Welcome to the Donnelley Financial Solutions First Quarter 2017 Results Conference Call. My name is Eric and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Sanja Burklow. Sanja, you may begin.

Thank you, Eric. Good morning everyone and thank you for joining Donnelley Financial solutions first quarter 2017 results conference call. This morning, we released our earnings report, a copy of which can be found in the Investors Section of our website at dfsco.com. During this call, we'll refer to forward-looking statements that are subject to uncertainty. For a complete discussion, please refer to the cautionary statement included in our earnings release and further details in our Annual Reports on Form 10-K and other filings with the SEC. Further, we will discuss non-GAAP and pro forma financial information. We believe the presentation of non-GAAP and pro forma results provides you with useful supplementary information concerning the company's ongoing operations and is an appropriate way for you to evaluate the company's performance. They are, however, provided for informational purposes only. Please refer to the press release and related footnotes for GAAP information and a reconciliation of GAAP to non-GAAP information. We are joined this morning by Dan Leib, Dave Gardella, Tom Juhase, and Kami Turner. I will now turn the call over to Dan.

Thank you, Sanja, and good morning everyone. On today's call, I will provide an update on the first quarter performance, what we are seeing in terms of market activity, the progress we have made in repositioning the company to operate independently, and highlight some of our strategic priorities going forward. Following my comments, Dave will provide additional detail on our first quarter results and then we will open it up the lines for a Q&A session. We are pleased with our first quarter results. They reflect the improving market environment for M&A and IPOs of which we spoke on our last call. Strong sales and operational performance within these improved markets and the benefits of our cost reduction efforts. Compared to a relatively weak first quarter of 2016, organic revenue increased 11.9% and non-GAAP adjusted EBITDA increased 37%. Free cash flow reflected normal seasonal patterns what was good on a comparative basis with this year's results including interest costs associated with being a standalone company. While we are only one quarter into the year and considering the strong market influence to our results, we slightly increased our full-year guidance for revenue, EBITDA, and free cash flow. Activity levels improved across the board in the first quarter. Compared to the first quarter of last year, we experienced double-digit revenue growth in both our U.S. and international segments. Further each of our reporting units within the U.S. segment contributed to the strong growth. Our capital markets offering grew 11.5% driven by 38% growth in our Venue Data Room software offerings as well as an increase in our transactional revenue which grew by 30%. Similarly our investment markets offering grew by nearly 10% driven by strong growth in our content management offering and incremental proxy revenue from some of our mutual fund clients.…

Thank you, Dan, and good morning everyone. As Dan mentioned earlier, we started the year on a positive note consistent with our expectations. Net sales for the first quarter were $267.3 million, an increase of $27.2 million or 11.3% from the first quarter of 2016. After adjusting for changes in foreign exchange rates, organic sales increased 11.9% driven by double-digit growth in both our U.S. and international segments. This strong revenue growth was driven by an improvement in capital markets activity, mutual fund proxy volume driven by two special proxies in the quarter, and growth from our Venue Active Disclosure and FundSuiteArc software offerings. First quarter gross margin was 36.6%, 264 basis points higher than the first quarter of 2016. This includes approximately 250 basis points of a negative impact driven by a change in the classification of IT cost to cost of sales from SG&A compared to classification in prior periods -- periods prior to the separation from R. R. Donnelly. Excluding this reclassification, first quarter gross margin improvement of approximately 514 basis points was primarily driven by higher transactional volume and the cost reductions we began to implement late last year. Non-GAAP SG&A expense in the quarter was $52.9 million, $4.2 million higher than the first quarter of 2016. As a percentage of revenue, SG&A was 19.8% or 49 basis points lower than the first quarter of 2016. Excluding the favorable 250 basis point impact of the IP reclassification, SG&A as a percentage of revenue was approximately 201 basis points higher than the first quarter of 2016. As mentioned in this morning's press release, we incurred approximately $5 million in higher costs related to dis-synergies and ongoing cost in excess of the cost historically allocated to the company. These incremental costs were partially offset by the cost reductions…

Thank you, Dave. In our first seven months as a standalone company, we've made several changes to improve our operating efficiency and have begun to work to reposition the company for continued success going forward. We continue to strengthen our core offerings and are in the early stages of bringing additional compliance based solutions to market. Lastly, I'd like to thank all of our employees. Since the October spinoff we planned and implemented many of the changes that I just noted. The unwavering focus of our employees, operational, administrative, and client facing, has made our transition to a standalone company go smoothly. Thank you for your hard work and continued focus. And now, operator, let's open it up for questions.

Thank you. We will now begin the question-answer-session. [Operator Instructions]. And our first question comes from Charles Strauzer from CJS Securities. Charles, please go ahead.

So a few questions here. If you could start off may be David this is a good one for you but you gave some good information on growth numbers by segments. May be if you put this because it's quite but excluding transactional revenue what was kind of the core growth of the non-transactional business?

Yes, Charlie, we don't break it out quite that way. I think we said the transactional revenue was up about 30%, so a little bit higher in transactional than the overall company average growth which was 11.9% organically, so that drove a little bit more than the rest of the company. But I think as we pointed out, we had growth in both international segments as well as the U.S. and we did see even outside of capital markets almost 10% growth in both investment markets and language solutions and other. So it was -- the growth is really across the board, I think probably the two areas of the highest growth the transactions at about 30% which I just pointed out and then Venue was 38% in the quarter coming off last year, where it grew 20%, so pretty good traction that we're seeing with the Data Room offering.

Great. And with the Data Room offering just kind of segways to my next question about kind of competition out there, do you feel like you are taking some share from your competitors or you -- how are you shaping up versus your competition in kind of those new technology offerings and kind of the outlook with the increased spend on CapEx on kind of keeping up those technology offering that you do have, what's your kind of longer term view there?

Yes, Charlie, hi it's Dan. Couple of comments on that. I think if we take a step back and look at the longer trend in the business clearly much heavier influence of technology, you see the fragmentation in the offering -- across all offerings and the barriers to entry into what we do have come down substantially. We believe our brand, our relationships are extremely important in a market like this and the breadth of our offering is quite helpful. When you get to each of the individual products, so we'll start with Active rather we will start with Venue, the 38% represented in our estimation some share coming over to us and that's if you recall back in the fourth quarter we had around 20% growth in Venue. And so we've seen very strong performance in Venue. We think, certainly transactional market drives a bit of it, but we think we're taken some share their continue to look at additional opportunities. If we pivot to the compliance based platform of Active Disclosure, if you go back several years ago, we were losing some share on the core compliance offering that has stabilized in the recent past. I think, if you look at the quarter, for this first quarter results we actually picked up a handful of clients on a net basis competitively, and then you have some influence of a shrinking public company count when you look at M&A and de-listings and things like that. But that's why it's been so important for us to have a big push on private companies, private equity, and broadening our tools; we are as you pointed out putting a lot of investment into Active Disclosure. FundSuiteArc is the global investment management platform and we, as Dave mentioned, saw very good performance in…

This is Tom, Charlie. So the only thing I would add on the Data Room offering is competitively is we're targeting private companies as well as public companies. I think some folks think that it's an M&A IPO tool; it's also used for a private company transfer so 50% of the revenue in the quarter came at a private company sales. And then the other one is we have a partnership with eBrevia which is an analytics tool and we're able to sell that into the channel with the law firms, so it's not just a private equity or public company sale, it's a private company sale and a law firm sale. So we're getting -- we're kind of using our sales channel compared to the competition to sort of leverage our Data Room offering that way.

And that segways nicely into my next question which is kind of one of the tone of the capital markets and kind of your public company creation, if you also the IPOs and as you talked to these kind of private companies and the tools you have that said you're up well for potentially when they do go public again or go public for the first time and also interesting in the terms of the tone of the number of filings that we've seen seems to be a pretty good pick up year-over-year especially obviously although they start at easy comp but are you seeing that kind of trend continuing when you talk to your customers, particularly the law firms and bankers what is their overall view of the capital markets environment right now?

So I will divide, its Tom again. So I will divide that into kind of two pieces, one being kind of our internal view on how we go-to-market. So we look at the lifecycle of a company. So we start out with it being private. What offerings can we use or provide, while they're private? They may go into a sale or they may go into a public offering. And then, we like to think it's cradle to grave, we even have bankruptcy offerings as well and they come back out restructure. So we see it as a life cycle of a company be it private or public, so that's just one piece there. And then the other in terms of the macro view of the market without question there is, no, there is new issue volume that's up year-over-year, as Dave pointed out. We see that -- kind of the international market aside because of the European Election happening in France, things like that, really pretty much pipeline is filling, our customers and law firms feel that there is work to continue to do. But we've been in these situations before where it's positive and then it kind of flattens out, so but net-net kind of a positive view for us going forward.

Yes, the only thing I would add to that is just to elaborate a bit on some of Tom's point is as Dave mentioned we had some very nice large transactions in Q2 of last year, so that comps become tougher. Outside of that to Tom's point we have seen a firming up in the market or firming up of filings activity et cetera and so feel good about the year in our guidance and as Dave said, Q2 is just a tougher comp for us.

And maybe you can help quantify that a little bit more in terms of what the kind of the outliers were last year in Q2 that kind of a -- on a normalized revenue basis what would Q2 look like last year to help kind of guide investors to where we should be considering the bar?

Yes, Charlie. So there were a handful of large transactions that from a revenue perspective in aggregate those deals were probably in the $20 million to $25 million range. And as we talked about last year some -- that the transactional side kind of varies a disproportionately high margin relative to the total company margins. So I think if you think about the $20 million to $25 million of those large transactions at a fairly high contribution margin that's probably the right way to think about it.

[Operator Instructions]. And our next question comes from Brian Nolan from JPMorgan. Brian, please go ahead.

Hey guys, can you hear me?

Yes, good morning.

Okay, good morning. I wanted to ask about capital plans for later this year and you guys have a couple of tens of millions of dollars in RP basket that you have kind of in excess the cash flow suite to the term loan. I was just wondering if you're inclined to where you're going to pay down some of the notes outstanding or did you have other plans for cash flow?

Yes. So and we mentioned on the last call and again here that from a cash flow perspective we can get to the top end of our targeted leverage range based on the full-year guidance. The prior year at this point would be for debt repayment which would come on the term loan. While the notes carry the higher interest rates they are not callable. And so from a kind of E-ease transaction and as a practical matter of repaying debt the term loan would be the mechanism to do it.

Okay. They're not callable but could you do them in the open market?

Yes, we could do that, we could do that.

Yes.

Is that a plan or is it really just focused on --?

We wouldn't talk about the specific plans.

And our next question comes from Bill Mastoris from Robert W. Baird & Company. Please go ahead.

Thank you. I wondered Dan and Dave if you could kind of give us a general overview or kind of the differences that you expect in revenues and EBITDA as many end users shift to digital from print. And what impact that might have? And if you could drill it down each one of your businesses that would be even better, so any color you could provide there would be greatly appreciated?

Yes, Bill, this is Dave. I will start. So roughly 40% of our revenue is print related and we've seen from a secular perspective that's been declining at roughly 4%. As we look at the different parts of the businesses and I’ll break it out I think, start with investment markets which is roughly 60% of the revenue in that reporting unit is print related. As we've seen that decline we've been able to manage the profitability on a gross dollar basis. So as things shift from print and mail distribution to more content management and electronic distribution that we're able on a lower revenue base able to preserve similar profit dollars therefore obviously driving margin up. So assuming that that trend continues at a reasonable pace kind of similar to what we've seen historically, we feel we can kind of continue to manage to protect the profit dollars obviously if it changed overnight that would be a different story. But so far, really that the value we bring is around managing the content, preparing the content for distribution, and doing the distribution regardless of the format and that's really what we're getting paid for and therefore that's where the -- the profit dollar sit. Similar on capital markets but I think the -- what we've dug deeper on is on the investment market side and that seems to be the case at least at this point.

Yes, that the one thing I would add to that it's Dan, is we manage our platform and we don't produce all of our own printing we uses as has always been the case some outside sources that we're able to moderate and keep our facilities busy and really variablize the cost structure and that's how we achieve what, what Dave mentioned there in terms of maintaining profit dollars in an environment where volume may be trending, trending down. And it's been, as David pointed out, it's been pretty consistent trend and so, as you make sure we address your questions if there is anything else tied to that.

Not tied to that. But I do have a follow-up and this is a little bit separate I -- I know you're targeting two and three quarters as far as a year-end leverage ratio does that incorporate any possible M&A activity and if there is going to be any M&A activity could we expect it to be a little bolt-on nature or is there any large elephant out there that would seem to be attractive?

Yes, sure. So our target is an organic target. Having said that as you've seen what we did back at R.R. Donnelley is we were very measured and we used the leverage targets as guard rails from a consideration perspective on M&A. And these are long-term targets relative to what we think -- where we think we should operate within. Having said that we're also cognizant that the business has some cyclicality tied to it. So in a great transactions market a certain leverage ratio is actually going to be lower than it would be in a more challenged transactions market given, given the same amount of debt. In regards to the M&A pipeline since we've been out on our own we've built a very nice pipeline. There is obviously a lot of activity in the M&A market. Wouldn't comment on any acquisition targets in particular but robust pipeline, but we're -- we're measured and considered and then how we deploy capital and how we manage the balance sheet.

Okay. It sounds like this is going to be of a smaller nature would that be a fair statement?

I think that the pipeline consists of targets of all different size. I think the takeaway is that we're mindful of what leverage looks like and obviously it's going to be a target specific.

And we have no further questions at this time.

Great. So thank you Eric and thank you everyone for joining and we look forward to communicating with you in the future. Thank you.