Good morning, and welcome to the DFIN Second Quarter Earnings Call. My name is Brandon, and I will be your operator for today. 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.And I will now turn it over to Justin Ritchie, Head of Investor Relations. You may begin, sir.

Thank you, Brandon. Good morning, everyone, and thank you for joining the Donnelley Financial Solutions second quarter 2019 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 dfinsolutions.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 statements included in our earnings release and further details in our annual report 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 financial information 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 financial information and a reconciliation of GAAP to non-GAAP financial information.I’m joined this morning by Dan Leib, Dave Gardella, Kami Turner and Tom Juhase.I will now turn the call over to Dan.

Thank you, Justin, and good morning, everyone. On today’s call, I will provide an update on our second quarter performance, as well as detail various operating highlights from across the business. Following my comments, Dave will provide additional detail on our second quarter financial results, as well as our outlook for the second-half of the year. We will then open it up for Q&A.We reported solid second quarter results with consolidated net sales of $258.9 million and a non-GAAP adjusted EBITDA margin of 21.7%, which were both largely in line with our expectations, showing significant improvement in the trend from the first quarter, where transactional activity was heavily impacted by the U.S. government shutdown.The software M&A environment that we mentioned on the last earnings call continue to impact transactional and Venue sales in the quarter. However, sales growth in investment markets and elsewhere in our SaaS portfolio, combined with our continued focus on controlling costs, kept margins essentially flat year-over-year.Operating cash flow for the quarter was largely consistent with the second quarter of 2018, and total debt is down $67.2 million from the second quarter of last year, reflecting our continued commitment to deleveraging the business.Looking deeper into our second quarter transactional performance, we capitalized on the influx of IPO activity in the market, increasing the number of priced U.S. IPOs that we completed by 33% compared to the second quarter of 2018. We supported many of the highest profile IPO listings.Switching to M&A. Global market activity continued to fall short of last year. As a result, the number of second quarter U.S. M&A transactions we completed was down significantly. The net sales impact of the lower level of M&A activity was compounded by a cluster of larger M&A deals in the second quarter of last year.After a very difficult…

Thank you, Dan, and good morning, everyone. Before I discuss our second quarter financial performance, I’d like to recap a significant item in the quarter that impacts our year-over-year comparability.As we’ve discussed on the last few earnings calls, we completed the sale of our Language Solutions business in the third quarter of 2018. Our second quarter 2019 results exclude Language Solutions, while the second quarter of 2018 includes Language Solutions for the entire quarter.As I indicated on our last call, the sale negatively impacted our second quarter reported net sales comparison by $19.8 million and negatively impacted our gross profit and non-GAAP adjusted EBITDA comparisons by approximately $5.3 million and $1.5 million, respectively, inclusive of net stranded costs.Keeping this in mind, I’ll review the second quarter results. On a consolidated basis, net sales for the second quarter were $258.9 million, a decrease of $31.7 million, or 10.9% from the second quarter of 2018, primarily due to the sale of the Language Solutions business, along with lower U.S. capital markets transactional and compliance activity.After adjusting for the sale of Language Solutions, changes in foreign exchange rates and the acquisition of eBrevia, organic net sales decreased 4%. The decrease was largely driven by U.S. capital markets transactional net sales, as a strong IPO quarter was more than offset by fewer M&A deals being completed when compared to the second quarter of 2018, resulting in U.S. capital markets transactional net sales being down from the second quarter of 2018.The second quarter of 2018 also included a single multimillion dollar M&A deal, and the same deal had a similar impact on the third quarter 2018 transactional sales, which I will touch on again when I discuss our third quarter outlook.U.S. capital markets compliance net sales were down year-over-year, as we recognize more compliance sales…

Thank you, Dave. Our second quarter results were largely in line with what we expected. We are encouraged by the balance of results across the business and believe we have opportunity for strong performance through the remainder of the year. We remain focused on our long-term strategy, continuing to explore ways to accelerate our ability to more quickly evolve our revenue mix, diligently managing costs while keeping our clients employees and shareholders at the center of what we do.And with that, let’s open up the line for Q&A.

Thank you. And we’ll now begin the question-and-answer session. [Operator Instructions] And from D.A. Davidson, we have Peter Heckmann. Please go ahead.

Good morning, gentlemen. Thanks for taking the question. Given the seasonality of your cash flows and your free cash flow guidance for the year, they’re at $40 million to $45 million. It seems like there’s a potential to be at or below three times net levered at the end of the year. Is that a possibility?

Yes. Pete, I think that math is correct. Yep.

Okay. And then any updated thoughts on the outlook for capital allocation now that you’re below your target? When you get to be the [all year] [ph] leverage target in terms of M&A, potentially stock repurchases, any other thoughts on capital allocation?

Sure. Yes. No, so the targets we’ve given, obviously, are the longer-term leverage range – ranges. In terms of our priority, we continue to be very active in looking at – in the M&A environment as purchasers. Clearly, we haven’t done anything since last December, when we purchased eBrevia, which we’ve been very happy with that. We did just for – to refresh everyone’s memory, we did have a minority stake in eBrevia before we purchased it.We have not found assets that we’ve been able to transact at what we would term intrinsic or attractive value. And so we’ll continue to be diligent. We are continuing to look. In the absence of that, we have put a little bit more CapEx into the business to grow organically, as we saw from our 2019 expected capital spending.We’ve referenced in the past, we do expect that number to come down a bit next year. And so, we understand the various ways of deploying capital. We look at them all, but want to have that balance around finding the right opportunities to help grow the business. The Board discusses the various ways of allocating capital with management at nearly every meeting.So it’s front and center. No change in the strategy. We are on the right path in terms of driving the revenue mix shift. And so no change to announce in our capital allocation priorities.

Okay. And just one more and then I’ll get back in the queue. But in terms of, let’s say, pending regulatory developments, things that the SEC might be having an open comment period for opportunities and risks, just any major items that we should monitor over the next 18 months?

No, there’s always various – to your point or implied in your question, there’s always plenty of vitamins being discussed, but nothing we would highlight at this time.

Great. All right. Thank you very much.

Thank you.

From CJS Securities, we have Charles Strauzer. Please go ahead.

Hi, good morning.

Good morning, Charles.

Couple of things. First, Dave, can you just repeat the Q3 guidance? Because I didn’t take the last part of that, especially on the EBITDA side what you’re kind of implying there?

Yes. Sorry, I – Charlie, thanks for the question. I think I misspoke on that. So revenue expected to be in the range of $205 million to $215 million. I think I said $205 million to $210 million, $210 million is the midpoint of our range. And that implies on an organic basis down about 1.7% at the midpoint. And then from a EBITDA margin perspective, expected to be slightly improved relative to last year’s third quarter.

Got it. When you say slight improvement just, maybe 10, 20 basis points, is that right?

Yes, that’s the right ballpark.

Great. And then that implies Q4 kind of flat to slightly up revenue sequentially from Q3, is that the way to kind of think about that low-end of the range?

Yes. I think, Q4 would be the – where we see the most significant year-over-year increase. Dan noted earlier, the soft Q4 we had last year, particularly in November and December, with some of the transactional activity that really got slow at the tail end of the year.

Got it. And then just looking at your Q2 and Q3 M&A transactional activity, yes, what was the delta year-over-year in Q2 in M&A? It sounds like there’s a pretty big drop off there. Maybe we can talk about what the level of decline was year-over-year on Q2? And then you mentioned a one-time deal in Q3. Can you quantify that? And then are there other any kind of one-timer difficult comps in Q3 we should pay attention to?

Yes. And Charlie, we don’t break out M&A specifically. I think from an overall market perspective, we’ve seen some statistics out there that M&A has been down 20% or so. And so, we, obviously, as a pretty significant player in that arena, feel the impact there.The transaction – the M&A transaction that I mentioned that impacted last year, it was about $11 million in total, roughly five of it impacting Q2 and six of it impacting Q3 of last year.And then to your last question on anything else. The second quarter last year, we had a pretty significant Venue data room for about a $1 million that was in the – this year’s year-over-year comparison.

Got it. That obviously ties into the M&A activity being better [indiscernible] you imagine, right?

Correct. Absolutely.

Great. And then how should we model the International segment Versus U.S. segments in terms of Q3? And just anything more weighted towards the one versus the other?

Yes. I think the biggest part – the biggest swings that we’ll see in international will, again, be transactional. We noted a pretty good quarter in Asia in Q2. I think from a pipeline perspective, our commentary around transactional is pretty broad-based, not only in U.S., but also globally.

Kind of just one last thing just on the IPO side. It seem to have a pretty robust rebound in Q2. Do you feel like you’ve got your share of the business that was out there, or even took some share maybe there?

Yes. So I think you’re correct that we did see a nice market rebound. I think from a share perspective, continuing to get our fair share. And, again, as we look at the pipeline, not only from an IPO perspective, but also M&A transactions, that deals, et cetera, feel like we’re doing pretty well from a market share perspective.

Great. Thank you very much.

Thank you, Charlie.

[Operator Instructions] We’re standing by for any further questions.

Any questions, Brandon?

So far, no further questions.

Okay. And with that, thank you, everyone, for joining. We look forward to catching up in late October, early November. Thank you. Bye.

Thank you. Ladies and gentlemen, this concludes today’s conference. Thank you for joining. You may know disconnect.