Donnelley Financial Solutions(US:DFIN)2025-04-30 20:05markdown Part I: Financial Information [Item 1: Condensed Consolidated Financial Statements (unaudited)](index=4&type=section&id=Item%201%3A%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) The unaudited condensed consolidated financial statements for the three months ended March 31, 2025, show a slight decrease in total net sales to $201.1 million compared to $203.4 million in the prior year period. Net earnings decreased to $31.0 million from $33.3 million. The balance sheet indicates total assets of $852.8 million and total equity of $419.9 million as of March 31, 2025. Cash flows from operations were negative, at -$37.7 million, a larger outflow than the -$27.9 million in the same period of 2024 Condensed Consolidated Statements of Operations (Three Months Ended March 31) | | 2025 (in millions) | 2024 (in millions) | | :--- | :--- | :--- | | **Total net sales** | $201.1 | $203.4 | | Income from operations | $45.8 | $44.6 | | **Net earnings** | $31.0 | $33.3 | | Diluted EPS | $1.05 | $1.09 | Condensed Consolidated Balance Sheets Highlights | | March 31, 2025 (in millions) | December 31, 2024 (in millions) | | :--- | :--- | :--- | | Cash and cash equivalents | $16.2 | $57.3 | | Total assets | $852.8 | $841.6 | | Long-term debt | $183.7 | $124.7 | | Total equity | $419.9 | $436.1 | Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31) | | 2025 (in millions) | 2024 (in millions) | | :--- | :--- | :--- | | Net cash used in operating activities | $(37.7) | $(27.9) | | Net cash (used in) provided by investing activities | $(13.3) | $0.2 | | Net cash provided by financing activities | $9.5 | $48.6 | | Net (decrease) increase in cash | $(41.1) | $20.6 | [Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202%3A%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In Q1 2025, DFIN experienced a 1.1% decrease in net sales to $201.1 million, primarily due to lower capital markets compliance volumes affecting tech-enabled services, which was partly offset by growth in software solutions, especially the new TSR offering. Despite the sales dip, income from operations grew 2.7% to $45.8 million, thanks to reduced cost of sales and lower SG&A expenses. The company's liquidity remains solid, supported by a newly amended and restated credit agreement providing a $115.0 million term loan and a $300.0 million revolving facility. The company continues its strategic shift towards software solutions to mitigate market volatility [Executive Overview](index=30&type=section&id=Executive%20Overview) For the first quarter of 2025, net sales decreased by 1.1% to $201.1 million year-over-year, driven by a $6.4 million decline in tech-enabled services, partially offset by a $4.3 million increase in software solutions, notably from the Tailored Shareholder Reporting (TSR) offering. Income from operations increased by 2.7% to $45.8 million, benefiting from lower cost of sales ($7.1 million) and SG&A expenses ($7.0 million), which compensated for the absence of a $9.8 million gain on an asset sale that occurred in Q1 2024 - Q1 2025 net sales decreased by **$2.3 million (1.1%)** YoY to **$201.1 million**[109](index=109&type=chunk) - The sales decrease was driven by a **$6.4 million** drop in tech-enabled services from lower capital markets compliance volumes, partly offset by a **$4.3 million** rise in software solutions, including a **$3.0 million** increase from the TSR offering[109](index=109&type=chunk) - Income from operations increased by **$1.2 million (2.7%)** to **$45.8 million**, due to lower costs, which offset the impact of a **$9.8 million** gain on a land sale in the prior-year quarter[110](index=110&type=chunk) [Results of Operations](index=31&type=section&id=Results%20of%20Operations) In Q1 2025, total net sales fell 1.1% to $201.1 million. Software solutions sales grew 5.4% to $84.6 million, driven by the TSR offering and Arc Suite, while tech-enabled services sales dropped 7.7% to $76.5 million due to lower compliance volumes. Total cost of sales decreased by 8.9%, and SG&A expenses fell by 9.6%, leading to a 2.7% increase in income from operations. However, net earnings declined by 6.9% to $31.0 million, affected by a higher effective tax rate and the absence of a significant one-time gain from an asset sale recorded in Q1 2024 Consolidated Results of Operations (Q1 2025 vs Q1 2024) | | 2025 (in millions) | 2024 (in millions) | % Change | | :--- | :--- | :--- | :--- | | **Total net sales** | $201.1 | $203.4 | (1.1%) | | Software solutions | $84.6 | $80.3 | 5.4% | | Tech-enabled services | $76.5 | $82.9 | (7.7%) | | **Income from operations** | $45.8 | $44.6 | 2.7% | | **Net earnings** | $31.0 | $33.3 | (6.9%) | - SG&A expenses decreased by **$7.0 million (9.6%)** primarily due to **$2.7 million** lower bad debt expense and **$2.0 million** lower selling and marketing expenses[121](index=121&type=chunk) - Other operating income was significantly lower, as the prior year period included a **$9.8 million** net gain on the sale of land[124](index=124&type=chunk) - The effective income tax rate rose to **26.5%** in Q1 2025 from **19.6%** in Q1 2024, driven by a decrease in the net favorable impact of discrete adjustments[127](index=127&type=chunk) [Information by Segment](index=33&type=section&id=Information%20by%20Segment) In Q1 2025, segment performance varied. Capital Markets-Software Solutions saw a 2.1% sales decline and a 12.0% drop in Adjusted EBITDA. In contrast, Capital Markets-Compliance and Communications Management sales fell 7.9%, but its Adjusted EBITDA surged 16.9% due to significant cost reductions. Investment Companies-Software Solutions was a strong performer, with sales up 19.8% and Adjusted EBITDA jumping 60.0%, driven by the TSR offering. Investment Companies-Compliance and Communications Management also showed strength, with a 1.9% sales increase and a 48.8% rise in Adjusted EBITDA from higher-margin sales Capital Markets – Software Solutions (Q1 2025 vs Q1 2024) | | 2025 (in millions) | 2024 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Net sales | $51.9 | $53.0 | (2.1%) | | Segment Adjusted EBITDA | $13.9 | $15.8 | (12.0%) | Capital Markets – Compliance and Communications Management (Q1 2025 vs Q1 2024) | | 2025 (in millions) | 2024 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Net sales | $83.9 | $91.1 | (7.9%) | | Segment Adjusted EBITDA | $36.7 | $31.4 | 16.9% | Investment Companies – Software Solutions (Q1 2025 vs Q1 2024) | | 2025 (in millions) | 2024 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Net sales | $32.7 | $27.3 | 19.8% | | Segment Adjusted EBITDA | $12.8 | $8.0 | 60.0% | Investment Companies – Compliance and Communications Management (Q1 2025 vs Q1 2024) | | 2025 (in millions) | 2024 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Net sales | $32.6 | $32.0 | 1.9% | | Segment Adjusted EBITDA | $12.2 | $8.2 | 48.8% | [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains sufficient liquidity through cash, operating cash flows, and its revolving facility. As of March 31, 2025, cash and cash equivalents were $16.2 million. Net cash used in operating activities increased to $37.7 million from $27.9 million in the prior year, mainly due to timing of payments and collections. In March 2025, the company amended its credit agreement, securing a new $115.0 million Term Loan A Facility and a $300.0 million Revolving Facility, both maturing in 2030. This refinancing retired the previous term loan. As of quarter-end, $75.0 million was drawn on the revolver, leaving $224.0 million available and total net available liquidity of $240.2 million - On March 13, 2025, the company amended and restated its credit agreement, establishing a new **$115.0 million** Term Loan A Facility and a **$300.0 million** Revolving Facility, both maturing in March 2030[159](index=159&type=chunk) - Proceeds from the new facilities were used to retire the full **$125.0 million** of the then-outstanding Delayed Draw Term Loan A Facility[160](index=160&type=chunk) Net Available Liquidity as of March 31, 2025 | Item | Amount (in millions) | | :--- | :--- | | Revolving Facility Capacity | $300.0 | | Less: Borrowings | $(75.0) | | Less: Letters of Credit Impact | $(1.0) | | **Current Availability** | **$224.0** | | Plus: Cash and cash equivalents | $16.2 | | **Net Available Liquidity** | **$240.2** | - The company was in compliance with all debt covenants as of March 31, 2025[163](index=163&type=chunk) [Item 3: Quantitative and Qualitative Disclosure About Market Risk](index=34&type=section&id=Item%203%3A%20Quantitative%20and%20Qualitative%20Disclosure%20About%20Market%20Risk) The company reports that there have been no significant changes to its market risk profile as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2024 - There have been no significant changes to the Company's market risk from what was disclosed in the Annual Report[168](index=168&type=chunk) [Item 4: Controls and Procedures](index=34&type=section&id=Item%204%3A%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2025. The company is currently implementing a new quote-to-cash (QTC) process for some of its software services, which represents a significant change to its internal control over financial reporting - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of March 31, 2025[169](index=169&type=chunk) - The Company is implementing a new quote-to-cash (QTC) process, including new systems, for certain software services. This project is considered a significant component and change to the Company's internal control over financial reporting[170](index=170&type=chunk) Part II: Other Information [Item 1: Legal Proceedings](index=34&type=section&id=Item%201%3A%20Legal%20Proceedings) The company is party to certain litigation and other dispute resolution proceedings arising in the ordinary course of business. Management does not believe the final resolution of these matters will have a material effect on the company's financial results, position, or cash flows - The Company is involved in ordinary course litigation but does not expect the outcomes to have a material effect on its financial condition[62](index=62&type=chunk)[171](index=171&type=chunk) [Item 1A: Risk Factors](index=34&type=section&id=Item%201A%3A%20Risk%20Factors) There were no material changes to the risk factors identified in the company's Annual Report on Form 10-K for the year ended December 31, 2024, during the first quarter of 2025 - No material changes to the risk factors disclosed in the Annual Report occurred during the three months ended March 31, 2025[172](index=172&type=chunk) [Item 2: Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=Item%202%3A%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the first quarter of 2025, the company repurchased a total of 1,119,578 shares at an average price of $48.30 per share. Of these, 861,301 shares were purchased under its publicly announced repurchase program. As of March 31, 2025, $49.5 million remained available for future repurchases under the current authorization, which expires on December 31, 2025 Issuer Purchases of Equity Securities (Q1 2025) | Period | Total Shares Purchased | Average Price Paid | Shares Purchased Under Program | | :--- | :--- | :--- | :--- | | Jan 2025 | 84,984 | $61.50 | 84,984 | | Feb 2025 | 209,882 | $51.79 | 209,882 | | Mar 2025 | 824,712 | $46.05 | 566,435 | | **Total** | **1,119,578** | **$48.30** | **861,301** | - As of March 31, 2025, **$49.5 million** remained authorized for repurchase under the program expiring December 31, 2025[82](index=82&type=chunk)[173](index=173&type=chunk) [Item 5: Other Information](index=35&type=section&id=Item%205%3A%20Other%20Information) On March 19, 2025, Daniel N. Leib, the company's President and CEO, adopted a Rule 10b5-1 trading plan. The plan pertains to the potential exercise of 47,400 vested stock options and the sale of up to 10,000 shares of common stock, contingent on specific market price conditions during a trading window from August 14, 2025, to September 30, 2025 - On March 19, 2025, President and CEO Daniel N. Leib adopted a Rule 10b5-1 trading plan for exercising stock options and selling common stock[177](index=177&type=chunk) [Item 6: Exhibits](index=36&type=section&id=Item%206%3A%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including the Amended and Restated Credit Agreement, CEO and CFO certifications required under the Sarbanes-Oxley Act, and Inline XBRL data files - Key exhibits filed include the Amended and Restated Credit Agreement (Exhibit 10.1), CEO/CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2), and XBRL data files[179](index=179&type=chunk)