Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Donnelley Financial Solutions Inc reported a strong year-over-year growth in adjusted EBITDA and adjusted EBITDA margin, highlighting effective cost management and a profitable sales mix.
- Software Solutions net sales increased by 16% organically, driven by strong performance in Venue, ActiveDisclosure, and Arc Suite, indicating robust demand and successful sales execution.
- The company successfully managed a strategic shift towards higher-margin tech-enabled services and software solutions, enhancing overall profitability.
- Donnelley Financial Solutions Inc demonstrated readiness for the tailored shareholder reports regulation with successful test filings, positioning the company as a leader in compliance solutions.
- The company maintained disciplined capital deployment, focusing on organic investments, share repurchases, and debt reduction to drive shareholder value.
Negative Points
- Print and distribution net sales declined by approximately 20%, continuing the trend of decreasing demand for traditional print services.
- The company faces ongoing challenges in the capital markets transactional environment, with uncertainties that could affect future performance.
- Despite overall growth, there was a noted decline in capital markets and investment companies' compliance revenue, particularly in lower-margin print and distribution.
- ActiveDisclosure experienced some headwinds due to lower section 16 filing activity and a transition to a subscription model, impacting growth.
- The company anticipates a continued reduction in print and distribution revenue, which could affect total net sales despite growth in software solutions.
Q & A Highlights
Q: How are you guys as you touch base on one thing this morning on the margin side on EBITDA margin, you had nice improvement year over year, and we're going to balance that versus our model. And just the factors that helped that kind of drive that along here? Are they expected to kind of continue in Q2? You're basically when you look at guidance as well?
A: David Gardella, CFO of Donnelley Financial Solutions, explained that the improvement in EBITDA margin was primarily driven by a favorable sales mix, highlighted by significant growth in the Venue Data Room offering and a decline in lower-margin print revenue. Additionally, disciplined cost management played a role. For Q2, they expect to maintain discipline in cost management, although they anticipate tougher comparisons. The software growth, particularly for ActiveDisclosure and ARC Suite, is expected to ramp up in the second half of the year, maintaining roughly flat margins in Q2 compared to the previous year.
Q: And just if you look at kind of the improving IPO market, obviously, there's a handful of good deals, good aftermarket performance and that could lead to obviously more transactions coming out of the pipeline. When you talk to your clients out there in the legal and banking side, what's the tone there about that appears?
A: Craig Clay, President Global Capital Markets at Donnelley Financial Solutions, noted an improvement in the IPO market, with significant activity in the healthcare sector and a strong performance of recent IPOs. He mentioned that the market is responding positively to recent successful IPOs, which could potentially lead to more companies moving their IPOs forward. The company supported a significant share of Q1 IPO filings and sees a strong pipeline of deals, indicating a positive outlook for the IPO market.
Q: Hey, good morning. We had data set ourselves. I think we had kind of 73% of the top 15. I think you said 75% of the top 16. But what do you attribute that to just better competitive solutions from defend? Or are there some competitors that have fallen off or not kind of fortunate unfortunate mix of a high retention rate amongst the IPOs that were gone?
A: Craig Clay attributed the company's strong performance in capturing a significant share of IPO filings to its industry-leading portfolio of solutions and a dedicated approach to supporting clients from private to public transitions. He emphasized the importance of providing robust software solutions and support services that cater to clients' needs during critical transactions.
Q: That's really helpful. And maybe if I could just get a follow up quickly on your capital allocation here. It seems like you guys were able to so some land and I know you guys have divested some assets over time, but just wanted to pick your brain on kind of how you guys are thinking about putting the proceeds from some of that capital to work and how you guys are thinking about balancing weather risks, potential M&A or the buybacks? Debt paydown?
A: Daniel Leib, CEO of Donnelley Financial Solutions, emphasized the company's disciplined approach to capital deployment, focusing on financial flexibility to execute their strategy. He mentioned that the proceeds from asset sales would be used to support share buybacks, debt reduction, and organic investments to drive transformation. CFO David Gardella added that while they monitor M&A opportunities, the current focus is on organic growth, given the rich valuations in the market.
Q: Yes, thank you. Congratulations on the good cost cutting and the margins (multiple speakers) yes, sure. I had a couple of questions. One, a the the revenue contribution from the TSRs, do you have a reasonable idea of what that could be this year and next year? And also, does that push up the gross margin profile, your software business?
A: CFO David Gardella responded that they expect the Tailored Shareholder Reports (TSR) to contribute $20 million to $25 million on an annualized basis, with about half expected in 2024. He noted that while they are still investing heavily in TSR, the software's higher margins should help drive overall margin expansion starting in 2025.
Q: And then on the active disclosure side, could you help me understand just kind of recap on what's going on earlier over the last year? Was there were some headwinds. There was a switch to the digital version of what was the growth rate could we expect from ActiveDisclosure going forward? I know that you've talked about a second half pickup could do what caused the weakness in the first quarter and then how is that transition coming?
A: Craig Clay explained that ActiveDisclosure grew by 2% in the quarter, continuing to make progress toward future growth. He highlighted the transition to a subscription model and the introduction of a new product as factors impacting growth. Despite some challenges, such as lower Section 16 filing activity, the company is seeing positive trends like net client growth and price increases. They expect stronger growth in the second half of 2024 as they overcome the platform transition and related churn.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
