FYI        2013 Div will be quarterly and reduced to  .075 cents per quarter or .30 cents annually.

Everything else looks OK at first glance.... IMO .

7:45 am release from CNW Group

Data Group Inc. Announces Third Quarter Results for 2012 and 2013 Dividend Policy

Friday, November 09, 2012

Highlights

Q3 2012

  • Third quarter 2012 ("Q3") Revenues of $80.1 million, Q3 Gross Profit of $19.7 million, and Q3 Net Income of $0.3 million
  • Q3 Dividends declared of $3.8 million or $0.163 per share
  • Q3 Adjusted EBITDA of $5.8 million (See Table 2 and "Non-GAAP Measures" below)

YTD 2012

  • Year to Date 2012 ("YTD") Revenues of $249.4 million, YTD Gross Profit of $64.0 million, and YTD Net Income of $4.5 million
  • YTD Dividends declared of $11.5 million or $0.488 per share
  • YTD Adjusted EBITDA of $19.6 million (See Table 2 and "Non-GAAP Measures" below)

BRAMPTON, ON, Nov. 9, 2012 /CNW/ - DATA Group Inc. (TSX: DGI) ("DATA Group") announced its financial and operating results for the third quarter ended September 30, 2012, which includes the operating results of its subsidiaries DATA Group Ltd., The Fulfillment Solutions Advantage Inc. ("FSA") and FSA Datalytics Canada Inc. ("Datalytics").

"We are encouraged by the progress of our growth strategy in the third quarter and the first nine months of 2012.  As we execute on our strategic plan, we believe it is prudent to achieve an improved balance between our dividend policy, debt reduction and our growth initiatives.  We believe this is essential in order to achieve sustainable growth, enterprise value appreciation and a consistent dividend payout to our shareholders over the longer term.", said Michael Suksi, President and Chief Executive Officer.

After careful consideration, the Board of Directors has decided to reduce DATA Group's annual dividend from $0.6504 per share to $0.30 per share effective January 1, 2013, and intends to begin paying dividends on a quarterly basis commencing in 2013.  DATA Group intends to continue to pay a dividend of $0.0542 per share for the months of November and December 2012.  DATA Group believes the reduction in dividends is prudent to support the company's strategic plan, to reduce debt to achieve a healthier and more sustainable balance sheet, to be positioned to make strategic acquisitions, and to maintain a dividend payout to DATA Group's shareholders over the longer term.

OUTLOOK

DATA Group continues to expand its capabilities with new electronic communications oriented solutions, in order to position the company for sustainable, long term growth.  The company's growth strategy is to meet its client's evolving requirements by bundling its new e-communication services with its traditional print services into a single, holistic communications management solution.  Clients will enter into multi-year outsourcing contracts with DATA Group for this bundled solution.  This set of services will be branded as Managed Business Communications services. This also includes selectively expanding into the United States with its existing clients who have U.S. operations, as well as continuously reducing its costs.  DATA Group believes this strategy provides it with substantial opportunities to offset revenue declines in traditional print services due to technological change and, in fact, grow through expanded market share in its traditional business and from new revenue streams.  DATA Group remains focused on the successful, ongoing execution of this plan in a prudent, well managed fashion, balancing its investment in the growth plan with its financial strategy.

During the third quarter of 2012, revenue continued to grow and DATA Group won a number of new customer agreements in which its bundled Managed Business Communications played a key role.  DATA Group recently signed a letter of intent for one of the largest single source, multi-year, customer agreements in its history.  This is an expansion of a current agreement with a significant client, and includes document management services of administrative documents as well as marketing print and communications services in Canada and the U.S.  The new agreement will take effect in the fourth quarter 2012 and has required DATA Group to make modest investments in people and technology during the third quarter of 2012.  DATA Group expects this agreement to generate positive revenue and Adjusted EBITDA results in the future.  Another significant new agreement for marketing print will begin in the first quarter of 2013.  In addition, in the third quarter of 2012, DATA Group generated $6.6 million in new business revenue.  In the first nine months of 2012, DATA Group generated $17.8 million in new business revenue, which is ahead of last year's pace.

DATA Group continued to invest in new, technology-oriented products and services in the third quarter with two new capabilities.  Marketing Campaign Management, a software-based service DATA Group is launching in the fourth quarter, enhances the effectiveness of marketing departments by creating collaborative, automated workflows between the clients' marketing staff, their agencies and fulfilment by DATA Group.  This allows for faster and more effective marketing campaign planning, creative design, execution and reporting on results. In the fourth quarter, DATA Group is also launching Document Process Management services.  Rather than just managing the supply of "blank" (or uncompleted) documents which the DATA Group currently does, Document Process Management will enable DATA Group to provide services associated with completed documents, such as workflow consulting and process automation, scanning and archiving of documents and related data extraction.

The final element of DATA Group's strategy is incremental cost savings.  In the third quarter of 2012, DATA Group achieved approximately $1.2 million in cost saving efficiencies.  In the first nine months of 2012, DATA Group generated approximately $3.3 million in cost savings.  During the first three quarters of 2012, DATA Group also initiated new projects that it believes will continue to generate cost savings in the future.

DATA Group is moving to capitalize on market share and technology driven revenue growth opportunities in order to offset declines due to a reduction in traditional print demand.  The changes in DATA Group's dividend policy and debt reduction strategy will support this transition.

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

 

Consolidated Financial Information                        
For the periods ended September 30, 2012 and 2011

(in thousands of Canadian dollars, except per share/unit amounts, unaudited)
    July 1 to

Sept. 30,

2012

$
    July 1 to

Sept. 30,

2011

$
    Jan. 1 to

Sept. 30,

2012

$
    Jan. 1 to

Sept. 30,

2011

$
Revenues     80,144     77,965     249,400     242,245
Cost of revenues     60,430     58,669     185,400     181,348
Gross profit     19,714     19,296     64,000     60,897
                         
Selling, general and administrative expenses     15,331     13,741     48,697     43,306
Corporate conversion costs     -     23     84     437
Amortization of identifiable intangible assets     2,310     2,566     6,932     7,697
Income before finance costs and income taxes     2,073     2,966     8,287     9,457
                         
Finance costs                        
  Interest expense     1,468     1,432     4,418     4,176
  Interest income     (1)     (21)     (15)     (66)
  Change in fair value of conversion options     -     (185)     -     (1,180)
  Amortization of transaction costs     154     131     460     393
      1,621     1,357     4,863     3,323
Income before income taxes     452     1,609     3,424     6,134
                         
Income tax expense (recovery)                        
  Current     716     344     2,768     1,371
  Deferred     (531)     270     (3,831)     608
      185     614     (1,063)     1,979
                         
Net income for the period     267     995     4,487     4,155
                         
Net income attributable to shareholders/unitholders     298     995     4,546     4,155
Basic and diluted income per share/unit     0.01     0.04     0.19     0.18
Number of common shares/units outstanding     23,490,592     23,490,592     23,490,592     23,490,592
                         
Consolidated Statements of Financial Position Information

(in thousands of Canadian dollars, unaudited)
    As at

Sept. 30,

2012

$
    As at

Sept. 30,

2011

$
           
Current assets     85,286     93,659            
Current liabilities     42,618     39,906            
                         
Total assets     273,653     280,919            
Total non-current liabilities     124,282     122,223            
                         
Shareholders' equity     106,620     -            
Non-controlling interest     133     -            
Total equity     106,753     -            
                         
Unitholders' equity     -     118,790            
                         

 

 

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

 

Adjusted EBITDA Reconciliation                      
For the periods ended September 30, 2012 and 2011

(in thousands of Canadian dollars, unaudited)
    July 1 to

Sept. 30,

2012

$
    July 1 to

Sept. 30,

2011

$
    Jan. 1 to

Sept. 30,

2012

$
  Jan. 1 to

Sept. 30,

2011

$
Net income for the period     267     995     4,487   4,155
Interest expense     1,468     1,432     4,418   4,176
Interest income     (1)     (21)     (15)   (66)
Change in fair value of conversion options     -     (185)     -   (1,180)
Amortization of transaction costs     154     131     460   393
Depreciation of property, plant and equipment     1,450     1,348     4,320   4,182
Amortization of identifiable intangible assets     2,310     2,566     6,932   7,697
Corporate conversion costs     -     23     84   437
Current income tax expense     716     344     2,768   1,371
Deferred income tax (recovery) expense     (531)     270     (3,831)   608
Adjusted EBITDA     5,833     6,903     19,623   21,773
                       

 

RESULTS OF OPERATIONS

Revenues

For the quarter ended September 30, 2012, DATA Group recorded revenues of $80.1 million, an increase of $2.2 million or 2.8% compared with the same period in 2011.  The increase, before intersegment revenues, was the result of a $2.8 million increase in the DATA East and West segment and was offset by a $0.3 million decrease in the Multiple Pakfold segment.  For the nine months ended September 30, 2012, DATA Group recorded revenues of $249.4 million, an increase of $7.2 million or 3.0% compared with the same period in 2011.  The increase, before intersegment revenues, was the result of a $8.6 million increase in the DATA East and West segment and was offset by a $0.2 million decrease in the Multiple Pakfold segment.

Cost of Revenues and Gross Profit

For the quarter ended September 30, 2012, cost of revenues increased to $60.4 million from $58.7 million for the same period in 2011.  Gross profit for the quarter ended September 30, 2012 was $19.7 million, which represented an increase of $0.4 million or 2.2% from $19.3 million for the same period in 2011.  The increase in gross profit for the quarter ended September 30, 2012 was attributable to a gross profit increase of $0.5 million in the DATA East and West segment and was offset by a gross profit decrease of $0.1 million in the Multiple Pakfold segment.  Gross profit as a percentage of revenues decreased to 24.6% for the quarter ended September 30, 2012 compared to 24.7% for the same period in 2011.  For the nine months ended September 30, 2012, cost of revenues increased to $185.4 million from $181.3 million for the same period in 2011.  Gross profit for the nine months ended September 30, 2012 was $64.0 million, which represented an increase of $3.1 million or 5.1% from $60.9 million for the same period in 2011.  The increase in gross profit for the nine months ended September 30, 2012 was attributable to a gross profit increase of $3.2 million in the DATA East and West segment and offset by a gross profit decrease of $0.1 million in the Multiple Pakfold segment.  Gross profit as a percentage of revenues increased to 25.7% for the nine months ended September 30, 2012 compared to 25.1% for the same period in 2011.

Selling, General and Administrative Expenses
 

 Selling, general and administrative ("SG&A") expenses, including administrative expenses of DATA Group Inc. but excluding amortization of identifiable intangible assets, for the quarter ended September 30, 2012 increased $1.6 million to $15.3 million compared to $13.7 million in the same period in 2011.  As a percentage of revenues, these costs were 19.1% of revenues for the quarter ended September 30, 2012 compared to 17.6% of revenues for the same period in 2011.  For each of the quarters ended September 30, 2012 and 2011, DATA Group incurred $0.3 million and $0.2 million of severance expenses, respectively.  SG&A expenses for the nine months ended September 30, 2012 increased $5.4 million to $48.7 million compared to $43.3 million for the same period of 2011.  The increases in SG&A expenses for the three and nine month periods were attributable to the inclusion of FSA and Datalytics in DATA Group's results of operations and investments to launch new products and services initiatives. As a percentage of revenues, these costs were 19.5% of revenues for the nine months ended September 30, 2012 compared to 17.9% of revenues for the same period in 2011.  For the nine months ended September 30, 2012 and 2011, DATA Group incurred $0.7 million and $0.6 million of severance expenses, respectively.  Severance costs for the three and nine months ended September 30, 2012 and 2011 were included in SG&A and were related to DATA Group's on-going productivity improvements and cost reduction initiatives.

Corporate Conversion Costs

During the nine month periods ended September 30, 2012 and 2011, DATA Group incurred total professional fees of $0.1 million and $0.4 million, respectively, related to the conversion of the Fund to a corporation on January 1, 2012.

Adjusted EBITDA

For the quarter ended September 30, 2012, Adjusted EBITDA was $5.8 million, or 7.3% of revenues.  Adjusted EBITDA for the quarter ended September 30, 2012 decreased $1.1 million or 15.5% from the same period in the prior year primarily due to the cost of DATA Group's investment it its growth strategy in 2012.  These costs included selling, general and administration expense related to investments to launch new products and services.  The Adjusted EBITDA margin for the quarter, as a percentage of revenues, decreased from 8.9% of revenues in 2011 to 7.3% of revenues in 2012.  Adjusted EBITDA for the nine months ended September 30, 2012 was $19.6 million, or 7.9% of revenues. Adjusted EBITDA for the nine months ended September 30, 2012 decreased $2.1 million or 9.9% from the same period in the prior year and the Adjusted EBITDA margin for the nine month period, as a percentage of revenues, decreased from 9.0% of revenues in 2011 to 7.9% of revenues in 2012.

Interest Expense and Finance Costs

Interest expense on long-term debt outstanding under DATA Group's credit facilities and DATA Group's outstanding $45.0 million aggregate principal amount of 6.00% Convertible Unsecured Subordinated Debentures (the "6.00% Convertible Debentures") was $1.5 million for the three months ended September 30, 2012 compared to $1.4 million for the same period in 2011, and was $4.4 million for the nine months ended September 30, 2012 compared to $4.2 million for the same period in 2011.  The increase in interest expense during the three and nine months ended September 30, 2012 was the result of higher outstanding balances under DATA Group's credit facilities and higher rates of interest charged on those balances.

Finance costs for the three and nine months ended September 30, 2011 included recoveries of $0.2 million and $1.2 million, respectively, related to the change in the fair value of the Fund's conversion options.  The conversion options were the conversion feature in each of the Fund's outstanding convertible debentures, which is measured at fair value at each reporting date.  The Fund's obligations under those convertible debentures were assumed by the Corporation in connection with the Arrangement.  As a result of the Fund's conversion to a corporation on January 1, 2012, those conversion option liabilities were classified as equity on the financial statements of the Corporation due to the change in the nature of the underlying security to shares from units and are not re-measured at fair value at each reporting date.

Income Taxes

DATA Group reported income before income taxes of $0.5 million, a current income tax expense of $0.7 million and a deferred income tax recovery of $0.5 million for the three months ended September 30, 2012 compared to income before income taxes of $1.6 million, current income tax expense of $0.3 million and a deferred income tax expense of $0.3 million for the three months ended September 30, 2011.  DATA Group reported income before income taxes of $3.4 million, a current income tax expense of $2.8 million and a deferred income tax recovery of $3.8 million for the nine months ended September 30, 2012 compared to income before income taxes of $6.1 million, a current income tax expense of $1.4 million and a deferred income tax expense of $0.6 million for the nine months ended September 30, 2011.  The current tax expense for the three and nine months ended September 30, 2012 were higher than the same periods in 2011 due to the Fund's conversion to a corporation, which resulted in higher taxable income.  The deferred income tax recovery was due to the conversion, a change in estimates of future reversals of temporary differences and new temporary differences that arose during the three and nine months ended September 30, 2012.  As a result of the conversion, DATA Group re-measured its deferred tax assets and liabilities at the corporate tax rates applicable to corporations, which are lower than the top marginal tax rate for individuals used by the Fund.  In addition, the Fund's conversion option liabilities were reclassified as equity on January 1, 2012 and the associated deferred tax liability was reversed.  As a result of these changes, DATA Group recorded a deferred income tax recovery $2.0 million during the first quarter of 2012.

Net Income

Net income for the quarter ended September 30, 2012 was $0.3 million compared to a net income of $1.0 million for the quarter ended September 30, 2011.  The decrease in comparable profitability for the quarter ended September 30, 2012 was due to higher SG&A expenses, higher interest expense due to the acquisition of FSA and Datalytics, a change in the accounting for the conversion options due to the conversion to a corporation, and current income tax expense, respectively.  The decrease in comparable profitability was partially offset by the deferred income tax recovery due to the change in estimate of future reversals of temporary differences and new temporary differences that arose during the period, higher gross profit in the third quarter of 2012 as a result of cost savings realized from DATA Group's ongoing productivity improvement and cost reduction initiatives, and the acquisition of FSA and Datalytics, respectively.

Net income for the nine months ended September 30, 2012 was $4.5 million compared to a net income of $4.2 million for the nine months ended September 30, 2011.  The increase in comparable profitability for the nine months ended September 30, 2012 was substantially due to higher gross profit, the acquisition of FSA and Datalytics, and the deferred income tax recovery due to the change in estimate of future reversals of temporary differences, new temporary differences that arose during the period and the conversion of the Fund to a corporation.  The increase in comparable profitability during the first nine months of 2012 was partially offset by higher SG&A expenses, a large recovery related to the change in the fair value of the conversion options in the Fund's outstanding convertible debentures in 2011, and a higher current income tax expense as discussed above.

INVESTING ACTIVITIES

Capital expenditures for the quarter ended September 30, 2012 of $0.7 million related primarily to maintenance capital expenditures.  For the nine months ended September 30, 2012, DATA Group incurred capital expenditures of $1.6 million related primarily to maintenance capital expenditures and $0.4 million related to the investment in identifiable intangible assets consisting of software licences.  These capital expenditures were financed by cash flow from operations and existing cash resources.

FINANCING ACTIVITIES

At September 30, 2012, DATA Group had a bank overdraft of $2.0 million, which consisted of financing provided by its suppliers in the form of outstanding cheques of $4.1 million offset by cash and cash equivalents of $2.1 million.  During the nine months ended September 30, 2012, DATA Group repaid $2.5 million of its Revolving Bank Facility outstanding.  For the three and nine months ended September 30, 2012, DATA Group paid aggregate cash dividends of $3.8 million and $10.2 million, respectively, to its shareholders.  For the nine months ended September 30, 2012, DATA Group paid aggregate cash distributions of $1.3 million to holders of the common shares of DATA Group (formerly unitholders of the Fund).