Donnelley Financial Solutions Inc

Good morning. My name is Jean and I will be your conference operator today. At this time, I would like to welcome everyone to the Donnelly Financial Solutions third quarter 2021 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 withdraw your question, press the star 1. Thank you. Mike Doe, you may begin your conference.

Thank you. Good morning, everyone, and thank you for joining Donnelly Financial Solutions' third quarter 2021 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 complete discussion, please refer to the cautionary statements included in our earnings relief and further detailed in our most recent annual report on Form 10-K, quarterly report on Form 10-Q, and other filings with 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 am joined this morning by Dan Lieb, Dave Gardella, Craig Clay, Eric Johnson, Floyd Strimling, and Cami 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 staying safe and healthy. I am very pleased with our record third quarter financial results. Before I go into details on the quarter, I'd like to highlight two important milestones we reached. First, in October we celebrated DFIN's fifth anniversary as a standalone company. I want to thank the entire DFIN team for their dedication and hard work over the course of these five years. Together, our employees are leading DFIN's transformation from a financial printer to a leading provider of innovative software and technology-enabled financial regulatory and compliance solutions. Over the last five years, guided by our vision, we executed significant business transformation initiatives to position DFIN for long-term profitable growth. A key component of the transformation was an acceleration of software development, which enabled us to upgrade the capabilities of existing products as well as launch new software solutions to help our clients manage their evolving regulatory, compliance, and transactional workloads. A good example of this is the new Active Disclosure platform, a cloud-based tool purpose-built for SEC reporting, which we launched earlier this year to assist clients with their compliance needs. Through new Active Disclosure and other proven products, we have created a comprehensive software portfolio that spans both transactional and compliance end markets. And when combined with our expertise in scale and technology-enabled services, we offer our clients an unmatched ecosystem of regulatory and compliance solutions. At the same time we scaled our software offerings and technology-enabled services, we also took actions to strategically reduce our low-margin print and distribution revenue and significantly downsize our print production platform. Five years ago, at the time of spinoff, print and distribution sales accounted for approximately 40% of our total sales, and we had a margin profile consistent with such a sales mix. Over the course of the last five years, with our focused efforts to accelerate software sales growth, we managed to expand our product pipeline, improve sales and marketing capabilities, and establish third-party partnerships all aimed at driving the adoption of our software solutions offerings. We've expanded our year-over-year EBITDA margin for the last nine consecutive quarters, and as of the third quarter, our trailing four-quarter adjusted EBITDA margin is 27.6%, compared to a margin of 16.5% at the end of 2016. Looking forward, while our margin benefits from the current very strong corporate transactions offering, our business mix has changed favorably and positions us well. During the quarter, we achieved a second major strategic milestone. For the first time in the company's history, both within the quarter and on a trailing four-quarter basis, net sales from software solutions exceeded net sales of print and distribution. This was a significant achievement in our strategic evolution and another proof point that our strategy is delivering excellent solutions to our clients, which in turn positions us to continue to deliver strong returns to our shareholders. Not only are we pleased with the results of the strategic transformation to date, we remain confident in our ability to achieve the 44 in 24 strategy, specifically targeting 44% of our sales from Software Solutions by the year 2024, and more importantly, the resulting financial profile from such a business mix. Now turning to the third quarter results, total sales grew 18.2% from last year's third quarter, marking the highest third quarter sales in the company's history, despite the expected decline in print and distribution related sales, which was down 32.7% in the quarter. The strong pace of transactional activity coming into the quarter accelerated throughout Q3, boosting sales across our transactional and compliance offerings. Excluding print and distribution, year-over-year net sales increased 35.9% in the quarter, as software solution sales grew 35.6%, and tech-enabled services grew 36%. Software solution sales totaled $69.3 million, marking yet another all-time quarterly record for DFIN. The 36% sales growth in software solutions is a continuation of the very strong sales growth trend that began in the first quarter of this year. Year-to-date, our software solution sales have grown 34% versus the first nine months of 2020. We've received positive market feedback and strong client adoption of our recent product launches, particularly active disclosure and total compliance management, a component of our Arc Digital offering, along with Arc Pro, all contributing to the 27% growth in our recurring compliance software sales. In addition, our transactional software product venue achieved another all-time high for quarterly sales and grew 53% year-over-year, largely driven by an increase in M&A deal activity, including D-SPAC transactions, as well as what we once again believe to be market share gains. As I mentioned earlier, the strength of the capital market's transactional activity accelerated in the third quarter. Coupled with our strong market share, we achieved robust sales growth, with transactional sales increasing 49% from the third quarter of 2020. The growth in higher margin software solutions and tech-enabled services net sales, our proactive pruning of low margin print work, along with the significant impact of permanent cost reductions, resulted in record quarterly earnings. Third quarter non-GAAP adjusted EBITDA was $82.5 million, an increase of over 73% from last year's third quarter. And adjusted EBITDA margin was 33.3%. up 1,060 basis points from the third quarter 2020 adjusted EBITDA margin. As I noted earlier, our trailing fourth quarter adjusted EBITDA margin is currently 27.6%. We achieved record free cash flow in the quarter of $100.4 million and improvement of $32.8 million from the third quarter of last year. At quarter end, our non-GAAP net debt was lower than last year's third quarter by $142.9 million, resulting in a non-GAAP net leverage of 0.4 times, 1.1 times lower than the third quarter of 2020. Subsequent to the end of the quarter, we completed the previously announced redemption of our eight and a quarter senior notes. This transaction not only improves our capital structure by providing additional financial flexibility, but it will lower our interest expense, resulting in cash savings. Dave will provide more detail on this topic. Before I share a few closing remarks, I would like to turn the call over to Dave to provide more detail on our third quarter financial results and our outlook for the fourth quarter.