Ladies and gentlemen, thank you for standing by and welcome to the Donnelley Financial Solutions Second Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Justin Ritchie, Head of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining Donnelley Financial Solutions second quarter 2020 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 will 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 detailed in our annual report on Form 10-K, quarterly report on Form 10-Q, 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 earnings release and related tables for GAAP financial information and reconciliations 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. From all of us at DFIN we hope that you and your families are staying safe and healthy. We are extremely pleased with the company's performance during the quarter especially in light of the continuing pandemic, current social unrest and related market volatility. We leveraged our long history of focusing on health and safety to rapidly implement measures to protect our employees throughout the company with a specific focus on our manufacturing employees who are most at risk. Our decisive actions allowed us across the company to remain fully operational during our peak filing period, serving clients well with minimal disruption and operating safely. I'm also pleased with the solid progress the team made against the number of the operating objectives that underpin the 44 in 24 strategy, deriving 44% of our sales from software by the year 2024 and delivering the financial results associated with that business mix that we outlined on the last earnings call. Specifically, we improved our mix of business helping to drive significant margin and profit improvement, released a new software solution Arc Digital, increased our second quarter market share in SEC compliance filings, extended our market leading position in SEC transactional filings and shed lower profit offerings from our portfolio. The consistent progress we continue to make against our stated plan is showing results. We will continue to provide you with additional updates on our progress each quarter. This quarter displayed defense ability to continue to thrive in tough conditions and again shows the strength of our recurring offerings. These recurring offerings provide our business with stability during times of market volatility while also keeping us close to our customers when it matters most. Further, our market position as the leading SEC filer, customer-centric focus, long history…

Thank you Dan and good morning everyone. Before I discuss our second quarter financial performance I'd like to recap a few housekeeping items in the quarter which impact our year-over-year comparability. As noted in our press release we recently disclosed a restructuring plan related to the consolidation of our east coast manufacturing operations.\ Under this plan we recorded a pre-tax cash expense of approximately $3.9 million during the second quarter of 2020 for severance and other expense related to employee terminations with another approximately $2.9 million of additional charges to be recorded through the second quarter of 2021. Also in the second quarter of 2020 we became aware that subsequent to the LSC communications chapter 11 filing in April, LSC failed to make certain required withdrawal liability payments to multi-employer pension plans from which R.R. Donnelly had withdrawn prior to the spin-off and for which R.R. Donnelly and DFIN are jointly and severally liable. In July DFIN and R.R. Donnelly agreed to submit to mediation and if required arbitration to determine the final liability allocation between the companies. DFIN and R.R. Donnelly also agreed to share all required withdrawal liability payment obligations that become due in the interim with an adjustment to be made in accordance with the final allocation. In the second quarter, we recorded a contingent liability of $10.2 million on our balance sheet for future potential payments related to these liabilities, accounting for payments that extend through 2034. We also recorded an additional $2.1 million for our estimated share of obligations until a final allocation is determined. The expense associated with this liability has been recorded in SG&A expense within the corporate segment and has been excluded from our non-GAAP results. Turning now to our consolidated financial results. As Dan mentioned, we delivered very strong second quarter…

Thanks Dave. In closing, I'd like to highlight a few items. I'm very pleased with the increased velocity we are seeing in our software development efforts. The recent changes we made to better align our product management, software development and IT functions is allowing us to deliver the features our clients want and will pay for more quickly. Our clients have been very receptive to our existing solutions as well as new offerings that we are bringing to market. For example, we teamed up with leading Biosciences Inc. to leverage venue to manage remote monitoring of their recent COVID-19 study by leveraging venue's powerful feature set LBS was able to reduce study costs, increased efficiency, maintain a safe work environment and abide by all local state and federal guidelines while conducting their study. Going forward LBS plans to incorporate venue as part of its new normal for managing clinical trial monitoring. Driving additional growth in capital market software specifically eBrevia is the need to transition contracts away from the use of LIBOR. Identifying LIBOR references and contracts as well as potentially relevant fallback language is an important element in a complex transition that firms around the world will manage for the next few years. A lack of clarity on LIBOR's replacement is an additional challenge that can slow down preparations increasing the value of technology solutions that speed up the process. In support of our transactional business the combination of venue and eBrevia is opening up opportunities for us to expand upon our existing customer relationships to generate buy-side revenue and transactions by accelerating the due diligence process precisely at the time buyers and their council need it most. Following the deal, the software can also assist with post-merger contract migration to further solidify the relationships. This powerful combination also…

[Operator Instructions] Your first question comes from Peter Heckmann with D.A. Davidson. Your line is open.

Good morning, everyone. I just wanted to see if you could comment on the notable uptick in higher quality stacks and how Donnelly might be participating with some of those as well if you could talk about the IPO pipeline that you see here for back half.

Sure. Thanks Pete. Yes. So clearly have seen the uptick in stack activity and we've become a much larger player in that area as both activity has increased and the quality of stacks out there has as well. And so when we look at our overall share there, it's an increasing amount over what historically was a market that we didn't have as large of a presence. The IPO market showed a nice uptick broadly transactional showed a nice uptick throughout the quarter. June was a good month in terms of pricing and we continued to see a pretty robust market in IPOs in filings which will obviously be future pricings.

Got it. And then Dave, could you revisit that number? I missed it for the third quarter of ‘19 just how much transactional revenue and venue was as a percent of revenue in the year over period?

Yes Pete, so. And I think I misspoke in the prepared remarks, I said $69 million in the third quarter of ‘19 was transactional in venue and that was just the U.S. component on a worldwide basis. The combination of transactional and venue was $83 million.

Okay. Got it. And then just one last follow-up, remind me with venue, does venue typically cater to the complex corporate restructuring environment and so would you expect to see any benefit from higher chapter 11 activity?

Yes. We've seen some activity there. The sweet spot for venue we've seen really good success in healthcare and it's focused principally on M&A but we also are heavily involved in serving the bankruptcy market. So would expect some benefit there.

Great. All right. Thanks very much.

Thank you.

[Operator Instructions] Your next question comes from Charles Strauzer with CJS Securities. Your line is open.

Hi, good morning.

Good morning.

Good morning Charlie.

A couple of questions for you. First of all maybe you could provide a little bit more deeper detail in Q2 just from the contribution from transactions in the quarter. Also looking at how much came from kind of cost reductions and the incremental EBITDA margin from that extra transactional work.

Yes, Charlie. So when we look at transactional in the quarter still down slightly on a year-over-year basis but certainly picked up as we talked about in June if you look at our from a total revenue perspective we saw in April when we gave the guidance or the outlook for the quarter in early May, we had visibility to April. April revenue was down 9%. May was down 13% and then the big uptick as we noted came in June in total revenue for the company was up 23% year-over-year and so when we looked at where that came from a lot of the change in trajectory was really driven by the IPO market, some increased that activity as well as the venue activity picking up.

Got it.

And then from a contribution perspective as we talked about historically we see very good incremental margins as that activity picks up. In addition, as you noted the cost savings initiatives really helped enhance the margin expansion that we were able to deliver. Some of that obviously was actions that we took in the back half of 2019 and that we're going to be starting to overlap some of those but also some of them were related to new actions that we've taken really throughout the first half of the year.

Great. Thank you. That's helpful and just picking up on what Pete was asking before just about the Q3 outlook it's definitely seems like you're factoring in some continued pick up in activity IPOs and M&A, seems like July was still a pretty healthy month for that activity and then you're starting to see some pretty big M&A deals being announced. How much are you factoring in terms of the usual August slow down and are you seeing potentially in the pipeline any potential pickup in September again that could cause those the outlook to be kind of conservative on this basis?

Yes. Right. So and obviously you named a lot of the variables that impacts that part of the business. So when we think about the momentum obviously coming out of June and into July with a pretty strong pipeline, feel pretty good about the third quarter. obviously the August time frame does typically slow down. I think when you look at last year you may recall that we had two large deals that we referenced that the clients actually both ended up withdrawing their transactions in the third quarter last year but the value of those deals to us was pretty good in the third quarter of last year. So without the specific visibility on anything that might be that large to cover those, I guess I'd say we're cautiously optimistic if the momentum continues, things can be better but as we have talked about they can change pretty quickly in either direction.

Yes. The only thing I would add there is, sorry, one thing that is continue to see good activity particularly as folks get back to a new normal and are able to set a price on assets from an M&A perspective, clearly the timing of when the final transaction gets completed is always a question or a bit of a wild card but otherwise feel good about our market position and getting our fair share more than our fair share both Pete's question as stacks have improved in quality and then also in the broader M&A environment but calling timings always a bit rough, the election in front of us and to Dave's point a couple of larger deal comps that we had last Q3.

Excellent. Thanks and just one last follow-up just if you can get a little bit more color maybe from Dave on the LFC pension obligation that you called out a little bit more background in color and how we should think about it kind of going forward. Thanks.

Yes. So as we talked about in the prepared remarks Charlie, they were pre-spin liabilities of R.R. Donnelly. They got allocated to across the three companies. We took a very-very small portion but as I mentioned both DFIN and RRD are jointly and severally liable. If LSC defaults on those payments and so they have missed a handful of payments as I mentioned. We've in RRD have shared the interim payments. There will be a true up process there. I think when you look at on an undiscounted basis the LSC payments are just over $100 million over the next 15 years and those payments range from anywhere from a $1.5 million to $8.5 million per year and that's on a pre-tax basis. So when you look from a cash flow perspective you get tax benefit on those payments and obviously depending on the portion that gets allocated to DFIN would be in our estimation obviously much lower than the full amount.

And it is an equal split between you and RRD or is it kind of more [indiscernible].

The interim payments are 50/50 split and those will be trued up in accordance with the final allocation agreement.

Great. Thank you very much.

Thank you.

[Operator Instructions] And we have no further questions up at this time. I will turn the call back over to Daniel Leib, CEO for closing remarks.

Thank you very much. Thanks for the call and we will look forward to connecting with everyone in about 90 days or so. Thank you. Bye.

This concludes today's conference call. You may now disconnect.