Donnelley Financial Solutions(DFIN) - 2024 Q1 - Quarterly Report

Part I - Financial Information Item 1: Condensed Consolidated Financial Statements (unaudited) This section presents the unaudited financial performance for the three months ended March 31, 2024, compared to the same period in 2023, including statements of operations, balance sheets, cash flows, and detailed notes Condensed Consolidated Statements of Operations Net sales increased to $203.4 million in Q1 2024, with net earnings significantly rising to $33.3 million or $1.09 per diluted share, driven by service and software growth and other operating income Consolidated Statements of Operations (Q1 2024 vs Q1 2023) | (in millions, except per share data) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Total net sales | $203.4 | $198.6 | | Tech-enabled services | $82.9 | $78.4 | | Software solutions | $80.3 | $70.1 | | Print and distribution | $40.2 | $50.1 | | Income from operations | $44.6 | $14.8 | | Net earnings | $33.3 | $15.8 | | Diluted Net earnings per share | $1.09 | $0.52 | Condensed Consolidated Balance Sheets Total assets increased to $867.8 million as of March 31, 2024, driven by receivables and cash, while total liabilities rose to $458.9 million due to increased long-term debt Balance Sheet Summary | (in millions) | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total current assets | $268.1 | $208.5 | | Total assets | $867.8 | $806.9 | | Total current liabilities | $179.9 | $201.6 | | Long-term debt | $204.5 | $124.5 | | Total liabilities | $458.9 | $404.7 | | Total equity | $408.9 | $402.2 | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities improved to $27.9 million in Q1 2024, while financing activities provided $48.6 million, primarily from borrowings and share repurchases Cash Flow Summary (Q1 2024 vs Q1 2023) | (in millions) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | ($27.9) | ($51.5) | | Net cash provided by (used in) investing activities | $0.2 | ($1.7) | | Net cash provided by financing activities | $48.6 | $47.7 | | Net increase (decrease) in cash | $20.6 | ($5.4) | | Cash and cash equivalents at end of period | $43.7 | $28.8 | Notes to Condensed Consolidated Financial Statements Detailed notes explain accounting policies and financial results, covering revenue disaggregation, a land sale gain, debt structure, and share repurchase activities - On March 29, 2024, the company sold land for net proceeds of $13.2 million, recognizing a net pre-tax gain of $10.6 million, with $9.8 million recorded in Q1 2024[38] - As of March 31, 2024, the company had $204.5 million in total long-term debt, consisting of a $125.0 million Term Loan A Facility and $80.0 million in borrowings under its Revolving Facility[62] - In Q1 2024, the company repurchased 139,893 shares for $8.8 million at an average price of $62.61 per share under its authorized stock repurchase program[83] Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes Q1 2024 financial results, business segments, and financial condition, covering revenue drivers, profitability, market impacts, non-GAAP measures, liquidity, and capital resources Executive Overview Q1 2024 net sales increased 2.4% to $203.4 million, while income from operations surged to $44.6 million, driven by transactional volumes, software performance, a land sale gain, and reduced restructuring charges - Net sales for Q1 2024 increased by $4.8 million (2.4%) year-over-year, primarily due to higher capital markets transactional volumes and increased Venue volumes and pricing[108] - Income from operations for Q1 2024 increased by $29.8 million year-over-year, benefiting from a net pre-tax gain on a land sale, reduced restructuring charges, higher sales volumes, and a favorable sales mix[109] Results of Operations Consolidated net sales reached $203.4 million in Q1 2024, driven by growth in software and tech-enabled services, while operating income benefited from a land sale gain and reduced restructuring charges Net Sales by Offering (Q1 2024 vs Q1 2023) | (in millions) | Q1 2024 | Q1 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Tech-enabled services | $82.9 | $78.4 | $4.5 | 5.7% | | Software solutions | $80.3 | $70.1 | $10.2 | 14.6% | | Print and distribution | $40.2 | $50.1 | ($9.9) | (19.8%) | | Total net sales | $203.4 | $198.6 | $4.8 | 2.4% | - Restructuring charges decreased significantly to $1.8 million in Q1 2024 from $10.9 million in Q1 2023[112][122] - Other operating income was $9.8 million in Q1 2024, primarily from a net pre-tax gain on the sale of land[112][123] Information by Segment Segment performance varied, with Capital Markets - Software Solutions showing strong growth and profitability, while Capital Markets - Compliance and Communications improved operating income, and Investment Companies segments faced sales pressure Segment Performance Summary (Q1 2024 vs Q1 2023) | (in millions) | Net Sales Q1 2024 | Net Sales Q1 2023 | Income from Ops Q1 2024 | Income from Ops Q1 2023 | | :--- | :--- | :--- | :--- | :--- | | Capital Markets - Software Solutions | $53.0 | $43.7 | $9.5 | ($0.6) | | Capital Markets - Compliance & Comms | $91.1 | $94.1 | $38.6 | $16.6 | | Investment Companies - Software Solutions | $27.3 | $26.4 | $3.8 | $5.0 | | Investment Companies - Compliance & Comms | $32.0 | $34.4 | $7.1 | $8.1 | Non-GAAP Measures Adjusted EBITDA, a key non-GAAP measure, significantly increased to $55.2 million in Q1 2024, with reconciliation from net earnings including adjustments for restructuring, share-based compensation, and asset sales Reconciliation of Net Earnings to Adjusted EBITDA | (in millions) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net earnings | $33.3 | $15.8 | | Restructuring, impairment and other charges, net | $1.8 | $10.9 | | Share-based compensation expense | $5.1 | $4.3 | | Gain on sale of long-lived assets | ($9.8) | ($0.3) | | Depreciation and amortization | $13.9 | $12.4 | | Other adjustments | $1.3 | ($4.3) | | Adjusted EBITDA | $55.2 | $42.4 | Liquidity and Capital Resources The company maintains strong liquidity with $43.7 million in cash and $219.0 million available under its Revolving Facility, totaling $262.7 million in net available liquidity, with 2024 capital expenditures projected at $65-70 million - As of March 31, 2024, the company had net available liquidity of $262.7 million, including $43.7 million in cash and $219.0 million available under its Revolving Facility[164] - The company expects capital expenditures to be approximately $65 million to $70 million for the full year 2024, primarily for software development[157] - In Q1 2024, the company had net borrowings of $80.0 million under its Revolving Facility and used $30.8 million for common stock repurchases[159] Item 3: Quantitative and Qualitative Disclosure About Market Risk No significant changes to the company's market risk were reported compared to the Annual Report on Form 10-K for the year ended December 31, 2023 - There have been no significant changes to the Company's market risk disclosed in the Annual Report[169] Item 4: Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with a new quote-to-cash (QTC) process being implemented as a significant internal control component - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of March 31, 2024[170] - The company is currently implementing a new quote-to-cash (QTC) process, including new systems, which is a significant component of its internal control over financial reporting[171] Part II - Other Information Item 1: Legal Proceedings The company refers to Note 7 for litigation details, stating that management believes current legal proceedings will not materially affect its financial position or results - For a discussion of litigation, the report refers to Note 7, Commitments and Contingencies, to the Unaudited Condensed Consolidated Financial Statements[173] Item 1A: Risk Factors No material changes to the risk factors identified in the Annual Report on Form 10-K for the year ended December 31, 2023, were reported during Q1 2024 - There were no material changes during the three months ended March 31, 2024 to the risk factors identified in the Annual Report[174] Item 2: Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 486,256 shares at an average price of $64.37 in Q1 2024, with $141.2 million remaining available under the stock repurchase program Issuer Purchases of Equity Securities (Q1 2024) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Program | Remaining Authorization (in millions) | | :--- | :--- | :--- | :--- | :--- | | Jan 2024 | 23,671 | $61.66 | 21,000 | $148.7 | | Feb 2024 | 28,690 | $63.45 | 28,690 | $146.9 | | Mar 2024 | 433,895 | $64.58 | 90,203 | $141.2 | | Total | 486,256 | $64.37 | 139,893 | $141.2 | - On November 14, 2023, the Board authorized a new stock repurchase program of up to $150 million, effective from January 1, 2024, to December 31, 2025[175] Item 3: Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[177] Item 4: Mine Safety Disclosures This item is not applicable to the company - Not applicable[178] Item 5: Other Information On March 27, 2024, CEO Daniel Leib adopted a Rule 10b5-1 trading plan for the potential sale of up to 30,000 shares of common stock between August 15 and September 30, 2024 - On March 27, 2024, President and CEO Daniel Leib adopted a Rule 10b5-1 trading plan to sell up to 30,000 shares of common stock[179] Item 6: Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents, a real estate sale agreement amendment, CEO and CFO certifications, and XBRL data files - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents (101.INS, 101.SCH, 104)[181]