Donnelley Financial Solutions(DFIN) - 2024 Q2 - Quarterly Report

Special Note Regarding Forward-Looking Statements This section highlights that forward-looking statements are subject to risks and uncertainties, and actual results may differ materially - Forward-looking statements are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied[4][5] - Key risk factors include volatility of the global economy, failure to offer high-quality customer support, inability to maintain client referrals, competitive market, failure of disaster recovery plans, undetected errors in services, and effects of operating in international markets[5] Part I: Financial Information Item 1: Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements and related notes for the specified periods Condensed Consolidated Statements of Operations This statement presents the company's net sales, income from operations, and net earnings for the specified periods Condensed Consolidated Statements of Operations (in millions, except per share data) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---|:---|:---| | Net sales | $242.7 | $242.1 | $446.1 | $440.7 | | Income from operations | $64.5 | $55.6 | $109.1 | $70.4 | | Net earnings | $44.1 | $37.7 | $77.4 | $53.5 | | Net earnings per share: Basic | $1.50 | $1.28 | $2.63 | $1.83 | | Net earnings per share: Diluted | $1.47 | $1.24 | $2.56 | $1.76 | Condensed Consolidated Statements of Comprehensive Income This statement details net earnings and other comprehensive income components for the specified periods Condensed Consolidated Statements of Comprehensive Income (in millions) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---|:---|:---| | Net earnings | $44.1 | $37.7 | $77.4 | $53.5 | | Other comprehensive income (loss), net of tax | $0.1 | $1.1 | $(0.2) | $1.4 | | Comprehensive income | $44.2 | $38.8 | $77.2 | $54.9 | Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and equity at specific dates Condensed Consolidated Balance Sheets (in millions) | Metric | June 30, 2024 | December 31, 2023 | |:---|:---|:---| | Total assets | $882.9 | $806.9 | | Total liabilities | $441.4 | $404.7 | | Total equity | $441.5 | $402.2 | Condensed Consolidated Statements of Cash Flows This statement outlines cash flows from operating, investing, and financing activities for the specified periods Condensed Consolidated Statements of Cash Flows (in millions) | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---| | Net cash provided by (used in) operating activities | $28.3 | $(31.3) | | Net cash used in investing activities | $(19.1) | $(13.9) | | Net cash provided by financing activities | $3.5 | $30.0 | | Net increase (decrease) in cash and cash equivalents | $11.9 | $(14.8) | | Cash and cash equivalents at end of period | $35.0 | $19.4 | Condensed Consolidated Statements of Changes in Stockholders' Equity This statement details changes in total equity, including net earnings, comprehensive income, and share transactions Condensed Consolidated Statements of Changes in Stockholders' Equity (in millions) | Metric | Balance at Dec 31, 2023 | Net Earnings (6M 2024) | Other Comprehensive Loss (6M 2024) | Share-based Compensation (6M 2024) | Common Stock Repurchases (6M 2024) | Balance at June 30, 2024 | |:---|:---|:---|:---|:---|:---|:---| | Total Equity | $402.2 | $77.4 | $(0.2) | $12.5 | $(28.0) | $441.5 | Condensed Consolidated Statements of Changes in Stockholders' Equity (in millions) | Metric | Balance at Dec 31, 2022 | Net Earnings (6M 2023) | Other Comprehensive Income (6M 2023) | Share-based Compensation (6M 2023) | Common Stock Repurchases (6M 2023) | Balance at June 30, 2023 | |:---|:---|:---|:---|:---|:---|:---| | Total Equity | $329.5 | $53.5 | $1.4 | $11.0 | $(3.2) | $376.0 | Notes to the Unaudited Condensed Consolidated Financial Statements These notes provide detailed explanations of the accounting policies and specific financial statement line items Note 1. Overview, Basis of Presentation and Significant Accounting Policies This note outlines DFIN's business, service offerings, significant accounting policies, and new accounting pronouncements - DFIN is a leading global provider of innovative software and technology-enabled financial regulatory and compliance solutions, with a prevailing trend towards clients utilizing software solutions in conjunction with tech-enabled services[15] - The Company's offerings include software solutions (ActiveDisclosure®, Arc Suite®, Venue® Virtual Data Room), tech-enabled services (document composition, EDGAR filing, transactional solutions), and print and distribution[17] - Sold land for net proceeds of $13.2 million in Q1 2024, recognizing a net pre-tax gain of $9.8 million for the six months ended June 30, 2024[20] - Amortization expense related to internally-developed software was $24.9 million for the six months ended June 30, 2024, up from $21.8 million in the prior year[22] - The Company is evaluating the impact of new FASB ASUs 2023-07 (Segment Reporting) and 2023-09 (Income Taxes) on its disclosures[25][26] Note 2. Revenue This note details revenue recognition policies, disaggregates revenue by service type and segment, and explains contract balances - Revenue is recognized upon transfer of control of promised services or products, which include software solutions, tech-enabled services, and print and distribution offerings[28] Disaggregation of Revenue by Service Type and Segment (in millions) | Segment | Service Type | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---|:---|:---|:---| | Capital Markets - Software Solutions | Software Solutions | $57.3 | $47.7 | $110.3 | $91.4 | | Capital Markets - Compliance and Communications Management | Tech-enabled services | $81.3 | $84.0 | $147.3 | $144.7 | | | Print and distribution | $32.5 | $38.9 | $57.6 | $72.3 | | Investment Companies - Software Solutions | Software Solutions | $28.3 | $28.0 | $55.6 | $54.4 | | Investment Companies - Compliance and Communications Management | Tech-enabled services | $20.9 | $20.5 | $37.8 | $38.2 | | | Print and distribution | $22.4 | $23.0 | $37.5 | $39.7 | | Total net sales | | $242.7 | $242.1 | $446.1 | $440.7 | - Contract assets were $17.7 million at June 30, 2024 (vs. $16.3 million at December 31, 2023)[33] - Unbilled receivables were $47.4 million at June 30, 2024 (vs. $21.6 million at December 31, 2023)[34] - Contract liabilities were $53.8 million at June 30, 2024 (vs. $46.8 million at December 31, 2023)[35] Note 3. Goodwill This note provides a breakdown of goodwill balances by reportable segment, noting a slight decrease due to adjustments Goodwill Balances by Reportable Segment (in millions) | Segment | Net book value at December 31, 2023 | Foreign exchange and other adjustments | Net book value at June 30, 2024 | |:---|:---|:---|:---| | Capital Markets - Software Solutions | $100.0 | $(0.1) | $99.9 | | Capital Markets - Compliance and Communications Management | $252.8 | $(0.1) | $252.7 | | Investment Companies - Software Solutions | $53.0 | — | $53.0 | | Investment Companies - Compliance and Communications Management | — | — | — | | Total | $405.8 | $(0.2) | $405.6 | Note 4. Leases This note details the company's operating and finance lease activities, including cash payments and lease expenses Cash Paid Related to Leases (in millions) | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---| | Cash paid related to operating leases | $7.7 | $8.9 | | Cash paid related to finance leases | $1.4 | $1.2 | Components of Lease Expense (in millions) | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---| | Net operating lease expense | $2.7 | $5.1 | | Total finance lease expense | $1.4 | $1.3 | Note 5. Restructuring, Impairment and Other Charges, net This note outlines restructuring charges, primarily for employee terminations, showing a significant decrease in 2024 - For the six months ended June 30, 2024, the Company recorded net restructuring charges of $3.1 million (vs. $8.7 million in 2023), primarily related to employee termination costs for approximately 30 employees[42][43] - For the three months ended June 30, 2024, net restructuring charges were $1.3 million (vs. a net credit of $2.2 million in 2023), related to approximately 20 employee terminations[41][42][43] - The employee terminations liability was $1.6 million at June 30, 2024 (vs. $2.1 million at December 31, 2023)[44] Note 6. Retirement Plans This note presents the net pension plan income for the three and six months ended June 30, 2024 and 2023 Net Pension Plan Income (in millions) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---|:---|:---| | Net pension plan income | $(0.3) | $(0.1) | $(0.6) | $(0.3) | Note 7. Commitments and Contingencies Management believes the final resolution of litigation and preference items will not materially affect financial results - Management believes that the final resolution of preference items and litigation will not have a material effect on the Company's consolidated results of operations, financial position or cash flows[46] Note 8. Debt This note details the company's debt structure, including facilities, interest rates, and outstanding balances Company's Debt (in millions) | Debt Component | June 30, 2024 | December 31, 2023 | |:---|:---|:---| | Term Loan A Facility | $125.0 | $125.0 | | Borrowings under the Revolving Facility | $55.0 | — | | Unamortized debt issuance costs | $(0.4) | $(0.5) | | Total long-term debt | $179.6 | $124.5 | - The weighted-average interest rate on borrowings under the Term Loan A Facility was 7.4% for the six months ended June 30, 2024 (vs. 6.5% in 2023)[48] - The weighted-average interest rate on borrowings under the Revolving Facility was 7.7% for the six months ended June 30, 2024 (vs. 7.1% in 2023)[48] Interest Expense, Net (in millions) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---|:---|:---| | Interest expense, net | $3.7 | $4.6 | $7.3 | $8.1 | Note 9. Earnings per Share This note provides the calculation of basic and diluted net earnings per share and weighted average shares outstanding Net Earnings Per Share (in millions, except per share data) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---|:---|:---| | Basic EPS | $1.50 | $1.28 | $2.63 | $1.83 | | Diluted EPS | $1.47 | $1.24 | $2.56 | $1.76 | | Weighted average number of common shares outstanding (Basic) | 29.4 | 29.5 | 29.4 | 29.3 | | Weighted average number of common shares outstanding (Diluted) | 30.0 | 30.4 | 30.2 | 30.4 | Note 10. Capital Stock This note details authorized capital stock and common stock repurchases under the company's program - The Board authorized the repurchase of up to $150 million of common stock commencing January 1, 2024, with an expiration date of December 31, 2025[53] - As of June 30, 2024, the remaining authorized amount for repurchases was $122.0 million[53] Common Stock Repurchases | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---|:---|:---| | Common stock repurchases (in millions) | $19.2 | $1.9 | $28.0 | $3.2 | | Number of shares repurchased | 317,388 | 42,987 | 457,281 | 76,555 | | Average price paid per share | $60.65 | $43.59 | $61.25 | $41.50 | Note 11. Comprehensive Income This note presents components of other comprehensive income (loss), net of tax, including translation adjustments Other Comprehensive Income (Loss), Net of Tax (in millions) | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |:---|:---|:---| | Translation adjustments | $(0.6) | $1.0 | | Adjustment for net periodic pension and other postretirement benefits plans | $0.4 | $0.4 | | Other comprehensive income (loss), net of tax | $(0.2) | $1.4 | Note 12. Segment Information This note describes the company's four operating segments and provides their respective financial performance - The Company operates through four reportable segments: Capital Markets – Software Solutions (CM-SS), Capital Markets – Compliance and Communications Management (CM-CCM), Investment Companies – Software Solutions (IC-SS), and Investment Companies – Compliance and Communications Management (IC-CCM)[60] - CM-SS provides Venue and ActiveDisclosure for transactional and compliance processes. CM-CCM provides tech-enabled services and print/distribution for deal solutions and SEC compliance[61][62] - IC-SS provides the Arc Suite platform for compliance and regulatory information management. IC-CCM provides tech-enabled services and print/distribution for regulatory communications and investor communications[63][64] Segment Financial Information (Six Months Ended June 30, 2024 vs 2023, in millions) | Segment | Net Sales 2024 | Net Sales 2023 | Income (Loss) from Operations 2024 | Income (Loss) from Operations 2023 | Capital Expenditures 2024 | Capital Expenditures 2023 | |:---|:---|:---|:---|:---|:---|:---| | Capital Markets - Software Solutions | $110.3 | $91.4 | $23.9 | $3.8 | $14.4 | $11.8 | | Capital Markets - Compliance and Communications Management | $204.9 | $217.0 | $81.6 | $63.6 | $3.8 | $3.0 | | Investment Companies - Software Solutions | $55.6 | $54.4 | $10.6 | $11.7 | $11.0 | $7.3 | | Investment Companies - Compliance and Communications Management | $75.3 | $77.9 | $24.1 | $24.2 | $1.8 | $1.0 | | Corporate | — | — | $(31.1) | $(32.9) | $0.7 | $0.7 | | Total | $446.1 | $440.7 | $109.1 | $70.4 | $31.7 | $23.8 | Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting key business trends, segment performance, liquidity, and capital resources for the three and six months ended June 30, 2024, compared to the same periods in 2023 Company Overview This section provides an overview of DFIN's business as a global provider of financial regulatory and compliance solutions - DFIN is a leading global provider of innovative software and technology-enabled financial regulatory and compliance solutions[68] - The company's strategy focuses on investing in advanced software solutions (ActiveDisclosure®, Arc Suite®, Venue® Virtual Data Room) and maintaining its market-leading position in Compliance & Communications Management segments through high-touch, service-oriented experiences[70] - There is a prevailing trend towards clients utilizing the Company's software solutions in conjunction with tech-enabled services, shifting away from physical print and distribution[68] Market Volatility/Cyclicality and Seasonality This section discusses how market volatility, cyclicality, and seasonality impact the company's business segments - Capital Markets segments are subject to market volatility, with demand for transactional and Venue offerings dependent on global markets for IPOs, M&A, and debt offerings[71] - Compliance offerings and Investment Companies segments are less impacted by market volatility[71] - The company experiences seasonality due to quarterly/annual public company reporting and semi-annual/annual mutual fund filings, leading to peak periods[72] - DFIN is focused on driving annual recurring revenue to mitigate the impact of market volatility[72] Services and Products This section outlines the company's core offerings, including software solutions, tech-enabled services, and print - The Company's offerings include software solutions (ActiveDisclosure, Arc Suite, Venue), tech-enabled services (document composition, SEC EDGAR filing, transactional solutions), and print and distribution[73] Government Regulations and Regulatory Impact This section addresses the influence of SEC regulatory changes on the company's service offerings and revenue - SEC regulatory changes are driving increased use of structured, machine-readable data in disclosures, accelerating the Company's transition from print to software solutions[74] - The SEC's Tailored Shareholder Reports (TSR) rule, effective July 24, 2024, requires iXBRL tagging for certain investment companies, expected to increase net sales from Arc Suite, tech-enabled services, and print in the second half of 2024[75] Segments This section describes the company's four operating segments and their respective service offerings - The Company's four operating segments are Capital Markets – Software Solutions (CM-SS), Capital Markets – Compliance and Communications Management (CM-CCM), Investment Companies – Software Solutions (IC-SS), and Investment Companies – Compliance and Communications Management (IC-CCM)[76] - CM-SS provides Venue and ActiveDisclosure for transactional and compliance processes. CM-CCM offers tech-enabled services and print/distribution for deal solutions and SEC compliance[77][78] - IC-SS provides the Arc Suite platform for compliance and regulatory information management. IC-CCM offers tech-enabled solutions for regulatory communications, iXBRL filings, and turnkey proxy services[79][80] Executive Overview This section provides a high-level summary of the company's financial performance for the recent periods Second Quarter Overview Net sales for Q2 2024 saw a modest increase, while income from operations significantly improved due to strategic factors - Net sales for the three months ended June 30, 2024, increased by $0.6 million (0.2%) to $242.7 million, primarily due to higher Venue volumes and price increases, partially offset by lower capital markets and investment companies compliance volumes[81] - Income from operations for the three months ended June 30, 2024, increased by $8.9 million (16.0%) to $64.5 million, driven by higher software solutions net sales, a favorable sales mix, cost control initiatives, and lower healthcare expense[81] Year-to-Date Overview Year-to-date net sales increased modestly, with a substantial rise in income from operations driven by various factors - Net sales for the six months ended June 30, 2024, increased by $5.4 million (1.2%) to $446.1 million, primarily due to higher Venue volumes, software price increases, and higher capital markets and investment companies transactional volumes[82] - Income from operations for the six months ended June 30, 2024, increased by $38.7 million (55.0%) to $109.1 million, primarily due to higher software solutions net sales, a favorable sales mix, cost control initiatives, a net gain on the sale of land, and lower restructuring charges[83] Financial Review This section provides a detailed analysis of the company's consolidated and segment-specific financial results Results of Operations (Consolidated) Consolidated net sales saw a modest increase for both the three and six months ended June 30, 2024, driven by software solutions, while tech-enabled services and print/distribution declined. Income from operations significantly improved due to favorable sales mix, cost controls, and specific gains, despite some increased expenses Consolidated Net Sales by Service Type (in millions) | Service Type | 3M Ended June 30, 2024 | 3M Ended June 30, 2023 | % Change (3M) | 6M Ended June 30, 2024 | 6M Ended June 30, 2023 | % Change (6M) | |:---|:---|:---|:---|:---|:---|:---| | Tech-enabled services | $102.2 | $104.5 | (2.2%) | $185.1 | $182.9 | 1.2% | | Software solutions | $85.6 | $75.7 | 13.1% | $165.9 | $145.8 | 13.8% | | Print and distribution | $54.9 | $61.9 | (11.3%) | $95.1 | $112.0 | (15.1%) | | Total net sales | $242.7 | $242.1 | 0.2% | $446.1 | $440.7 | 1.2% | Consolidated Income Statement Highlights (in millions) | Metric | 3M Ended June 30, 2024 | 3M Ended June 30, 2023 | % Change (3M) | 6M Ended June 30, 2024 | 6M Ended June 30, 2023 | % Change (6M) | |:---|:---|:---|:---|:---|:---|:---| | Total cost of sales | $86.5 | $98.2 | (11.9%) | $166.6 | $188.5 | (11.6%) | | SG&A expenses | $76.1 | $76.2 | (0.1%) | $148.9 | $146.7 | 1.5% | | Depreciation and amortization | $14.3 | $14.4 | (0.7%) | $28.2 | $26.8 | 5.2% | | Restructuring, impairment and other charges, net | $1.3 | $(2.2) | nm | $3.1 | $8.7 | (64.4%) | | Other operating income, net | — | $(0.1) | (100.0%) | $(9.8) | $(0.4) | nm | | Income from operations | $64.5 | $55.6 | 16.0% | $109.1 | $70.4 | 55.0% | | Interest expense, net | $3.7 | $4.6 | (19.6%) | $7.3 | $8.1 | (9.9%) | | Investment and other income, net | $(0.4) | $(0.3) | 33.3% | $(0.8) | $(7.2) | (88.9%) | | Earnings before income taxes | $61.2 | $51.3 | 19.3% | $102.6 | $69.5 | 47.6% | | Income tax expense | $17.1 | $13.6 | 25.7% | $25.2 | $16.0 | 57.5% | | Net earnings | $44.1 | $37.7 | 17.0% | $77.4 | $53.5 | 44.7% | Information by Segment This section provides a detailed breakdown of net sales, income from operations, and operating margins for each of the company's four reportable segments, highlighting key drivers and changes for the three and six months ended June 30, 2024, compared to the prior year Capital Markets – Software Solutions This segment experienced significant growth in net sales and income from operations, driven by Venue volumes and price increases Capital Markets – Software Solutions Performance (in millions) | Metric | 3M Ended June 30, 2024 | 3M Ended June 30, 2023 | % Change (3M) | 6M Ended June 30, 2024 | 6M Ended June 30, 2023 | % Change (6M) | |:---|:---|:---|:---|:---|:---|:---| | Net sales | $57.3 | $47.7 | 20.1% | $110.3 | $91.4 | 20.7% | | Income from operations | $14.4 | $4.4 | nm | $23.9 | $3.8 | nm | | Operating margin | 25.1% | 9.2% | | 21.7% | 4.2% | | - Growth driven by higher Venue volumes and price increases, partially offset by the disposition of the eBrevia business[103][104] Capital Markets – Compliance and Communications Management This segment saw a decrease in net sales but an increase in income from operations due to cost controls and a land sale gain Capital Markets – Compliance and Communications Management Performance (in millions) | Metric | 3M Ended June 30, 2024 | 3M Ended June 30, 2023 | % Change (3M) | 6M Ended June 30, 2024 | 6M Ended June 30, 2023 | % Change (6M) | |:---|:---|:---|:---|:---|:---|:---| | Net sales | $113.8 | $122.9 | (7.4%) | $204.9 | $217.0 | (5.6%) | | Income from operations | $43.0 | $47.0 | (8.5%) | $81.6 | $63.6 | 28.3% | | Operating margin | 37.8% | 38.2% | | 39.8% | 29.3% | | - Net sales decreased due to lower compliance volumes, partially offset by price increases and higher transactional volumes (6M)[107][109] - Income from operations for 6M 2024 increased due to a net gain on the sale of land, cost control initiatives, favorable sales mix, price increases, and lower restructuring charges[109][110] Investment Companies – Software Solutions This segment reported modest net sales growth from price increases, while income from operations decreased due to higher depreciation Investment Companies – Software Solutions Performance (in millions) | Metric | 3M Ended June 30, 2024 | 3M Ended June 30, 2023 | % Change (3M) | 6M Ended June 30, 2024 | 6M Ended June 30, 2023 | % Change (6M) | |:---|:---|:---|:---|:---|:---|:---| | Net sales | $28.3 | $28.0 | 1.1% | $55.6 | $54.4 | 2.2% | | Income from operations | $6.8 | $6.7 | 1.5% | $10.6 | $11.7 | (9.4%) | | Operating margin | 24.0% | 23.9% | | 19.1% | 21.5% | | - Net sales increased due to Arc Suite price increases and higher ArcDigital and ArcReporting volumes, partially offset by lower ArcRegulatory volumes[112][113] - Income from operations for 6M 2024 decreased primarily due to higher depreciation and amortization expense[113] Investment Companies – Compliance and Communications Management This segment experienced a slight decrease in net sales, with income from operations showing mixed results across periods Investment Companies – Compliance and Communications Management Performance (in millions) | Metric | 3M Ended June 30, 2024 | 3M Ended June 30, 2023 | % Change (3M) | 6M Ended June 30, 2024 | 6M Ended June 30, 2023 | % Change (6M) | |:---|:---|:---|:---|:---|:---|:---| | Net sales | $43.3 | $43.5 | (0.5%) | $75.3 | $77.9 | (3.3%) | | Income from operations | $17.0 | $16.1 | 5.6% | $24.1 | $24.2 | (0.4%) | | Operating margin | 39.3% | 37.0% | | 32.0% | 31.1% | | - Net sales decreased due to lower compliance volumes, partially offset by higher transactional volumes[115][116] - Income from operations for 3M 2024 increased due to a favorable sales mix. For 6M 2024, it decreased slightly due to lower sales volumes, partially offset by a favorable sales mix[115][116] Corporate Corporate operating expenses decreased due to lower consulting and healthcare costs, partially offset by higher share-based compensation Corporate Operating Expenses (in millions) | Metric | 3M Ended June 30, 2024 | 3M Ended June 30, 2023 | 6M Ended June 30, 2024 | 6M Ended June 30, 2023 | |:---|:---|:---|:---|:---| | Operating expenses | $16.7 | $18.6 | $31.1 | $32.9 | | Share-based compensation expense | $7.4 | $6.7 | $12.5 | $11.0 | | Restructuring, impairment and other charges, net | $0.1 | $0.3 | $1.2 | $0.8 | - Corporate operating expenses decreased for both periods primarily due to lower consulting and healthcare expenses, partially offset by higher share-based compensation expense[118][119] Non-GAAP Measures This section provides a reconciliation of Adjusted EBITDA, a non-GAAP measure, to net earnings for performance assessment - The Company uses Adjusted EBITDA as a non-GAAP measure to provide useful information about operating results and enhance the overall ability to assess financial performance, allowing for more meaningful comparisons between core business operating results over different periods[120] Adjusted EBITDA Reconciliation (in millions) | Metric | 3M Ended June 30, 2024 | 3M Ended June 30, 2023 | 6M Ended June 30, 2024 | 6M Ended June 30, 2023 | |:---|:---|:---|:---|:---| | Net earnings | $44.1 | $37.7 | $77.4 | $53.5 | | Restructuring, impairment and other charges, net | $1.3 | $(2.2) | $3.1 | $8.7 | | Share-based compensation expense | $7.4 | $6.7 | $12.5 | $11.0 | | Gain on sale of long-lived assets | — | $(0.1) | $(9.8) | $(0.4) | | Non-income tax, net | $(0.3) | $(0.2) | $(0.7) | $(0.4) | | Gain on investments in equity securities | $(0.3) | $(0.2) | $(0.4) | $(6.9) | | Accelerated rent expense | — | $0.1 | — | $0.6 | | Depreciation and amortization | $14.3 | $14.4 | $28.2 | $26.8 | | Interest expense, net | $3.7 | $4.6 | $7.3 | $8.1 | | Investment and other income, net | $(0.1) | $(0.1) | $(0.4) | $(0.3) | | Income tax expense | $17.1 | $13.6 | $25.2 | $16.0 | | Adjusted EBITDA | $87.2 | $74.3 | $142.4 | $116.7 | Liquidity and Capital Resources This section discusses the company's financial liquidity, capital resources, and cash flow activities Overview of Liquidity and Capital Resources The company believes it has sufficient liquidity from cash, operating cash flows, and its Revolving Facility - The Company believes it has sufficient liquidity from cash and cash equivalents, operating cash flows, and its Revolving Facility to support ongoing operations and future growth[123] - Cash and cash equivalents were $35.0 million at June 30, 2024 (vs. $23.1 million at December 31, 2023)[126] - The OECD Pillar Two framework did not have a material impact on the Company's Unaudited Condensed Consolidated Financial Statements for the three and six months ended June 30, 2024, and is not expected to have a material impact in future periods[125] Cash Flows Provided by (Used in) Operating Activities Net cash provided by operating activities significantly improved, driven by increased net earnings and favorable balance changes - Net cash provided by operating activities was $28.3 million for the six months ended June 30, 2024, a significant improvement from $31.3 million of net cash used in operating activities for the same period in 2023[126][128] - The change was primarily due to an increase in net earnings, a favorable change to accrued liabilities and other, and a favorable change to accounts receivable[128] Cash Flows Used in Investing Activities Net cash used in investing activities increased due to higher capital expenditures, partially offset by a land sale - Net cash used in investing activities was $19.1 million for the six months ended June 30, 2024 (vs. $13.9 million in 2023)[126][129] - This primarily consisted of $31.7 million in capital expenditures (substantially for software development), partially offset by $12.4 million in proceeds from the sale of land[129] - Expected capital expenditures for the year ending December 31, 2024, are approximately $65 million to $70 million[129] Cash Flows Provided by Financing Activities Net cash provided by financing activities decreased, as borrowings were offset by payments and higher share repurchases - Net cash provided by financing activities was $3.5 million for the six months ended June 30, 2024 (vs. $30.0 million in 2023)[126][130][131] - This included $139.0 million of Revolving Facility borrowings and $84.0 million of payments on Revolving Facility borrowings[130] - Common stock repurchases totaled $50.7 million for the six months ended June 30, 2024, including $27.8 million under the stock repurchase program and $22.9 million associated with equity award vesting[130] Debt The company's long-term debt increased due to Revolving Facility borrowings, while remaining in compliance with covenants Company's Debt (in millions) | Debt Component | June 30, 2024 | December 31, 2023 | |:---|:---|:---| | Term Loan A Facility | $125.0 | $125.0 | | Borrowings under the Revolving Facility | $55.0 | — | | Unamortized debt issuance costs | $(0.4) | $(0.5) | | Total long-term debt | $179.6 | $124.5 | - As of June 30, 2024, there were $55.0 million of borrowings outstanding under the Revolving Facility, with $244.0 million of remaining availability[133][135] - The Company was in compliance with its debt covenants as of June 30, 2024, and expects to remain in compliance[135] Other Information (within MD&A) This sub-section refers to other relevant disclosures, including litigation, accounting estimates, and new pronouncements - For a discussion of certain litigation involving the Company, see Note 7, Commitments and Contingencies[137] - There were no changes to critical accounting estimates from those disclosed in the Annual Report[138] - Recently issued accounting standards and their estimated effect on the Company's financial statements are described in Note 1, Overview, Basis of Presentation and Significant Accounting Policies[139] Item 3: Quantitative and Qualitative Disclosure About Market Risk This section states no significant changes occurred in the company's market risk disclosures since the Annual Report - There have been no significant changes to the Company's market risk disclosed in the Annual Report[140] Item 4: Controls and Procedures Management concluded disclosure controls were effective, and a new quote-to-cash process is being implemented - Management concluded that the Company's disclosure controls and procedures were effective as of June 30, 2024[141] - The Company is implementing a new quote-to-cash (QTC) process, including new systems, which is a significant component of its internal control over financial reporting[141] Part II: Other Information Item 1: Legal Proceedings This section refers to Note 7 for a discussion of legal proceedings involving the company - For a discussion of certain litigation involving the Company, see Note 7, Commitments and Contingencies, to the Unaudited Condensed Consolidated Financial Statements[143] Item 1A: Risk Factors This section states no material changes occurred to the risk factors identified in the Annual Report - There were no material changes during the three months ended June 30, 2024, to the risk factors identified in the Annual Report[146] Item 2: Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's common stock repurchase program, including authorized amounts and shares repurchased Issuer Purchases of Equity Securities This section provides details on the company's common stock repurchase activities during the quarter - The Board authorized the repurchase of up to $150 million of common stock commencing January 1, 2024, with an expiration date of December 31, 2025[143] - As of June 30, 2024, the dollar value of shares that may yet be purchased under the plans or programs was $121,990,960[142] Issuer Purchases of Equity Securities (Q2 2024) | Period | Total Number of Shares Purchased | Average Price Paid per Share | |:---|:---|:---| | April 1, 2024 - April 30, 2024 | 98,222 | $61.78 | | May 1, 2024 - May 31, 2024 | 102,967 | $62.04 | | June 1, 2024 - June 30, 2024 | 121,967 | $58.72 | | Total | 323,156 | $60.70 | Item 3: Defaults Upon Senior Securities This section states that there were no defaults upon senior securities - None[145] Item 4: Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company - Not applicable[145] Item 5: Other Information This section includes information on a trading plan adopted by the President and CEO Director or Officer Adoption or Termination of Trading Agreements This section details the adoption of a Rule 10b5-1(c) trading plan by the President and CEO - On June 25, 2024, Daniel Leib, President and CEO, adopted a Rule 10b5-1(c) trading plan for the exercise of 65,000 vested stock options and subsequent sale of underlying common stock[144] Item 6: Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate documents and certifications - Exhibits include Amended and Restated Certificate of Incorporation, By-laws, CEO/CFO certifications (Rule 13a-14(a), 13a-14(b), Section 1350), and Inline XBRL documents[147] Signatures This section confirms the official signing of the report by the company's authorized financial officer - The report was signed by David A. Gardella, Executive Vice President and Chief Financial Officer, on July 31, 2024[148]