Release Date: October 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 double-digit growth in its SaaS offerings, contributing to a favorable sales mix.
- The company achieved a 13.6% year-over-year organic net sales growth in its software solutions, marking the highest level of software sales to date.
- DFIN's Venue platform posted approximately 27% sales growth, driven by strong sales execution.
- The tailored shareholder report solution is expected to generate $11 million to $12 million in incremental recurring software revenue annually.
- DFIN was awarded the 2024 NOVA award for industry innovation and product development, recognizing its leadership in tailored shareholder report compliance.
Negative Points
- Transactional revenue decreased by 8% due to a soft capital markets environment, impacting overall revenue.
- Print and distribution revenue declined by 16.3% year-over-year, reflecting a broader secular decline in demand for printed products.
- The company recorded pretax charges of $2.8 million related to discontinued software products, impacting profitability.
- Higher compensation-related expenses and bad debt expenses increased SG&A costs, negatively affecting adjusted EBITDA.
- The effective tax rate was 43.5%, driven by non-recognizable losses and unfavorable discrete tax adjustments, impacting net earnings.
Q & A Highlights
Q: Can you discuss the factors impacting EBITDA margins in Q3 and the assumptions for Q4 guidance?
A: David Gardella, CFO, explained that Q3 2023 had a $4 million benefit, while Q3 2024 had a $2 million incremental expense due to timing anomalies. Sequentially, Q2 typically has higher margins due to seasonal top-line leverage. Despite some noise, margins are trending positively, with Q2 and Q3 combined margins close to 31% this year, up from previous years. For Q4, the guidance assumes a decrease in capital markets transactional sales and onetime items from last year, with margins expected in the low 20% range, consistent with last year's Q4.
Q: Can you provide an update on tailored shareholder reports and the expected full-year benefit?
A: Daniel Leib, CEO, stated that they expect $11 million to $12 million in recurring software revenue from tailored shareholder reports, with half realized in 2024 and the full amount in 2025. The print portion is not expected to see much benefit due to competitive pricing and regulatory changes reducing print demand.
Q: What contributed to the decline in Capital Markets transaction revenue, and how does it relate to IPO and M&A activity?
A: Craig Clay, President Global Capital Markets, noted that while IPO activity was up, larger deals in 2023 created tough comps. The IPO market recovery has been uneven, with fewer large IPOs. M&A remains suppressed, and debt issuance doesn't fully compensate. Despite this, DFIN maintains a strong market share and has a robust pipeline for future IPOs and M&A.
Q: Can you explain the deceleration in Venue's growth and any market changes affecting it?
A: Daniel Leib, CEO, mentioned that Venue's growth deceleration is due to tougher comps from large projects earlier in the year. Despite this, Venue achieved a 27% revenue increase, indicating market share gains. Craig Clay added that sluggish M&A demand persists, but Venue's broader application in the M&A ecosystem supports stable demand.
Q: How should we think about software business growth in terms of price versus volume?
A: David Gardella, CFO, indicated that long-term contracts include customary price escalators, and Venue has moved to more market-based pricing. Tailored shareholder reports will contribute significantly to software revenue growth, with $11 million to $12 million expected annually, half realized in 2024 and the rest in 2025.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
