Good morning. My name is Audra and I will be your conference operator today. At this time, I would like to welcome everyone to the Donnelley Financial Solutions Fourth Quarter and Full Year 2022 Financial Results Conference. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. At this time, I would like to turn the conference over to Michael Zhao, Head of Investor Relations. Please, go ahead.

Thank you. Good morning, everyone, and thank you for joining Donnelley Financial Solutions fourth quarter and full year 2022 results conference call. This morning, we released our earnings report including a supplemental trending schedule of historical results copies of which can be found in the investor 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 annual report on Form 10-K and other filings with the SEC. Further, we will discuss certain non-GAAP financial information, such as adjusted EBITDA and adjusted EBITDA margin. 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 Dan Leib, Dave Gardella, Craig Clay, Eric Johnson, Floyd Strimling, and Kami Turner. I will now turn the call over to Dan.

Thank you Mike and good morning everyone. Our fourth quarter performance further demonstrated the resiliency of our operating model and sustainability of our adjusted EBITDA margin performance in a difficult operating environment. During the fourth quarter we navigated a transactions market that remained very challenging. As a result of strong execution we delivered an adjusted EBITDA margin of 23.4% in the quarter despite capital markets transactional revenue being down nearly 50% from the fourth quarter of 2021. Consistent with our performance throughout 2022, our fourth quarter adjusted EBITDA margin performance, which reflects our evolving sales mix, permanent changes to our cost structure, and continued cost discipline is significantly higher than historical quarters with similar overall and transactional revenues. Our fourth quarter performance is a further validation of our strategy as well as our proven ability to sustainably operate at a higher level of profitability across a range of market conditions. Dave will cover the fourth quarter results in more detail shortly. Reflecting on the full year of 2022, against the backdrop of the combination of market volatility, macroeconomic headwinds, and geopolitical uncertainty, we delivered strong full year results. Despite capital markets transactional revenue being down nearly $170 million or 41% for the year. We delivered $218.3 million of adjusted EBITDA and an adjusted EBITDA margin of 26.2%, both of which are significantly higher than historical periods with similar overall and transactional revenues. In fact, our full year 2022 adjusted EBITDA and adjusted EBITDA margin are each the second highest in the history of the company, exceeded only by the record results in 2021 that were driven by a much more robust transactions environment. Our focused execution to improve our sales mix and manage our costs in a disciplined manner has resulted in DFIN becoming fundamentally more profitable. Our strong profitability…

Thank you, Dan. And good morning everyone. As Dan noted, we delivered strong fourth quarter adjusted EBITDA margin in the context of a very weak capital markets transactional environment. The volume of capital markets deal activity remains substantially below last year's levels, as the market softness in the first three quarters of 2022 deteriorated further in the fourth quarter. In fact, the fourth quarter of 2022 had the fewest number of high priced IPOs and completed M&A transactions of any quarter in the year. Despite the very challenging demand environment, our focused efforts to execute our strategy have enabled DFIN to become fundamentally more profitable with adjusted EBITDA margins nearly 1000 basis points higher compared to the fourth quarter of 2019, which had slightly higher levels of overall sales and transactional sales. On a consolidated basis, net sales for the fourth quarter of 2022 were $167.7 million, a decrease of $65.1 million or 28% from the fourth quarter of 2021. The parts of our portfolio most leveraged through corporate transactions, specifically capital markets transactional and the Venue dataroom businesses drove the vast majority of the year-over-year decline. In aggregate, capital markets transactional and Venue dataroom revenue decreased $57 million, or 42%, versus the fourth quarter of last year. Fourth quarter non-GAAP gross margin was 54.9%, approximately 550 basis points lower than the fourth quarter of 2021 primarily driven by lower sales volume and an unfavorable business mix, both related to lower capital markets transactional activity, partially offset by the impact of the ongoing cost control initiatives and lower incentive compensation expense. Adjusted non-GAAP SG&A expense in the quarter was $53.2 million, a $26.1 million decrease from the fourth quarter of 2021. The decrease in adjusted non-GAAP SG&A is primarily driven by a reduction in selling expenses as a result of…

Thanks, Dave. Our performance in 2022 serves as further proof that our strategic transformation is enabling DFIN to become more profitable, focused, and resilient. We executed well in a very challenging market environment and resilient. We executed well in a very challenging market environment, delivering solid financial results while continuing to invest in our aspiration of becoming a software centric company. While it was difficult to predict the end of the current downturn in capital markets, our solid financial profile provides us with the foundation to continue to execute our strategic transformation. I am more excited about our future than ever. 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. Now with that we're ready for questions.

Thank you. [Operator Instructions]. We will go first to Charles Strauzer at CJS Securities.

Good morning, this is Stefanos Crist calling in for Charlie, thanks for taking our questions.

Thanks Stefanos.

Can you just talk about your visibility in the software business and maybe just thoughts on the growth in the near term?

Yeah, sure. This is Dan, I'll start off. So if we look at our compliance offerings, there's great stability in terms of market demand that exists regardless of the economy in which we're operating. And so, as we mentioned, they've grown 16% or so since we spun out on a compounded annual growth rate. And as we look forward long-term, we're in that same teens rate. The one thing we talked -- we talked about two things; one that is a bit of a headwind, is within ActiveDisclosure and the final transition from AD3 on to new AD. So we think that's a bit of a headwind. And then the tailwind are some of the regulatory -- new regulations, I should say that will benefit us and a lot of that benefit starts to occur towards more prominently in 2024. There's potential that there's some benefit towards the end of 2023. And then the last piece, which is not insignificant is Venue, which has done a really -- we've done a really nice job of outperforming the broader transactions market. But I would, just point out that its major use case is M&A. So that will be impacted by how the M&A market is. But again, if you will look at the spread, we've been doing well in a more challenging M&A environment.

Got it. Thank you. Then you mentioned 60 million of CAPEX on software, or sorry, total CAPEX, can you just break that down into how much is going to be on improving the software offerings?

Yeah, Stefanos this is Dave. Substantially all of our CAPEX is around either specific to product development. And then there's a portion also the underlying IT that supports it. There's very little capital that goes outside the two technology areas there.

Got it, thanks so much.

Thank you.

We will move next to Pete Heckmann at D.A. Davidson.

Hey, good morning, gentlemen. A few quick questions. When you think about that increase in operating expenses, how would you kind of quantify that in terms of basis points on EBITDA margins?

Yeah, so Pete, I think you're referring to the -- we noted about 25 million and some of that OPEX around accelerating the transformation. Roughly, I'd say two thirds of that is incremental on a year-over-year basis. And then, some of its probably in the base. And so, I think the impact on overall margin or basis points is tough to gauge I think, depending obviously on what happens with the transactional market in 2023. That amount will vary in terms of the impact it has on margin.

Okay, alright. And then just the divestiture of EDGAR Online, was there any material level of revenue related to that subsidiary?

They were insignificant. We have I think it was about 1.5 million a quarter last year, or 5 million in total.

Okay, great. And then just lastly, you noted some of this back liquidations, I mean, is there a way to think about that and obviously, the final chapters haven't been written on some of those facts that are still looking for deals, but I guess, how are you thinking about maybe your best guess or best estimate in terms of the remaining crop of 2020, 2021 SPACs having success finding and closing deals versus liquidating and about how much drag do you anticipate that would be on 2023 revenue?

Yeah, sure. This Craig Clay, I'll start. SPAC IPOs have historically made up a small percentage of our transactional revenue. The bigger opportunity, as we noted in the past is the De SPAC. So Q4 had 71 SPAC announce their business combinations, it was the most active quarter in 2022. There were 25 in December alone. So as you referenced about 350 SPACs were obtained for their business combination. According to deal logic, these SPACs or valuing companies are seeking to take private at their lowest level since the boom began. So last year, the merger valuation fell to about 200 million from 2 billion. So what this shows is a reset in valuation, but also a progress in the market digesting that SPAC peaked. And certainly, as you referenced, De SPAC performance has been challenged. So of the SPAC that completed last year, only 10% were trading at $10 and higher. And this poor market performance did cause a lot of scrutiny, it did have certainly the largest number of redemptions. So Q4 had 96%, which was the worst on record. But when you roll all that together, what you have is some quality deal teams that are still there, that are still looking, and we're optimistic that SPAC are going to continue to find their place in the capital market albeit at a lower level than we saw.

Okay. Alright…

The one thing I would add there is, as it relates to the compliance business specific on AD, we did see obviously in 2021, a lot of the SPACs coming onto the platform. And then with some of the liquidations in 2022, and lack of IPO in 2022, our growth rate in AD was really moving up nicely. In 2021 obviously it started to slow and 2022, because of that impact, in addition to, as Dan mentioned earlier, is transitioning the remainder of clients off of AD3. And so, we'll expect to see that continuing to kind of softer trend in the first half of the year as everything kind of resets and then improving starting in the back half. [Multiple Speakers]

Can you maybe provide some additional on the IPO side, for the reasons you know to well, 2022 slowest year for IPO proceeds in 30 years, and it was dominated by real small deals. There were only 16 offerings in the full year that were greater than 100 million. That's the lowest in over 20 years. We're happy that we worked with 16 of those 20 largest deals. And what our clients are telling us right now is that we may see a few highly selective IPOs in the first half but that can lead to a broader IPO issuance in the second half. And as you've previously commented, you're encouraged by the pipeline or in process yields, and that pent up demand for future transactions. We have a little tailwind with the new regulatory approval for direct listings without being limited to the price restriction. So this yet unused alternative could have a positive for the market. And it's the same amount of work for DFIN. So given all these steps our clients are taking to remain ready to go public, we know that they'll respond quickly when that market opens.

Great, thanks.

We'll take our next question from Raj Sharma at B. Riley Securities.

Hi, thank you for taking my questions. I just wanted to understand on your guidance first quarter, can you give us just a little bit more visibility into what is the guidance building in for transactions and for software? And, from your pipeline that you have currently, how do you see that, do you see certain sectors and transactions doing better than the others, any sort of color on that would be great?

Yeah, Raj. So I think when we look at from a transactional perspective specifically, we're expecting kind of the continued downward pressure, both sequentially. And even year-over-year, I think transactional capital markets revenue last year was 51 million or so. And so we're expecting, down again relative to that number. I think from a software perspective, again, I commented on AD. So, slower growth in the first half and better growth in the second half as things reset. And then I think when you look at the software component within the GIC business, more a continuation of what we've been -- what we've been seeing over the last few quarters here. I'd also counted just from a margin perspective that Q1 is typically our lowest margin quarter. And again, given the pressure on transactional, we think in that 20% range or so is likely where we come up.

Great. And then on the software piece, I know that you commented that this year and probably possibly longer term you're expecting mid-teens growth. How should we see that build up and there are headwinds, so we should expect somewhere South of low to mid-teens in growth rates this year, but something picking up with your investments in 2024, is that the way to look into that?

Yeah, and we've talked about this in the past that so we do kind of a long range guidance on that. And that mid teen is meant to be exactly that. Certainly not going to be quarter-to-quarter or even year-to-year or product-by-product, right. But in aggregate we would expect that mid teen growth and like you said, there's certain things that we're facing this year what I alluded to on earlier on AD will be a headwind earlier in the year. And then kind of resetting to a more normalized trajectory in the back half. Certainly Venue has done better than the broader M&A market. But given the lack of activity in M&A and depending on how the year plays out on the transactional side, Venue will be a function of what the M&A market does, largely. And then, you referenced some of the tail winds and Dan talked about them earlier, specifically around Tailored Shareholder Reports, but that's more of a second half 2024. And then there's some other regulatory rules on the horizon that would be [Technical Difficulty].

We didn’t get it, just off.

Sorry. I guess, yeah. So I would just add and Dave hit it on the two thirds is compliance driven software. One third is Venue. And, if you just go back I think the last few years are instructive as to what the growth rates can look like with a tailwind of regulation. Back in 2021, we grew our software over double what our long term target is. And obviously we had tailwinds and transactions there as well. So, to Dave's point, there's a long range guidance here because a third of it is less predictable and two thirds is more predictable and becoming a bigger part of the whole as we operate through cycles.

Got it and then just on print of what sort of a decline or flat lining are you expecting in certain revenues this year?

Yeah, Raj I would say back to kind of the longer run trend on print secular decline and they call it the 5% range or so. Some of that gets impacted by the transactional environment to the extent there are more or less transactions and printed documents going along with those. And then longer term we would expect the same thing. The one caveat there would be to the extent that any of the future regulations such as Tailored Shareholder Reports might require some incremental printing that could possibly beat the trend there as well.

Great and then just lastly on EDGAR Online, can you talk about -- I know that you just mentioned the revenue impact was $5 million. Can you talk about the reason for the disposition and sort of how much was it disposed for, do you already have that functionality now in the other software pieces?

Yeah. So at a high level the declining business, it's not core to our compliance offering was going to require some incremental, pretty significant incremental investment to maintain it. And just so from an overall economic perspective as we look at capital deployment the combination of investing in a non-strategic declining asset just didn't make sense. And fortunately we found a buyer albeit at a pretty low price but I think relative to the alternatives there, it was a really good outcome for us.

Great. Thank you. Thank you again, I will take my questions offline.

Thank you Raj.

Thanks Raj.

And that does conclude the question-and-answer session. I would like to turn the call back over to Dan Leib for any closing remarks.

Great, thank you. Appreciate everyone’s time this morning, and we'll look forward to connecting with you over the ensuing months. Thank you.

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