the performance of the reportable segments based on income before interest, finance costs
and income taxes. Corporate expenses, certain non-recurring expenses, interest expense, finance costs and income
taxes are not taken into account in the evaluation of the performance of the reporting segment.
All significant external sales are to customers located in Canada. DCM established operations in Niles and Chicago,
Illinois in order to service the U.S. operations of a large customer and is seeking to grow its U.S. sales, however at
December 31, 2022, U.S. sales were not significant to disclose separately.
DCM has disclosed revenue on a disaggregated basis based on the nature of the major products and services it
provides to its customers as follows:
Product sales
Technology hardware solutions
Warehousing services
Freight services
Marketing and other services
Tech-enabled subscription service fees
$
For the year ended
December 31, 2022
For the year ended
December 31, 2021
239,355 $
12,156
7,325
8,402
1,249
5,317
207,611
6,415
6,488
7,481
1,886
5,450
$
273,804 $
235,331
During the the year ended December 31, 2022, DCM includes two new categories in this disclosure: technology-
enabled hardware solutions and technology-enabled subscription services. These revenue streams are considered
significant by management of DCM. During the year ended December 31, 2021 were restated accordingly, and
reclassified out of product sales.
25 Related party transactions
On March 15, 2018, DCM entered into a 5 year loan agreement with a key member of management for a total of $107
to finance the purchase of Common Shares. Interest will accrue at a rate of 3% per annum on the unpaid balance.
The loan is unsecured and repayable upon maturity. As at December 31, 2022, the balance owing of $110 (2021 –
$107) was included within other non-current assets in the statement of financial position.
On June 1, 2022, DCM entered into a sublease agreement with a related party, ending on November 29, 2024 for a
total of $107 annual rent. This sublease agreement was recorded as a reduction to the right-of-use asset (note 7).
95
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
COMPENSATION OF KEY MANAGEMENT
Key management personnel are deemed to be Directors on DCM's Board, the CEO, the President, the Chief
Financial Officer and other members of the senior executive team. Compensation awarded to key management
personnel, excluding compensation awarded to Directors which are described below, included:
Salaries and other short-term employee benefits
Termination and retirement benefits
Post-employment benefits
Share-based compensation expense
Total
For the year ended
December 31, 2022
For the year ended
December 31, 2021
$
$
4,227 $
—
14
1,055
5,296 $
3,958
3,114
56
1,729
8,857
In January 2020, DCM disposed of its' wholly owned subsidiary Perennial Brands Inc. (“PBI”), a non-core developer
of branded products, to a former employee and entered into an option agreement to purchase an equity interest in
PBI on or before December 31, 2021. In January 2021, the option agreement was terminated (note 27).
During the year ended December 31, 2022, key management personnel (excluding compensation awarded to
Directors) were granted 707,333 RSUs (2021 – 844,996 RSUs). Key management personnel (excluding
compensation awarded to Directors) were not issued any options to purchase Common Shares in 2022 (2021 -
2,625,000). During the year ended December 31, 2022, DCM’s general and administration expenses include an
expense of $1,055 (2021 – $1,729) for these share-based compensation awards.
During the year ended December 31, 2022, DCM’s general and administration expenses include a charge of $971
(2021 – $1,839) for the duties performed by DCM’s Board, of which $398 (2021 – $1,392) relates to a fair value
adjustment (note 17).
These transactions are measured at the exchange amount, which represents the amount of consideration established
and agreed to by the related parties.
26 Government Grant Income
On April 11, 2020, the Canadian government launched the CEWS, an emergency economic relief program to lessen
the financial fallout on Canadian businesses from the effects of COVID-19.
The CEWS program was designed to help businesses struggling with the economic effects of the coronavirus retain
and/or rehire their employees. The subsidy was intended to make it easier for eligible employers to avoid laying off or
terminating employees, as well as to bring back staff that were laid-off due to COVID-19 by significantly lessening the
organization’s payroll costs.
The CEWS commenced March 15, 2020 and through to October 23, 2021. The CEWS was a program that subsidizes
a portion of eligible remuneration paid by an eligible employer that qualifies, to each eligible employee. DCM also
applied for the CERS during 2021.
During the year ended December 31, 2021, DCM qualified for $4,558 of government grant income from the CEWS
and the CERS before those COVID support programs ended in October 2021. DCM did not receive any similar
subsidies in 2022.
96
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
27 Other income
On January 4, 2021, DCM entered into an agreement with PBI, an arms’ length third party and former subsidiary of
DCM, pursuant to which DCM agreed to terminate an option to purchase an equity interest in PBI acquired by DCM in
connection with the prior disposition of PBI. DCM received total gross proceeds of $1,152 as consideration for
terminating the option.
In February 2021, DCM settled an outstanding litigation and received for total proceeds of $300.
28 Subsequent event
On February 22, 2023, DCM announced that it has entered into a share purchase agreement (the “Purchase
Agreement”) to acquire the Canadian operations of R.R. Donnelley & Sons (“RRD Canada”) for a total cash purchase
price of CDN $123 million (subject to working capital and other customary post-closing adjustments and receipt of
third party and regulatory approvals including those required under Canada's Competition Act").
97
Corporate Information
Directors and Officers
DCM Leadership Team
Corporate Information
Auditors
PricewaterhouseCoopers LLP
Transfer Agent
Computershare Investor
Services Inc.
Corporate Counsel
McCarthy Tétrault LLP
Corporate Office
9195 Torbram Road
Brampton, Ontario L6S 6H2
Telephone: 905-791-3151
Facsimile: 905-791-1713
Website
datacm.com
Toronto Stock
Exchange Symbol
DCM
OTCQX Symbol
DCMDF
J.R. Kingsley Ward 3
Chairman, Director
Gregory J. Cochrane 3
Vice Chairman, Director
Merri L. Jones 1, 3
Director
James J. Murray O.Ont., SIOR 2
Director
Richard Kellam
President & Chief
Executive Officer
James E. Lorimer
Chief Financial Officer
Shelly Anwyll
Senior Vice President,
North America, Retail &
Emerging Markets
Michael G. Sifton 1, 2
Director
Alison Simpson 3
Director
Derek J. Watchorn 1, 2
Director
Richard Kellam
Director & Officer
James E. Lorimer
Officer
Chief Financial Officer &
Corporate Secretary
Sharad Verma
Senior Vice President, Strategy
Steve Livingstone
Senior Vice President, Digital
Patrick Aussant
Vice President, IT Operations
Christine Custodio
Vice President, Operations
Geneviève Gravel
Vice President,
People Experience
Barbara Franovic-Wilkins
Vice President, Marketing
1
2
3
Member, Audit Committee
(Chairperson is Michael G. Sifton)
Asem Moqbel
Vice President, Procurement
Member, Corporate
Governance Committee
(Chairperson is Derek J. Watchorn)
Karen Redfern
Vice President,
Customer Technology Solutions
Member, Human Resources &
Compensation Committee
(Chairperson is J.R. Kingsley Ward)
Jason Sharpe
Vice President,
Commercial Acceleration
DATA Communications Management Corp. | 9195 Torbram Road | Brampton, Ontario L6S 6H2