Donnelley Financial Solutions(DFIN) - 2021 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q4 2021, consolidated net sales reached $232.8 million, an increase of 10.7% year-over-year, marking the highest fourth quarter in the company's history [37] - Non-GAAP adjusted EBITDA for Q4 2021 was $61.3 million, up 75.6% from Q4 2020, with an adjusted EBITDA margin of 26.3%, reflecting a year-over-year improvement of approximately 970 basis points [42][54] - For the full year 2021, non-GAAP adjusted EBITDA totaled $294.8 million, a 70% increase compared to 2020, with a record adjusted EBITDA margin of 29.7% [19][28] Business Line Data and Key Metrics Changes - Software solutions net sales in Q4 2021 were $73.8 million, growing 36.2% year-over-year and accounting for nearly 32% of total net sales [8][37] - The Virtual Data Room software, Venue, experienced a 48% increase in sales, driven by strong M&A activity [43] - Recurring compliance software offerings, including ActiveDisclosure, grew by approximately 40% in Q4 2021, marking the highest growth quarter of the year [38][44] Market Data and Key Metrics Changes - The capital markets environment remained strong in Q4 2021, with transactional sales reaching $106 million, the second highest quarter of the year [36][46] - The company noted a robust pipeline of approximately 600 SPACs looking for merger targets, which is expected to generate future deals [48] Company Strategy and Development Direction - The company aims to derive 44% of its sales from software solutions by 2024, with a focus on accelerating software growth and enhancing its market-leading position in regulatory and compliance solutions [20][64] - A strategic shift has been made to reduce low-margin print and distribution revenue, with print sales declining significantly, allowing for a healthier revenue mix [25][26] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future demand for M&A activity as market volatility subsides, positioning the company well to capture significant portions of future De-SPAC activity [48][59] - The company expects continued strength in recurring compliance software offerings, while print and distribution sales are anticipated to decline with minimal adjusted EBITDA impact [59] Other Important Information - The company repurchased approximately 973,000 shares in 2021 for $32.4 million, demonstrating confidence in its strategy and intrinsic value [55][56] - The company has reduced its net debt by approximately $500 million since its spin-off in 2016, enhancing financial flexibility for future investments [28] Q&A Session Summary Question: Can you provide more color on the assumptions behind Q1 margins? - Management indicated that the improvement in margins is driven by an evolving revenue mix with more software and less print, alongside permanent cost reductions [66][67] Question: Are you seeing growth in backlog from SPACs? - Management confirmed that they are converting clients from initial SPAC registrations and seeing opportunities for ongoing recurring compliance revenue [70][71] Question: What was the full year transactional revenue? - The full year transactional revenue was just under $405 million, with significant contributions from SPAC and IPO activities [76] Question: How should we think about interest expense going into '22? - Interest expense is expected to drop due to refinancing efforts that will reduce interest by about $14 million per year [84] Question: What is the expected impact of print declines? - The expected print decline for 2022 is approximately $40 million, primarily occurring in the first half of the year [88]