Donnelley Financial Solutions(US:DFIN)2022-05-05 16:34Financial Data and Key Metrics Changes - The company reported net sales of $211 million for Q1 2022, a decrease of 14% from the previous year [12][19] - Non-GAAP adjusted EBITDA was $51.1 million, down 28% year-over-year, with a margin of 24.2%, reflecting a decline of approximately 480 basis points [13][22] - Non-GAAP net debt decreased by $30.5 million year-over-year, resulting in a non-GAAP net leverage of 0.7x, down 0.3 times from the first quarter of 2021 [14][35] Business Line Data and Key Metrics Changes - Software sales reached $69.8 million, representing a year-over-year growth of 15.8%, with compliance software offerings growing 19% [19][31] - The Capital Markets Software Solutions segment saw net sales of $44.7 million, an increase of 16.1% from the previous year, driven by strong performance in ActiveDisclosure and Venue [24] - The Investment Companies Software Solutions segment reported net sales of $25.1 million, an increase of 15.1% year-over-year, attributed to strong demand for digital compliance solutions [31] Market Data and Key Metrics Changes - Global IPO activity was down 85%, significantly impacting capital markets transactions [10][11] - The company noted a robust pipeline of in-process IPOs comparable to 2021 levels, indicating potential for future activity when market conditions improve [11][12] - The SPAC market has seen a significant decline, affecting new issuances and De-SPAC transactions [10][11] Company Strategy and Development Direction - The company aims to become a leading provider of compliance and regulatory solutions, with a target of software sales making up nearly 60% of total sales by 2026 [16][41] - The strategy includes a focus on recurring revenue from compliance software, which is expected to constitute over 70% of software sales by 2026 [16][41] - The company plans to continue investing in technology and development while maintaining a disciplined approach to capital allocation [45][46] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a challenging capital markets environment but expressed confidence in the company's ability to adapt and capture future opportunities [11][12] - The outlook for Q2 2022 anticipates continued market volatility, with expected net sales between $220 million and $240 million [38][39] - Management remains optimistic about the growth trajectory of software solutions, particularly in recurring compliance offerings [38][39] Other Important Information - The company repurchased approximately 1.2 million shares for $42.1 million during Q1 2022, with $123 million remaining on its share repurchase authorization [35][36] - Free cash flow for the quarter was -$62.1 million, primarily due to elevated performance-based payments [34] Q&A Session Summary Question: Can you provide more details on efforts to maintain margins despite lower volumes? - Management highlighted permanent changes to the cost structure, including headcount reductions and outsourcing, which have improved margins despite lower transactional revenue [50][51] Question: What is the competitive environment in the software business? - Management expressed confidence in their product offerings, noting strong growth in ActiveDisclosure and Venue, and emphasized their ability to meet client needs across different stages of their lifecycle [52][54] Question: Can you clarify the expected decline in print sales? - Management confirmed that approximately $30 million in print sales decline is expected over the next three quarters, with the largest portion occurring in Q2 [69]