Good morning. My name is Emma and I'll be your conference operator today. At this time. I would like to welcome everyone to the Donnelley Financial Solutions first-quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to address your question again press the star one. Thank you. Mr. Mike Zhao, Head of Investor Relations, you may begin your conference.

Thank you. Good morning, everyone, and thank you for joining Donnelley Financial Solutions first-quarter 2022 results conference call. This morning, we released our earnings reports, supplemental trending schedule of historical results, and investor presentation which includes our updated long-term projections. All 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 risks and uncertainties. For a complete discussion, please refer to the cautionary statements included in our earnings release and further detailed in our most recent 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 am joined this morning by Daniel N. Leib , David Gardella, Craig Clay, Eric Johnson, Floyd Strimling, and Kami Turner. I will now turn the call over to Dan.

Thank you, Mike. Good morning, everyone. And from all of us at DFIN, we hope that you and your families are doing well. As noted in this morning's press release, our first quarter results were consistent with our expectations, with net sales of $211 million and non-GAAP adjusted EBITDA margin of 24.2%. We delivered solid financial results despite a challenging capital markets transactions environment. Our first quarter performance demonstrates that our strategy and focus has resulted in DFIN becoming more durable and structurally resilient than in the past. As we continue to invest to shift toward a more favorable recurring sales mix, well continuing to aggressively manage our cost structure and being disciplined stewards of capital. Today, we also provided an update to our long-term projections, which are included in our investor presentation that can be found on our Investor Relations website. Specific to our first quarter performance, I am pleased with the continued strong demand for our software offerings, where we delivered year-over-year sales growth of 15.8%, the fifth consecutive quarter of double-digit software sales growth. Software sales represented 33% of total net sales in the quarter, the highest level in DFIN 's history. On a trailing four quarter basis, software sales made up 29% of total sales. An increase of approximately 600 basis points from the prior trailing four-quarter period. This continued positive mix shift, is a reflection of our progress in transforming DFIN, into a software centric company. A major driver of the first quarter software growth, was the performance of our recurring compliance and regulatory Gerben software products. These compliance software offerings grew 19% in aggregate versus the first quarter of last year and accounted for approximately 63% of total first quarter software sales. The continued growth in recurring compliance software is an important step in…

Thank you, Dan. And good morning, everyone. First, let me provide some additional details around our first quarter financial performance. As Dan noted, we continue to experience strong demand for our software solutions during the quarter. All three major software products, ActiveDisclosure, Venue, and Arc Suite, again, delivered double-digit sales growth, which drove total software sales growth of nearly 16%. From a capital markets perspective, we expected to slow down in transaction activity at the beginning of the quarter as a result of recent market volatility. Deal activity, especially in IPO, was further dampened by the uncertainty caused by geopolitical conflicts that unfolded in the second half of the quarter. Additionally, first quarter 2022 faced up comparisons as we'll see throughout the year, given 2021's record performance and market conditions. Despite worse-than-expected external conditions facing our largest and most profitable segment, we delivered sales and non-GAAP adjusted EBITDA margin in line with our expectations. On a consolidated basis, net sales for the first quarter of 2022 were $211 million, a decrease of $34.3 million or 14% from the first quarter of 2021. Software solution net sales in the first quarter were $69.8 million, an increase of $9.5 million or 15.8%. Our recurring compliance offering, which includes ActiveDisclosure and Arc Suite, delivered 19% sales growth in aggregate. ActiveDisclosure continued to demonstrate strong sales momentum, posting growth of approximately 29% in the first quarter. Arc Suite grew 15% in the first quarter, driven by the strong demand for our Total Compliance Management solution. Tech-enabled services net sales, were $91.7 million, a decrease of $26.8 million or 22.6% due to the decreased capital markets transactional activity, partially offset by higher compliance volume within capital markets. Print-in distribution net sales, were $49.5 million, a decrease of $17 million or 25.6%, primarily due to lower…

Thanks, Dave. Our performance in the first quarter of 2022 demonstrates, that we have the right plans, the right products, and the right people to successfully execute deepened strategic transformation. Our updated projections further demonstrate our confidence in our strategic aspirations. I am enthusiastic about the opportunities ahead, to deliver increasing value to our customers, employees, and shareholders. Before we open it up for Q&A, I'd like to thank the DFIN employees around the world, who have been working tirelessly to ensure our clients continue to receive the highest quality solutions, stay safe and healthy. Now with that, Operator, we're ready for questions.

Thank you. . Your first question today, comes from the line of Charles Strauzer with CJS Securities. Your line is now open.

Hey, good morning, it is Stefanos Crist calling in for Charlie.

Hi Stefanie.

Can you give us a little more color on just your efforts to try and improve and maintain margins despite lower volumes?

Yes. This is Dave, I'll take that one and then Dan, if you want to jump in. Appreciate the question. We hit on this a few times in the prepared remarks. But certainly worth spending a little more time on. When you look at our first quarter margin that was 24.2%, certainly we recognize the decline from last year's first quarter. This year's first quarter had only half the amount of capital markets transactions revenue. And as we've talked about in the past, this revenue typically carries a very high incremental -- or in this quarter's case, decremental margin. When you look back at the like-sized quarters in terms of both transactional revenue and total revenue and as we pointed out Q1 of '19 and '20 are great examples of this, our EBITDA margin now is substantially higher compared to those quarters that I just mentioned over 1,000 basis points higher than the first quarter of 2020, 1,300 basis points higher than the first quarter of 2019. I think more specific to your question, we've made permanent changes to the cost structure and that's everything from headcount reductions to shrinking our real estate footprint, to outsourcing 100% of our offset print, shutting that fixed costs than our operations team has really done an outstanding job managing that transition at the same time also continuing to run the digital production very efficiently. The important part here is that these changes, the headcount, the real estate footprint, shrinking, these are permanent changes and we certainly saw the margin improvement trending up over the last several quarters and I think first quarters are another proof point of that. And then lastly, I would say in addition to the cost benefits, we've also shed more than a $100 million dollars of print revenue over the last five quarters. As we've said in the past the print revenue carries lower margins in many cases, much lower than our average. And so when you look at this factors combined, we are really set up to deliver ongoing margin improvement. And when we updated the guidance this morning, we commented on it earlier. We believe that will be approaching 30% EBITDA margin by 2026.

That's great color. Thank you. I am going to squeeze one more. Can you give us an update on the competitive environment in the software business?

Yeah, sure. So this is Dan, I'll start and then others can jump in as well. We have a varied product offerings, so we have very strong compliance offering, which is both within the corporate space, predominantly ActiveDisclosure. And then in the funds space Arc Suite. And so we have different competitors there. And there's quite a few that we run into in any space. I think what we've been able and where we've been able to be extremely successful is our product line is able to bridge clients through different stages of their existence be that pre-IPO, through IPO, through compliance on the side and similarly on the fund space. We've built--purpose built tools to serve the unique needs of the fund alternative investments insurance companies. And we look at all the competitors there. We feel really good about our product portfolio and what we have currently in development in the progress we're making. When we go to the Venue Data Room. Again, different competitors, but a lot of different competitors. We are more leverage to the M&A market. So as we saw last year, had a near 50% growth through the year. This year, we performed much better than the primary use case of M&A. We see the other participants ' great visibility. There was only one of size, other one that's public, but again, feel really good about how that product's performing given that use-case and then given what we see in the broader environment. So let me see if anyone else wants to add to that.

Sure. Dan, this is Craig. As Dave said, we remain bullish on software. So I'll start where Dan left off, which is Venue. It showed good performance in Q1, significantly better than it's used case at 12%. Our Venue pipeline is good, driven by sales execution, but we're also executing the plan to take share given our differentiated product. So our Virtual Data Room isn't just winning awards as you heard in the prepared remarks. It's winning deals through leading securities to protection of our client's personal identifiable information, contract review. It's all delivering winning results in this competitive market. And as you've heard, M&A is likely to be more resilient. We have a strong position, client relationships, and we will be there to fight and to win. On ActiveDisclosure, 29% growth competitively, what we're seeing is that we're still at the center of this regulatory corporate and compliance governance place and we had a trust of our clients. When you look at our new ActiveDisclosure, it is in the market, it is winning. So our clients are choosing as built from the ground up purpose-built the newest technology. And these client takeaways demonstrate the market once what we have built.

Key to that is some of our partnerships, one of the key differentiators in ActiveDisclosure is the financial reporting connecting the ERP systems. Our press release yesterday about ActiveDisclosure achieving built for NetSuite status is incredibly important. We're they only disclosure tool available on their network and so we're getting all Oracle NetSuite clients, power in the confidence of ActiveDisclosure. I feel really good about our place competitively. And I'll pause here if anyone --

Go ahead, Eric.

Yeah. Thanks, Craig. Dan from related question on the Arc Suite front for GIC where we offer an end-to-end regulatory compliance software solution for the middle and back-office related to financial and regulatory reporting. We see competition generally in the regulatory side of things with traditional competitors. And then as we expand the Arc Suite has four key pillars and those products have different subsets of solutions that line us up differently on a competitive basis. And we see generally tech-oriented firms as well as traditional filing firms in this case.

Yes. Thanks, Eric. The last thing I'll say just the bookend my comments is that, if you look over the last five years, we doubled our software revenue. So last year, $270 million or so. When you look forward five years, we're planning to do that again from our updated guidance or your over $500 million of software revenue, predominantly, it's recurring in nature. So it offers that base of predictable recurring revenue from which to grow that further. So feel good about what we have in the market today. Feel good about what we have in the pipeline.

Alright, thank you.

Thank you.

Your next question comes from the line of Peter Heckmann with D.A. Davidson. Your line is now open.

Good morning, everyone. Thanks for taking the questions.

Morning.

I really appreciate, you giving all that context and guidance and that really thoughtful outlook to 2026. I think, that's helpful and I think that's the story that the investors should be thinking about here, as this mix shift changes. So thanks for that. Just a few little questions. I missed, when did you say the transition to ActiveDisclosure 3 should be complete?

Substantially by the beginning of 2023.

Okay. And then I apologize. I got a distraction right when you were talking about the competitive environment for Virtual Data Room. We have 12% growth on top of a very tough comparison, that was great. Do you think that is the indicator that you're gaining share? Is it maybe that some of the published statistics around M&A, the announced deals, closed deals, maybe aren't the best, given that sometimes these projects can be hosted for multiple months, if not a year? I mean, do you think it's getting share or maybe just thinking maybe the data doesn't totally correlate with your revenue in that business?

Yes. We do think we're gaining -- continue to gain share. We think we gained share last year as well, particularly given our product being more leverage to M&A. To your point, those statistics, probably the best we have, there's certainly more activity and rooms working than what gets ultimately announced. But we feel really good about the progress we've made there over the past 18 months or so.

Great. And then last one. I think I saw somewhere in the release, did you -- in the cash flow statement. Just a little bit of a higher provision for that, I assume that relates to some of the ongoing SPAC IPOs in the pipeline. Can you talk about your exposure there in terms of work you've done that you've built for? But I know sometimes backs can -- don't get done, may not be as good as that is as some other customers.

Nothing specific there comment on. We generally follow pretty formulaic method for making these reserves and as things get expanded out. Well as you would imagine, and the bad debt reserve takes up a little bit. In addition, will also evaluate kind of specific for bankruptcies, etc. Just given market conditions and some of the we see receivables and timing, things like that, just pushed it up a little bit.

Okay. I think that's I had I appreciate it.

Thanks.

Your next question comes from the line of Raj with B. Riley. Your line is now open.

Hi. Thank you for taking my question. I wanted you to clarify, just following up on software and growth on the software segment and the growth in -- and so you say you're going to double in the air in 5 years. Can you talk a little bit about where is this growth coming from in terms of penetration amongst clients? Are you gaining share in typically any of this software growth happening, is it accountabilizing any of your Tech-enabled sort of services at these corporates?

Yes. Sure I'II start, go ahead, Dave.

Go ahead Dan.

Yeah. So I'll start. So looking at it via splitting compliance from transition, as they mentioned in the prepared comments, the transactional always a little harder to project, a little more volatility, but the growth there is projected to be slower than what we see on the compliance side. The compliance side would have a little bit of cannibalization, but not -- that's not the main driver. The main driver is we rolled out new ActiveDisclosure just about a year ago or so, we rolled out new offerings within our GIC platform, and then we've been adding -- or our Investment Companies platform, we've been adding new capabilities as well, and we see existing share of wallet opportunities. We commented on seeing price lift. We commented on seeing additional term lift, as well. And with the new products that we have in market, the reception that we're getting from our clients and from new potential clients, that's what really underpins it. I would say when we look at the individual markets that we play in, there is some share take there, but nothing inconsistent with what we've experienced since we've had those products in market. Sorry, Dave, I don't know if you wanted to add?

Dan, you covered the same points I was going to make. Thanks.

Okay, thanks.

Thank you. So next question on the print, just for clarification. I think, Dave you said, $30 million of it will be taken in the next three quarters and most of it or a large portion of it in Q2 the print decline.

That's correct, Raj. It's about $10 million in the first quarter, the balance over the last three quarters of the year. As you said, that the biggest chunk of that remaining $30 million will come in Q2, and that's just based on the normal seasonality of some of the historical print volume for that type of work.

Got it. And so, Q2 declining against similarly Q1 or greater?

Yes, probably a little bit -- little bit greater.

And then on the capital markets, I understand it's obviously, an episodic business, it depends upon the capital markets transactions, can you get too tough to guide to -- you think the transactions first half or this year are going to be down the volume and is going to be down 30%. Or in this year, or is it just too tough to call it.

The short answer is yes, that it's too tough to call it. I think the longer answer is, and I would point back to some of the things we said in our prepared remarks. I think when we look at the activity that our clients continue to perform with us to stay ready to complete a transaction, and what we hear from the investment banking community on the activity under the water that we don't -- that the public may not have a great view towards. We're encouraged by that. I think typically in a down-market, you may not have all the underlying activity. I think the down-market -- the current down-market that we're in is a little bit different, just given some of the latent demand that we see based on this activity and again, supported by what we're hearing from third-parties as well.

I guess. Dave, sorry to interrupt, Raj within the any market we continue to perform. And this one included. So we have strong market share across the board or performance in Q1 outpaces the market due to strong share and really mix of high profile -- high profile, high profit IPOs and leasebacks and M&A. Again, our clients are continuing to work on the deals that are in process. Unlike other downturns with or financial crisis, where everything ended, our clients are still here. There's still working. We have a quality large deals which is where the fan outperforms. So in Q1 and in April of deals IPOs with greater 100 million, . We have all 5 of the top LDOs. We have the largest De-SPACs. We have strong sharing M&A. So we're continuing to perform in this market and more performing whatever market we're given. And again, real story here is the link back of all of that to our software. So our clients are using Venue and are doing deals, are continuing to use ActiveDisclosure's as their report. So it's the ecosystem of a complete process that we are delivering for GRC to our clients.

Well, I guess in the Q2 guidance, I thought being and given the fact that you've got to get a bigger decline in print and that software should continue on the same sort of growth trajectory. It would seem like the transactional part is perhaps a little bit better than the March quarter. Would that be a fair assessment?

I think it's generally pretty similar.

Got it. Okay. Thank you for taking my questions. I'll take the software. Thank you.

Thank you. Raj.

At this time, there are no further questions. I'll turn the call back to you, Mr. Daniel N. Leib .

Thank you very much. And thank you, everyone for joining us. We look forward to talking in August and with many of you prior to that, so thank you again for joining.

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