Donnelley Financial Solutions Inc

joining Donnelly Financial Solutions' second quarter 2024 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 defense solutions.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 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 our 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 Bardella, 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 the 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 and increase of approximately 340 basis points. Our second quarter software solutions net sales growth continues to be led by the performance of Venu, our virtual data room product, which posted approximately 38% sales growth. We remain encouraged by Venu's strong performance, which reflects strong sales execution across Venu'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, Active Disclosure and ArcSuite, both remain positive in the second quarter, albeit at low single-digit growth rates. Looking ahead, we expect the growth rates for Active Disclosure and ArcSuite each to improve in the second half of this year. For Active Disclosure, this improvement is driven by recent wins, combined with overlapping last year's platform transition. In the case of ArcSuite, The improved growth rate is primarily driven by the tailwind from the tailored shareholder reports regulation. As we continue to evolve toward a higher mix of software solutions net sales during the second quarter, that mix shift was accelerated by a reduction in print and distribution revenue, which declined by $7 million or 11.3% compared to the second quarter of 2023. This reduction was realized both in the printing and distribution of proxy statements as well as lower print associated with capital markets transactions. Excluding print and distribution, second quarter net sales increased by approximately 4%. As software solutions and tech-enabled services net sales make up an increasingly larger percentage of our overall net sales, this positive shift is resulting in our sales mix becoming more stable and predictable. On a trailing four-quarter basis, Sales of our recurring and reoccurring offerings, which include solutions that serve the ongoing compliance needs of corporations and investment companies, plus the venue data room, totaled over $590 million and accounted for approximately 74% of total sales, with the remainder, or approximately $210 million, being event-driven transactional revenue. With nearly three-quarters of our revenue being either recurring or reoccurring in nature, our business benefits from the stability and predictability inherent in such a revenue model, especially during times of market volatility. As we invest to accelerate our recurring growth while protecting market share in our transactional traditional offerings, we will continue to shift DFIN toward a higher mix of recurring and reoccurring revenue. The shift to a more favorable sales mix in conjunction with disciplined cost management and pricing improvements results in adjusted EBITDA margin expansion, as we continue to balance our revenue profile to drive improved profitability. Our second quarter adjusted EBITDA margin of 35.9% raised the trailing four-quarter adjusted EBITDA margin to 29%, further providing confidence in our ability to achieve our long-term targets. Dave will cover our results in more detail, but first, I'd like to provide an update on the Tailored Shareholder Reports regulation. which had a compliance date of July 24th. As I have noted previously, as the leader in both financial reporting and regulatory filings for investment companies, DFIN has been at the forefront in helping mutual funds and exchange-traded funds clients operationalize the reporting to comply with this regulation. We demonstrated our readiness for TSR by completing critical test filings via both our ARC reporting SaaS solution as well as our services-based offering prior to the July 24th compliance date. In the short time since TSR's compliance date, we have successfully filed multiple live TSR documents on behalf of our clients thus far in July, which reflects DFIN's proven ability to handle the complexities of the entire TSR ruling by serving clients the way they wish to work, via either SaaS-based solutions or traditional services, all in a one-stop shop that eliminates handoffs in the compliance process. Given we are in the early days of TSR compliance, DFIN remains focused on assisting our clients to comply with the requirements under this regulation. As we look beyond TSR to an increasingly complex regulatory and compliance environment, DFIN stands ready to serve future regulatory changes. Amongst the changes, the Financial Data Transparency Act which passed in December of 2022, Expansion of statutory reporting to local government agencies and financial reporting for alternative investments are a few examples of regulatory changes which have the potential to create future opportunities for DFIN. As the regulatory landscape continues to evolve, our advanced technology platform and industry-leading service capabilities put DFIN in an excellent position to capture recurring revenue opportunities. 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?

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 Active Disclosure and ArcSuite. 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 value. Excluding print and distribution, net sales grew approximately 4%, as Dan noted earlier. Second quarter adjusted non-GAAP gross margin was 64.4%, approximately 490 basis points higher than the second quarter of 2023 primarily driven by a favorable business mix featuring growth in higher margin software solution sales combined with lower overall print volume and the impact of ongoing cost control initiatives. Adjusted non-GAAP SG&A expense in the quarter was $69 million, a $0.7 million decrease from the second quarter of 2023. As a percentage of net sales, adjusted non-GAAP SG&A was 28.4%, a decrease of approximately 40 basis points from the second quarter of 2023. Decrease in adjusted non-GAAP SG&A was primarily driven by cost control initiatives, a portion of which was related to lower investment spending, partially offset by an increase in selling expenses as a result of the changes in the business mix and higher bad debt expense. Moving forward, we will continue to balance cost reductions with investing in initiatives to accelerate our transformation. Our second quarter adjusted EBITDA was $87.2 million, an increase of $12.9 million, or 17.4%, from the second quarter of 2023. Second quarter adjusted EBITDA margin was 35.9%, an increase of approximately 520 basis points from the second quarter of 2023, primarily driven by a favorable sales mix in cost control initiatives. Turning now to our second quarter results by segment, net sales in our capital markets software solution segment were $57.3 million, an increase of 22.2% on an organic basis from the second quarter of last year, driven once again by the strong performance in venue, which was up $10.3 million or approximately 38% year over year. On a trailing four quarter basis, venue has reached nearly $130 million in sales and grew approximately 29% compared to the second quarter 2023 trailing four quarter period. Consistent with the recent trend, Venue continued to benefit from an increase in page volume on the platform and higher pricing during the second quarter. In addition, our strong sales execution once again resulted in several large client wins in the quarter with those projects combining to account for approximately one-third of Venue's second quarter net sales growth. While still significant, Large projects in the second quarter represented a smaller component of venue's overall growth compared to the first quarter of this year, with the bulk of venue's growth in the second quarter attributable to the resilient underlying activity level and our strong sales execution. Going forward, we expect venue to continue to deliver solid year-over-year growth, albeit at a more moderate pace compared to the robust growth rates we achieved in the first two quarters of this year, given the impact of the large projects in addition to overlapping venues' stronger performance in the second half of 2023. Net sales of our recurring compliance product, Active Disclosure, including File 16, increased approximately 1% in the second quarter driven primarily by growth in subscription revenue, which increased 2% versus the second quarter of last year, partially offset by lower Section 16 beneficial ownership filing activity. The demand for beneficial ownership filings continues to be impacted by a weak IPO market, as well as elevated client churn as we transition to a subscription-based model a trend which we expect to continue in the near term. During the second quarter, we made continued progress to expand the adoption of active disclosure, resulting in the fourth consecutive quarter of net client count growth. In addition to the positive trend in net client growth, we are encouraged by the improvement in the operating metrics of active disclosure, including an 11% year-over-year growth in annualized recurring revenue inclusive of contracted service packages, driven by an increasing client count, as well as higher average value per client. The momentum and client count growth, coupled with our recent product enhancements, create a strong foundation for future sales growth. As we have stated previously, we expect active disclosures growth in the second half of 2024 to be stronger than in the first half, as we overlap some of the headwinds we experienced in 2023, including elevated customer churn as a result of the transition to new active disclosure and the impact of SPAC liquidations. Adjusted EBITDA margin for the segment was 37%, an increase of approximately 930 basis points from the second quarter of 2023, primarily due to higher net sales and a favorable sales mix from the growth in our high margin venue data room offering and cost control initiatives partially offset by higher selling expenses. Net sales in our capital markets compliance and communications management segment were $113.8 million, a decrease of $9.1 million or 7.4% from the second quarter of 2023 driven primarily by lower capital markets compliance revenue. The decline in compliance revenue was primarily due to the exit of certain proxy statement activity, including the related printing and distribution, as Dan commented earlier. Given the first half of the year is the peak for proxy-related activity, we expect the impact from the reductions to become less significant in the second half of the year. In the second quarter, we recorded $45.2 million of capital markets transactional revenue, approximately flat compared to last year's second quarter. While we continue to experience a year-over-year improvement in IPO activity during the second quarter, which resulted in an increased number of priced IPOs, which raised over $100 million compared to the second quarter of 2023, The market for completed M&A deals in the U.S. remained down on a year-over-year basis. Overall, the deal environment remained soft compared to historical averages. For IPO and M&A transactions that were completed in the second quarter, we maintained our historical high market share reflective of DFIN's strong market position within capital markets transactions. While the outlook for capital markets transactional environment is uncertain, DFIN remains very well positioned to capture a significant share of future demand for transaction-related products and services when market activity picks up. Adjusted EBITDA margin for the segment was 40.2%, an increase of approximately 370 basis points from the second quarter of 2023. The increase in adjusted EBITDA margin was primarily due to a favorable sales mix as print and distribution revenue becomes a smaller component of overall revenue within this segment, as well as the impact of cost control initiatives. This was partially offset by lower sales volumes and higher bad debt expense. Net sales in our investment company software solution segment were $28.3 million, An increase of 1.1% versus the second quarter of 2023, primarily driven by growth in the ARC reporting and ARC digital modules within ARC Suite. Total ARC subscription revenue declined 1% compared to the second quarter of 2023, which is more than offset by a higher services and support revenue, which increased approximately 12% year over year. As Dan commented earlier, based on the incremental software revenue from tailored shareholder reports, we expect stronger revenue growth in the second half of 2024 and into 2025. We remain well positioned to capture opportunities from regulatory changes to drive future recurring revenue growth. Adjusted EBITDA margin for the segment was 39.2%, an increase of approximately 100 basis points from the second quarter of 2023. The increase in adjusted EBITDA margin was primarily due to higher sales and cost control initiatives. Net sales in our investment company's compliance and communications management segment were $43.3 million, A decrease of $0.2 million, or 0.5%, from the second quarter of 2023, driven primarily by a reduction in print and distribution revenue related to the long-term secular decline in the demand for printed materials, partially offset by higher event-driven revenue from a large mutual fund special proxy project. Adjusted EBITDA margin for the segment was 42.3%, approximately 300 basis points higher than the second quarter of 2023. The increase in adjusted EBITDA margin was primarily due to a favorable sales mix and the impact of cost reduction initiatives, including continued synergies from our print platform consolidation. Non-GAAP unallocated corporate expenses were $9.2 million in the quarter, a decrease of $2.4 million from the second quarter of 2023, primarily driven by the impact of cost control initiatives, a portion of which was related to lower investment spending. Free cash flow in the quarter was positive $36.8 million, an improvement of $29.8 million compared to the second quarter of 2023. The strong year-over-year improvement in free cash flow is primarily driven by an increase in adjusted EBITDA and improved working capital performance, part of which is a result of our changing sales mix featuring more software solution sales and less print and distribution sales. These improvements were partially offset by higher capital expenditures related to investments in our software products and the underlying technology to support them. We ended the quarter with $179.6 million of total debt or $144.6 million on a non-GAAP net debt basis, including $55 million drawn on our revolver down from $80 million drawn at the end of the first quarter. From a liquidity perspective, we had access to the remaining $244 million of our revolver as well as $35 million of cash on hand. As of June 30, 2024, our non-GAAP net leverage ratio was 0.6 times. As a reminder, our cash flow is historically seasonal. We are a user of cash in the first half and generate more than 100% of our free cash flow in the second half of the year. As our sales mix continues to evolve to proportionally more subscription-based software solutions, We expect the seasonality to be less significant as we have experienced so far in 2024. Regarding capital deployment, we repurchased approximately 317,000 shares of our common stock during the second quarter for $19.2 million at an average price of $60.65 per share. As of June 30, 2024, we had $122 million remaining on our $150 million stock repurchase authorization. Going forward, we will continue to take a balanced approach toward capital deployment. We continue to view organic investments to drive our transformation, share repurchases, and net debt reduction, each as key components of our capital deployment strategy and will remain disciplined in this area. As it relates to our outlook for the third quarter of 2024, we expect consolidated third quarter net sales in the range of $175 million to $185 million and adjusted EBITDA margin in the mid to high 20s range. Compared to the third quarter of last year, the midpoint of our consolidated revenue guidance, $180 million, implies consolidated net sales approximately flat to last year's third quarter as the reduction in print and distribution and lower capital markets transactional sales are expected to offset growth in software solution sales, part of which is driven by incremental revenue from tailored shareholder reports. Further, this guidance assumes capital markets transactional sales of approximately $45 million down approximately $4 million from last year's third quarter. With that, I'll now pass it back to Dan.