Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Donnelley Financial Solutions Inc (DFIN, Financial) reported record quarterly adjusted EBITDA and adjusted EBITDA margin, highlighting strong financial performance.
- The company achieved a 14.4% year-over-year growth in total software solutions net sales, driven by the Venue virtual dataroom product, which posted approximately 38% sales growth.
- DFIN's shift towards a higher mix of software solutions and tech-enabled services is resulting in a more stable and predictable sales mix.
- The company successfully filed multiple live Tailored Shareholder Reports (TSR) documents, demonstrating readiness and capability in handling new regulatory requirements.
- DFIN's strong balance sheet and disciplined cost management have positioned it well to achieve long-term financial targets and navigate market uncertainties.
Negative Points
- Print and distribution revenue declined by $7 million or 11.3% compared to the second quarter of 2023, impacting overall net sales growth.
- The demand for beneficial ownership filings continues to be impacted by a weak IPO market and elevated client churn, affecting ActiveDisclosure's growth.
- Capital markets compliance and communications management segment saw a 7.4% decrease in net sales due to lower capital markets compliance revenue.
- The market for completed M&A deals in the US remained down on a year-over-year basis, affecting capital markets transactional revenue.
- DFIN's guidance for the third quarter of 2024 anticipates flat consolidated net sales compared to the previous year, with potential reductions in print and distribution and lower capital markets transactional sales.
Q & A Highlights
Q: Can you expand on your thoughts regarding expected margins for Q3, given the strong Q2 performance?
A: David Gardella, CFO: We continue to manage costs effectively and shift our revenue mix to drive profitability. For Q3, we expect margins in the mid-to-high 20s range, similar to last year's Q3 margin of around 26% after excluding a variable compensation benefit. We have delivered over 400 basis points of margin expansion year-to-date, and while comps get tougher, we remain disciplined in managing costs and revenue mix.
Q: What is driving the strong growth in Venue, and do you expect this trend to continue?
A: David Gardella, CFO: Growth is driven by larger data rooms, increased page volumes, and price increases. Venue's stability is reinforced by longer room durations and strong sales execution, particularly with large Tier 1 banks. We are optimistic about Venue's pipeline and its expansion into recurring subscriptions and reoccurring growth.
Q: How are you thinking about completed M&A deals in your Q3 guidance?
A: Daniel Leib, CEO: We expect a clearer path to monetary policy will support deal activity, with private equity players returning to the market. David Gardella, CFO: We have some visibility into near-term deals and expect Q3 capital markets transaction revenue to be similar to Q2, with a range of outcomes possible.
Q: Can you provide more color on software growth, particularly in terms of new logos or pricing?
A: Craig Clay, President Global Capital Markets: Software subscription sales are up, with ActiveDisclosure seeing client growth and higher average value per client. We expect stronger growth in the second half of 2024, driven by price increases, multi-year contracts, and product enhancements.
Q: What is your outlook for software growth and the impact of Tailored Shareholder Reports (TSR)?
A: David Gardella, CFO: We expect continued software growth, with TSR contributing $11-12 million annually, half of which will be realized in 2024. The shift to a hybrid or full software model over time will also support growth. Eric Foster, CIO: We offer a full spectrum of TSR solutions, with strong uptake on our software platform and optimized digital print platform.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
