Donnelley Financial Solutions(DFIN) - 2022 Q2 - Quarterly Report

Special Note Regarding Forward-Looking Statements The report contains forward-looking statements subject to numerous risks and uncertainties, including pandemics, economic volatility, and regulatory changes, which could cause actual results to differ materially - The report contains forward-looking statements subject to numerous risks and uncertainties, including pandemics, economic volatility, and regulatory changes, which could cause actual results to differ materially[10][11] - The Company explicitly states it does not undertake any obligation to update or revise these forward-looking statements, except as required by law, cautioning readers against undue reliance[12][13] Part I: Financial Information Item 1: Condensed Consolidated Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements, highlighting Q2 2022 net sales of $266.2 million and net earnings of $46.0 million, with total assets at $925.2 million as of June 30, 2022 Condensed Consolidated Statements of Operations The statements show Q2 2022 net sales of $266.2 million and net earnings of $46.0 million, with diluted EPS at $1.42, reflecting year-over-year changes Consolidated Statements of Operations Highlights (in millions, except per share data) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Net Sales | $266.2 | $267.5 | $477.2 | $512.8 | | Income from Operations | $65.9 | $62.0 | $101.2 | $112.9 | | Net Earnings | $46.0 | $42.9 | $72.4 | $78.1 | | Diluted EPS | $1.42 | $1.24 | $2.17 | $2.26 | Condensed Consolidated Balance Sheets As of June 30, 2022, total assets reached $925.2 million, driven by increased receivables and long-term debt, while total equity decreased to $341.4 million due to share repurchases Balance Sheet Summary (in millions) | Metric | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $17.8 | $54.5 | | Total current assets | $318.4 | $279.7 | | Total Assets | $925.2 | $883.3 | | Long-term debt | $234.1 | $124.0 | | Total Liabilities | $583.8 | $506.3 | | Total Equity | $341.4 | $377.0 | Condensed Consolidated Statements of Cash Flows For the first half of 2022, net cash used in operating activities was $6.4 million, with a $36.7 million net decrease in cash and equivalents, primarily due to share repurchases funded by new borrowings Cash Flow Summary for Six Months Ended June 30 (in millions) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(6.4) | $(7.7) | | Net cash used in investing activities | $(24.8) | $(17.7) | | Net cash used in financing activities | $(7.2) | $(9.9) | | Net decrease in cash | $(36.7) | $(33.7) | Notes to Condensed Consolidated Financial Statements The notes provide detailed disclosure on the company's accounting policies and financial items, including revenue disaggregation, restructuring charges, debt structure, and significant stock repurchase activities - DFIN's business model involves regulatory filing and deal solutions, with a notable client shift towards software solutions and away from physical print[38] Revenue Disaggregation - Six Months Ended June 30 (in millions) | Revenue Type | 2022 | 2021 | | :--- | :--- | :--- | | Tech-enabled services | $225.0 | $252.5 | | Software solutions | $141.4 | $126.9 | | Print and distribution | $110.8 | $133.4 | | Total net sales | $477.2 | $512.8 | - Net restructuring charges of $1.7 million were recorded for employee termination costs affecting approximately 70 employees in the first half of 2022[69] - The company repurchased 3,408,099 shares for $106.5 million in the first six months of 2022, with $58.6 million remaining authorized under the program as of June 30, 2022[85] Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the 6.9% year-to-date revenue decline due to lower capital markets activity and print demand, partially offset by software growth, while maintaining sufficient liquidity Results of Operations Consolidated net sales for Q2 2022 decreased 0.5% YoY to $266.2 million, with YTD sales down 6.9% to $477.2 million, driven by lower capital markets activity and print services, partially offset by software growth Net Sales Change by Offering (Q2 2022 vs Q2 2021) | Offering | Q2 2022 Sales (M) | Change (M) | Change (%) | | :--- | :--- | :--- | :--- | | Tech-enabled services | $133.3 | $(0.7) | (0.5%) | | Software solutions | $71.6 | $5.0 | 7.5% | | Print and distribution | $61.3 | $(5.6) | (8.4%) | Net Sales Change by Offering (Six Months 2022 vs 2021) | Offering | Six Months 2022 Sales (M) | Change (M) | Change (%) | | :--- | :--- | :--- | :--- | | Tech-enabled services | $225.0 | $(27.5) | (10.9%) | | Software solutions | $141.4 | $14.5 | 11.4% | | Print and distribution | $110.8 | $(22.6) | (16.9%) | - SG&A expenses decreased by $6.9 million, or 4.6%, for the six months ended June 30, 2022, primarily due to reduced LSC multiemployer pension plan obligations and lower incentive compensation[151] Information by Segment Segment performance for the first half of 2022 shows Capital Markets - Software Solutions sales grew 10.6%, while Investment Companies - Software Solutions sales rose 13.0%, with significant operating income increases in Investment Companies segments Segment Performance - Six Months Ended June 30, 2022 (in millions) | Segment | Net Sales | % Change YoY | Income from Ops | % Change YoY | | :--- | :--- | :--- | :--- | :--- | | Capital Markets - Software Solutions | $91.0 | 10.6% | $7.4 | (53.2%) | | Capital Markets - Compliance & Comms | $253.6 | (13.0%) | $89.4 | (27.7%) | | Investment Companies - Software Solutions | $50.4 | 13.0% | $12.1 | 120.0% | | Investment Companies - Compliance & Comms | $82.2 | (12.8%) | $21.8 | 159.5% | Non-GAAP Measures The company uses non-GAAP Adjusted EBITDA to assess financial performance, reporting $82.6 million for Q2 2022 and $133.7 million for the six months ended June 30, 2022 Reconciliation of Net Earnings to Adjusted EBITDA (in millions) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net earnings | $46.0 | $42.9 | $72.4 | $78.1 | | Adjusted EBITDA | $82.6 | $79.9 | $133.7 | $151.0 | Liquidity and Capital Resources The company maintains sufficient liquidity with $17.8 million cash on hand and $190.0 million available under its revolving credit facility as of June 30, 2022, with expected capital expenditures of $50-55 million for 2022 - As of June 30, 2022, the company had $110.0 million of borrowings outstanding under its Revolving Facility, with $190.0 million of availability remaining[220][222] - Total net available liquidity as of June 30, 2022 was $207.8 million, consisting of $190.0 million in revolver availability and $17.8 million in cash[222] - Expected capital expenditures for the full year 2022 are approximately $50 million to $55 million, primarily for software development investments[213] Item 3: Quantitative and Qualitative Disclosure About Market Risk There were no significant changes to the company's market risk profile during the quarter, consistent with prior disclosures - There were no significant changes to the Company's market risk profile during the quarter[227] Item 4: Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of June 30, 2022[230] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[231] Part II: Other Information Item 1: Legal Proceedings The company is involved in ordinary course litigation, with expected outcomes not materially affecting its financial condition or position - The company is involved in ordinary course litigation and does not expect the outcomes to have a material effect on its financial condition[73][232] Item 1A: Risk Factors No material changes to the company's risk factors were identified during the three months ended June 30, 2022 - No material changes to the risk factors disclosed in the Annual Report occurred during the second quarter of 2022[233] Item 2: Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2022, the company repurchased 2,180,796 shares at an average price of $29.54, with $58.6 million remaining authorized under the program Issuer Purchases of Equity Securities (Q2 2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2022 | 626,560 | $30.75 | | May 2022 | 802,367 | $28.74 | | June 2022 | 755,302 | $29.38 | | Total Q2 | 2,184,229 | $29.54 | - The Board authorized an increase to the stock repurchase program on February 17, 2022, bringing the available authorization to $150 million and extending it through December 31, 2023. As of June 30, 2022, $58.6 million remained[82][234] Item 6: Exhibits This section lists all exhibits filed with the 10-Q report, including required certifications by the CEO and CFO, and Inline XBRL documents - The report includes required certifications by the CEO (Daniel N. Leib) and CFO (David A. Gardella) pursuant to the Securities Exchange Act of 1934[241][243] - The filing includes Inline XBRL instance, schema, and other related documents for interactive data[243][244]