Donnelley Financial Solutions(DFIN) - 2021 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a total sales increase of 11.1% year-over-year, reaching $245.3 million in Q1 2021 [20] - Non-GAAP adjusted EBITDA was $71.1 million, reflecting a 136% increase from Q1 2020, with an adjusted EBITDA margin of 29%, more than doubling from the previous year [6][24] - Non-GAAP gross margin improved to 54.7%, up approximately 1,550 basis points from Q1 2020, driven by a favorable business mix and cost control initiatives [22] Business Line Data and Key Metrics Changes - Software solution sales totaled $60.3 million, growing 27.5% year-over-year, marking a quarterly record for the third consecutive quarter [7] - Tech-enabled services net sales increased by 44.7% to $118.5 million, primarily due to increased capital markets transactional activity [21] - Print and distribution revenue decreased by 27.3% or $25 million, attributed to regulatory changes and proactive exits from low-margin contracts [9][30] Market Data and Key Metrics Changes - Sales in the EMEA region grew by 57%, APAC region by 37%, and US sales for Venue grew by 27% year-over-year [46] - The Venue virtual data room product achieved an all-time high for quarterly sales, growing over 30% year-over-year, driven by increased M&A activity [8][45] Company Strategy and Development Direction - The company aims for 44% of its sales to come from software solutions by 2024, focusing on increasing software and tech-enabled services sales while reducing print sales [14] - A shift to a digital-only platform is planned, with the shutdown of the offset print platform by June 30, 2021, to better align with client needs and variabilize production costs [39][41] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about continued strong performance in software sales and capital markets transactional activity, despite expected declines in print sales due to regulatory changes [35][37] - The company anticipates net sales for Q2 2021 to be in the range of $230 million to $240 million, reflecting a year-over-year decline primarily due to print sales reductions [36] Other Important Information - Free cash flow for Q1 2021 was negative $46.3 million, slightly unfavorable compared to the previous year, impacted by increased incentive-based payments [32] - The company ended Q1 2021 with $252.7 million in total debt and a non-GAAP net leverage ratio of 1.0 times, down from 2.3 times in Q1 2020 [33] Q&A Session Summary Question: What is the impact of SEC rule changes on revenue? - Management indicated that print revenue was down $25 million in Q1, with Q2 expected to have a disproportionately larger impact, being the largest decline of the year [49] Question: What percentage of transactional revenue was related to SPACs? - Management noted strong performance in the SPAC market, with a significant share of their transactional revenue coming from SPACs, and some De-SPAC activity beginning to emerge [50][51] Question: How is the company planning to allocate capital? - The company plans to continue focusing on organic growth investments, debt reduction, and opportunistic share repurchases, remaining disciplined in capital allocation [59][61] Question: What are the expectations for software solutions growth? - Management expects double-digit growth across software solutions, with strong momentum in products like ActiveDisclosure and Venue, driven by M&A activity [66] Question: Will there be a significant decline in print sales in Q2? - Management confirmed that Q2 will see the largest decline in print sales compared to other quarters, with expectations of a substantial drop [65]