Donnelley Financial Solutions(DFIN) - 2019 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For the full year 2019, the company recorded net sales of $874.7 million and non-GAAP adjusted EBITDA of $137 million, maintaining a relatively flat non-GAAP EBITDA margin year-over-year [6][30] - Fourth quarter net sales were $190.3 million, a decrease of $10 million or 5% from the fourth quarter of 2018, with organic net sales also down 5.2% [20][30] - Fourth quarter non-GAAP adjusted EBITDA was $26.1 million, an increase of $6.7 million from the fourth quarter of 2018, with a non-GAAP adjusted EBITDA margin of 13.7%, up 400 basis points year-over-year [24][30] Business Line Data and Key Metrics Changes - SaaS sales made up 26.2% of total sales in Q4 2019, with total SaaS net sales approaching 22% of total net sales for the year, representing a 290 basis point increase from 2018 [5][9] - In Capital Markets, ActiveDisclosure revenues grew nearly 21% year-over-year in Q4, while overall M&A transactions were down over 25% compared to Q4 2018 [10][11] - Services net sales in Q4 increased by $2.4 million or 1.8%, driven primarily by growth in SaaS solutions, while products net sales decreased by $12.4 million or 18.2% [21] Market Data and Key Metrics Changes - U.S. segment net sales were $161.7 million in Q4 2019, a decrease of 5.3% from the previous year, with U.S. capital markets down 6.8% on an organic basis [25] - International segment net sales were $28.6 million in Q4 2019, a decrease of 3.4% from the previous year, with organic sales down 3% [27] Company Strategy and Development Direction - The company aims to continue its digital transformation and focus on growing its recurring SaaS revenue base while maintaining share in traditional businesses [15][36] - A $25 million share repurchase program was approved by the Board, reflecting confidence in the company's strategy and future prospects [13] - The company plans to optimize its manufacturing platform in response to regulatory changes that will reduce print demand, aiming for future profit margin and cash flow improvement [16] Management's Comments on Operating Environment and Future Outlook - Management noted significant headwinds in 2019, including a slowdown in global M&A activity and uncertainties related to Brexit and civil unrest in Hong Kong [6][30] - For 2020, total consolidated net sales are expected to be in the range of $860 million to $880 million, with SaaS net sales growth projected in low double digits [30][31] - The company anticipates a challenging first quarter due to the coronavirus outbreak, particularly impacting the international segment [33] Other Important Information - The company ended 2019 with a net leverage ratio of 2.0x, below the low end of its targeted leverage range, providing enhanced flexibility for capital deployment [8][30] - Consolidated free cash flow in Q4 was $49 million, an increase of $7.4 million from the previous year, primarily due to higher EBITDA and lower capital expenditures [28] Q&A Session Summary Question: Can you elaborate on rightsizing the platform and its implications? - Management explained that they are evaluating physical and software assets to optimize profitability, especially in light of regulatory changes affecting print volume [38] Question: What is the size of the software components like ActiveDisclosure and Venue? - Management indicated that Venue is the largest, followed by FundSuite Arc and ActiveDisclosure, which has shown significant growth [39] Question: How much of the transactional business contributes to revenue? - Transactional revenue was approximately $250 million globally, with M&A activity down year-over-year, while IPO revenue saw a slight increase [41] Question: What is the expected impact of the 30e-3 regulatory change? - Management confirmed that the change is set for Q1 2021 and is working on estimating its revenue impact [43] Question: What are the expected margins for the SaaS business? - Management indicated that more details on SaaS margins will be provided throughout the year as additional disclosures are made [61]