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DFIN Donnelley Financial Solutions

Participants
Sanja Burklow Investor Relations
Dan Leib Chief Executive Officer
Dave Gardella Chief Financial Officer
Tom Juhase Chief Operating Officer
Charles Strauzer CJS Securities
Michael Chow JPM
David Ridley Lane Bank of America Merrill Lynch.
Bill Mastoris Robert W. Baird
Call transcript
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Operator

Welcome to the Donnelley Financial Solutions' Third Quarter 2017 Results Conference Call. My name is Eric, and I will be your operator for today's call. 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. call Sanja the turn now over Burklow. to I’ll you may begin. Sanja,

Sanja Burklow

This And Eric. quarter for call. be our found Good of which you, Investors website copy thank report, XXXX we a earnings morning, conference in third Thank can Solutions at everyone. you dfsco.com. of released Financial joining results Section the morning our Donnelley

During uncertainty. to that are this subject call, we'll refer to forward-looking statements

you our to the and They information information. we Annual the cautionary for complete and statement purposes to information included non-GAAP however, related further you performance. discussion, concerning details informational We GAAP earnings our evaluate SEC. non-GAAP provided company's results reconciliation are, a GAAP XX-K for in For non-GAAP Form with of supplementary and information. the Please release and Reports with press on and release the the a and the will for of please refer is footnotes in to filings presentation believe only. operations company's useful way provides ongoing an financial refer other discuss appropriate to Further,

call are to morning by Dan the and Kami Leib; Dan. We Turner. I joined now turn Gardella; Tom will Dave this Juhase; over

Dan Leib

the a morning, operate good we've you, to Sanja, recap call, quarter provide I made will update company On Thank and in entity. the as on and of progress everyone. strategic market and our priorities today's overview an repositioning performance third our standalone activity, reiterate

we comments, Q&A for open lines on third up a my our quarter results Following will will and then provide Dave, detail additional session. the

decline non-GAAP EBITDA in in decline primarily of benefits of were of below and third grew reduction results and by a lower the our a reduction EBITDA revenue expectations related This related to transactions revenue cost year-over-year transactional reflected X.X% offering quarter, improvement in non-GAAP improvement offset X.X% more quarter XXX of was cost margin than adjusted a standalone efforts year's resulting third market incremental driven of basis IPO the profit due decline with our revenue which impact year-over-year our revenue the M&A While by The decline. to X%, from last capital adjusted points. revenue. our our

decline was mutual generally to While our to per higher complexity. the by flat, our a broader revenue offset our came in relatively smaller transaction quarter. related volume. software is in was market mid been year our ActiveDisclosure more revenue expected grew than activity Higher offerings. growth experienced due than funds XX%. volume partially consistent both With and compliance and Data in activity This mix skewed transactional Rooms toward market software we lower M&A by and The market's respect Venue that IPO solution offerings, compliance capital is deals. in M&A lower growth all with softer driven

We continue September. real time Cloud users from documents to in expect to and solutions us. innovations Word, or team in to clients which We made have members. release multiple invest visibility documents ActiveDisclosure our Excel create Point newest simultaneously their means their that now changes bring clients other our edit being version to of both edits Power and our by allows based to released X ActiveDisclosure market

creating been the help efficiencies and leverages to intelligence which that our One In products expanded eBrevia diligence functionality contract processes, have example uses expands addition, that tools partnership. the integrated legal our the Venue. we've and diligent Venue of for clients. into our in via is is due investment streamline eBrevia artificial

reiterate growth process be such priorities EU, a where within to operating on requirements to last in those in the our developed with clients market effective I the continue help Within filing comply we unit. expect and the clients compliance regulatory requirements requirements areas software continues starting regulation to with reporting on-boarding in to our aiming environment the discussed ETS, nee that more our solutions We'll also our With like on both our the created and our basis. January In platform content are SEC's software. and offerings seen needing N-CEN to test plans goes forward, have the offering, live I'd the recurring currently requirements. in our We've new investment to Data PRIIPs will elements part SEC XXXX mid respect and transparency, first the on enhance significant our on-boarding built to N-PORT the these key on in investment now our clients to FundSuiteArc a going industry, revenue our were filer our XXXX. solutions initiatives build ActiveDisclosure language capturing frequent global are XXX Venue data dynamic momentum Mutual here offering be we've for EU. as sales which in management US we These markets the call. and and that Funds more we've Rooms, of modernization of We Act the

continue enhancement and to software-as- our make a- to will We invest service solution.

within enhancement We and result organic capital of be combination a expansion of of We'll markets. strategic to our pursue transactional with investment aggressively to expect continue global partners. activity relationships such

to the disciplined range our Last, these targeted nearly to capture we've In by capital. priorities reduced cost the of following within activity total we quarters will of reputation track X.XXx. as well our four positions deploying our remain taking the debt first X.XXx end in million spin-off, and on to to revenue we $XXX our and us improves. leverage structure approach as transactional year each accomplish as managing market Our relationships well while client space our a

and market steps prioritizing we've right size the needs identifying the our structure, taken cost Over to year past new investment and opportunities.

taking XXXX. management provide ActiveDisclosure, opportunity our solutions allocation our governance further organic will broaden and to strategy to to which with We enhance wide a investment compliance-based cost bringing value FundSuiteArc, and long-term and our solutions resource forward to thoughtful create look market. about These to our and risk are balanced making shareholders. products I of allow throughout array portfolio us and approach strengthen for MultiTrans, in and portfolio more long-term Venue, services, of relationships, sharing client management

me over Dave. Let Dave? to turn it

Dave Gardella

Thanks, and everyone. morning, good Dan,

As in transactions revenue softness weaker than activity in mentioned market Dan capital the resulted expected US market quarter. in of

sales X.X% the despite in and decrease However, quarter we year a driven our of U.S. our third non-GAAP growth for by was capital The adjusted EBITDA exchange volume, the offset which foreign year-over-year X.X% were this compliance by growth lower revenue offset decline, segment year decreased driven compared by quarter sales last XXXX. the late $XXX.X our volume year. and quarter in we changes offerings by grew our print the million, implemented cost lower decline in from of or million adjusting third to higher in actions software volume, partially our last After partially X.X% $X.X Net a of for throughout organic volume. in higher in mutual decline markets transactions revenue was U.S. segment. rates, XX.X% healthcare international segment, organic by and funds through

language growth as growth mutual as revenue funds was volume well segment international driven by translation solutions services. our primarily in higher Our

basis third SG&A IT compared cost periods margin XX.X% classification the in sales Donnelley. or impact higher by negative change quarter cost the from gross points driven a prior XXX from XXX was to of of includes the approximately of to quarter of than a points in XXXX. R.R. classifications This to Third basis the separation

as XXX reclassification, as million, late $XX.X began expense gross quarter lower implement improvement this was by approximately to margin than of the cost was well quarter million Excluding we primarily year, last third third the of cost. basis driven SG&A outsourcing higher Non-GAAP the quarter $X.X points XXXX. reductions in

third XXXX. points of was a SG&A of or As the than quarter XX revenue, percentage basis XX.X% higher

XXXX. XXX of percentage point points was the SG&A as third the than favorable approximately basis quarter XXX the impact Excluding reclassification, higher of revenue basis IT a of

approximately in in to to this in to cost higher noted morning's related RR $X.X incurred press company ongoing spin-off million from the the Donnelley. cost excess the prior costs allocated we release, of and dis-synergies As

quarter quarter offset the which adjusted EBITDA from and XXXX. of from actions third by than EBITDA separation XX.X% Our margin was last of $XX.X of XXX of the adjusted million Non-GAAP in primarily $X.X year, points quarter increase reduction non-GAAP the by partially quarter driven an cost million, third lower cost higher basis Donnelley. volume our higher third RR transactional were by the was driven

last revenue was discuss and segments. our performance non-GAAP I'll adjusted million $XXX.X quarter. quarter from third for of Now segment third year’s each of decrease U.S. X.X% EBITDA in of the our XXXX, a in Revenue

in print management year. which cost from basis, allocation XX.X% revenue cost in quarter XXXX, points our of of the quarter markets an Higher of funds of X.X% rate, impact to as Investment for as in the X.X% of revenue actions third million The of a our decline services. our XXX organic adjusted in declined margin $XX.X the in offset and of revenue higher by mutual Non-GAAP quarter a solutions improvement from other margin by as volume was third well markets segment XX.X% expenses. software EBITDA the the EBITDA increase the and by was cost Our ActiveDisclosure XXXX, by higher XX offset of year. X.X%, quarter volume. we favorable reported year, XXXX. an translations mutual international Language X.X% savings points offset recognized was third changes revenue driven funds in last lower in were compared Revenue basis for large outsourcing increased capital continued funds by of volume. partially driven of partially in as of by lower in related EBITDA margin well mainly the Non-GAAP of driven well segment as by by volume saving quarter adjusted driven driven IT lower compliance third revenue commercial growth was from growth deals quarter volume quarter The the quarter content of of volume, last healthcare transactional as impact increased third actions foreign print transactional higher the excluding mutual third third M&A. only exchange to couple offerings. of lower higher to XXXX. On partially the the basis Venue and XX.X% segment and third our primarily last declined increased the

Xnd, expenses was $X.X from was non-GAAP a cash to were million in related Free and partially from driven October million, last flow more quarter unallocated by of quarter, term XXX. as cost capital of an decline initiatives. quarter XXXX in reduced expenditures. the points to the quarter in interest of we R.R. $XXX saving XXXX, amortization higher this corporate XXX rate outstanding by million with quarter driven our were the capital third as the $XX.X reprised million; working from an $X.X third million interest PLUS well of balance tax LIBOR excluding used the increase payments On which separation Our $XX.X of by year, and dis-synergies third by Donnelley cash deprecation and basis offset and increase our loan

the $XX.X also ended million by in million of debt with We and quarter quarter $XX.X $XXX.X of our and total reduced cash. debt the million

spin-off, XX, As was gross and remain the had leverage within end to year. to X.XXx XXth, be X.Xx by range total at liquidity we XXXX, and available to September quarter. million targeted net our our the our the reduced of track Since of the December $XXX.X million the end leverage third compared X.Xx of of we $XXX.X by at have X.XXx of debt on

to of in the release. XXXX the updated we more me full the that on quarter morning's guidance share detail year summarized enter let this press was year, As last

than that to third reflects the in expectations. guidance previous we more outlook updated the a the experienced Our conservative quarter expected transaction quarter relative environment for capital markets softer fourth and our for

decrease performance revenue the to expect $X of I previous range organic remainder of from outlook points of reflects the third our market the quarter activity representing just X% a growth of for and XXX of more approximately noted in guidance basis which year. We billion, X%, conservative

midpoint the to Depreciation approximately our non-GAAP million; $XX. to adjusted be previous our of million lower $X.X expect approximately EBITDA guidance. $XXX We and expected amortization is than be

We continue of approximately to expect $XX million. interest expense

project back in Our cash full share of I'll to the fully We is diluted approximately expect to approximately weighted free and we with XX%. capital expected average $XX in XX it year XX% to the the to rate lastly, full be range expenditures $XX be count non-GAAP year $XX million tax million of range And million flow million. that of And Dan. turn to shares.

Dan Leib

the and to Dave. operating efficiency company begun have made to for In company Thank our as you the a work first year continued standalone reposition several we've improve our changes success.

with our compliance we'll as continue in offerings, solutions market. on investing focus well bring strengthening as forward, a to this to based additional Going path on core

the we our all of progress as session, Q&A lines standalone open remains made A year ago thank bring to questions. drive head significant evolve into our solutions clients as month new to your we celebrated I as while operator, and up now And much open our and Before work I'd the we year, out and for shareholders. the like company, our during has anniversary been employees. a dedication to first it appreciate continue we close our company market and as value a innovative focus for and for XXXX. first let's

Operator

from our Charles go question first And from ahead. Instructions] comes [Operator Please Strauzer Securities. CJS

Charles Strauzer

Obviously, little the there. currently maybe bit the pickup in of least filing soft hit M&A seeing in quarter you've revenue kind timing, a this maybe M&A well. market of could the Dave more as you and QX market this was especially but bit talk what about in transactional might little kind of and you timing when morning. at a elaborate seen transactional maybe are in and puts-and-takes some guidance little bit changed good about a on Hi, what and talk

Dan Leib

Charlie. I'll I'll couple will Dave a have up then thanks, after. and start as Yes, comments follow

Dave Gardella

thanks Yes, Charlie.

As reflection what third in quarter saw preliminary saw quarter, activity view driven obviously really have tampering a limited visibility. transactional updated is which as capital into October. When the by updated our in and said our of is we well markets that I by we QX the is we as think portfolio, look what our results trend really to that of going relative the you was of QX view expectation the the we guidance across guidance influenced the more where

rest the previous pretty expectations. portfolio consistent the think of is with I

Dan Leib

difference are where get add a which the seen or just and transactional announced we M&A on into paid in an pickup have the we a seen we if completion transaction. the there paid be a the timing in documentation M&A Yes, going which more side side, and which pricing the of get filing to paid, when activity upon revenue I of recognized get when drill the we difference is IPO deals an and we And and/or will pickup. we've and

what at have is may quarter earlier that's what transaction underlies short when business which particular our guidance. Having list and So QX visible said as in the that sit the many more as lack of The cycle or these a of activity is we here Dave increasingly the transactions that into have announced than earlier very is mentioned, year this visibility. part and look side. in of predictable to of business that our the third the been we look can lead good time balance in

Charles Strauzer

of and of are of where that that one for of beef kind refresh standalone priorities I the CapEx as of know up And that kind kind freshen process? technology was up of to kind in and Excellent. of big kind use the a you

Dave Gardella

Charlie its Dave. Yes,

CapEx at year the software you technology of to much guidance think and million $XX into I for that look $XX million, goes development. our So

this about I we've budget build think for progress that months the the XX XXXX on the we feel we'd the year expect radar so. as or and good next in more pretty made we

Dan Leib

products and XX% about offerings those level are we They level that would continue the to technology of the we nice that facing growth if increasing into support level. look customer showing technology to or of And represent offering. Yes. that and revenue and make these investment at are expect our same growth

Operator

from our go Chow comes Please JPM. question next And from ahead. Michael

Michael Chow

to understand the exposure was the markets from to seems well. capital investment the and little switches as I markets is markets get color activity a I markets bit just fluctuate guys. side the to business. around but hoping capital morning, Good investment side

a get that of So visibility I am on how you better just get to understanding bit more trying segment? little

Dave Gardella

Yes. this Michael, is Dave.

in look I if think trajectory of and been start at revenue really related I time year. business the I'll longer the been per as of relatively factors. at will comment market and say well. that's flat. period is investment that about I Yes, business of XX% Roughly the combination business has two X% that over of you the So declining think a And it's print Dan

management side the made part to FundSuiteArc of it content on other earlier, And the offerings growing So the headwind print back that's X.X% total X% we to point and that roughly then flat, about puts of other business. bringing been the get XX% Dan of software the of that has obviously as at platform. about the to some are business and

Dan Leib

Yes.

over that's cycle. longer think I a

recent any maybe variability proxies some our by for variability see at quarter-to-quarter of you largely doing is or that look are that or driven customers' least we large you our large If would customers. that

Tom Juhase

nature which we Yes. we perspectives This it remarks obviously -- the That's or event exactly saw area. then the special around there. And less drive significant that year in beginning proxy in helped healthcare prepared in we a is mentioned transactional it has the Tom. And the volume revenue that of to clients were. that have

that reflected that's too. this So number in year

Michael Chow

Got you, regulatory as to of expect could in well. call from am that's upcoming the you how frame these color. How and to up would N-PORT tailwind understand just then And up kind I and event it, potentially should the thank And helpful for PRIIPs guess revenue I follow we we opportunity you out N-CEN just trying Donnelley? what events?

Dan Leib

that. Yes, thanks for no,

as next about and we roll we been has it mid of to there look today implementation out some the N-CEN at So year. N-PORT discussion timing expecting are

both obviously into February our reaction call, and We the Regulation for but in sorry the we through this is this elements ways an our data We've within regulation filing within both data with cuts customer I been we give process the this for -- will guidance incremental so us. case going and there. more then requires an broadly more that area. specifics budget within and the is are our am get frequent to certainly on data filing these pleased would revenue within still which and solutions opportunity XXXX more opportunity area

Tom Juhase

Yes.

add I'd that, to it's So Tom. just

there radar is and Dan so UK, both the there then those as -- cut N-PORT, on XXE-X in can there of are They rule PRIIPs, our they Europe immediately. and is So said screen kind N-CEN ways. is

been if good has up got we get regulatory to even them it back some it. to they forth, for and takes other around. will XXE-X roll bodies and of we prepared to N-PORT, SEC N-CEN have Some you enacted tend are but get and them and move

it's So in predictability to wait those those the are have happen. we self it particular. and for in revenue the of that to radar of the screen, is But on

Michael Chow

Understood. just be to you largest I quick just opportunity N of the mean one And -PORT the confirm would Donnelley [X-X] which then for mentioned.

Tom Juhase

incremental lining now an for we accounts N-PORT The us. opportunity. up the And for opportunity N-CEN definitely and the and Yes. that customers is are

The XX again with you and N-PORT related others incremental are are less is print but some work predictable N-CEN against But really the and revenue. that's right opportunity in ways year. us so ratified been could in not fact in upcoming definitely the

Operator

go Ridley-Lane Merrill next David our Lynch. from Please America from question ahead. comes And of Bank

David Ridley Lane

Sure.

third get guess trying to some be be of quarter to margins quarter lower had public So the cost details the quarter, more margins guidance revised previously imply the fourth fourth the seems the third I quarter But given on spend. above company just from the than will lacking dis-synergies that. you and expected to

Dave Gardella

Thanks for David. question. Yes, the

revised the look on in of think associated view work guidance again transactional the markets and at and that. revised you capital when with right business the particular margin mix were I the

through carrying what QX. is the guide think implied for I

David Ridley Lane

capital the quarter? be And the question down to so fourth I in raises guess you US revenue expecting are markets that

Dave Gardella

what we at that what we from We we've specific the seen that's haven't think but we've -- got QX, of if early view, think year what certainly and I well in trend is the of I perspective October trend we QX that QX kind as seen this of look saw saw a certainly and result. preliminary as in I think I earlier reflective said view probably again

David Ridley Lane

run here in how XXXX? cost rate then much be recognized will $XX And savings of million this

Dave Gardella

Yes.

close tail of of of at pretty it's So when a XXXX the think XXXX. when And it. to those timing actions lot end the were early all we you and very about took

in as And of so rolling those the think you essentially results. all to XXXX about cost pretty I think -- should close savings through

we earlier I and trend are to perspective from right here in about think we've growth seen just on your question, capital ActiveDisclosure, back Venue in Sorry go is growth you with which the what impact. a talking of markets relative again is average think our transactional -- the that QX of to I lower the and behind visibility kind kind disproportionate math what work margins the really

Dan Leib

position the holding deals margin becomes some Yes, tough the of within market the pretty performance the on within within and call holding share to with regard timing and the from and and overall but market the we market predictable really to it environment will the also of come out. -- feel the it's both then timing when good our and

Operator

Baird. Please next question Mastoris Robert W. comes our Bill And ahead. from go from

Bill Mastoris

Thank you.

my could if of Dave us could leverage answered credit availability You that that revolving you why have already a on $XXX from was on facility? the questions but remind remind is an had million? grid, Some reduction, us reduced your you been

Dave Gardella

on Based covenant. leverage the maximum Yes.

Operator

this at questions further no have we time. And

Dan Leib

if don't And for Okay. thank us see And conference. we'll you us sooner to you Thank in you. Eric. talk much, joining February you Thank the at very a for call. you

Operator

Thank and This concludes you, gentlemen. participating. for ladies Thank conference. you today's

now disconnect. may You