DFIN - Earnings call transcript Q1 2019 | Donnelley Financial Solutions, Inc.

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Operator

Welcome to the DFIN Q1 Earnings Call. My name is John, and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions] Please note this conference is being recorded. the to turn of Ritchie, now Relations. Investor will call Justin over Head I

Justin Ritchie

Good and the results morning, joining John. can dfinsolutions.com. earnings you, Thank everyone, of copy of Financial morning released which first our report, This at a the found thank Solutions quarter section call. XXXX in conference be we our Investors Donnelley for you website

refer to call, we’ll to uncertainty. this that subject forward-looking During are statements

earnings a release for only. an cautionary and and way informational footnotes and For provides our financial Dan. for believe performance. the a to results Tom SEC. press you non-GAAP statements company’s call joined Dave non-GAAP release ongoing refer annual will turn discuss our We over the and this discussion, other will the Juhase. and by presentation the financial non-GAAP concerning the XX-K the of you company’s operations however, GAAP further complete included and with appropriate report Dan related please to Gardella now to with morning Further, Form They useful provided in we are, Leib, financial of information. information evaluate reconciliation is Please the information. details in on filings for GAAP I’m to I to refer purposes information supplementary

Dan Leib

Thank you, Justin, and everyone. good morning,

successive by Government by the strong growth the was year-over-year act slow government’s driven fourth partially January in to by XXXX X%. XX.X% improved transactional we offerings U.S. quarter shutdown. driven decline which expected as effects start of this for organic with markets Total began within the each of markets net customer year-over-year markets where As results X.X% continued trends volatility offset capital XX. was saw quarter in morning, press led following quarter reflecting growth our the The disclosure followed The sales on lingering in you a release in grew investment U.S. our growth SaaS the sales was our months by first market reopening transactional year net reductions. quarter by capital

Venue led more saw perspective as and that pace achieve growth well stronger in we heavy a mix net trends with an in print rebounded performance U.S. in investment the driven were term While lower decline trend report the SaaS with year-over-year temporary sales we to the sales U.S. longer increased full sales since will in the quarter towards the project room for shift growth This our year the transactional second business From the capital early than special overall digit expect and as in activity quarter, markets. quarter. double a in markets by annual quarter. in quarter. has Overall, improve to of in our in we when volumes activity margins SaaS the we with with proxy our transactional net below much the in slowdown first and experienced gross decreased largely offerings data sales consistent coupled

mix improving revenue. margins towards and as and enable in gross anticipate the we continue quarter pickup SaaS to shifts services ahead, Looking the second margin that transactions higher back

by were changes quarter the Solution’s in which driven of exchange decline Language organic versus excludes acquisition year-over-year sales in the X.X% the first impact markets capital net a down sales. of eBrevia XXXX, quarter the in and First U.S. XX% primarily of net business, rates transactional sale foreign the

more momentum companies February, challenging conditions. due normalized improvement extremely M&A offerings March, As driven we see transactional IPOs In offerings we down. market January reinitiate the market as mentioned, gain and volatility effects to and saw government in trends. of to lingering shut and market for to late the to returned debt recent were the conditions began started In

ahead, we pipeline positive trends by positive the optimistic. M&A. in IPOs spot second in year offset market remains a We transactional Looking softer with momentum and over with entered great see our strong quarter cautiously view the overall

up the they’ve used picked March high IPO and momentum mentioned, some numerous filers the I companies supporting leading is Stefan market including of profile to-date. in this As largest quarter

list shutdown now the January make government Following they’re in to enter markets able to are sure more companies the starting aggressively year. to this

transactions the reaping technology opportunities increased more of of artificial encryption. and within consulting M&A clients financial audit, recently into data, for powerful our virtual of platform that accurate also portfolio network. productivity and highly and critical with growth legal, fourth accelerated year was secured coupled the data LPO the share a are sensitive users of extraction risk to data-room compliance confidently addition eBrevia's data deal for complex the end-to-end them by Venue related in in row in DFIN intelligence Venue information data allows solutions global The make year benefits Venue a form room verticals. has the provides and the of Our room named time. global manage real eBrevia

technology integrate Moving forward we across continue as opportunities expect to explore company. the the we additional to

evolving makes as and technology a in indications we the us The of key service, months couple digital with our and solutions the transition. already financial expansions for with clients the just into have short clients. is solutions fact, this But seen our regulatory into our global to different engagements institutions. few class world In since world acquisition, compliance that space we with the have we is what differentiator as they help us

are transformation complex them giving to We support our tools in the already and industry through navigate and leading both clients environment. confidently

where clients global distribution their the quarter and proxy team proxy shareholders fund simplify several end-to-end experts we friendly saw dedicated network financial edge of platform user reporting. to particularly with the services investment dozens that and our our had an first in in wins our solution For quarter technology markets business key Within we establish provides disclosure for active of and leading our management. their we a clients adopt provide example, engage

and private equity, data clients quarterly investment work accounting SaaS it this fund and of suite high semi-annual, reporting. investments one win other companies flows fund several Our funds investment systems involves produce of alternative the different and our year. product from alternative makes arc annual, funds space course suite automating helps The reports. data sources hoc other produce ingesting by for over in the ad software hedge quality alternative solution financial and client modules easy registered of over companies, of A to this technology implementing investment recent XXX their for

to We SEC to using on automate Clients and XX. solution deadline to with optimizing support solutions meeting the on end currently filing the clients our simplify the upcoming May in our port also our like critical dates, process. continue focus are

one financial For the to successfully this announce filing our largest administrators industry's first to details With party fund more filed we're I'll live third that to example, Dave give pleased on port behalf that turn over our of end performance. on April. team it Dave? of the

Dave Gardella

morning Thank and you, Dan good everyone.

I quarter significant Before financial quarter two items comparability. to the impact our discuss year-over-year first our like in performance, that I'd recap

First, third sale XXXX. last Solutions calls, quarter two as on the discussed the the have we of earnings of in Language we business our completed

results Language the Solutions Our exclude includes quarter first the XXXX of XXXX quarter. entire for while quarter Solutions Language first

and adjusted reported fourth $X.X cost. inclusive by the quarter on our I $X comparisons net million sale million million first sales stranded and of impacted As EBITDA and $XX.X call, impacted by quarter gross net negatively comparison approximately our respectively non-GAAP mentioned negatively the profit

Next I'd quarter recap during that of a to standard the XXXX. like adopted new we accounting first

mutual X.X% growth the by quarter decline were by of the offset liability The $X operating recognize continuing at down our or quarter After As company the the in activity. decreased capital eBrevia, the transactional transition recognizing Keeping impact SaaS increased Adjusted to in The part sales investment accounting have those the sale growth leases former these earlier. most lower the of lease $XX.X mind to all accounting due in adopted to and by sales capital continues Solutions, X, XX% first for led $XX.X in markets been continuing XXXX. the The $XXX.X decrease transactional the of in U.S. investment the balance January effect company U.S. increased sale adopted business, rates the large proxy driven of organic financial in U.S. a quarter capital no lessees decreased mentioned for basis, non-recurring in net offset optional markets, activity. while and our U.S. resulted The Solutions capital of to asset on which a adjusting the services amendments in in let's and sales volume Solutions related project a exchange net standards capital we offerings. first net activity X, compliance requires January standard and review changes to in This On standard and fund market million Language by use largely comparative markets periods. reported impact sheet million U.S. the first had method. the sale compliance income transactional sales January $XXX.X accounting government markets the of that on for results. the of XXXX primarily activity in X.X% partially the the the Language lease periods items SaaS standard, a in was consolidated accounting of quarter X.X%. the the were of the special expense not to growth compared with of XXXX lease million U.S. to new using on impact new transactional by combined X, acquisition or statement to similar foreign in million first net of shutdown. of for as sales continued standard. sales Products quarter XXXX or the put and of income markets due a first million net from statement. net XX% lower for of Language ActiveDisclosure million leases manner under due I be and XXXX right markets large by offerings in a restated $XXX.X

gross net million margin basis of products first than First including the unfavorable and was sales. driven an sales higher or margin services quarter of quarter quarter lower XXXX. markets margin $X.X $XX by XXX primarily points million, mix SG&A capital was lower than the the lower quarter transactional XXXX in Non-GAAP first net expense XX% between

of priorities. was savings XX of first expense sale in cost in of to a partially initiatives offset and basis revenue, points SG&A by the driven primarily of quarter decrease our strategic non-GAAP was support The the XX.X% up Solutions investments the of compared by percentage impact XXXX. As Language

of was primarily capital the Language first quarter the the adjusted from $XX.X EBITDA Our XXXX markets million, first sale quarter weak and $XX.X transactional of activity million by decrease business. of Solutions non-GAAP the a driven

earlier noted in also our I Language comparison non-GAAP of As the transactional adjusted EBITDA impacted impacted margin million. approximately business first the in the negatively EBITDA capital Weakness quarter by Solutions activity the sale $X quarter. markets negatively

that of points in adjusted due related in sales primarily which the foreign Turning organic second weak in a year. first primarily sales decline to first from declined to proxy sales the in last last Non-GAAP basis exchange for activity. X.X% X% markets excluding large the now $XXX.X Non-GAAP growth for $XX.X increased was were offset quarter to recognized to but segment first Net X.X%. net the for special to the sales basis revenue in down of of impact sales. margin this year This the sale in EBITDA segment an net our of an project segment Solutions, net our by level the Language the transactional U.S. basis decreased XXXX, adjusting decrease SaaS XXX business XX.X% quarter continued transactional activity organic were partially was XXXX, a X.X% partially sales Europe. by shifts organic by basis quarter due On last markets, from primarily lower sales an of in markets our a capital capital X.X% quarter recurring decreased were capital in investment U.S. Language the on a basis, transactional first of the low U.S. U.S. international purchase after year. results, of XXXX, segment in the transactional XX.X% on driven of segment of of million quarter million in net of the and net reflective markets On rates, year's first markets Solutions changes of offset first X.X% organic due decrease margin the of an EBITDA quarter sale quarter. was eBrevia first the in the timing activity. Net negative capital adjusted growth quarter and in from

of Our expenses of and driven partially offset the were flow $X.X mentioned million benefit capital inventory spending of corporate first first The controllable interest our as XXXX. and quarter strategic priorities offset $XXX.X rate increase total $X.X in as receivable free quarter by payments $XXX.X payable debt trailing initiatives. which amortization in million debt quarter our by by to and $XX.X net net partially define I we XXXX. revolver cost first available on of well that percent quarter as investment related the of call. print of net timing of lower primarily Relative three million $XX.X was of capital to including and of to million reduction, from $XXX.X was higher sales from $XX.X the was ended impact digital XXXX year's our million, first of of million the of capital month excluding the accounts support most a drawn non-GAAP quarter unallocated depreciation of XX.X% increase Consolidated quarter our working the with savings plus This the We sales, the approximately annualized less EBITDA an cash payments million, XXXX. in a debt quarter investment working on to a of transactional first tax first last lower had stemming was we of million. use driven higher cash was as including primarily various by the last our the accounts liquidity slowdown expenditures our use unfavorable flat

seasonality from XXXX, X.X net was up driven XX, cash March X.X increase our ratio partially was from by X.X year flow. XXXX. up The year-end of end our and times of from normal leverage times March times As XXXX

of and year. We continue to times of be the X.XX X.XX low ratio the leverage a to target gross this times the to end in by range of below range that expect end

this guidance, in we recap morning's guidance expectations. there highlighted that the to provided release, previously change I As while we is will full-year press our no are reiterating our

$XXX net to million million. sales $XXX in total XXXX expect We of to be the range

We adjusted expected million. expect non-GAAP million and to be be to approximately of $XX amortization is in the $XXX $XXX to range EBITDA million. Depreciation

expense We expect approximately million. of interest $XX

regarding $XX range in full-year of and is non-GAAP range million. fully million we million impact $XX Language $XX to full-year Our quick expected rate capital count to to free effective with to XX% XX%. XX tax reminder be average sale the diluted We share also lastly in add $XX cash Solution the be weighted project in expenditures approximately want the the of to quarters. shares our million flow also on of to I the upcoming of a range million the expect

$X.X and million $X.X million release press sales, net non-GAAP $XX.X in EBITDA. be in the quarter gross this year-over-year in adjusted morning's in in noted impacts will As the million second negative profit

third negative the of will million impacts and million EBITDA; in $X.X impacts year-over-year and included stranded the estimated net are all $X.X million net profit be of to in quarter $X.X inclusive these sales, guidance. cost gross non-GAAP full-year in our ahead in are Looking adjusted

and at of timing to the Regarding quarter year-over-year earlier. second that to X% mentioned $XXX are U.S. million markets I we midpoint to be shift in year's environment net from in range down approximately this M&A expecting to a million had investment QX the $XXX revenue QX softer seasonality, sales due

the Also in the largely other slowdown summarize, at The the negatively the year and compliance of markets SaaS to U.S. to our activity and year's go fourth government before the a most sales March. similar to that will of To improving in in the was EBITDA levels month XXXX. volatility and returning we quarter of capital last net net in quarter Regarding shutdown comparison was of offset to profitability, expect to with sales quarter the easier respect each transactional in increases expected we second normalized transactional the of timing, quarter come of by solutions. the impacted relatively growth the market regulatory second impact we quarter effects our beginning given as by market lingering expect non-GAAP the steadily quarter margin result be QX, first volatility. fourth

We with turn it have that our a Dan. strong transactional unchanged. remains pipeline the business And quarter rest to heading back the second in of momentum into guidance the and such positive full-year I'll as

Dan Leib

our Dave. protecting changing our of and including our culture. you, remain market specific We focused Thank mix position long a plan on priorities business, reshaping current strategic the our on term operating focus with

We to and work. where, when, clients our to they will choose serve continue how to seize opportunities

will As open for maintaining our all focus on Q&A. we with execute line value. remain investing business capital up disciplined our on the deployment strategy delivering while shareholder around in and we And let's appropriately the that

Operator

you. Thank

We Instructions] will CJS now question-and-answer Charles begin And the our Securities. first question from from Strauzer [Operator is session.

Charles Strauzer

good Hi, morning.

Dan Leib

morning, Good Charles.

Charles Strauzer

a looking little bit. transactional at just I'm pipeline the

You some kind come talked still strong into QX, IPOs about coming being to obviously market. way to your high-profile heading of pretty

companies? of that talked the forward any about that in Are the pipeline a them happenings seeing direct towards Exchange. do the does work impact amount kind that you also York and registration One the you in going of Stock more of trend with New those

Dan Leib

thanks Charles. Yes,

rumor have path. We and that companies are that to you towards going that a be seen as pursued not more few that trend that have large a down few there a mentioned

technology things SEC. the from the does through management for and that's as the process provide drives in get order clients well what to really as not needs done regulator what change filed be our we requirements it obviously and the to Importantly, what of

no in have the further up impact chain impact but IPO cycle, impact us. no us, the So, may to

Charles Strauzer

softer talked a bit starting as into year. about M&A head last than you middle to little of being then that improvement QX see some of Are here? you you And

Dan Leib

up. relatively typically a long lead time. M&A seen we Yes, have has activity M&A pick

that as of So, being that's guidance embedded on to large, the last we a QX. and rather lift, between comment had those also large and some sat QX deal relative Dave's and deals comps then given And the the that's see to up pick that year where have did we in that. we QX back what's year driving part and of easier a

relative to of that impact So has year. the bit a timing within an

Charles Strauzer

XX? great it, you port just Got said May deadline the and on end then lastly

Dan Leib

Correct.

Charles Strauzer

talking are not for think and ready You you deadline customers feel you’re be that will to the that? extension that there that if do to an

Dan Leib

We investments mean, feel our we We do. made market amount the about solution. of and good we've success the first I and we've had good clients. were with into right

changing think more push back was that deadline made months I being we're change back a the deadline the lot couple month, data is hearing at relative not and information to it point. a is anything to a this filed. There a but

Charles Strauzer

Great, thanks guys.

Dan Leib

Thank you.

Operator

Our D.A. Peter next from Davidson. from Heckmann question is

Peter Heckmann

could Good little and and to make there? just the what about morning, I gentlemen. growth sure wins then for Thanks wanted taking a you go wins question. bit elaborate just types of numbers talking dozens of over said, you those as Dan ActiveDisclosure you're I understand

Dan Leib

Yes. Sure.

the dozen and we we've is and adding a in at a consistently XX.X% adding wins had the are grew net quarter. about losses first that in each net each year, mentioned of we look logos competitive and talked beginning the at ActiveDisclosure And in So year of and basis, same flow of half But and pace market then literally dozens been XXXX obviously mergers clients on quarter, good the performance in roughly amongst as participants there over on the last back last various we it quarter that have way year in a really sorts terms throughout as basis year the those acquisitions last non of couple things. I de-listings quarter. and competitive added the or we

Peter Heckmann

expectations? think in would for two that that last over then That's by functionality and that still I that the and the that with your potentially talk Is you've investments the level technology consistent to XXXX? if attribute platform towing years here you great so and about made

Dan Leib

Sure. Yes.

network So, think my in Tom very perspective the well. stands ask having it's I'll behind that factors and of and weigh is a I of want to service variety But from as our Dave helpful. model

oftentimes cycle put ActiveDisclosure desired So feel with we're that service moved like in late only may is around and helpful to this where comfortable we're the in first relatively have can tech we and we what a and the solution clients. finding over technology movers more by

clients and coming and solely take last of we overall the technology number call relying point to that other an and a that don't spending, forward and we investment on a forward. as our up Dave of that have we're service. then XXXX. have overall digitize have if We a do that clients and level ActiveDisclosure are down mentioned on of think on we we we at platform which hitting combination are number print some that question should have that so, it investment then using moving your hitting the helped expect the we we this in at look is to And Clearly CapEx see on incremental CapEx, has a relying to going plateau just

Peter Heckmann

get SG&A decline queue the Great. And before the just line, there. then lastly in good back I on

cost is or about that for quarter some so year had? or full-year seeing efficiencies mean, I for how about the and talked potentially be we kind are the of additional of there see the to seeing we're the saves going materialize savings cost you some first to gains thinking full You are in

Dan Leib

could the increase and level Sure, mean, yes. margins I high Dave business we to moving the I mentioned of are certainly we mix the be side well. cost expect very impacts this back of just as which year. towards this jump on business that in on let we And I'll the at about call as of diligent level, that forward And part we a the and SG&A do gross numbers. the

on let So, to Dave way And to I'll you there, in? no expect if there be specifics SG&A, aggressive want side. in to change any be there's cost on continue is the we

Dave Gardella

I was the line coming say business thing Pete. The other XXXX. the only Yes, of solutions there is some of half obviously of back would that out in

we'll be revenue so, million in some But of quarter. that you that the mark know And in sense seasonality somewhere year. low per perspective back run on that I the depends for the from kind rate of think quarter and a the low the obviously half of overlapping kind $XX in XXs makes the of

Operator

Our next question JPMorgan. Cho is Michael from from

Michael Cho

good Hi, morning.

Dan Leib

Good morning.

Michael Cho

if wondering a was little color more on just get I investment the I can markets segment.

I think you higher volumes called some on some the special and proxies shift. print revenue

just quarter? First kind of volumes like saw a to those sense us that one piece shifted in that. follow-up then, U.S. and higher from revenues that the markets particularly a on can you give the in just of you And the of print

bit the talk Just in that that investment pricing step taking little can you're a market about a back, segment? you environment seeing

Dave Gardella

Sure, Mike.

when at I million. growth is U.S. look of think, on almost so you investment about a basis, markets $X there year-over-year

FundSuiteArc the shifts about at overall then, much look was special a that million there of we've the perspective, being in trends. reduction it seen we've also allow platform couple and pricing QX our And cost, talked pressure, necessarily worth solutions to pure to the QX to of timing price some help under achieve us when from looking it were think coming a us the of as terms of that the without of kind of a past funds what are fee with different some I the million dollars. proxy us. $X so, out reduce about to we then reduction cost that work And clients Obviously, in can not in we and provide too back into

Michael Cho

on one the Understood, thanks. squeeze markets could capital just if segment. And in

year-over-year and the saw just for on markets volumes the terms I year-over-year term March exchange I in think said rates ask the quarter the as Can you've volumes? March. you that of capital went user in normalized improved what

Dave Gardella

Yes.

So, bit we still about. on as I and last side side. as Dan to saw IPO fairly year-over-year is slightly what year talked both on March basis we similar I'd the say a looks pipeline down noted starting and to was strength M&A little The build the a softer on

like first but So, QX leaving perspective, of was clearly said kind into down momentum from QX. still slightly an the overall March I quarter coming

Michael Cho

thank great, you. Okay,

Dave Gardella

welcome. You're Thanks.

Operator

is Lynch. Our from next question sorry, of Ridley I'm Bank -- David Lane from Merrill

David Ridley Lane

Good morning.

Dan Leib

morning. Good

David Ridley Lane

profitability the that up better digital side? of when on up the print Just on start investment, show and how running could and that would kind to print be quickly and

Tom Juhase

were Tom. up running So David, in its and in production April. and We

at beginning So, the production we delivery we the year took of in and went into April.

starting it's we load as -- start business. it, our through to So, to flow to starts it

Dave Gardella

cost And from and we much have really obviously our productivity baked an to revenue expect part a David, more of assets don’t perspective, it clear, being cost just It's load more be to on to incremental a basis our of initiatives impact. play reduction able that's and effective into full-year guidance.

David Ridley Lane

second just numbers for the to your quarter revenue? Got then, check around expectations missed just I it. on And

Dave Gardella

Yes.

organic that's of is look on quarter range then, $XXX in to And high you perspective, the obviously million a year-over-year basis, think X% when related is revenue million second almost on end of the decline to and to language the related million that $XXX million the solutions. essentially range, M&A So, I as at down an $XX midpoint, and $XX side. softer the the it's again of some shifts environment the investment of well it's timing At some we flat. market saw as from

David Ridley Lane

clearly market gone if more the markets wondering me. as we've around Are last optimistic U.S. And capital here, quarter? become have the is IPO around the environment Got through for you it. one back coming then,

Dan Leib

government call, even we as with the with certainly on that the saw volatility quarter then down. shut expectation we've Yes, saw fourth I think said and our the on QX

confidence was I we in a along. the what quarter. moved narrowed of in market expected activity our There the IPO early we experienced robust as terms have We on say would into of further we lot leading XXXX lack expectations a of and

seeing we so, are market. the And IPO robust

good feel yields about mentioned, the very we that getting. we we're As

taking think to The specific M&A your is that in little longer, into to lead pipeline. being the now place there are market a a things But the time the market of bit are year. we why tends put and see the announced be part I being the comments about good very earlier question. IPO lot we back to which is feel the of

David Ridley Lane

much. you, very Thank

Dan Leib

Thank you.

no Okay. more questions. that It appears

So, operator?

Dan Leib

would we talk early that, Thank thank August. in With everyone you. and for participating to we'll you

Operator

concludes Thank for disconnect. Thank you gentlemen. conference. This you, ladies may and you now and participating today's

Donnelley Financial Solutions (DFIN) 2 May 192019 Q1 Earnings call transcript