Donnelley Financial Solutions Inc

Ladies and gentlemen, thank you for standing by and welcome to the Donnelly Financial Solutions Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1 in your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. 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 the Donnelly 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 defense-solutions.com. During this call, we'll 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 details on our annual report on Form 10-K, quarterly report on Form 10-Q, and other findings for the SEC. 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 Lieb, Dave Gardella, Tammy Turner, and Tom Juhasz. 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, ArcDigital, 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 DFIN's 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 of operational excellence, and strong financial position have reinforced our clients' trust in us and will help us emerge from these challenging external conditions in an even stronger position. in the second quarter total revenues came in at 254 million dollars down 1.9 percent from the prior year and well above our expectations as activity in our transactional offerings including venue picked up in June after a very slow start to the quarter our cost control efforts were expanded and accelerated providing profit and margin benefit the lower cost structure influx of transactional activity and overall improved business mix drove an 8.4% increase in second quarter non-GAAP adjusted EBITDA versus the second quarter of 2019, as well as a 220 basis point improvement in second quarter adjusted non-GAAP EBITDA margin. We have achieved four consecutive quarters of year-over-year margin improvements with an average quarterly improvement of nearly 280 basis points. Over those four quarters, overall revenue has declined by nearly $45 million, with non-GAAP-adjusted EBITDA increasing nearly $18 million, based on the same factors as we experienced in this quarter, better revenue mix, including less revenue from print and distribution, and disciplined cost management. Both are important components of our strategy, especially as we head into 2021, when we will see the significant decrease in print and distribution revenue associated largely with regulatory change. The increased profitability combined with lower interest expense related to our consistent deleveraging and opportunistic repurchases of debt and equity led to an 18% increase in second quarter non-GAAP net earnings per share. The strong second quarter profit and continued focus on cash conversion led to a healthy $10.2 million or 340% increase in operating cash flow, as well as a $12.5 million increase in free cash flow as second quarter capital expenditures came down year over year as expected. We are happy with these financial results in the quarter. However, the variability in the quarter in both revenue and earnings illustrates the short cycle time of some of the more variable components of the business that results in forecasting challenges. We'll touch on this again when we discuss our outlook for the third quarter. We've invested and will continue to invest in areas of the company for growth, while maintaining a focus on driving efficiencies and optimizing our cost structure to ensure we continue to deliver the margin and profit growth outlined in our longer-term financial objectives. We took specific additional steps to optimize our operations in the second quarter, reducing costs further, while also streamlining our organizational structure to allow for quicker decision making, focused on moving authority and accountability closer to those that serve our end customers. We are pleased with the focus the team has put on these efforts and intend to continue to look for ways to allocate resources to areas of opportunity. Another area where we continue to remain disciplined is capital allocation. Our consistent focus on cost control and debt reduction since our spinoff has put us in a very solid liquidity position, providing ample financial flexibility with second quarter ending total debt down $68.4 million year over year and net leverage of 2.1 times reduced by a full turn compared to last year. We entered the second half of the year below the lower end of our targeted leverage range and we'll look for opportunities to continue to leverage our balance sheet to create shareholder value while still maintaining the liquidity that may be needed to weather future challenges in the operating environment. Before I share a few business highlights as well as an update on our manufacturing platform optimization efforts, I would like to turn the call over to Dave to provide more detail on our second quarter financial results and our outlook for the third quarter. Dave?