Donnelley Financial Solutions Inc

Hello and thank you for standing by. My name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to the Donnelly Financial Solutions second quarter 2023 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 then the number one on your telephone keypad. To withdraw your question, press star 1 again. I would now 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 Donnelly Financial Solutions' second quarter 2023 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 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 Lieb, Dave Gardella, Craig Clay, Eric Johnson, Floyd Strimley, and Cami Turner. I will now turn the call over to Dan.

Thank you, Mike, and good morning, everyone. We are pleased with the company's performance during the second quarter, especially in light of continuing softness in capital markets transactional activity. In this difficult operating environment, we've delivered strong second quarter results including net sales of $242.1 million and adjusted EBITDA of $74.3 million, resulting in adjusted EBITDA margin of 30.7%. Our second quarter performance once again demonstrated the resiliency of our operating model and the sustainability of our performance in a challenging external environment as our business mix continues to transform. A key driver of our second quarter results is the improving performance of our software solutions portfolio. Software solutions net sales growth accelerated in the second quarter to nearly 8% on an organic basis versus the second quarter of 2022, an increase from the growth trends over the last few quarters. Importantly, the second quarter software solutions net sales growth was broad-based, with all three of our key software offerings, venue and active disclosure delivering stronger year-over-year growth compared to recent trend software solutions made up approximately 31 percent of total second quarter net sales up approximately 440 basis points from last year's second quarter sales mix as a reminder the second quarter largely due to the annual meeting and proxy season historically represents our largest quarter overall yet represents a seasonal low for software as a percentage of revenue. On a trailing four-quarter basis, software sales of $284 million represented approximately 36% of total sales, an increase of approximately 590 basis points from the second quarter of 2022 trailing four-quarter period. Our second quarter adjusted EBITDA margin of 30.7% is nearly in line with last year's very strong second quarter adjusted EBITDA margin, despite a nearly $30 million or approximately 40% year-over-year reduction in capital markets transactional sales. During the second quarter, we made progress in achieving additional efficiencies driven by process improvement and simplification, in addition to adjusting our cost structure to the current demand environment. These actions, in combination with our previous cost reduction efforts, permanently reduce fixed costs, simplify our operations, and further improve DFIN's resiliency across various market conditions. While these cost savings benefited our margins, we continue to accelerate investments in certain areas of our business to drive recurring revenue growth and modernize existing business processes. Through the first half of the year, we are on track with our stated objective of investing approximately $25 million in 2023 related to these growth and modernization initiatives of which approximately two-thirds of the total investment is incremental on a year-over-year basis. As demonstrated by our performance, the consistent progress against our plan is delivering outstanding results. Specifically, our ability to thrive in difficult market conditions is a testament to the strength of our recurring offerings. These offerings, which span across both software solutions and tech-enabled services, serve the ongoing compliance needs of corporations and investment companies, and provide our business with stability during times of market volatility. As we invest to accelerate our recurring growth while protecting market share in our traditional transactional offerings, we will continue to shift deep in toward a higher mix of recurring revenue, and more importantly, benefit from the financial profile associated with such a recurring revenue model. Dave will cover our results in more detail, but first I'd like to provide an update on the Tailored Shareholder Reports regulation, which has a compliance date of July 2024. We are making great progress in our technology development and go-to-market plans, both of which are aimed to help our mutual fund and exchange-traded funds clients operationalize the reporting to comply with this regulation. From a software product development perspective, our solution leverages the leading functionalities within ArcSuite while introducing additional features to create a modern and seamless client experience. Coupled with DFIN's service expertise and production capabilities, we have created a true end-to-end compliance solution that eliminates handoffs for our clients. We are especially encouraged by the positive market feedback and the pipeline of recurring revenue. Given our end-to-end solution, we expect sales will be recognized across multiple DFIN offerings, including software solutions, tech-enabled services, and print and distribution. We are currently working to quantify the estimated impact and look forward to providing additional details later this year or early next year. Before I share a few closing remarks, I would like to turn the call over to Dave to provide more details on our second quarter results and our outlook for the third quarter. Dave?