Welcome to the Donnelley Financial Solutions Second Quarter 2017 Results Conference Call. My name is Nicole, 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. [Operator Instructions] Please note this conference is being recorded. I’ll now turn the call over to Sanja Burklow. Sanja. You may begin.

Thank you, Nicole. Good morning, everyone. And thank you for joining Donnelley Financial Solutions second 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 financial information. We believe the presentation of non-GAAP 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 our second quarter performance and overview of market activity, reiterate our strategic priorities and recap the progress we've made in repositioning the company to operate as a standalone entity. Following my comments, Dave, will provide additional detail on our second quarter results and then we will open up the lines for a Q&A session. Our second quarter results were in line with our expectations, as we highlighted on our last call, this year’s second quarter represents our most difficult comparable on a year-over-year basis, as last year’s second quarter included in a typical number of large deals within our U.S. capital markets transactions and Venue Data Room offerings. In aggregate, these deals drove nearly $25 million of revenue in the second quarter of 2016. Within our capital markets offering, this year’s second quarter results reflect the continuation of an improving number of IPOs. Although, market driven softness in M&A and debt capital markets activity coupled with the top comparable more than offset the improvement from IPOs and growth in our capital markets compliance offerings, including our ActiveDisclosure software. In addition, we drove strong sales and operational performance in our U.S. investment markets offering. Continue to grow our international segment and benefited from our cost reduction efforts in the quarter. While total organic revenue decreased 1.8%, more than all of the decline was driven by difficult year-over-year comparisons in the nonrecurring portion of our U.S. capital markets offering, as we experienced positive growth in each of our other U.S. reporting units, as well as in our international segment. Given this performance and our outlook for the back half of the year, today we reiterated our full year guidance. As I noted, we saw continued revenue…

Thanks, Dan, and good morning, everyone. As Dan mentioned earlier and as we mentioned on our first quarter earnings call in May, this year’s second quarter is our most challenging quarter of the year from a year-over-year comparison perspective, last year’s second quarter included several large deals totaling close to $25 million in revenue in our capital markets reporting unit at higher than average margins given the nature of that work. Overall, our results for the quarter were right in line with our expectations. Net sales for the second quarter were $290.2 million, a decrease of $7.8 million or 2.6% from the second quarter of 2016. After adjusting for changes in foreign exchange rates, organic sales decreased 1.8% driven by the decline in our U.S. segment, which was partially offset by organic growth of over 40% in our international segment. The revenue decline in our U.S. segment was driven by lower capital markets transactions and was only partially offset by higher mutual funds and compliance volume. International segment revenue growth was driven by higher capital markets transactions, as well as higher mutual funds volume and growth in our Venue Data Room offering. Second quarter gross margin was 40.5% or 327 basis points lower than the second quarter of 2016. This includes approximately 230 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 classifications in periods prior to the separation from R.R. Donnelley. Excluding this reclassification, the second quarter gross margin decline of approximately 97 basis points was primarily driven by lower transactional volume partially offset by cost reductions we began to implement late last year. Non-GAAP SG&A expense in the quarter was $53.6 million, $5 million lower than the second quarter of 2016. As a…

Thank you, Dave. In our first three quarters as a standalone company, we've made several changes to improve our operating efficiency and have begun the work to reposition the company for continued success. Going forward, we will continue on this path with a focus on strengthening our core offerings, as well as investing in additional compliance-based solutions to bring to market. Before we open up the lines for the Q&A session, I would like to thank our employees. Your dedication and hard work have allowed us to implement the changes that I have just noted and will also be the foundation of our path forward. Thank you for all the great work. And now, Operator, let's open it up for questions.

Thank you. [Operator Instructions] And I see our first question is from Charles Strauzer from CJS Securities. Your line is open.

Hi. Good morning.

Good morning, Charlie.

If you can expand a little bit more on the transactional side of the business and just kind of take a little deeper dive there to say and take a look at kind of trends they progress to the quarter and kind of your thoughts for the back half of the year, especially as you are in -- currently you are seasonally quietest or slowest carry for IPOs, maybe give us little more color there too?

Yeah. Thanks, Charlie. It’s Dave. So we talked about overall the major S&F transactions the market being up in the quarter. I think when you look at the comp relative to last year, right, we mentioned the handful of large deals that we had on the transactional side and a little bit in the Venue Data Room. So just a tough comp, but I think, momentum certainly building relative to last year and we have continued to see that not only Q1, Q2 and into July here. The IPO activity was up significantly and then I think from an overall share perspective, we are holding our own and Dan mentioned some modest gains in certain areas. As we look to the back half of the year, I think, our organic growth implies similar growth to what we saw in the first half of the year from the capital markets transactional perspective. Don't have perfect visibility to that market but I think based on the momentum that’s built throughout the year and what we are seeing even recently implies, our guidance assumes an environment I think similar to what we've seen over the last few months here.

And…

Yeah. The only think I would add to that just to elaborate is that if you reflect on some of the banks that have released earnings and in their comments is very consistent view of the markets, the pipelines look pretty good. There's a lot of good activity in in-house working with us and that’s reflected in our guidance.

Great. And if you -- obviously if you look at your international success this quarter, you mentioned that transaction was the driver of that, I think -- still think strong transactional capital markets activity in the Asian markets?

We are -- obviously the visibility and the turn time on these is relatively quick and can go the other way quickly, but thus far we are continuing to see strength.

Great. And then just if you switching to kind of the expenses and the margins as we look at the back half of the year as these cost saves come into play, how should we think about margins and expenses kind of for Q3 and Q4?

Yeah. Charlie, so if you look at our EBITDA guidance of $175 million to $180 million. We mentioned from a revenue perspective that 4.5% implied organic growth in the back half would be we expected to be pretty ratable between Q3 and Q4, and then from an EBITDA perspective, probably, the only thing to mention there is, we talked about the year-over-year incremental dis-synergies that the remaining $5.3 million is flowing through in Q3 and then in Q4, obviously, we are overlapping being a standalone company and not much dis-synergy in Q4. So I think from a margin perspective we’d probably expect Q3 to be a little bit softer than Q4.

Great. That’s helpful. Thank you very much.

Thank you.

And our next question comes from Jack Williams from Wells Fargo. Your line is open.

Good morning, everyone.

Good morning, jack.

Good morning.

I was hoping you could expand on the of regulatory change that drove some of the strength investment markets is back on we kind of rattle moving forward, is that more of a seasonal lift in Q2, just some color on that please?

Yeah. Sure. So the comment we made on N-CEN and N-PORT was part of the modernization initiatives of the SEC has and they have passed legislation that will become effective in the second half of 2018. So we are in the process of we've got some prototypes out with clients right now and have been in the selling process on that. And what it is as a more frequent filing requirement for the mutual funds, as well as requires more data elements. So that’s a permit legislative change that was put into effect last year.

Yeah. The only think I would add is -- it’s Tom Juhase is, Jack, I think you ask, if it was a capital markets effected, it is a -- it is our investment markets effects, so Dan said, it was related to funds. So it’s on the mutual fund side of the house and those are filings that they make.

Got it. Thank you very much.

Thank you.

Yeah. Thanks. Nicole, we have time for one more question.

And our final question comes from Bill Mastoris from Robert W. Baird. Your line is open.

Close enough, close enough.

Hi, Bill.

Dan -- hi. How are you doing? Dan and Dave, just -- and I think you touch on this a little bit earlier, but capital markets transactions this quarter versus last year. I mean, how are they trending, are they trending a little bit ahead, a little bit behind. I know you mentioned they have a very robust pipeline. What might we expect there and I assume given your guidance that any M&A activity is kind of by the wayside at least for the time being, would that be a correct assumption?

Yeah. Bill, so just to address the market, you we mentioned the IPO market was up significantly. I think if you look at the overall level of transactions and when you include M&A and that which was a little bit softer in the quarter as Dan alluded to. But the overall transactional market was up largely driven by the increase in IPO activity. And as we look forward, I think, our guidance implies kind of more of the same of what we've seen here in Q2 over the last few months.

Yeah. And specific to your question on M&A, there -- our pipeline is full. We made the comment on us as a service provider to your question on us as a potential acquirer we are active in looking at opportunities. There's quite a bit out there valuations are a bit rich in this sort of environment, so obviously we haven't done anything yet, we did announce the partnership last quarter with SOXHUB. But other than that we are continuing to be active in looking and nothing to report at this time.

Okay. And then, I assume that there is no M&A activity in all of your forecasts that are included, because it looks as though mathematically you're going to be able to go ahead and reach your target leverage ratio, would it be correct in that assumption?

Yeah. Yeah. Bill, that’s right. So, I think, if you look at our guidance for the full year and just take the midpoint of EBITDA and the midpoint of cash flow and make an assumption on, we have been obviously consistently be repaying debt. That’s how you get to the conclusion of being within our targeted leverage range by year end.

Yeah.

And all free cash flow is going to be used to go ahead and pay down debt, is that also fair?

Yeah. I mean, we -- a lot of it depends on the mix, some of it international, et cetera. We certainly wouldn't commit to that at this time, but as you can see our recent actions, we paid down $81 million of debt in the quarter, $111 million since the spin. We are committed to that targeted leverage range.

Okay. Thank you very much.

Thank you. And with that, Operator, we wanted to thank everyone for joining us this morning and look forward to speaking you to you in November. Thanks.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.