Thank you for standing by. My name is Aimee and I will be your conference operator for today. At this time I would like to welcome everyone to the Donnelley Financial Solutions Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. It is now my pleasure to turn the call over to Mike Zhao, Head of Investor Relations. You may begin.

Thank you. Good morning, everyone, and thank you for joining Donnelley Financial Solutions' second quarter 2024 results conference call. This morning we have released our earnings report, including a supplemental trending schedule of historical results, copies 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 risks and uncertainties. For a complete discussion, please refer to the cautionary statements included in our earnings release and further details in our most recent annual report on Form 10-K, quarterly report on Form 10-Q and other filings with the SEC. Further, we will discuss certain non-GAAP financial information, such as adjusted EBITDA, adjusted EBITDA margin and organic net sales. 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, and other members of management. I will now turn the call over to Dan.

Thank you Mike, and good morning everyone. I am pleased with our second quarter operating performance. We delivered strong results including improved revenue performance, record quarterly adjusted EBITDA and adjusted EBITDA margin, as well as increases in both operating cash flow and free cash flow. Our second quarter performance highlights the continued progress we are making in our transformation and positions us well to achieve our long-term financial targets. We continue to make progress against a number of the objectives that underpin our long-term plan that we communicated earlier this year. First, we continue to transform DFIN into a solution centric company often delivered by software. Total software solutions net sales grew 14.4% on an organic basis year-over-year, a continuation of the strong growth rate we achieved in the first quarter of this year, comprising 35.3% of total second quarter net sales, an increase of approximately 400 basis points from last year's second quarter. As a reminder, the second quarter, largely due to the proxy season, historically represents a seasonal low for software as a percentage of revenue. On a trailing four quarter basis software solutions net sales reached nearly $313 million, growing 10.1% or 11.3% on an organic basis from the second quarter 2023 trailing four quarters, representing 39% of trailing four quarter sales, an increase of approximately 340 basis points. Our second quarter software solutions net sales growth continues to be led by the performance of Venue, our virtual dataroom product, which posted approximately 38% sales growth. We remain encouraged by Venue's strong performance, which reflects strong sales execution across Venue's broad application within the M&A ecosystem that serves both public and private companies. In addition, the growth rates of our recurring compliance software products, ActiveDisclosure and Arc Suite both remain positive in the second quarter, albeit at…

Thank you, Dan, and good morning everyone. Before I discuss our second quarter financial performance, I'd like to recap one housekeeping item. Concurrent with the release of our second quarter results, we published a set of software operating metrics for ActiveDisclosure and Arc Suite, which can be found within our supplemental trending schedule of our historical results posted on our Investor relations website. The publication of these software metrics reflects our efforts to provide investors additional detail into the performance and trends of our recurring compliance software products. We will continue to evaluate additional software metrics for disclosure in the future. Now, turning to our second quarter results. As Dan noted, we continue to make solid progress in our transformation during the second quarter by delivering modest consolidated net sales growth, record quarterly adjusted EBITDA and strong improvements in both operating cash flow and free cash flow compared to the second quarter of 2023. By continuing our shift toward a more profitable sales mix while also driving operating efficiencies, we expanded our second quarter adjusted EBITDA margin by 520 basis points to 35.9%, also a quarterly record for DFIN. On a consolidated basis, total net sales for the second quarter of 2024 were $242.7 million, an increase of $0.6 million, or 0.2% on a reported basis, and 0.7% on an organic basis from the second quarter of 2023. The increase in net sales is primarily driven by the growth in software solutions, which increased $9.9 million, or 14.4% on an organic basis, and more than offset a decline in capital markets and investment companies' compliance revenue. We continue to deprioritize certain low margin traditional compliance work, a component of which is related to print and distribution volume. Excluding print and distribution, net sales grew approximately 4%, as Dan noted earlier.…

Thanks, Dave. Our performance in the second quarter provides us with strong momentum as we continue to execute DFIN’s strategic transformation. While the macroeconomic outlook remains uncertain, the combination of our market position, cost structure and strong balance sheet position us well heading into the back half of the year. 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, operator, we’re ready for questions.

Thank you. [Operator Instructions] At this time, I would like to go ahead and open the line for Charles Strauzer with CJS Securities. Your line is now open.

Hi, thank you. Good morning.

Morning.

Looking at – Dave and Dan, just looking at guidance for Q3, may be expand a little bit more on your thoughts on expected margins. You said mid- to-high-20s range. Maybe some more color what’s driving that? Obviously, you had a very strong quarter, given the mix in the quarter for Q2, but maybe talk a little bit more about your thoughts there.

Yes Charlie, this is Dave. Thanks for the question. Look, as we look ahead, and I would say whether that’s for the third quarter or even beyond, right, I would start by saying certainly no change in the strategic direction or operating plans. We continue to do a very good job managing cost and as you noted, shifting our revenue mix to drive profitability. So no change there. Specific to Q3 guidance, probably the simplest way to look at it, when you compare to last year’s EBITDA margin, it was about 27.5% or so. That was up 300 basis points from the third quarter of 2022, and that was on about a 5% decline in top line. So, last year’s third quarter also included a few million dollars of benefit related to a true up of variable compensation. So, I think when you exclude that benefit, last year’s third quarter would have been right around 26% and again, still up a couple hundred basis points from Q3 of 2022. And so when you look at this year’s third quarter guidance of mid- to high-20s, it puts us somewhere in that same neighborhood. I think the other thing I would say is that when you look this year, we’ve delivered over 400 basis points of margin expansion year-to-date. Trailing fourth quarter margin, as we commented, is now at 29%. And as also we noted in the prepared remarks, starting to overlap some of the margin expansion that we delivered in the back half of 2023. So, the comps start to get tougher. Like I said, we’ll continue to be disciplined on managing costs and shifting the revenue mix, really to deliver against the long-term projections that we provided earlier. And I would say Q3 is certainly in line with that.

Thanks. And can we talk a bit about venue and the strong growth you’re seeing there? What’s been driving higher volumes and number of deals? Is it just bigger deals and what gives you confidence that this trend might continue? Thanks.

Yes, two things – well, three things there. One, and we commented roughly a third of the growth that we saw this quarter was really driven by the kind of outsized data rooms, and that’s down proportionately. You’ll recall in the first quarter we said roughly half the growth was attributable to that. I think when you look at second quarter, the other two thirds of the growth – there was a little bit of room count, but it’s primarily the size of the rooms in terms of the number of pages that are being uploaded, as well as the price increases that we put into place starting the middle of last year and are now coming to overlap that. But we’ve seen that benefit in pricing, call it over the last four quarters or so.

Yes, this is [indiscernible] to add to that Dave, thank you. The increased page activity, higher pricing, these rooms are also staying open longer, which is again reinforcing the stability of venue. Underlying demand is less volatile versus the M&A market. So, we’re seeing this more stable revenue stream, which has been an event-driven transactional product. And then just on those large deals, as Dave mentioned, driving a third, it’s really about sales execution, us taking share at large Tier 1 banks. So, we’re super encouraged by the resilience of the activity taking place on the platform. We think the broad application within the M&A ecosystem is serving both announced and unannounced deals across public and private companies. And so, as we look at the M&A market, we are certainly hopeful and excited for it to return to some median level of activity. But there is a large amount of activity looking to be put to work. We’re pleased with the venue pipeline. We’re also in the process of growing it outside of M&A into recurring subscriptions and then also reoccurring growth. So, we’re just going to continue to focus on what got us here. Great product, sales execution and share expansion.

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

Hey, good morning, everyone. Thanks for taking my question. So, in terms of the completed M&A deals, I guess, how do you feel – I know it’s hard to totally handicap that, but with the venue growth, it certainly feels like there’s a lot of potential deals in the pipeline, either dual process IPO M&A, or just straight M&A. Is there any way to think about what you are embedding in your third quarter guidance in terms of completed M&A from a filings perspective?

Yes, I’ll touch on the market and turn it to Dave for the guidance. I think you can look at what our clients are telling us. So, certainly Federal Reserve Chair, Powell, said sticky inflation was the reason they didn’t change rates in May. And he addresses this again today at 02:00 p.m. what’s he going to say? I think the bet is there will be a September cut and these rising interest rates have been a drag, a super drag for the last two years with soaring transaction financing costs, depressing stock valuations. So, what we’re hearing our clients talk to us about is a belief that this clearer path to the monetary policy of the future is going to create certainty and will help support deal activity. It’s going to bridge the gap between bid and target price expectations. And the indication we’re getting, as you stated, is private equity players are coming back into the market and deals will get done. So that is exciting for venue, given our results, and it’s certainly exciting for the CM-CCM platform. And Dave, I will turn it to you.

Yes, and Pete, can you clarify the second part of that question?

I was just trying to think about what’s embedded in your third quarter guidance as regards capital markets transaction revenue. I think you said down $4 million year-over-year.

Yes.

Just thinking about like, from an M&A perspective, like, I don’t know if – I’m sure that’s a range, but just how you’re thinking about that.

Yes, I would say it is a range. And we kind of – we have some visibility, obviously to the near term better than the longer term, and kind of handicap each of the projects that we’re looking at. I would say the $45 million overall is pretty similar, obviously, to each of the first two quarters. And so, on an aggregate basis, probably not much different in Q3 than what we saw in Q2.

Okay. And then just in terms of tailored shareholder reports, any additional findings as you’re getting into the go live, or any thoughts about your relative share on either the software services or print side?

Yes, it’s Dan. We’re really happy with, that we’ve talked about this before. Our full set of offerings from software through to our traditional platform, which really helps with chain of custody. And so, we’ve seen strong uptake on our software platform. We did mention we thought print would be a lower number, and in fact, that’s playing out that way. So, on the software side, we expect about $11 million to $12 million of annual impact. That will be in 2025. We will get half of that in 2024. But really happy with it’s early days, there is a lot of onboarding and a lot of work going on in the organization, but thus far, in a relatively lite early season, things are going very well. But I let Eric add if you have anything.

Yes. Hey, thanks, Dan. Yes, so I think what we’re seeing is DFIN is offering from a TSR solution perspective, we cover the full spectrum. So, we’re seeing clients that are engaging us on the SaaS side of things, we have seen clients come to us looking for traditional composition, tagging and filing. And since the rule has just launched here in July, we’re seeing a lot of variability in client, how prepared our clients are to get through some of this from a filing perspective. So, we’ve seen the full spectrum of services. And as Dan mentioned on the print, from a traditional printing perspective, it is highly competitive and, in many cases, we’re staying very close to our margin profile for that work. But where we are seeing success is in our optimized digital print platform where we’re driving single package delivery for our clients, leveraging DFIN’s digital software, as well as our digital output platform. So that’s been a nice change for us from an output perspective, and it fits our platform extremely well, and certainly hits our margin profile. So, I see early stage here. Next cycle I am sure we’ll get more volume with the six thirty close. But as we see it, it’s shaping up as we expected. But again, I think the big takeaway is our ability to provide a full spectrum of services for our clients.

Okay. All right, that’s really helpful. I’ll get back in the queue. Thank you.

Thank you.

Your next question comes from the line of Kyle Peterson with – Needham sorry. Your line is now open.

Great. Thanks guys. Good morning.

Good morning.

Appreciate you taking the question. I wanted to touch a little bit on software growth. Second consecutive quarter, you guys have kind of had mid to low teens year-on-year growth in that segment. Just want to see if you guys could give any more color on the breakdown between whether it’s new logos or pricing, just any breakdown of that since it’s really accelerated here with first half, the year would be really helpful.

Yes, Kyle, this is…

Sorry, go ahead Craig.

This is Craig Clay. Thanks for the question. We touched on venue. I’ll build on ActiveDisclosure. I think in the quarter you saw software subscription sales up 2%. We had that partially offset by File 16. I think just to touch on that, we’re excited to have built the market leading Section 16 filing platform within ActiveDisclosure. So those are for beneficial owners to publicly disclose their relationship with the company. So, within the quarter we had some negative drag. But like with AD they just contextualize it, it was a conversion process. So, we were managing from an old system to a new, we managed out low-paying clients. It’s going to result in a more durable, pipe priced solutions. We’re excited by what the future will hold for that. What’s the expected second half? We are excited by what we see. We have made progress to expand the adoption of AD, which is slowly being reflected in the quarter results, as you heard Dave talk about. But as the prospective metrics continue to trend favorably, our fourth quarter of net new client growth, so our total client surpasses Q3 at 22, it eclipses 83 churn with new logos and client wins. We saw an 11% year-over=year growth in annualized recurring revenue, which is inclusive of our service packages. We are really excited about what we’re offering our clients. Our average price is up in the mid-teens versus our ActiveDisclosure 3 product and we expect our growth in the second half to be stronger than the first. As you heard, we’re going to overlap our platform transformation and there is a lot more to come. We have price that is continuing to be an opportunity. Clients want a choice. They’re signing up for multi-year contracts. Our contract length is 30 months and we’ve been able to achieve these higher prices with built-in price increases on renewals and longer-term contracts. And our clients are paying less than our competitor. So, our clients want a choice, which is an exciting place to be. You couple that with product exciting things that we’re putting into market, including design elements, including presentations, which is the full connection of the SEC documents to a presentation that reporting teams need for boards and investors, it’s an exciting place to be. So, our clients are choosing ActiveDisclosure for their most important reporting needs. Our pipeline is strong and we’re looking forward to the rest of this year in 2025.

That’s really helpful. And I guess just to follow-up, I know in the third quarter guide you guys mentioned that the expectation is for some of the capital markets revenue to be down a bit year-on-year. It seems like a lot of the filing activity has been up quite a bit year-to-date, is the market has been pretty healthy. So just wanted to see, like, is that come comps? I know we had a little bit of a boost last year in the third quarter, but like how much of that is – whether it’s couple of competitors or a slowing pipeline or just conservative on your part?

Yes. Kyle, I guess I would describe it as, like I said earlier, we have some visibility into the deals that we’re working. It’s certainly not a pipeline or a market share question, really more just kind of handicapping the timing of when we think these deals ultimately close out and come to market. And so kind of basing a lot of that and what we’ve seen so far this year and just the overall trends, certainly, if things accelerate quicker than what we’re assuming, that would be great, but it’s our best guess at this point.

Helpful, thanks guys.

Thank you. [Operator Instructions] Our next question comes from the line of, it looks like Raj Sharma with B. Riley & Company. Your line is open.

Yes, thank you for taking my questions. I wanted to understand, the sales inflection, the top line inflection relies really on software growth second half and ongoing that should happen, I guess, due to software growth, but also print any proactive reductions they’re still to be expected forward? And related to the top line inflection in software, – you’ve talked about software having double-digit growth in the next few years, doubling from – but doubling again over a three-, four-year period. And you just said the TSR contribution for next year is $11 million to $12 million. What takes software to that double-digit growth over the next few years?

Yes Raj, I’ll start. So, you had a handful of questions there. I think as it relates to the back half of the year, you are right, I think, our expectation certainly to continue the software growth. Part of that comes through the TSR regulation, right, which we commented on. And of that $11 million to $12 million, roughly half of it, we expect to come in Q3 and Q4. As it relates to the print reductions, as we commented on not only last quarter, but also this quarter, you look at Q1 and Q2, that tends to be the higher quarters in terms of the concentration of print as it relates to 10-Ks and proxies specifically. And so, while there is some impact in the back half of the year, it’s not nearly as significant as we’ve experienced in the first half of the year. And then with your comment or question regarding the ability to double the software, really a combination of a couple of things. One is growing the existing offerings as they currently sit today. And you’ll also recall then we talked about over time, we believe that a lot of what we’re doing in the Compliance and Communications Management segment ends up shifting to a hybrid model or maybe over a longer period of time, a full software model. And so, there is a little bit of mix shift as we look ahead in those five-year projections.

Great. And then just lastly, I know on your guidance, your 3Q guidance, you’re assuming slightly down transactional volume. Now ex-Venue do you think that we should kind of expect or are you seeing – are you assuming a flat second half on transactions from where you stand now?

Yes. So, we haven’t really given guidance looking beyond Q3. And I should clarify that when we talk about transactional, that’s excluding Venue. We do expect, as we said, Venue to continue to grow probably not at the same pace that we’ve seen year-to-date, just given what we’ve seen in some of the kind of outsized, large, rooms, as well as starting to overlap some of the price increases that went into play midyear last year. But from a transactional perspective, again, when we say transactional excluding Venue, like I said, we expect that to be in Q3 pretty similar to what we experienced in each of the first two quarters this year. And then for Q4, we’ll provide an outlook on the Q3 earnings call in early November.

Great, thank you for answering the question. I will take it offline. Great.

Thank you.

Congratulations.

Thank you.

Thanks Raj. Great, thank you.

At this time, there are no further questions. Mr. Leib, I’d like to turn the call back over to you for closing remarks.

Great. Thank you. And thanks to everyone for attending the call. We look forward to speaking with you soon.

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