Donnelley Financial Solutions Inc

Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Donnelly Financial Solutions Fourth Quarter Earnings Conference Call. Today's conference is being recorded. 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 the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I'd like to turn the conference over to Mike Zhao, Head of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining Donnelly Financial Solutions' fourth quarter and full year 2024 results conference call. This morning, we released our earnings report, including a set of supplemental trending schedules of historical results, copies of which can be found in the Investors 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 release and further details in our most recent annual report on Form 10-K and other filings with the SEC. Further, we will discuss certain non-GAAP financial information, such as consolidated adjusted EBITDA, consolidated 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, and other members of management. I will now turn the call over to Dan.

Thank you, Mike, and good morning, everyone. Our fourth quarter results offered further validation of our strategy, including an improved sales mix, solid growth in software solutions net sales, driven by double-digit increases in our SaaS compliance offerings, and great progress in expanding the adoption of our offerings in the marketplace. Offsetting the growth in software solutions, our fourth quarter event-driven transactional revenue was down approximately $20 million, or 33%, compared to the fourth quarter of last year. In addition, as we previously communicated, we faced robust sales comparisons year over year in venue. Dave will cover the fourth quarter results in more detail shortly. Reflecting on the full year of 2024, the disciplined execution of our strategy delivered strong financial and operational results, including software solutions organic net sales growth of 13.8%, growth in adjusted EBITDA, adjusted EBITDA margin expansion, and improvements in both operating cash flow and free cash flow compared to full year 2023. despite a reduction in our event-driven transactional revenue for the third consecutive year. Following declines in capital markets transactional revenue in 2022 and 2023, deal activity remained muted in 2024, resulting in a revenue reduction of approximately $9 million, or 5%. Combined with lower event-driven transactional revenue in our investment company segment, our total event-driven revenue was down approximately $15 million or 8% compared to full year 2023. For perspective, the level of event-driven revenue we recorded in 2024, $186.5 million, was the lowest annual level and more than $100 million below the average annual event-driven revenue we've achieved in our history as a standalone company. While we have retained our strong share position, the level of overall transactional market activity remained depressed throughout 2024. Despite this prolonged headwind, our strong execution enabled us to deliver consolidated adjusted EBITDA of $217.3 million, an increase of $9.9 million, or 4.8%, year-over-year, and consolidated adjusted EBITDA margin of 27.8%, approximately 180 basis points higher compared to 2023. We remain on track to deliver our long-term goal of achieving adjusted EBITDA margin of 30% plus by 2028. Our continued strong performance through an extended weak transactions market is an important accomplishment that demonstrates the underlying strength of our business and is a proof point for our broader strategy. One of the fundamental drivers of our strong margin performance has been delivering higher value to clients through our higher margin software offerings. Our 2024 performance further demonstrated the progress of our strategy. For full year 2024, we delivered record software solutions net sales of approximately $330 million, an increase of 13.8% from 2023 on an organic basis, resulting in software solutions comprising approximately 42% of our total full-year net sales. In addition to the strong growth, our software solutions performance in 2024 helped us reach two important milestones. First, in May of 2020, we introduced our 44 in 24 strategy, specifically targeting to double our sales mix derived from software solutions over five years, moving from 22% of net sales from software solutions in 2019 to 44% in 2024, and more importantly, benefiting from the resulting financial profile from such a business mix. From the time we committed to that aspirational target, we focused our efforts to accelerate the development and go-to-market velocities of our software solutions, including launching new products such as new active disclosure, ARC digital, total compliance management, and the tailored shareholder reports module within ARC reporting. increasing go-to-market investments, and expanding our partner ecosystem while divesting non-strategic software assets that could not deliver an appropriate financial return. At the same time, we maintained a strong tech-enabled services offering and successfully managed the decline in print and distribution net sales, which was impacted by regulatory-driven reductions, the secular decline in the demand for printed materials, and our proactive decision to exit some lower-margin work. We finished the year with software solutions net sales representing 42.2% of our total net sales, a bit short of the 44% goal, in part due to the divestiture of non-strategic software products. However, we are realizing the financial profile benefits associated with a significantly improved sales mix. This achievement is a significant proof point of our transformation and keeps us on the right path to achieve our long-term financial goals. Second, for the first time in the company's history, full year net sales from software solutions exceeded net sales from each of tech enabled services and print and distribution, becoming the largest component of our overall net sales. This offers another proof point that DFIN is delivering excellent solutions to our clients, which in turn positions us to continue to deliver strong returns to our shareholders. Since becoming a standalone company in 2016, we've grown our annual software solutions net sales by nearly $200 million from $136 million to $330 million, representing an annualized growth rate of approximately 12% or approximately 13% on an organic basis. Let me share a few highlights that underpin the growth in our software solutions in 2024 and the momentum we are carrying into 2025. First, Venu, our virtual data room offering, delivered outstanding results in 2024, growing approximately 26% year-over-year and reaching a record level of revenue of nearly $140 million. Performance was driven by our strong sales execution, which resulted in several large projects, pricing improvements, and increased room and page volume. Next, we are encouraged by the sales momentum in our recurring compliance products, Active Disclosure and ArcSuite, Having posted moderate growth during the first three quarters of the year, the growth in aggregate of Active Disclosure and ArcSuite accelerated in the fourth quarter and increased approximately 19% compared to last year's fourth quarter. The improvement in trend creates positive momentum heading into 2025. For Active Disclosure, 2024 represented the first full year of operating on the new AD platform, which was a new build released in the first quarter of 2021. Since completing the decommission of the former AD product in the first half of 2023, we've realized improved operating performance, including growth in net client count, as well as higher subscription value per client. In addition, our sales execution, coupled with recent product enhancement, have also resulted in sequential improvements in revenue retention rates. The improvements we have made across the offering from technology, services, support, and sales create a strong foundation for sustained future growth. We expect active disclosure to continue to deliver solid growth in 2025. As it relates to ArcSuite, we delivered solid full-year net sales growth of approximately 9%, in part from the tailored shareholder reports regulation, for which we generated approximately $6 million of software revenue in line with our expectations. We remain on track to achieve $11 million to $12 million of recurring software revenue on a full year basis. In addition, during the fourth quarter, we closed on a large multi-year renewal of a software subscription contract with a strategic ArcSuite client, further improving the predictability of our future revenue. Before turning it over to Dave, I wanted to provide a quick update on our strategic priorities for this year. In 2025, we can expect our primary focus to remain on accelerating our business mix shift by continuing to grow our recurring SaaS revenue base while maintaining share in our core traditional businesses, including transactions. We are encouraged by the momentum and active disclosure in ArcSuite heading into the year and expect Venue to continue to perform well in 2025, despite facing tougher year-over-year comparisons, particularly in the first half of the year. We will continue to invest in our regulatory and compliance software platform to ready ourselves to capture the demand from future new regulations and non-SEC use cases. In addition, we will continue to aggressively manage our costs and drive operational efficiencies, including taking additional actions to better align our cost structure with our current level of sales. Finally, we will maintain our disciplined approach to investments and capital allocation in our pursuit of profitable growth opportunities to maximize financial return and create long-term value. I'm confident with our continued focus on executing our strategy, we will create increased value for our clients, employees, and shareholders. Before I share a few closing remarks, I would like to turn the call over to Dave to provide more details on our fourth quarter financial results and outlook for the first quarter of 2025. Dave?