DATA Communications Management (TSE:DCM) said its second-quarter fiscal 2026 results were generally in line with expectations, as strong free cash flow, debt reduction and new-business activity offset revenue that remained below prior-year levels.
President and Chief Executive Officer Richard Kellam said the company expects conditions to improve during the second half of the year, including a return to positive year-over-year revenue growth, a more favorable business mix and improved gross profit. The company also expects its newly acquired Octacom business to add revenue and earnings through the remainder of 2026.
Cash Flow and Debt Reduction
Kellam said DCM generated CAD 15.7 million of free cash flow in the first half of fiscal 2026, representing a CAD 16.3 million improvement from a year earlier. Net debt declined 26% year to date before the Octacom acquisition, reaching the company’s lowest leverage level in three years.
The company returned approximately CAD 3.4 million of capital to shareholders during the quarter and said it remains committed to its quarterly cash dividend program. Management said it plans to prioritize debt repayment following its acquisition of Octacom, while placing less emphasis on mergers and acquisitions in the traditional print business.
DCM said adjusted EBITDA was just under 13% of revenue in the second quarter. Selling, general and administrative expenses continued to decline from the prior year, while revenue from technology-enabled services, hardware and software rose 10.4% and accounted for about 7.3% of total revenue.
Although total revenue decelerated during the quarter, Kellam said revenue from new-logo wins accelerated significantly from a year earlier and the average value per new client increased. He said those wins support management’s confidence in growth during the third and fourth quarters.
Octacom Acquisition Expands Intelligent Document Processing Business
DCM completed its acquisition of Octacom on July 8. Kellam described the deal as a way to accelerate DCM’s intelligent document processing, or IDP, strategy by acquiring an established Canadian provider rather than building the operation organically.
Octacom Managing Director Lee Berger said the business generated more than CAD 23 million in revenue over the trailing 12 months and has operated in the market for 50 years. Its offerings use proprietary technology and a combination of optical character recognition, intelligent character recognition, artificial intelligence, machine learning and natural-language processing to automate document-heavy workflows.
Berger said IDP services can capture, classify, extract and validate information from documents before sending the data into customers’ downstream systems. Octacom’s proprietary web-based ODAS platform also enables customers to interact with documents, manage workflows and apply automated rules.
According to Berger, the IDP market is supported by digital transformation initiatives, large volumes of unstructured data and demand for lower-cost data entry. He said manual data entry can cost between CAD 5 and CAD 25 per document, while IDP can reduce the cost to between pennies and CAD 1 per document.
- Government opportunities include records modernization, benefits processing, citizen correspondence and application forms.
- Healthcare use cases include medical-record digitization, data extraction, claims processing and referral routing.
- Financial-services opportunities include new-account opening, loan and mortgage processing, compliance archiving and digital mailrooms.
- Transportation and logistics customers can use the technology for proof-of-delivery documentation, bills of lading, receipts and packing slips.
Berger said Octacom has historically relied primarily on inbound demand, referrals, requests for proposals and conferences rather than extensive targeted outbound sales efforts. Since joining DCM, the business has begun working with DCM’s sales and marketing organization to expand pipeline generation and cross-selling efforts.
Cross-Selling Focus and Integration Approach
Management said the companies collectively hold master service agreements with more than 70 of Canada’s top 100 large enterprise and government organizations. Kellam added that DCM already prints a significant percentage of the physical forms and documents that can be converted into actionable data through Octacom’s IDP services.
Berger said the companies have already signed and begun onboarding a Schedule 1 Canadian bank for a broad digital-mailroom operation. He characterized the project as an early example of bringing Octacom’s platform to an existing DCM customer.
DCM said Octacom will continue operating as a division of the company rather than undergoing the type of direct operational integration used in DCM’s prior Moore Canada acquisition. Management said DCM will provide shared services, including support in IT infrastructure, security and finance, while concentrating on helping Octacom expand commercially.
Berger said government sales cycles can range from six to 18 months, while enterprise opportunities can produce revenue in as little as two to three months after implementation or take nine to 12 months. Management said larger cross-selling opportunities are more likely to contribute during the first half of 2027.
Second-Half Outlook
DCM said its core business is stabilizing, supported by a healthy pipeline and improvement in some previously challenged verticals, including manufacturing and lottery. Management said financial services has remained more difficult, though it sees IDP opportunities in that market.
The company expects restructuring charges to decline in the second half, as remaining costs largely relate to systems and finance alignment from the Moore Canada acquisition. Management said it expects some additional Octacom transaction costs in the third quarter but does not anticipate restructuring charges related to the acquisition.
Kellam said DCM expects Octacom’s higher gross-profit and EBITDA margins to begin benefiting reported results in the third quarter, with a greater impact expected in the fourth quarter. He said the company will continue monitoring trade policy, tariffs and macroeconomic conditions, but is not currently experiencing headwinds from recent U.S. announcements.
About DATA Communications Management (TSE:DCM)
DATA Communications Management Corp is a communication solutions partner that adds value for major companies across North America by creating more meaningful connections with their customers. It pairs customer insights and thought leadership with cutting-edge products, modular enabling technology and services to power its clients’ go-to market strategies. The company helps its clients manage how their brands come to life, determine which channels are right for them, manage multimedia campaigns, deploy location-specific and 1:1 marketing, execute custom loyalty programs, and fulfill their commercial printing needs all in one place.
